SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-KSB
CURRENT REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from_____ to _____
Commission File Number 0-16936
WORLDWATER CORP.
(Exact name of registrant as specified in its charter)
Nevada 33-0123045
(State or other jurisdiction of (I.R.S. Identification
Employer corporation or organization) Number)
55 Route 31 South, Pennington, New Jersey 08534
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (609) 818-0700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
Check whether the issuer: (1) filed all reports to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation SB contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues were $517,031 for its most recent fiscal year.
On April 30, 1998, the aggregate market value of the voting and non-voting
common equity held by non-affiliates was $10,787,464 (computed by reference to
the average bid and asked price of such stock on April 15, 1998).
The number of shares of Common Stock outstanding as of April 30, 1998 was
19,613,572.
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PART I
Item 1. Description of Business
WorldWater Corp. ("Company") was incorporated in the State of Nevada on
April 3, 1985 under the name Golden Beverage Company. In April 1997, the Company
completed a reverse acquisition with World Water, Inc., a Delaware corporation
formed in January 1984. Pursuant to the acquisition agreement, WorldWater, Inc.
shareholders were offered one share of the Company's common stock for one share
of WorldWater, Inc. common stock. The Company acquired 8,141,126 shares of
WorldWater, Inc. common stock (80%) in exchange for 8,141,126 shares of the
Company's post-reverse split common stock. Under the terms of the Agreement, the
Company's prior management resigned and was replaced by WorldWater, Inc.'s
management. In June 1997, the Company changed its name to WorldWater Corp.
Holders of approximately 94% of WorldWater, Inc. common stock have agreed to the
stock exchange and tendered their shares. As a result, the Company and
WorldWater, Inc. remain as two separate entities and WorldWater, Inc. operates
as a subsidiary of WorldWater Corp. The operations of the newly combined entity
are currently comprised solely of the operations of WorldWater, Inc.
Prior to the reverse merger transaction described above, the Company was
essentially a non-operating publicly held company. As of the closing date, all
former assets and liabilities of Golden Beverage Company (as it was then known)
were transferred to an unrelated entity. Therefore, the reverse acquisition had
the effect of transferring the assets and liabilities of World Water, Inc. into
the publicly held entity known as Golden Beverage. In consideration for this,
the former shareholders of Golden Beverage company received 113,501 shares of
the Company's common stock.
The Company designs, develops and markets proprietary technology relating
to solar water power, including solar power products and international water
management consulting. The Company's primary products are cost effective power
systems driven entirely by solar energy, such as proprietary water pumping and
solar electric systems. The Company's primary customers are developing countries
which require non-traditional means of fulfilling their energy and water needs.
The Company has centralized its production, servicing and administration
functions at its main plant located at 55 Route 31 South in Pennington, New
Jersey.
Major Customers And Export Sales
In 1997, the Republic of the Philippines ("Philippines") accounted for
approximately 83% of the Company's net sales. Because of the nature of its
technology and product line most of the Company's markets are outside the United
States. The Philippine Government has notified the Company that it is planning
to activate an ongoing series of orders by setting up a revolving fund to be
managed by Winrock International ("Winrock"). The fund is to be supplemented by
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funds from Winrock and possibly the World Bank and/or the Asian Development Bank
to give long term financing to villages and farming cooperatives to enable them
to purchase renewable energy products, such as solar-irrigation and drinking
water pumps, village electrification, individual housing electrification, solar
lanterns etc. The Company will be the primary contractor, with indications by
the Philippine Government and Winrock that orders should continue for several
years because there are many thousands of villages and farming co-ops without
water and/or power. At this point, the Company can provide no assurance that the
above-described fund will be in place or that it will generate significant
business for the Company.
In December, 1997, the Company installed AquaSafe(TM) systems in South
Africa (a village in the Eastern Cape Province, with formal installation
attended by the Premier, his cabinet and 600 guests); Angola (water and
electricity for a medical clinic); Namibia and Ecuador. In February/March, 1998,
the Company installed such systems in Mozambique (for the Anglican Church),
Uganda (President Museveni's cattle ranch) and Tanzania (for the Ministry of
Water). Also in early 1998, shipments and installations are planned for Malawi
(see below), Cape Verde (UNICEF) and India. The Company has a 6-year contract
with the government of the Republic of Mozambique whereby the Company will serve
as the government's Master Water Consultant.
Products
AquaSafe
The Company's photovoltaic solar water pumping systems deliver from 2,400
to 60,000 gallons of water daily for drinking or irrigation purposes. The volume
generated depends on a range of factors such as the depth of the water, number
of solar panels used, pump size, amount of solar radiation, season of the year
and the daily hours of sunlight. The principal markets for such systems are
located in the developing world where an estimated two billion people live
without adequate water supplies for personal consumption, sanitation, and
agriculture.
AquaTester
The Company is developing a water test kit which can detect e-coli and
coliform bacteria in drinking water. This kit is ideal for remote locations
because it can be powered by solar power, car batteries and the electric grid.
The markets for this product are for use by non-governmental organizations
("NGO"), military and government organizations working in remote locations.
SolPower
The Company's solar powered electricity systems are used to generate
electricity for lighting, TV, radio and a host of other uses. The major purpose
is to offer electric power to locations which are off the electric grid such as
a village hall or school in a remote location.
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The key market for this power system is in developing countries where those
living outside major cities are not connected to the electrical grid system.
Marketing
The Company's products are marketed domestically and internationally.
Foreign sales account for virtually 100% of total revenues in 1996 and 1997. The
Company now has its proprietary solar pumping and solar electrical systems
operating in the Philippines, South Africa, Angola, Namibia, Mozambique, Uganda,
Tanzania, Malawi, Egypt and Ecuador.
Market Size
Over the last 15 years the photovoltaic ("PV") industry has grown in
revenues from $2 million to over $1 billion. Advances in PV technology and
corresponding reduction in costs continue to fuel the increasing demand for PV
power. The greatest potential for PV technology is in developing countries where
roughly two billion people lack electricity. Applications range from remote
pumping, irrigation, telecommunications and lighting, to village size power
production. Worldwide PV module shipments continues at an accelerating rate.
Global shipments of PV modules reached 89.6 megawatts ("MW") in 1996 with as
much as 120 MW estimated to have been shipped in 1997. Researchers at Arizona
State University East have estimated the potential market for PV electrical
power and pump systems among the emerging nations at $2 to $3 billion.
The Company is presently creating a network of representatives,
distributors, licensees and joint ventures in the most significant world
markets. The Company has initiated discussion with potential Philippine partners
to set up a joint venture, WorldWater-Philippines, to manufacture and market
solar modules and AquaSafe(TM) systems in the Philippines and, as the market
develops, for export to other Southeast Asian nations. Another production center
is being discussed with the Company's exclusive distributor in Egypt to serve
markets in the Middle East and Islamic countries in North Africa. The Company is
also considering establishing a joint venture to produce its solar products in
the Eastern Cape of South Africa for Southern African countries.
Marketing Strategies
The Company is marketing the AquaSafe(TM) pumping system and its other
water/solar products worldwide to both institutional public and private markets.
The institutional public and private sectors, including governments, contribute
literally billions of dollars in emerging nations to water and small power
projects which fall within the scope of the Company's business. These sectors
represent the largest potential markets for the Company's products in the near
future. In addition to governments, the public institutions consist primarily of
national and international organizations that assist developing countries, most
of which are in tropical zones and have a dramatic, recognized need for water in
areas without available and economical electric power supplies. Such
organizations include: Government Water, Energy and Agricultural Ministries,
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multilateral international assistance agencies, such as the World Bank, UNICEF,
the United Nations Development Programme (UNDP), the World Health Organization
(WHO) and the Food and Agricultural Organization (FAO), and regional banks, such
as the African Development Bank, the Inter-American Development Bank and the
Asian Development Bank, and bilateral development agencies in the aid-giving
nations (e.g. U.S. Agency for International Development (USAID), Canadian
International Development Agency (CIDA) and Swedish International Development
Agency (SIDA)) as well as smaller agencies in the developing nations, and
quasi-public (non-profit, private) NGOs, such as CARE (USA, Canada etc.), Save
the Children, World Vision, Food for the Hungry, Doctors Without Borders etc.
and various religious organizations (e.g. Christian and Islamic groups) and
service clubs (Rotary, Lions etc.) which contribute substantially to aid
efforts.
All of the above agencies and organizations work with and assist emerging
nation governments which wish to purchase the Company's products. International
bureaucracies and NGO's can be slow to approve a new product. The Company,
however, has already achieved a high initial visibility and interest. The
advantages of dealing with these organizations are that: the development
agencies/NGOs serve many different countries that combine a desperate need for
low cost water pumping with a good availability of solar energy, acceptance by
one development agency promotes acceptance by the others, thus greatly reducing
the length of the business development cycle, acceptance by recognized experts
in the international community gives the Company an implied endorsement that
helps in private marketing, and the international development agencies/NGO's
have substantial available monies for water supply systems and pay dependably.
