SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND 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 (IRS Employer
incorporation or organization) Identification Number)
Pennington Business Park, 55 Route 31 South
Pennington, New Jersey 08534
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 818-0700
WorldWater Corp.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
As of the close of business on May 20, 1998, there were 19,272,992 shares of
the Registrant's Common Stock, $.001 par value, outstanding.
<PAGE>
WORLDWATER CORP.
QUARTERLY REPORT ON FORM 10-QSB
Part 1.
FINANCIAL INFORMATION Page No.
----------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1998 (Unaudited) and December 31,
1997 (Audited). 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1998
(Unaudited) and 1997 (Unaudited). 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998
(Unaudited) and 1997 (Unaudited). 5
Notes to the Condensed Consolidated
Financial Statements (Unaudited). 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Part 2.
Item 1 SIGNATURES 10
Item 2 Exhibit 1 Financial Data Schedule 11
2
<PAGE>
WorldWater Corp.
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
3/31/98 12/31/97
------- --------
Current Assets
Cash and Cash Equivalents $ 83,044 $ 61,160
Accounts Receivable 84,800 60,529
Marketable Securities 265,500 162,500
Inventory 110,033 83,858
Prepaid Expenses 3,000 2,627
----------- -----------
Total Current Assets 546,377 370,674
Non-Current Assets
Property, Plant, and Equipment, Net 47,407 47,875
Short Term Investments-Restricted 43,973 43,973
Other Assets 384 8,384
----------- -----------
TOTAL ASSETS $ 638,141 $ 470,906
=========== ===========
Current Liabilities
Accounts Payable & Other Accrued Expenses 315,453 368,424
Employment taxes/benefits 16,483 --
Accrued payroll 155,684 169,250
Accrued interest 218,411 498,136
Notes Payable 159,181 179,181
Current maturities of long-term debt 1,090,650 2,021,650
----------- -----------
Total Current Liabilities 1,955,862 3,236,641
----------- -----------
TOTAL LIABILITIES 1,955,862 3,236,641
STOCKHOLDER DEFICIENCY ----------- -----------
Common Stock 19,273 15,289
Par value $.001; 30,000,000 shares
authorised; issued and outstanding March 31,1998--
19,272,992 and December 31, 1997 --15,288,502
Additional Paid-In-Capital 5,987,634 4,229,884
Unrealized increase in value of
Marketable Securities 103,000 --
Retained Earnings (7,337,627) (7,010,908)
----------- -----------
TOTAL STOCKHOLDERS DEFICIENCY (1,317,721) (2,765,735)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY $ 638,141 $ 470,906
=========== ===========
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
WorldWater Corp.
Condensed Consolidated Statements of Operations
March 31, 1998 and December 31, 1997
3 Month
3/31/98 3/31/97
------- -------
Sales $ 37,643 $ 3,880
Cost of Goods Sold 133,885 69,332
---------- ----------
Gross Loss (96,242) (65,452)
---------- ----------
Operating Expenses:
Research & Development 28,359 117,717
Marketing, General & Administrative 171,461 136,596
---------- ----------
Total Operating Expenses 199,820 254,313
---------- ----------
Operating Loss (296,062) (319,765)
---------- ----------
Other Expenses
Interest Expense 31,658 57,152
Other Expense (Income) (1,000) 933
---------- ----------
Total Other Expense/(Income) 30,658 58,085
---------- ----------
Net Loss $ (326,720) $ (377,850)
========== ==========
Net Loss Per Share $ (0.02) $ (0.04)
Average Shares Outstanding 16,254,800 10,546,075
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
WaterWorld Corp.
