18.6.2004: Meldung: WorldWater Corp.: Quarterly Report
Statements in this quarterly Report on Form 10-QSB concerning the Company"soutlook or future economic performance; anticipated profitability, grossbillings, commissions and fees, expenses or other financial items; andstatements concerning assumptions made or exceptions to any future events,conditions, performance or other matter are "forward looking statements" as thatterm is defined under the Federal Securities Laws. Forward looking statementsare subject to risks, uncertainties, and other factors that could cause actualresults to differ materially from those stated in such statements. Such risks,uncertainties and factors include, but are not limited to, (1) that there can beno assurance that the Company will grow profitably or manage its growth, (2)risks associated with acquisitions, (3) competition, (4) the Company"s quarterlyresults 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 adverseeffect on the Company"s business, financial condition or operating results and(6) risks associated with operating in emerging countries.
WorldWater Corp. is an international solar engineering and water managementcompany with unique, high-powered solar technology providing solutions to watersupply and energy problems. Until 2002, the Company was a development-stageenterprise organized to design, develop, manufacture and market solar waterpumping systems, and focused exclusively on helping developing countries withwater and power problems. Through research and development, the Company"sproprietary solar technology developed the capability in 2002 of operating pumpsand motors up to 600 horsepower for irrigation, refrigeration and water utilitypumping systems. This increased power capability, coupled with growing energyshortages in the United States, has opened domestic market opportunities thathave now become the principal focus of its business. Throughout 2004, theCompany intends to focus efforts on the enhancement and aggressiveimplementation of its marketing program domestically and internationally. In theU.S., this includes institutional public and private commercial markets,particularly in California, New Jersey and other states which offer incentivesfor renewable energy sources. The Company continues to seek opportunitiesthroughout the world, including the Philippines, where it maintains nationwideoperations, the Middle East (most particularly, Iraq), and Africa.
RESULTS OF OPERATIONS
For the three months ended March 31, 2004 net revenues decreased to $780,846 ascompared to $1,098,345 for the same period of 2003. Equipment sales and grantrevenue for the period ended March 31, 2004 were $675,380 and $105,466 ascompared to $1,066,900 and $31,445 for the period ended March 31, 2003.Equipment sales decreased by $391,520 or 37% as compared to the previous yearand grant revenue increased by $74,021 or 235%.
In the first quarter of 2003, WorldWater installed its first solar refrigerationsystem, which drives a 350 hp solar-powered compressor pump, at a foodprocessing facility near Bakersfield, CA - in the amount of $913,749 in revenue.During the fourth quarter of 2003, WorldWater participated in the successful bidfor the largest PV installation on a U.S. community college campus at Cerro CosoCommunity College, Ridgecrest, CA. The Company is the exclusive PV systemssupplier for the one-megawatt system with a total purchase order of $4.1million. During the first quarter of 2004, the Company began supplying PVequipment to Contra Costa Electric the prime contractor to Cerro Coso CommunityCollege for the one mega-watt project scheduled for completion in the thirdquarter 2004. The amount of revenue recorded for this project during thefirst quarter was $675,380 of which all was subsequently collected.
The Company also entered the New Jersey agricultural market in 2003. The NewJersey Board of Public Utilities (BPU) has authorized a comprehensive range ofincentives. The Company was awarded a renewable energy economic developmentgrant through the BPU in the amount of $300,234. During the first quarter of2004, the Company recognized $105,466 of grant revenue related to this award ofwhich all was subsequently collected.
Cost of Sales and Gross Profit
Cost of sales for the quarter ended March 31, 2004 and 2003 were $725,631 and$741,223, respectively. Cost of sales for equipment decreased $73,304 to$643,854 on a 37% decrease in equipment sales. Costs associated with grantrevenue increased $57,712 on an increase of revenue of approximately 235%.
Gross profit for the quarter ended March 31, 2004 and 2003 was $55,215 and$357,122, respectively. Gross profit on equipment sales for the first quarterwas $31,526 or 5% as compared to $349,742 or 33% from the previous year. Thelower profit margin experienced in the first quarter of 2004 is attributed tothe Company participating as a PV systems supplier as compared to supplying andinstalling the system as was the case during the first quarter of 2003.
Marketing, General and Administrative
Marketing, general and administrative expenses were $830,138 for the quarterended March 31, 2004 as compared to $727,140 in 2003, an increase of 15%. Thisincrease is primarily attributable to an increase in sales efforts and staffingnecessary to capture the newly developed domestic market. We are graduallyincreasing our current staffing levels, but have found it necessary to hireconsultants from time to time, therefore increasing this expense as compared tothe same period in 2003. Assuming that the domestic business continues to grow,it will be necessary to recruit additional staff to implement the contracts.