Marketing to the public sector is being done principally through Company
personnel, consultants and sales representatives, as well as through information
articles in relevant international newsletters and magazines (such as solar
journals, UNICEF's WATERfront, USAID and World Bank publications), participation
in international trade shows and conferences, targeted mailings, and journal
advertising. These methods are used to contact government agencies in developing
countries that have a program to purchase the pumps and the international
assistance agencies that fund these programs. Quentin Kelly, the Company's
president, and the Company's marketing executives and consultants have extensive
contacts with government officials in many countries that are potential
customers and with the highest executive levels in many key international
assistance agencies. For example, Mr. Kelly has demonstrated the AquaSafe(TM)
pump to President Ramos of the Philippines, President Chissano of Mozambique and
senior government officials in other countries, with resultant orders and/or
strong indications of future orders. For example, President Ramos authorized the
initial order of 25 systems sold to the Philippines in 1997 after viewing a
demonstration in a Philippine rice field. Those systems have now been installed,
and a revolving fund for additional orders is being prepared by the Philippine
Government.
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Research and Development
Research and Development ("R&D") expenditures were approximately $241,209
and $681,974 in 1997 and 1996, respectively, reflecting the fact that the
Company was in a largely R&D mode until late 1996. In addition to its present
pumps which have delivery capacities between 5 and 250 gallons per minute, the
Company has additional water and solar products in various stages of research
and development.
For example, the Company is developing a water diagnostics kit called the
AquaTester(TM) which can determine if water is contaminated by placing a small
quantity in the AquaTester(TM) incubator, which can be operated by solar power
in the field or by other electrical input. After 24 hours, the user can tell if
the water is polluted by viewing certain color changes. The Company is working
in collaboration with IDEXX Laboratories of Maine, which produce the chemical
reagents used in the AquaTester(TM) process.
The Company is also exploring the possibilities of combining its
AquaSafe(TM)and AquaTester(TM)systems with various water purification units in
those areas where clean water is otherwise difficult to find. The Company is
also researching theft-prevention technology for its solar systems (automatic
control shut-offs). In general, the Company recognizes the dynamic status of its
markets and product applications and the continuing need to develop new and
improved systems to keep ahead of present and future competition.
Manufacturing
Sub-contractors currently manufacture parts for the AquaSafe(TM) systems
in the United States. The Company will continue to source materials worldwide,
based on quality and cost considerations.
In the future, when justified by marketing and production requirements,
the Company intends to locate AquaSafe(TM) and other product assembly sites
overseas. Joint venture discussions include proposed production in the
Philippines and South Africa (a solar panel manufacturing facility for
production and sales of solar modules throughout southern Africa), Egypt and
India. Such projects will leverage the Company's ability to obtain local
permits, finance production and better market its products in many of the
world's largest and most promising potential markets. Other prospective joint
venture partners are seeking technical assistance from the Company for
developing local manufacturing capability, particularly to produce the solar
panels, with the Company shipping the proprietary electronics. Finally, New
Jersey state and county development agencies work with the Company by granting a
revolving export line of credit.
Patents
The Company's president and CEO, Quentin T. Kelly, together with Steve
Slaby, the late David Harrje and Tony Poli of Princeton University and three
other co-inventors, was issued U.S. Patent 5,163,821 on November 17, 1992
covering the solar collection, heat exchange and
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power module of a solar pump system. They have all assigned this patent to the
Company. The Company is preparing additional patents and continuations-in-part
and may also seek and file for protections of its patents in certain key
countries outside the United States. At this time, the Company has not made any
such filings outside the United States.
The Company's proprietary technology is a solar powered pumping system
(AquaSafe(TM)) comprising a PV solar array which generates DC current and
voltage; a variable speed motor drive connected to the array (AquaDrive(TM)); a
three-phase AC motor connected to the motor drive; a pump connected to the
motor. The motor drive includes a maximum power tracking circuit which controls
motor speed in alignment with the maximum power produced by the PV array. The
Company can provide no assurance that a competitor will not develop and market a
solar powered pump system which may complete effectively with the Company's
products, notwithstanding the patent.
Source and Availability of Raw Materials
The Company's solar modules are composed of silicon and like substances
which have risen in price recently for several reasons. Firstly, silicon is a
by-product of the computer industry and higher quality control has meant higher
quality computer silicon chips, thus reducing the quantity of impure silicon
which is recycled for use in solar panels. Secondly, the overall market for
solar modules has grown consistently thus putting pressure on supply and driving
up prices from $3.85 per watt to $4.14 per watt in 1997 (the first increase in
recent years, totaling 8%). Prices may stabilize as new solar panel production
capacity is being added and scheduled to come on-stream later in 1998 and 1999.
The chief suppliers of solar modules to the Company are BP Solar, Evergreen and
Solarex, all based in the United States.
Competition
The Company's products compete with both conventional and solar
technologies that bring power to remote areas. The main competitive technologies
are diesel or gasoline generators and grid extension which is very expensive.
The Company's proprietary technology permits the use of "off-the-shelf" AC pumps
opening a whole range of previously unavailable options for solar power. These
AC pumps are widely available allowing replacement pumps and parts to be
supplied on a local basis. Other forms of solar powered PV pumping currently
available are either less reliable or more costly.
The principal competitive factors affecting the Company's products are the
up front cost of a solar pump system compared to a less expensive diesel option.
However studies by GTZ (West German counterpart of US Aid) indicated that PV had
a simple payback period of 18 months for remote power applications. Electricity
costs per kilowatt hour for PV systems at $0.50-$1.00 compare favorably with
diesel at $1.00-$3.00.
The Company believes that it has a strong lead in the markets it has
developed. In many regions of the world competitive products are not available.
In those markets where competition
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exists, the most commonly encountered competitor is Grundfos A/S of Denmark, a
manufacturer of a large range of water pumps including a solar pump line, which
is sold through an established distribution system worldwide. However their
product line tends to be 10%-20% more expensive than the Company's and a
Grundfos specialty motor is required to run the Grundfos system. WorldWater
Corp. systems can operate with a broad line of motors.
The Company believes Grundfos to be its strongest competitor. Grundfos is
better established and far stronger financially than is the Company. There can
be no assurance that, in the event the markets developed by the Company prove to
be lucrative, other, better established players will not enter the arena.
Subsidiaries
The Company's sole subsidiary is WorldWater, Inc., of which the Company
owns approximately 94% of the issued and outstanding capital stock.
Government Regulations
Compliance with federal, state, and local provisions regarding the
production and discharge of materials into the environment is expected to have
no effect on capital expenditures, earnings and competitive position.
Employees
As of April 15, 1998, the Company employed 10 people on a full-time basis.
The Company also hires consultants on an as-needed basis and has informal
arrangements with two water consulting companies. The Company is developing a
worldwide capability for installing and maintaining its line of products. In
some cases this involves additional consulting contracts to evaluate local water
usage requirements, find the needed water sources, drill the necessary wells and
supply the desired water storage facilities. It may also involve training a
local installation and servicing team and supplying assistance on an
as-requested basis. The Company works closely with the hydrogeological firm of
Vincent Uhl and Associates in preparing and providing many of these additional
services in developing countries such as Mozambique, and with Morehouse
Engineering, specialists in water distribution and wastewater treatment.
Item 2. Description of Property
The Company's executive office, manufacturing facility and research and
development facility are housed in a 12,000 square foot site in Pennington, New
Jersey. This facility is leased under an operating lease expiring in June 14,
2002. The Company also uses a second facility in Hopewell, New Jersey for
conferences, meetings and demonstrations of its products. This facility is
leased from the Company's president on a month-to-month basis.
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Item 3. Legal Proceedings
The Company entered into a settlement agreement on December 30, 1997 with
Royal Capital Incorporated ("Royal") resolving claims of breach of certain stock
purchase agreement between the Company and Royal dated August 28, 1996. Under
the Purchase Agreement, Royal rendered investment banking, financial and other
advisory services to the Company in exchange for securities and cash consulting
fees. Under the Settlement Agreement: 1) the Company and Royal agreed to
mutually terminate their contractual relationship; 2) the Company agreed to
issue and deliver certain shares of the Company's common stock to Global
Portfolios PTY Ltd., all in accordance with preexisting subscriptions; 3) the
Company agreed to issue certain warrants to Global Portfolios PTY Ltd. and
Schurch Asset Management GmbH, all in accordance with preexisting contractual
commitments; 4) Royal agreed to deliver to the Company 50,000 shares of the
common stock of Proformix Systems, Inc., a public company; 5) the Company agreed
to issue and deliver, pursuant to a preexisting subscription agreement, 125,000
shares of the Company's common stock, to Sage Capital Investments Limited; and
6) the Company and Royal agreed to exchange full mutual releases. In addition to
the foregoing, the Company and Royal agreed to certain indemnification
provisions.
