As filed with the Securities and Exchange Commission on October 28, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
GLOBAL WATER TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Delaware 1799 84-1148204
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(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code Number) Number)
Global Water Technologies, Inc.
1767 Denver West Boulevard
Golden, Colorado 80401
(303) 215-1100
(Address and telephone number of principal executive offices and
principal place of business)
---------------
George A. Kast
Global Water Technologies, Inc.
1767 Denver West Boulevard
Golden, Colorado 80401
(303) 215-1100
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
D. Elizabeth Wills, Esq.
Rothgerber Johnson & Lyons LLP
1200 Seventeenth Street, Suite 3000
Denver, Colorado 80202
(303) 628-9525
(303) 623-9222 FAX
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: AS SOON AS PRACTICABLE
AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed
Title of each Proposed maximum Amount
class of Amount maximum aggregate of
securities to to be offering offering registration
be registered registered price price fee
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Common Stock, $.00001 par value 14,850,000 $.09(1) $1,336,500 $ 372
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Common Stock, $.00001 par value(2) 16,200,000 $.16(3) $2,592,000 $ 721
===============================================================================
Totals 31,050,000 $4,374,000 $1,093
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(1) Based upon the average of the bid and asked prices of Global Water
Technologies, Inc. Common Stock as reported on the OTC Bulletin Board
on October 22, 1999, in accordance with Rule 457(c) under the
Securities Act of 1933, as amended.
(2) Issuable upon the exercise of outstanding Class C Common Stock
Purchase Warrants exercisable at $.16 per share.
(3) Computed in accordance with Rule 457(g).
_____________________
<PAGE>
CROSS REFERENCE SHEET
FORM SB-2
ITEM NO. SECTIONS IN PROSPECTUS
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1 Front of Registration Statement and
Outside Front Cover of Prospectus . . . . . Cover Page
2 Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . Inside Front Cover Pages
(i)(ii); Table of Contents
3 Summary Information and Risk Factors. . . . Prospectus Summary; Risk
Factors
4 Use of Proceeds . . . . . . . . . . . . . . Prospectus Summary; Use
of Proceeds
5 Determination of Offering Price . . . . . . Cover Page; Description of
Securities - Warrants
6 Selling Security Holders. . . . . . . . . . Selling Security Holders
7 Plan of Distribution. . . . . . . . . . . . Plan of Distribution
8 Legal Proceedings . . . . . . . . . . . . . Legal Proceedings
9 Directors, Executive Officers, Promoters
and Control Persons . . . . . . . Management - Directors and
Executive Officers
10 Security Ownership of Certain
Beneficial Owners and Management. . . . . . Security Ownership of
Certain Beneficial Owners
and Management
11 Description of Securities . . . . . . . . . Description of Securities
12 Interest of Named Experts and Counsel . . . Experts
13 Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities . . . . . . . . . . . . . . Statement as to
Indemnification
14 Organization within Last Five Years . . . . Business
15 Description of Business . . . . . . . . . . Prospectus Summary; Risk
Factors; Business
16 Management's Discussion and
Analysis or Plan of Operation . . . . . . . Management's Discussion
and Analysis or Plan of
Operation
17 Description of Property . . . . . . . . . . Business
18 Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . Certain Relationships and
Related Transactions
19 Market for Common Equity and
Related Stockholder Matters . . . . . . . . Risk Factors; Market for
Common Equity, Dividend
Policy and Related
Shareholder Matters
20 Executive Compensation. . . . . . . . . . . Executive Compensation
21 Financial Statements. . . . . . . . . . . . Index to Financial
Statements
<PAGE>
22 Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . Experts
23 Indemnification of Directors and Officers . Indemnification of
Directors and Officers and
Limitation of Liability
24 Other Expenses of Issuance and
Distribution. . . . . . . . . . . . . . . . Other Expenses of
Issuance and Distribution
25 Recent Sales of Unregistered Securities . . Recent Sales of
Unregistered Securities
26 Exhibits. . . . . . . . . . . . . . . . . . Exhibits
27 Undertakings. . . . . . . . . . . . . . . . Undertakings
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION OCTOBER 28, 1999
31,050,000 SHARES
GLOBAL WATER TECHNOLOGIES, INC.
COMMON STOCK
This prospectus relates to the resale by the Selling Security Holders
of up to 31,050,000 shares of Common Stock. The Selling Security Holders
may sell the stock from time to time in the over-the-counter market at the
prevailing market price or in negotiated transactions. The selling price
of the shares will be determined by market factors at the time the shares
are sold.
The shares offered include:
* 13,500,000 shares which are presently outstanding
* up to 16,200,000 shares issuable upon the exercise of Class C
Warrants held by certain private investors
* up to 1,350,000 shares issuable upon the exercise of other
outstanding options
We will receive no proceeds from the sale of the shares by the Selling
Security Holders. However, we may receive proceeds from the sale of shares
to the Selling Security Holders upon exercise of the Class C Warrants and the
exercise of other outstanding options.
Our Common Stock trades on the OTC Bulletin Board under the trading
symbol GWTR. On October 22, 1999, the last reported bid and asked prices
of the Common Stock on the OTC Bulletin Board were $.085 and $.095 per share.
AN INVESTMENT IN OUR STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ____________, 1999
<PAGE>
The following language appears in red on the left side of the cover page.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
You should rely only on the information contained in this Prospectus.
We have not authorized anyone to provide you with information different
from that which is contained in this Prospectus. We are offering holders
of the Warrants the opportunity to exercise those Warrants and receive
shares of Common Stock only in jurisdictions where exercise of the Warrants
is permitted. The information in this Prospectus is accurate only as of
the date of this Prospectus, regardless of the time of delivery of this
Prospectus or the date you decide to exercise your Warrants.
In this prospectus, the terms "Global Water," "Company," "we," "us"
and "our" refer to Global Water Technologies, Inc. and our wholly owned
subsidiaries, Psychrometric Systems, Inc., Applied Water Technologies,
Inc. and Global Water Services, Inc. We refer to Psychrometric Systems,
Inc. as PSI, Applied Water Technologies, Inc. as AWT and Global Water
Services, Inc. as GWS and to our common stock, $.00001 par value as Common
Stock. We refer to our shareholders who intend to resell their shares of
Common Stock pursuant to this prospectus as Selling Security Holders.
TABLE OF CONTENTS
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS. . . . . . . . . . . .9
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
MARKET FOR COMMON EQUITY, DIVIDEND POLICY AND RELATED
SHAREHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS . . . . . . 12
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . 30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . 36
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<PAGE>
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . 37
SELLING SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . 41
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 42
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SHARES ELIGIBLE FOR FUTURE SALE. . . . . . . . . . . . . . . . . . . . 43
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . 44
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<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE
INFORMATION YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS"
SECTION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO
APPEARING IN THE CONSOLIDATED FINANCIAL STATEMENTS.
OUR BUSINESS
Through our wholly owned subsidiary, PSI, we design, sell,
manufacture and build industrial cooling water systems, and repair,
maintain and retrofit existing industrial cooling towers and cooling tower
components for these and similar facilities. We primarily market our
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;
-- manufacturing;
-- pulp & paper and other industries utilizing cooling water.
Typical customers include companies such as Archer Daniels Midland, Amoco,
Mitsubishi, Mobil, Texaco, Bechtel, Fluor Daniel and other large corporations
around the world.
PSI was named as one of America's 50 Hottest New Small Businesses by
ENTREPRENEUR magazine in early 1996, achieving a ranking of #30 within the
group of 50. The Small Business Administration named PSI "The Small
Business Exporter of the Year" in 1997 for Region VIII, which includes
Colorado. In June of 1998, Global Water's President and Chief Executive
Officer, George Kast, was named an Entrepreneur of the Year for the Rocky
Mountain Region. Mr. Kast received top honors in the category of "High-Tech
Manufacturing and Design."
Through another subsidiary, Applied Water Technologies, Inc., we offer
environmentally sound water treatment services primarily to cooling tower
customers, and have recently received our first contract for such services.
Build-up of chemicals used in traditional water treatment programs may cause
operating inefficiencies and necessitate periodic shut-downs for cleaning
heat exchangers and other areas within the cooling water loop. The Company's
clean water technology replaces the need for hazardous chemicals, and may
increase operating efficiency, reduce water use by increasing recycling and
increase the time between shut-downs for cleaning.
Through another subsidiary, Global Water Services, Inc., we offer
operating and maintenance services to cooling tower customers in PSI's
industries mentioned above. By
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<PAGE>
providing guaranteed cold water over a long-term agreement, our customers
may achieve greater operating efficiencies and improved profitability from
these services.
Our principal executive offices are located at 1767 Denver West
Boulevard, Golden, Colorado 80401, and our telephone number is (303)
215-1100. Our World Wide Web sites are "www.gwtr.com" and
"www.psicoolingtowers.com." The information in our Web sites is not
incorporated by reference into this prospectus.
THE OFFERING
Total shares outstanding. . . . . . 308,354,250 shares of Common Stock (1)
Common stock offered for resale
to the public. . . . . . . . . 13,500,000 shares of Common Stock
Price per share to the public . . . Market price at the time of resale
Proceeds from offering. . . . . . . We will not receive any of the
proceeds from the sale of the shares
of Common Stock offered by the
Selling Share Holders; however, we
may receive proceeds from the sale of
shares issuable upon the exercise of
Class C Warrants and the exercise of
outstanding options. Proceeds from
the exercise of Class C Warrants and
options will be used for working capital
and general corporate purposes.
Risk Factors. . . . . . . . . . . . The shares of Common Stock offered by
the Selling Share Holders are highly
speculative, involve a high degree of
risk and should not be purchased by
an investor who cannot afford the
loss of his or her entire investment.
Trading Symbol . . . . . . . . . . Common Stock: GWTR
________________________
(1) Does not include (i) 17,693,500 shares of Common Stock underlying
Class A and Class B Warrants exercisable at $.12 and $.20 per share,
respectively, expiring April 14, 2000; (ii) 16,200,000 shares of
Common Stock underlying Class C Warrants exercisable at $.16 per
share, expiring July 12, 2003; (iii) 4,968,800 shares of Common Stock
underlying options to purchase Common Stock at $.08 per share,
expiring on March 8, 2004; and (iv) 1,050,000 shares of Common Stock
underlying other outstanding Warrants exercisable between $0.08 and
$0.12 per share, expiring February 18, 2002.
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial data should be read in conjunction
with the consolidated financial statements and notes included elsewhere in
this prospectus. The consolidated statements of operations data for the
years ended December 31, 1998 and 1997 and the consolidated balance sheet
data at December 31, 1998 are derived from and should be read in
conjunction with the consolidated financial statements of the Company and
notes audited by Comiskey & Company, P.C., independent auditors. The
Statement of Operations data for the six months ended June 30, 1998, and
1999, and the balance sheet data as of June 30, 1999, are derived from the
unaudited financial statements of the Company included elsewhere in this
Prospectus. The unaudited financial statements have been prepared on the
same basis as the unaudited financial statements and, in the opinion of the
Company's management, include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the information
set forth therein. The historical results are not necessarily indicative
of the operating results to be expected in the future.
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------ -------------------------
1998 1997 1999 1998
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues $34,734,340 $18,697,292 $39,340,475 $11,097,303
Total Costs and Expenses $32,811,122 $17,726,538 $37,867,742 $11,305,323
Operating Income (Loss) $ 1,923,218 $ 970,754 $ 1,472,733 $ (208,020)
Net Income (Loss) $ 227,373 (1) $ 570,982 $ 913,562 $ (150,711)
Weighted Average Common Shares
Outstanding - Primary 294,251,063 270,014,801 294,854,250 294,050,000
Net Income (Loss) Per Common Share -
Primary $ .001 $ .002 $ .003 $ (.003)
Weighted Average Common Shares
Outstanding - Fully Diluted 294,251,063 270,126,740 297,060,078 294,050,000
Net Income (Loss) Per Common Share -
Fully Diluted $ .001 $ .002 $ .003 $ (.003)
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
1998 1997 June 30, 1999
---- ---- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital $ 1,941,495 $ 1,223,939 $ 2,536,920
Total Assets $15,008,062 $ 8,202,315 $27,532,829
Total Liabilities $13,509,073 $ 7,200,001 $25,120,279
Stockholders' Equity $ 1,498,989 $ 1,002,314 $ 2,412,550
</TABLE>
____________________________
(1) Net of charge of $754,296 net of the related tax effect of $593,119
due to change in accounting principal in 1998.
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<PAGE>
RISK FACTORS
An investment in the Common Stock being offered for resale by the
Selling Security Holders is very risky. The risks described below are not
the only ones that we face. Additional risks that are not yet known to us
or that we currently think are immaterial could also impair our business,
operating results or financial condition. The trading price of our Common
Stock could decline due to any of these risks, and you could lose all or
part of your investment. You also should refer to the other information
set forth in this Prospectus, including our consolidated financial
statements and the related notes.
WE MAY NEED ADDITIONAL CAPITAL IN 2000
We anticipate that we may need additional capital during calendar year
2000 to develop and market our products as our business grows. Our planned
expansion into new business areas will also require substantial financial
funding. There can be no assurance that we will be able to secure funding
sources. If we were not able to obtain additional funding when it was
required, it could have a material adverse effect on our business prospects.
OUR GROWTH MAY BE LIMITED IF OUR BANKING AND BONDING CAPACITY IS NOT INCREASED
We depend on banking lines of credit to fund our short term cash
requirements. The expansion into new businesses along with our increased
level of activity could require us to seek additional credit lines or
expand our existing banking credit lines. Although we believe that we are
able to expand our banking facilities with a number of different financial
institutions, there can be no assurance that such an expansion will occur
or on terms acceptable to us. The failure to expand our current credit
lines could have a material adverse effect on our ability to grow our business.
We depend on our ability to obtain surety bonds in order to bid on and
perform a certain portion of our projects. Although we believe that our
bonding capacity is adequate at our current expected level of activity,
there can be no assurance that an unanticipated project will exceed our
bonding capacity or that the bonding company may require additional
collateral arrangements to extend bonds on certain projects. The failure
to acquire additional bonding capacity when required could exclude us from
being able to bid on or perform certain projects, which could then have a
material adverse effect on our revenues.
OUR PROFIT MARGINS COULD DECREASE IF WE ARE NOT PRUDENT IN MANAGING OUR PROJECTS
In the past, a majority of our projects have been fixed price
contracts. The cost estimates for these projects are formulated during the
bidding process. There are many factors which are included in the cost
estimates, including material costs, labor rates, freight estimates,
seasonal inefficiencies, contingencies, engineering and miscellaneous
supplies. Although we consider our ability to estimate costs to be good,
any unanticipated costs could adversely affect the job's overall
profitability.
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<PAGE>
WE RELY ON OUTSIDE VENDORS FOR EQUIPMENT AND SUPPLIES
Our policy on suppliers and vendors is to obtain at least two
qualified sources where possible to supply the components for our cooling
tower products. Qualifying criteria include quality components, price,
delivery flexibility, manufacturing scheduling and payment terms. We
presently use primarily one major supplier for certain cooling tower
components; however, other suppliers of these components are available. We
believe that if necessary, similar economic terms could be negotiated with
other qualified suppliers. If we were unable to acquire any of these
components, it would adversely affect our ability to complete projects on
a timely basis, which could have an adverse effect on our business.
WE ARE EXPERIENCING RAPID GROWTH, WHICH MAY STRAIN OUR RESOURCES
Our goal is to increase sales through our current product line and to
expand our business into new and complimentary markets, including our water
treatment service program, water cooling service program and new marketing
strategies. We also may acquire other companies which have businesses
which complement or may expand our business. Such expansion could
- place a significant burden on our existing resources;
- may require us to implement additional operating, manufacturing
and financial controls and improve coordination among marketing,
engineering, manufacturing and finance functions;
- increase our capital expenditures;
- hire additional personnel; and
- require us to install additional reporting and management
information systems for order processing, production, monitoring,
inventory control and financial reporting.
There can be no assurance that we would be able to successfully manage any
substantial expansion of our business, including attracting and retaining
qualified personnel. A failure to do so could have a material adverse
effect on our operating results.
OUR BUSINESS COULD BE AFFECTED BY DECLINING GENERAL BUSINESS CONDITIONS OR
THE DECLINING NEED FOR COOLING WATER
Although we believe that we are somewhat insulated because of the
breadth and large number of diverse industries utilizing cooling water, the
diverse international markets where we compete and the competitive nature
of our products, we cannot guarantee that the overall business climate for
the Company will remain favorable. Many factors influence our customer's
ability to purchase needed cooling water capital equipment, including
overall economic levels of
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<PAGE>
activity, interest rates and other factors affecting their business. We
cannot guarantee that overall cooling water demand will increase or stay
the same in the future. If the demand for cooling water decreases, it
could have a material adverse effect on the Company's sales and profitability.
OUR INTERNATIONAL BUSINESS COULD BE ADVERSELY AFFECTED BY POLITICAL, SOCIAL
AND ECONOMIC CONDITIONS IN THE COUNTRIES IN WHICH WE DO BUSINESS
We have in the past engaged in projects in the Pacific Rim, North
America, South America, Asia and Europe and other parts of the world. Our
operations are subject to certain risks, such as changes in United States
or foreign government regulatory policies, local political and economic
developments, currency fluctuations, exchange controls, royalty and tax
increases, retroactive tax claims, expropriation, import and export
regulations and other laws and policies of the United States affecting
foreign trade, investment and taxation. In addition, in the event of any
disputes arising from foreign operations, we may be subject to the
exclusive jurisdiction of foreign courts and may not be successful in
subjecting foreign persons or entities to the jurisdiction of the courts in
the United States. We attempt to mitigate these various risk elements
through letters of credit, limiting job scope, currency risk management,
using local subcontractors and other methods to limit our exposure. We
cannot guarantee, however, that we will be able to manage these risk
elements successfully.
WE HAVE EXPERIENCED SEASONAL FLUCTUATIONS IN OUR REVENUES, WHICH MAY AFFECT
OUR FINANCIAL RESULTS
We have experienced some seasonality in our business over the last few
years. In general, the fourth calendar quarter of the year has experienced
higher revenues and higher operating income than the other calendar
quarters. We attribute some of this increase to cooling water projects
following the warmer summer months and to end of the year capital budgets
of customers. We believe that much of this seasonality in recognizing
project revenues will be eliminated by the recent change in our accounting
policy with respect to recognizing revenues; however, we cannot guarantee
that quarterly revenues will not vary significantly.
WE ARE A YOUNG COMPANY SO WE HAVE ONLY A LIMITED OPERATING HISTORY WITH
WHICH YOU CAN EVALUATE OUR BUSINESS AND PRODUCTS
Our operating history dates back to the start-up of PSI in January
1993. As such, we are subject to many of the risks common to enterprises
with a limited operating history, including potential under-capitalization,
limitations with respect to personnel, financial and other resources and
limited customers and revenues. Our likelihood of success must be
considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with the development and
marketing of large systems.
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<PAGE>
WE MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATION
Our products and services are subject to regulations adopted by
governmental authorities, including but not limited to OSHA, the DOT, the
EPA, FAA and various state governmental agencies. Government regulations
can be burdensome and may result in delays and expense to us. In addition,
modifications to regulations could adversely affect the timing and cost of
new products and services we introduce. Failure to comply with applicable
regulatory requirements can result in, among other things, operating
restrictions and fines.
FROM TIME TO TIME, WE PROVIDE SERVICE TO CUSTOMER(S) WHO REPRESENT MORE
THAN 10% OF OUR REVENUE, THE LOSS OF WHICH COULD ADVERSELY AFFECT OUR
REVENUE AND PROFITABILITY
We had a major customer accounting for 13.9% of our revenues for the
year ended December 31, 1998. We did not have a major customer accounting
for more than 10% of our revenues for the year ended December 31, 1997. We
have two major projects with one customer included in our backlog which
represents approximately 36% of our total backlog for 1999. From time to
time, we may have projects that exceed the 10% revenue threshold for
defining a major customer. Because each construction project is awarded
independently from other projects, we do not believe that the completion of
the contractual arrangements with any major customer that may arise will
have a material adverse effect on us.
WE HAVE SIGNIFICANT COMPETITION IN OUR BUSINESS SEGMENTS
There is substantial competition in all aspects of the cooling water
industry and water treatment market. Many of our competitors have been in
business longer than we have and have substantially greater personnel,
financial resources and established customer bases available to them than
we do. We cannot guarantee that we will be able to continue to compete with
these competitors successfully. Competition from these competitors for the
projects we bid on could diminish our revenues and profitability.
WE DEPEND ON A SMALL NUMBER OF KEY EXECUTIVES AND OUR BUSINESS COULD SUFFER
IF WE LOST THEM
We employ a small group of skilled individuals to accomplish our
strategic business plan. We believe our performance is substantially
dependent on the continued employment and performance of our senior
management, including George A. Kast, (Chief Executive Officer of GWTR),
Gary L. Brown (President of PSI and General Counsel of GWTR), Michael A.
Kast (Senior Vice President of PSI), Martin E. Hout (Chief Financial
Officer), Steven D. Adams (Vice President of Applications of PSI) and
William W. Howard (Vice President of Engineering of PSI). None of these
individuals are currently subject to employment agreements or employee
non-compete agreements. If we fail to retain the services of one or more of
these persons, our business could suffer significantly. We maintain key-man
insurance on the life of George A. Kast.
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<PAGE>
WE DO NOT ANTICIPATE PAYING DIVIDENDS
We do not anticipate paying any cash dividends on our Common Stock for
the foreseeable future. We expect that future earnings, if any, will be
used to finance our growth. Accordingly, no one seeking dividend income
from an investment should exercise their Warrants.
FUTURE SALES BY EXISTING SHAREHOLDERS COULD DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK
We presently have outstanding 308,354,250 shares of Common Stock
issued and outstanding as of the date of this Prospectus. Of this amount,
254,323,250 shares are "restricted securities" under the Securities Act
subject to restrictions on the timing, manner and volume of sales of such
shares. In addition, we intend to register 30,000,000 shares of Common
Stock which may be issued under our 1998 Stock Option Plan and 17,693,500
of Common Stock underlying Class A and Class B Warrants. Currently there
is only a limited public market for our Common Stock and we cannot
guarantee that this market will continue or be available for the sale of
Common Stock acquired upon exercise of the Warrants. We cannot predict if
future sales of our Common Stock, or the availability of our Common Stock
for sale, will adversely affect the market price for our Common Stock or
our ability to raise capital by offering equity securities.
