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1.4.2003: Meldung: Worldwater Corp.: Annual Report
Certain statements contained in Management"s Discussion and Analysis, and elsewhere in this annual report, concerning the Company"s outlook or future economic performance such as anticipated profitability, gross billings, commissions and fees, expenses or other financial items; and conditions of performance or other matters, are "forward looking statements" as that term is defined under the Federal Securities Laws. Forward looking statements are subject to risks, uncertainties, and other factors which would cause actual results to differ materially from those states in such statements. Such risks, uncertainties and factors include, but are not limited to, the following: (1) there can be no assurance that the Company will grow profitably or manage its growth, (2) risk associated with acquisitions, (3) competition, (4) the Company"s quarterly results have fluctuated in the past and are expected to fluctuate in the future, (5) the loss of services of key individuals which could have a material adverse effect on the Company"s business, financial condition or operating results, (6) risks associated with operating in emerging countries.
General
The Company is a solar engineering - water management company with high-powered solar technology providing solutions to water supply problems. Until the first quarter of 2002, it had been a development-stage enterprise organized to design, develop, manufacture and market solar water pumping systems. Its business was focused exclusively on helping developing countries with water and power problems. Its solar water pumping systems were capable of running only small pumps that were adequate to meet the needs of villages and rural communities in developing countries. The Company continues to seek opportunities throughout the world, including the Philippines, Sri Lanka and East Africa. Through research and development, the Company"s technology is now capable of operating up to 600 horsepower pumps for irrigation, refrigeration and water utility pumping systems. This increased power capability coupled with growing energy shortages in the United States has opened domestic market opportunities that have become the principal focus of its business. Throughout 2003, the Company intends to focus efforts on the enhancement and aggressive implementation of its marketing program, which includes institutional public and private commercial markets in California, New Jersey and other states that offer incentives for alternative power sources.
Results of Operations:
Year ended December 31, 2002 ("Fiscal 2002") Year ended December 31. 2001 ("Fiscal 2001")
Revenue
For the year ended December 31, 2002 net revenues increased to $643,541 as compared to $241,045 for the year ended December 31, 2001. Equipment sales and grant revenue for the year ended December 31, 2002 were $386,916 and $256,625 as compared to $118,212 and $122,833 for the year ended December 31, 2001. Equipment sales increased by $268,704 or 227% as compared to the previous year and grant revenue increased by $133,792 or 109%.
In January of 2002, the Company began work on a water and power feasibility study for the Government of the Philippines (Department of Agriculture) funded by the U.S. Trade and Development Agency (USTDA) in the amount of $302,500. During 2002, the Company realized $256,625 of revenue from this grant entered into by and between the Philippines National Irrigation Administration and the Company for the preparation of a feasibility study on the Mindanao Appropriate Irrigation Technologies for Enhanced Agricultural Production project. A nationwide irrigation development project is scheduled to follow on completion of the study. The Company also began work installing its first solar pumping system in the community of Ronda on the island of Cebu, Philippines.
Early in 2002, the Company addressed the uncertainty of oversees market fluctuations with a new focus on domestic business. During the fourth quarter of 2002, the Company completed installation of its first AquaMax(TM) system powering a 50 horsepower irrigation pump at a ranch located in California which amounted to $293,000 of revenue. Also in California, the Company began implementation of a 300 horsepower solar powered system for a food processing refrigeration unit ($891,000 contract) and instituted engineering and planning for four pumping systems of 300 and 500 horsepower for a water utility district in California ($4 million contract). In New Jersey, the first contract was signed with an organic farm ($177,000) where work is underway with anticipated completion in March 2003. With the current backlog of orders which total more than $5 million the Company anticipates being able to cover its fixed and variable marketing and general and administrative expenses by the third quarter of 2003. Until that time, the Company will continue to source private funding of equity and debt.