On or about August 12, 1997, the Company received a letter from the
special counsel to the bankruptcy trustee in the Chapter 11 bankruptcy
proceedings of Richard F. Clowes ("Clowes"), Case No. 94B43278 (PBA), pending in
the U.S. Bankruptcy Court for the Southern District of New York. The trustee's
counsel asserted claims under a certain Loan & Settlement Agreement. This matter
was preliminarily settled with the trustee in November, 1997. The settlement
called for the payment of $90,000 in cash and the conversion of $135,000 in debt
and $78,775 in accrued interest into 431,250 shares of the Company's common
stock. The Bankruptcy Court affirmed this settlement on March 30, 1998.
The Company has received correspondence from the estate of one of its
creditors who asserts that the Company owes this entity the amount of debt
included in Note 9 to the Financial Statements, plus accrued interest since the
date of the note (1984). The Company believes that the terms of the note clearly
indicate that it is a non interest bearing note.
Item 4. Submission of Matters to a Vote of Security Holders
None
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PART ll
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's common stock is traded on the NASDAQ Electronic Bulletin
Board and is listed on the National Association of Securities Dealers Automated
Quotation System (NASDAQ) under the stock symbol "WWAT". The following sets
forth the high and low bid prices of the Company's common stock since the
Company's acquisition of WorldWater, Inc. in April 1997.
For the year ended December 31, 1997
HIGH LOW
First Quarter ............................. N/A* N/A
Second Quarter ............................ $1.875 $0.625
Third Quarter ............................. $0.75 $0.25
Fourth Quarter ............................ $0.54 $0.15625
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* The Company's stock prices prior to April 1997 do not reflect the
Company's business activities and as such, are not listed here.
As of May 1, 1998, there were approximately 725 shareholders of record for
the Company's common stock. The number of record holders does not include
holders whose securities are held in street name.
The Company has not declared or paid, nor has it any present intention to
pay any cash dividends on its common stock in the foreseeable future.
Recent Sales of Unregistered Securities
SALES OF RESTRICTED SECURITIES DURING THE FOURTH QUARTER 1997
1. Settlement
A total of 548,066 shares were issued to Global Portfolios Pty Ltd. Of
Victoria, Australia, as part of the settlement of the Royal Capital contract
termination. These were the balance of the shares due from the equity investment
in the Company.
2. Equity Investment
Global Portfolios Pty Ltd. invested $50,000 in the company by purchasing
125,000 shares at $0.40 each. Two smaller investors (S. Morehouse and T.
Carroll) also invested $5,000 each
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and purchased 16,666 shares at $0.30 each. Schurch Asset Management of St.
Gallen, Switzerland invested $75,000 as the initial part of a $410,000
investment. This investment consisted of the purchase of 187,500 shares at $0.40
each.
3. Conversion to shares
Two trusts holding loan debentures totaling $55,000 converted their
principal and interest receivable into 121,942 shares.
4. Bankruptcy
200,000 shares were issued to Alan Nisselson, Trustee of the Clowes/Hecht
estate as part of a deal in which a $225,000 debenture will be purchased for
$90,000 (plus 200,000 WorldWater Corp. shares) by Ueli Schurch. He will convert
the loan into 631,250 shares (and receive the balance of 431,250 less the
200,000).
5. Penalty
50,000 shares were issued to Sagax Fund as penalty for late payment on a
$50,000 loan.
6. Services
1,000 shares were issued to Scott Barbera for services rendered when he
had been an employee.
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Item 6. Management's Discussion and Analysis and Results of Operations.
Background
The Company designs, develops and markets proprietary technology relating
to solar water power, including solar power products and international water
management consulting. The Company's primary products are cost effective power
systems driven entirely by solar energy, such as proprietary water pumping and
solar electric systems. The Company's primary customers are developing countries
which require non-traditional means of fulfilling their energy and water needs.
Results of Operations
Year Ended December 31, 1997 ("Fiscal 1997)
Compared to December 31, 1996 ("Fiscal 1996)
The net sales increase to $517,031 from $13,988 in 1996 was primarily due
to the opportunity, late in 1996, to market the Company's new product line, and
the sale of product totalling $427,500 to the Philippine government. Although
several solar powered electric systems were sold in 1997, the majority of
revenue was generated by the sale of solar powered drinking water or irrigation
pump systems.
Cost of sales for the 1997 year was $478,027, or 92% of sales, which
reflects the fixed overhead required to sell into an international market, while
retaining experienced solar industry engineers and marketers. Comparative
figures for 1996, which do not reflect a full year of sales activity are not a
good indicator of typical sales costs.
Marketing, General and Administrative expenses were $1,023,715 or 198% of
sales. This compares to a 1996 figure of $371,911, an increase of 175%. This
increase is largely explained by a reallocation of resources from Research and
Development to Marketing. During 1997 the Company also incurred expenses when it
centralized its production and administrative functions in its Pennington plant,
and hired a new General Manager/Financial Officer.
Research and Development expenses were $241,209 in 1997 compared to
$681,974 in 1996, a decrease of 65%, which reflects the move to a marketing
stance late in 1996 and throughout 1997.
The net loss of $1,725,996 reflects a one-time charge of $334,336 for
penalty shares issued on debt which was past its maturity date. The company paid
no tax in 1996 or 1997, and ended 1997 with net operating loss carryforwards
totalling $6,283,886.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The going concern
basis contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business over a
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reasonable length of time.
Management is working with current debt holders seeking the conversion of
their debt into shares of common stock. To help raise additional capital, the
Company retained the investment banking firm Dominick and Dominick, Inc. to act
as a financial advisor. Dominick and Dominick, Inc. is seeking private and
institutional investors to fund Company sales efforts (see Financial Note 20).
In addition, management is continuing to market their products to
developing countries. However, there can be no assurances that the Company will
be successful in these efforts. The consolidated financial statements do not
include any adjustments that might result from the outcome of this going
concerning uncertainty.
Liquidity and Capital Resources
Net cash provided by all activities in fiscal year 1997 was $48,342 versus
$7,722 in 1996. The net cash used in operating activities during 1997 was
$746,576 compared to $940,063 in 1996. The net loss figure of $1,725,996 was the
primary reason for the consumption of cash used in operating activities. A
charge of $867,029 reflects the cost of Common Stock issued to consultants for
services related to the acquisition of WorldWater, Inc. in April 1997, and the
issuance of shares to creditors for violations of debt repayment schedules.
Inventory levels declined due to strict control and accrued interest charges
decreased as debt was converted. The accounts receivable increase of $60,059
reflects a higher level of sales activity by the Company in its first full year
of market-led operations.
The Company's auditors have indicated that there is a substantial doubt
about its ability to continue as a going concern. The Company has taken action
to respond to this issue, including (i) working with current debt holders
seeking conversion of their debt into shares of common stock; and (ii) retaining
the investment banking firm, Dominick & Dominick, Inc. to act as a financial
advisor. Dominick & Dominick, Inc. is seeking private and institutional
investors to fund the Company's sales efforts. In addition, the Company is
continuing to market its products to developing companies.
Cash consumed by investing activities in 1997 was $75,929 compared to
$15,532 in 1996. The increase was primarily related to a performance deposit on
the Philippine Government sale. Cash generated by financing activities in 1997
was $870,847 compared to $963,317 in 1996. This reflects an increase in equity
participation offset by a decrease in debt used to fund Company operations.
Subsequent to December 31, 1997, the Company converted, with the consent
of its note holders, an additional $901,000 of long-term debt and $246,540 of
accrued interest into 2,455,024 shares of common stock. This conversion reduces
balance sheet debt to $1,120,650 by the end of the first quarter of 1998.
On January 22, 1998, the Company signed an investment banking agreement
with Dominick and Dominick, Inc. The agreement calls for Dominick and Dominick,
Inc. to act as a financial advisor to the Company in matters such as financing,
joint ventures, mergers, etc. (See Note 20). Potential investment groups are now
being contacted in the United States and Europe by Dominick & Dominick on behalf
of the Company and the Company expects to raise $3 - $5 million from private
investors and funds.
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The Company is also encouraging its warrant holders to exercise their
warrants at this time, which would provide an efficient and inexpensive means of
raising capital. In order to obtain the stated 1998 $5 million revenue goal, the
Company needs to continue to ramp up its marketing efforts, which is the primary
purpose of the prospective capital raising referenced above. However, there can
be no assurances that the Company will be successful in these efforts.
Item 7. Financial Statements
The financial statements of the Company, including the notes thereto,
together with the report of the independent certified public accountant thereon,
are presented beginning at page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The names and ages of all directors and executive officers of the Company
are as follows:
Name Age Position
- ---- --- --------
Quentin T. Kelly 63 President, CEO and Chairman of the Board
of Directors
Thomas Leyden 42 Vice-President, Marketing
Peter I. Ferguson 54 Vice-President
Brian McInerney 41 Financial Officer
Joseph Cygler 62 Secretary and Director
Ueli Schurch 36 Director
Dr. Russell L. Sturzebecker 81 Director
Dr. Martin G. Beyer 66 Director
There are no family relationships among the Company's officers and
directors.