OUR OFFICERS AND DIRECTORS EXERCISE SIGNIFICANT CONTROL OVER OUR AFFAIRS,
WHICH COULD RESULT IN THEIR TAKING ACTIONS WITH WHICH OTHER SHAREHOLDERS DO
NOT AGREE
The officers and directors of the Company own approximately 82% of our
outstanding Common Stock. Since cumulative voting has not been authorized
by our Certificate of Incorporation, this concentration of control means
that the officers and directors will be able to elect all of the directors
of Global Water. The officers and directors of the Company also will be
able to shape our policies and procedures, to determine if and when any
dividends are paid, and to determine the circumstances under which we may
be sold or merged, along with other important corporate decisions.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS
COULD DEPRESS OUR STOCK PRICE
Our Board of Directors has the authority to issue up to 18,999,750
additional shares of Preferred Stock and to determine the price and the
terms (including preferences and voting rights) of those shares without
shareholder approval. Although we have no current plans to issue
additional shares of Preferred Stock, any such issuance could:
- have the effect of delaying, deterring or preventing a change in
control of our Company;
- discourage bids for our Common Stock at a premium over the market
price; or
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- adversely affect the market price of, and the voting and other
rights of the holder of, our Common Stock.
Global Water is subject to certain Delaware laws that could have the
effect of delaying, deterring or preventing a change in control of the
Company. In addition, certain provisions of our Certificate of
Incorporation and By-Laws, and the significant amount of Common Stock held
by our officers and directors, could together have the effect of
discouraging potential takeover attempts or making it more difficult for
shareholders to change management.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS WHICH
MAY MAKE IT DIFFICULT FOR YOU TO RESELL YOUR SHARES AT OR ABOVE THE
EXERCISE PRICE AND FOR US TO ATTRACT SUPPORT FOR OUR STOCK
While our Common Stock is listed for trading on the OTC Bulletin
Board, our stock has traded in only small volumes and has been subject to
volatility in the price. No assurance can be given that a more active
market will develop or that a shareholder will be able to liquidate his/her
investment without considerable delay, if at all. Even should a more
active market develop, the price may remain volatile. Factors such as
those discussed in this "Risk Factors" section may have a significant
impact upon the market price of our stock.
Due to the low price of our stock, many brokerage firms may not be
willing to effect transactions in the our securities, particularly because
low-priced securities are subject to a Securities and Exchange Commission
rule that imposes additional sales practice requirements on broker-dealers
who sell low-priced (generally those below $5 per share) securities. While
the shareholders of the Company have granted the Board of Directors the
authority to effect a reverse split of the Company's currently outstanding
Common Stock, not to exceed 1-for-100, no decision has yet been made with
regard to effecting a reverse split. Even if a reverse split is effected,
there can be no assurance that the price for our Common Stock will exceed
$5.00 per share. Consequently, unless and until the market price for our
Common Stock increases significantly, brokerage firms may be reluctant to
trade our Common Stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis or Plan of Operations," "Business"
and elsewhere in this Prospectus and in our periodic filings with the
Commission constitute forward-looking statements. These statements involve
known and unknown risks, significant uncertainties and other factors what
may cause our actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, those listed under
"Risk Factors" and elsewhere in this Prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates,"
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"predicts," "potential" or "continue" or the negative of such terms or
other comparable terminology. These statements are only predictions. In
evaluating these statements, you should specifically consider various
factors, including the risks outlined below. These factors may cause our
actual results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness
of such statements. We are under no duty to update any of the forward-
looking statements after the date of this Prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the Common
Stock by the Selling Security Holders. However, we may receive proceeds
from the exercise of Class C Warrants and the exercise of outstanding
options. We intend to use the proceeds from the exercise of Class C
Warrants and options for working capital and general corporate purposes.
MARKET FOR COMMON EQUITY, DIVIDEND POLICY AND
RELATED SHAREHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock began trading on the Over the Counter
Bulletin Board during the third quarter of fiscal 1994.
The following table sets forth the high and low bid prices for Global
Water's Common Stock for the past two years. The quotations reflect inter-
dealer prices, with retail mark-up, mark-down or commissions, and may not
represent actual transactions. The information presented has been obtained
from the National Quotation Bureau, Inc. Library.
High Low
Bid Bid
--- ---
1997 Fiscal Year
----------------
First Quarter. . . . . . . . . . . . . . . . . . $.01 $.01
Second Quarter . . . . . . . . . . . . . . . . . $.01 $.01
Third Quarter. . . . . . . . . . . . . . . . . . $.08 $.01
Fourth Quarter . . . . . . . . . . . . . . . . . $.08 $.04
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1998 Fiscal Year
----------------
First Quarter. . . . . . . . . . . . . . . . . . $.135 $.03
Second Quarter . . . . . . . . . . . . . . . . . $.135 $.06
Third Quarter. . . . . . . . . . . . . . . . . . $.065 $.04
Fourth Quarter . . . . . . . . . . . . . . . . . $.05 $.035
1999 Fiscal Year
----------------
First Quarter. . . . . . . . . . . . . . . . . . $.09 $.05
Second Quarter . . . . . . . . . . . . . . . . . $.13 $.09
Third Quarter. . . . . . . . . . . . . . . . . . $.145 $.10
On October 22, 1999, the last reported bid and asked prices for the
Common Stock were $0.085 and $0.095, respectively. No quotations are
available for the Class A and Class B Warrants.
HOLDERS
As of October 22, 1999, the Company had 76 holders of record of the
Company's Common Stock.
DIVIDENDS
We have never declared or paid any cash dividends on our Common Stock
and we do not anticipate paying such dividends in the foreseeable future.
We currently intend to retain earnings, if any, to fund the development and
growth of our business.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS."
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY ALSO SHOULD BE READ IN CONJUNCTION WITH THE
COMBINED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE
IN THIS PROSPECTUS.
GENERAL
Global Water, primarily through its wholly owned subsidiary, PSI, is
in the business of designing, selling, manufacturing and building
industrial cooling water systems, repairs and maintenance in the retrofit
of existing industrial cooling towers and cooling tower components for
these and similar facilities. The Company primarily 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; manufacturing; pulp & paper and other industries
utilizing cooling water. Typical customers include companies such as Archer
Daniels Midland, Amoco, Mitsubishi, Mobil, Texaco, Bechtel, Fluor Daniel and
other large corporations around the world.
Global Water has historically derived revenue from the following
principal sources: new cooling water system sales, retrofits to existing
cooling tower 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.
Global Water recognizes revenues using the percentage-of-completion
method, based primarily on contract costs incurred to date compared with
total estimated contract costs. Contracts on selected projects where there
are both repair and new tower components are segmented between the two
distinct phases and accordingly, gross margin related to each activity is
recognized as those separate phases are completed using the
percentage-of-completion method, based primarily on contract costs incurred
to date compared with total estimated contract costs. 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.
On November 11, 1998, the Board of Directors approved the Company's
decision to change, retroactive to January 1, 1998, its application of the
percentage of completion method of accounting for revenues and costs of
long-term contracts related to new cooling water systems.
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Under the previous method, the Company recognized a predetermined
percentage of its profits on new cooling towers upon the attainment of
certain project milestones, specifically the completion and delivery of
certain engineering drawings and specifications. Under the new method, the
Company will recognize profits on all phases of the project, including
engineering, in the ratio that costs incurred to date bear to total
estimated costs. Management believes that the new method is preferable for
financial statement and backlog disclosure related to revenues and gross
profit. In addition, the Company believes that the new method should
improve the comparability of its financial statements with those of other
companies which use a cost-to-cost comparison approach of percentage of
completion.
As a result of this change, to which the Company's independent public
accounting firm concurs, the Company recorded a one-time extraordinary
charge to income as of January 1, 1998. The amount of this charge,
amounting to $754,296 net of the related tax effect of $593,119, is
reflected as a cumulative effect of a change in an accounting principle on
the attached income statement. See Note 16 in the notes to the financial
statements for the Pro-Forma quarterly 1998 operating results.
SIX MONTHS ENDED JUNE 30, 1999 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total revenues were derived from engineering, construction, retrofits
and spare parts of cooling towers. For the six-month period ended June 30,
1999, total tower revenue increased 254.5% to $39,340,475 as compared to
$11,097,303 for the six-month period ended June 30, 1998. International
revenues comprised 2.2% of total revenues in 1999 versus 20.8% in 1998.
Contracts awarded ("bookings") during the six-month period ended June
30, 1999, increased 135.6% from 1998. The increase in bookings awarded is
due to an overall increase in the number of projects won and increased
selling expenses to take advantage of market opportunities. Backlog
decreased from $27,155,058 at December 31, 1998, to $25,544,805 at June 30,
1999.
The Company's cost of sales increased 288.3% from $9,140,872 in 1998
to $35,495,665 in 1999. As a percentage of revenues, cost of sales
increased from 82.4% in 1998 to 90.2% in 1999. The absolute increase in
cost of sales resulted primarily from a 254.5% 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 14.5% from
$2,056,134 in 1998 to $2,353,464 in 1999. As a percentage of revenues,
these expenses decreased from 18.5% in 1998 to 6% in 1999. As a percentage
of new bookings, which increased 135.6%, these expenses deceased from 12.8%
in 1998 to 6.2% in 1999. As anticipated, management believes that past
investments in personnel resources continue to have a favorable impact on
the Company and its operating results.
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Research and development costs decreased to $18,613 in 1999 from
$108,317 in 1998. These costs included the research and development
facility in Idaho.
Operating income (loss), based on the explanations noted above,
increased from a loss of ($208,020) in 1998 to income of $1,472,733 in 1999.
Other income and expense primarily consisted of interest expense.
Income taxes (benefit) increased from a benefit of ($118,507) with an
effective 44% tax rate in 1998 to a tax expense of $414,933 with an
effective tax rate of 31.0% in 1999.
Net income (loss) increased from ($150,771) in the six-month period
ended June 30, 1998, to a net income of $923,562 in the similar period in
1999. This amount includes a preferred stock dividend of $10,000 in 1999.
Basic and fully diluted income (loss) per share was $0.0031 in the six-month
period ended June 30, 1999, and ($0.0031) in 1998.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total revenues were derived from engineering, equipment, installation,
retrofits and spare parts of cooling towers. For the year ended December
31, 1998, total tower revenue increased 85.8% to $34,734,340 as compared to
$18,697,292 for the year ended December 31, 1997. International revenues
comprised 15.1% of total revenues in 1998 versus 20.2% in 1997, with such
decrease resulting from an increased proportion of domestic projects in the
total revenue mix.
Bookings during 1998 increased 119.9% to $53,142,019 from $24,163,772
in 1997. These amounts included international bookings of $3,470,882 in
1998 (6.5% of total) and $8,749,532 in 1997 (36.2% of total). The amount
in 1997 included a contract of $4.2 million removed from the backlog in
1998. Management believes that foreign opportunities will continue to play
an important role in future periods and that the Company will not be
adversely affected by the current economic conditions in Asia. 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 contracts
awarded, and increased selling expenses to take advantage of market
opportunities. Backlog increased from $11,606,245 at December 31, 1997 to
$27,155,058 at December 31, 1998.
The Company's cost of sales increased 105.3% from $13,547,484 in 1997
to $27,816,337 in 1998. As a percentage of revenues, cost of sales
increased from 72.5% in 1997 to 80.1% in 1998. The absolute increase in
cost of sales resulted from a 85.8% increase in corresponding revenues and
additional cost allocations from selling, general and administrative
expenses to project costs related to the accounting change described above.
Management believes these additional allocations more accurately reflect
the personnel resources expended directly due to project requirements. Due
to significant competition, there can be no assurance that the Company can
maintain its profit margins in the future.
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Selling, general and administrative expenses increased 18.1% from
$4,031,159 in 1997 to $4,762,328 in 1998. As a percentage of revenues,
these expenses decreased from 21.6% in 1997 to 13.7% in 1998. The
additional project allocations described above are the main reason for the
decrease as a percentage of revenues. As a percentage of new bookings
which increased 119.9%, these expenses decreased from 16.7% in 1997 to 9.0%
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 and additional facility costs. 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 57.3% to $232,657 in 1998
from $147,895 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, based on the explanations noted above, increased
98.1% from $970,754 or 5.2% of revenues in 1997 to $1,923,218 or 5.5% of
revenues in 1998.
Other income and expense primarily consisted of interest expense,
which increased 28.0% to $157,520 in 1998 from $123,072 in 1997, related to
the Company's various debt financings. Income taxes increased from
$273,878 with an effective tax rate of 32.4% in 1997 to $777,569 with an
effective tax rate of 44% in 1998.
Net income before the cumulative effect of change in accounting
principle and preferred stock dividend increased 73.3% from $570,982 in
1997 to $989,309 in 1998. Both basic and fully diluted income per share
decreased from $0.002 in 1997 to $0.001 in 1998.
The Company's export sales were $5,241,036 and $3,777,426 for the
fiscal years 1998 and 1997, respectively. Management believes that the
importance of the international segment will continue to grow as the
Company's revenue base expands.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had working capital of $2,536,920
compared to working capital deficit of $42,698 at June 30, 1998. The
Company's cash flow provided by and used in its operating, investing and
financing activities during the first six months of 1999 and 1998 are as
follows:
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1999 1998
---- ----
Operating activities $ (960,139) $ (219,688)
Investing activities (125,520) (183,165)
Financing activities (381,113) 410,305
----------- -----------
Net increase (decrease) in cash
and cash equivalents $(1,466,772) $ 7,452
=========== ===========
The Company's capital requirements for its continuing operations
consist of its general working capital needs, increased lease obligations,
scheduled payments on its debt obligations and capital expenditures.
Management anticipates that the Company's operating activities in the
future will continue to provide cash even though the investment in
receivables, inventory and costs and estimated earnings in excess of
billings is expected to increase as sales volume increases. The Company
tries to minimize its investment in these working capital components, but
as sales and backlogs increase, management believes that these investments
will also increase. Management believes that its current debt facilities
and/or possible capital market funding will be sufficient for its
operational cash investment requirements during the next four quarters.
At June 30, 1999, net costs in excess of billings and estimated
earnings on uncompleted contracts were $9,484,122 as compared to net costs
in excess of billings and estimated earnings on uncompleted contracts of
$115,376 at June 30, 1998. The majority of this increase related to two
projects where contractual requirements and the timing of the progress on
the projects led to the increase. Subsequent to June 30, 1999, the
investment has been reduced to be consistent with historical amounts.
Budgeted capital expenditures during the remainder of the year consist
of ongoing amounts for computer equipment, software, vehicles and office
equipment for anticipated growth.
The Company has a line of credit with a commercial lender totaling of
$1,775,000 to finance its working capital needs. This is partially secured
by a stockholder's certificates of deposit. As of June 30, 1999,
$1,200,000 was outstanding on this line of credit. The line matures on
December 15, 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 tiered as follows: 5.85% on the first
$745,000 and 8.75% on the remaining portion. In addition to the interest
rate stated, the Company pays the above noted stockholder additional
interest of $8,131 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 $2,000,000 to finance its working capital needs on foreign
projects on eligible accounts receivable and inventory balances. 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
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requirements. The line of credit bears interest at prime plus 1% and
matures on September 15, 2000. The line of credit was increased from
$1,000,000 to $2,000,000 on September 15, 1999. As of June 30, 1999, there
was an outstanding balance of $76,000 on this line of credit.
The Company has term loans secured by the Small Business
Administration with an outstanding balance at June 30, 1999, of $443,682.
Scheduled principal payments on these term notes are $103,692 over the next
twelve months and interest rates are stated at 1% over prime. The Company
has various term notes secured by Company vehicles. The outstanding
balance on these notes at June 30, 1999, was $72,440 with scheduled
principal payments over the next twelve months of $35,529 with interest
rates ranging from 9.5% to 10.75%.
In total, as of June 30, 1999, the Company had outstanding loans from
commercial lenders of $1,792,122 and had $32,000 outstanding in letters of
credit. The unused availability under the lines of credit as of this date
was $1,467,000.
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 beyond the next four quarters.
EFFECT OF INFLATION AND FOREIGN CURRENCY EXCHANGE
The Company has not experienced material unfavorable effects on its
results of operations due to currency exchange fluctuations with its
foreign customers or material unfavorable effects upon its results of
operations as a result of domestic inflation.
YEAR 2000 ISSUE
The Company's management does not believe that the Company will be
materially adversely affected by the computer software Year 2000 issue.
The Company has a relatively small number of transactions with its select
customer base and does not have significant exposure to the Year 2000
issue. The Company's vendors and suppliers may have some exposure to the
issue but at this time, management does not anticipate a material adverse
impact on the Company's operations.
Management has determined that the mission critical systems for the
Company include its accounting software system, application packages and
its estimating system used for project bids. The accounting software
package has been upgraded by the vendor and is Y2K compliant. Vendors for
application packages have stated that all known Y2K issues have been
remediated. The estimating system does not employ date stamps for its
internal functionality. Although hardware systems utilized by the Company
may experience some system failure due to hardwire coding, management
believes the replacement of these systems would not cause material adverse
impacts on the Company. Contingency plans include replacement of selected
operating systems and other hardware replacement to prevent material
adverse consequences.
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BUSINESS
Through our wholly owned subsidiary, PSI, we design, sell, manufacture
and build industrial cooling water systems, and repair, maintain and
retrofit existing industrial cooling towers and cooling tower components
for these and similar facilities. We primarily market our 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 water.
Typical customers include companies such as Archer Daniels Midland, Amoco,
Mitsubishi, Mobil, Texaco, Bechtel, Fluor Daniel and other large corporations
around the world.
We custom design industrial cooling water systems for our customer
base in a water system competitive bid job award process. We provide value
engineering and specific cooling tower designs to our customer base.
Although influenced by many factors, we believe competitive pricing is one
of the main criteria for job awards. Based on customer requirements, we
design cooling water systems using structural members manufactured from
wood, fiberglass and concrete. Light manufacturing of wooden and
fiberglass structural components is done at our facilities for selected
jobs prior to treatment procedures. Component parts are subcontracted and
ordered from various suppliers to be shipped directly to the job site. For
domestic projects, Company managed crews erect the cooling tower in the
field or a subcontractor is awarded the erection of the tower. The field
erection normally takes between four to six weeks for the typical two to
three cell cooling tower. The erection at foreign job sites is usually
outside of the Company's scope of responsibility. From contract award to
final completion of the structure, a typical project will last four to six
months.
We utilize proprietary software products and know-how to design and
estimate costs for potential projects. Although not copyrighted or
patented, we believe that the proprietary information is integral to its
ability to accurately and reliably design cooling towers to meet the
desired specifications and to estimate job costs. This know-how is
augmented by key knowledgeable employees. The Company's competitive
position could be adversely affected by the loss of these employees or
know-how.
PSI was named as one of America's 50 Hottest New Small Businesses by
Entrepreneur magazine in early 1996, achieving a ranking of #30 within the
group of 50. The Small Business Administration named PSI "The Small
Business Exporter of the Year" in 1997 for Region VIII, which includes
Colorado. In June of 1998, the Company's President and Chief Executive
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Officer, George Kast, was named an Entrepreneur of the Year for the Rocky
Mountain Region. Mr. Kast received top honors in the category of
"High-Tech Manufacturing and Design."
THE COOLING WATER SYSTEM MARKET
Cooling towers are designed to reject heat from process operations
into the atmosphere through evaporation and direct heat transfer. Hot
water is pumped to the top of the cooling tower and distributed over the
fill media through various nozzle apertures. The fill media is designed to
maximize the air/water interface to improve the efficiency of the heat
rejection. As the air comes into contact with the hot water from the
process, some water evaporates causing a reduction in heat for the
remaining water. Fans placed on the top of the tower cause air to be drawn
in from the sides and the bottom of the tower in an induced draft design.
The induced draft air flow cools the water through direct contact and
through evaporation. The evaporated water, now in the form of steam, is
ejected through the fanstacks at the top of the tower. The cooler water at
the bottom of the tower in the basin, is then re-circulated back into the
process where it again absorbs heat until the entire process is repeated.
Cooling towers have been used in the process industries for nearly 100 years.
Most process industries with available water that generate heat in the
process utilize cooling towers in their operations. Accordingly, cooling
towers are vital to the continuing operation of these facilities and are
considered critical pieces of the plant and equipment. In fact, these
processes cannot continue to operate without cooling towers or some other
more expensive means to reject heat from these facilities. Cooling towers
can range in price from $10,000 for a small 600 gallon per minute ("GPM")
or 250 ton HVAC facility to over $30,000,000 for a heavy industrial or
utility customer needing capacities of 500,000 GPM. GPM is the standard
unit of measurement in the industrial cooling tower segment, while HVAC
usage denominates capacity in nominal cooling tons. One ton of cooling is
approximately equivalent to 2.5 - 3.0 GPM under humid environmental
conditions.
The cooling tower market can be subdivided into two main segments,
facilities using pre-packaged or factory assembled units and plants
employing field erected cooling towers. Industrial cooling towers are
usually stand alone, separate facilities while factory assembled units
often are placed on top of office buildings or in close proximity to the
heat source adjacent to the building. Factory assembled cooling towers are
shipped directly to the end user as a completed unit and installed on site
with minimal additional fabrication. These units are typically sold to
HVAC and light to medium industrial users. Cooling towers for HVAC
applications are sized from approximately 30 to 500 nominal tons. Larger
tonnages are obtained from either sequencing a number of factory assembled
units or constructing small field erected units on site. Field erected
cooling towers are constructed on site and are utilized by medium and heavy
industrial and utilities. Heavy industrial users require cooling towers
sized from 10,000 to 100,000 GPM and some utility applications range up to
500,000 GPM.
Accurate information about the cooling tower industry is difficult to
obtain since many cooling tower manufacturers are either privately held and
do not divulge market information or
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are divisions of very large public entities. Furthermore, many existing
cooling tower companies operating in the U.S. are owned by foreign entities
where reporting requirements are substantially different from U.S.
provisions. Limited market information is available from the U.S.
Department of Commerce, public SEC information, commissioned private
studies and internal intelligence sources. Based on this limited
information and management's evaluation of the market, management estimates
that the total annual United States cooling tower market ranges from $500
million to $700 million, and that the total annual worldwide market ranges
from $1.5 billion to $2.0 billion.
