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FORM 10-KSB ANNUAL REPORT
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual report under section 13 or 15(d) of the Securities Exchange Act of 1934
(Fee required) for the fiscal year ended December 31, 1998
WorldWater Corp.
Nevada 33-0123045
(State or other jurisdiction of (IRS Identification Number)
Employer corporation or organization)
55 Route 31 South, Pennington, NJ 08534
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (609) 818-0700
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12 (g) of the Exchange Act: Common Stock,
$0.001 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not 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 II of this Form 10-KSB or any amendment to
this form 10-KSB.
The issuer's revenue for its most recent fiscal year was $45,451.
On April 14, 1999 the aggregate market value of the outstanding stock held by
non-affiliates of the registrant was approximately $14,773,825.
The number of shares of Common Stock outstanding as of April 14, 1999 was
24,994,904.
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FORM 10-KSB ANNUAL REPORT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
WORLDWATER'S MISSION IS TO BECOME THE LEADING PROVIDER OF SOLAR POWERED
WATER PUMPING AND ELECTRICAL SYSTEMS IN EMERGING NATIONS THROUGHOUT THE WORLD.
WorldWater Corp. (the "Company") designs, develops and markets
proprietary technology relating to solar energy and water engineering, 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 AquaSafe(TM) and solar electric
SolPower(TM) systems. The Company's primary customers are developing countries
which require non-traditional means of fulfilling their energy and water needs.
The greatest potential for PV technology is in developing countries where
roughly 2 billion people lack electricity and water. Each year several billion
dollars from various international, national and regional sources are spent on
water and independent power projects within the emerging countries.
The Company was incorporated in the state of Nevada on April 3, 1985
under the name Golden Beverage Company. In April 1997, the Company entered into
a reverse merger transaction with WorldWater, Inc., a Delaware corporation
formed in January 1984. Since the merger transaction, the Company, under the
name of WorldWater Corp., has been engaged exclusively in the solar/water power
industry. The Company stock is publicly traded on the OTC Bulletin Board under
the symbol WWAT.
The Company has centralized its production, servicing and
administration functions at its main plant located at 55 Route 31 South in
Pennington, New Jersey 08534.
(a) Major Customers and Export Sales
The Company's major customers continue to be national and regional
Governments, their Ministries and Departments responsible for power and
water. They include:
Sri Lanka: The Company has designed a project at the request of the
Ministry of Aquatics and Fisheries, which has decided to upgrade the
quality of life of people in fishing villages throughout the island by
installing solar electricity and delivering safe drinking water. The
Company has submitted its project proposal, which includes project
financing engendered by the Company for $9,455,000. Approval and
commencement of operations are expected in mid-1999.
Philippines: The Company has several projects in varying phases of
development following on the success of the 25 AquaSafe(TM) drinking
water and irrigation systems ($427,500) installed in 1997/98. The
change of Administrations in July 1998 has delayed these pending
projects, but the Company has been notified that the several projects
involving rural water and electrification will be revisited by the new
Administration in 1999, when the Company plans to open offices in
Manila and establish WorldWater (Philippines) Inc. to capitalize on its
existing business opportunities there.
Ethiopia: The Company demonstrated its AquaSafe(TM) equipment to
senior Government officials and decision-makers in the capital of Addis
Ababa. As a result, the Company received requests from eight regional
governments for hydrogeological studies to locate water fields, which
studies will be used as precursors to full scale water development
projects utilizing the Company's solar equipment. WorldWater was also
invited to bid on a remote major river irrigation project using its
solar pumps, with results to be known in May 1999. The Company's other
projects are scheduled for budgeting and execution in 1999.
Tanzania: The Company sold and installed its solar pumping equipment in
the capital of Dar es Salaam to supply clean water to the city's main
meat processing plant. The solar pumping operation was inaugurated by
the Prime Minister and attended by senior government officials. As
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FORM 10-KSB ANNUAL REPORT
a result of the success of the WorldWater system, the Ministry of Water
has signed a Memorandum of Understanding (MOU) with the Company to
establish a financially self-sustaining rural water supply project to
be implemented on a national level, starting with pilot projects in 7
water districts. The Company expects to complete the financing through
E&Co, a Rockefeller Foundation supported renewable energy service
Company of the pilot projects in the first half of 1999 and to start
implementation in the second half. Multilateral organizations have
expressed interest in financing the next stages of these projects. The
Company shipped other solar pumps to rural areas, installed these
systems and provided technical training to the technicians of the
Drilling and Dam Construction Agency, which is expected to be the
Company's implementation partner in future projects in Tanzania.
Djibouti: After observing the Company's AquaSafe(TM) system in
operation, the Ministry of Water requested the Company to analyze the
requirements of converting 350 diesel pumps to solar pumps. The Company
has recommended to the Ministry that 80 of the wells are suitable for
conversion to solar immediately, while further data on the remaining
locations is under study by the Company. Financing of the initial phase
of $1.6 million is budgeted for Summer,1999.
Because of the nature of its business with Governments, the
Company's sales and revenues are dependent upon the annual budgetary
periods of the sovereign and regional governments and international
funding agencies. Results of selling efforts therefore are generally
reflected in the budgetary year following the presentation and
agreement to purchase. For this reason, despite its many successful
demonstrations, negotiations and agreements in 1998, the Company's
sales for the year were only $45,451, reflecting the limited
discretionary funds outside the standard budgetary process available to
the government and agency departments. (See (c) Marketing (below)). And
as referenced above, the Company's expectations of sales from one of
its major customers, the Republic of the Philippines, did not
materialize as a result of national elections and the change of
Administrations. The Company expects to resume its activities in the
Philippines in the first half of 1999.
(b) Products
AquaSafe(TM)
WorldWater Corp.'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 2 billion people
live without adequate water supplies for personal consumption, sanitation, and
agriculture.
The Company's core proprietary AquaSafe(TM) technology is a solar
powered pumping system comprising a photovoltaic (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 circuit that helps to
extract maximum power from the array in order to optimize motor speed.
SolPower(TM)
WorldWater Corp.'s solar powered electricity systems are used to
generate electricity for lighting, TV, radio, computers and a host of other
uses. The major purpose is to offer electric power in locations that are off the
electric grid, such as rural households, village halls or schools in remote
locations. 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.
SolPower(TM) can also be used to power Security Lights and backup
Security Power systems, which are particularly useful for US Government and
foreign building operations and industrial projects, such as pipelines and
remote communications projects.
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FORM 10-KSB ANNUAL REPORT
The Company introduced a number of new products in 1998 including:
Solar power systems for churches and mosques to power lights and fans;
SolPrayer(TM) -- a solar powered call-to-prayer public address system for
mosques; SolPal (TM) -- solar powered street lights.
(c) Marketing
WorldWater's products are marketed primarily internationally in
developing nations where electrical power and clean water are not generally
accessible and where there is thus very large demand - literally billions of
dollars annually. The Company now has its proprietary solar pumping and solar
electrical systems operating in the Philippines, Sri Lanka, Tanzania, Ethiopia,
Djibouti, South Africa and other countries in Africa and South America.
In order to maintain close contacts with these Governments through
their embassies and with US Government departments and agencies as well as such
inter- and multinational organizations as the World Bank and the Inter-American
Bank, the Company in 1998 established an office in Washington DC. The Company
Representative retired Ambassador Alan Lukens, a career foreign officer who
spent many years in Africa, Europe and the Caribbean for the US State
Department, has strengthened Company efforts by adding and maintaining new
contacts for marketing support within the government structure, particularly the
State Department and the Pentagon.
The Company's marketing efforts in 1998 were largely concentrated in
identifying specific project opportunities that had the potential for long term
growth and large value, and identifying institutional sources that are capable
and willing to finance these projects. In general, the long term market
potential of any emerging country is less predictable compared with that of a
developed industrial country because emerging nations present higher degrees of
political and currency risks. WorldWater marketing goals and forecasts are
adjusted from time to time based on new developments in any particular country.
Because of the economics involved in doing business overseas,
WorldWater's strategy is to seek large contracts in the range of $500,000 to
$10,000,000 or more. Winning contracts of this magnitude can entail months or
even years of development effort in a target market; consequently, actual sales
and operating income may vary widely from forecasts, either up or down (See (a)
above).
Over the long term, however, the rapid growth of the solar industry
worldwide, doubling to more than $1.5 billion in the 1990's, is expected by
energy economists to triple again in worldwide revenues before the year 2005.