Quentin T. Kelly founded the Company in 1984 and has been Chairman and
President since then. Mr. Kelly was previously Director of Information Services
and Assistant to the President of Westinghouse Electric Corporation from 1965 to
1971 and subsequently became President of Kelly-Jordan Enterprises, Inc., a
publicly-held leisure products company from 1971 to 1975, and then President of
Pressurized Products, Inc., manufacturers and international marketers of
specialized water systems and products, from 1976 to 1984. Mr. Kelly is an
alumnus of Kenyon College. He has many years' experience in international
business relating to water and power needs in the developing world. He has
worked on water supply and solar power projects with governments and several of
the international assistance agencies (USAID, UNDP and UNICEF), particularly in
the Philippines, Lebanon, Sudan, North Africa and Sub-Saharan Africa and India.
Dr. Anand Rangarajan joined WorldWater as Vice President and General
Manager in April 1998. Having started his career at MIT Lincoln Laboratory, he
has 20 years experience in all aspects of the solar electric business and has
pioneered the development of several proprietary systems, products and markets.
He was co-founder and executive Vice President of TriSolarCorp, Bedford,
Massachusetts which was sold to Chronar Corporation, Princeton, New Jersey.
There, as Vice President of Standard Products, he established a new business
unit commercialize a variety of solar electric pumping and lighting products. In
this connection he was responsible for setting up sales and distribution
networks in the US and overseas. He was
16
<PAGE>
also responsible for starting a new company, named Thermolyte, for ThermoPower
Corporation, a subsidiary of ThermoElectron Corporation of Waltham,
Massachusetts. Thermolyte now markets hand held consumer lighting products,
which use a small canister of propane instead of batteries. Dr. Rangarajan has
extensive experience in international markets; his products and systems have
been installed in over twenty countries. He has a Ph.D. from the University of
Wisconsin. He also holds patents in solar energy and other areas. He has
published several technical papers and has been an invited speaker at national
and international conferences.
Joseph Cygler has been the Secretary of the Company since January 1984, a
Director of the Company since 1993, and a former Vice President of Marketing and
Executive Vice-President. He has been Chief Executive Officer of the CE&O Group,
an organization assisting companies in operations management, since 1986.
Previously he was an executive at Kepner-Tregoe, Inc., an international business
consulting firm, from 1976 to 1986, an executive with Honeywell Information
Systems from 1964 to 1976, and a marketing representative with International
Business Machines from 1961 to 1964. Mr. Cygler has a BS in Engineering from the
U.S. Military Academy at West Point.
Thomas Leyden has been Vice President of Marketing for the Company since
October, 1996. He has 16 years experience in the solar and renewable energy
industry. He has been president of a U.S. solar thermal company and a Canadian
spring water bottling company. Before joining the Company, he was an executive
with a photovoltaic manufacturing and marketing company which conducted business
in the United States, Europe and Asia. Mr. Leyden was the founding president of
the Maryland-DC Solar Energy Industry Association and represents the Company in
the national SEIA. He is a graduate of Princeton University.
Peter I. Ferguson was appointed Vice President of Administration in 1989.
He previously served as a vice president and general management executive and
accountant for RCA Corporation, Crompton & Knowles, Inc. and Sterling Drug Co.
He graduated from Rutgers University.
Brian McInerney has been Financial Officer since July, 1997. Prior thereto
he was a Senior Bank Official with Allied Irish Banks of Ireland and Product
Manager of Perrier and Pepsi Cola in Ireland as well as Manager of environmental
activities with EnSys, Inc. and Manager with the American Institute of Chemical
Engineers in the United States. He holds undergraduate and graduate degrees in
Business, Finance and Marketing from University College Dublin in Ireland.
Ueli Schurch was appointed a Director of the Company in 1997. He is
President of Schurch Asset Management GmbH based in St. Gallen, Switzerland,
principal investors in the Company. He is a former banker for one of
Switzerland's largest banks based in Zurich.
Dr. Russell L. Sturzebecker was appointed a Director of the Company in
1997 and serves as Consultant - International Health. He is a retired Director
of Health and Education of West Chester University (Pennsylvania). He is an
author and publisher of histories of World War II-
17
<PAGE>
Pacific Theater and of the Olympic Games. He is a retired Colonel, US Air Force,
who accompanied General Douglas MacArthur's troops in the invasion of the
Philippines and is a close associate of President Fidel V. Ramos of the
Philippines.
Dr. Martin G. Beyer was appointed a Director of the Company in 1993 and
serves Consultant - International Marketing. He was Secretary-General of the
Global Consultation on Water and Sanitation, sponsored by the United Nations
Development Programme and the World Bank, held in New Delhi, India in 1990 and
attended by over 600 delegates from 115 countries. Previously, Dr. Beyer was
Senior Advisor for Water Supply and Sanitation for UNICEF, Chairman of the
United Nations Intersecretariat Group for Water Resources, Chairman of the
Advisory Panel to the UNDP/World Bank global project for testing and developing
of hand pumps, and Deputy Regional Director for UNICEF in the Americas. Dr.
Beyer has a Ph.D. degree in Economic Geology from the University of Stockholm
and speaks ten languages, including French, Spanish, German, Italian and
Portuguese. He resides in Princeton, New Jersey. He became a Director in 1995.
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company
during its most recent fiscal year, the Company believes that there were no
Section 16(a) reports filed untimely during the Company's year ended December
31, 1997.
Item 10. Executive Compensation
The Company's Summary Compensation Table for the years ended December 31,
1997, 1996 and 1995 is provided herein. There are no Option/SAR Grants,
Aggregated Option/SAR Exercises or Fiscal Year-End Option/SAR Value Table for
the years ended December 31, 1997, 1996 and 1995. There are no long-term
incentive plan ("LTIP") awards, or stock option or stock appreciation rights
except as discussed below.
Securities Underlying
Name Year Salary Other Options (#)
- ---- ---- ------ ---------------------
Quentin T. Kelly, 1997 $42,000 --
President and CEO 1996 $42,000 37,975
1995 $42,000 --
Quentin T. Kelly has entered into an employment agreement dated March 1,
1995 pursuant to which he received an annual salary of $42,000 from 1995-1997.
However Mr. Kelly did not receive his full salary during the years 1994 -1997
and has accrued salary payments of $64,750 outstanding as of December 31, 1997.
He did not receive any other compensation or stock options during the years 1995
or 1997, but did receive Incentive Stock Options totaling 37,975 shares for
deferred salary in 1996. No company executive earned a salary plus bonus in
excess of $100,000.
18
<PAGE>
Year End Option Table. The following table sets forth certain information
regarding the stock options held as of December 31, 1997 by the individuals
named in the above Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money-Options
Fiscal Year End(#) at Fiscal Year End ($)
Shares Acquired Value --------------------------- ---------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------ --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Quentin T. Kelly -- -- 37,975(1) 0 $6,456 --
</TABLE>
(1) Computed based on a common stock price of $.57 as of December 31, 1997.
- ------------
Compensation of Directors
The Company currently pays no outside directors' fees.
Stock Option Plan
Incentive Stock Option Plans and Stock Option Plans
During the year ended December 31, 1995, WorldWater, Inc., the Company's
subsidiary, adopted an Executive Stock Option Plan "to provide a competitive
means by which the company may seek, acquire and retain highly qualified persons
as officers, employees, directors and consultants." Shares granted under this
plan shall not exceed 850,000 shares with a term of the option not greater than
7 years from the date granted. No options have been issued to date under this
plan.
During the year ended December 31, 1996, WorldWater, Inc. awarded shares
of its common stock directly to employees. However, to comply with IRS
regulations and the Company's new capital structure stock options issued to
employees in 1996 were replaced by Company Incentive Stock Options ("ISO") in
1997. During the year ended December 31, 1996, WorldWater, Inc. created new
categories for ISOs. Employees who had qualified for common stock shares as part
of their current of future compensation qualified under this plan. A total of
29,700 Company common stock share options were issued to replace options earned
in 1996. A total of 86,300 Company stock options were granted under this
category during the year of ended December 31, 1997.
An additional 123,025 common stock options were also issued to employees
in compensation for deferred loan repayments or deferred salaries at a ratio of
0.70 percent of one ISO to each $1 deferred for the year December 31, 1996.
Also, a further stock option category was created for Company directors,
investors and consultants having outstanding matured loans to the Company.
Relating to this, stock options totaling 83,175 were granted during the year
ended December 31, 1996. (See Note 6 in the Financial Section for a summary of
stock option activity).