PRODUCT LINE
The market we currently serve can be subdivided into two main
sub-segments: international cooling towers and domestic cooling towers.
For the year ended December 31, 1998, the domestic tower revenue
recognition represented approximately 85% of our revenues, and
international tower revenue represented approximately 15%. Based upon its
current backlog of business and current outstanding bid activity,
management believes that future revenue recognition for 1999 will
approximate 1998 percentages for international and domestic revenues.
Within each of these main sub-segments, the product line can be further
divided into new cooling towers and retrofits and repairs of existing
towers.
NEW COOLING TOWERS. New cooling tower project opportunities come from
two major sources: a worldwide network of independent manufacturers
representatives and internal sales personnel. Although some projects arise
from past sales relationships with customers, most projects are awarded
independently. In addition to its direct sales activities, the Company
markets new cooling towers in a number of ways, including sponsorship of
trade shows, direct mail solicitation and advertising in various trade
publications. We are presently developing a compact disk ("CD"), which
will portray our products using interactive illustrations and animation.
This CD will be distributed to engineering firms, manufacturers and
specialized mailing lists in the industrial cooling tower market. We also
maintain web pages on the worldwide web at http://www.gwtr.com and
http://www.psicoolingtowers.com.
Bids on new cooling tower projects typically range from $50,000 to
$12,000,000 per project. Although we have bid on larger projects, the
majority of projects fall within this range.
Although there is no typical bidding process, normally the customer or
a customer's agent describes the operating performance requirements of the
tower. Company personnel assemble a value engineering plan for the given
heat load configuration and a cost estimate for the materials, labor, and
ancillary equipment to meet the specific performance criteria for the
facility. Many factors affect the cost calculation, including water
quality, environmental conditions, operating details, local building
requirements, structural materials needed, local labor conditions and other
factors which affect the cost components of the cooling tower. Some
projects may be awarded to the low bidder, while others may have other
performance factors as the prime criteria for contract award.
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At the time the job is awarded, final terms and conditions are
negotiated including on-site dates, contract terms and conditions,
financial performance, warranties and other factors defining the rights and
obligations of the parties. Normal payment terms include payment upon
completion of the customer engineering package which is followed by
additional payments upon completion or partial completion of the material
procurement/manufacturing phase and, if applicable, the erection phase. We
recognize contract revenues using the percentage-of-completion method,
based primarily on contract costs incurred to date compared with total
estimated contract costs. Contracts on some cooling towers arrangements
which have both new and retrofit components are segmented between types of
services, 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 and the costs are
incurred. 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.
Cost components for new cooling towers include hardware, structural
components, water distribution system, heat transfer media, air movement
equipment (fans, drive shafts, gearboxes etc.), fanstacks, labor, tools,
and freight. Most of the material requirements are purchased from
independent outside vendors, custom fabricated for the specific project
requirements and shipped directly to job sites. Some wooden and fiberglass
structural materials and other components are fabricated by the Company at
leased facilities.
The customer will often require a thermal performance test and
verification as part of the documentation on tower performance. Either the
Company's personnel or independent third parties perform these tests.
Historically, these performance tests have shown that our products
consistently meet or exceed performance design specifications. In addition
to the performance tests described above, we provide a limited warranty on
our products to be free from material defects for 12 months from start-up
or 18 months from shipment, whichever occurs first. We believe that there
are no significant warranty issues from products placed in service since
inception.
We have installed environmental friendly plume-abated towers in Japan
and the United States. Plume abatement features increase the selling price
of the facilities and provides additional customer benefits, such as
reduced damage to surrounding deciduous trees and reduction in potential
liability caused by condensing water and ice in winter driving conditions.
In addition to plume abatement, we also have successfully installed sound
abated towers which decrease noise levels and sound pollution.
RETROFIT MARKET. In the retrofit or repair market, we have bid on
projects ranging from $5,000 to $4,000,000. Management expects to bid on
projects in excess of this range in the future as opportunities may arise.
Normally, the customer selects options from a list of possible repair
scopes for the existing cooling tower retrofit project. In approximately
75% of the projects we bid on, a portion of the work scope is based upon a
time and material unit price. Most retrofit
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projects do not require drawings or extensive engineering work. Profit is
recognized on a percentage-of-completion basis.
Retrofit projects could have significant change orders as compared to
the total price of the contract. Change orders from retrofit projects
arise due to the uncertainty surrounding the job scope at the time of the
bid. Often, the existing towers are operating when the job walk-through is
performed to determine the scope of the repairs necessary. Damaged areas in
need of repair can only be observed after the crew has begun their retrofit
work and the damaged area is exposed.
SUPPLIERS, VENDORS AND SPARE PARTS
We utilize selected vendors for its sub-component requirements. In a
limited number of cases, specific manufacturers have worked in conjunction
with us to supply components to customers under common marketing programs.
Because we have access to a broad number of suppliers and work with them on
a regular basis, we believe that the customer can achieve economic benefits
by utilizing the Company's buying power when component spare parts are
needed. We rely upon the suppliers and vendors to manufacture components
to Company specifications. We have not experienced any significant delays
in obtaining parts and components for these products, and management believes
that our relationships with our suppliers are good and that the material
availability is adequate.
ACQUISITIONS
On November 1, 1997, the Company acquired certain assets of Texas
Cooling Tower Company ("Texas Tower"), located in Bulverde, Texas. The
assets acquired included casts/dies, furniture and equipment and other
inventory, for which the Company paid $70,000. We use this equipment and
inventory to expand our product line into complementary fiberglass cooling
tower designs for specific industrial process applications.
PRODUCT RESEARCH, DESIGN AND DEVELOPMENT
We lease a facility from George A. Kast, the President and principal
shareholder of the Company, in Coeur d'Alene, Idaho, for our research and
development requirements. We are evaluating various technologies related
to cooling towers, heat rejection rates, water reuse, disinfection, water
treatment and product design at this facility. The facility is staffed by
one employee as of September 30, 1999. We plan to continue research and
refinement programs at this or other facilities, but we have no fixed
research and development budget. For the six months ended June 30, 1999
and 1998, we expended $18,613 and $108,317, respectively, for research and
development.
WATER TREATMENT SERVICE PROGRAM
During fiscal 1998, through our wholly owned subsidiary Applied Water
Technologies, Inc. ("AWT") (previously Advanced Oxidation Technologies,
Inc.), a Nevada corporation, we
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began offering clean water treatment services to cooling tower customers.
Historically, water used in cooling towers has been treated with chemicals
to prevent or inhibit the formation of scale, bacteria, algae and corrosion
at significant expense. Build-up of the chemicals used in treating the
water may cause operating inefficiency and necessitate periodic shut-downs
for cleaning. Disposal of the contaminated water poses environmental
compliance issues for our customers. Our clean water technology replaces
the need for hazardous chemicals, and may increase operating efficiency,
reduce water use by increasing recycling and increase the time between
shut-downs for cleaning. It also dramatically reduces the costs associated
with water discharge. Retrofits or total cooling water packages are available.
Management believes this environmentally sound approach to the
treatment of process cooling water offers many benefits to our customers
including reduction in water use, reduced liability from employees
handling of hazardous chemicals and reduction of pollutants being
discharged. We will integrate the "non-chemical" water treatment service
with our other products to bring a total water management solution to our
existing and future customers. We believe that this integrated "solutions"
approach will be attractive to our customer base and will result in longer
term contracts with potentially higher profit margins. We are currently
marketing this concept and, during the first quarter of 1999, received our
initial contract for non-chemical water treatment services with a major
mid-western utility.
On July 20, 1998, we entered into an exclusive licensing agreement
with Electronic Descaling 2000, Inc. ("ED 2000") for the manufacturing,
sales and servicing rights to a technologically advanced scale control
unit. We will exclusively market the equipment to prevent and eliminate
costly scale buildup within cooling water loops and cooling towers for
various industries worldwide.
COOLING WATER SERVICE PROGRAM
During fiscal 1999, through our wholly owned subsidiary Global Water
Services, Inc. ("GWS"), a Nevada corporation, we began offering operating
and maintenance services to cooling tower customers. Traditionally,
cooling towers experience a degradation in thermal heat performance over
the life of the tower. This decrease in operating performance is due
mainly to a shortfall in preventative maintenance practices by cooling
tower operators. Because of reductions in cooling tower efficiency, other
plant operations are adversely affected, leading to a reduction in plant
output, a decrease in production yields or a decline in product quality.
These inefficiencies may lead to an adverse impact on plant profitability
due to the lack of sufficient cooling water for the facility.
The Company, through its wholly owned subsidiary GWS, addresses this
customer need through its proprietary Performance Plus long-term service
arrangement. GWS offers its customers guaranteed cold water through the
service agreement by maintaining and servicing the cooling tower over the
life of the contract. Management believes this approach to the cooling
tower user industries will lower overall costs, improve efficiencies and
provide increased profitability to GWT's customers. We believe that other
synergies with AWT and PSI will
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provide many opportunities to improve profitability and increase market
share as these service arrangements are developed over the next few quarters.
GOVERNMENTAL REGULATION
We are subject to the requirements of a number of federal, state and
local laws, such as the federal Occupational Safety and Health Act ("OSHA")
in the erection and manufacturing of the cooling towers, the Department of
Transportation ("DOT"), the Federal Aviation Administration ("FAA"), the
Environmental Protection Agency ("EPA") and various state regulatory
agencies. We endeavor to comply with all state and federal laws and
believes that we are in compliance with all applicable federal, state and
local regulations applicable to us, including environmental regulations.
COMPETITION
The market for cooling towers is extremely competitive worldwide.
There are approximately 10 manufacturers of new industrial cooling towers
in the United States. There are approximately 15 regional companies
providing retrofits and repair services. Our primary competitors
internationally consist of the same competitors with which we compete in
the United States. Additionally, there are 10-15 companies which compete
regionally on an international basis with our products and services.
The two largest competitors on a worldwide basis are the Marley
Cooling Tower Co., a division of United Dominion Industries Limited based
in the United States, and Hamon Cooling Towers, a division of the Hamon
Thermal Group of Belgium. Collectively, these two companies account for
approximately 40% of the worldwide industrial cooling tower market.
A number of our competitors are substantially larger in size than we
are and have greater financial, operating and other resources. Many of
these competitors have been in business for a number of years and are well
established in the industry.
In addition, a number of the aforementioned competitors manufacture
and market cooling towers employing fiberglass, wood and concrete materials
which are similar to our products. Management believes that our products
provide superior value to the customer through service, performance and
operating efficiencies. There can be no assurance that competitors will not
develop and produce products which are comparable or superior to our
product line.
In the area of water treatment services, we compete with, among
others, Nalco Chemical Co. and Hercules, which are publicly traded
companies. Market estimates vary extensively for the size of the worldwide
water treatment market, but various sources estimates that the total size
may approach $300 billion worldwide. All of our competitors in the water
treatment market are substantially larger in size than we are, and have
greater financial, operating and other resources. These competitors have
been in business for a number of years and are well established in the industry.
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EMPLOYEES
As of September 30, 1999, we employed 98 full time individuals in the
fields of engineering, management, marketing, accounting, finance,
drafting, design, project management, law and administrative support
throughout its operations. There were 72 individuals at our corporate
headquarters in Golden, Colorado. We utilizes an employment service
organization to provide field personnel for our projects where the erection
of the tower is within our scope of work. These crews have ranged from
approximately 30 to 170 individuals and fluctuates in accordance with the
total number of projects requiring field installation at any given time.
Only crews on selected jobs where union representation is mandatory are
subject to a collective bargaining agreement. We believe that relations
with our employees are good.
CUSTOMERS
From time to time, we may have projects that exceed the 10% revenue
threshold for defining a major customer. Because each project is awarded
independently from other projects, we do not believe that the completion of
the contractual arrangements with any major customer that may arise will
have a material adverse effect on the Company.
We had a major customer which accounted for more than 10% of our
revenues for the year ended December 31, 1998. This customer accounted for
$4.8 million in recognized revenue during 1998 or 13.9% of our total 1998
revenue. Additionally, we have two major projects with one customer
included in our backlog, which represents approximately 36% of our total
backlog for 1999.
SEASONALITY
We have experienced seasonality in our business over the past few
years. In general, the fourth calendar quarter of the year has experienced
higher revenues and higher operating income than the other calendar
quarters. Management attributes most of this to cooling tower projects
following the warmer summer months and to end of the year capital budgets
of customers.
BACKGROUND
The Company was incorporated under the name Fi-Tek VI, Inc. in the
State of Delaware on July 12, 1990, for the primary purpose of seeking out
acquisitions of properties, businesses or merger candidates, without
limitation as to the nature of the business operations or geographic area
of the acquisition candidate. In October 1992, the Company completed an
initial public offering, receiving proceeds of $160,000 from the sale of
8,042,500 units, consisting of Common Stock and Class A and Class B
Warrants. This offering was subject to the Colorado Securities Act, which
required the placement into escrow of 80% of the net proceeds of the
offering ($93,714) until the completion of a transaction or series of
transactions whereby at least 50% of the gross proceeds received from the
sale of shares in the offering was committed for use in one or more
specific lines of business. The escrow condition had not been satisfied as
of the fourth
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anniversary of the initial public offering, and accordingly, those funds
were distributed pro rata to those persons who were owners of the shares of
Common Stock purchased in the offering. The expiration date of the
Warrants which were included in the units sold in the public offering have
been extended past their original expiration date, and will now expire
April 14, 2000, unless called and redeemed before that date.
On September 25, 1997, the Company and PSI consummated an Agreement
and Plan of Reorganization whereby the Company acquired all of the issued
and outstanding common shares of PSI in exchange for the issuance of
261,382,500 shares of the Company's Common Stock and 1,000,000 shares of a
newly-authorized Series A non-voting preferred stock ("Preferred Stock").
Each share of Preferred Stock is convertible into 290 shares of Common
Stock upon attainment of gross annual sales of $60,000,000 for the Company
and its subsidiaries, but only if such annual sales goal is reported not
later than the due date of the Company's Annual Report on Form 10-K for the
fiscal year ending in 2002, and is subject to redemption by the Company at
a price of $0.0001 per share in the event the required sales level is not
attained. The Company has accounted for the transaction as a reverse
acquisition under the purchase method of accounting. The fiscal year of
the Company was changed from June 30 to December 31 to correspond to the
fiscal year of PSI.
On November 5, 1997 and subsequent to its reverse acquisition with
PSI, the Company changed its name from Fi-Tek VI, Inc. to Global Water
Technologies, Inc. to reflect the Company's focus on the growing
water-related market opportunities. The Company's trading symbol was also
changed to "GWTR" on that date.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known
to be contemplated for which the Company anticipates a material risk of loss.
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MANAGEMENT
Set forth below is certain information regarding the directors,
executive officers and key employees of the Company as of the date hereof.
Service with the Company prior to September 1997 was rendered to PSI.
NAME AGE POSITION OFFICER OR DIRECTOR SINCE
- ---- --- -------- -------------------------
George A. Kast 42 Chief Executive Officer and 1993
Chairman of the Board
Martin E. Hout 44 Chief Financial Officer and 1998
Treasurer
Gary L. Brown 42 Secretary, General Counsel 1996
and a Director
Michael A. Kast 43 Director 1999
The following sets forth biographical information concerning the
Company's directors and executive officers for at least the past five years.
GEORGE A. KAST, the founder, officer and director of PSI, has been an
officer and director of the Company since the Company's acquisition of PSI
in September 1997. Prior to forming PSI, from 1983 to 1992, Mr. Kast was
the vice-president of GEA/Thermal-Dynamic Towers, Inc. ("TDT"), Lakewood,
Colorado, where he was responsible for all marketing activities and
directly experienced in design and project management of cooling towers,
including the design and creation of the protruded fiberglass structural
cooling towers.
MARTIN E. HOUT has been employed by PSI since 1995 and became the
Chief Financial Officer in 1998. Formerly, he served as the Company's
controller and planning officer. Prior to his association with PSI, he was
the president of International Consulting Associates, Inc., Lakewood,
Colorado, from 1994 to 1995, and from 1993 to 1994, a financial officer at
GAC Technologies, a manufacturing subsidiary of Golden Aluminum Co., a
subsidiary of ACX Technologies, Inc., Golden, Colorado. From 1985 to 1993,
he held various financial positions with Golden Aluminum Co. Mr. Hout
received a B.A. degree from the University of Illinois in 1979 and a M.B.A.
degree in international finance from the University of Denver in 1991. He
is a certified public accountant in Colorado and Illinois.
GARY L. BROWN has been Chief Operating Officer and General Counsel of
PSI since 1996 and became an officer of the Company when the Company
acquired PSI in September 1997. From 1993 to 1996, he was counsel for
Fischbach Corporation, which included Fischbach & Moore, Natkin & Company,
Ficon Corporation and Fischbach Power Services, among others.
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Prior to joining the Fischbach companies, Mr. Brown was engaged in private
practice for ten years with the firm of Gorsuch, Kirgis, Campbell, Walker
& Grover in Denver, Colorado. Mr. Brown received a B.S.J. degree from the
University of Kansas in journalism in 1979 and a J.D. degree from Washburn
University in 1983.
MICHAEL A. KAST has been the director of projects and a director of
PSI since 1993. He is currently a senior vice president of PSI. From 1983
to 1992, he was the founder and former president of TDT. He is responsible
for all of the Company's business activities including labor, construction,
erection, reconstruction and new towers.
BOARD COMMITTEES
The Company presently has no audit/systems committee nor a compensation
committee.
SIGNIFICANT EMPLOYEES
The following employees make a significant contribution to the
business of the Company.
STEVE D. ADAMS, age 38, was the director of applications and projects
at TDT from 1992 to 1994 and the product manager for new tower and
engineering manager at Custodis-Ecodyne, Inc., Santa Rosa, California from
1988 to 1992, where he was product manager for new tower and engineer
manager. Mr. Adams joined PSI in 1994 and is currently vice president-
applications. His responsibilities include new tower design, estimating
and testing. He received a B.S. degree in chemical engineering from the
University of Missouri in 1983.
WILLIAM W. HOWARD, age 41, was structural design manager for TDT from
1990 to 1993 when he joined PSI. In 1991, he was the committee chairman
for the Redwood, Douglas Fir and Fastener Specifications Standards
committee of the Cooling Tower Institute. As vice president of engineering
of PSI, his responsibilities include the analysis and design of all
structural members and joints, proposal reviews, project engineer and
directing new tower project managers. He received a B.S. degree in
architectural engineering, structures from the University of Colorado in 1982.
TIMOTHY P. KAST, age 35, has been the director of research and
technology at PSI's Coeur d'Alene facility in Idaho since 1993. From 1990
to 1993, he was the chief engineer and project designer for TDT where he
led an interdisciplinary team of engineers in the development, design,
analysis, field support and testing of industrial evaporative cooling
towers and assorted equipment. He is currently vice president of
technology for Applied Water Technologies, Inc. He received a B.S. degree
and a M.S. degree in chemical engineering in 1986 and 1989 from the
University of Idaho and is pursuing his Ph.D. in chemical engineering from
the same institution.
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FAMILY RELATIONSHIPS
The following family relationships exist between and among the
officers and directors of the Company: George A. Kast and Michael A. Kast
are brothers and Gary L. Brown is related by marriage to George A. Kast and
Michael A. Kast.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid
to the Company's CEO and the other executive officers of the Company who
received in excess of $100,000 of salary and bonus from the Company during
the year ended December 31, 1998:
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
-------------------
Annual Compensation ($$) Restricted Options
------------------------ Stock & Other
Name and Position Year Salary Bonus Awards SARs Compensation
- ----------------- ---- ------ ----- ------ ---- -------------
<S> <C> <C> <C> <C> <C> <C>
George A. Kast, 1998 $172,500 $75,137 -0- -0- $14,856(1)
President and Chief 1997 $166,438 $ 7,023 -0- -0- $13,618(1)
Executive Officer 1996 $124,000 $46,368 -0- -0- $ 4,926(1)
Gary L. Brown 1998 $145,000 $25,137 -0- -0- -0-
General Counsel 1997 $125,000 $25,000 -0- -0- -0-
1996 $125,000(2) $ 791(3) -0- -0- -0-
Michael A. Kast, 1998 $145,000 $25,137 -0- -0- $48,784(5)
Vice President 1997 $104,000 $ 2,000(4) -0- -0- $48,784(5)
of PSI 1996 $ 54,083 $ -0- -0- -0- $59,178(5)
</TABLE>
__________________________
(1) Represents rental payments made to Mr. Kast for the Coeur d'Alene
research and development center.
(2) Mr. Brown joined PSI in April 1996; thus, salary shown is annualized.
(3) PSI issued Mr. Brown 408 shares of PSI's common stock (which was
exchanged for 5,233,807 shares of the Company's Common Stock and
20,023 shares of the Company's preferred stock) as a bonus upon his
employment by PSI in 1996.
(4) PSI issued Mr. Kast 1,020 shares of PSI's common stock (which was
exchanged for 13,089,518 shares of the Company's common stock and
50,059 shares of the Company's preferred stock) as a bonus upon his
employment by PSI.
(5) Represents interest on certificates of deposit pledged as security for
the Company's line of credit.
COMPENSATION OF DIRECTORS
Standard Arrangements
- ---------------------
Members of the Company's Board of Directors are not compensated in
their capacities as Board Members. However, the Company reimburses all
of its officers, directors and employees for accountable expenses incurred
on behalf of the Company.
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Other Arrangements
- ------------------
The Company had no arrangements pursuant to which any director of the
Company was compensated during the year ended December 31, 1998, for
services as a director.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
None of the Company's officers presently have employment agreements
with the Company.
1998 STOCK OPTION PLAN
On May 20, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan") which provides for the issuance of options to purchase up to
30,000,000 shares of Common Stock to employees, officers, directors and
consultants of the Company and its subsidiaries. The Plan was ratified by
the Company's shareholders at the Company's Annual Meeting of Shareholders
on June 30, 1998. As of the date of this Prospectus, 4,968,800 options
have been awarded to Company employees which vest over the next four years.
Unless sooner terminated, the Plan will expire on May 31, 2008.
The purposes of the Plan are to encourage stock ownership by
employees, officers, directors and consultants of the Company so that they
may acquire or increase their proprietary interest in the Company, to (i)
induce qualified persons to become employees or officers of or consultants
to the Company; (ii) compensate employees, officers, directors and
consultants for past services to the Company; and (iii) encourage such
persons to become employed by or remain in the employ of or otherwise
continue their association with the Company and to put forth maximum
efforts for the success of the business of the Company.