Solar energy will command an ever-larger percentage of total world energy use
and WorldWater solar products can be expected to participate in that growth.
And the need and price for water worldwide is growing annually. The
United Nations officially estimates that $8 billion annually is currently spent
in providing safe drinking water in developing countries, and that $100 billion
will be required over the next 5 years. WorldWater is strongly positioned in
both of these solar power and water markets (See (d) below).
The following is a discussion of the Company's efforts in some of the
countries where the Company is demonstrating viable sales activities and
opportunities:
Sri Lanka: See Major Customers, Item 1. Description of Business (above)
Ethiopia: See Major Customers (above)
Tanzania: See Major Customers (above)
Djibouti: See Major Customers (above)
Philippines: See Major Customers (above)
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Somaliland: The Company was appointed by President M.I. Egal to be the Master
Implementation Contractor for water for this entire region of what was formerly
the northwestern area of Somalia. The Company responded to a crisis in the
municipal water supply system of Hargeisa, the capital city, by sending two
senior engineers to assess the emergency and recommend immediate and long term
solutions. The Company's team prepared a detailed report for the Government and
the on-site international agencies (UNDP, UNHCR, UNICEF etc.) outlining an
appropriate solution to the urgent problem for a total budget of $10 million.
The Company's report also identified certain immediate improvements needed for a
cost of $1 million as the first phase of the larger project. This report is
being used by the Water Ministry to secure financing for this project and the
Company is assisting the Ministry to secure the financing from different
sources, including the Islamic Development Bank. The Company continues to be in
close communication with the President's office regarding the project financing
effort.
Kenya: The Company signed a contract in 1998 with the Non-Governmental
Organization (NGO) Northern Aid for $2.2 million to prepare a hydrological
study, drill wells and emplace water pumping systems in the remote northeastern
sector of the country. Northern Aid is awaiting the funding it arranged with the
Islamic Development Bank to begin the project in 1999.
Haiti: A contract to deliver water and power to a shelter maintained by the
Missionaries of the Poor was instituted near Cap Haitien by the Company. First
phase installation of an AquaSafe pump and SolPower electricity was scheduled
for early 1999.
Uganda: The Company installed a demonstration unit at President Museveni's
cattle ranch near Entebbe. Uganda has a relatively well developed solar market
and the Company believes that it can find significant opportunities there. This
demonstration is the first step in realizing this potential.
Ecuador: The Company has submitted a proposal to the Department of Renewable
Energy for a regional rural electrification project for bringing home lighting
systems to about 600 homes in the Bolivar region. The Company has also submitted
proposals to several municipalities to upgrade their municipal water supply
systems using solar pumps and financing from private institutions. The Company
plans to continue its efforts in Ecuador by entering into fee-for-service
contracts with regional electric and water utility companies.
(d) Market Size
Over the last 15 years the photovoltaic (PV) industry has grown in
revenues from $2 million to $1.5 billion. Advances in PV technology and
corresponding reduction in costs continue to fuel the increasing demand for PV
power. As stated earlier, the greatest potential for PV technology is in
developing countries where roughly 2 billion people lack electricity and water.
Applications range from remote pumping, irrigation, telecommunications and
lighting, to village size power production. Worldwide PV module shipments
continue at an accelerating rate. Global shipments of PV modules reached 89.6
Megawatts (MW) in 1996, 126 MW in 1997, and an estimated 180 MW in 1998.
Formal reports and market analyses of the countries that WorldWater
services are not available. However, based on estimates by UNDP and World Bank,
to bring safe drinking water to the 2 billion people who are without access to
safe drinking water and who are targeted for such access by the international
financial agencies and national and regional Governments will cost approximately
$50 per person, or $100 billion total. Although the national and international
agencies obviously do not have such budgets, they are making concerted efforts
to involve the private sector and all levels of national, regional and local
governments to finance these top priority projects with the goal of achieving
full coverage by the year 2004. These efforts include implementation of
self-financing businesses similar to WorldWater's pending programs in Tanzania
and the Philippines. A similar sized investment of $100 billion is needed to
bring electricity to people. For example, the Company's analysis of the remote
power market in the Philippines, where only 28 of the 2800 inhabited islands
have access to electricity, shows that a modest 10% penetration by solar power
represents a market opportunity of about $1 billion.
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WorldWater 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 WorldWater-Philippines to manufacture and market solar modules and
AquaSafe(TM) systems in the Philippines and, as the market develops, to export
to other Southeast Asian nations.
(e) Marketing Strategies
As stated, WorldWater's strategic mission is to become the leading
provider of solar powered water pumping and electrical systems in emerging
nations throughout the world.
WorldWater 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 billions of dollars in emerging nations to water and small
power projects that fall within the scope of WorldWater's business. These
sectors represent the largest potential markets for the Company 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
- multilateral international assistance agencies, such as the World Bank,
UNICEF, the United Nations Development Program (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) Non-Governmental Organizations
(NGO's) 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 WorldWater
products.
International organizations and NGO's can be slow to approve a new product.
WorldWater, however, has already achieved high visibility, interest and in many
cases approval. The advantages of dealing with these organizations are that:
- the development agencies/NGO's 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
WorldWater an implied endorsement that helps in private marketing, and
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- 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, 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. CEO Quentin Kelly, Vice President
Tom Leyden and WorldWater's 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.
These contacts have enabled demonstrations of the Company's products to
appropriate officials, resulting in agreements and sales in its target
countries.
Recognizing that lack of availability of project financing is a major
impediment to marketing its products, the Company has identified a number of
channels to bring financing to projects. These channels include:
Somali Water Emergency Fund: The Company has helped establish a trust
fund to be managed by Winrock International, the Winthrop Rockefeller
organization, which will seek charitable donations from major Islamic and other
Charities worldwide. The fund expects to start receiving pledges in the second
quarter of 1999. The proceeds of this fund will be used to finance water
development projects including installation of solar pumps in all regions of the
Horn of Africa (East Africa) where Somali peoples live.
The Company is actively working to broaden its sources and means of
offering multi-year financing to buyers of WorldWater products. The Company
thus maintains contacts with Federal and State agencies including the U.S.
Export/Import Bank (Exim), the Small Business Administration, New Jersey's
Economic Development Agency, as well as various international banks and
forfeiting companies and other potential sources to obtain lines of credit,
credit guarantees and bid guarantees.
In addition the Company has initiated discussions with private energy
investment services such as E&Co and the $300 million Aqua Fund and the
international law firm of Coudert Brothers to establish an international water
fund, aimed specifically at providing project financing for solar powered water
projects.
(f) Research and Development
Research and Development expenditures were $167,563 and $241,209 in
1998 and 1997, respectively. In addition to its present pumps that have delivery
capacities between 5 and 250 gallons per minute, WorldWater has other water and
solar products in various stages of research and development.
For example, the Company has developed a prototype water diagnostics
kit called the AquaTester(TM) that 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 certain color changes. The Company is
working in collaboration with IDEXX Laboratories of Maine, which produces 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.
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The Company has submitted cost sharing grant applications to various NJ
state agencies in collaboration with Rutgers University to develop solar powered
"drip irrigation" systems. The Company expects to implement this development
program in 1999.
The Company has developed a new and improved proprietary electronic
control subsystem for its AquaDrive(TM) controller. This new subsystem is
simpler and more rugged in its operation and the Company has filed for new
patents on this device.
(g) Manufacturing
Sub-contractors currently manufacture parts of the AquaSafe(TM) systems
in the United States. WorldWater will continue to source materials worldwide,
based on quality and cost considerations.
In the future, when justified by marketing and production requirements,
WorldWater intends to locate AquaSafe(TM) and other product assembly sites
overseas. Joint venture discussions include proposed production in the
Philippines (a solar panel manufacturing facility for production and sales of
solar products) and India. Such projects will leverage the capacity of
WorldWater 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 WorldWater for developing local manufacturing capability,
particularly to produce the solar panels, with WorldWater shipping in the
proprietary electronics. Finally, New Jersey State and County development
agencies have cooperated with WorldWater by granting a revolving export line of
credit.
(h) Patents
WorldWater has filed and is preparing additional patents and
continuations-in-part for its newly developed AquaSafe(TM) electronics systems
and will also seek and file for protections of its patents in certain key
countries outside the United States. Additionally, Quentin T. Kelly, Chairman
and CEO, 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
power module of a solar pump system. All patents are assigned to WorldWater.
