U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1998
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[ ] Transition report under Section 13 or 15(d) of the exchange act of
1934 for the transition period from ______________ to ______________
COMMISSION FILE NUMBER 33-37513-D
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GLOBAL WATER TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 84-1148204
- ----------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1767 Denver West Boulevard Golden, Colorado 80401
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(Address of principal executive offices)
(Zip Code)
(Issuer's telephone number): (303) 215-1100
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NA
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Shares of Common Stock, $0.00001 par value, outstanding as of May 20, 1998:
294,050,000.
- -----------
Transitional Small Business Disclosure Format Yes No X
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<PAGE>
GLOBAL WATER TECHNOLOGIES, INC. (GWTR)
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Operations Three months ended
March 31, 1998 and 1997
Consolidated Balance Sheet As of March 31, 1998
Consolidated Statements of Cash Flows Three months ended
March 31, 1998 and 1997
Notes to Financial Statements March 31, 1998 and 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART 2. OTHER INFORMATION
SIGNATURES
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
--------------------------
March 31, March 31,
1998 1997
--------- ---------
Construction revenue:
United States $3,326,263 $2,767,578
International 1,191,320 455,908
---------- ----------
Total revenues 4,517,583 3,223,486
---------- ----------
Costs and expenses:
Cost of construction 3,391,348 2,188,132
Selling, general and administrative 1,205,744 836,004
Research and development 52,032 42,027
---------- ----------
Total costs and expenses 4,649,124 3,066,163
---------- ----------
Operating income (loss) (131,541) 157,323
Other income (expense):
Interest expense, net (30,316) (34,547)
Other, net 255 1,148
---------- ----------
Income (loss) before income taxes (161,602) 123,924
Income taxes (benefit) (54,945) 42,241
---------- ----------
Net income (loss) $ (106,657) $ 81,683
========== ==========
Income (loss) per share:
Basic weighted average shares outstanding 294,050,000 261,382,500
Basic income (loss) per share $ (0.0004) $ 0.0003
=========== ===========
Fully diluted weighted average shares
outstanding 294,050,000 261,382,500
Fully diluted income (loss) per share $ (0.0004) $ 0.0003
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
As of March 31, 1998
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 97,193
Trade accounts receivable, net of
allowance for doubtful accounts
of $66,914 4,088,902
Other receivables 31,081
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,623,153
Income taxes receivable 56,740
Inventories 360,102
Prepaid expenses 124,619
Restricted assets, certificate of deposit 225,762
----------
Total current assets 7,607,552
----------
Property and equipment, net 676,596
Intangibles, net of amortization 49,499
Deposits 13,086
----------
$8,346,733
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $1,006,638
Accounts payable 4,518,001
Accrued liabilities 654,231
Billings in excess of costs and
estimated earnings on uncompleted
contracts 446,358
Deferred income taxes 125,277
----------
Total current liabilities 6,750,505
----------
Long-term debt 544,854
Deferred income taxes 155,717
Stockholders' equity:
Preferred stock, $0.00001 par value,
20,000,000 shares authorized; 1,000,000
shares issued and outstanding; stated
at redemption value of $0.0001 100
Common stock, $0.00001 par value;
800,000,000 shares authorized;
294,050,000 shares issued and outstanding 2,940
Capital in excess of par value 522,624
Retained earnings 369,993
----------
Total stockholders' equity 895,657
----------
$8,346,733
==========
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
--------------------------
March 31, March 31,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (106,657) $ 81,683
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation 42,500 34,200
Amortization 2,751 -
Decrease in deferred income taxes (33,200) -
(Increase) decrease in working capital:
Trade accounts receivable (151,257) 258,472
Other receivables (14,984) 52,434
Costs and estimated earnings in
excess of billings on uncompleted
contracts 72,629 774,528
Income taxes receivable (21,745) -
Inventories 20,026 (152,709)
Prepaid expenses 1,412 (26,912)
Deposits - (2,157)
Accounts payable (167,567) (157,619)
Income taxes payable - 41,491
Accrued liabilities 15,409 (171,896)
Billings in excess of costs and
estimated earnings on uncompleted
contracts (53,236) (21,760)
---------- ----------
Net cash provided (used) by
operating activities (393,919) 709,755
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certificate of deposit (2,926) (2,828)
Purchase of property and equipment (114,518) (63,847)
---------- ----------
Net cash (used in) investing
activities (117,444) (66,675)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change on the lines-of-credit 50,000 (156,267)
Proceeds from issuance of debt 475,000 -
Repayments of debt (35,331) (35,373)
---------- ----------
Net cash provided (used) by
financing activities 489,669 (191,640)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (21,694) 451,440
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 118,887 61,188
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 97,193 $ 512,628
========== ==========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998 and 1997
1. INTERIM FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1998, and the related
consolidated statements of operations and statements of cash flows for the
three months ended March 31, 1998 and 1997 are unaudited; in the opinion of
management, all adjustments necessary for a fair presentation of such
financial statements have been included. These financial statements and
notes are presented as permitted by Form 10-QSB and should be read in
conjunction with the Company's financial statements and notes included in
Form 10-K.