19
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of April 15, 1998, the record and
beneficial ownership of Common Stock of the Company by each officer and
director, all officers and directors as a group, and each person known to the
Company to own beneficially or of record five percent or more of the outstanding
shares of the Company:
Shares
Officers, Directors and Beneficially Percent of Shares
Principal Stockholders Owned Beneficially Owned(1)
- ---------------------- ----- ---------------------
Quentin T. Kelly 2,500,000 12.8%
Joseph Cygler 250,000 1.3%
Peter Ferguson 162,000 **
Dr. Martin Beyer 43,000 **
Dr. Russell Sturzebecker 36,141 **
Ueli Schurch(2) 748,750 3.8%
Thomas Leyden 50,700 **
Brian McInerney 17,000 **
All directors, 3,807,091 19.4%
executive officers
as a group (8 persons)
- -----------
** Less than 1%
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days of April 15, 1998. For purposes of
computing the percentage of outstanding shares of Common Stock held by
each person or group of persons named above, any security which such
person or persons has or have the right to acquire within such date is
deemed to be outstanding but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, the Company believes based on information
supplied by such persons, that the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
which they beneficially own.
(2) Ueli Schurch may be deemed to be a beneficial owner of 222,000 shares of
the Company's common stock held by Schurch Asset Management GmbH. In
addition, Schurch Asset Management GmbH has subscribed for the purchase of
an additional 187,500 Mr. Schurch has also purchased a convertible
debenture from a bankruptcy estate (see "Sales of Restricted Securities
During the Fourth Quarter") and intends to convert the loan which will
result in the issuance of 431,250 additional shares to him. The figure
shown above assumes the issuance of all shares described herein.
20
<PAGE>
Item 12. Certain Relationships and Related Transactions
Included in notes payable and long-term debt at December 31, 1997 and
1996, are amounts payable to employees, directors and their immediate relatives
as follows:
1997 1996
-------- --------
Directors $375,250 $430,250
Employees 46,000 32,000
Immediate relatives 12,000 17,000
-------- --------
Total $433,250 $479,250
======== ========
The Company occupied space in 1997 and 1996 that is owned by its President
and leased this space on a month to month basis. The amount paid to the
President amounted to $30,000 in 1997 and $30,000 in 1996.
PART IV
Item 13. Exhibits List and Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the fourth
quarter of 1997.
Exhibits to be filed by amendment.
21
<PAGE>
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WorldWater Corp.
(Registrant)
Date: May 11, 1998 By: /s/ Quentin T. Kelly
--------------------------------
Quentin T. Kelly
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Quentin T. Kelly President/Chief Executive May 11, 1998
- -------------------------- Officer/Chairman of the Board
Quentin T. Kelly (Principal Executive Officer)
/s/ Brian McInerney Financial Officer (Principal May 11, 1998
- --------------------------- Financial Officer)
Brian McInerney
/s/ Joseph Cygler Secretary/Director May 11, 1998
- ---------------------------
Joseph Cygler
/s/ Martin Beyer Director May 11, 1998
- ---------------------------
Martin Beyer
/s/ Russell Sturzebecker Director May 11, 1998
- ---------------------------
Russell Sturzebecker
/s/ Ueli Schurch Director May 11, 1998
- ---------------------------
Ueli Schurch
<PAGE>
WORLDWATER CORP. AND SUBSIDIARY
CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets
December 31, 1997 and 1996 F-3
Consolidated Statements of Operations
For the Years Ended December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Deficiency
For the Years Ended December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7 - F-23
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders,
WorldWater Corp.:
We have audited the accompanying consolidated balance sheets of WorldWater Corp.
and subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' deficiency and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WorldWater Corp. and
subsidiary as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company's working capital
deficit, stockholders' deficiency and lack of adequate sales growth or
development raises substantial doubt about the Company's ability to continue as
a going concern. Management's plans regarding these matters and future
operations are described in Note 4. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Withum, Smith & Brown
Princeton, New Jersey
March 13, 1998, except for the second paragraph of
Note 17 as to which the date is
March 30, 1998
F-2
<PAGE>
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
---- ----
Current Assets:
Cash $ 61,160 $ 12,818
Accounts receivable, net of allowance for
doubtful accounts of $-0- in 1997 and 1996 60,529 470
Marketable securities available for sale 162,500 --
Inventory 83,858 102,998
Prepaid expenses 2,627 --
----------- -----------
Total Current Assets 370,674 116,286
Property and Equipment, Net 47,875 44,503
Short-Term Investment - Restricted 43,973 --
Deposits 8,384 384
----------- -----------
TOTAL ASSETS $ 470,906 $ 161,173
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 368,424 $ 377,974
Accrued interest 498,136 473,378
Accrued salaries 169,250 145,250
Notes payable 179,181 140,984
Current maturities of long-term debt 2,021,650 1,752,000
----------- -----------
Total Current Liabilities 3,236,641 2,889,586
Long-Term Debt, Net of Current Maturities -- 550,000
----------- -----------
TOTAL LIABILITIES 3,236,641 3,439,586
Stockholders' Deficiency:
Common stock, $.001 par value;
authorized 20,000,000
shares at December 31,
1997 and 1996; issued and
outstanding 15,288,502 shares
at December 31, 1997 and
9,565,408 shares at
December 31, 1996 15,289 9,566
Additional paid-in capital 4,229,884 1,996,933
Accumulated deficit (7,010,908) (5,284,912)
----------- -----------
Total Stockholders' Deficiency (2,765,735) (3,278,413)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 470,906 $ 161,173
=========== ===========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-3
<PAGE>
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Sales $ 517,031 $ 13,988
Cost of Goods Sold 478,027 4,346
------------ ------------
Gross Profit 39,004 9,642
Research and Development
Expenses 241,209 681,974
Marketing, General and
Administrative Expenses 1,023,715 371,911
------------ ------------
Total Expenses 1,264,924 1,053,885
------------ ------------
Loss from Operations (1,225,920) (1,044,243)
Other Expense (Income):
Debt term violations expense 334,336 --
Interest expense 166,966 203,469
Interest income (1,226) --
------------ ------------
Total Other Expense
(Income), Net 500,076 203,469
------------ ------------
Net Loss Applicable to
Common Shareholders $ (1,725,996) $ (1,247,712)
============ ============
Net Loss Applicable Per
Common Share:
Basic $ (0.13) $ (0.15)
============ ============
Diluted $ (0.13) $ (0.15)
============ ============
Shares Used in Per Share
Calculation:
Basic 13,164,859 8,484,048
============ ============
Diluted 13,164,859 8,484,048
============ ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-4
<PAGE>
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 7,945,908 $ 7,946 $1,498,553 $(4,037,200) $(2,530,701)
Issuance of common stock
to Royal Capital Inc. for cash 1,250,000 1,250 498,750 -- 500,000
Issuance of common stock
per debt agreements 325,000 325 (325) -- --
Issuance of common stock
for services 44,500 45 (45) -- --
Net loss for the year -- -- -- (1,247,712) (1,247,712)
---------- ---------- ---------- ----------- -----------
Balance, December 31, 1996 9,565,408 9,566 1,996,933 (5,284,912) (3,278,413)
Issuance of common stock
to Royal Capital Inc.
for cash and marketable
securities 1,839,386 1,839 776,661 -- 778,500
Issuance of common stock
to Golden Beverage Company
stockholders 113,501 113 (113) -- --
Issuance of common stock
to Royal Capital Inc.
for consulting services 1,478,869 1,479 530,914 -- 532,393
Issuance of common stock
for cash 480,401 480 255,520 -- 256,000
Debt and accrued interest
converted into common stock 685,484 686 335,459 -- 336,145
Issuance of common stock
for debt term violations 1,114,453 1,115 333,221 -- 334,336
Issuance of common stock
for services 1,000 1 299 -- 300
Issuance of common stock
for warrants exercised 10,000 10 990 -- 1,000
Net loss for the year -- -- -- (1,725,996) (1,725,996)
---------- ---------- ---------- ----------- -----------
Balance, December 31, 1997 15,288,502 $ 15,289 $4,229,884 $(7,010,908) $(2,765,735)
========== ========== ========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-5
<PAGE>
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Cash Flows from Operating Activities:
Net loss $(1,725,996) $(1,247,712)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 20,584 8,600
Charges relating to common stock
issued for services and debt
term violations 867,029 --
Changes in assets and liabilities:
Accounts receivable (60,059) 8,310
Inventory 19,140 (102,998)
Prepaid expenses (2,627) --
Accounts payable and
accrued expenses (9,550) 136,782
Accrued interest 120,903 201,455
Accrued salaries 24,000 55,500
----------- -----------
Net Cash Used in
Operating Activities (746,576) (940,063)
Cash Flows from Investing Activities:
Change in deposits (8,000) 1,200
Capital expenditures (23,956) (16,732)
Purchase of short-term
investment - restricted (43,973) --
----------- -----------
Net Cash Used in
Investing Activities (75,929) (15,532)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 40,000 466,000
Payments on long-term debt (80,350) (2,683)
Proceeds from notes payable 84,931 --
Payments on notes payable (46,734) --
Proceeds from issuance of common stock 873,000 500,000
----------- -----------
Net Cash Provided by
Financing Activities 870,847 963,317
----------- -----------
Net Increase in Cash 48,342 7,722
Cash at Beginning of Year 12,818 5,096
----------- -----------
Cash at End of Year $ 61,160 $ 12,818
=========== ===========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-6
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Operations
WorldWater Corp.'s and subsidiary's primary products are cost effective
power systems driven entirely by solar energy, such as proprietary water
pumping and solar electric systems. The Company's primary customers are
developing countries which require non traditional means of fulfilling
their energy and water needs.