(i) Source and Availability of Raw Materials
The Company's solar modules are composed of silicon and other
photovoltaic materials. The chief suppliers of solar modules to WorldWater are
BP Solar, Evergreen, AstroPower and Solarex, all based in the US.
(j) Competitive Conditions Affecting the Company
WorldWater Corp. products compete with both conventional and solar
technologies that bring power to remote areas. The main competitive technologies
are diesel or gasoline generators and electrical grid extension, which is very
expensive. WorldWater's proprietary technology permits unique use of
"off-the-shelf" Alternate Current (AC) pumps, opening a whole range of
previously unavailable options for solar power. These AC pumps are widely
available in countries throughout the world, allowing replacement pumps and
parts to be supplied on a local basis. Other forms of solar powered photovoltaic
(PV) pumping systems currently available use less reliable and durable Direct
Current (DC) pumps or custom AC pumps which are more costly and not readily
available in most developing countries.
The principal competitive factors affecting the Company's products are
the upfront cost of a solar pump system compared to a less expensive diesel
option. However studies by GTZ (West German counterpart of US Aid) indicate that
PV has 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.
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The Company believes that it has a strong lead in the markets in which
it operates. In many regions of the world competitive products are not
available. In those markets where competition 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. However, the Company product
line tends to be 10%-20% less expensive than the competition and a Grundfos
specialty motor is required to run the Grundfos system. WorldWater systems can
operate with a broad line of motors.
(k) Subsidiaries
The Company has one subsidiary, WorldWater, Inc. (wholly owned by the
Company)
(l) 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. The
Company has a program to comply fully with the US Foreign Corrupt Practices Act.
(m) Employees
On December 31, 1998, the Company employed nine people on a full-time
basis. The Company also hires consultants on an as-needed basis and has
strategic alliances with two water consulting companies, the hydrogeological
firm of Vincent Uhl Associates and Morehouse Engineering, specialist in water
pumping and distribution and waste water treatment. WorldWater 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, to 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.
(n) The Year 2000.
The use of computer systems that rely on two-digit programs to perform
computations or other functions may cause such systems to malfunction with
respect to the year 2000 and subsequent years. Like many other entities, the
Company is currently assessing its computer software and database with respect
to its functionality beyond the turn of the century. The extent and estimated
cost of the modifications which will be required cannot yet be determined,
although it is expected that such expenditures will not have a material effect
on the financial conditions and results of operations of the Company. There can
be no assurance, however, that the year 2000 problem will be resolved
successfully and in a timely fashion or that any failure or delay by the Company
or any third parties which interacts with the Company, in achieving year 2000
compliance will not have an adverse effect on its operations.
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 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 CEO on a month-to-month basis (See Item 12).
ITEM 3. LEGAL PROCEEDINGS
On 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
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(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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II.
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
WorldWater Corp.'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". High and low
bid quotations are listed below:
For the year ended December 31, 1998
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
First Quarter..................... $0.9375 $0.42
Second Quarter.................... $0.64 $0.35
Third Quarter..................... $0.50 $0.11
Fourth Quarter.................... $0.19 $0.09
</TABLE>
As of April 14, 1999, the common stock price was $.75 and there were
approximately 776 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 intention to pay
any cash dividends on its common stock in the foreseeable future.
SALES OF RESTRICTED SECURITIES DURING THE FOURTH QUARTER 1998
1. Equity Investment
Hafeli Asset Management invested $4,500 in the Company by purchasing
30,000 shares at $0.15 per share.
Rolf Berchtold invested $15,000 in the Company by purchasing 100,000
shares at $0.15 per share.
2. Conversion to shares
One individual holding a loan debenture totaling $25,000 principal and
$7,919 of accrued interest converted for 223,667 shares of common stock.
3. Services
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47,720 shares were issued to Joseph Spiecker for prior services
rendered.
4. Warrants
One individual exercised his rights to purchase 27,500 shares of common
stock for $4,125.
5. Convertible Notes
Two individuals loaned the Company $57,500 at the rate of 6% per annum.
The note is convertible into common stock at $.15 per share for each dollar
loaned.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Certain statements contained in Management's Discussion and Analysis,
and elsewhere in this annual report, concerning the Company's outlook or future
economic performance such as anticipated profitability, gross billings,
commissions and fees, expenses or other financial items; and conditions of
performance or other matters, are "forward looking statements" as that term is
defined under the Federal
Securities Laws. Forward looking statements are subject to risks,
uncertainties, and other factors which would cause actual results to differ
materially from those states in such statements. Such risks, uncertainties and
factors include, but are not limited to, the following: (1) there can be no
assurance that the Company will grow profitably or manage its growth, (2) risks
associated with acquisitions, (3) competition, (4) the Company's quarterly
results have fluctuated in the past and are expected to fluctuate in the future,
(5) the loss of services of key individuals which could have a material adverse
effect on the Company's business, financial condition or operating results, (6)
risks associated with operating in emerging countries.
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 that require non-traditional means of fulfilling their energy and
water needs.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 ( "Fiscal 1998" )
Compared to December 31, 1997 ( "Fiscal 1997" )
The net sales decreased to $45,451 from $517,031 in 1998 primarily due
to delays in obtaining financing for potential customers in developing
countries. Although several solar powered electric systems were sold in 1998,
the majority of sales effort was targeted towards large contracts on the order
of $500,000 to $10 million (see Item 1(a) and (c) and "Net Loss" paragraph
below.) The Company is involved in ongoing negotiations pending contracts with
several developing countries.
Cost of sales for the year was $183,921, reflecting the fixed overhead
required selling into an international market, while retaining experienced solar
industry engineers and marketers
Research and Development expenses were $167,563 in 1998 compared to
$241,209 in 1997, a decrease of 31%, reflecting a continuing effort to introduce
technological improvements into the Company's products.
11
<PAGE> 12
FORM 10-KSB ANNUAL REPORT
Marketing, General and Administrative expenses were $1,055,982 in 1998,
compared to $1,023,715 in 1997, an increase of $3%. The increase primarily
resulted from increased overseas travel expenses.
The Net Loss of $1,566,842 resulted partially from the marketing
process of proposing, presenting and demonstrating the Company's new technology
to appropriate officials of developing countries and the resultant lag time
between agreements and annual budgeting (See Item 1 (a) and (c)). The Company's
marketing efforts with its new field-proven products began in 1997-98, and it
was not able to secure annual budgeting for large purchases in time for the 1998
fiscal year. Management is focusing its efforts on those countries among the
emerging nations which can assume financing arrangements offered through the
Company's financing programs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by all activities in 1998 was $56,998 compared with net
cash provided by operations of $48,342 in 1997. The net cash used in operating
activities during 1998 was $1,215,768
compared to $746,576 in 1997. The net loss experienced in 1998 was the primary
reason for the consumption of cash used in operating activities. Inventory
levels increased $13,611 in 1998. Accounts receivable decreased $60,529 because
of the low level of sales, and write off of accounts deemed uncollectable.
The Company's auditors have indicated that there is a substantial doubt
about its ability to continue as a growing concern. Management believes that
prospects for winning one or more large contracts in 1999 are favorable, and
that the resultant increase in sales will bring about a significant improvement
in operations, including cash flow. The Company has also responded by
encouraging some debt holders to convert their notes into common stock, and
seeking new sources of long-term capital.
The Company paid no federal or state income taxes in 1998, and ended
the year with a federal net operating loss carryforward of approximately $7.5
million.
Subsequent to December 31, 1998, the Company converted, at the consent
of its debt holders, an additional $125,000 of current debt and $112,500 of
notes payable into 1,116,667 shares of common stock. Management believes that
up to $500,000 of the remaining debt and notes can be converted if the Company
performs as forecasted. The remaining debt is expected to be repaid from
projected revenues generated during 1999/2000. The Company issued 1,333,333
shares of common stock in exchange for $200,000 used to finance on going
operations. Three notes totaling $35,000 were issued March 12, 1999. These
notes bear interest of 9% per annum, and mature September 12, 1999. If the
loans are repaid within the first ninety days, all interest will be forgiven.
Additionally, the notes provided an equity investment of $7,000 in exchange for
140,000 common stock shares. Tobias Rauber purchased 400,000 shares for a total
cost of $100,000 during March 1999.