Cost of Sales and Gross Profit
Cost of sales for the years ended 2002 and 2001 were $531,188 and $181,526, respectively. Cost of sales for equipment increased $339,114 to $420,800 or 415% on a 167% increase in sales. Costs associated with grant revenue increased $10,548 on an increase of revenue of approximately 109%.
Gross profit for the years ended 2002 and 2001 was $112,353 and $59,519, respectively. Gross loss on equipment sales for the year ended December 31, 2002 was $33,884 as compared to a gross profit of $36,526 from the previous year. The gross loss in 2002 was attributable to the execution of the Company"s first installation of a 50 horsepower irrigation pump where we experienced slight cost overruns for various contracted labor. These overruns have been addressed and fixed contracting prices have now been established.
Marketing, General and Administrative
Marketing, general and administrative expenses were $1,888,552 for the year ended December 31, 2002 as compared to $1,291,635 in 2001, an increase of 46% on a 167% increase in revenue. This increase is primarily attributable to an increase in sales efforts and staffing necessary to capture the newly developed domestic market. We are gradually increasing our current staffing levels but have found it necessary to hire consultants from time to time therefore increasing this expense as compared to the same period in 2001. Assuming that the domestic business continues to grow steadily, it will be necessary to recruit additional staff to implement the contracts.
Research and Development
Research and development expenses were $169,837 for the year ended December 31, 2002 compared to $302,332 in 2001. The company introduced its new solar energy pumping technology capable of generating high power in February of 2002 at the Agricultural Expo in Tulare, California. Research and development expenses have since been lower as the company focuses its efforts on introducing this technology to the marketplace, focusing primarily in the Philippines, California and New Jersey.
Loss from Operations
Operating loss for the year ended December 31, 2002 was $1,946,036 as compared to $1,534,448 from the previous year.
Income Taxes
The Company recognized no income tax expense for 2002 and 2001 to date.
The Company participates in the State of New Jersey"s corporation business tax benefit certificate transfer program (the "Program"), which allows certain high technology and biotechnology companies to transfer unused New Jersey net operating loss carryovers and research and development tax credits to other New Jersey corporation business taxpayers. During 2002 and 2001, the Company submitted applications to the New Jersey Economic Development Authority (the "EDA") to participate in the Program and the applications were approved. The EDA then issued certificates certifying the Company"s eligibility to participate in the Program for these years.
The program requires that a purchaser pay at least 75% of the amount of the surrendered tax benefit. During 2002 and 2001, the Company sold approximately $1,448,912 and $1,729,498 of its New Jersey state net operating loss carryforwards and $12,660 and $17,001 of its research and development tax credits for $121,603 and $145,148, respectively and recognized a tax benefit for that amount.
In the event of a change in ownership, the Tax Reform Act of 1986 (the "Act") provides for a potential limitation on the annual use of net operating loss (NOL) and research and development tax credit carryforwards that could significantly limit the Company"s ability to utilize these carryforwards. Accordingly, because tax laws limit the time during which these carryforwards may be applied against future taxes, the Company may not be able to take full advantage of the net operating losses and credit carryforwards for Federal income tax purposes.
Liquidity and Capital Resources
The net increase in cash from all activities in 2002 was $122,459 as compared to net cash used of $49,114 in 2001. The cash used in operating activities was $1,479,467 compared to $882,732 in 2001. The primary increase for use of cash for operating activities is attributable to the increase in domestic sales efforts as the company takes an aggressive approach in capturing this market opportunity and the payment of accrued taxes at the beginning of the year. The cash used in investing activities was $10,663 as compared to $19,069 in 2001.