The Plan states that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its Common
Stock, stock awards or any other type of award. To the extent permitted by
applicable law, the Company may issue any other options, warrants or awards
other than pursuant to the Plan without shareholder approval.
The Plan is administered by a Committee consisting of the Board of
Directors or Compensation Committee, if appointed. At its discretion, the
Committee may determine the persons to whom Options may be granted and the
terms thereof. As noted above, the Committee may issue options to the
Board.
The terms of any Options granted under the Plan are not required to be
identical as long as they are not inconsistent with the express provisions
of the Plan. In addition, the Committee
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may interpret the Plan and may adopt, amend and rescind rules and
regulations for the administration of the Plan.
Options may be granted as incentive stock options ("Incentive
Options") intended to qualify for special treatment under the Internal
Revenue Code of 1986, as amended (the "Code"), or as non-qualified stock
options ("Non-Qualified Options") which are not intended to so qualify.
Only employees of the Company are eligible to receive Incentive Options.
The period during which Options may be exercised may not exceed ten years.
The exercise price for Incentive Options may not be less than 100% of the
fair market value of the Common Stock on the date of grant; except that the
exercise price for Incentive Options granted to persons owning more than
10% of the total combined voting power of the Common Stock may not be less
than 110% of the fair market value of the Common Stock on the date of grant
and may not be exercisable for more than five years. The exercise price
for Non-Qualified Options may not be less than 85% of the fair market value
of the Common Stock on the date of grant. The Plan defines "fair market
value" as the last sale price of the Company's Common Stock as reported on
a national securities exchange or on the NASDAQ or, if the quotation for
the last sale reported is not available for the Company's Common Stock, the
mean between the highest bid and lowest asked prices of the Company's
Common Stock as reported by NASDAQ or on the electronic bulletin board or,
if none, the National Quotation Bureau, Inc.'s "Pink Sheets" or, if such
quotations are unavailable, the value determined by the Committee or the
Board of Directors in accordance with its discretion in making a bona fide,
good faith determination of fair market value.
The Plan contains provisions for proportionate adjustment of the
number of shares issuable upon the exercise of outstanding Options and the
exercise price per share in the event of stock dividends, recapitalization
resulting in stock splits or combinations or exchanges of shares.
In the event the Company is the surviving corporation in any merger or
consolidation, the holder of any Option or Award granted under the Plan
shall have the right to exercise such Option (at its then current Option
Price) or Award for the kind and amount of shares of stock subject to the
Option or award prior to the merger or consolidation. All Options and
Awards granted under the Plan will terminate in the event of a dissolution
or liquidation of the Company not involving a transaction with another
company as described below.
In the event of shareholder approval of (i) a merger or consolidation
in which the Company is not the surviving entity (except for a change of
domicile), (ii) the sale, transfer or other disposition of all or
substantially all the Company's assets and the complete liquidation or
dissolution of the Company or (iii) any reverse merger in which the Company
is the surviving entity but in which the holders of more than 50% of the
total voting securities of the Company are held by a person or persons
different from those who held such securities immediately prior to such
merger, the Committee may provide for the automatic acceleration of one or
more of the outstanding Options or Awards. Upon the consummation of such
a transaction, all Options shall, to the extent not previously exercised,
terminate and cease to be outstanding.
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Except as otherwise provided under the Plan, an Option may not be
exercised unless the recipient then is an employee, officer or director of
or consultant to the Company or a subsidiary of or parent to the Company,
and unless the recipient has remained continuously as an employee, officer
or director of or consultant to the Company since the date of grant of the
Option.
If an Option holder ceases to be an employee, officer or director of,
or consultant to, the Company or a subsidiary of the Company (other than by
reason of death or permanent disability), other than for cause, the holder
may exercise any Options or SARs that are vested but unexercised on the
date his or her service is terminated until the earlier of (i) 90 days
after the date of termination of service, or (ii) the expiration date of
the Options or SARs. However, termination of employment at any time for
cause immediately terminates all Options or SARs held by the terminated
employee. If termination is by reason of disability, however, the holder
may exercise his or her Options or SARs until the earlier of (i) 12 months
after the termination of service, or (ii) the expiration of the term of the
Option or SAR. If the holder dies while in service to the Company, the
holder's estate or successor by bequest or inheritance may exercise any
Options or SARs that the holder was entitled to exercise on the date of his
or her death at any time until the earlier of (i) the period ending three
months after the holder's death, or (ii) the expiration of the term of the
Option or SAR.
Options granted under the Plan are not transferable other than by will
or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, or the rules thereunder. Options
may be exercised, during the lifetime of the recipient, only by the
recipient and thereafter only by his legal representative.
The Committee may suspend, terminate, modify or amend the Plan, except
that, without shareholder approval, the Board may not (i) increase the
maximum number of shares of Common Stock subject to the Plan (except in the
case of certain organic changes to the Company), (ii) reduce the exercise
price at which Options may be granted or the exercise price for which any
outstanding Options may be exercised, (iii) extend the term of the Plan,
(iv) change the class of persons eligible to receive Options or Awards
under the Plan, or (v) materially increase the benefits accruing to
participants under the Plan. In addition, the Committee or the Board may
not, without the consent of the Option holder, take any action that
disqualifies any Option previously granted under the Plan for treatment as
an Incentive Stock Option or which adversely affects or impairs the rights
of the Option holder of any outstanding Option. Notwithstanding the
foregoing, the Board may amend the Plan from time to time as it deems
necessary in order to meet the requirements of any amendments to Rule 16b-3
under the Securities Exchange Act without the consent of the shareholders
of the Company.
SARs will entitle the recipient to receive a payment equal to the
appreciation in market value of a stated number of shares of Common Stock
from the price on the date the SAR was granted or became effective to the
market value of the Common Stock on the date first exercised or
surrendered. The Committee or the Board may determine such other terms,
conditions or limitations, if any, on any Awards granted pursuant to the Plan.
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<PAGE>
OPTION GRANTS; YEAR END OPTION VALUES
No options were granted during the fiscal year ended December 31,
1998, and there were no options held by members of the Company's
management. On March 8, 1999, 4,968,800 options were granted to employees.
LONG-TERM INCENTIVE PLANS
The Company has no long term incentive plans other than its 1998 Stock
Option Plan.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Section 143 of the Delaware General Corporation Law ("DGCL")
authorizes a corporation's board of directors to grant indemnity to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities) including
reimbursement for expenses incurred) arising under the Securities Act.
As permitted by the DGCL, the Company's Certificate of Incorporation
includes a provision that eliminates the personal liability of its
directors for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty
to the Company or its shareholders; (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the DGCL (regarding unlawful dividends and stock
purchases) or (iv) for any transaction from which the director derived an
improper personal benefit.
As permitted by the DGCL, the Company's By-Laws provide that the
Company is required to indemnify its directors and officers to the fullest
extent permitted by the DGCL, and that the Company is permitted to
indemnify its other employees to the extent permitted by law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information known to the
Company with respect to the beneficial ownership of the Company's Common
Stock as of the date hereof by (i) each director and executive officer of
the Company, (ii) all executive officers and directors of the Company as a
group, and (iii) all persons known by the Company to beneficially own more
than 5% of the Company's Common Stock.
Name and Address Amount and Nature of
of Shareholder Beneficial Ownership (1) Percent of Class
- -------------- ------------------------ ----------------
George A. Kast 228,375,858(2) 74.1%
1767 Denver West Boulevard
Golden, Colorado 80401
Gary L. Brown 5,233,807(3) 1.7%
1767 Denver West Boulevard
Golden, Colorado 80401
Michael A. Kast 13,167,218(4) 4.2%
1767 Denver West Boulevard
Golden, Colorado 80401
Martin E. Hout 112,500(5) (6)
1767 Denver West Boulevard
Golden, Colorado 80401
All Directors and Executive 246,889,383 80.2%
Officers as a group (4 persons)
________________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule 13d-
3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but are not deemed outstanding for the purpose
of calculating the percentage owned by each other person listed.
(2) Includes options to purchase 126,520 shares of Common Stock at $.08
per share granted on March 8, 1999, pursuant to the Company's 1998
Stock Option Plan, which are currently exercisable.
(3) Includes options to purchase 92,620 shares of Common Stock at $.08 per
share granted on March 8, 1999, pursuant to the Company's 1998 Stock
Option Plan, which are currently exercisable.
(4) Includes options to purchase 82,700 shares of Common Stock at $.08 per
share granted on March 8, 1999, pursuant to the Company's 1998 Stock
Option Plan, which are currently exercisable.
(5) Includes options to purchase 112,500 shares of Common Stock at $.08
per share granted on March 8, 1999, pursuant to the Company's 1998
Stock Option Plan, which are currently exercisable.
(6) Negligible.
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<PAGE>
CHANGES IN CONTROL
There are no understandings, arrangements or agreements known by
management at this time which would result in a change in control of the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1994, Michael A. Kast pledged certificates of deposit in
the amount of $500,000 to a bank to secure a credit line for PSI. In
consideration for such pledge, PSI agreed to pay Michael A. Kast interest
at an annual rate of 7.65% for one year. In August 1994, PSI paid Michael
A. Kast $5,000 and issued him 200 shares of PSI's preferred stock as
additional consideration for pledging the loan collateral. This preferred
stock was redeemed in 1997. The collateral balance as of December 31, 1998
was $742,867. The total amount of interest paid by the Company to Michael
A. Kast was $48,784 and $48,784 for the years ended December 31, 1997 and
1998, respectively.
In June 1997, PSI loaned $2,000 to Motion Marine, Inc., a subchapter
S corporation owned by PSI's principal shareholder, George A. Kast. The
note carried an interest rate of 10% per annum and the principal amount of
the note and accrued interest and was repaid on September 4, 1997.
In February 1997, PSI loaned George A. Kast $200,000 with interest at
8%. The loan was approved by the directors and shareholders of PSI. Mr.
Kast repaid the loan in full in October 1997.
George A. Kast has personally guaranteed the Company's obligations
(approximately $1,225,000 and $1,776,000 as of December 31, 1997 and 1998,
respectively) with financial institutions, including the Company's SBA term
loan. In addition, as of December 31, 1997 and 1998, Mr. Kast had
personally guaranteed approximately $4,200,000 and $16,600,000,
respectively, of Company obligations with bonding companies.
In March 1998, the Company and George A. Kast entered into a lease for
a 36,700 square foot office building in Golden, Colorado, for the Company's
principal offices. The lease requires the Company to pay rent at a rate of
$21,454 per month for the 34-month lease. Gross operating expenses for the
building approximate $20,000 per month, of which Mr. Kast is personally
responsible for the payment of approximately $5,000 per month, which has
been paid by the Company. In December 1998, Mr. Kast signed a note payable
to the Company in the amount of $47,766, related to the operating costs of
the building for which Mr. Kast is responsible. The note bears interest at
8% per annum and matures September 30, 1999. This note was repaid in
installments during 1999 and the Company received the last payment on
October 6, 1999. The building lease also provides Mr. Kast with the option
to purchase the building on or before December 31, 2000.
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<PAGE>
On August 13, 1998, the Company designated 1,000 shares of its
authorized but unissued Preferred Stock as Series B non-voting and
non-convertible Preferred Stock. Each share of Series B Preferred has a
redemption value of $1,000 per share, and a dividend rate of $80 (8%) per
share. Shares of Series B Preferred are redeemable by the Company subject to
certain minimum equity provisions. The Company issued 250 shares of Series B
Preferred Stock to George A. Kast in consideration of a cash payment of
$250,000.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 800,000,000 shares of Common
Stock, $0.00001 par value. There are presently 308,354,250 shares of
Common Stock issued and outstanding. All shares of Common Stock have equal
voting rights and, when validly issued and outstanding, have one vote per
share in all matters to be voted upon by shareholders. There are
approximately 76 holders of record of the Company's Common Stock.
At the 1998 Annual Meeting of the Company's shareholders, the
shareholders approved a proposal granting the Company's Board of Directors
the discretion, when and if deemed appropriate, to effect a reverse split
of the Company's outstanding $.00001 par value Common Stock, not to exceed
1-for-100, and a corresponding amendment to the Company's Certificate of
Incorporation to reduce the number of shares of Common Stock authorized and
a corresponding increase in the par value. The Board of Directors has not
yet made a decision with respect to the advisability of a reverse stock
split, and is still considering the issue.
The shares of Common Stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully paid and
non-assessable shares. Cumulative voting in the election of directors is
not allowed, which means that the holders of a majority of the outstanding
shares represented at any meeting at which a quorum is present will be able
to elect all of the directors if they choose to do so and, in such event,
the holders of the remaining shares will not be able to elect any
directors. On liquidation of the Company, each common shareholder is
entitled to receive a pro rata share of the Company's assets available for
distribution to common stockholders.
PREFERRED STOCK
The Company is authorized to issue up to a total of 20,000,000 shares
of non-voting preferred stock, $0.00001 par value, with the shares to be
issued in series by the Board of Directors. As part of the acquisition of
PSI in September 1997, the Company's Board of Directors designated
1,000,000 shares of the Preferred Stock as Series A non-voting Preferred
Stock, which were issued to the shareholders of PSI. Each share of Series
A Preferred Stock is convertible into 290 shares of Common Stock upon
attainment of gross annual sales of $60,000,000, but only if such annual
sales goal is reported not later than the due date of the Company's Annual
Report on Form 10-K for the fiscal year ending in 2002, and is subject to
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<PAGE>
redemption by the Company at a price of $.0001 per share in the event the
required sales level is not attained.
On August 13, 1998, the Company's Board of Directors designated 1,000
shares of the Preferred Stock as Series B non-voting and non-convertible
Preferred Stock, and issued 250 shares of Series B Preferred to George A.
Kast. Each share of Series B Preferred has a redemption value of $1,000
and a dividend rate of $80 (8%) per share. Shares of Series B Preferred
are redeemable by the Company subject to certain minimum equity provisions.
The remaining shares of Preferred Stock may be issued in one or more
series from time to time with such designations, rights, preferences and
limitations as the Company's Board of Directors may determine without
approval of its shareholders. The rights, preferences and limitations of
separate series of serial Preferred Stock may differ with respect to such
matters as may be determined by the Company's Board of Directors, including
without limitation, the rate of dividends, method or nature or prepayment
of dividends, terms of redemption, amounts payable on liquidation, sinking
fund provisions, conversion rights and voting rights. The ability of the
Board to issue Preferred Stock could also be used by it as a means for
resisting a change of control of the Company and can therefore be
considered an "anti-takeover" device. The Company currently has no plans
to issue any shares of Preferred Stock.
DIVIDEND POLICY
Dividends are payable on Common Stock when, as, and if declared by the
Board of Directors out of funds legally available to pay dividends, subject
to any preferences which may be given to holders of preferred stock. The
Company has paid no cash dividends on its Common Stock to date and it does
not anticipate payment of cash dividends in the foreseeable future.
CLASS A AND B WARRANTS
The Company has 8,042,500 Class A and 8,042,500 Class B Common Stock
Purchase Warrants (collectively, the "Warrants") outstanding which were
originally issued by the Company as part of the units sold in its initial
public offering in 1992. The expiration date of the Warrants has been
continually extended by the Board of Directors since their original
expiration date in April 1994. Currently, the expiration date of the
Warrants is April 14, 2000.
Subject to redemption by the Company, each Class A Warrant is
exercisable for one share of Common Stock at a price of $.12 per share.
Each Class B Warrant is exercisable for one share of Common Stock at a
price of $.20 per share.
The Warrants may be called for redemption by the Company at any time
during the Exercise Period upon 30 days notice to the holders of the
Warrants. Holders have the right to exercise their Warrants between the
date of notice of redemption and the date given by the Company for
redemption. Any holder who does not exercise his Warrants prior to the
date set for the redemption will receive only the redemption price of
$.0001 per Warrant.
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<PAGE>
An additional 804,250 Class A Warrants and 804,250 Class B Warrants
are held by personnel of an investment banking house, which assisted in the
Company's initial public offering in 1992. These Warrants were acquired
upon the exercise of options to purchase 804,250 shares of Common Stock,
at $.024 per share in October of 1998.
The Company may employ selected brokers and/or dealers to solicit the
exercise of Warrants on its behalf. The Company may pay such brokers and
dealers a Warrant solicitation fee of up to 3% of the gross proceeds
received from the exercise of Warrants originated by or from the broker's
or dealer's office. No Warrant solicitation fee will be paid if (i) the
exercise of the Warrants is made at a time when the market price of the
Company's Common Stock is lower than the exercise price of the Warrants,
(ii) the Warrants to be exercised are held in a discretionary account,
(iii) the solicitation of the exercise of such Warrants would violate
applicable provisions of Regulation M promulgated in the Securities
Exchange Act of 1934, as amended, (iv) the brokers or dealers failed to
notify the Company in writing at least 10 calendar days prior to
commencement of such solicitation and (v) the exercise of the Warrants is
the result of an unsolicited transaction.
CLASS C WARRANTS
The Company has presently outstanding 14,850,000 non-transferable
Class C Warrants.
Each Class C Warrant entitles the holder thereof to purchase one share
of Common Stock at a price of $.16 per share (the "Exercise Price"),
subject to adjustment in accordance with the anti-dilution and other
provisions referred to below. The holder of any Class C Warrant may
exercise Class C Warrants by surrendering the certificate representing the
Class C Warrant to the Transfer and Warrant Agent, with the election to
purchase form on the reverse side of such certificate properly completed
and executed, together with payment of the exercise price. Subject to
compliance with applicable state securities laws, the Class C Warrants may
be exercised at any time in whole or in part at the Exercise Price until
expiration of the Class C Warrants on July 12, 2003 (the "Expiration Date").
The Class C Warrants are subject to redemption by the Company at $.01
per Class C Warrant in the event that the closing bid price for the
Company's Common Stock, as published by Bloomberg, shall have been in
excess of $.22 for the 20 consecutive trading days immediately prior to the
Company's mailing the notice of redemption. The Company shall give holders
of record of the Class C Warrants 30 days advance written notice of
redemption, and the Class C Warrants shall be exercisable until the close
of business on the date for redemption fixed in such notice. If any Class
C Warrant called for redemption is not exercised by the date specified in
the notice, such Class C Warrant will cease to be exercisable and the
holder will be entitled only to the redemption price. The Company may not
exercise its right to redeem the Class C Warrants until the Registration
Statement covering the shares of Common Stock underlying the Class C
Warrants has been declared effective by the SEC and such Registration
Statement must be effective during the entire 30 day period prior to the
date fixed for redemption.
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<PAGE>
Holders of Class C Warrants have no voting rights and are not entitled
to dividends. In the event of liquidation, dissolution or winding up of
the affairs of the Company, holders of the warrants will not be entitled to
participate in any liquidation distribution.
The Company has agreed to use its reasonable best efforts to file a
Registration Statement covering the Shares and the Warrant Shares, and to
have such Registration Statement declared effective no later than January
27, 2000). If the Registration Statement is not declared effective by
January 27, 2000, the exercise price of the Class C Warrants will be
reduced by $.005 for each month, or proportionate part thereof, thereafter
until the Registration Statement is effective. The Company has agreed to
maintain the effectiveness of the Registration Statement for a period of
four years from the date of its initial effectiveness.
The Class C Warrants may not be sold or otherwise transferred, except
in compliance with applicable securities laws. Class C Warrants may be
exchanged or exercised any time prior to the Expiration Date.
The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Class C Warrants are subject to
adjustment upon the occurrence of certain events, including dividends,
stock splits, combinations or recapitalizations of the Common Stock, or
sale by the Company of shares of its capital stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of
Common Stock, consolidation or merger of the Company with or into another
corporation or sale of all or substantially all of the assets of the
Company in order to enable Warrant holders to acquire the kind and number
of shares of Common Stock or other securities or property receivable in
such event by a holder of the number of shares of Common Stock that might
otherwise have been purchased upon the exercise of the Warrant. No
adjustments will be made until the cumulative adjustments in the exercise
price per share amount to $.01 or more. No adjustment to the exercise
price of the Warrants will be made for dividends (other than dividends in
the form of stock), if any, paid on the Common Stock, or for the issuance
of restricted securities in connection with acquisitions by the Company,
the grant of stock options to persons covered by the 1998 Stock Option
Plan, or any subsequent qualified incentive stock option plan duly adopted
by the Company's Board of Directors and shareholders, and shares of Common
Stock issued upon the conversion of Class A Preferred Stock.
OTHER OUTSTANDING WARRANTS
There are outstanding warrants to purchase 5.4 units, each of which
consists of 250,000 shares of Common Stock and 250,000 Class C Warrants, at
a price of $20,000 per unit. These warrants were issued to three individuals
associated with Westminster Securities Corporation, which acted as the
placement agent for a private placement conducted by the Company in
September 1999. The shares of Common Stock included in the units and the
shares of Common Stock issuable upon exercise of the Class C Warrants are
registered in this registration statement pursuant to the terms of
Westminster Securities Corporation's placement agent agreement with the
Company.
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<PAGE>
There is also outstanding a warrant to purchase 1,050,000 shares of
Common Stock which was issued to Magnum Financial Group in connection with
the Registrant's retention of that firm as its financial consultant. The
warrant is exercisable until February 18, 2002, at prices ranging from
$0.08 to $0.12 per share.
REPORTS TO SHAREHOLDERS
The Company is a publicly held company which files periodic reports,
including Annual Reports containing consolidated financial statements of
the Company audited by independent public accountants, and quarterly
reports, which contain unaudited financial statements, with the Securities
and Exchange Commission.
STOCK TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Company's Common Stock and the Warrant
Agent for the Class A, B and C Warrants is American Securities Transfer &
Trust, Incorporated, 12039 West Alameda Parkway, Suite Z-2, Lakewood,
Colorado 80228.
SELLING SECURITY HOLDERS
The following table sets forth the names of the Selling Security
Holders, the number of shares of the Company's Common Stock and shares
underlying currently exercisable Class C Warrants owned beneficially by
each selling shareholder as of October 15, 1999, and the number of shares
that may be offered pursuant to this Prospectus. This information is based
upon information provided by the Selling Security Holders.