On January 4, 1999 the Company submitted application to the New Jersey
Division of Taxation and the New Jersey Economic Development Authority to sell
its State of New Jersey Corporate Net Operating Losses. The new law was enacted
January 1, 1999 and allows emerging technology companies involved in research
and development the opportunity to sell their state loss carryforwards and
research and development credits to profitable companies in the state for not
less than 75% of their net tax value. The Company retained Technology Tax
Certificate LLC to assist in the application process, and identify an eligible
buyer for its Net Operating Losses once the New Jersey Division of Taxation and
the Economic Development Authority have approved its application. The Company
expects to be approved in April 1999 and to conclude an agreement with a buyer
shortly thereafter.
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.
12
<PAGE> 13
FORM 10-KSB ANNUAL REPORT
ITEM 3. FINANCIAL STATEMENTS
The financial statements of the Company, including the notes thereto,
together with the report of the independent public accountant thereon, are
presented beginning on page F-1.
ITEM 4. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER AGE OFFICE
<S> <C> <C>
Quentin T. Kelly 64 Chairman & CEO
John A. Pell 73 President & COO
Dr. Anand Rangarajan 47 Vice-President, General Manager
Thomas Leyden 44 Vice-President, Marketing
Peter I. Ferguson 56 Vice-President
Thomas McNulty, Jr. 35 Controller
Joseph Cygler 64 Secretary
</TABLE>
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE TERM OF OFFICE
COMMENCED
<S> <C> <C>
Quentin T. Kelly 64 1984
Joseph Cygler 64 1984
Dr. Russell Sturzebecker 82 1997
Dr. Martin Beyer 67 1993
Ueli Schurch 37 1997
</TABLE>
Quentin T. Kelly founded WorldWater in 1984 as a consulting and R&D Company and
has been Chairman and CEO 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 and holds three U.S. patents
relating to water systems. 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.
John A. Pell, President & Chief Operating Officer, was a senior officer with
Chase Manhattan Bank in New York and London where he was in charge of African
banking activities for U.S. Multinationals. He was Managing Director of a
European Bank Consortium and President of a trade finance banking organization
in Hong Kong. He is a graduate of Princeton University and the Wharton School
(MBA) of the University of Pennsylvania.
13
<PAGE> 14
FORM 10-KSB ANNUAL REPORT
Dr. Anand Rangarajan, Vice President and General Manager, is a solar and water
pump specialist. He has 20 years experience in all aspects of the solar electric
business and has pioneered the development of several proprietary solar water
pumping systems, products and markets. His systems have been installed in over
20 countries. He holds his Ph.D. in Engineering from University of Wisconsin and
spent three years working in the Lincoln Laboratories of MIT.
Thomas Leyden, Vice President of Marketing, has 16 years 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 WorldWater, he was
an executive with a photovoltaic manufacturing and marketing company that
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 WorldWater in the national SEIA. He is a graduate of Princeton
University.
Peter I. Ferguson, Vice President of Administration, joined WorldWater in 1989.
He previously served as a Vice President and general management executive and
accountant for companies in New York and New Jersey. He graduated from Rutgers
University.
Thomas McNulty, Jr., CPA, MBA, Controller of the Company, is a Certified Public
Accountant in New Jersey and Pennsylvania with his Masters Degree in
Accounting/Taxation. He is a member of the American Institute of Certified
Public Accountants, the New Jersey Society of Public Accountants, and the
Pennsylvania Institute of Certified Public Accounts.
Joseph Cygler has been a Director of WorldWater since January of 1984 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, an executive
with Honeywell Information Systems, and a marketing representative with
International Business Machines. Mr. Cygler has a BS in Engineering from the
U.S. Military Academy at West Point.
Ueli Schurch, a Director of WorldWater, 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, a Director of WorldWater and its
Consultant-International Health, 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-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 former
President Fidel V. Ramos of the Philippines.
Dr. Martin G. Beyer, a Director of WorldWater and its Consultant - International
Marketing, was Secretary-General of the Global Consultation on Water and
Sanitation, sponsored by the United Nations Development Program 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
was an Advisor to the Company from 1991 and became a Director in 1995.
ITEM 6. EXECUTIVE COMPENSATION
Quentin T. Kelly, President and CEO, had a contract for an annual salary of
$42,000 from 1995-1998. However Mr. Kelly did not receive his full salary during
the year's 1994-1998 and has accrued salary
14
<PAGE> 15
FORM 10-KSB ANNUAL REPORT
payments of $75,000 outstanding at December 31, 1998. He did not receive any
other compensation or stock options during the years 1995-1997 but did receive
Incentive Stock Options totaling 37,975 shares for deferred salary in 1997. No
Company executive earned a salary plus bonus in excess of $60,000.
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus Other Annual All Other
Compensation
<S> <C> <C> <C> <C> <C>
Quentin T. Kelly 1998 $42,000 $0 $0 $6,300
1997 $42,000 $0 $0 $6,100
1996 $42,000 $0 $0 $5,850
</TABLE>
ITEM 7. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the number and percentage of the shares of the
registrant's Common stock owned as of April 14, 1999 by all persons known to the
registrant who own more than 5% of the outstanding number of such shares, by all
directors of the registrant, and by all officers and directors of the registrant
as a group. Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned.
Common Stock
<TABLE>
<CAPTION>
Number of Shares Percent
Name Beneficially Owned of Class
- ---- ------------------ --------
<S> <C> <C>
Quentin T. Kelly 2,500,000 10%
George S. Mennen Rev. Trust 1,333,333 5.3%
William G. Mennen IV, Trustee
Joseph Cygler 250,000 1.0%
Peter Ferguson 162,000 **
Dr. Martin Beyer 43,000 **
Dr. Russell Sturzebecker 36,141 **
Ueli Schurch 922,000 3.7%
Thomas Leyden 50,700 **
All Directors, executive officers
as a group (6 persons) 3,963,141 15.8%
</TABLE>
** 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 that such person has
the right to acquire within 60 days of April 14, 1999. 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 a 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 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 intends to convert a loan for $105,000, which will result in
the issuance of 700,000 additional shares to him. The figure shown above
assumes the issuance of all shares described herein.
15
<PAGE> 16
FORM 10-KSB ANNUAL REPORT
ITEM 8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Included in notes payable and long-term debt at December 31, 1998 and 1999, are
amounts payable to employees, directors and their immediate relatives as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Directors $109,400 $379,750
Employees 110,000 41,500
Immediate relatives 38,000 12,000
-------- --------
Total $257,400 $433,250
======== ========
</TABLE>
Directors notes payable declined $270,350 primarily due to conversion of such
debt into common stock.
The Company occupied space in 1998 and 1997 that is owned by its Chairman/CEO
and leased this space on a month to month basis. The amount paid to the
Chairman/CEO amounted to $30,000 in 1998 and 1997.
PART III
ITEM 1. EXHIBITS LIST AND REPORTS ON FORM 8-K
The Company did file Form 8-K on December 24, 1998 changing the
Company's Certifying Accountant from Withum, Smith & Brown to DeAngelis &
Higgins, LLC. The filing on December 24, 1998 did not include a letter from
Withum, Smith & Brown as required by the Securities and Exchange Commission
under Item 4(v). The Company properly notified Withum, Smith & Brown regarding
the change on December 18, 1998. On February 19, 1999 the Company received the
requested letter from Withum, Smith & Brown and filed an amended Form 8-K/A.
Signatures
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)
By: /s/ Quentin T. Kelly Date: April 14, 1999
----------------------
Quentin T. Kelly, Chairman/CEO
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Quentin T. Kelly Chairman/Chief Executive
- -------------------- Officer April 14, 1999
Quentin T. Kelly
/s/ John A. Pell President/Chief Operating April 14, 1999
- ---------------- Officer
John A. Pell
</TABLE>
16
<PAGE> 17
FORM 10-KSB ANNUAL REPORT
<TABLE>
<S> <C> <C>
/s/ Joseph Cygler Secretary/Director April 14, 1999
- -----------------
Joseph Cygler
/s/ Martin Beyer Director April 14, 1999
- ----------------
Martin Beyer
/s/ Russell Sturzebecker Director April 14, 1999
- ------------------------
Russell Sturzebecker
/s/ Ueli Schurch Director April 14, 1999
- ----------------
Ueli Schurch
</TABLE>
17
<PAGE> 18
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE> 19
WORLDWATER CORP. AND SUBSIDIARY
DECEMBER 31, 1998
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT FOR DECEMBER 31, 1998 F-2
INDEPENDENT AUDITORS' REPORT FOR DECEMBER 31, 1997 F-3
FINANCIAL STATEMENTS:
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Deficiency F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-25
F-1
<PAGE> 20
Independent Auditors' Report
To The Board of Directors and Stockholders,
WorldWater Corp:
We have audited the accompanying consolidated balance sheet of WorldWater Corp.
and subsidiary as of December 31, 1998 and the related consolidated statements
of operations, stockholders' deficiency and cash flows for the year 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 audit.
