-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pp4ZmmQi2cyuAT/ZlKxmpuDqNv15jnO8iNqP4u42Cp2RE+vAt0hXSceJdP+CAYc+ 6p7u/qAef+djN32fhecPKQ== 0001104659-08-020803.txt : 20080328 0001104659-08-020803.hdr.sgml : 20080328 20080328165403 ACCESSION NUMBER: 0001104659-08-020803 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080328 DATE AS OF CHANGE: 20080328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLDWATER & SOLAR TECHNOLOGIES CORP. CENTRAL INDEX KEY: 0000811271 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 330123045 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16936 FILM NUMBER: 08720160 BUSINESS ADDRESS: STREET 1: 200 LUDLOW DRIVE CITY: EWING STATE: NJ ZIP: 08638 BUSINESS PHONE: 6098180700 MAIL ADDRESS: STREET 1: 200 LUDLOW DRIVE CITY: EWING STATE: NJ ZIP: 08638 FORMER COMPANY: FORMER CONFORMED NAME: WORLDWATER & POWER CORP DATE OF NAME CHANGE: 20051110 FORMER COMPANY: FORMER CONFORMED NAME: WORLDWATER CORP DATE OF NAME CHANGE: 19971027 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN BEVERAGE COMPANY DATE OF NAME CHANGE: 19920703 10-K 1 a08-8311_110k.htm 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

Commission file number: 000-16936

WorldWater & Solar Technologies Corp.

(formerly WorldWater & Power Corp.)

(Name of issuer in its charter)

Delaware		33-0123045
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

200 Ludlow Drive, Ewing, NJ		08638
(Address of principal executive offices)		(Zip Code)

Issuer’s telephone number (609) 818-0700

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer x		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The issuer’s revenues for its most recent fiscal year was $18,466,020.

On June 29, 2007 the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $227,009,279.

As of February 29, 2008 the Registrant had outstanding 189,352,674 shares of Common Stock and 6,778,989 shares of Preferred Stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

PART I							3
			ITEM 1. BUSINESS				3
	a)				Overview		3
	b)				Major Customers By Geographic Location		4
	c)				Implementation Strategy		6
	d)				Products and Services		7
	e)				Marketing		8
	f)				Research and Development		9
	g)				Intellectual Property		9
	h)				Source And Availability of Components		9
	i)				Competitive Conditions Affecting the Company		10
	j)				Subsidiaries		10
	k)				Government Regulations		10
	l)				Employees		10
	m)				Risks and Uncertainties		10
		ITEM 1A. RISK FACTORS					12
			ITEM 1B. UNRESOLVED STAFF COMMENTS				20
			ITEM 2. PROPERTIES				20
			ITEM 3. LEGAL PROCEEDINGS				21
			ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS				21
PART II							21
			ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES				21
	a)				Price Range of Common Stock		21
	b)				Holders of Common Stock		22
	c)				Dividends		22
	d)				Preferred Stock		22
		ITEM 6. SELECTED FINANCIAL DATA				24
			ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS				24
				OVERVIEW			24
				CRITICAL ACCOUNTING POLICIES AND ESTIMATES			25
				REVENUE RECOGNITION			26
				ALLOWANCE FOR DOUBTFUL ACCOUNTS			26
				ACCOUNTING FOR INCOME TAXES			26
				RESULTS OF OPERATIONS OF YEARS ENDED DECEMBER 31, 2007 AND 2006			28
				COMPARISON OF YEARS ENDED DECEMBER 31, 2007 AND 2006			29
				RESULTS OF OPERATIONS OF YEARS ENDED DECEMBER 31, 2006 AND 2005			30
				COMPARISION OF YEARS ENDED DECEMBER 31, 2006 AND 2005			31
				HISTORICAL CASH FLOW ANALYSIS			33
				LIQUIDITY AND CAPITAL RESOURCES			34
				COMMITMENTS AND GUARANTEES			36
				INCOME TAXES			36
				ACQUISITION			36
				RECENT ACCOUNTING PRONOUNCEMENTS			37
			ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK				38
			ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA				39
			ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE				70
			ITEM 9A. CONTROLS AND PROCEDURES				70
PART III							71
			ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE				71
			ITEM 11. EXECUTIVE COMPENSATION				74
			ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS				79
			ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE				80
			ITEM 14. PRINCIPAL ACCOUNTANT STATEMENT FEES AND SERVICES				81
			ITEM 15. EXHIBITS AND FINANCIAL SCHEDULES				82

PART I.