<TABLE>
<CAPTION>
Common Stock Underlying
Class C Warrants
Common Stock Beneficially Owned Beneficially Owned
------------------------------- ----------------------------------
To Be To Be
Prior to Offering Sold Prior to Offering Sold
-------------------- ---- ----------------------- ----
Selling Security Holder Number Percent Number Number Percent Number
- ----------------------- ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
AMRO International, S.A. 1,250,000 8.4 1,250,000 1,250,000 7.7 1,250,000
Cycad Limited 750,000 5.0 750,000 750,000 4.7 750,000
Spencer Enslein 250,000 1.7 250,000 250,000 1.5 250,000
Frank Kramer 1,000,000 6.7 1,000,000 1,000,000 6.2 1,000,000
Henry S. Krauss 250,000 1.7 250,000 452,500 2.8 452,560
Maurice and Mary-Ann
LaFlamme 250,000 1.7 250,000 250,000 1.5 250,000
Frances Luskind, Trustee of the
Trust u/w/o Jessie Daniels 250,000 1.7 250,000 452,500 2.8 452,560
John O'Shea 750,000 5.0 750,000 1,695,000 10.6 1,695,000
Generation Capital Associates 250,000 1.7 250,000 250,000 1.5 250,000
Debbie Salerno 1,250,000 8.4 1,250,000 1,250,000 7.7 1,250,000
Eric Sundsvold 250,000 1.7 250,000 250,000 1.5 250,000
William Marocco 1,250,000 8.4 1,250,000 1,250,000 7.7 1,250,000
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<PAGE>
Inverness Investment, Inc.
Profit Sharing Plan 250,000 1.7 250,000 250,000 1.5 250,000
Jeff McLaughlin 250,000 1.7 250,000 250,000 1.5 250,000
Pio Verges 250,000 1.7 250,000 250,000 1.5 250,000
Vincent Capadanno 250,000 1.7 250,000 250,000 1.5 250,000
Lynn Sauve 250,000 1.7 250,000 250,000 1.5 250,000
Roger Weissenberg 250,000 1.7 250,000 250,000 1.5 250,000
Randall Taylor 500,000 3.4 500,000 500,000 3.1 500,000
George Groehsl 250,000 1.7 250,000 250,000 1.5 250,000
George Ring 2,500,000 16.9 2,500,000 2,500,000 15.5 2,500,000
Koala S.A. 750,000 5.0 750,000 750,000 4.7 750,000
FCS c/fbo Vicki D.E.
Barone IRA 125,000 0.8 125,000 125,000 0.8 125,000
FCS c/fbo Kevin Watley IRA 125,000 0.8 125,000 125,000 0.8 125,000
Westminster Securities
Corporation(1) 1,350,000 9.1 1,350,000 1,350,000 8.4 1,350,000
---------- ----------
14,850,000 16,200,000
</TABLE>
__________________________
(1) Represents an option to purchase 1,350,000 shares of stock and
1,350,000 Class C Warrants, which is presently exercisable.
PLAN OF DISTRIBUTION
Each Selling Security Holder is free to offer and sell his or her
common shares at such time, in such manner and at such prices as he or she
may determine. The types of transactions in which the shares of Common
Stock are sold may include transactions in the over-the-counter market
(including block transactions), on the Nasdaq SmallCap Market (or any other
exchange on which the shares may be listed), in negotiated transactions, or
a combination of such methods of sale and/or may also be used to cover any
short positions previously established. The sales will be at market prices
prevailing at the time of sale or at negotiated prices. The Selling
Security Holders may effect such transactions by selling to or through one
or more broker-dealers. The Selling Security Holders have advised us that
they have not entered into agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their shares. The
Selling Security Holders do not have an underwriter or coordinating broker
acting in connection with the proposed sale of the Common Stock.
The Selling Security Holders may sell their shares directly to
purchasers or to or though broker-dealers, which may act as agents or
principals. These broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders.
They may also receive compensation from the purchasers of Common Stock for
whom such broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
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<PAGE>
The Selling Security Holders and any broker-dealers that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act. Any commissions received by such
broker-dealers and any profits realized on the resale of shares sold by
them while acting as principals might be deemed to be underwriting
discounts or commissions. The Selling Security Holders may agree to
indemnify such broker-dealers for transactions involving sales of the
shares of Common Stock against certain liabilities, including liabilities
arising under the Securities Act. In addition, GWTR has agreed to
indemnify the Selling Security Holders with respect to the shares offered
hereby against certain liabilities, including, without limitation, certain
liabilities under the Securities Act, or, if such indemnity is unavailable,
to contribute toward amounts required to be paid in respect of such
liabilities.
Because the Selling Security Holders may be deemed to be
"underwriters" within the meaning of Section 2(a)(11) of the Securities
Act, the Selling Security Holders will be subject to prospectus delivery
requirements.
We have informed the Selling Security Holders that the anti-manipulation
rules of the SEC, including Regulation M promulgated under the
Securities Exchange Act of 1934, as amended, may apply to their sales in
the market and have provided the Selling Security Holders with a copy of
such rules and regulations.
The Selling Security Holders may resell all or a portion of the shares
of Common Stock in open market transactions in reliance upon Rule 144 under
the Securities Act, provided they meet the criteria and conform to the
requirements of such Rule.
We are responsible for all costs, expenses and fees incurred in
registering the shares offered hereby. The Selling Security Holders are
responsible for brokerage commissions, if any, attributable to the sale of
the shares of Common Stock.
LEGAL MATTERS
Legal matters in connection with the shares offered hereby have been
passed on for us by Rothgerber Johnson & Lyons LLP, Denver, Colorado.
EXPERTS
The financial statements of the Company as of December 31, 1998 and
1997 and for the years then ended included in this Prospectus have been
audited by Comiskey & Company, Professional Corporation, independent
auditors, as stated in their report appearing in this Prospectus, and are
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
SHARES ELIGIBLE FOR FUTURE SALE
The Company presently has outstanding 308,354,250 shares of Common
Stock, of which 254,323,250 shares are restricted securities currently
eligible for sale.
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In general, under Rule 144, as currently in effect, any person (or
persons whose shares are aggregated), including persons deemed to be
affiliates, whose restricted securities have been fully paid for and held
for at least one year from the later of the date of payment therefor to the
Company or acquisition thereof from an affiliate, may sell such securities
in brokers' transactions or directly to market makers, provided that the
number of shares sold in any three month period may not exceed the greater
of 1% of the then outstanding Common Stock or the average weekly trading
volume of the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain notice requirements
and the availability of current public information about the Company.
After two years have elapsed from the later of the issuance of restricted
securities by the Company or their acquisition from an affiliate, such
securities may be sold without limitation by persons who are not affiliates
under Rule 144.
In addition, Global Water expects to file a registration statement on
Form S-8 registering up to 30,000,000 shares of Common Stock subject to
outstanding stock options or reserved for issuance under Global Water's
1998 Stock Option Plan. Shares registered under such registration
statement would be subject to Rule 144 volume limitations applicable to
affiliates, and be available for sale in the open market, unless subject to
vesting restrictions.
Sales of substantial amounts of Common Stock by shareholders of the
Company under Rule 144 or otherwise, or even the potential for such sales,
are likely to have a depressive effect on the market price of the shares of
Common Stock and Warrants and could impair the Company's ability to raise
capital through the sale of its equity securities.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other documents with
the United States Securities and Exchange Commission ("SEC"). You may read
and copy any document we file at the SEC's public reference room at Room
1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C.
20549 without charge. You should call 1-800-SEC-0330 for more information
on the public reference room. The SEC also maintains an Internet site at
http://www.sec.gov where certain information regarding issuers (including
Global Water Technologies, Inc.) may be found.
This Prospectus is part of a registration statement that we filed with
the SEC. The registration statement contains more information than this
Prospectus regarding Global Water Technologies and its Common Stock,
including certain exhibits and schedules. You can obtain a copy of the
registration statement from the SEC at the address listed above or from its
Internet site.
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INDEX TO FINANCIAL STATEMENTS
GLOBAL WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Comiskey and Company, P.C. Independent Certified
Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . .F-2
Consolidated Statements of Operations for Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . .F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997 . . . . .F-4
Consolidated Statements of Cash Flows for Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . .F-5
Consolidated Statements of Stockholders' Equity for Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements December 31, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-7
Consolidated Statements of Operations (Unaudited) for the Six
Months Ended June 30, 1999 and 1998. . . . . . . . . . . . . . . . . F-21
Consolidated Balance Sheet (Unaudited) as of June 30, 1999 . . . . . F-22
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 1999 and 1998. . . . . . . . . . . . . . . F-23
Notes to Consolidated Financial Statements June 30, 1999 and 1998. . F-24
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Global Water Technologies, Inc.
We have audited the consolidated balance sheets of Global Water
Technologies, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, cash flows, and stockholders' equity
for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as, evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the consolidated financial position of Global
Water Technologies, Inc. as of December 31, 1998 and 1997 and the results
of its operations, cash flows, and changes in stockholders' equity for each
of the years then ended in conformity with generally accepted accounting
principles.
Denver, Colorado
February 12, 1999
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
F-2
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net revenues:
United States $ 29,486,771 $ 14,919,866
International 5,247,569 3,777,426
------------- -------------
Total revenues 34,734,340 18,697,292
------------- -------------
Costs and expenses:
Cost of sales 27,816,137 13,547,484
Selling, general and administrative 4,762,328 4,031,159
Research and development 232,657 147,895
------------- -------------
Total costs and expenses 32,811,122 17,726,538
------------- -------------
Operating income 1,923,218 970,754
Other income (expense):
Interest expense, net (157,520) (123,072)
Other, net 1,180 (2,822)
------------- -------------
Income before income taxes 1,766,878 844,860
Income taxes 777,569 273,878
------------- -------------
Net income before preferred dividend 989,309 570,982
Preferred stock dividend 7,640 -
------------- -------------
Net income (including the effect of a
change in accounting principle for
the current year) 981,669 570,982
Cumulative effect of a change in an
accounting principle - net of
$ 593,119 of related tax effect (754,296) -
------------- -------------
Net income available for common
shareholders $ 227,373 $ 570,982
============= =============
Income per share:
Basic weighted average shares
outstanding 294,251,063 270,014,801
Basic income per share - prior to
accounting change 0.003 0.002
Cumulative effect of accounting change (0.002) -
------------- -------------
Basic income per share available
for common $ 0.001 $ 0.002
============= =============
Fully diluted weighted average shares
outstanding 294,251,063 270,126,740
Fully diluted income per share -
prior to accounting change 0.003 0.002
Cumulative effect of accounting change (0.002) -
------------- -------------
Fully diluted income per share $ 0.001 $ 0.002
============= =============
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997
1998 1997
---- ----
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,751,299 $ 118,887
Trade accounts receivable, net of
allowance for doubtful accounts of
$134,169 and $50,000, respectively 8,205,563 3,937,645
Other receivables 111,365 16,097
Costs and estimated earnings in excess
of billings on uncompleted contracts 3,623,538 2,695,782
Income taxes receivable 60,960 34,995
Inventories 318,458 380,128
Prepaid expenses 164,304 126,031
------------- -------------
Total current assets 14,235,487 7,309,565
------------- -------------
Property and equipment, net 625,309 604,578
Intangibles, net of amortization 41,246 52,250
Deposits 106,020 13,086
Restricted assets, certificate of deposit --- 222,836
------------- -------------
$ 15,008,062 $ 8,202,315
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 1,036,159 $ 137,865
Accounts payable 7,366,472 4,685,568
Accrued liabilities 1,884,950 638,821
Billings in excess of costs and
estimated earnings on uncompleted
contracts 1,686,168 499,594
Income taxes payable 213,611 ---
Deferred income taxes 106,632 123,778
------------- -------------
Total current liabilities 12,293,992 6,085,626
------------- -------------
Long-term debt 1,137,076 923,958
Deferred income taxes 78,005 190,417
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 100 100
Preferred stock, no par, 1,000 shares
authorized; 250 shares issued and
outstanding as of December 31, 1998
only; stated at redemption value of
$ 1,000 250,000 ---
Common stock, 0.00001 par value;
800,000,000 shares authorized;
294,854,250 and 294,050,000 shares
issued and outstanding, respectively 2,948 2,940
Capital in excess of par value 541,918 522,624
Retained earnings 704,023 476,650
------------- -------------
Total stockholders' equity 1,498,989 1,002,314
------------- -------------
$ 15,008,062 $ 8,202,315
============= =============
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 31, 1998 and 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income available for common
shareholders $ 227,373 $ 570,982
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 174,712 142,223
Amortization 11,004 2,750
Loss on disposition of fixed assets 31,883 ---
Increase (decrease) in deferred
income taxes (129,558) 308,059
(Increase) decrease in working capital:
Trade accounts receivable (4,267,918) (934,717)
Other receivables (47,502) 36,337
Costs and estimated earnings in
excess of billings on uncompleted
contracts (927,756) (709,619)
Income taxes receivable (25,965) (34,995)
Inventories 61,670 (216,312)
Prepaid expenses (38,273) (14,184)
Deposits (92,934) (3,990)
Accounts payable 2,680,903 984,669
Income taxes payable 213,611 (167,513)
Accrued liabilities 1,246,129 173,793
Billings in excess of costs and
estimated earnings on uncompleted
contracts 1,186,574 347,015
------------- -------------
Net cash provided by
operating activities 303,953 484,498
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in certificate of deposit 222,836 (11,467)
Purchase of property and equipment (227,325) (174,705)
Purchase of intangibles --- (5,000)
Issuance of stockholder loan (47,766) ---
------------- -------------
Net cash (used in)
investing activities (52,255) (191,172)
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net changes on the lines-of-credit 798,000 (103,267)
Issuance of common stock 19,302 5,604
Issuance (redemption) of preferred stock 250,000 (2,000)
Proceeds from issuance of debt 496,378 ---
Repayment of debt (182,966) (135,964)
------------- -------------
Net cash (used in)
financing activities 1,380,714 (235,627)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,632,412 57,699
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 118,887 61,188
------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,751,299 $ 118,887
============= =============
Supplemental cash flow disclosures - The effect of a certain $50,000 non-cash
financing transaction related to a non-compete agreement for common
stock in the Company was excluded from the consolidated cash flows for the
year ended December 31, 1997. Cash paid for interest was $167,420 and
$141,598 for the years ended December 31, 1998 and 1997, respectively.
Cash paid for income taxes was $176,547 for the year ended December 31, 1998.
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
PREFERRED STOCK
PREFERRED STOCK SERIES A & B COMMON STOCK CAPITAL IN RETAINED
--------------- --------------- ------------ EXCESS OF EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE (DEFICIT) TOTAL
------ ------ ------ ------ ------ ------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1997 50 $5,000 1,000,000 $ 100 261,382,500 $ 2,614 $464,346 $ (94,332) $ 377,728
Redemption of
preferred stock,
September 24, 1997 (50) (5,000) --- --- --- --- 3,000 --- (2,000)
Stock deemed issued
in reverse
acquisition,
September 25, 1997 --- --- --- --- 32,042,500 320 5,284 --- 5,604
Stock issued for non-
compete Agreement,
December 15, 1997 --- --- --- --- 625,000 6 49,994 --- 50,000
Net income --- --- --- --- --- --- --- 570,982 570,982
---- ------ --------- -------- ----------- ------- -------- --------- ----------
BALANCE,
DECEMBER 31, 1997 --- $ --- 1,000,000 $ 100 294,050,000 $ 2,940 $522,624 $ 476,650 $1,002,314
Issuance of
Series B
preferred stock
August 13, 1998 --- --- 250 250,000 --- --- --- --- 250,000
Stock issued
October 7, 1998 --- --- --- --- 804,250 8 19,294 --- 19,302
Net income
available for
common --- --- --- --- --- --- --- 227,373 227,373
---- ------ --------- -------- ----------- ------- -------- --------- ----------
BALANCE
DECEMBER 31, 1998 --- $ --- 1,000,250 $250,100 294,854,250 $ 2,948 $541,918 $ 704,023 $1,498,989
==== ====== ========= ======== =========== ======= ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. SIGNIFICANT ACCOUNTING POLICIES
COMPANY HISTORY
- --------------
Global Water Technologies, Inc. ("GWTR") was incorporated in the state of
Delaware on July 12, 1990 under its predecessor name of Fi-Tek VI, Inc. and
became a public company in 1992. Until September 25, 1997, GWTR was
considered a development stage company which had not engaged in any
business other than organizational efforts, raising capital and
investigating business opportunities.
On September 25, 1997, GWTR and Psychrometric Systems, Inc. ("PSI")
consummated an Agreement and Plan of Reorganization whereby GWTR acquired
all of the issued and outstanding common shares of PSI in exchange for the
issuance of 261,382,500 shares of GWTR's Common Stock and 1,000,000 shares
of a newly-authorized Series A non-voting preferred stock ("Preferred
Stock"). Each share of Preferred Stock is convertible into 290 shares of
Common Stock upon attainment of gross annual sales of $60,000,000 for GWTR
and its subsidiaries (the "Company"), but only if such annual sales goal is
reported not later than the due date of the Company's Annual Report on Form
10-K for the fiscal year ending in 2002, and is subject to redemption by
the Company at a price of $0.0001 per share in the event the required sales
level is not attained. The Company has accounted for the transaction as a
reverse acquisition under the purchase method of accounting. The fiscal
year of the Company was changed from June 30 to December 31 to correspond
to the fiscal year of PSI.
GWTR, through its wholly owned subsidiary, PSI, is in the business of
designing, selling, manufacturing and building new industrial cooling
towers and in retrofitting existing industrial cooling towers and cooling
tower components.
On November 5, 1997 and subsequent to its reverse merger with PSI, GWTR
changed its name from Fi-Tek VI, Inc. to Global Water Technologies, Inc. to
reflect the Company's focus on the growing water-related market
opportunities. The Company's trading symbol was also changed to "GWTR" on
that date.
BASIS OF PRESENTATION
- ---------------------
As a result of the reverse merger referred to in the above "Company
History," the consolidated financial statements through September 25, 1997
reflect only the operations of PSI. Subsequent to that date, the
consolidated financial statements include the financial statements of
Global Water Technologies, Inc. and its wholly owned subsidiaries including
PSI. All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-7
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
REVENUE AND COST RECOGNITION
- ----------------------------
The Company recognizes revenues using the percentage-of-completion method,
based primarily on contract costs incurred to date compared with total
estimated contract costs. Contracts on selected projects where there are
both repair and new tower components are segmented between the two distinct
phases and accordingly, gross margin related to each activity is recognized
as those separate phases are completed using the percentage-of-completion
method, based primarily on contract costs incurred to date compared with
total estimated contract costs. 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.
On November 11, 1998, the Board of Directors approved the Company's
decision to change, retroactive to January 1, 1998, its application of the
percentage of completion method of accounting for revenues and costs of
long-term contracts related to new cooling towers which is the Company's
primary market.
Under the previous method, the Company recognized a predetermined
percentage of its profits on new cooling towers upon the attainment of
certain project milestones, specifically the completion and delivery of
certain engineering drawings and specifications. Management believes that
the new method is preferable for financial statement and backlog disclosure
related to revenues and gross profit. In addition, the Company believes
that the new method should improve the comparability of its financial
statements with those of other companies which use a cost-to-cost
comparison approach of percentage of completion.
As a result of this change, to which the Company's independent public
accounting firm concurs, the Company recorded a one-time extraordinary
charge to income as of January 1, 1998. Please refer to Note 16 for the
pro-forma quarterly income statement impact of the accounting change.
Contract costs include all direct materials, subcontract costs, labor costs
and those indirect costs related to contract performance. Selling, general
and administrative costs are charged to expenses as incurred.
The aggregate of costs incurred and income recognized in excess of related
billings on uncompleted contracts is shown as a current asset, and the
aggregate of billings in excess of related costs incurred and income
recognized on uncompleted contracts is shown as a current liability.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-8
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
INCOME PER SHARE
- ----------------
The Company adopted FASB Statement No. 128 "Earnings Per Share" retroactive
to January 1, 1996. Income per basic share is computed on the basis of the
weighted average number of common shares outstanding for the respective
periods. Fully diluted income 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. As of December 31, 1998, there
were no existing dilutive common shares. Only 804,250 options which were
exercised in October of 1998, were considered dilutive for the year ending
December 31, 1997.
INCOME TAXES
- ------------
Deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns.
Effective January 1, 1996, the Company filed for a change in accounting
methods. The new tax method, percentage-of-completion, is the same as used
for financial statement purposes. In accordance with IRS regulations, the
deferred income as of December 31, 1995 is being recognized over a four-year
period for tax purposes. The deferred income from the change in
method will be fully recognized by December 31, 1999. The Company also
depreciates its property and equipment on an accelerated method for income
tax purposes. A provision for deferred taxes on these timing differences
has been recorded.
During 1997, the Company established a Foreign Sales Corporation ("FSC") in
the United States Virgin Islands. The wholly owned subsidiary will be used
as a commission agent on eligible foreign sales. The eligible sales which
qualify for FSC treatment will generate permanent tax differences for the
Company.
CASH EQUIVALENTS
- ----------------
The Company considers all liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents. At December
31, 1998, cash equivalents included $441,133 in amounts restricted to the
payment of vendor obligations on specific projects.
INVENTORY VALUATION
- -------------------
Inventory is stated at the lower of cost (first-in, first-out method) or
market value. The inventory consists primarily of parts and structural
materials for use on specific future jobs.
ADVERTISING
- -----------
The Company expenses costs for advertising in the period in which the
advertising first takes place. Advertising costs charged to expense totaled
$319,805 and $308,708 for the years ended December 31, 1998 and 1997,
respectively.
PROPERTY AND EQUIPMENT
- ----------------------
The principle categories of equipment include office furniture and
equipment, vehicles, machinery and equipment and leasehold improvements.
Significant additions and improvements are capitalized. Maintenance and
repairs are expensed as incurred. Depreciation of property and
F-9
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
equipment is determined principally on the straight-line method over the
estimated useful lives of the assets.
INTANGIBLES
- -----------
Intangible assets relate to a non-compete agreement and goodwill, both of
which are amortized over a five year period.
CONCENTRATIONS OF RISK
- ----------------------
Financial instruments that potentially subject the Company to credit risk
consist principally of cash equivalents and trade accounts receivable. The
Company maintains minimum cash balances which are partially covered by FDIC
insurance and which are maintained in accounts held by major banks and
financial institutions in the United States. As is customary in the
industry and where appropriate, the Company often grants uncollateralized
credit to its customers, which include all sizes of companies operating in
a broad range of industries. In order to mitigate its credit risk, the
Company continually evaluates the credit worthiness of its customers and,
where appropriate, strives to obtain appropriate collateral.