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1998 and 1997
31-Mar-98 31-Mar-97
--------- ---------
Net Loss $(326,720) $(377,851)
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation 1,800 1,500
Changes in Assets and Liabilities:
Accounts Payable & Accrued Expenses (52,971) (6,777)
Prepaid Expenses (373) (1,300)
Accrued Interest -- 51,000
Inventory (26,175) (142,377)
Accrued Salaries (13,566) --
Accounts Receivable (24,271) --
Employment Taxes 16,483 7,414
--------- ---------
Net Cash Used in Operating Activities (425,793) (468,391)
--------- ---------
Cash Flows from Investing Activities:
Decrease in Other Assets 8,000 --
Capital Expenditures (1,332) (7,117)
Decrease in Notes Receivable -- --
--------- ---------
Net Cash Used in Investing Activities 6,668 (7,117)
--------- ---------
Cash Flows from Financing Activities:
Payment of Long Term Debt (30,000) (46,500)
Payment of Notes Payable (20,000) 11,766
Proceeds from Issuance of Common Stock 3,984 128,670
Change in Paid-In-Capital 487,025 371,329
--------- ---------
Net Cash Provided by (Used In) Financing Activities 441,009 465,265
--------- ---------
Net Increase (Decrease) in Cash 21,884 (10,243)
Cash at Beginning of Year 61,160 12,818
========= =========
Cash at end of Second Quarter $ 83,044 $ 2,575
========= =========
Schedule of noncash investing/financing activities
Changes in Assets & Liabilities
Increase in the value of
Marketable Securities (103,000) --
Accrued interested converted to equity (238,058) --
Cash Flows from Financing Activities
Current Maturities Conversion to equity (901,000) --
Conversion of Note Payable to equity (25,000) --
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
WorldWater Corp. and Subsidiaries
Consolidated Statements of Stockholders Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Stockholders
Shares Amount Capital Defecit Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 15,288,502 $15,289 $4,229,884 ($7,010,908) ($2,765,735)
Issuance of Common stock
for cash 812,500 $812 $324,188 -- $325,000
Debenturest and accrued interest
converted into common stock 544,976 $545 $261,043 -- $261,588
Debentures and accrued interest
converted into common stock 1,123,077 $1,123 $466,742 -- $467,865
Debentures and accrued interest
converted into common stock 183,139 $183 $34,817 -- $35,000
Issuance of Common stock
for Bridge Loans converted 601,929 $602 $291,717 -- $292,319
Issuance of Common stock
for Note Payable converted 78,869 $79 $33,283 -- $33,362
Issuance of Common stock
for warrants exercised 640,000 $640 $255,960 -- $256,600
Net loss for the three months
ended March 31, 1998 -- -- -- ($326,720) ($326,720)
---------- ------- ---------- ----------- -----------
Balance at March 31, 1998 19,272,992 $19,273 $5,897,634 ($7,337,628) ($1,420,721)
</TABLE>
6
<PAGE>
Part 1.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared by WorldWater Corp. (the "Company") without audit and reflect all
adjustments (consisting only of normal and recurring adjustments and accruals)
which are, in the opinion of management necessary to present a fair statement of
the results for the interim periods presented. The statements have been prepared
in accordance with the regulations of the Securities and Exchange Commission,
but omit certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full fiscal year. These
condensed financial statements should be read in conjunction with the financial
statement and footnotes thereto included as an exhibit to the Company's 10-K
dated 5/13/98 all previously filed with the Securities and Exchange Commission.
2. NET LOSS PER SHARE
Net loss per share for the three months ended March 31, 1998 and 1997 is
computed using the average number of common shares of stock outstanding during
the period. Common stock equivalents are not considered in net loss per share
because their effect would be anti-dilutive.
3. CONVERSION OF LONG TERM DEBT
During the three months ended March 31, 1998, $901,000 of Long Term Debt
which had matured was converted into equity. Accrued interest of $238,058
associated with this debt was also converted to equity.
4. VALUE OF MARKETABLE SECURITIES
As part of a Settlement Agreement between WorldWater Corp. and Royal
Capital Incorporated dated December 30, 1997, the Company received 50,000 shares
of the common stock of Proformix Systems, Inc. which are traded on the NASDAQ
Electronic Bulletin Board. On December 31, 1997 these shares closed at a price
of $3.25 per share giving a valuation of $162,500 to WorldWater Corp.'s holding.
On March 31, 1998 these shares closed at $5.31 giving a valuation to the
WorldWater Corp. holding of $265,500 and creating an unrealized gain of $103,000
on the securities at March 31, 1998.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
REVENUE. For the three months ended March 31, 1998 revenue increased to $37,643
up from $3,880 in the same period in 1997. Revenue was lower than expected for
this period due to delays in follow through orders from several markets
including the Philippines where a single order form the Philippine Government
accounted for 83% of 1997 annual sales revenue. 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") and to be supplemented by funds from Winrock and possibly the World
Bank and/or the Asian Development Bank.
GROSS PROFIT. A gross loss of $96,242 was recognized for the three months ended
March 31, 1998 as against a loss of $65,452 for the same period in 1997. Cost of
sales was $133,885 for the three months ended March 31, 1998 which reflects the
building of higher levels of inventory and fixed overheads, both related to,
servicing an international market. The operating loss of $296,062 for the period
ended March 31, 1998 was down 7% from $319,765 for the same period in 1997
reflecting tighter control of operating costs. The net loss of $326,720 for the
three months ended March 31, 1998 was down 13 percent from $377,850 for the same
period in 1997 which also reflects lower interest charges because of the
conversion of debt to equity throughout 1997 and into early 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased by 76
percent for the three-month period to March 31,1998 to $28,359 down from
$117,717 in the same period of 1997, reflecting the shift in focus from
developing systems to marketing the Company's product line.
8
<PAGE>
MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and administrative
expenses increased by 25 percent to $171,461 for the three month period ended
March 31, 1998, up from $136,596 in the same period in 1997. The General &
Administrative portion of expenses declined by 21% to $77,505 in the three month
period ended March 31, 1998 down from $98,116 in the same period in 1997 which
reflect stringent control of overhead.
Marketing expenses increased by 174% to $81,519 in the three month period
ending March 31, 1998 up from $29,780 in the same period in 1997 which reflects
a continuing strong focus on marketing the Company's product line. Service and
Instillation expenses also increased by 43% to $12,436 for the period ended
March 31, 1998 up from $8,700 in the same period in 1997.
