U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999
---------------------
[ ] Transition report under Section 13 or 15(d) of the exchange act of
1934 for the transition period from ______________ to ______________
COMMISSION FILE NUMBER 33-37513-D
---------------------------
GLOBAL WATER TECHNOLOGIES, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 84-1148204
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1767 Denver West Boulevard, Golden, Colorado 80401
- -------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(Issuer's telephone number): (303) 215-1100
-------------------
NA
- -------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Shares of Common Stock, $0.00001 par value, outstanding as of November 15,
1999: 308,354,250.
------------
Transitional Small Business Disclosure Format Yes No X
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<PAGE>
GLOBAL WATER TECHNOLOGIES, INC. (GWTR)
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Operations Three months and nine
months ended September 30,
1999 and 1998
Consolidated Balance Sheet As of September 30, 1999
Consolidated Statements of Cash Flows Nine months ended
September 30, 1999 and 1998
Notes to Financial Statements September 30, 1999 and 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
------------------------------
September 30, 1999 September 30, 1998
------------------ ------------------
Net revenues:
United States $ 11,121,979 $ 7,144,239
International 3,403,757 1,709,463
------------ ------------
Total revenues 14,525,736 8,853,702
------------ ------------
Costs and expenses:
Cost of sales 13,291,969 7,388,393
Selling, general and administrative 1,371,736 1,246,959
Research and development 4,869 66,373
------------ ------------
Total costs and expenses 14,668,574 8,701,725
------------ ------------
Operating income (loss) (142,838) 151,977
Other income (expense):
Interest expense, net (94,100) (45,670)
Other, net 100 11,472
------------ ------------
Income (loss) before income taxes (236,838) 117,779
Income taxes (benefit) (73,419) 51,845
------------ ------------
Net income (loss) before preferred dividend (163,419) 65,934
Preferred stock dividend 5,000 2,630
------------ ------------
Net income (loss) for common stockholders $ (168,419) $ 63,304
============ ============
Income (loss) per share:
Basic weighted average shares outstanding 294,999,631 294,050,000
Basic income (loss) per share $ (0.0006) $ 0.0002
============ ============
Fully diluted weighted average shares
outstanding 294,999,631 294,050,000
Fully diluted income (loss) per share $ (0.0006) $ 0.0002
============ ============
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended
-----------------
September 30, 1999 September 30, 1998
------------------ ------------------
Net revenues:
United States $ 49,587,466 $ 15,769,349
International 4,278,745 4,181,656
------------ ------------
Total revenues 53,866,211 19,951,005
------------ ------------
Costs and expenses:
Cost of sales 48,787,634 16,529,265
Selling, general and administrative 3,725,200 3,303,093
Research and development 23,482 174,690
------------ ------------
Total costs and expenses 52,536,316 20,007,048
------------ ------------
Operating income (loss) 1,329,895 (56,043)
Other income (expense):
Interest expense, net (231,140) (110,865)
Other, net 2,902 15,469
------------ ------------
Income (loss) before income taxes 1,101,657 (151,439)
Income taxes (benefit) 341,514 (66,662)
------------ ------------
Net income (loss) before preferred dividend 760,143 (84,777)
Preferred stock dividend 15,000 2,630
------------ ------------
Net income (including the effect of a change in
accounting principle for the previous year) 745,143 (87,407)
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 $ 745,143 $ (841,703)
============ ============
Income (loss) per share:
Basic weighted average shares outstanding 294,903,243 294,050,000
Basic income per share - prior to accounting
change 0.0025 (0.0003)
Cumulative effect of accounting change - (0.0026)
------------ ------------
Basic income (loss) per share available
for common $ 0.0025 $ (0.0029)
============ ============
Fully diluted weighted average shares
outstanding 295,498,872 294,050,000
Fully diluted income per share - prior to
accounting change 0.0025 (0.0003)
Cumulative effect of accounting change - (0.0026)
------------ ------------
Fully diluted income (loss) per share $ 0.0025 $ (0.0029)
============ ============
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
As of September 30, 1999
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 626,330
Trade accounts receivable, net of allowance for
doubtful accounts of $273,884 17,708,483
Other receivables 713,721
Costs and estimated earnings in excess of billings