2. EARNINGS PER SHARE
The Company adopted FASB Statement No. 128 "Earnings Per Share" retroactive
to January 1, 1996. Income (loss) per basic share is computed on the basis
of the weighted average number of common shares outstanding for the respective
periods. Diluted income (loss) per share was computed using the treasury
stock method on the basis of the weighted average number of common shares after
giving effect to all dilutive potential common shares that were outstanding
during the respective periods. Certain options and warrants were
considered anti-dilutive and, therefore, the basic weighted average shares
outstanding was equal to the fully diluted weighted average shares
outstanding.
3. COMPREHENSIVE INCOME
In June, 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("FAS 130"). FAS 130, which is effective for fiscal years beginning after
December 15, 1997, defines comprehensive income as all changes in
shareholders' equity exclusive of transactions with owners, such as capital
investments. Comprehensive income includes net income or loss, changes in
certain assets and liabilities that are reported directly in equity such as
translation adjustments on investments in foreign subsidiaries, and certain
changes in minimum pension liabilities. The Company's comprehensive income
(loss) was equal to its net income (loss) for the three month periods ended
March 31, 1998 and 1997.
4. OTHER RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June, 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of An
Enterprise and Related Information ("FAS 131"). FAS 131 changes the
disclosure requirements for segment reporting from an "industry segment"
approach required under FAS 14 to the "management approach". The new
approach is intended to allow users to "see through the eyes of management"
in order to better understand the Company's performance. FAS 131 is
effective for fiscal years beginning after December 15, 1997, with interim
segment disclosures not required until 1999. The Company has determined
that FAS 131 will not have a material impact on the financial statements
because the Company has only one business: the design, sale, and
manufacture and building of new industrial cooling towers and retrofitting
existing industrial cooling towers and cooling tower components.
4
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
GENERAL
Global Water Technologies, Inc. (the "Company"), primarily through its
wholly owned subsidiary, Psychrometric Systems, Inc., is in the business of
designing, selling, manufacturing and building industrial cooling towers,
repairs and maintenance in the retrofit of existing industrial cooling
towers and cooling tower components for these and similar facilities. The
Company markets its products and services worldwide to the following
industries: electric power utilities; process (such as agricultural,
industrial and pharmaceutical process industries); petrochemical; chemical;
heating, ventilation and air-conditioning ("HVAC"); manufacturing; pulp &
paper and other industries utilizing cooling towers. Typical customers
include companies such as Archer Daniels Midland, Amoco, Mitsubishi, Mobil,
Texaco, Bechtel, Fluor Daniel, Inc. and other large corporations around the
world.
The Company derives revenue from the following principal sources: new
cooling tower sales, retrofits to existing cooling tower construction
repair projects and spare parts and supplies to existing cooling tower
customers. The Company custom designs and constructs wooden, fiberglass
and concrete towers for its customer base worldwide.
The Company recognizes engineering and construction contract revenues
using the percentage-of-completion method, based primarily on contract
costs incurred to date compared with total estimated contract costs.
Contracts on new cooling towers are segmented between types of services,
such as engineering and construction, and accordingly, gross margin related
to each activity is recognized as those separate services are rendered.