We conducted our audit 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 our audit provides 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, 1998, and the results of its operations and its
cash flows for the year 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 sales 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 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
DeAngelis & Higgins, L.L.C.
Cranbury, New Jersey
April 6, 1999
F-2
<PAGE> 21
[WITHUM, SMITH & BROWN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders,
WorldWater Corp.:
We have audited the accompanying consolidated balance sheet of WorldWater Corp.
and subsidiary as of December 31, 1997, and the related consolidated statements
of operations, stockholders' deficiency and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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. as of December 31, 1997, and the results of its operations and its cash
flows for the year 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 current significant sales
growth or development raises substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Withum, Smith & Brown
---------------------------------------------
Withum, Smith & Brown
Princeton, New Jersey
March 13, 1998, except for the first paragraph of
Note 19 as to which the date is
March 30, 1998
F-3
<PAGE> 22
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 4,162 $ 61,160
Accounts receivable, net of allowance for
doubtful accounts of $-0- in 1998 and 1997 -- 60,529
Marketable securities available for sale 11,875 162,500
Inventory 97,469 83,858
Prepaid expenses 5,335 2,627
------------ ------------
Total Current Assets 118,841 370,674
Equipment and leasehold improvements, net 48,268 47,875
Short-Term Investments - Restricted -- 43,973
Deposits 8,384 8,384
------------ ------------
TOTAL ASSETS $ 175,493 $ 470,906
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 425,307 $ 368,424
Accrued interest 332,829 498,136
Accrued salaries 205,200 169,250
Notes payable 136,181 85,931
Notes payable, related parties 237,400 93,250
Current maturities of long-term debt 897,150 1,681,650
Current maturities of long-term debt, related parties 20,000 340,000
------------ ------------
Total Current Liabilities 2,254,067 3,236,641
------------ ------------
Contingencies (Note 17) -- --
Stockholders' Deficiency:
Common stock, $.001 par value; authorized 30,000,000 and 20,000,000 shares
at December 31, 1998 and 1997; issued and outstanding 21,984,904 and
15,288,502 shares at December 31, 1998 and 1997, respectively 21,985 15,289
Additional paid-in capital 6,576,591 4,229,884
Accumulated other comprehensive loss (20,625) --
Accumulated deficit (8,656,525) (7,010,908)
------------ ------------
Total Stockholders' Deficiency (2,078,574) (2,765,735)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 175,493 $ 470,906
============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
F-4
<PAGE> 23
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 45,451 $ 517,031
Cost of Goods Sold 183,921 478,027
------------ ------------
Gross Profit (Loss) (138,470) 39,004
Research and Development
Expense 167,563 241,209
Marketing, General and
Administrative Expenses 1,055,982 1,023,715
------------ ------------
Total Expenses 1,223,545 1,264,924
------------ ------------
Loss from Operations (1,362,015) (1,225,920)
Other Expense (Income)
Debt term violation expense -- 334,336
Interest expense 162,402 166,966
Loss on sale of marketable securities 50,000 --
Interest income (1,575) (1,226)
Other (6,000) --
------------ ------------
Total Other Expense, Net 204,827 500,076
------------ ------------
Net Loss Applicable to
Common Shareholders $ (1,566,842) $ (1,725,996)
============ ============
Net Loss Applicable Per
Common Share:
Basic $ (0.08) $ (0.13)
============ ============
Diluted $ (0.08) $ (0.13)
============ ============
Shares Used in Per Share
Calculation:
Basic 19,126,684 13,164,859
============ ============
Diluted 19,126,684 13,164,859
============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
F-5
<PAGE> 24
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,566,842) $(1,725,996)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 18,376 20,584
Loss on marketable security 50,000 --
Stock issued for services 11,922 --
Imputed interest 26,600 --
Charges relating to common stock issued
for services and debt term violations -- 867,029
Changes in assets and liabilities:
Accounts receivable 60,529 (60,059)
Inventory (13,611) 19,140
Prepaid expenses (2,708) (2,627)
Accounts payable and accrued expenses 56,883 (9,550)
Accrued interest 107,133 120,903
Accrued salaries 35,950 24,000
----------- -----------
Net Cash Used in Operating Activities (1,215,768) (746,576)
Cash Flows from Investing Activities:
Proceeds on sale of marketable securities and investment 123,973 --
Increase in deposits -- (8,000)
Purchase of equipment and leasehold improvements (18,769) (23,956)
Purchase of short-term investment - restricted -- (43,973)
----------- -----------
Net Cash Used in Investing Activities 105,204 (75,929)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 57,500 40,000
Payments on long-term debt (176,000) (80,350)
Proceeds from issuance of notes payable 269,400 84,931
Payments on notes payable (50,000) (46,734)
Proceeds from issuance of stock 952,666 873,000
----------- -----------
Net Cash Provided by Financing Activities 1,053,566 870,847
Net Increase (Decrease) in Cash (56,998) 48,342
Cash at Beginning of Year 61,160 12,818
----------- -----------
Cash at End of Year $ 4,162 $ 61,160
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-6
<PAGE> 25
WORLDWATER CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Additional Comprehensive
Par Paid-In Income Accumulated
Shares Value Capital (Loss) Deficit Total
------ ----- ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
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 to 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 -- -- -- -- (1,725,996) (1,725,996)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 15,288,502 15,289 4,229,884 -- (7,010,908) (2,765,735)
Issuance of common stock
for cash 2,048,949 2,049 626,412 -- -- 628,461
Issuance of common stock
for warrants exercised 827,500 827 323,378 -- -- 324,205
Debt and accrued interest
converted to common stock 3,329,073 3,329 1,280,111 -- -- 1,283,440
Issuance of common stock
for services 59,630 60 11,862 -- -- 11,922
Issuance of common stock
for settlement of asserted
claims 431,250 431 78,344 -- (78,775) --
Imputed interest 26,600 -- -- 26,600
Net Loss -- -- -- (20,625) (1,566,842) (1,587,467)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 21,984,904 $ 21,985 $ 6,576,591 $ (20,625) $(8,656,525) $(2,078,574)
=========== =========== =========== =========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these statements.
F-7
<PAGE> 26
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) FORMATION OF THE COMPANY
WorldWater Corp. ("Company") was incorporated in the State of Nevada on
April 3, 1985 under the name Golden Beverage Company ("Golden"). In
April 1997, the Company completed a reverse acquisition with
WorldWater, Inc., a Delaware corporation formed in January 1984 and
changed its name to WorldWater Corp. in June 1997. Pursuant to the
acquisition agreement, the Company issued on a share-for-share basis
8,141,126 post-reverse split shares of Golden $0.001 par value voting
common stock for 8,141,126 shares of WorldWater, Inc. $0.001 par value
voting common stock, which equaled eighty percent (80%) of all
WorldWater, Inc. issued and outstanding common stock. The remaining
shareholders were offered one share of the Company's common stock for
one share of WorldWater, Inc.'s common stock and are reflected as
issued and outstanding common stock of the Company.
Prior to the reverse merger transaction described above, the Company
was a non-operating publicly held company. As of the closing date, all
assets and liabilities of Golden Beverage Company were transferred to
an unrelated entity. Therefore, the reverse acquisition had the effect
of transferring the assets and liabilities of WorldWater, Inc. into the
publicly held entity. In consideration for this, the former
shareholders of Golden Beverage Company received 113,501 shares of the
Company's common stock.
The Company and WorldWater, Inc. remain as two separate entities and
WorldWater, Inc. operates as a subsidiary of WorldWater Corp. The
operations of the Company are comprised solely of the operations of
WorldWater, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
The Company is a full-service water management and solar energy
company, designing, developing and marketing technology relating to
water needs and solar power applications. The Company advises and
supplies governments and industry throughout the world on solar
electric applications and on all phases of water needs. The Company's
primary customers are developing countries, which require
non-traditional means of fulfilling their energy and water needs.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, WorldWater, Inc. All
intercompany transactions and balances have been eliminated.
F-8
<PAGE> 27
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
Cash equivalents consist of highly liquid instruments with maturities
at the time of acquisition of three months or less. Cash equivalents
are stated at cost, which approximates market.