on uncompleted contracts 4,327,329
Inventories 751,346
Prepaid expenses 525,025
------------
Total current assets 24,652,234
------------
Property and equipment, net 683,445
Intangibles, net of amortization 32,993
Deposits 51,555
------------
$ 25,420,227
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 2,643,002
Accounts payable 16,306,531
Accrued liabilities 1,646,346
Billings in excess of costs and estimated earnings
on uncompleted contracts 709,722
Income taxes payable 567,119
------------
Total current liabilities 21,872,720
------------
Long-term debt 279,376
Deferred income taxes 63,500
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; 308,229,250 shares issued
and outstanding 3,082
Capital in excess of par value 1,502,284
Retained earnings 1,449,165
------------
Total stockholders' equity 3,204,631
------------
$ 25,420,227
============
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
------------------------
September 30, 1999 September 30, 1998
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 745,143 $ (841,703)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation 147,808 127,502
Amortization 8,253 8,253
Decrease in deferred income taxes (121,137) (191,342)
(Increase) decrease in working capital:
Trade accounts receivable (9,502,921) (881,308)
Other receivables (602,356) (54,631)
Costs and estimated earnings in excess
of billings on uncompleted contracts (703,791) (345,744)
Income taxes receivable 60,960 (604,338)
Inventories (432,888) (223,213)
Prepaid expenses (360,721) (66,811)
Deposits 54,465 (53,327)
Accounts payable 8,940,059 1,621,513
Income taxes payable 353,508 -
Accrued liabilities (238,604) 474,382
Billings in excess of costs and
estimated earnings on uncompleted
contracts (976,446) 158,264
------------ ------------
Net cash (used) by
operating activities (2,628,668) (872,503)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of certificate of deposit - 222,836
Purchase of property and equipment (205,944) (198,529)
------------ ------------
Net cash (used in) investing activities (205,944) 24,307
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change on the lines-of-credit 957,000 116,476
Proceeds from issuance of stock 960,500 250,000
Proceeds from issuance of debt - 496,378
Repayments of debt (207,857) (125,357)
------------ ------------
Net cash provided (used) by
financing activities 1,709,643 737,497
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,124,969) (110,699)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,751,299 118,887
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 626,330 $ 8,188
============ ============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999 and 1998
1. INTERIM FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1999, and the related
consolidated statements of operations for the three months and for the nine
months ended September 30, 1999 and statements of cash flows for the nine
months ended September 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 as permitted by Form 10-QSB and should be read in
conjunction with the Company's financial statements and notes included in
Form 10-K.
2. 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 September 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. STOCK ISSUED IN PRIVATE PLACEMENT
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 was 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 was Westminster Securities
Corporation, a subsidiary of Laidlaw & Co. The offering concluded on
October 15, 1999.
The Company, after expenses, fees, commissions and other costs, received
$960,500 of additional equity prior to September 30, 1999. Proceeds will
be used for banking and bonding requirements, expansion and development of
existing business units and for working capital.
4. CONVERSION OF OUTSTANDING SERIES A PREFERRED STOCK
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
5
<PAGE>
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. As of September 30, 1999, the
Company's management believes that it is more likely than not that the $60
million of gross annual sales will be achieved in 1999.
5. 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.
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 nine month periods ended September 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 third quarter of 1998.
6. 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.
7. 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.
6
<PAGE>
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 $4,278,745 and $4,181,656 for the nine
months ended September 30, 1999 and 1998, respectively. The following
schedule summarizes the segmentation of the international and domestic
business segments for the nine months ended September 30, 1999 and 1998.