Changes to total estimated contract costs and to contract revenues via
change orders are recognized in the period in which they are determined.
In addition, a provision is made for the entire amount of future estimated
losses, if any, on contracts in progress in the period in which such losses
are determined.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Total revenues were derived from engineering, construction, retrofits
and spare parts of cooling towers. For the three month period ended March
31, 1998, total tower revenue increased 40.1% to $4,517,583 as compared to
$3,223,486 for the three month period ended March 31, 1997. International
revenues comprised 26.4% of total revenues in 1998 versus 14.1% in 1997,
with such increase resulting from increased emphasis on the international
market. In 1997, the Small Business Administration named the Company's PSI
subsidiary as Small Business Exporter of the Year for Region VIII which
includes Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming.
Contracts awarded ("bookings") during the three month period ended
March 31, 1998 increased 148.4% to $7,367,155 from $2,966,260 in 1997. The
increase in bookings awarded is due to an overall increase in the number of
projects won, an increase in the average dollar amount of the contract
awarded, and increased selling expenses to take advantage of market
opportunities. Backlog increased from $11,606,245 at December 31, 1997 to
$14,455,817 at March 31, 1998. Of this total, approximately $2.7 million
is expected to be recognized as revenue in 1999.
5
<PAGE>
The Company's cost of construction increased 55.0% from $2,188,132 in
1997 to $3,391,348 in 1998. As a percentage of revenues, cost of
construction increased from 67.9% in 1997 to 75.1% in 1998. The absolute
increase in cost of construction resulted primarily from a 40.1% increase
in corresponding revenues. Due to significant competition, there can be no
assurance that the Company can maintain its profit margins in the future.
Selling, general and administrative expenses increased 39.2% from
$836,004 in 1997 to $1,205,744 in 1998 as the Company continues to make an
investment in its future. As a percentage of revenues, which increased 148.4%
these expenses increased from 25.9% in 1997 to 26.7% in 1998. As a percentage
of new bookings which increased 148.4%, these expenses actually decreased from
28.2% in 1997 to 16.4% in 1998. In support of greater bookings, the overall
increase in selling, general and administrative expense primarily occurred in
two areas. The first was in personnel related costs, primarily from an
increase in number of staff. The second occurred in such areas as travel
related to international sales opportunities and increased participation in
national and international trade shows. Management believes that the
increases in selling expenses will continue to have a positive impact on the
increase in bookings and the recognition of the related revenues for future
periods.
Research and development costs increased 23.8% to $52,032 in 1998 from
$42,027 in 1997. These costs include the research and development facility
in Idaho and the expenses associated with the Company's diversification
effort into water treatment and water purification.
Operating income (loss), based on the explanations noted above, decreased
from $157,323 or 4.9% of revenues in 1997 to a loss of ($131,541) in 1998.
Other income and expense primarily consisted of interest expense,
which declined slightly, related to the Company's various debt financings.
Income taxes (benefit) decreased from $42,241 with an effective 34.1% tax
rate in 1997 to a tax benefit of ($54,945) with an effective tax rate of
34.0% in 1998.
Net income decreased from $81,683 in the three month period ended
March 31, 1997 to a net loss of $106,657 in the similar period in 1998.
Basic and fully diluted income (loss) per share was ($0.0004) in the three
month period ended March 31, 1998 and $0.0003 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $857,047
compared to working capital of $131,720 at March 31, 1997. The Company's
cash flow provided by and used in its operating, investing and financing
activities during the first three months of 1998 and 1997 are as follows:
1998 1997
--------- ---------
Operating activities $ (393,919) $ 709,755
Investing activities (117,444) (66,675)
Financing activities 489,669 (191,640)
---------- ----------
Net increase (decrease) in
cash and cash equivalents $ (21,694) $ 451,440
========== ==========
6
<PAGE>
The Company's capital requirements for its continuing operations
consists of its general working capital needs, scheduled payments on its
debt obligations, new business opportunities and capital expenditures.
Management anticipates that due to the growth in sales volume, the
Company's operating activities will require cash investment during the
remainder of the year.