Research and Development
Research and development expenses were $38,069 for the quarter ended March 31,2004 compared to $87,679 in 2003. During the first quarter of 2004 the Companyallocated $20,000 of its research and development resources toward the State ofNew Jersey"s renewable energy economic development grant.
Loss from Operations
Operating loss for the quarter ended March 31, 2004 was $812,992 as compared to$457,697 from the previous year.
The Company recognized no income tax (benefit) expense for the first quarter of2004 to date.
The Company participates in the State of New Jersey"s corporation business taxbenefit certificate transfer program (the "Program"), which allows certain hightechnology and biotechnology companies to transfer unused New Jersey netoperating loss carryovers and research and development tax credits to other NewJersey corporation business taxpayers. During 2004, the Company intends tosubmit applications to the New Jersey Economic Development Authority (the "EDA")to participate in the Program again for tax losses incurred in 2002 and 2003.Upon approval the EDA issues certificates certifying the Company"s eligibilityto participate in the Program for these years.
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 couldsignificantly limit the Company"s ability to utilize these carryforwards.Accordingly, because tax laws limit the time during which these carryforwardsmay be applied against future taxes, the Company may not be able to take fulladvantage of the net operating losses and credit carryforwards for Federalincome tax purposes.
Liquidity and Capital Resources
The net increase in cash from all activities during the first quarter of 2004was $204,582 as compared to a decrease of $137,808 in 2003. The cash used inoperating activities was $1,119,722 compared to $385,697 in 2003. The primaryincrease for use of cash for operating activities is attributable to theincrease in domestic sales efforts as the Company takes an aggressive approachin capturing this market opportunity. The cash used in investing activities was$0 as compared to $18,357 in 2003.
The cash provided by financing activities during the first quarter of 2004 was$1,274,320 as compared to $268,646 in 2003. The Company continued to finance itsoperations through the sale of stock and convertible debentures. During thefirst quarter of 2004, the Company issued three year convertible notes totaling$1,262,550 to institutional and accredited investors. The notes bear interest at10% per annum payable semi-annually. Interest is payable in cash or in stock atthe election of the holder. The notes are convertible into an aggregate of8,417,000 shares of common stock at $0.15 per share. The notes are convertibleat the option of the holder, anytime after purchase. As a result of thisissuance beneficial conversion interest of $427,667 was recorded in the firstquarter of 2004. Warrants to purchase an aggregate of 5,638,667 shares of commonstock at an exercise price of $0.30 per share were issued with the convertiblenotes valued at $593,900.
At March 31, 2004, the Company had a working capital deficiency of $1,697,401and a stockholders" deficiency of $3,712,711.
The Company expects to continue to incur losses until such time as it gainsgreater market acceptance of our new technology at selling prices and volumeswhich provide adequate gross profit to cover operating costs and generatepositive cash flow. Working capital requirements will depend upon numerousfactors, including the level of resources devoted to the scale-up ofinstallation activities, and increased sales and marketing. Management hasdeveloped a financial plan to address working capital deficiency and to increasethe cash provided by financing activities. Since early 2000, this has includedthe issuance of preferred stock, restricted and non-restricted stock andconvertible debentures. The financial plan has resulted in sufficient fundingfor operations to date and is anticipated to adequately fund operating deficitsexpected to be incurred in 2004.
As part of the financial plan on April 1, 2004 the Company entered into aSecurities Purchase Agreement ("SPA") with SBI Brightline VIII LLC. Subject tothe terms of the SPA the Company may issue and sell to the Purchaser andPurchaser shall purchase from the Company up to 17,000,000 shares of commonstock in three tranches. See "Subsequent Events."
SALE OF RESTRICTED SECURITIES DURING THE FIRST QUARTER 2004
During the first quarter 2004 the Company issued three year convertible notestotaling $1,262,550 to institutional and accredited individual investors. Thenotes bear interest at 10% per annum payable semi-annually commencing July 2004.Interest is payable in cash or in shares of common stock at the election of theholder. The notes are convertible into an aggregate of 8,417,000 shares ofcommon stock at $0.15 per share. The notes are convertible at the option of theholder, anytime after purchase. As a result of this issuance beneficialconversion interest of $427,667 was recorded in the first quarter of 2004.Warrants to purchase an aggregate of 5,638,667 shares of common stock at anexercise price of $0.30 per share were issued with the convertible notes valuedat $593,900.