BUSINESS SEGMENT STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999
---------------------------------------------------
DOMESTIC INTERNATIONAL OTHER TOTAL
-------- ------------- ----- -----
<S> <C> <C> <C> <C>
Revenues $49,587,466 $4,278,745 $ - $53,866,211
Costs $46,231,829 $2,555,805 $ 3,748,682 $52,536,316
Segment profit $ 3,355,637 $1,722,940 $(3,748,682) $ 1,329,895
Assets $22,871,613 $ 903,150 $ 1,645,464 $25,420,227
</TABLE>
BUSINESS SEGMENT STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
1998
---------------------------------------------------
DOMESTIC INTERNATIONAL OTHER TOTAL
-------- ------------- ----- -----
<S> <C> <C> <C> <C>
Revenues $15,769,349 $4,181,656 $ - $19,951,005
Costs $12,959,854 $3,569,411 $ 3,477,783 $20,007,048
Segment profit $ 2,809,495 $ 612,245 $(3,477,783) $ (56,043)
Assets $ 8,662,352 $ 217,549 $ 1,307,928 $10,187,829
</TABLE>
8. BACKLOG
The Company has a backlog of $28,584,257 at September 30, 1999, compared to
an adjusted backlog amount of $14,440,316 for the similar period ended in
1998. Backlog represents the amount of revenue the Company expects to
realize from work on uncompleted contracts.
7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
GENERAL
Global Water Technologies, Inc. (the "Company"), primarily through its
wholly owned subsidiary, Psychrometric Systems, Inc., is in the business of
designing, selling, manufacturing and building industrial cooling towers,
repairs and maintenance in the retrofit of existing industrial cooling
towers and cooling tower components for these and similar facilities. The
Company markets its products and services worldwide to the following
industries: electric power utilities; process (such as agricultural,
industrial and pharmaceutical process industries); petrochemical; chemical;
heating, ventilation and air-conditioning ("HVAC"); manufacturing; pulp &
paper and other industries utilizing cooling towers. Typical customers
include companies such as Archer Daniels Midland, Amoco, Mitsubishi, Mobil,
Texaco, Bechtel, Fluor Daniel, Inc. and other large corporations around the
world.
The Company derives revenue primarily from the following sources: new
cooling tower sales, retrofits to existing cooling tower construction
repair projects and spare parts and supplies to existing cooling tower
customers. The Company custom designs and constructs wooden, fiberglass
and concrete towers for its customer base worldwide.
The Company recognizes 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.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Total revenues were derived from engineering, erection, retrofits
and spare parts of cooling towers. For the three month period ended
September 30, 1999, total tower revenue increased 64.1% to $14,525,736 as
compared to $8,853,702 for the three month period ended September 30, 1998.
International revenues comprised 23.4% of total revenues in 1999 versus
19.3% in 1998.
Contracts awarded ("bookings") during the three -month period ended
September 30, 1999 increased 83.7% 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 increased from $25,544,805 at June 30, 1999 to $28,584,257 at
September 30, 1999.
The Company's cost of sales increased 79.9% from $7,388,393 in 1998 to
$13,291,969 in 1999. As a percentage of revenues, cost of sales increased
from 83.4% in 1998 to 91.5% in 1999.
8
<PAGE>
Management anticipates that the actual gross margin percentages for
calendar year 1999 will be less than 1998 operating results. The absolute
increase in cost of sales resulted primarily from a 64.1% increase in
corresponding revenues. Due to significant competition, there can be no
assurance that the Company can maintain its profit margins in the future.
Selling, general and administrative expenses increased 10.0% from
$1,246,959 in 1998 to $1,371,736 in 1999 as the Company continues to make
an investment in its future. As a percentage of revenues, these expenses
decreased from 14.1% in 1998 to 9.4% in 1999. As a percentage of new
bookings which increased 83.7%, these expenses decreased from 13.0% in 1998
to 7.8% 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.
Research and development costs decreased to $4,869 in 1999 from $66,373
in 1998. These costs include a portion of the research and development
facility in Idaho.
Operating (loss), based on the explanations noted above, was ($142,838)
in 1999 compared to an operating income of $151,977 during the comparable
period in 1998.
Other income and expense primarily consisting of interest expense,
increased to $94,100 from $45,670 due to the Company's various debt
financings. Income taxes (benefit) decreased from an expense of $51,845
with an effective 44% tax rate in 1998 to a tax benefit of ($73,419) with
an effective tax rate of 31% in 1999.