The cash provided by financing activities in 2002 was $1,608,557 as compared to $863,328 in 2001. The company continued to finance its operations through the sale of restricted stock and convertible debentures. In January 2002, the Company consummated an agreement with two related investment companies for the sale of 1,667,000 shares each of common stock for a purchase price of $250,000 each. Warrants to purchase 1,667,000 shares of common stock also were issued in the transaction. A total of 1,168,000 warrants were exercised in 2002, generating an additional $175,200 of proceeds. Under the terms of a Securities Purchase Agreement executed on November 8, 2002, the Company received $400,940 in net proceeds from a private placement offering of 10% convertible notes along with warrants to purchase 1,190,500 shares of common stock. Throughout 2002, an individual invested an additional $250,000 for 1,666,668 common shares along with warrants to purchase an additional 1,000,000 shares of common stock.
At December 31, 2002, the Company had a working capital deficiency of $1,082,224 and a stockholders" deficiency of $1,530,091. It has experienced continuing negative cash flows from operations, which have resulted in the inability to pay certain existing liabilities in a timely manner. The Company has financed operations, which historically have mainly focused on research and development, through private funding of equity and debt.
The Company expects to continue to incur losses until such time as it gains greater market acceptance of our new technology at selling prices and volumes which provide adequate gross profit to cover operating costs and generate positive cash flow. Working capital requirements will depend upon numerous factors, including the level of resources devoted to the scale-up of installation activities, and increased sales and marketing.
Management has developed a financial plan to address working capital deficiency and to increase the cash provided by financing activities. Since early 2000, this has included the issuance of restricted stock and convertible debentures. While this financial plan has sufficiently funded operations to date, that is, funding the development and introduction of its solar technology, and will continue to do so if executed successfully, the cash balance as of December 31, 2002, and the cash received subsequently, is insufficient to fund operations for the first quarter of 2003. While the Company is currently pursuing additional project and purchase order financing from banks and other parties, and believe, based upon past experience, sufficient funding may be available, it should be noted that no firm commitment for such funding currently exists.
Critical Accounting Estimates
These consolidated financials are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company"s working capital deficit and stockholder"s deficiency raises substantial doubt about the Company"s ability to continue as a going concern. Management continues to raise capital through the sale of common stock and additional borrowings. In addition, management is continuing to market their products domestically and internationally. However, there can be no assurances that the company will be successful in these efforts. The consolidated financial statements do not include any adjustments that might result from the outcome of this going concern uncertainty.
Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and the tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. Future tax benefits, such as net operating loss carryforwards, are recognized to the extent that realization of these benefits is considered more likely than not.
Contact
Tel: 609.818.0700
Fax: 609.818.0720
Pennington Bus. Park
55 Rte 31 South
Pennington, NJ 08534
USA
General
The Company is a solar engineering - water management company with high-powered solar technology providing solutions to water supply problems. Until the first quarter of 2002, it had been a development-stage enterprise organized to design, develop, manufacture and market solar water pumping systems. Its business was focused exclusively on helping developing countries with water and power problems. Its solar water pumping systems were capable of running only small pumps that were adequate to meet the needs of villages and rural communities in developing countries. The Company continues to seek opportunities throughout the world, including the Philippines, Sri Lanka and East Africa. Through research and development, the Company"s technology is now capable of operating up to 600 horsepower pumps for irrigation, refrigeration and water utility pumping systems. This increased power capability coupled with growing energy shortages in the United States has opened domestic market opportunities that have become the principal focus of its business. Throughout 2003, the Company intends to focus efforts on the enhancement and aggressive implementation of its marketing program, which includes institutional public and private commercial markets in California, New Jersey and other states that offer incentives for alternative power sources.
Results of Operations:
Year ended December 31, 2002 ("Fiscal 2002") Year ended December 31. 2001 ("Fiscal 2001")
Revenue
For the year ended December 31, 2002 net revenues increased to $643,541 as compared to $241,045 for the year ended December 31, 2001. Equipment sales and grant revenue for the year ended December 31, 2002 were $386,916 and $256,625 as compared to $118,212 and $122,833 for the year ended December 31, 2001. Equipment sales increased by $268,704 or 227% as compared to the previous year and grant revenue increased by $133,792 or 109%.