Note 2 - Merger with Golden Beverage
WorldWater Corp. ("Company") was incorporated in the State of Nevada on
April 3, 1985 under the name Golden Beverage Company. In April 1997, the
Company completed a reverse acquisition with World Water, Inc., a Delaware
corporation formed in January 1984. Pursuant to the acquisition agreement,
WorldWater, Inc. shareholders were offered one share of the Company's
common stock for one share of WorldWater, Inc. common stock. The Company
acquired 8,141,126 shares of WorldWater, Inc. common stock (80%) in
exchange for 8,141,126 shares of the Company's post-reverse split common
stock. Under the terms of the Agreement, the Company's prior management
resigned and was replaced by WorldWater, Inc.'s management. In June 1997,
the Company changed its name to WorldWater Corp. Holders of approximately
94% of WorldWater, Inc. common stock have agreed to the stock exchange and
tendered their shares. As a result, the Company and WorldWater, Inc.
remain as two separate entities and WorldWater, Inc. operates as a
subsidiary of WorldWater Corp. The operations of the newly combined entity
are currently comprised solely of the operations of WorldWater, Inc.
Prior to the reverse merger transaction described above, the Company was
essentially a non-operating publicly held company. As of the closing date,
all former assets and liabilities of Golden Beverage Company (as it was
then known) were transferred to an unrelated entity. Therefore, the
reverse acquisition had the effect of transferring the assets and
liabilities of World Water, Inc. into the publicly held entity known as
Golden Beverage. In consideration for this, the former shareholders of
Golden Beverage company received 113,501 shares of the Company's common
stock.
Note 3 - Summary of Significant Accounting Policies:
Significant accounting policies followed by WorldWater Corp. ("The
Company") in the preparation of the accompanying consolidated financial
statements are summarized below.
A. Principles of Consolidation
The consolidated financial statements include the accounts of
WorldWater Corp. and its majority owned subsidiary, WorldWater Inc.
All intercompany transactions and balances have been eliminated.
B. Property and Equipment
Property and equipment are stated at cost. Depreciation charges with
respect to property and equipment have been made by the Company
utilizing the straight-line method over the estimated useful lives
of the respective assets.
C. Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results differ from those
estimates.
F-7
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Summary of Significant Accounting Policies (Cont'd):
D. Inventory
Inventory is stated at the lower of cost or market on the FIFO
(first-in, first-out) method. Inventory consists mainly of purchased
system components, not yet assembled.
E. Research and Development
Research and development costs consist of expenditures incurred
during the course of planned search and investigation aimed at
discovery of new knowledge which will be useful in developing new
products or processes, or significantly enhancing existing products
or production processes, and the implementation of such through
design, testing of product alternatives or construction of
prototypes. The Company expenses all research and development costs
as they are incurred.
F. Effect of New Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 130
"Comprehensive Income". The Company believes that this pronouncement
will not have a material impact on the Company's financial statement
disclosures in 1998 and future years.
G. Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings Per Share". SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15 (APB 15), "Earnings Per Share," and other
related interpretations and is effective for the periods ending
after December 15, 1997. Under SFAS No. 128, all prior-period
earnings per share amounts have been restated. Basic earnings per
share is based upon weighted-average common shares outstanding.
Diluted earnings per share is computed using the weighted-average
common shares outstanding plus any potentially dilutive securities.
Dilutive securities include stock options, warrants, and convertible
debt.
The following table sets forth the computation of basic and diluted
net loss per common share:
1997 1996
---- ----
Numerator:
Net loss $ (1,725,996) $ (1,247,712)
Preferred stock dividends -- --
------------ ------------
Numerator for basic and diluted net
loss per common share $ (1,725,996) $ (1,247,712)
============ ============
F-8
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G. Net Loss Per Common Share (Cont'd)
Denominator:
Denominator for basic net loss
per common share weighted -
average shares 13,164,859 8,484,048
------------ ------------
Effect of dilutive securities:
Employee stock options -- --
Warrants -- --
Convertible debt -- --
------------ ------------
Dilutive potential common shares -- --
Denominator for diluted net
loss per common share
adjusted weighted-
average shares and
assumed conversions 13,164,859 8,484,048
------------ ------------
Basic net loss per common share $ (.13) $ (.15)
============ ============
Diluted net loss per common share $ (.13) $ (.15)
============ ============
Options, warrants and convertible debt were outstanding during 1997
and 1996, but were not included in the computation of diluted net
loss per common share because the effect in years with a net loss
would be antidilutive.
Note 4 - Going Concern:
These consolidated financial statements are presented on the basis that
the Company will continue as a going concern. The going concern basis
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business over a reasonable length of time. The
Company's working capital deficit, stockholders' deficiency and lack of
adequate sales growth or development raises substantial doubt about the
Company's ability to continue as a going concern. Management is working
with current debt holders seeking the conversion of their debt into shares
of common stock. To help raise additional capital, the Company retained
the investment banking firm Dominick and Dominick, Inc. to act as a
financial advisor. Dominick and Dominick, Inc. is seeking private and
institutional investors to fund Company sales efforts (see Note 20). In
addition, management is continuing to market their products to developing
countries. However, there can be no assurances that the Company will be
successful in these efforts. The consolidated financial statements do not
include any adjustments that might result from the outcome of this going
concern uncertainty.
Note 5 - Income Taxes:
The Company accounts for income taxes using Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109), which requires the establishment of a
deferred tax asset or liability for the recognition of future deductible
or taxable amounts and operating loss and tax credit carryforwards.
Deferred tax expense or benefit is recognized as a result of the changes
in the deferred tax assets or liabilities during the year.
F-9
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Income Taxes (Cont'd):
There were no provisions for income taxes for the years ended December 31,
1997 and 1996, due to losses generated in each year.
Temporary differences which give rise to significant deferred income taxes
at December 31, 1997 and 1996, follow:
1997 1996
---- ----
Net Operating Loss Carryforwards $ 2,513,554 $ 1,823,156
Deferred Tax Asset Valuation Allowance (2,513,554) (1,823,156)
----------- -----------
Total Deferred Tax Asset, Net $ -- $ --
=========== ===========
The increases in the valuation allowances for the years ended December 31,
1997 and 1996, approximated $690,398 and $421,660, respectively.
At December 31, 1997, the Company has available net operating loss
carryforwards for tax purposes of approximately $6,283,886 which expire in
the years 2000 to 2013.
Note 6 - Stock Options and Warrants:
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation" requires that the Company disclose
additional information about employee stock-based compensation plans. The
objective of SFAS No. 123 is to estimate the fair value, based on the
stock price at the grant date, of the Company's stock options to which
employees become entitled when they have rendered their requisite service
and satisfied any other conditions necessary to earn the right to benefit
from the stock options. The fair market value of a stock option is to be
estimated using an option-pricing model that takes into account, as of the
grant date, the exercise price and expected life of the option, the
current price of the underlying stock and its expected volatility,
expected dividends on the stock, and the risk-free interest rate for the
expected term of the options.
As permitted under SFAS No. 123, the Company has elected to follow APB 25
and related Interpretations in accounting for stock based awards to
employees. In addition, the Company has calculated the pro forma financial
results as required under SFAS No. 123, and noted that the impact on the
net loss for the years ended December 31, 1997 and 1996 was immaterial.
F-10
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Stock Options and Warrants (Cont'd):
Incentive Stock Option Plans and Stock Option Plans
During the year ended December 31, 1995, an Executive Stock Option Plan
was adopted "to provide a competitive means by which the Company may seek,
acquire and retain highly qualified persons as officers, employees,
directors and consultants". Shares granted under this plan shall not
exceed 850,000 shares with a term of the option not greater than 7 years
from the date granted. No options have been issued to date under this
plan.
During the year ended December 31, 1996, the Company awarded shares of
stock directly to employees. However, to comply with IRS regulations and
the Company's new capital structure stock options issued to employees in
1996 were replaced by Incentive Stock Options in 1997. During the year
ended December 31, 1996, the Board of Directors created new categories for
Incentive Stock Options (ISO). Employees who had qualified for common
stock shares as part of their current or future compensation qualified
under this plan. A total of 29,700 common stock share options were issued
to replace options earned in 1996. A total of 86,300 stock options were
granted under this category during the year ended December 31, 1997.
An additional 123,025 common stock options were also issued to employees
in compensation for deferred loan repayments or deferred salaries at a
ratio of 0.70 percent of one ISO to each $1 deferred for the year December
31, 1996. Also, a further Stock Option category was created for Company
Directors, investors and consultants having outstanding matured loans to
the Company. Relating to this, Stock Options totaling 83,175 were granted
during the year ended December 31, 1996.