ITEM 1. BUSINESS

a) OVERVIEW

WorldWater & Solar Technologies Corp. (“WorldWater/Company”) is an international solar engineering and project management company with unique, high-powered solar electric technology and expertise, providing alternative energy solutions to a wide variety of customers in both domestic and international markets. Until 2002, WorldWater’s business was focused exclusively on providing developing countries with water and power solutions. Since then, following power advances in its technology, the Company has placed increasing emphasis on domestic markets, principally in California, New Jersey, and their surrounding states, and is addressing the needs of residential, commercial and industrial customers, in both the public and private sectors. The Company will continue to selectively submit proposals to various foreign governments in need of solving critical water supply and energy problems using the Company’s proprietary solar technology.

With significantly rising energy prices and related shortages, along with significant state and federal incentives, and utility company rebate programs, domestic markets have emerged as the Company’s highest priority. The Company believes it is uniquely positioned to deliver a wide range of product and service offerings, from solar-powered equipment and installations, both fixed and mobile, to large-scale, turnkey solar energy and water system solutions, specializing in variable frequency drive (VFD) applications that deliver high customer value. The foundation and enabler for these offerings is WorldWater’s substantial technical expertise and proprietary solar technology, including its AquaMax™ System, AquaDrive™ Controller, AquaMeter™ Water Meter, and MobileMaxPure™.

The Company’s patented AquaMax™ solar electric system, capable of operating pumps and motors up to 1,000 hp for irrigation, refrigeration and cooling, and water utilities, make it a breakthrough product delivering mainstream pumping capacity powered by solar technology. The AquaMax™ System has an electronic board that reads and translates the output of direct current (DC) from solar panels, converting the flow into alternating current (AC) for delivery to the electric grid, water pumps or any 3-phase AC motor. These hybrid solar irrigation pumps are able to operate on solar alone or in combination with the electric grid or diesel generators. Among the unique advantages of the Company’s proprietary solar technology is that, in the event of a grid outage, load can be seamlessly and automatically transferred to the solar electric system for continued operation without interruption and without operator intervention.

WorldWater’s proprietary technology permits the use of high power (up to 1,000 hp) AC motors and pumps, an option previously unavailable from solar power. AC pumps are widely available in countries throughout the world, allowing replacement pumps and parts to be supplied on a local basis. Other forms of solar-powered photovoltaic (PV) pumping systems currently available use less reliable and less durable DC pumps or custom AC pumps, which are more costly and not commonly in use.

By employing the hybrid AquaMax™ irrigation system, which can operate motors up to 1,000 horsepower by sunshine alone or in combination with the existing electric grid or diesel, a farmer can irrigate at little or no additional cost over what is paid currently for irrigation powered by grid electricity. There is limited ongoing maintenance cost associated with the sun power source used to drive the irrigation equipment.

When a farmer is not irrigating, the sun is developing electricity through WorldWater’s system, and the power is returned to the electric utility for credit, a form of storage for later use, or for direct utility bill credit (depending upon the state). This process is called net metering and is already in operation in New Jersey and California as well as 38 other states. By automatically switching between solar and other power sources, the AquaMax™ enables a farmer to protect against a loss of irrigation ability during daylight power shortages or blackouts. The functionality of this technology goes far beyond the agricultural applications and is extremely well-suited for a wide range of industrial and commercial uses.