In January of 2002, the Company began work on a water and power feasibility study for the Government of the Philippines (Department of Agriculture) funded by the U.S. Trade and Development Agency (USTDA) in the amount of $302,500. During 2002, the Company realized $256,625 of revenue from this grant entered into by and between the Philippines National Irrigation Administration and the Company for the preparation of a feasibility study on the Mindanao Appropriate Irrigation Technologies for Enhanced Agricultural Production project. A nationwide irrigation development project is scheduled to follow on completion of the study. The Company also began work installing its first solar pumping system in the community of Ronda on the island of Cebu, Philippines.
Early in 2002, the Company addressed the uncertainty of oversees market fluctuations with a new focus on domestic business. During the fourth quarter of 2002, the Company completed installation of its first AquaMax(TM) system powering a 50 horsepower irrigation pump at a ranch located in California which amounted to $293,000 of revenue. Also in California, the Company began implementation of a 300 horsepower solar powered system for a food processing refrigeration unit ($891,000 contract) and instituted engineering and planning for four pumping systems of 300 and 500 horsepower for a water utility district in California ($4 million contract). In New Jersey, the first contract was signed with an organic farm ($177,000) where work is underway with anticipated completion in March 2003. With the current backlog of orders which total more than $5 million the Company anticipates being able to cover its fixed and variable marketing and general and administrative expenses by the third quarter of 2003. Until that time, the Company will continue to source private funding of equity and debt.
Cost of Sales and Gross Profit
Cost of sales for the years ended 2002 and 2001 were $531,188 and $181,526, respectively. Cost of sales for equipment increased $339,114 to $420,800 or 415% on a 167% increase in sales. Costs associated with grant revenue increased $10,548 on an increase of revenue of approximately 109%.
Gross profit for the years ended 2002 and 2001 was $112,353 and $59,519, respectively. Gross loss on equipment sales for the year ended December 31, 2002 was $33,884 as compared to a gross profit of $36,526 from the previous year. The gross loss in 2002 was attributable to the execution of the Company"s first installation of a 50 horsepower irrigation pump where we experienced slight cost overruns for various contracted labor. These overruns have been addressed and fixed contracting prices have now been established.
Marketing, General and Administrative
Marketing, general and administrative expenses were $1,888,552 for the year ended December 31, 2002 as compared to $1,291,635 in 2001, an increase of 46% on a 167% increase in revenue. This increase is primarily attributable to an increase in sales efforts and staffing necessary to capture the newly developed domestic market. We are gradually increasing our current staffing levels but have found it necessary to hire consultants from time to time therefore increasing this expense as compared to the same period in 2001. Assuming that the domestic business continues to grow steadily, it will be necessary to recruit additional staff to implement the contracts.
Research and Development
Research and development expenses were $169,837 for the year ended December 31, 2002 compared to $302,332 in 2001. The company introduced its new solar energy pumping technology capable of generating high power in February of 2002 at the Agricultural Expo in Tulare, California. Research and development expenses have since been lower as the company focuses its efforts on introducing this technology to the marketplace, focusing primarily in the Philippines, California and New Jersey.
Loss from Operations
Operating loss for the year ended December 31, 2002 was $1,946,036 as compared to $1,534,448 from the previous year.
Income Taxes
The Company recognized no income tax expense for 2002 and 2001 to date.
The Company participates in the State of New Jersey"s corporation business tax benefit certificate transfer program (the "Program"), which allows certain high technology and biotechnology companies to transfer unused New Jersey net operating loss carryovers and research and development tax credits to other New Jersey corporation business taxpayers. During 2002 and 2001, the Company submitted applications to the New Jersey Economic Development Authority (the "EDA") to participate in the Program and the applications were approved. The EDA then issued certificates certifying the Company"s eligibility to participate in the Program for these years.