All stock options issued to date are exercisable at $.40. Stock options
for employees still employed by the Company must be exercised within 5
years of earning the options. Options earned by others for service or
lending to the Company must be exercised within 3 years of earning the
options.
The following is a summary of stock option activity and related
information:
1997 1996
---------------------- ----------------------
Weighted - Weighted -
Average Average
Exercise Exercise
Options Price Options Price
------- ------ ------- ------
Options:
Outstanding at
beginning of year 235,900 $0.40 -- $--
Granted 86,300 0.40 235,900 0.40
Canceled -- -- -- --
Exercised -- -- -- --
------- ----- ------- -----
Outstanding at
end of year 322,200 $0.40 235,900 $0.40
======= ===== ======= =====
F-11
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Stock Options and Warrants (Cont'd):
The following table summarizes information about options outstanding at
December 31, 1997:
Options Outstanding Options
------------------- -------
Exercisable
- ----------- Weighted -
Number Average Remaining Number Weighted
Range of Outstanding Contractual Exercisable Average
Exercise Prices at 12/31/97 Life (Years) at 12/31/97 Exercise Price
- ---------------- ----------- ------------ ----------- -------------
$ 0.40 322,200 3.62 322,200 $ 0.40
Warrants
At December 31, 1997, warrants to purchase 3,395,195 common shares are
outstanding; 813,000 warrants exercisable during 1998, with a strike price
of $0.10 - $0.50, 994,985 warrants exercisable during the year 2000, with
a strike price of $0.40 - $0.60, 447,600 warrants exercisable during the
year 2001, with a strike price of $0.40 - $0.60, 22,000 warrants
exercisable during the year 2002, with a strike price of $0.60, and
1,107,630 warrants exercisable during the year 2003, with a strike price
of $0.50 - $0.75.
F-12
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Property and Equipment:
The costs and accumulated depreciation at December 31, 1997 and 1996, are
summarized as follows:
1997 1996
---- ----
Computers $ 24,633 $ 16,929
Office Furniture and Equipment 31,537 27,304
Leasehold Improvements 8,123 --
Test and Assembly Fixtures 14,069 10,173
Vehicles 7,721 7,721
--------- ---------
86,083 62,127
Less: Accumulated Depreciation 38,208 17,624
--------- ---------
Property and Equipment, Net $ 47,875 $ 44,503
========= =========
Depreciation expense amounted to $20,584 and $8,600 for the years ended
December 31, 1997 and 1996, respectively.
Note 8- Notes Payable:
At December 31, 1997 and 1996, the Company has outstanding several notes
payable in the aggregate amounts of $179,181 and $140,984, respectively.
The range of effective interest rates at December 31, 1997, was 0.00
percent to 10.00 percent. All outstanding notes payable are unsecured. The
notes payable are summarized as follows at December 31, 1997:
1997
----
Due on demand $ 135,931
Maturity dates have
elapased 43,250
---------
Total $ 179,181
=========
F-13
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9- Long-Term Debt:
Long-term debt consist of the following at December 31:
1997 1996
---- ----
Loans payable to individuals, with interest
accrued monthly at the rate of 8.00 percent
per annum. These uncollateralized notes are
convertible at the option of the borrower at
the rate of $0.495 per common share for a
total conversion amount of 186,465 shares of
common stock. These loans mature at a date
six months after the closing of the
Company's first public offering. $ 92,500 $ 57,850
Loan payable to a corporation, with no
stated interest rate. This loan has no
stated maturity date but will be repaid with
proceeds of the Company's first public
offering. The uncollateralized loan has a
conversion option which is exercisable at
the option of the borrower at $0.495 per
common share for a total conversion option
of 101,010 shares of common stock. 50,000 50,000
Loan payable to an individual dated April
13, 1992, with an original maturity date of
April 13, 1997, bearing an interest rate of
8.00 percent per annum. The loan is
uncollateralized. Payment of principal and
accrued interest will be at maturity. The
loan is convertible at the option of the
borrower at the rate of $0.40 per common
share for a total conversion amount of
125,000 shares of common stock. 50,000 50,000
-------- --------
Subtotal $192,500 $157,850
F-14
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9- Long-Term Debt (Cont'd):
Balance Carryforward $192,500 $157,850
Loan payable to an individual dated June 29,
1992, with an original maturity date of June
29, 1997, bearing an interest rate of 8.00
percent per annum. The loan is
uncollateralized. Payment of principal and
accrued interest will be at maturity. The
loan is convertible at the option of the
borrower at the rate of $0.40 per common
share for a total conversion amount of
62,500 shares of common stock. 25,000 25,000
Loan payable to an individual dated July 30,
1992, with an original maturity date of July
30, 1997, bearing an interest rate of 8.00
percent per annum. The loan is
uncollateralized. Payment of principal and
accrued interest will be at maturity. The
loan is convertible at the option of the
borrower at the rate of $0.40 per common
share for a total conversion amount of
62,500 shares of common stock. 25,000 25,000
Loan payable to an individual dated October
14, 1992, with an original maturity date of
October 14, 1997, bearing interest rates of
8.00 percent per annum. The loans are
uncollateralized. Payment of principal and
accrued interest will be at maturity. The
loans are convertible at the option of
the borrowers at the rate of $0.40 per
common share for a total conversions amount
of 125,000 shares of common stock. 50,000 50,000
-------- --------
Subtotal $292,500 $257,850
F-15
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9- Long-Term Debt (Cont'd):
Balance Carryforward $292,500 $257,850
Loan payable to an individual dated January
19,1993, maturing January 13, 1998, bearing
an interest rate of 8.00 percent per annum.
The loan is uncollateralized. Payment of
principal and accrued interest will be at
maturity. The loan is convertible at the
option of the borrower at the rate of $0.40
per common share for a total conversion
amount of 62,500 shares of common stock. 25,000 25,000
Loans payable to individuals dated June 30,
1993, maturing June 30, 1998, bearing an
interest rate of 8.00 percent per annum.
This loan is uncollateralized. Payment of
principal and accrued interest will be at
maturity. The loan is convertible at the
option of the borrowers at the rate of
$0.423 per common share for a total
conversion amount of 650,118 shares of
common stock. 275,000 275,000
Loan payable to an individual dated October
26, 1993, maturing October 26, 1998, bearing
an interest rate of 8.00 percent per annum.
The loan is collateralized by inventory and
accounts receivable. Payment of principal
and accrued interest will be at maturity.
The loan is convertible at the option of
the borrower at the rate of $0.48 per
common share for a total conversion
amount of 406,250 shares of common stock. 195,000 250,000
-------- --------
Subtotal $787,500 $807,850
F-16
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9- Long-Term Debt (Cont'd):
Balance Carryforward $787,500 $807,850
Loan payable to an individual dated January
23, 1991, with an original maturity date of
January 23, 1997, bearing an interest rate
of 8.00 percent per annum. The loan is
uncollateralized. Payment of principal and
accrued interest will be paid at maturity.
The loan is convertible at the option of the
borrower at the rate of $0.48 per common
share. 90,000 225,000
Loan payable to an Investment Trust, Calvert
Social Investment Fund, dated September 28,
1994, maturing March 31, 1998, bearing an
interest rate of 9.00 percent per annum. The
note is collateralized by inventory accounts
receivable, and the related products and
proceeds thereof. Payment of principal and
accrued interest will be paid at maturity.
The note is convertible at the option of the
borrower at the rate of $0.50 per common
share for a total conversion amount of
270,000 shares of common stock. 135,000 150,000
---------- ----------
Subtotal $1,012,500 $1,182,850
F-17
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9- Long-Term Debt (Cont'd):
Balance Carryforward $1,012,500 $1,182,850
Loans payable to individuals dated June 28,
1995 through May 30, 1996. The loans are
currently due upon demand. The loans bear an
interest rate of 10% per annum. The loans
are uncollaterized. Payment of principal and
interest will be upon maturity. The loans
are convertible at the option of the
borrower at the rate of $0.50 per common
share for a total liquidation amount of
882,000 shares of common stock. In addition,
all loan holders were granted 485,100
warrants for the purchase of common stock at
the price of $0.40 per share in return for
signing a Forbearance Agreement. 441,000 466,000
Loans payable to individuals dated July 17,
1995 through February 25, 1997. The loans
are currently due upon demand. The loans
bear an interest rate of 10% per annum. The
loans are uncollateralized. Payment of
principal and interest will be upon
maturity. The loans are convertible at the
option of the borrower at the rate of $0.50
per common share for a total liquidation
amount of 1,096,300 shares of common stock.
In addition, all loan holders were granted
602,965 warrants for the purchase of common
stock at the price of $0.60 per share. 548,150 653,150
---------- ----------
Subtotal $2,001,650 $2,302,000
F-18
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9- Long-Term Debt (Cont'd):
Balance Carryforward $2,001,650 $2,302,000
A loan payable to an individual dated
November 10, 1997 maturing February 8, 1998.