At March 31, 1998, net costs in excess of billings and estimated
earnings on uncompleted contracts were $2,176,795 as compared to net costs
in excess of billings and estimated earnings on uncompleted contracts of
$1,080,816 at March 31, 1997.
Budgeted capital expenditures during the remainder of the year consist
of ongoing amounts for computer equipment, vehicles and office equipment
for anticipated growth.
The Company has a line of credit with a commercial lender totaling
$1,025,000 to finance its working capital needs partially secured by a
stockholder's and the Company's certificates of deposit. As of March 31,
1998, $795,000 was outstanding on this line of credit. The note matures on
January 3, 1999. Management expects that this line of credit will be
refinanced into a long-term obligation when the obligation becomes due.
The interest rate on the note is 7.75%. In addition to the interest rate
stated, the Company pays the above noted stockholder additional interest of
$4,065 per month on his certificates of deposit securing the above
mentioned Company notes.
The Company also has a line of credit with a commercial lender
totaling $1,000,000 to finance its working capital needs on foreign
projects. This line of credit is guaranteed by the Export Import Bank of
the United States and subjects the Company to certain financial covenants
including minimum net worth requirements. The line of credit bears
interest at prime plus 1% and matures on March 17, 1999. As of March 31,
1998, there were no outstanding borrowings on this line of credit.
The Company has term loans secured by the Small Business
Administration with an outstanding balance at March 31, 1998 of $649,867,
including a new $475,000 SBA loan which fully amortizes in June of 2003.
Scheduled principal payments on these term notes are $171,261 over the next
twelve months and interest rates are stated at one percent over prime. The
Company has various term notes secured by Company vehicles. The
outstanding balance on these notes at March 31, 1998 was $106,625 with
scheduled principal payments over the next twelve months of $40,377 with
interest rates ranging from 9.5% to 10.75%.
Management believes that the Company will have sufficient capital
resources to fund its ordinary capital requirements for at least the next
four quarters for continuing operations. No assurance can be made that the
Company will have sufficient working capital to continue its requirements
for continuing operations.
FORWARD LOOKING STATEMENTS
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future
events contained in this document constitute "forward looking statements"
as defined in the Private Securities Litigation Reform Act of 1995. As
with any future event, there can be no assurance that the events described
in
7
<PAGE>
forward looking statements made in this report will occur or that the
results of future events will not vary materially from those described in
the forward looking statements made in this report. Important factors that
could cause the Company's actual performance and operating results to
differ materially from the forward looking statements include, but are not
limited to, changes in the general level of economic activity in the
markets served by the company, competition in the cooling tower industry
and other industries where the Company markets its products and the
introduction of new products by competitors in those industries, delays in
refining the Company's manufacturing and construction techniques, cost
overruns on particular projects, availability of capital sufficient to
support the Company's level of activity and the ability of the Company to
implement its business strategy.
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL WATER TECHNOLOGIES, INC.
Date: May 20, 1998 By: /s/ George A. Kast
-----------------------------------
George A. Kast
President, Chief Executive Officer
and Chairman of the Board
Date: May 20, 1998 By: /s/ Robert L. Tomz
-----------------------------------
Robert L. Tomz
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM GLOBAL WATER TECHNOLOGIES' QUARTERLY REPORT TO
STOCKHOLDERS FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 97,193
<SECURITIES> 0
<RECEIVABLES> 4,154,978
<ALLOWANCES> 66,914
<INVENTORY> 360,102
<CURRENT-ASSETS> 7,607,552
<PP&E> 1,042,278
<DEPRECIATION> 365,682
<TOTAL-ASSETS> 8,346,733
<CURRENT-LIABILITIES> 6,750,505
<BONDS> 0
0
100
<COMMON> 2,940
<OTHER-SE> 892,617
<TOTAL-LIABILITY-AND-EQUITY> 8,346,733
<SALES> 4,517,583
<TOTAL-REVENUES> 4,517,583
<CGS> 3,391,348
<TOTAL-COSTS> 4,649,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,316
<INCOME-PRETAX> (161,602)
<INCOME-TAX> (54,945)
<INCOME-CONTINUING> (106,657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106,657)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