WorldWater’s continuing commitment to its technology and innovation is demonstrated in the development of the MobileMaxPure™, a self-contained, trailer-mounted solar-powered system designed to pump and purify water for both drinking and food preparation. This system has the ability to draw surface water from contaminated city resources, lakes, streams, canals, ponds, rivers, wells or other sources and turn it into clean, drinkable water for thousands of people per day. A predecessor of Mobile MaxPure was and is still being used in the recovery efforts in Waveland, MS in the U.S. Gulf Coast in the wake of Hurricane Katrina.

modules is required by current ENTECH modules to generate the same electrical power. Consequently, the ENTECH technology greatly lessens the impact of the silicon material shortage currently constricting flat plate solar panel supply. ENTECH concentrators utilize a two-axis tracker to follow the sun’s position throughout the day, maximizing energy production.

ENTECH’s technology can produce photovoltaic electricity, or thermal energy (heat) for commercial uses such as for heating and/or air conditioning. When applied in a combined fashion for onsite power applications, the cost to the customer can be significantly less for electricity generated and for BTU’s of heat provided versus separate competing systems currently on the market while being competitive with current retail energy prices.

ENTECH will maintain its identity, location, and business operations in both terrestrial and space solar energy. The Company anticipates, but can provide no assurance, ENTECH will continue to perform its contract work for NASA, the U.S. Department of Defense, and other customers, as well as its internal R&D programs leading to improved future products.

The Company was incorporated in the state of Nevada on April 3, 1985 under the name of Golden Beverage Company. In April 1997, the Company entered into a reverse merger transaction with WorldWater, Inc., a Delaware corporation formed in January 1984. Since the merger transaction, the Company, operating under the name of WorldWater Corp., has been engaged exclusively in the solar/water power industry. In June of 2000, the Company shareholders voted to change the state of incorporation from Nevada to Delaware. In June 2005, the Company shareholders voted to change the name to WorldWater & Power Corp. from WorldWater Corp. Effective May 2, 2007 the Company announced that the Board of Directors had approved a change in its corporate name to WorldWater & Solar Technologies Corp. On September 7, 2007, legal confirmation of the name change was confirmed. The Company stock is publicly traded on the NASDAQ OTC Bulletin Board under the symbol WWAT.OB.

The Company’s executive office, research and development facility is located at 200 Ludlow Drive, Ewing, New Jersey 08638. WorldWater conducts research and designs, develops and markets proprietary technology relating to solar energy and water engineering, including solar power projects and international water management consulting, at this location.

b) MAJOR CUSTOMERS BY GEOGRAPHIC LOCATION

CALIFORNIA

The Company entered the California agriculture market in 2002 with the implementation of a 50 hp irrigation pumping system for a cotton farm in the San Joaquin Valley. In 2003, WorldWater installed its first solar refrigeration system at a food processing facility near Bakersfield, CA. In the first half of 2004, WorldWater supplied a one megawatt (MW) solar electric system at Cerro Coso Community College, Ridgecrest, CA, the largest PV installation on a U.S. community college campus. In December 2004, WorldWater completed the installation of a major solar irrigation pumping system at a citrus ranch in San Diego County, CA, which powers a 200 hp irrigation pump.

Consistent with the Company’s focus on domestic projects, and specifically in California, and surrounding states, WorldWater, in September 2005, through its wholly-owned subsidiary, WorldWater Holdings Inc., acquired the assets of MJD Solutions, Inc., a Nevada Corporation, doing business as Quantum Energy Group (Quantum). Quantum, based in Applegate, California, is a solar energy, construction and project management company, and will assist in the sales, design and installation of residential, commercial, and institutional solar projects.

During 2007, the Company completed four commercial projects with recognized revenue of $406,488 and had one commercial project in progress as of December 31, 2007, with recognized revenue of $13,347,523. The Company completed fifteen residential projects with aggregate revenue of $666,657 in 2007. The Company had one residential project under contract as of December 31, 2007 in the amount of $34,326. This project is expected to be completed in the first quarter of 2008.