The loan bears an interest rate of 10% per
annum. The loan is uncollateralized. Payment
of principal and interest will be maturity.
The loan is convertible at the option of
the borrower at the rate of $0.50 per
common share for a total liquidation amount
of 40,000 shares of common stock. In
addition, the loan holder was granted 22,000
warrants for the purchase of common stock at
the price of $0.60 per share. 20,000 --
---------- ---------
Total Long Term Debt 2,021,650 2,302,000
Less: Current Maturities 2,021,650 1,752,000
---------- ---------
Long-Term Debt,
Net of Current Maturities $ -- $ 550,000
========== =========
Relating to the above convertible debt, the Company is required to pay to
the holders of convertible debt "penalty" shares of its common stock if
the ultimate maturity date of the loan is at least one year later from the
original maturity date. The Company issued 1,114,453 "penalty" shares at a
value of $334,336, which they have included in the accompanying 1997
statement of operations.
Note 10 - Commitments:
The Company has a signed agreement with its President, a consultant and a
senior executive which grants each individual incentive fees of up to 0.5
percent of all revenues realized by the Company with an annual cap of
$250,000 per person. These agreements are effective through December 31,
2005. The Company incurred $6,463 and $140 of expense in 1997 and 1996,
respectively, relating to these agreements.
The Company has an informal consulting agreement with its former chief
financial officer. The agreement calls for a fixed payment of $3,000 per
month.
F-19
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Leases:
The Company leases its operations facility under a noncancellable
operating lease which expires in 2002.
Minimum annual rental commitments at December 31, 1997, are payable as
follows:
1998 $ 36,000
1999 45,000
2000 51,000
2001 60,000
2002 33,000
---------
$ 225,000
=========
Rent expense for the years ended December 31, 1997 and 1996, approximated
$45,784 and $34,950, respectively.
Note 12 - Related Party Transactions:
Included in notes payable and long-term debt at December 31, 1997 and
1996, are amounts payable to employees, directors and their immediate
relatives as follows:
1997 1996
---- ----
Directors $ 375,250 $ 430,250
Employees 46,000 32,000
Immediate relatives 12,000 17,000
--------- ---------
Total $ 433,250 $ 479,250
========= =========
The Company occupied space in 1997 and 1996 that is owned by its President
and leased this space on a month to month basis. The amount paid to the
President amounted to $30,000 in 1997 and $30,000 in 1996.
Note 13 - Marketable Securities Available for Sale:
Effective December 31, 1997, as part of its settlement with Royal Capital
Inc. (see Note 17), the Company acquired 50,000 shares of Proformix
Systems, Inc., a NASDAQ traded company valued at $162,500. In accordance
with FASB 115, these securities are being considered as marketable equity
securities available for sale. Therefore, future unrealized gains and
losses will be recorded as a separate component of stockholders'
deficiency. Since the Company did not receive the securities until
December 31, 1997, there is no unrealized gain or loss at December 31,
1997.
F-20
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Short Term Investments - Restricted:
In connection with a sale of product to the Phillipine Government, the
Company was required to purchase a performance bond, in the form of a
restricted certificate of deposit with Fleet Bank, in the amount of
$42,750. The certificate of deposit bears interest at 4.4% per annum and
matures June 10, 1998. The Company is entitled to the funds from this
certificate of deposit on July 20, 1998, if no claims for warranty or
other such items are presented by the Phillipine Government. The
certificate of deposit is stated at cost plus accrued interest which
approximates market value.
Note 15 - Fair Value of Financial Instruments:
With the exception of notes payable, long-term debt and marketable
securities, the Company records all financial investments including
accounts receivable and accounts payable at cost, which approximates
market value.
Due to the Company's debt (e.g., notes payable and long-term debt) being
in the process of being converted into common stock and the nature of the
various conversion features, interest rates, etc., it is not practicable
to estimate the fair value of the notes payable and long-term debt.
The Company records its marketable securities at fair market value in
accordance with FASB 115. See Note 13 for additional details.
Note 16 - Significant Risks and Uncertainties:
The Company is currently marketing its products to developing nations who
have water and energy needs that cannot easily or inexpensively be
obtained from traditional sources (e.g. wells, electrical grids, etc.) The
ability of these entities to order and pay for the Company's products and
services is dependent on a variety of factors including governmental
approval, adequate funding, and vigorous testing procedures. During the
year ending December 31, 1997, 83% of the Company's sales came from one
such shipment to the Philippine nation. The future viability of the
Company is dependent on the Company's ability to execute this type of
transaction with numerous developing countries.
Note 17 - Contingencies:
The Company entered into a settlement agreement (the "Settlement
Agreement") on December 30, 1997 with Royal Capital Incorporated ("Royal")
and its principals, Bruce Deichl and Jerry Swon, resolving claims of
breach of certain stock purchase agreement (the "Purchase Agreement")
between the Company and Royal dated August 28, 1996. Under the Purchase
Agreement, Royal rendered investment banking, financial and other advisory
services to the Company in exchange for securities and cash consulting
fees. Under the Settlement Agreement: 1) the Company and Royal agreed to
mutually terminate their contractual relationship; 2) the Company agreed
to issue and deliver certain shares of the Company's common stock to
Global Portfolios PTY Ltd., all in accordance with preexisting
subscriptions; 3) the Company agreed to issue certain warrants to Global
Portfolios PTY Ltd. and Schurch Asset Management GMBH, all in accordance
with preexisting contractual commitments; 4) Royal agreed to deliver to
the Company 50,000 shares of the common stock of Proformix Systems, Inc.,
a bulletin board company;
F-21
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Contingencies (Con'td):
5) the Company agreed to issue and deliver, pursuant to a preexisting
subscription agreement, 125,000 shares of the Company's common stock, to
Sage Capital Investments Limited; and 6) the Company and Royal agreed to
full mutual releases. In addition to the foregoing, the Company and Royal
agreed to certain indemnification provisions.
On or about August 12, 1997, the Company received a letter from the
special counsel to the bankruptcy trustee in the Chapter 11 bankruptcy
proceedings of Richard F. Clowes ("Clowes"), Case No. 94B43278 (PBA),
pending in the U.S. Bankruptcy Court for the Southern District of New
York. The trustee's counsel asserted claims under a certain Loan &
Settlement Agreement. This matter was preliminary settled with the trustee
in November, 1997. The settlement called for the payment of $90,000 in
cash and the conversion of $135,000 in debt and $78,775 in accrued
interest into 431,250 shares of the Company's common stock. The Bankruptcy
Court affirmed this settlement on March 30, 1998.
The Company has received correspondence from the estate of one of its
creditors who asserts that the Company owes this entity the amount of debt
included in Note 9, plus accrued interest since the date of the note
(1984). The Company believes that the terms of the note clearly indicate
that it is a non interest bearing note.
Note 18 - Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 8,167 $ 2,015
======= =======
Income taxes $ -- $ --
======= =======
Supplemental schedule of non-cash investing and financing activities:
In 1997, the Company received $162,500 in marketable securities available
for sale as part of its settlement agreement with Royal Capital Inc. (see
Note 17).
In 1997, the Company's debt holders converted $240,000 of debt principal
and $96,145 of accrued interest into $336,145 worth of common stock.
F-22
<PAGE>
WorldWater Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 - Common Stock Outstanding:
The following is a reconciliation of common shares outstanding per the
consolidated balance sheet at December 31, 1997, with those per the
records of the Company's stock transfer agent:
Common stock shares outstanding per transfer agent 12,816,208
Add: WorldWater, Inc. shares not yet presented for
conversion into WorldWater Corp. shares 1,205,533
Shares issued in 1998 for which common stock
proceeds were received in 1997 595,611
Shares issued in 1998 for debt term violations
incurred in 1997 696,150
Duplicate shares erronously issued in 1997
(shares to be cancelled in 1998) (25,000)
----------
Shares outstanding as of December 31, 1997 15,288,502
==========
At December 31, 1997, 10,086,915 shares are subject to a holding period
restriction, pursuant to Rule 144 of the Securities and Exchange
Commission.
Note 20 - Subsequent Events (Unaudited):
Subsequent to December 31, 1997, the Company converted, at the consent of
its debt holders, an additional $861,000 of long-term debt and $246,540 of
accrued interest into 2,455,024 shares of common stock.
On January 22, 1998, the Company signed an investment banking agreement
with Dominick and Dominick, Inc. The agreement calls for Dominick and
Dominick, Inc. to act as a financial advisor to the Company in matters
such as finanincing, joint ventures, mergers, etc. As part of the
arrangement, they were given the ability to purchase for $200, a warrant
which entitles them to purchase 750,000 shares of the Company's common
stock at $.60 per share. The Company also pays this entity $15,000 per
quarter as a retainer fee for as long as Dominick & Dominick continue to
act as the Company's financial advisors.
F-23