From time to time, the Company may have projects that exceed the 10%
revenue threshold for defining a major customer. Because each project is
awarded independently from other projects, management does not believe that
the completion of the contractual arrangements with any major customer that
may arise will have a material adverse effect on the Company. The Company
had a major customer accounting for 13.9% of its revenues for the year
ended December 31, 1998 but did not have a major customer accounting for
more than 10% of its revenues for the year ended December 31, 1997.
Additionally, the Company has two major projects with one customer included
in its December 31, 1998 backlog which represents approximately 36% of its
total backlog.
RECLASSIFICATIONS
- -----------------
Certain amounts as of or for the year ended December 31, 1997 have been
reclassified to conform with the December 31, 1998 presentation.
2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment as of December 31,
1998 and 1997:
1998 1997
---- ----
Office furniture and equipment $ 623,383 $ 509,819
Machinery and equipment 192,646 178,092
Vehicles 209,307 186,455
Leasehold improvements 29,729 53,394
---------- ----------
1,055,065 927,760
Less accumulated depreciation 429,756 323,182
---------- ----------
Property and equipment, net $ 625,309 $ 604,578
========== ==========
F-10
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
3. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
- --------------------------
The Company History section of Note 1 discussed the reverse merger between
Global Water Technologies, Inc. and Psychrometric Systems, Inc. In regard
to stockholders' equity, the effect of the reverse merger resulted in the
restatement of the Common Stock, Preferred Stock and the capital in excess
of par value as if the merger had taken effect on the first day of the
presented financial statements. Prior to the merger, PSI's own preferred
stock was redeemed.
As of the date of the merger, the authorized shares of the Company's Common
Stock and Preferred Stock was 500,000,000 and 20,000,000 shares,
respectively. As a consequence of the merger, the previous PSI
shareholders held 261,382,500 shares of the Company's Common Stock and
1,000,000 shares of the Preferred Stock; the previous GWTR shareholders
held 32,042,500 shares of the Company's Common Stock.
On August 13, 1998, the Company authorized the issuance of 1,000 shares of
Series B Preferred Stock with a redemption value of $1,000 per share. On
that date 250 shares were issued to George A. Kast, the Company's CEO and
principal shareholder, for a cash contribution of $250,000.
Such shares pay, out of funds legally available for that purpose, a
cumulative dividend at the rate of $80.00 per annum payable quarterly. The
shares have no voting rights but do have certain rights upon liquidation or
dissolution. The Company has the right to call such shares only after the
consolidated net worth of the Company, after giving full effect to the
call, is equal to or in excess of $3,000,000; and such call can not be
exercised prior to the Company's receipt of its audited financial
statements for the year ended December 31, 1998.
On November 4, 1997, the Company increased the authorized shares of Common
Stock to 800,000,000 shares. On December 15, 1997, the Company issued
625,000 shares of Common Stock relating to a non-compete agreement. On
October 7, 1998, the Company issued 804,250 shares of Common Stock related
to an outstanding option.
WARRANTS AND OPTIONS
- --------------------
Immediately prior to the merger, the shareholders of GWTR held warrants to
acquire the Company's Common Stock. There are 8,042,500 Class A warrants
exercisable at 12 cents per share and 8,042,500 Class B warrants
exercisable at 20 cents per share. Such warrants, which were scheduled to
expire on April 14, 1998 have been extended to April 14, 1999.
An investment banking house, which assisted in the Company's initial public
offering in 1992, holds 804,250 Class A warrants and 804,250 Class B
warrants. The option on common stock and Class A and Class B warrants was
exercised at 2.4 cents per share on October 7, 1998. The Class A warrants
and Class B warrants are exercisable at 12 cents per share and 20 cents per
share, respectively.
On May 20, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan") which provides for the issuance of options to purchase up to
30,000,000 shares of Common Stock to employees,
F-11
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
officers, directors and consultants of the Company and its subsidiaries.
The Plan was ratified by the Company's shareholders at the Company's Annual
Meeting of Shareholders on June 30, 1998. No options were granted under
the Plan at December 31, 1998. Unless sooner terminated, the Plan will
expire on May 31, 2000.
COMPREHENSIVE INCOME
- --------------------
The Company has no items requiring separate disclosure pursuant to
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income.
4. BACKLOG
The following schedule summarizes changes in backlog on contracts during
the years ended December 31, 1998 and 1997. Backlog represents the amount
of revenue the Company expects to realize from work to be performed on
uncompleted contracts.
1998 1997
---- ----
Backlog, beginning of year $ 11,606,245 $ 6,139,765
Adjustment due to accounting change 1,036,272 ---
Contract removed in 1998 (3,885,000) ---
New contracts during year 53,142,019 24,163,772
Contract revenues earned during
the year (34,744,478) (18,697,292)
------------ ------------
Backlog, end of year $ 27,155,058 $ 11,606,245
============ ============
Included in the above 1998 backlog amounts are $1,507,778 recognized under
Letters of Intent. This is consistent with standard industry practices for
the Company's main business line.
5. LONG-TERM OPERATING LEASES
Effective March 10, 1998, the Company and George A. Kast, President and
CEO, entered into a triple-net lease for a 36,740 square foot office
building in Golden, Colorado, for the Company's expanding office space
requirements. The lease requires the Company to pay rent at a rate of
$21,454 per month for the 34-month lease. Gross operating expenses for the
building approximate $20,000 per month, of which Mr. Kast is personally
responsible for the payment of approximately $5,000 per month, which has
been paid by the Company. As of December 31, 1998, the Company has
recorded a note receivable from Mr. Kast related to the operating costs of
the facility for which Mr. Kast is responsible for $47,766. This note bears
interest at 8% per annum and is due no later than September 30, 1999.
The Company has a 60-month lease for its former office space in Lakewood,
CO, for approximately $14,519 per month, and which expires in October 1999.
Subsequent to December 31, 1998, the Company entered into an agreement with
an unaffiliated entity to occupy its former office location. This third
party has entered into an agreement with the lessor to release the Company
from any future obligation on the aforementioned lease. The Company also
has a 60 month lease with a
F-12
<PAGE>
stockholder for a research and testing facility located in Idaho, for
$1,238 per month, and which expires on September 30, 2001. The Company
leases approximately 17,700 square feet from an unaffiliated entity on a
month-to-month basis in Denver, Colorado, which is utilized for light
structural fabrication, component storage and centralized warehousing for
tools and equipment.
The following is a schedule by year of future minimum lease payments
required under these leases:
1999 $417,495
2000 272,305
2001 11,142
2002 none
2003 none
--------
In the aggregate $700,942
Rent expense totaled $450,171 and $243,272 for the years ended December 31,
1998 and 1997, respectively.
6. LONG- AND SHORT-TERM DEBT
The following is a summary of the long- and short-term debt as of December
31, 1998 and 1997:
1998 1997
---- ----
Norwest Bank, Lakewood, CO:
- Line-of-credit - domestic $ 750,000 $ 745,000
- Line-of-credit - international;
guaranteed to 90% of the outstanding
balance by the Export/Import bank of
the United States secured by eligible
accounts receivable and inventories. 793,000 ---
-Small Business Administration 90%
guaranteed loan (payable in monthly
installment of $8,334 including
interest at 1.0% above prime rate;
secured by furniture and equipment,
inventory, accounts receivable and
assignment of life insurance policy) 109,423 199,841
- Small Business Administration 90%
guaranteed loan (payable in monthly
installments of $7,917 including
interest at 1.0% above prime rate;
secured by furniture and equipment,
inventory, accounts receivable and
assignment of life insurance policy) 423,310 ---
F-13
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
First Interstate Bank (payable in monthly
installments of $912, including interest
at 9.5%; secured by a vehicle) 23,505 31,741
GMAC - various (payable in monthly
installments ranging from $361 to $577,
including interest ranging from 9.75%
to 10.75%; secured by seven vehicles) 73,997 85,241
---------- ----------
2,173,235 1,061,823
Less current maturities included in
current liabilities 1,036,159 137,865
---------- ----------
Net long-term debt $1,137,076 $ 923,958
========== ==========
The Company has negotiated a line of credit with Norwest Bank totaling
$1,275,000. The line-of-credit is secured by a stockholder's personal
certificates of deposit of $742,867. The line of credit has an interest
rate of 7.25% and matures on January 3, 2000.
The Small Business Administration guarantee of certain term debts subjects
the Company to financial covenants including a minimum net worth,
limitations on capital withdrawals and the personal guarantee of George A.
Kast, President and CEO. The Company was in compliance with all covenants
as of December 31, 1998 and 1997. The Export Import Bank of the United
States guarantee of certain debts subjects the Company to collateral
requirements on eligible foreign receivables and inventories. The Company
was in compliance with all requirements as of December 31, 1998.
The following is a summary of the future maturities of debt for the years
ending December 31:
1999 1,036,159
2000 891,235
2001 105,419
2002 97,127
2003 43,295
7. INCOME TAXES
The components of the net deferred tax liability at December 31, 1998 and
1997 are as follows:
1998 1997
---- ----
Deferred tax liabilities:
Deferred revenue under section 481 150,574 $ 277,556
Property and equipment 68,006 26,639
Other 10,000 25,000
--------- ---------
Total deferred tax liabilities $ 228,580 $ 329,195
========= =========
F-14
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Deferred tax assets:
Accounts receivable allowance $ 43,943 $ 15,000
---------- ----------
Total deferred tax assets $ 43,943 $ 15,000
---------- ----------
Net deferred tax liabilities $ 184,637 $ 314,195
========== ==========
The provision for income taxes consisted of the following at December 31,
1998 and 1997:
1998 1997
---- ----
Income taxes currently payable $ 313,324 $ 130,627
Deferred income taxes 129,558 143,251
Increase (decrease) in other, net 684 --
Tax effect of accounting change 593,119 --
---------- ----------
Income tax expense $ 777,569 $ 273,878
========== ==========
The differences between the federal income tax rate of 34% and the
Company's effective tax rate were as follows:
1998 1997
---- ----
Taxes at the U.S. statutory rate $ 600,739 $ 287,253
State income taxes,
net of federal income tax benefit 58,307 25,543
Foreign sales corporation (31,827) (48,243)
Non-deductible items 10,780 9,325
Adjustment in effective tax rate
estimates for timing differences 129,076 ---
Prior year under (over) accrual - net 10,494 ---
---------- ----------
Provision for income taxes $ 777,569 $ 273,878
========== ==========
8. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts at December 31, 1998 and 1997, are summarized as
follows:
1998 1997
---- ----
Costs incurred to date $20,040,123 $ 9,858,349
Gross profit recognized to date 4,136,042 4,499,694
----------- -----------
Total costs plus gross profit to date 24,176,165 14,358,043
Billings to date 22,238,795 12,161,855
----------- -----------
$ 1,937,370 $ 2,196,188
=========== ===========
F-15
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
The above amounts are included in the accompanying balance sheets under the
following captions:
1998 1997
---- ----
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 3,623,538 $ 2,695,782
Billings in excess of costs and
estimated earnings on uncompleted
contracts 1,686,168 499,594
----------- -----------
$ 1,937,370 $ 2,196,188
=========== ===========
9. CERTIFICATES OF DEPOSITS - PLEDGED
The certificate of deposit, with an outstanding balance at December 31,
1997 of $222,836 was pledged as security on the company's line-of-credit
agreement with Norwest Bank - Lakewood. During 1998, the Company was
released of its collateral requirement on this certificate of deposit.
10. ACCRUED LIABILITIES
The accrued liabilities consist of the following as of December 31, 1998
and 1997:
1998 1997
---- ----
Payroll taxes payable $ 101,940 $ 6,175
Accrued commissions payable 779,038 398,484
Accrued salaries and vacations 395,938 122,036
Sales tax payable 95,489 57,097
Accrued workers compensation 98,297 19,652
Other accrued liabilities 414,248 35,377
---------- ----------
$1,884,950 $ 638,821
========== ==========
F-16
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
11. LITIGATION AND CLAIMS
The Company has a receivable emanating from a project performed by the
Company in 1995. The total amount of the receivable is $115,000. This
receivable has been fully reserved in the books and records of the Company.
Discussions with the customer have not been productive. The customer has
also notified the Company of a potential claim against the Company in the
amount of $940,000. The customer has offered to release the Company from
liability on its claim if the Company releases the customer from the
Company's receivable. The Company believes the customer's claim is without
merit and considers its risk of loss to be remote. Consequently, the
Company has recorded no provision for loss related to the potential
counterclaim. Management has not yet finalized the course of action it
will pursue with respect to this matter.
The Company believes it has appropriate reserves for these and other
unanticipated claims.
12. 401(k) PLAN
On July 1, 1996, the Company implemented a 401(k) savings plan. The
current plan covers all full time employees over the age of 21 who have
completed six months of service to the Company. The Company may contribute
to the plan upon the Board of Directors' discretion. For the years ended
December 31, 1998 and 1997, the Company did not make any contributions to
the plan.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's debt at December 31, 1998 and 1997,
approximate their fair value, since the interest rate charged per the
agreements is similar to the Company's current borrowing rate.
From time to time, the Company enters into financial instruments with off-
balance sheet risk to hedge future cash flows from firm contracts in non-
dollar denominated currencies. As of December 31, 1998 and 1997, the
Company did not have any financial instruments with off-balance sheet risk.
The Company's policy is to hedge these firm contracts where possible with
forward foreign exchange contracts. These forward contracts are executed
through the Company's banking relationships.
14. RELATED PARTY TRANSACTIONS
A stockholder has pledged two personal certificates of deposit in the
amount of $742,867 as security for the Company's line-of-credit. For the
years ended December 31, 1998 and 1997, the Company authorized fees of
$48,784 for each year, to the stockholder for this pledge. These amounts
are included in interest expense.
F-17
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
The Company leases a research and testing facility from a stockholder with
monthly payments of $1,238. For the years ended December 31, 1998 and
1997, the Company incurred $14,856 for each year in rent expense for the
research and testing facility. These amounts are included in research and
development expense.
Effective March 10, 1998, the Company and George A. Kast, President and
CEO, entered into a triple-net lease for a 36,700 square foot office
building in Golden, Colorado, for the Company's expanding office space
requirements. The lease requires the Company to pay rent at a rate of
$21,454 per month for the 34-month lease. Gross operating expenses for the
building approximate $20,000 per month, of which Mr. Kast is personally
responsible for the payment of approximately $5,000 per month, which has
been paid by the Company. As of December 31, 1998, the Company has
recorded a note receivable from Mr. Kast related to the operating costs of
the facility for which Mr. Kast is responsible for $47,766. This note bears
interest at 8% per annum and is due no later than September 30, 1999.
15. BUSINESS SEGMENT DATA
In June 1997 the Financial Accounting Standards Board issued Statement No.
131 "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION"
(FAS 131). The Company adopted FAS 131 effective January 1, 1998.
The Company's primary business is the design, sale, manufacture and
building of new industrial cooling towers and in retrofitting existing
industrial cooling towers and cooling tower components for both the
international and domestic markets. All of its operations are within the
United States. Based on risks, financial resources, profitability and
internal resources consumed, management has determined that the most
relevant segment information is international and domestic transactions.
The Company's export sales were $5,241,036 and $3,777,426 for the Fiscal
years 1998 and 1997, respectively. The following schedule summarizes the
segmentation of the international and domestic business segments for the
years ended December 31, 1998 and 1997.
BUSINESS SEGMENT STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998
---------------------------------------------------
DOMESTIC INTERNATIONAL OTHER TOTAL
-------- ------------- ----- -----
<S> <C> <C> <C> <C>
Revenues $29,486,771 $5,247,569 $ - $34,734,340
Costs 23,254,112 4,562,025 4,994,985 32,811,122
Segment profit 6,232,659 685,544 (4,994,985) 1,923,218
Assets 10,408,904 1,420,197 3,178,961 15,008,062
</TABLE>
F-18
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1997
----------------------------------------------------
DOMESTIC INTERNATIONAL OTHER TOTAL
-------- ------------- ----- -----
<S> <C> <C> <C> <C>
Revenues $14,919,866 $3,777,426 $ - $18,697,292
Costs 10,979,212 2,568,272 4,179,054 17,726,538
Segment profit 3,940,654 1,209,154 (4,179,054) 970,754
Assets 5,599,402 1,034,025 1,568,888 8,202,315
</TABLE>
16. CHANGE IN ACCOUNTING
On November 11, 1998, the Board of Directors approved the Company's
decision to change, retroactive to January 1, 1998, its application of the
percentage of completion method of accounting for revenues and costs of
long-term contracts related to new cooling towers which is the Company's
primary market. The pro-forma annual net income and earnings per share are
as follows assuming a retroactive application of the accounting change for
the years ended December 31, 1998 and 1997:
1998 1997
---- ----
Pro-forma amounts assuming retroactive
application of accounting change:
Net income (loss) $ 981,669 $ (31,973)
Basic income per share $ 0.003 $ (0.000)
========== ==========
Fully diluted income per share $ 0.003 $ (0.000)
========== ==========
PRO-FORMA QUARTERLY DISCLOSURE (UNAUDITED)
- ------------------------------------------
Previous 1998 quarterly financial statements were stated under the former
method of accounting. The following schedule summarizes the quarterly
results for the Company on a pro-forma basis as if the change in accounting
principle had been in effect from January 1, 1998.
F-19
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters Ended March 31; June 30; September 30 and
December 31, 1998
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues:
United States $ 3,053,675 $ 5,571,435 $ 7,144,239 $13,723,955
International 1,269,331 1,202,862 1,709,463 1,059,380
----------- ----------- ----------- -----------
Total revenues 4,323,006 6,774,297 8,853,702 14,783,335
Costs and expenses:
Cost of sales 3,505,555 5,635,317 7,388,393 11,286,872
Selling, general and
administrative 912,686 1,143,448 1,246,959 1,459,235
Research and development 52,032 56,285 66,373 57,967
----------- ----------- ----------- -----------
Total costs and
expenses 4,470,273 6,835,050 8,701,725 12,804,074
----------- ----------- ----------- -----------
Operating income (loss) (147,267) (60,753) 151,977 1,979,261
Other income (expense):
Interest expense, net (30,316) (34,879) (45,670) (46,655)
Other, net 255 3,742 11,472 (14,289)
Income (loss) before income
taxes 177,328 91,890 117,779 1,918,317
Income taxes (78,058) (40,449) 51,845 844,231
----------- ----------- ----------- -----------
Net income (loss) before
preferred dividend (99,270) (51,441) 65,934 1,074,086
Preferred stock dividend - - (2,630) (5,010)
----------- ----------- ----------- -----------
Pro-Forma Net income (loss)
prior to change in accounting
principle $ (99,270) $ (51,441) $ 63,304 $ 1,069,076
=========== =========== =========== ===========
Income per share:
Basic weighted average
shares outstanding 294,050,000 294,050,000 294,050,000 294,854,250
Pro-forma basic income
per share $ (0.0003) $ (0.0002) $ 0.0002 $ 0.0036
=========== =========== =========== ===========
Fully diluted weighted
average shares
outstanding 294,050,000 294,050,000 294,579,684 294,854,250
Pro-forma fully diluted
income per share $ (0.0003) $ (0.0002) $ 0.0002 $ 0.0036
=========== =========== =========== ===========
</TABLE>
F-20
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended
-----------------------------
June 30, 1999 June 30, 1998
------------- -------------
Net revenues:
United States $ 38,465,487 $ 8,625,110
International 874,988 2,472,193
------------ ------------
Total revenues 39,340,475 11,097,303
------------ ------------
Costs and expenses:
Cost of sales 35,495,665 9,140,872
Selling, general and administrative 2,353,464 2,056,134
Research and development 18,613 108,317
------------ ------------
Total costs and expenses 37,867,742 11,305,323
------------ ------------
Operating income (loss) 1,472,733 (208,020)
Other income (expense):
Interest expense, net (137,040) (65,195)
Other, net 2,802 3,997
------------ ------------
Income (loss) before income taxes 1,338,495 (269,218)
Income taxes (benefit) 414,933 (118,507)
------------ ------------
Net income (loss) before preferred dividend 923,562 (150,711)
Preferred stock dividend 10,000 -
------------ ------------
Net income (including the effect of a change in
accounting principle for the previous year) 913,562 (150,711)
Cumulative effect of a change in an accounting
principle - net of $593,119 of related
tax effect - (754,296)
------------ ------------
Net income (loss) available for common
stockholders $ 913,562 $ (905,007)
============ ============
Income (loss) per share:
Basic weighted average shares outstanding 294,854,250 294,050,000
Basic income per share - prior to
accounting change 0.0031 (0.0005)
Cumulative effect of accounting change - (0.0026)
------------ ------------
Basic income (loss) per share available
for common $ 0.0031 $ (0.0031)
============ ============
Fully diluted weighted average shares
outstanding 297,060,078 294,050,000
Fully diluted income per share - prior
to accounting change 0.0031 (0.0005)
Cumulative effect of accounting change - (0.0026)
------------ ------------
Fully diluted income (loss) per share $ 0.0031 $ (0.0031)
============ ============
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
As of June 30, 1999
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 284,527
Trade accounts receivable, net of allowance for
doubtful accounts of $388,928 14,791,753
Other receivables 619,108
Costs and estimated earnings in excess of billings
on uncompleted contracts 10,029,657
Inventories 626,932
Prepaid expenses 450,316
------------
Total current assets 26,802,293
------------
Property and equipment, net 643,237
Intangibles, net of amortization 35,744
Deposits 51,555
------------
$ 27,532,829
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 1,015,221
Accounts payable 20,458,505
Accrued liabilities 1,573,677
Billings in excess of costs and estimated earnings
on uncompleted contracts 545,535
Income taxes payable 565,803
Deferred income taxes 106,632
------------
Total current liabilities 24,265,373
------------
Long-term debt 776,901
Deferred income taxes 78,005
Stockholders' equity:
Preferred stock, $0.00001 par value, 20,000,000
shares authorized:
- Series A; 1,000,000 shares authorized issued
and outstanding; stated at redemption value
of $0.0001 100
- Series B; 1,000 shares authorized, 250 shares
issued and outstanding; stated at redemption
value of $1,000 250,000
Common stock, $0.00001 par value; 800,000,000 shares
authorized; 294,854,250 shares issued and
outstanding 2,948
Capital in excess of par value 541,918
Retained earnings 1,617,584
------------
Total stockholders' equity 2,412,550
------------
$ 27,532,829
============
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
-----------------------------
June 30, 1999 June 30, 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 913,562 $ (905,007)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation 107,592 85,001
Amortization 5,502 5,502
Decrease in deferred income taxes - (64,626)
(Increase) decrease in working capital:
Trade accounts receivable (6,586,191) (74,346)
Other receivables (507,743) (47,514)
Costs and estimated earnings in excess
of billings on uncompleted contracts (6,406,119) 1,408,875
Income taxes receivable 60,960 (566,180)
Inventories (308,474) (223,434)
Prepaid expenses (286,012) (38,375)
Deposits 54,465 1,138
Accounts payable 13,092,033 (592,019)
Income taxes payable 352,192 -
Accrued liabilities (311,273) 119,360
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,140,633) 671,937
------------ ------------
Net cash (used) by operating activities (960,139) (219,688)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certificate of deposit - (5,851)
Purchase of property and equipment (125,520) (177,314)
------------ ------------
Net cash (used in) investing
activities (125,520) (183,165)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change on the lines-of-credit (267,000) (7,000)
Proceeds from issuance of debt - 496,378
Repayments of debt (114,113) (79,073)
------------ ------------
Net cash provided (used) by
financing activities (381,113) 410,305
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,466,772) 7,452
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,751,299 118,887
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 284,527 $ 126,339
============ ============
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999 and 1998
1. INTERIM FINANCIAL STATEMENTS
The consolidated balance sheet as of June 30, 1999, and the related
consolidated statements of operations for the six months ended June 30, 1999
and 1998 and statements of cash flows for the six months ended June 30, 1999
and 1998 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 in condensed
form as permitted by the rules of the Securities Exchange Commission and
should be read in conjunction with the Company's financial statements
contained elsewhere herein.