Net income (loss) available to common stockholders was a loss of
($168,419) in the three month period ended September 30, 1999 compared to
a net income of $63,304 in the similar period in 1998. This amount includes
a preferred stock dividend of $5,000 for the three months ended September
30, 1999 and $2,630 for 1998. Basic income (loss) per share was ($0.0006)
in the three-month period ended September 30, 1999 and $0.0002 in 1998.
Fully diluted income (loss) per share was ($0.0006) per share in the period
ended September 30, 1999 and $0.0002 in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Total revenues were derived from engineering, erection, retrofits
and spare parts of cooling towers. For the nine-month period ended
September 30, 1999, total tower revenue increased 170.0% to $53,866,211 as
compared to $19,951,005 for the nine month period ended September 30, 1998.
International revenues comprised 7.9% of total revenues in 1999 versus
21.0% in 1998.
Contracts awarded ("bookings") during the nine-month period ended
September 30, 1999 increased 116.2% 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 increased from $27,155,058 at December 31, 1998 to $28,584,257 at
September 30, 1999.
The Company's cost of sales increased 195.2% from $16,529,265 in 1998
to $48,787,634 in 1999. As a percentage of revenues, cost of sales
increased from 82.8% in 1998 to 90.6% in 1999. The absolute increase in
cost of sales resulted primarily from a 170.0% increase in corresponding
revenues. Management anticipates that the actual gross margin percentages
for calendar year 1999 will be less
9
<PAGE>
than 1998 operating results. 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 12.8% from
$3,303,093 in 1998 to $3,725,200 in 1999 as the Company continues to make
an investment in its future. As a percentage of revenues, these expenses
decreased from 16.6% in 1998 to 6.9% in 1999. As a percentage of new
bookings, which increased 116.2%, these expenses decreased from 12.9% in
1998 to 6.7% in 1999. 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 decreased to $23,482 in 1999 from
$174,690 in 1998. These costs include a portion of the research and
development facility in Idaho.
Operating income, based on the explanations noted above, was $1,329,895
in 1999 compared to a loss of ($56,043) in 1998 during the similar nine
month period.
Other income and expense primarily consisted of interest expense.
Income taxes (benefit) increased from a benefit of ($66,662) with an
effective 44.0% tax rate in 1998 to a tax expense of $341,514 with an
effective tax rate of 31.0% in 1999.
Net income (loss) before the accounting change was ($87,407) in the
nine-month period ended September 30, 1998 compared to a net income of
$745,143 in the similar period in 1999. Basic income (loss) per share was
($0.0029) in the nine-month period ended September 30, 1998 and $0.0025 in
1999. Fully diluted income (loss) per share was ($0.0029) in the nine
month period ended September 30, 1998 and $0.0025 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had working capital of $2,779,514
compared to working capital of $240,857 at September 30, 1998. The
Company's cash flow provided by and used in its operating, investing and
financing activities during the first nine months of 1999 and 1998 are as
follows:
1999 1998
---- ----
Operating activities $ (2,628,668) $ (872,503)
Investing activities (205,944) 24,307
Financing activities 1,709,643 737,497
------------ ------------
Net increase (decrease) in
cash and cash equivalents $ (1,124,969) $ (110,699)
============ ============
The Company's capital requirements for its continuing operations
consists of its general working capital needs, scheduled payments on its
debt obligations, new business opportunities and capital expenditures.
Management anticipates that due to the growth in sales volume and expansion
into new business opportunities the Company's operating activities will
require a cash investment during the remainder of the year. Financing cash
flows for 1999 include $960,500 received as of September 30 in the
Company's private placement. Management believes that
10
<PAGE>
its current debt facilities will be sufficient for its operational cash
investment requirements during the next four quarters.
At September 30, 1999, net costs in excess of billings and estimated
earnings on uncompleted contracts were $3,617,607 as compared to net costs
in excess of billings and estimated earnings on uncompleted contracts of
$2,383,668 at September 30, 1998.