The program requires that a purchaser pay at least 75% of the amount of the surrendered tax benefit. During 2002 and 2001, the Company sold approximately $1,448,912 and $1,729,498 of its New Jersey state net operating loss carryforwards and $12,660 and $17,001 of its research and development tax credits for $121,603 and $145,148, respectively and recognized a tax benefit for that amount.
In the event of a change in ownership, the Tax Reform Act of 1986 (the "Act") provides for a potential limitation on the annual use of net operating loss (NOL) and research and development tax credit carryforwards that could significantly limit the Company"s ability to utilize these carryforwards. Accordingly, because tax laws limit the time during which these carryforwards may be applied against future taxes, the Company may not be able to take full advantage of the net operating losses and credit carryforwards for Federal income tax purposes.
Liquidity and Capital Resources
The net increase in cash from all activities in 2002 was $122,459 as compared to net cash used of $49,114 in 2001. The cash used in operating activities was $1,479,467 compared to $882,732 in 2001. The primary increase for use of cash for operating activities is attributable to the increase in domestic sales efforts as the company takes an aggressive approach in capturing this market opportunity and the payment of accrued taxes at the beginning of the year. The cash used in investing activities was $10,663 as compared to $19,069 in 2001.
The cash provided by financing activities in 2002 was $1,608,557 as compared to $863,328 in 2001. The company continued to finance its operations through the sale of restricted stock and convertible debentures. In January 2002, the Company consummated an agreement with two related investment companies for the sale of 1,667,000 shares each of common stock for a purchase price of $250,000 each. Warrants to purchase 1,667,000 shares of common stock also were issued in the transaction. A total of 1,168,000 warrants were exercised in 2002, generating an additional $175,200 of proceeds. Under the terms of a Securities Purchase Agreement executed on November 8, 2002, the Company received $400,940 in net proceeds from a private placement offering of 10% convertible notes along with warrants to purchase 1,190,500 shares of common stock. Throughout 2002, an individual invested an additional $250,000 for 1,666,668 common shares along with warrants to purchase an additional 1,000,000 shares of common stock.
At December 31, 2002, the Company had a working capital deficiency of $1,082,224 and a stockholders" deficiency of $1,530,091. It has experienced continuing negative cash flows from operations, which have resulted in the inability to pay certain existing liabilities in a timely manner. The Company has financed operations, which historically have mainly focused on research and development, through private funding of equity and debt.
The Company expects to continue to incur losses until such time as it gains greater market acceptance of our new technology at selling prices and volumes which provide adequate gross profit to cover operating costs and generate positive cash flow. Working capital requirements will depend upon numerous factors, including the level of resources devoted to the scale-up of installation activities, and increased sales and marketing.
Management has developed a financial plan to address working capital deficiency and to increase the cash provided by financing activities. Since early 2000, this has included the issuance of restricted stock and convertible debentures. While this financial plan has sufficiently funded operations to date, that is, funding the development and introduction of its solar technology, and will continue to do so if executed successfully, the cash balance as of December 31, 2002, and the cash received subsequently, is insufficient to fund operations for the first quarter of 2003. While the Company is currently pursuing additional project and purchase order financing from banks and other parties, and believe, based upon past experience, sufficient funding may be available, it should be noted that no firm commitment for such funding currently exists.
Critical Accounting Estimates
These consolidated financials are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company"s working capital deficit and stockholder"s deficiency raises substantial doubt about the Company"s ability to continue as a going concern. Management continues to raise capital through the sale of common stock and additional borrowings. In addition, management is continuing to market their products domestically and internationally. However, there can be no assurances that the company will be successful in these efforts. The consolidated financial statements do not include any adjustments that might result from the outcome of this going concern uncertainty.
Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and the tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. Future tax benefits, such as net operating loss carryforwards, are recognized to the extent that realization of these benefits is considered more likely than not.
Contact
Tel: 609.818.0700
Fax: 609.818.0720
Pennington Bus. Park
55 Rte 31 South
Pennington, NJ 08534
USA