INCOME TAXES. The Company recognized no income tax expense for the three month
period ending march 31, 1998 and the year 1997. The Company had net operating
loss carry forwards on December 31, 1997 resulting in a tax benefit to the
company of $2,513,554.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by all activities in the three months ended March 31,
1998 was $21,884 compared to a negative cash flow of $10,243 in the same period
in 1997. The net cash used in operating activities during this three month
period in 1998 was $425,793 compared to $468,391 in 1997. The primary reasons
for the consumption of cash in 1998 were the reduction of accounts payable by
$52,971 and the net loss of $326,719 for the three months ended March 31, 1998.
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 working with current debt holders seeking
conversion of their debt into shares of common stock. During the three months
ended March 31, 1998, $901,000 of long term debt which had matured and $25,000
of Notes Payable was converted into equity. Accrued interest of $238,058
associated with these loans was also converted into equity. The Company is also
encouraging its warrant holders to exercise their warrants at this time in order
to provide an efficient and inexpensive means of raising capital. During the
three months ended March 31, 1998 warrants for $320,000 were exercised which was
converted to equity as part of $465,265 investment mentioned in the following
paragraph.
Cash provided by financing activities in the three months ended March 31,
1998 was $441,009 compared to $465,265 in 1997. This increase in cash during the
three months ended March 31, 1998 was the net result of an equity investment of
$487,025 and repayment of $30,000 of Long Term Debt and $20,000 of Notes
Payable.
The Company has also retained the investment banking firm of Dominick &
Dominick, Inc. to act as a financial advisor in seeking private and
institutional investors to fund the Company's sales efforts. 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. Failure to obtain sufficient
funding may significantly curtail planned company growth. In addition the
Company is continuing to market its products to developing countries.
SALE OF RESTRICTED SECURITIES DURING THE FIRST QUARTER 1998.
Global Portfolios Pty Ltd. paid $256,600 (part of a total $280,000) in
exercise of a warrant for 700,000 Common stock shares at $0.40 each and received
640,000 shares.
Schurch Asset Management GmbH invested $325,000 as the balance of an
equity investment of $410,000 and received 1,025,000 shares.
9
<PAGE>
FORWARD LOOKING STATEMENTS:
MARGINS FOR THE REMAINDER OF THE YEAR MAY BE INCONSISTENT
Implementation of the company products requires varying levels of international
commitments to training, installation and service. Special engineering
requirements may also exist at installation sites affecting costs of
implementing projects.. Thus, variation of profit margins exist for delivering
the same products. Also many contracts will have a mix of products which make
profit forecasting for individual projects more difficult.
SELLING AND MARKETING EXPENSES TO REMAIN AT HIGH LEVELS FOR THE REMAINDER OF THE
YEAR.
Most current sales and marketing activities are investments in near and future
long term market development which disproportionately increase current costs as
a percentage of revenue generated.
INTERNATIONAL GOVERNMENT AND NON-GOVERNMENT ORGANIZATION CONTRACTUAL
UNCERTAINTIES
Government agencies and international non-government organizations sometimes
require an open bidding process which can result in time delays and extended
negotiations. Additionally, the complexity of proper financial and trade related
documentation can delay the procurement process.
Part 2. Item 1 Legal Proceedings
The Company entered into a settlement agreement on December 20, 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 commons 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 Group, all in accordance with promising 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, 126,000
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 as
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 trustees in the Chapter 11 bankruptcy
proceedings of Richard P. Clowes ("Clowes"), Case No. [illegible] (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 a 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
$138,000 in debt and 878,775 in accrued interest into $31,280 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 assets 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 (1994). The Company believes that the terms of the note clearly
indicate that it is a non interest bearing note.
Item 2. Changes in Securities
Item 3. Defaults on Senior Securities - None
Item 4. Submissions of Matters to a Vote of Securities' Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereby duly authorized.
DATE: May 20, 1998 WORLDWATER CORP.
By: /s/ Quentin T. Kelly By: /s/ Peter I. Ferguson
---------------------------- ---------------------------
Quentin T. Kelly Peter I. Ferguson
President & CEO Vice-President
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 83,044
<SECURITIES> 265,500
<RECEIVABLES> 84,400
<ALLOWANCES> 0
<INVENTORY> 110,033
<CURRENT-ASSETS> 546,377
<PP&E> 87,415
<DEPRECIATION> 40,008
<TOTAL-ASSETS> 638,141
<CURRENT-LIABILITIES> 1,955,862
<BONDS> 0
0
0
<COMMON> 19,273
<OTHER-SE> (1,317,721)
<TOTAL-LIABILITY-AND-EQUITY> 638,141
<SALES> 37,643
<TOTAL-REVENUES> 37,643
<CGS> 133,885
<TOTAL-COSTS> 199,820
<OTHER-EXPENSES> 30,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,658
<INCOME-PRETAX> (326,720)
<INCOME-TAX> 0
<INCOME-CONTINUING> (326,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (326,720)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