Budgeted capital expenditures during the remainder of the year consist
of ongoing amounts for computer software and equipment, vehicles and office
equipment for anticipated growth.
The Company has a line of credit with a commercial lender totaling
$1,775,000 to finance its working capital needs. This is partially secured
by a stockholder's certificates of deposit. As of September 30, 1999,
$1,600,000 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 9.25% 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 the certificates of deposit securing the
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. The line increased to $2,000,000 from $1,000,000 on September
20, 1999. This line of credit is guaranteed by the Export Import Bank of
the United States and subjects the Company to certain financial covenants
including minimum net worth requirements. The line of credit bears
interest at prime plus 1% and matures on September 15, 2000. As of
September 30, 1999, there was an outstanding balance of $900,000 on this
line of credit.
The Company has term loans secured by the Small Business
Administration with an outstanding balance at September 30, 1999 of
$364,106. Scheduled principal payments on these term notes are $121,642
over the next twelve months and interest rates are stated at one percent
over prime. The Company has various term notes secured by Company vehicles.
The outstanding balance on these notes at September 30, 1999 was $58,271
with scheduled principal payments over the next twelve months of $21,360
with interest rates ranging from 9.5% to 10.75%.
Management believes that the Company will have sufficient capital
resources to fund its ordinary capital requirements for at least the next
four quarters for continuing operations. No assurance can be made that the
Company will have sufficient working capital to continue its requirements
for continuing operations beyond the next four quarters.
FORWARD LOOKING STATEMENTS
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future
events contained in this document constitute "forward looking statements"
as defined in the Private Securities Litigation Reform Act of 1995. As
with any future event, there can be no assurance that the events described
in forward looking statements made in this report will occur or that the
results of future events will not vary materially from those described in
the forward looking statements made in this report. Important factors that
could cause the Company's actual performance and operating results to
differ materially from the forward looking statements include, but are not
limited to, changes in the general level of economic activity in the
markets served by the company, competition in the cooling tower industry
and other industries where the Company markets its products and the
introduction of new products by competitors in
11
<PAGE>
those industries, delays in refining the Company's manufacturing and
construction techniques, cost overruns on particular projects, availability
of capital sufficient to support the Company's level of activity and the
ability of the Company to implement its business strategy.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 1999, the Company 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 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. The offering
terminated on October 15, 1999.
The Company, after expenses, fees, commissions and other costs, received
$960,500 of additional equity prior to September 30, 1999. Proceeds will
be used for banking and bonding requirements, expansion and development of
existing business units and for working capital.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits required by Item 601 of Regulation S-B are
filed herewith:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) There were no current reports on Form 8-K filed during the
quarter ended September 30, 1999.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL WATER TECHNOLOGIES, INC.
Date: November 15, 1999 By: /s/ George A. Kast
-----------------------------
George A. Kast, President, Chief
Executive Officer and Chairman of
the Board
Date: November 15, 1999 By: /s/ Martin E. Hout
-----------------------------
Martin E. Hout, Chief Financial
Officer and Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GLOBAL WATER TECHNOLOGIES' QUARTERLY REPORT TO STOCKHOLDERS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS EITIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 626,330
<SECURITIES> 0
<RECEIVABLES> 18,696,088
<ALLOWANCES> 273,884
<INVENTORY> 751,346
<CURRENT-ASSETS> 24,652,234
<PP&E> 1,261,009
<DEPRECIATION> 577,564
<TOTAL-ASSETS> 25,420,227
<CURRENT-LIABILITIES> 21,872,720
<BONDS> 342,876
0
250,100
<COMMON> 3,082
<OTHER-SE> 2,951,449
<TOTAL-LIABILITY-AND-EQUITY> 25,420,227
<SALES> 53,866,211
<TOTAL-REVENUES> 53,866,211
<CGS> 48,787,634
<TOTAL-COSTS> 52,536,316
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<INTEREST-EXPENSE> 231,140
<INCOME-PRETAX> 1,101,657
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<INCOME-CONTINUING> 745,143
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