INVENTORY
Inventory is stated at the lower of cost or market determined by the
First-In, First-Out (FIFO) method. Inventory consists mainly of
purchased system components.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost and are
depreciated for financial reporting purposes using the straight-line
method. The principal useful lives are: computers and information
equipment, 5 years, office furniture, vehicles, and test and assembly
fixtures, 5 to 7 years: leasehold improvements, 7 years. Upon
retirement or disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income.
Expenditures for maintenance and repairs are charged against income as
incurred. Expenditures, which significantly increase asset value or
extend useful lives, are capitalized.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs consist of expenses associated with
basic and applied research in the sciences and engineering and the
design and development of prototypes and processes. Research and
development costs are charged to operations when incurred.
EQUITY SECURITY TRANSACTIONS
Since inception, the Board of Directors has established the fair value
of common stock based upon facts and circumstances existing at the
dates such equity transactions occurred.
REVENUE RECOGNITION
Revenue from sales is recorded at the time the goods are shipped and
title passes. Revenue from consulting projects is recorded when
services are rendered.
F-9
<PAGE> 28
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR INCOME TAXES
Deferred income taxes and liabilities are determined based on
differences between the financial statement reporting and the tax basis
of assets and liabilities, operating losses, and tax credit carry
forwards. Deferred income taxes are measured using the enacted rates
and laws that are anticipated to be in effect when the differences are
expected to reverse. The measurement of deferred income tax assets is
reduced, if necessary, by a valuation allowance for any benefits which
are not expected to be realized. The effect on deferred income tax
assets and liabilities of a change in tax rates is recognized in the
period that such tax rate changes are enacted.
NET LOSS PER COMMON SHARE
Basic earnings (net) per share is based upon weighted-average common
shares outstanding. Dilutive earnings per share is computed using the
weighted-average common shares outstanding plus any potentially
dilutive securities including stock options, warrants, and convertible
debt. Options, warrants and convertible debt were not included in the
computation of diluted net loss per common share because, the effect in
years with a net loss are antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
LONG-LIVED ASSETS
Long-lived assets are comprised of equipment. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
An estimate of undiscounted future cash flows produced by the assets,
is compared to the carrying amount to determine whether impairment
exists.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with
current year presentation.
F-10
<PAGE> 29
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities and
requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. In addition, an entity that elects to apply
hedge accounting, is required to establish at inception of the hedge
the method it will use for assessing the effectiveness of the hedging
derivative and the measurement approach for determining the ineffective
aspect of the hedge. The provisions of this statement are effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999.
The adoption of SFAS 133 will not have a material effect on the
Company's consolidated financial statements.
(3) GOING CONCERN
These consolidated financial statements are presented on the basis that
the Company will continue as a going concern. The going concern concept
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, stockholder's
deficiency and lack of sales growth 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 and continues to raise capital through the sale
of common stock and additional borrowings. 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.
(4) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Computers $ 24,633 $ 24,633
Office furniture and equipment 31,537 31,537
Test and assembly fixtures 32,838 14,069
Vehicles 7,721 7,721
Leasehold improvements 8,123 8,123
-------- --------
104,852 86,083
Less: Accumulated depreciation 56,584 38,208
-------- --------
Equipment and leasehold improvements, net $ 48,268 $ 47,875
======== ========
</TABLE>
F-11
<PAGE> 30
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) NOTES PAYABLE
The Company has outstanding several notes payable in the aggregate
amounts of $373,581 and $179,181 at December 31, 1998 and 1997,
respectively. The effective interest rates on these notes range from
0.00% to 10%. All outstanding notes payable are unsecured.
The Company imputed interest expense based on the difference between
the fair value and the stated interest of the notes payable which had
effective interest rates less than borrowing rates currently available
to the Company. Interest expense of $12,350 has been charged to
operations and recorded as a contribution to the Company as additional
paid-in capital.
(6) LONG-TERM DEBT
The Company has several loans in default. The Company is negotiating
these situations on an item by item basis to arrange an alternative
payment method.
Long-term debt consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Loans payable to individuals, with no stated interest rate or maturity
date. These uncollateralized notes are convertible at the rate of
$0.495 per common share for 146,465 shares of common stock
These loans mature at a date six months after the closing of the
Company's first public offering $ 72,500 $ 92,500
Loan payable to a corporation, with no stated interest rate or maturity
date. The loan will be repaid with the proceeds of the Company's first
public offering. The uncollateralized loan has a conversion option
which is exercisable at the option of the holder 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 January 23, 1991, with an original
maturity date of January 23, 1997, bearing interest at 8.00 percent per
annum. The loan is uncollateralized. Payment of principal and accrued
interest were due at maturity. During 1998, the loan was repaid -- 90,000
-------- --------
Subtotal $122,500 $232,500
</TABLE>
F-12
<PAGE> 31
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Balance Carryforward $122,500 $232,500
Loan payable to an individual dated April 13, 1992, with an original
maturity date of April 13, 1997, bearing interest of 8.00 percent per
annum. The loan is uncollateralized. Payments of principal and accrued
interest were due at maturity. During 1998, the loan and accrued
interest were converted by the holder for 174,671 shares of common
stock at a rate of $0.40 per share (125,000 shares for principal and
49,671 shares for interest) -- 50,000
Loan payable to an individual dated June 29, 1992, with an original
maturity date of June 29, 1997, bearing interest at 8.00 percent per
annum. The loan is uncollateralized. Payment of principal and
accrued interest were due at maturity. During 1998, the loan and accrued
interest were converted by the holder for 91,144 shares of common
stock at a rate of $0.40 per share (62,500 shares for principal and
28,644 shares for interest) -- 25,000
Loan payable to an individual dated July 30, 1992, with an original
maturity date of July 30, 1997, bearing interest at 8.00 percent per
annum. The loan is uncollateralized. Payment of principal and accrued
interest were due at maturity. During 1998, the loan and accrued
interest were converted by the holder for 83,486 shares of common stock
at a rate of $0.40 per share (62,500 shares for principal and 20,986
shares for interest) -- 25,000
-------- --------
Subtotal $122,500 $332,500
</TABLE>
F-13
<PAGE> 32
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Balance Carryforward $122,500 $332,500
Loan payable to an individual dated October 14, 1992, with an original
maturity date of October 14, 1997, bearing interest at 8.00 percent per
annum. The loan is uncollateralized. Payment of principal and accrued
interest were due at maturity. The loan is convertible at the option of
the holder at the rate of $0.40 per share for a total conversion amount
of 125,000 shares of common stock 50,000 50,000
Loan payable to an individual dated January 19, 1993, with an original
maturity date of January 13, 1998, bearing interest at 8.00 percent per
annum. The loan is uncollateralized. Payment of principal and interest
were due at maturity. During 1998, the loan and accrued interest, were
converted by the holder for 83,486 shares of common stock at a rate of
$0.40 per share (62,500 shares for principal and 20,986 shares for
interest) -- 25,000
Loans payable to individuals dated June 30, 1993, with an original
maturity date of June 30, 1998, bearing interest at 8.00 percent per
annum. The loan is uncollateralized. Payments of principal and accrued
interest were due at maturity. During 1998, the loan and accrued
interest were converted by holder for 850,333 shares of common stock at
a rate of $0.423 per share (650,119 shares for principal and 200,214
shares for interest) -- 275,000
Loan payable to an individual dated October 26, 1993, maturing October
26, 1998, bearing interest at 8.00 percent per annum. The loan is
collateralized by inventory and accounts receivable, and the related
products and proceeds. Payment of principal and accrued interest were
due at maturity. During 1998, the loan and accrued interest were
converted by the holder for 544,975 shares of common stock at a rate of
$0.48 per share ( 406,250 shares for principle and 138,725 shares for
interest) -- 195,000
-------- --------
Subtotal $172,500 $877,500
</TABLE>
F-14
<PAGE> 33
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Balance Carryforward $ 172,500 $ 877,500
Loan payable to an Investment Trust, dated September 28, 1994, maturing
March 31, 1998, bearing interest at 9.00 percent per annum. The loan is