During the first quarter of 2004 the Company sold 1,000,000 restricted commonstock shares through a private placement at $0.15 per share to an accreditedinvestor totaling $150,000. Warrants to purchase an aggregate of 670,000 sharesof common stock at an exercise price of $0.20 per share were issued with thestock purchase and are valued at $80,400.
During the first quarter of 2004 the Company issued 525,000 warrants to purchasecommon stock at $0.15 per share to shareholders as consideration for extensionof loans totaling $150,000 originally payable in December 2003. The warrantissuance will result in $58,000 of recorded interest expense in the firstquarter of 2004. Also, as consideration for loans totaling $70,000 common stockshares in the amount of 375,000 were issued and will be recorded as $55,500 ofcompensation expense in the first quarter of 2004. The loans were paid in Aprilof 2004.
In March of 2004 the Company issued 150,000 common stock shares to a Swissinvestor relations firm, $25,500 of compensation expense will be recorded.
Also in March of 2004, an employee exercised 33,333 stock options exercisable at$0.15 per share totaling $5,000.
During the first quarter of 2004 a warrant in the amount of 100,000 sharesexercisable at $0.15 per share was exercised for a total of $15,000.
These transactions did not involve a public offering and therefore were exemptfrom registration pursuant to Section 4(2) of the Securities Act of 1933, asamended (the "Act").
On April 1, 2004 the Company entered into a Securities Purchase Agreement (SPA)with SBI Brightline VIII LLC ("Purchaser"). Subject to the terms of the SPA theCompany may issue and sell to the Purchaser and Purchaser shall purchase fromthe Company up to 17,000,000 shares of common stock in three tranches withwarrant consideration as defined below:
NUMBER OF SHARES NUMBER OF WARRANTS TRAUNCHE AND WARRANTTRAUNCHE NO. INCLUDED IN TRAUNCHE INCLUDED IN TRAUNCHE PURCHASE PRICE----------- ------------------- ------------------- ----------------------- 1 7,000,000 2,100,000 $0.17 2 5,000,000 1,500,000 $0.22 3 5,000,000 1,500,000 $0.27
The Company intends to sell Tranche Shares to the Purchaser subsequent to thedate on which the Registration Statement of the Company covering the resale ofthe Shares is declared effective, which is expect to be early in the ThirdQuarter of 2004. It is anticipated that all Tranche Shares shall be sold by theend of the Fourth Quarter 2004.
The trading price of our common stock during the several week period leading upto April 1, 2004 was generally greater than the price per share for the first7,000,000 shares that may be sold under our stock purchase agreement with SBI;however, our average closing price during March 2004 was slightly more than$0.20 per share and the average share price of all of the shares to be soldunder our stock purchase agreement with SBI is slightly more than $0.21 pershare.
In conjunction with the above SPA in April of 2004 the Company entered into aTerm Loan with HIT Credit Union and Hong Kong League Central Credit Union (the"Lenders") and SBI Advisors, LLC as agent for the Lenders for $800,000. TheTerm Loan shall be repaid as follows: $400,000 of the principal amount will bedue and payable within three days after receipt by the Borrower of the proceedsfrom the $0.17 Tranche as per the SPA and the remaining unpaid principal andaccrued interest on the Term Loan shall be payable October 2004. The Term Loanbears interest at 18% per annum. SBI Advisors, LLC received a five yearwarrants to purchase 400,000 common stock shares exercisable at $0.30 asplacement agents for this transaction, $108,000 of compensation expense wasrecorded in the first quarter of 2004. These warrants will be included in theabove mention Registration Statement
The above transactions did not involve a public offering and therefore wereexempt from registration pursuant to Section 4(2) of the Securities Act of 1933,as amended (the "Act").
PART I. - ITEM 3.
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. An evaluation wasperformed under the supervision and with the participation of the Company"smanagement, including the Chief Executive Officer (CEO) and Principal FinancialOfficer, of the effectiveness of the design and operation of the Company"sdisclosure controls and procedures within 90 days before the filing date of thisForm 10-Q. Based on their evaluation, the Company"s principal executive officerand principal financial officer have concluded that the Company"s disclosurecontrols and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under theSecurities Exchange Act of 1934 (the "Exchange Act") are effective to ensurethat information required to be disclosed by the Company in reports that itfiles or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in Securities and Exchange Commissionrules and forms.
(b) Changes in internal controls. There have been no significant changesin the Company"s internal controls or in other factors that could significantlyaffect internal controls subsequent to their evaluation. There were nosignificant deficiencies or material weaknesses, and therefore there were nocorrective actions taken.
Pennington Bus. Park
55 Route 31 South
Pennington, NJ 08534