2. STOCK OPTIONS
On March 8, 1999, the Company issued 4,798,800 stock options to employees
as part of the 1998 Stock Option Plan approved by the Company's
shareholders at its 1998 annual meeting. The options vest to employees on
a schedule of 20% immediately and 20% over each of the next four years. As
of June 30, 1999, none of the options have been exercised. The options can
be exercised over a period ranging from 5 - 10 years from issuance.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" defines a fair value based method of accounting
for an employee stock option or similar equity instrument. This statement
gives entities a choice of recognizing related compensation expense by
adopting the new fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principles Board (APB)
Opinion No. 25, the former standard. If the former standard for
measurement is elected, SFAS No. 123 requires supplemental disclosure to
show the effects of using the new measurement criteria. The Company
intends to continue using the measurement prescribed by APB Opinion No. 25.
3. CHANGE IN ACCOUNTING PRINCIPLE
On November 11, 1998, the Board of Directors approved the Company's
decision to change, retroactive to January 1, 1998, its application of the
percentage of completion method of accounting for revenues and costs of
long-term construction contracts related to new cooling towers which is the
Company's primary market.
Under the previous method, the Company recognized a predetermined
percentage of its profits on new cooling towers upon the attainment of
certain project milestones, specifically the completion and delivery of
certain engineering drawings and specifications. Under the new method, the
Company will recognize profits on all phases of the project, including
engineering, in the ratio that costs incurred to date bear to total
estimated costs. Management believes that the new method is preferable for
financial statement and backlog disclosure related to revenues and gross
profit. In addition, the Company believes that the new method should
improve the comparability of its financial statements with those of other
companies which use a cost-to-cost comparison approach of percentage of
completion.
F-24
<PAGE>
As a result of this change, to which the Company's independent public
accounting firm concurs, the Company recorded a one-time extraordinary
charge to income as of January 1, 1998. The amount of this charge was
$754,296 net of the related tax effect of $593,119. The results for the
three and six month periods ended June 30, 1998 have been restated to
reflect the change in accounting principle from the amounts originally
reported on the Company's Form 10QSB for the second quarter of 1998.
4. OTHER RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 establishes a new
model for accounting for derivatives and hedging activities and supersedes
and amends a number of existing standards. FAS 133 is effective for fiscal
years beginning after June 15, 2000 as modified by Statement No. 137. The
Company has determined that FAS 133 will not have a material impact on the
financial statements because the Company does not have material foreign
exchange, commodities or interest rate risk, and therefore does not enter
into derivatives contracts often.
5. BUSINESS SEGMENT DATA
In June 1997 the Financial Accounting Standards Board issued Statement No.
131 "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION"
(FAS 131). The Company adopted FAS 131 effective January 1, 1998.
The Company's primary business is the design, sale, manufacture and
building of new industrial cooling towers and in retrofitting existing
industrial cooling towers and cooling tower components for both the
international and domestic markets. All of its operations are within the
United States. Based on risks, financial resources, profitability and
internal resources consumed, management has determined that the most
relevant segment information is international and domestic transactions.
The Company's export sales were $874,988 and $2,472,193 for the six months
ended June 30, 1999 and 1998, respectively. The following schedule
summarizes the segmentation of the international and domestic business
segments for the six months ended June 30, 1999 and 1998.
BUSINESS SEGMENT STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999
---------------------------------------------------
DOMESTIC INTERNATIONAL OTHER TOTAL
-------- ------------- ----- -----
<S> <C> <C> <C> <C>
Revenues $38,465,487 $ 874,988 $ - $39,340,475
Costs $34,837,817 $ 657,848 $2,372,077 $37,867,742
Segment profit $ 3,627,670 $ 217,140 $(2,372,077) $ 1,472,733
Assets $25,790,242 $ 763,268 $ 979,319 $27,532,829
</TABLE>
F-25
<PAGE>
BUSINESS SEGMENT STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
1998
---------------------------------------------------
DOMESTIC INTERNATIONAL OTHER TOTAL
-------- ------------- ----- -----
<S> <C> <C> <C> <C>
Revenues $ 8,625,110 $2,472,193 $ - $11,097,303
Costs $ 7,282,187 $1,858,685 $2,164,451 $11,305,323
Segment profit $ 1,342,923 $ 613,508 $(2,164,451) $ (208,020)
Assets $ 6,549,838 $ 181,814 $1,110,613 $ 7,842,265
</TABLE>
6. BACKLOG
The Company has a backlog of $25,544,805 at June 30, 1999, compared to an
adjusted backlog amount of $17,601,061 for the similar period ended in
1998. Backlog represents the amount of revenue the Company expects to
realize from work on uncompleted contracts.
7. SUBSEQUENT EVENTS
On July 12, 1999, the Company commenced a private placement of Units, each of
which consists of 250,000 shares of the Company's Common Stock and 250,000
Class C Warrants to purchase Common Stock exercisable over a four year period.
The offering is being made on a "best-efforts, minimum-maximum" basis, with
$1,000,000 as the minimum which must be sold in order for the Company to
receive any proceeds from the placement, and $2,000,000 as the maximum. The
Placement Agent for the offering is Westminster Securities Corporation, a
subsidiary of Laidlaw & Co. The offering was concluded on October 15, 1999
in the amount of $1,080,000 or 54 units.
F-26
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
31,050,000 SHARES
__________________________
PROSPECTUS
__________________________
____________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. The Delaware Business Corporation Act (the "Act") allows
indemnification of directors, officers, employees and agents of the Company
against liabilities incurred in any proceeding in which an individual is
made a party because he was a director, officer, employee or agent of the
Company if such person conducted himself in good faith and reasonable
believed his actions were in, or not opposed to, the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A person must be
found to be entitled to indemnification under this statutory standard by
procedures designed to assure that disinterested members of the Board of
Directors have approved indemnification or that, absent the ability to
obtain sufficient numbers of disinterested directors, independent counsel
or shareholders have approved the indemnification based on a finding that
the person has met the standard. Indemnification is limited to reasonable
expenses. In addition, the Company's By-Laws provide that the Company
shall have the power to indemnify its officers, directors, employees and
agents to the extent permitted by the Act.
B. The Certificate of Incorporation and the Bylaws of the Registrant
provide that the Registrant will indemnify its officers and directors for
costs and expenses incurred in connection with the defense of actions,
suits or proceedings where the officer or director acted in good faith and
in a manner he reasonably believed to be in the Registrant's best interest
and is a party by reason of his status as an officer or director, absent a
finding of negligence or misconduct in the performance of duty.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection
with the issuance and distribution of the securities being offered. All
expenses are estimated except the registration fee.
Registration and filing fee . . . . . . . . . . . . $1,217
NASD filing fee . . . . . . . . . . . . . . . . . . 937
Printing . . . . . . . . . . . . . . . . . . . . . 1,000(1)
Accounting fees and expenses . . . . . . . . . . . 1,000(1)
Legal fees and expenses . . . . . . . . . . . . . . (1)
Blue Sky fees and filing fees . . . . . . . . . . . (1)
Transfer and Warrant Agent fees . . . . . . . . . . (1)
Miscellaneous . . . . . . . . . . . . . . . . . . . 5,000(1)
---------
Total . . . . . . . . . . . . . . . . . . . . . . . $
=========
___________________
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<PAGE>
(1) Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued its securities
to the following persons for the cash or other consideration indicated in
transactions that were not registered under the Securities Act of 1933.
I.
In September 1997, the Registrant issued 1,500,000 shares of Common
Stock to each of Ronald J. Miller and Frank L. Kramer, the sole officers
and directors of the Registrant at the time of the issuance, in
consideration of past services rendered to the Registrant, which services
were determined by the Board of Directors to have a value of $15,000 each,
or $30,000 in the aggregate. The Registrant claims the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). The certificates representing these shares have
been impressed with the restrictive legend utilized by the Registrant and
"stop transfer" instructions have been placed by the Registrant's transfer
agent against the transfer of the certificates.
II.
In connection with the acquisition of Psychrometric Systems, Inc.
("PSI") by the Registrant on September 25, 1997, the Registrant issued
261,382,500 shares of Common Stock to the officers, directors and
shareholders of PSI in consideration for all of the outstanding shares of
PSI.
The issuance of the Registrant's shares to the PSI shareholders was
made in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act and/or Regulation D and Rule 506 adopted thereunder.
All recipients of the Registrant's Common Stock were shareholders of PSI
and either officers, directors and/or employees. No broker/dealers were
involved in the sale and no commissions were paid. All purchasers
represented that they purchased the securities for investment, and all
certificates issued to the purchasers were impressed with a restrictive
legend advising that the shares represented by the certificates may not be
sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. The Registrant's transfer agent has placed "stop transfer"
instructions against the transfer of these certificates.
III.
In November 1997, the Registrant issued 625,000 shares of Common Stock
to Donald W. Poitras in consideration of Mr. Poitras executing a five year
covenant not to compete with the Registrant. In October 1997, the
Registrant purchased certain equipment, including casts/dies, furniture and
equipment and other inventory, from Mr. Poitras' company, Texas Cooling Tower.
II-2
<PAGE>
Mr. Poitras had been in the cooling tower business in Texas prior to the
sale of the equipment to the Registrant. The issuance of the stock to Mr.
Poitras was made in reliance upon the exemption from registration provided
by Section 4(2) of the 1933 Act. No broker/dealers were involved in the
sale and no commissions were paid. The certificate issued to Mr. Poitras
was impressed with a restrictive legend advising that the shares
represented by the certificate may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established and "stop transfer" instructions
placed against the transfer of his certificate.
IV.
In October 1998, the Registrant issued 804,250 shares of Common Stock,
804,250 Class A Common Stock Purchase Warrants and 804,250 Class B Common
Stock Purchase Warrants to John P. O'Shea, Daniel Luskind and Henry S.
Krauss pursuant to the exercise of warrants to purchase Common Stock, Class
A Warrants and Class B Warrants granted to these individuals in October
1997. The warrants were granted in replacement for identical Common Stock
purchase warrants which were originally granted to Messrs. O'Shea, Luskind
and Krauss, principals of Westminster Securities Corporation, the
underwriter of the Registrant's initial public offering in 1992, which had
expired. The issuance of the securities upon exercise of the warrants was
made in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act. No broker/dealers were involved in the sale and no
commissions were paid. The certificates issued to Messrs. O'Shea, Luskind
and Krauss were impressed with a restrictive legend advising that the
securities represented by the certificates may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. The
Registrant's transfer agent was advised to place "stop transfer"
instructions against the transfer of these certificates.
V.
In February 1999, the Registrant issued a warrant to purchase
1,050,000 shares of Common Stock to Magnum Financial Group in connection
with the Registrant's retention of that firm as its financial consultant.
The warrant is exercisable over a period of three years at prices ranging
from $0.08 to $0.12 per share. The warrant was issued in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. No
broker/dealers were involved in the sale and no commissions were paid.
VI.
In March 1999, the Registrant granted options to purchase 4,798,800
shares of Common Stock to employees of the Registrant. The options are
exercisable over a 5- and 10-year period at $0.08 per share. The options
were issued in reliance upon the exemption from registration provided by
Section 4(2) of the 1933 Act. No broker/dealers were involved in the
issuance and no commissions were paid.
II-3
<PAGE>
V.
In September 1999, the Registrant issued and sold 54 Units, each of
which consisted of 250,000 shares of Common Stock and 250,000 Class C
Common Stock Purchase Warrants, to 24 accredited investors. The Units were
sold in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act and Rule 506 adopted thereunder. The certificates
issued to the purchasers were impressed with a restrictive legend advising
that the securities represented by the certificates may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established. The
Registrant's transfer agent was advised to place "stop transfer"
instructions against the transfer of these certificates. The placement
agent for the offering was Westminster Securities Corporation, which
received compensation in the form of commissions equal to 8% of total
proceeds and a 2% non-accountable expense allowance. In addition, the
placement agent, or its designees, received 1,350,000 Class C Warrants and
an option to purchase 1,350,000 shares and 1,350,000 Class C Warrants.
ITEM 27. EXHIBITS AND FINANCIAL SCHEDULES
The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Incorporation, dated July 12, 1990 (1)
3.2 Certificate of Designations of Preferred Stock, filed September 25,
1997 (4)
3.3 Certificate of Amendment to the Certificate of Incorporation,
filed November 5, 1997 (4)
3.4 Bylaws (2)
3.5 Amendment to the Bylaws, dated September 12, 1997 (4)
3.6 Certificate of Amendment to the Designation of Preferred Stock
(Series B), filed with the State of Delaware on December 29,
1998. (6)
5.1 Form of Opinion of Rothgerber Johnson & Lyons, LLP with respect to
the legality of the shares of Common Stock to be issued upon
exercise of the Warrants.
10.1 Plan and Agreement or Reorganization, dated September 12, 1997,
between the Registrant and Psychrometric Systems, Inc. (3)
II-4
<PAGE>
10.2 Lease Agreement, dated September 21, 1994, between Psychrometric
Systems, Inc. and Golden Hill Partnership (4)
10.3 Lease Agreement, dated December 27, 1996, between Psychrometric
Systems, Inc. and N. R. Petry Co. (4)
10.4 Lease Agreement, dated October 1, 1996, between George A. Kast
and Psychrometric Systems, Inc. (4)
10.5 Sublease Agreement, dated March 10, 1998, by and between The
Coleman Company, Inc., Global Water Technologies, Inc. and George
A. Kast (4)
10.6 1998 Stock Option Plan (6)
10.7 Registration Rights Agreement dated as of July 12, 1999
18 Letter, dated November 19, 1998, from Comiskey & Company, P.C.
re: change in accounting principles (5)
21 Subsidiaries of the Company (6)
24.1 Consent of Rothgerber, Johnson & Lyons, LLP (included in Exhibit 5.1)
24.2 Consent of Comiskey & Company, P.C.
________________________
(1) Incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-18 (No. 33-37513-D).
(2) Incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-18 (No. 33-37513-D).
(3) Incorporated by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1997.
(4) Incorporated by reference to the Exhibit of the same number filed as
an exhibit to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997.
(5) Incorporated by reference to the Exhibit of the same number filed as
an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998.
(6) Incorporated by reference to the Exhibit of the same number filed as
an exhibit to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998.
ITEM 28. UNDERTAKINGS
The undersigned Registrant will:
(a)(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the Securities
Act; (ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and (iii) include any additional or changed
material information on the plan of distribution.
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<PAGE>
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Golden, State of Colorado, on
October 28, 1999.
GLOBAL WATER TECHNOLOGIES, INC.
By:/s/ George A. Kast
-------------------------------------
George A. Kast, President, Chief
Executive Officer and Director
In accordance with the requirements of the Securities Exchange Act of
1933, this registration statement was signed by the following persons in
the capacities and on the dates stated.
Signatures Title Date
---------- ----- ----
/s/ George A. Kast President, Chief Executive Officer, October 28, 1999
- -------------------- (Principal Executive Officer) and
George A. Kast Chairman of the Board
/s/ Martin E. Hout Chief Financial Officer October 28, 1999
- -------------------- (Principal Financial and
Martin E. Hout Accounting Officer)
/s/ Gary L. Brown Secretary and Director October 28, 1999
- --------------------
Gary L. Brown
/s/ Michael A. Kast Director October 28, 1999
- --------------------
Michael A. Kast
EXHIBIT 5.1
ROTHGERBER JOHNSON & LYONS LLP
SUITE 3000
ONE TABOR CENTER
1200 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 628-9525
October __, 1999
Global Water Technologies, Inc.
1737 Denver West Boulevard
Golden, Colorado 80401
Gentlemen:
You have requested our opinion as to certain matters arising under
the Delaware General Corporation Act which relate to 31,050,000 shares of
Common Stock, including 17,550,000 shares underlying outstanding Class C
common stock purchase warrants (the "Class C Warrants") and other outstanding
options which are described on the cover page of Registration Statement on
Form SB-2 (file no. 333- _______) filed by Global Water Technologies, Inc.
(the "Company") with the United States Securities and Exchange Commission.
We have reviewed the Certificate of Incorporation, as amended, of the
Company, the minutes of the Board of Directors and of the shareholders of
the Company, and such other documents as we consider necessary in order to
render this opinion. As a result of our review, we are of the opinion that:
(i) the 13,500,000 shares of Common Stock which are currently outstanding are
validly issued, fully Paid and non-assessable, and (ii) upon exercise of the
Class C Warrants and options described in such Registration Statement, and
payment made as required by such Class C Warrants and options, the shares of
Common Stock when issued will be validly issued, fully paid and non-
assessable under the Delaware Business Corporation Act.
This opinion is limited to the applicability of the Delaware Business
Corporation Act to the 13,500,000 shares of Common Stock presently
outstanding and the issuance of the shares of Common Stock underlying the
Class C Warrants and options. This opinion does not offer or in any way
relate to the applicability of, or compliance by the Company with, any other
law, including any federal or state securities laws, any state common law
or any other federal law.
We consent to your description of this firm as having issued this
opinion in the Prospectus which is a part of the Registration Statement
referenced above.
ROTHGERBER JOHNSON & LYONS LLP
EXHIBIT 10.7
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of July 12, 1999, between
Global Water Technologies, Inc., a Delaware corporation (the "Company"),
and the Investors who have purchased or who will purchase Units, as
described below (each a "Shareholder").
RECITALS
A. The Company has offered and the Shareholder has purchased units
(the "Units"), each consisting of 200,000 shares of the Company's Common
Stock (the "Shares") and 200,000 Class C Warrants to purchase Common Stock
("Class C Warrants"), pursuant to the Private Placement Memorandum, dated
July 12, 1999 (the "Memorandum"), pursuant to which the Company agreed to
use its best efforts to register for resale the Shares and the shares of
Common Stock underlying the Class C Warrants (the "Warrant Shares")
purchased by the Shareholder in a registration statement to be filed by the
Company within 30 days of closing of the Private Placement. Each such
purchaser of Shares is referred to as "Registering Shareholder," and,
collectively referred to as "Registering Shareholders," and the Shares and
Warrant Shares of the Registering Shareholders to be registered in any
registration statement as set forth herein are collectively referred to as
the "Registrable Securities." The term "Registrable Securities" includes
shares of the Company's Common Stock issued in respect of, in exchange for
or in replacement of the Common Stock in the event of any stock split,
stock combination, stock dividend, recapitalization, consolidation or
similar event.
B. The Company and the Shareholders desire to enter into this
Agreement to provide for the registration under the Securities Act of 1933,
as amended (the "Securities Act"), of the disposition of the Registrable
Securities and certain other matters.
AGREEMENT
The parties agree as follows:
Section 1. REGISTRATION RIGHTS.
(a) The Company shall use its reasonable best efforts to file a
Registration Statement under the Securities Act and under any applicable
state securities laws, within 30 days after the final closing of the
private offering made pursuant to the Memorandum, dated July 12, 1999, and
shall include in the Registration Statement all Registrable Securities.
Notwithstanding anything in the foregoing to the contrary, the Company
shall not be required to offer Registering Shareholders the opportunity to
include their Registrable Securities in more than one Registration
Statement; PROVIDED that a Registration Statement shall be deemed not to
have been prepared and filed if the same does not become effective;
PROVIDED, FURTHER, that the Company will use its best efforts to register
the Registrable Securities for public resale on or before 120 days after
the final closing, or, if earlier, within five days of receipt from the SEC
of notice that the SEC has no further comments with respect to the
Registration Statement.
<PAGE>
(b) The Company shall provide each Registering Shareholder, each
underwriter participating in any disposition pursuant to such registration
and their respective representatives reasonable opportunity for due
diligence in connection with the registration of Registrable Securities of
the Registering Shareholder pursuant to this Section 1.
(c) Notwithstanding anything herein to the contrary, the Company
shall not be required to include in any registration pursuant to this
Section 1 any Registrable Securities owned by a Registering Shareholder if
such Registering Shareholder or any underwriter of Registrable Securities
shall fail to furnish to the Company the information in respect of the
distribution of the shares that may be required under this Agreement to be
furnished by the Registering Shareholder or the underwriter to the Company.
(d) Each Registering Shareholder shall furnish, and shall cause
each underwriter of the Registrable Securities of the Registering
Shareholder to be distributed pursuant to the Registration Statement to
furnish, to the Company in writing promptly upon the request of the Company
the additional information regarding the Registering Shareholder or the
underwriter, the contemplated distribution of the Registrable Securities
and the other information regarding the proposed distribution by the
Registering Shareholder and the underwriter that shall be required in
connection with the proposed distribution by the applicable securities laws
of the United States of America and the states thereof in which the
Registrable Securities are contemplated to be distributed. The information
furnished by any Registering Shareholder or any underwriter shall be
certified by the Registering Shareholder or the underwriter, as the case
may be, and shall be stated to be specifically for use in connection with
the registration.