collateralized by inventory and accounts receivable. Payment of
principal and interest were due at maturity. The note is convertible at
the option of the holder at the rate of $0.50 per common share for a
total conversion amount of 270,000 shares of common stock 135,000 135,000
Loan payable to an individual dated November 10, 1997, maturing
February 8, 1998. The loan bears interest at 10.00 percent per annum
The loan is uncollateralized. Payment of principal and interest was due
at maturity. The loan holder was granted 22,000 warrants for the
purchase of common stock at the price of $0.60 per share -- 20,000
Loans payable to individuals dated June 28, 1995 through May 30, 1996
The loans are due upon demand and bear interest at 10 percent per
annum. The loans are uncollateralized and are convertible at the option
of the holder at the rate of $0.50 per common share. During 1998,
$125,000 of the loans and $29,369 accrued interest were converted by
the borrowers for 859,667 shares of common stock at a rate of $0.18 per
share (692,983 shares for principal and 166,684 shares for interest)
At December 31, 1998, the loans are convertible at the option of the
holders at the rate of $0.50 per common for a total liquidation amount
of 510,000 shares of common stock. In addition, in 1997 all loan
holders were granted 485,100 warrants for the purchase of common stock
at the price of $0.40 per share for signing a
Forbearance Agreement 255,000 441,000
---------- ----------
Subtotal $ 562,500 $1,473,500
</TABLE>
F-15
<PAGE> 34
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Balance Carryforward $ 562,500 $1,473,500
Loans payable to individuals dated July 17, 1995 through February 25,
1997. The loans are due upon demand and bear interest at 10 percent per
annum. The loans are uncollateralized and are convertible at the option
of the holder at the rate of $0.50 per common share. During 1998,
$246,000 of the loans were converted by the holders for 560,354 shares
of common stock at a rate of $0.50 per share (492,000 shares for
principal and 68,354 shares for interest). At December 31, 1998, the
remaining loans are convertible at a rate of $0.50 per common share for
a total liquidation amount of 594,300 shares of common stock. In
addition, all holders were granted 602,965 warrants for the purchase of
common stock at the price of $0.60 per share 297,150 548,150
Note payable to an individual dated December 1998, maturing on the
earlier of April 30, 1999 or receipt from the sale of tax certificates,
bearing interest at 6.00 percent per annum. Payment of principal and
interest is due at maturity. The uncollateralized note is convertible
at the sole option of the holder at the rate of $0.15 per share for a
total conversion amount of 333,333 shares of common stock. The loan
holder was granted warrants for the purchase of common stock at the
price of $0.25 per share. In the event of full conversion of this note
the warrant entitles the holder to purchase 166,667 shares; in the
event of loan repayment, the warrant entitles the holder to
purchase 50,000 shares 50,000 --
---------- ----------
Subtotal $ 909,650 $2,021,650
</TABLE>
F-16
<PAGE> 35
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Balance Carryforward $ 909,650 $2,021,650
Note payable to an individual dated December 1998, maturing on the
earlier of March 31, 1999 or receipt from the sale of tax certificates,
bearing interest at 6.00 percent per annum. Payment of principal and
interest is due at maturity. The uncollateralized note is convertible
at the sole option of the holder at the rate of $0.15 per share for a
total conversion amount of 50,000 shares of common stock. The loan
holder was granted warrants for the purchase of common stock at the
price of $0.25 per share. In the event of full conversion of this note
the warrant entitles the holder to purchase 25,000 shares; in the event
of loan repayment, the warrant entitles the holder to purchase 7,500
shares 7,500 --
---------- ----------
Total $ 917,150 $2,021,650
Less current maturities 917,150 2,021,650
---------- ----------
Total long-term debt $ -- $ --
========== ==========
</TABLE>
The Company imputed interest expense based on the difference between
the fair value and the stated interest of the notes payable which had
effective interest rates less than borrowing rates currently available
to the Company. Interest expense of $14,250 has been charged to
operations and recorded as a contribution to the Company as additional
paid-in capital.
F-17
<PAGE> 36
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Federal:
Current $ -- $ --
Deferred -- --
----------- ----------
$ -- $ --
=========== ==========
State:
Current $ -- $ --
Deferred -- --
----------- ----------
$ -- $ --
=========== ==========
</TABLE>
Total income tax benefit for the years ended is different from the
amount computed by multiplying total loss before income taxes by the
statutory Federal income tax rate of 34%.
The reason for this difference and the related tax effects are as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Expected tax benefit at 34% $ 390,832 $ 535,058
State tax benefit before allowance 151,167 155,340
Conversion of interest for stock (56,353) --
Change in differed tax valuation allowance (485,646) (690,398)
----------- -----------
Income tax benefit $ -- $ --
=========== ===========
</TABLE>
The tax effect of significant items comprising the Company's
deferred tax asset are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net operating losses carryforwards $ 2,999,200 $ 2,513,554
Valuation Allowance (2,999,200) (2,513,554)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
At December 31, 1998, the Company has available net operating loss carryforwards
for tax purposes of approximately $7,498,000, which expire in the years 2000 to
2014.
F-18
<PAGE> 37
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) STOCK-BASED COMPENSATION PLANS
The Company provides a stock option plan, ("1995 Stock Option Plan")
for the granting of incentive stock options to key employees, directors
and consultants to the Company. The options under this plan are to
purchase common stock at not less than fair-market value at the date of
the grant. The Company may grant up to 850,000 shares, with an option
term not to exceed seven years. As of December 31, 1998, no options
have been issued under this plan.
During the year ended December 31, 1996, the Board of Directors created
new categories for Incentive Stock Options (ISO). During the years
ended 1998 and 1997, the Company granted 171,731 and 86,300 stock
options, respectively.
The following summarizes stock options activity and related
information:
<TABLE>
<CAPTION>
1998 1997
---- ----
Weighted Average Weighted Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning
of the year 322,200 $ 0.40 235,900 $ 0.40
Granted 171,731 0.40 86,300 0.40
Cancelled -- -- -- --
Exercised -- -- -- --
------- -------- ------- --------
Outstanding at end
of the year 493,931 $ 0.40 322,200 $ 0.40
======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C> <C>
Number of shares
Exercisable at
December 31, 493,931 $ 0.40 322,200 $ 0.40
======= ======== ======= =======
Weighted-Average Remaining
Contractual Life (Years) 3.03 3.62
======== =======
</TABLE>
F-19
<PAGE> 38
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) STOCK-BASED COMPENSATION PLANS (CONTINUED)
The Company adopted the provisions of Financial Accounting Standards No
123, "Accounting for Stock-Based Compensation," that calls for
companies to measure Stock compensation expense based on the fair value
method of accounting. However, as allowed by the Statement, the Company
elected the continued use of Accounting Principles Board (APB) Opinion
25, "Accounting for Stock Issued to Employees," with pro forma
disclosure of net income and earnings (loss) per share determined as if
the fair value method had been applied in measuring compensation costs.
Had the fair value method been applied, the impact on net loss and loss
per share for the years ended December 31, 1998 and 1997, would be
immaterial.
(9) WARRANTS
The Company accounts for transactions with non-employees, in which
goods or services are the consideration received for the issuance of
equity instruments, under the fair value based method.
At December 31, 1998, warrants to purchase 4,539,897 common shares are
outstanding; 108,437 warrants exercisable during the year 1999, with a
strike price of $0.40 - $0.75, 872,465 warrants exercisable during the
year 2000, with a strike price of $0.40 - $0.60, 794,600 warrants
exercisable during the year 2001, with a strike price of $0.25 - $0.60,
534,265 warrants exercisable during the year 2002, with a strike price
of $0.30 - $0.60, 2,220,130 warrants exercisable during the year 2003,
with a strike price of $0.50, and 10,000 warrants exercisable during
the year 2004, with a strike price of $0.20.
(10) EMPLOYMENT AND CONSULTANT AGREEMENTS
On June 8, 1998, the Company entered into a one-year employment
agreement with the President/Chief Operating Officer ("COO"). The
agreement is automatically extended for an additional year, upon mutual
agreement of the parties. Compensation under the agreement is $24,000
and annual bonuses as determined by the Company's Board of Directors.
The agreement also provides five-year Incentive Stock Options (ISO) to
purchase 100,000 shares of the Company's common stock at $0.50 (fifty
cents) per share. The ISO vest monthly during employment in equal
installments of 8,333 shares per month. The agreement provides a
covenant not to disclose any proprietary information. If the Employee's
employment is terminated by reason of death or disability, the
Employee's estate will be entitled to continued compensation under the
terms of this agreement.
F-20
<PAGE> 39
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) EMPLOYMENT AND CONSULTANT AGREEMENTS (CONTINUED)
The Company has employment agreements with the Chairman and Vice
Presidents, General Manager and Finance Officer of the Company.
Aggregate compensation under these agreements are $187,000. The
agreements also provided five-year Incentive Stock Options (ISO) to
purchase 87,000 shares of the Company's common stock at $0.50 (fifty
cents) per share. Effective May 1998, the Company's General Manager and
Finance Officer terminated his position with the Company. As of
December 31, 1998, 83,100 shares were awarded.
The Company has unpaid salaries of $205,200 which have been deferred by
the officers as of December 31, 1998.
The Company has agreements effective through December 31, 2005 with its
Chairman, a senior executive and a consultant, which provides for an
incentive fee of up to five percent (5%) on revenues earned by the
Company with an annual cap of $250,000 per individual. The Company
incurred incentive fee expenses of $-0- and $6,462 in 1998 and 1997,
respectively.
The Company has entered into consulting agreements with key personnel
for the Company. Compensation under these agreements totaled $88,000.
The agreements also provide, five-year Incentive Stock Options (ISO) to
purchase shares of the Company at $0.50 (fifty cents) per share, and
reimbursement of professional fees and dues up to $2,000 per year. The
ISO vest monthly during employment in equal installments of 4,000
shares per month.
The Company has entered into an agreement with a consultant to assist
with the sale of its State of New Jersey Net Operating Losses. Under
the terms of the agreement the consultant would receive a three percent
commission (3%), or approximately $15,000.
(11) LEASES
The Company leases its production, service and administrative premises
under a five-year lease agreement expiring June 14, 2002, with a
renewal option for an additional five-year period. The lease requires
the lessee to pay taxes, maintenance, insurance and certain other
operating costs of the leased property.
The minimum future rental payments under this lease are as follows:
<TABLE>
<S> <C>
1999 $45,500
2000 51,500
2001 61,000
2002 27,500
--------
Total minimum future rental payments $185,500
========
</TABLE>
F-21
<PAGE> 40
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) RELATED PARTY TRANSACTIONS
Included in notes payable and long-term debt at December 31, are
amounts payable to employees, directors and their immediate relatives
as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Directors $109,400 $379,750
Employees 110,000 41,500
Immediate relatives 38,000 12,000
-------- --------
Total $257,400 $433,250
======== ========
</TABLE>
The Company leased office and laboratory facilities from the Chairman
of the Company on a month to month basis. Lease payments to the
Chairman were $30,000 for 1998 and 1997.
(13) MARKETABLE SECURITIES AVAILABLE FOR SALE
The Company acquired 50,000 shares of Proformix Systems, Inc., a NASDAQ
traded company as part of its settlement with Royal Capital Inc. and
has recorded these securities as marketable securities available for
sale. The Company received these securities on December 31, 1997 and
recorded them at their then market value of $162,500.
During 1998, the Company sold 40,000 shares of the stock. Proceeds from
the sale were $80,000 and the Company recognized a loss on the sale of
marketable securities of $50,000. These marketable securities are
stated at fair value with any unrealized holding gains or losses
included as a component of stockholders' deficiency until realized. At
December 31, 1998, the Company has an unrealized holding loss of
$20,625.
(14) SHORT-TERM INVESTMENTS RESTRICTED
Short-term investment is a certificate of deposit that the Company was
required to purchase to serve as a performance bond in connection with
a sale to the Philippine Government. The certificate of deposit bears
interest at 4.4% per annum and matured June 10, 1998. On October 9,
1998 the funds and accrued interest were received by the Company in
accordance with the sales agreement.
(15) RISKS AND UNCERTAINTIES
The Company markets its products to developing nations. The ability of
these customers to order and pay for the Company's products is
dependent on a variety of factors including government approval,
adequate funding and vigorous testing procedures. Sales to three major
customers accounted for 48%, 22% and 22% of the Company's sales in
1998. In 1997, sales to a major customer accounted for 83% of the
Company's sales.
F-22
<PAGE> 41
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical
to estimate that value.
The carrying amounts of cash and cash equivalents, receivables,
accounts payable and accrued expenses approximate fair value because of
the short maturity of those instruments. The carrying value of
marketable securities available for sale is carried at a fair value
based upon quoted market prices. The fair value of the Company's debt
is estimated based on the current rates offered to the Company for debt
of the same remaining maturities and similar terms. The estimated fair
values of the Company's debt instruments are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
1998 $1,290,731 $1,258,081
1997 2,200,831 Not Practicable
</TABLE>
In 1997, due the Company's debt being in the process of being converted
into common stock and the nature of the various conversion features, it
is not practicable to estimate the fair value of the notes payable and
long-term debt.
(17) CONTINGENCIES
The Company has received correspondence from the estate of one of its
creditors, who asserts that the Company owes this entity the debt, as
recorded in the Company's financial statements plus accrued interest
from the date of the note. The Company believes that the terms of the
note clearly indicate that it is a non-interest bearing note.
(18) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
---------- ------
<S> <C> <C>
Cash paid during the year for:
Interest $ 4,761 $8,167
========== ======
Income taxes $ -- $ --
========== ======
</TABLE>
Supplemental schedule of non-cash investing and finance activities:
In 1998, the Company's debt holders converted $1,011,000 of debt
principal and $272,440 of accrued interest (total of $1,283,440) into
3,329,073 shares of the Company's common stock at rates between $0.15 -
$0.50 per share.
F-23
<PAGE> 42
WORLDWATER CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(18) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental schedule of non-cash investing and finance activities
(continued):
In 1997, the Company's the debt holders converted $240,000 of debt
principal and $96,145 of accrued interest (total of $336,145) into
685,484 shares of the Company's common stock at rates between $0.40 -
$0.50 per share
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 13).
(19) COMMON STOCK
On or about August 12, 1997, the Company received a letter from the
special counsel to the bankruptcy trustee in the Chapter 11 bankruptcy
provisions of a shareholder. The trustee's counsel asserted claims
under a certain Loan & Settlement Agreement. The settlement affirmed on
March 30, 1998, called for the payment of $90,000 in cash and the
conversion of $135,000 of a convertible debenture and $78,775 in
accrued interest for 431,250 shares of the Company's common stock.
The Company entered into a settlement agreement (the "Settlement
Agreement") on December 30, 1997 with Royal Capital Incorporated
("Royal") and its principals, 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 mutually
agreed to 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 Proformix Systems, Inc. common
stock, a bulletin board 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 Investment
Limited: and 6) the Company and Royal agreed to full mutual releases
and certain indemnification provisions.
F-24
<PAGE> 43
WORLDWATER CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(19) COMMON STOCK (CONTINUED)
The following is a reconciliation of common stock outstanding per the
consolidated balance sheet at December 31, with those per the record of
the Company's transfer agent:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Common stock shares outstanding per transfer agent 21,984,904 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 erroneously issued in 1997
(shares to be cancelled in 1998) -- (25,000)
---------- ----------
Shares outstanding as of December 31, 21,984,904 15,288,502
========== ==========
</TABLE>
(20) SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to December 31, 1998, the Company converted, at the consent
of its debt holders, an additional $237,500 of long-term debt and
notes payable into 1,116,667 shares of the Company's common stock.
Subsequent to December 31, 1998, the Company sold, 1,893,333 shares of
the Company's common stock for $307,000 at the average rate of $0.16
per share.
In January 1999, the Board of Directors approved a reduction in the
exercise price on the 493,931 Incentive Stock Options from $0.40 to
$0.15, that are outstanding and exercisable at December 31, 1998 under
the Stock Based Compensation Plan (see Note 8).
On March 12, 1999, the Company received proceeds from the issuance of
convertible notes to individuals in the amount of $35,000. These notes
bear interest of 9 percent per annum and mature September 12, 1999. If
the loans are repaid within the first ninety days, all interest will be
forgiven. Additionally, the notes provide an equity investment of
$7000 in exchange for 140,000 common stock shares.
F-25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,162
<SECURITIES> 11,875
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 97,469
<CURRENT-ASSETS> 118,841
<PP&E> 104,852
<DEPRECIATION> 56,584
<TOTAL-ASSETS> 175,493
<CURRENT-LIABILITIES> 2,254,067
<BONDS> 0
0
0
<COMMON> 21,985
<OTHER-SE> (2,100,559)
<TOTAL-LIABILITY-AND-EQUITY> 175,493
<SALES> 45,451
<TOTAL-REVENUES> 45,451
<CGS> 183,921
<TOTAL-COSTS> 1,223,545
<OTHER-EXPENSES> 42,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162,402
<INCOME-PRETAX> (1,566,842)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,566,842)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,566,842)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