(e) The Company shall prepare and file with the Securities and
Exchange Commission the Registration Statement, including the Prospectus
(as defined in Section 1(g)), under the Securities Act and as required
under any applicable state securities laws, on the form that is then
required or available for use by the Company to permit each Registering
Shareholder, upon the effective date of the Registration Statement, to use
the Prospectus in connection with the contemplated distribution by the
Registering Shareholder of the Registrable Securities so registered. The
Company shall deliver to each Registering Shareholder, without charge, one
conformed copy of the Registration Statement, without exhibits, and each
amendment or post-effective amendment thereof. The Company shall use its
best efforts to cause the Registration Statement to become effective and,
as soon as practicable after the effectiveness thereof, shall deliver to
each Registering Shareholder evidence of the effectiveness and a reasonable
supply of copies of the Prospectus. In addition, if necessary for resale
by the Registering Shareholders, the Company shall qualify or register in
such states as may be reasonably requested by each Registering Shareholder
the Registrable Securities of the Registering Shareholder that shall have
been included in the Registration Statement; PROVIDED that the Company
shall not be obligated to file any general consent to service of process or
to qualify as a foreign corporation in any state in which it is not subject
to process or qualified as of the date of the request.
(f) The Company shall use its best efforts to cause the
Registration Statement and the Prospectus to remain effective or current,
as the case may be, including the filing of necessary
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<PAGE>
amendments, post-effective amendments and supplements, and shall furnish
copies of such amendments, post-effective amendments and supplements to the
Registering Shareholders, so as to permit distributions by the Registering
Shareholders during a period of four years from the effective date of the
Registration Statement, but in no event longer than that date when Rule
144(k) is available for the sale of the Registrable Securities. During
such respective contemplated periods of distribution, the Company shall
comply with the provisions of the Securities Act applicable to it with
respect to the disposition of all Registrable Securities that shall have
been included in the Registration Statement in accordance with the intended
methods of disposition by the Registering Shareholders set forth in the
Registration Statement, the Prospectus or the supplement, as the case may
be. The Company shall not be deemed to have used its best efforts to cause
the Registration Statement to remain effective during the applicable period
if it voluntarily takes any action (other than an action required under
applicable law) that would result in the Registering Shareholders not being
able to dispose of the Registrable Securities during that period in
accordance with the intended methods of disposition. The Company shall
notify each Registering Shareholder, at any time when a prospectus with
respect to the Registrable Securities is required to be delivered under the
Securities Act, when the Company becomes aware of the happening of any
event as a result of which the Prospectus (as then in effect) contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein (in the case of the Prospectus or
any preliminary prospectus, in light of the circumstances under which they
were made) not misleading and, as promptly as practicable thereafter,
prepare and file with the Securities and Exchange Commission an amendment
or supplement to the Registration Statement or the Prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
Company shall make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the
earliest possible moment. Notwithstanding anything in the foregoing to the
contrary, the Company may at any time upon notice to each Registering
Shareholder terminate the effectiveness of the Registration Statement or
upon notice to any Registering Shareholder withdraw from the Registration
Statement the Registrable Securities of the Registering Shareholder if, in
the written opinion of counsel for the Company addressed to the
Shareholder, there shall have arisen any legal impediment to the offer of
the Registrable Securities made by the Prospectus or if any legal action or
administrative proceeding shall have been instituted or threatened or any
other claim shall have been made relating to the offer made by the
Prospectus or against any of the parties involved in the offer; PROVIDED
that, promptly after those matters shall be resolved to the satisfaction of
counsel for the Company, pursuant to this Section 1 the Company shall cause
the registration of Registrable Securities formerly covered by the
Registration Statement that were removed from registration by the action of
the Company.
(g) If requested by any Registering Shareholder or an
underwriter, the Company shall as promptly as practicable prepare and file
with the Securities and Exchange Commission an amendment or supplement to
the Registration Statement or Prospectus containing such information as the
Registering Shareholder or the underwriter requests to be included therein,
including, without limitation, information with respect to the Registrable
Securities being sold by the Registering Shareholder, the price at which
the Registrable Securities will be sold and other terms of the offering
-3-
<PAGE>
of the Registrable Securities by the Registering Shareholder.
(h) Each Registering Shareholder shall report to the Company
distributions made by the Registering Shareholder of Registrable Securities
pursuant to the Prospectus and, upon written notice by the Company that an
event has occurred as a result of which an amendment or supplement to the
Registration Statement or the Prospectus is required, the Registering
Shareholder shall cease further distributions pursuant to the Prospectus
until notified by the Company of the effectiveness of the amendment or
supplement. Each Registering Shareholder shall distribute Registrable
Securities only in accordance with the manner of distribution contemplated
by the Prospectus with respect to the Registrable Securities. Each
Registering Shareholder, by participating in a registration pursuant to
this Section 1, acknowledges that the remedies of the Company at law for
failure by the Registering Shareholder to comply with the undertaking
contained in this Section 1(h) would be inadequate and that the failure
would not be adequately compensable in damages and would cause irreparable
harm to the Company, and therefore agrees that undertakings made by the
Registering Shareholder in this Section 1(h) may be specifically enforced.
(i) The Company shall cooperate with each Registering
Shareholder and each underwriter to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be sold under the Registration Statement, and
enable such Registrable Securities to be in such denominations and
registered in such names as the Registering Shareholder or the underwriter
may request. The Company shall pay all transfer or other fees of the
Company's transfer agent in connection with obtaining certificates without
restrictive legends.
(j) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission,
and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at lease twelve
months, but not more than eighteen months, beginning with the first
calendar month after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act.
(k) The Company shall take all action required to cause the
Registrable Securities to be qualified for inclusion in the National
Association of Securities Dealers Automated Quotation/National Market
System ("Nasdaq/NMS") or Small Cap Market ("Nasdaq/Small Cap"), as
applicable, if other securities of the Company are so registered.
(l) For the purposes of this Section 1, the following terms
shall have the following meanings:
(1) "Registration Statement" means a registration statement
filed by the Company in accordance with Section 1(e), including
exhibits and financial statements thereto, in the form in which it
shall become effective and, in the event of any amendment thereto
after the
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<PAGE>
effective date of the registration statement, also means (from and
after the effectiveness of the amendment) the registration statement
as so amended;
(2) "Rule 144 Transaction" means a transaction involving the
sale of Registrable Securities to a person other than an affiliate of
the Company under circumstances in which all of the applicable
conditions of Rule 144 or Rule 144A (or any similar provisions then in
force) under the Securities Act are satisfied; and
(3) "Prospectus" means the prospectus relating to the
Registrable Securities owned by the Registering Shareholders included
in a Registration Statement and, in the event of any amendment or
supplement to the prospectus after the effective date of the
Registration Statement, also means (from and after the effectiveness
of the amendment or the filing with the Securities and Exchange
Commission of the supplement) the prospectus as so amended or
supplemented and, if a prospectus relating to the Registrable
Securities shall be filed with the Securities and Exchange Commission
pursuant to Rider 424 under the Securities Act, such prospectus.
Section 2. EXPENSES.
(a) The Company shall bear all expenses in connection with the
registration of Registrable Securities pursuant to Section 1, whether or
not any related Registration Statement shall become effective. Such
expenses include, but are not limited to the expenses of:
(1) preparing, printing and filing each Registration Statement
and Prospectus and each qualification or notice required to be filed
under federal and state securities laws or the rules and regulations
of an exchange and the National Association of Securities Dealers,
Inc. (the "NASD") in connection with a registration pursuant to
Section 1;
(2) all fees and expenses of complying with federal and state
securities laws and the rules and regulations of the NASD;
(3) furnishing to each requesting Registering Shareholder one
conformed copy of the related Registration Statement, without
exhibits, and the number of copies of the related Prospectus that may
be required by Section 1(e) to be so furnished, together with a like
number of copies of each amendment, post-effective amendment or
supplement;
(4) preparing audited financial statements required by the
Securities Act and the rules and regulations thereunder to be included
in the Registration Statement and preparing audited financial
statements for use in connection with the registration other than
audited financial statements required by the Securities Act and the
rules and regulations thereunder;
(5) internal expenses of the Company (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties);
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(6) listing of the Registrable Securities on national securities
exchanges and inclusion of the Registrable Securities in Nasdaq/NMS
or Nasdaq/Small Cap; and
(7) fees and expenses of any special experts retained by the
Company in connection with the registration.
(b) The Registering Shareholders shall bear all of their
respective selling expenses, such as their respective selling commissions,
underwriting discounts, insurance and fees of counsel for the Registering
Shareholders and their underwriters and applicable transfer fees and
expenses.
Section 3. INDEMNIFICATION
(a) The Company shall indemnify and hold harmless each
Registering Shareholder participating in a registration pursuant to Section
1, each underwriter of any of the Registrable Securities owned by the
Registering Shareholder to be distributed pursuant to the Registration
Statement, each partner in each Registering Shareholder, the officers and
directors of the Registering Shareholder and the underwriter and each
person, if any, who controls the Registering Shareholder, each partner in
each Registering Shareholder or the underwriter within the meaning of
Section 15 (or any successor provision) of the Securities Act, and their
respective successors, against all claims, losses, damages and liabilities
to third parties (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in the Registration Statement or the Prospectus or other document
incident thereto or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse each such
Registering Shareholder and each other person indemnified pursuant to this
Section 3(a) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; PROVIDED that the Company shall not be liable in any
case to the extent that any such claim, loss, damage or liability arises
out of or is based on any untrue statement or omission based upon written
information furnished to the Company by any Registering Shareholder or
underwriter for a Registered Shareholder specifically for use in the
Registration Statement or the Prospectus.
(b) Each Registering Shareholder, by participating in a
registration pursuant to Section 1, thereby agrees to indemnify and to hold
harmless the Company and its officers and directors and each person, if
any, who controls any of them within the meaning of Section 15 (or any
successor provision) of the Securities Act, and their respective
successors, against all claims, losses, damages and liabilities to third
parties (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained
in the Registration Statement or the Prospectus or other document incident
thereto or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse the Company and each other
person indemnified pursuant to this Section 3(b) for any legal and any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action; PROVIDED that
this Section 3(b) shall apply only if (and only to the extent that) the
statement or omission was made in reliance upon and in conformity with
information furnished to the Company in writing by the Registering
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<PAGE>
Shareholder specifically for use in the Registration Statement or the
Prospectus; PROVIDED, FURTHER, that in no event shall the liability of a
Registering Shareholder hereunder be greater in amount than the dollar
amount of the proceeds received by the Registering Shareholder upon the
sale of the Registrable Securities giving rise to such indemnification
obligations.
(c) If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against any person
indemnified under this Section 3, the indemnified person shall promptly
notify the indemnifying party in writing, and the indemnifying party shall
assume the defense of the action or proceeding, including the employment of
counsel satisfactory to the indemnified person and the payment of all
expenses. The indemnified person shall have the right to employ separate
counsel in any action or proceeding and to participate in the defense of
the action or proceeding, but the fees and expenses of that counsel shall
be at the expense of the indemnified person unless
(1) the indemnifying party shall have agreed to pay those fees
and expenses; or
(2) the indemnifying party shall have failed to assume the
defense of the action or proceeding or shall have failed to employ
counsel reasonably satisfactory to the indemnified person in the
action or proceeding; or
(3) the named parties to the action or proceeding (including any
impleaded parties) include both the indemnified person and the
indemnifying party, and the indemnified person shall have been
advised by counsel that there may be one or more legal defenses
available to the indemnified person that are different from or
additional to those available to the indemnifying party (in which
case, if the indemnified person notifies the indemnifying party in
writing that it elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action or proceeding on behalf of
the indemnified person; it being understood, however, that the
indemnifying party shall not, in connection with any one action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for
the indemnified person, which firm shall be designated in writing by
the indemnified person).
The indemnifying party shall not be liable for any settlement of any action
or proceeding effected without its written consent, but no settlement shall
be entered into by the Indemnifying Party which does not provide for the
complete and final release of the Indemnified Party.
(d) If the indemnification provided for in this Section 3 is
unavailable to an indemnified person (other than by reason of exceptions
provided in this Section 3) in respect of losses, claims, damages,
liabilities or expenses referred to in this Section 3, then each applicable
indemnifying party, in lieu of indemnifying the indemnified person, shall
contribute to the amount paid or payable by the indemnified person as a
result of the losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one
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<PAGE>
hand and of the indemnified person on the other in connection with the
statements or omissions which resulted in the losses, claims, damages,
liabilities or expenses as well as any other relevant equitable
considerations. The relative fault of the indemnifying party on the one
hand and of the indemnified person on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party
or by the indemnified person and by these persons' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties agree that it would not be just and
equitable if contribution pursuant to this Section 3(d) were determined by
pro rata allocation or by any other method of allocation that does not take
into account the equitable considerations referred to in the immediately
preceding sentence. The amount paid or payable by a person as a result of
the losses, claims, damages, liabilities and expenses shall be deemed to
include any legal or other fees or expenses reasonably incurred by the
person in connection with investigating or defending any action or claim.
Notwithstanding in the foregoing to the contrary, no Registering
Shareholder or underwriter shall be required to contribute any amount in
excess of the amount by which (1) in the case of any Registering
Shareholder, the net proceeds received by the Registering Shareholder from
the sale of Registrable Securities or (2) in the case of an underwriter,
the total price at which the Registrable Securities purchased by it and
distributed to the public were offered to the public exceeds, in any such
case, the amount of any damages that the Registering Shareholder or
underwriter, as the case may be, has otherwise been required to pay by
reason of any untrue or alleged untrue statement or omission. No person
guilty of fraudulent representation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation.
(e) Each Registering Shareholder participating in a registration
pursuant to Section 1 shall cause each underwriter of any of the
Registrable Securities owned by the Registering Shareholder to be
distributed pursuant to the Registration Statement to agree in writing on
terms reasonably satisfactory to the Company to indemnify and to hold
harmless the Company and its officers and directors and each person, if
any, who controls any of them within the meaning of Section 15 (or any
successors provision) of the Securities Act, and their respective
successors, against all claims, losses, damages and liabilities to third
parties (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained
in the Registration Statement or the Prospectus or other document incident
thereto or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and to reimburse the Company and each other person
indemnified pursuant to the agreement for any legal or any other expense
reasonably incurred in connection with investigating or defending any
claim, loss, damage, liability or action; PROVIDED that the agreement shall
apply only if (and only to the extent that) the statement or omission was
made in reliance upon and in conformity with information furnished to the
Company in writing by the underwriter specifically for use in the
Registration Statement or the Prospectus.
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<PAGE>
Section 4. TRANSFER RESTRICTIONS.
(a) The Shareholder acknowledges that the Company will issue and
sell the Units in reliance upon the exemption afforded by Section 4(2) of
the Securities Act for transactions by an issuer not involving any public
offering and Rule 506 of Regulation D adopted thereunder. The Shareholder
represents that (1) Shareholder will acquire the Units and the Registrable
Securities for investment and without any view toward distribution of any
of the Registrable Securities to any other person, (2) Shareholder will
not sell or otherwise dispose of the Registrable Securities except in
compliance with the registration requirements or exemption provisions under
the Securities Act and (3) before selling or otherwise disposing of any of
the Registrable Securities other than in a sale registered under the
Securities Act, or pursuant to Rule 144 under the Securities Act unless the
Company shall have been advised by counsel that the sale does not meet the
requirements of Rule 144 for the sale, the Shareholder will deliver to the
Company an opinion of counsel, which counsel shall be reasonably
satisfactory to the Company to the effect that such registration is
unnecessary.
(b) Except as provided to the contrary in this Section 4, each
certificate for Registrable Securities, and any certificate issued in
exchange therefor or upon conversion, exchange or transfer thereof, shall
bear the legend below:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 ("the Act") or the
securities laws of any state and are 'restricted securities' as that
term is defined in rule 144 of the Act. The securities have been
acquired for investment and may not be sold, transferred for value,
pledged, hypothecated, or otherwise encumbered in the absence of an
effective registration of them under the Act and the securities act of
such states as may be required, or in the absence of an opinion of
counsel acceptable to the corporation that such registration is not
required under such act or laws.
(c) The legend stated in Section 4(b)(1) shall be removed by
delivery of one or more substitute certificates without such legend if
either (1) the related certificates are issued in connection with a sale
registered under the Securities Act or (2) the holder thereof shall have
delivered to the Company a copy of a letter from the staff of the
Securities and Exchange Commission or an opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that the
legend is not required for purposes of the Securities Act.
Section 5. FILINGS. The Company shall make all filings with the
Securities and Exchange Commission required in order to make available to
the holders of Registrable Securities the exemption from the registration
requirements provided by Rule 144 (or any successor regulation) under the
Securities Act.
Section 6. MERGER, CONSOLIDATION, EXCHANGE. ETC. In the event,
directly or indirectly, (1) the Company shall merge with and into, or
consolidate with, or consummate a share exchange, or (2) any person shall
merge with and into, or consolidate, the Company and the Company shall be
the surviving corporation of such merger or consolidation and, in
connection with such merger or consolidation, all or part of the
Registrable Securities shall be changed into or exchanged for stock
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<PAGE>
or other securities of any other person, then, in each such case, proper
provision shall be made so that such other person shall be bound by the
provisions of this Agreement and the term "Company" shall thereafter be
deemed to refer to such other person.
Section 7. NOTICES. All notices, requests and other
communications to any party under this Agreement shall be in writing.
Communications may be made by telecopy or similar writing. Each
communication shall be given to the party at its address stated on the
signature pages of this Agreement or at any other address as the party may
specify for this purpose by notice to the other party. All communications
from the Company shall be copied to Westminster Securities Corporation, the
placement agent for the Units. Each communication shall be effective (1)
if given by telecopy, when the telecopy is transmitted to the proper
address and the receipt of the transmission is confirmed, (2) if given by
mail, 72 hours after the communication is deposited in the mails properly
addressed with first class postage prepaid or (3) if given by any other
means, when delivered to the proper address and a written acknowledgment of
delivery is received.
Section 8. NO WAIVERS; REMEDIES. No failure or delay by any party
in exercising any right, power or privilege under this Agreement shall
operate as a waiver of the right, power or privilege. A single or partial
exercise of any right, power or privilege shall not preclude any other or
further exercise of the right, power or privilege or the exercise of any
other right, power or privilege. The rights and remedies provided in this
Agreement shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 9. AMENDMENTS, ETC. No amendment, modification,
termination or waiver of any provision of this Agreement, and no consent to
any departure by a party to this Agreement from any provision 'of this
Agreement, shall be effective unless it shall be in writing and signed and
delivered by the other party to this Agreement, and then it shall be
effective only in the specific instance and for the specific purpose for
which it is given.
Section 10. SUCCESSORS AND ASSIGNS.
(a) The Shareholder may assign to any transferee of Registrable
Securities the Shareholder's rights and delegate the Shareholder's
obligations under this Agreement; provided that such transferee assignee
shall accept those rights and assume those obligations for the benefit of
the Company in writing in form reasonably satisfactory to the Company.
Thereafter, without any further action by any person, all references in
this Agreement to the "Shareholder," and all comparable references, shall
be deemed to be references to the transferee, and the Shareholder shall be
released from any obligation or liability under this Agreement with respect
to the Registrable Securities so transferred.
(b) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors and permitted assigns pursuant to Section 11(a).
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<PAGE>
Section 11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Colorado.
All rights and obligations of the Company and the Shareholder shall be in
addition to and not in limitation of those provided by applicable law.
Section 12. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original,
with the same effect as if all signatures were on the same instrument.
Section 13. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction shall, as
to that jurisdiction, be ineffective to the extent of the prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of the provision in
any other jurisdiction.
Section 14. HEADINGS AND REFERENCES. Section headings in this
Agreement are included for the convenience of reference only and do not
constitute a part of this Agreement for any other purpose. References to
parties and sections in this Agreement are references to the parties to or
the sections of this Agreement, as the case may be, unless the context
shall require otherwise.
Section 15. ENTIRE AGREEMENT. Except as otherwise specifically
provided in the following sentence, this Agreement embodies the entire
agreement and understanding of the respective parties and supersedes all
prior agreements or understandings with respect to the subject matters of
those documents.
Section 16. SURVIVAL. Except as otherwise specifically provided in
this Agreement, each representation, warranty or covenant of each party to
this Agreement contained in or made pursuant to this Agreement shall
survive the Closing and remain in full force and effect, notwithstanding
any investigation or notice to the contrary or any waiver by any other
party of a related condition precedent to the performance by the other
party of an obligation under this Agreement.
Section 17. NON-EXCLUSIVE JURISDICTION. Each party (1) agrees that
any action with respect to this Agreement may be brought in the courts of
the State of Colorado or of the United States of America for the District
of Colorado, (2) accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of those courts and (3)
irrevocably waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of FORUM NON
CONVENIENS, which it may now or hereafter have to the bringing of any
action in those jurisdictions.
Section 18. WAIVER OF JURY TRIAL. Each party waives any right to
a trial by jury in any action to enforce or defend any right under this
Agreement or any amendment, instrument, document or agreement delivered, or
which in the future may be delivered, in connection with this Agreement and
agrees that any action shall be tried before a court and not before a jury.
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Section 19. AFFILIATE. Nothing contained in this Agreement shall
constitute the Shareholder an "affiliate" of any of the Company and its
subsidiaries within the meaning of Rule 13e-3 under the Exchange Act.
IN WITNESS WHEREOF, the parties have executed and delivered this
Registration Rights Agreement as of the date first written above in Denver,
Colorado.
GLOBAL WATER TECHNOLOGIES, INC.
By:________________________________
George A. Kast, President
Address: Global Water Technologies, Inc.
1767 Denver West Boulevard
Golden, Colorado 80401
(303) 215-1100
SHAREHOLDER:
___________________________________
Signature
___________________________________
Name (print)
Address:___________________________
___________________________
___________________________
Telecopy:__________________________
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EXHIBIT 24.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this registration statement on Form SB-2 of
our report dated February 12, 1999 on the financial statements of
Global Water Technologies, Inc., and to references in the prospectus
to our firm as experts in accounting and auditing.
/s/ Comiskey & Company
PROFESSIONAL CORPORATION
Denver, Colorado
October 27, 1999