COLORADO

On March 5, 2008, the Company announced that it has broken ground on the 2-Megawatt solar system for Denver International Airport (DIA). The solar installation will supply 3.5 million kilowatt-hours of clean energy annually for the airport and is valued at over $13 million. Since first announced last year, the project faced some unavoidable delays but is now scheduled for completion by August, in time for the Democratic National Convention. DIA is the fifth busiest international airport in the U.S. and served nearly 50 million passengers in 2007.

NEW JERSEY

The Company entered the New Jersey agricultural market in 2003 with the completion of a 24 kW solar electrical system at Flatbrook Farm, an organic meat and poultry farm in Montague, NJ. The New Jersey Board of Public Utilities (BPU) has authorized a comprehensive range of incentives which took effect in January 2004 and which will support more than $600 million worth of new PV installations in the state over the next five years. The Company has made New Jersey a target state for the commercial and residential markets.

14 commercial projects were completed in 2007 with recognized revenue of $2,691,901.

The company recognized revenue of $34,453 in 2007 from a NJBPU grant that is for research in the development of cost effective, grid-tied motor drives for photovoltaic applications.

Three residential projects, with recognized revenue of $323,720 in 2007, were completed as of December 31, 2007.

In the fourth quarter of 2007, the Company recognized revenue on twelve units of Mobil MaxPure^®, via a related party sale to a principal shareholder, in the amount of $900,000.

The company had one additional contract signed in the first quarter of 2007. This $5,660,928 contract is for a 700 kW DC solar power generation system. The contract is subject to financing by the customer and approval of a rebate by the New Jersey Board of Public Utilities as of December 31, 2007.

TEXAS

The Company completed one project in the first quarter of 2007 in Texas, with recognized revenue of $51,274.

INTERNATIONAL

WorldWater operated in the Philippines from 1997 to 2006 when the Company delivered 25 solar powered pumps for installation by the National Irrigation Authority (NIA) under a directive from former President Fidel V. Ramos. The Company had a Philippine subsidiary, WorldWater (Phils) Inc. from 1997 to 2006. The Company is evaluating its Philippine strategy and, as of December 31, 2006, the Company has written down all non-cash assets of the subsidiary. The company does not plan on doing any business in the Philippines in 2008.

In 2005, the Company was awarded a $360,000 grant by the U.S. Trade and Development Agency (USTDA) to support completion of a pilot project for water supply in Sri Lanka. Billings of $213,054 were rendered as of December 31, 2006. Revenue of $3,348 was recognized in 2007. The project is designed to assess the hydro-geological conditions of the project area, and to provide safe, sustainable water supplies to people in six villages near the tsunami-ravaged southern coast of Sri Lanka. Subject to satisfactory results of WorldWater’s ground water assessment study, WorldWater anticipates further contracts with the Ministry of Urban Development and Water Supply to pump and deliver water to 13,600 people in approximately 4,000 households in the six villages through use of its AquaMax™ solar water pumping systems.

ACQUISITION

In June, 2006, the Company announced that it entered into a letter of intent with ENTECH, Inc., based in Keller, Texas, to acquire all the outstanding stock of ENTECH upon completion of the necessary due diligence and after obtaining appropriate financing. ENTECH, a private company formed in 1983, is a developer and manufacturer of advanced concentrating solar photovoltaic and thermal technologies for terrestrial and space power applications. ENTECH has developed concentrator solar power systems, supplied solar power for space missions for NASA, and installed ground-based concentrating solar systems in North America.

To obtain the exclusive opportunity through December 31, 2006 to conduct due diligence, the Company made a $500,000 non-refundable payment to ENTECH in 2006. From June 2006 through early 2007, we performed due diligence review of business, legal and financial matters relating to the acquisition of ENTECH, and negotiations were ongoing regarding the terms of definitive agreements, however, no agreement was completed as originally anticipated under the original letter of intent.

ENTECH entered into an Agreement and Plan of Merger. The merger was completed on January 28, 2008. Specifically, ENTECH merged with and into a wholly-owned subsidiary of the Company and the subsidiary survived the merger as a wholly-owned subsidiary of the Company. Under the terms of the merger agreement, WorldWater paid the following consideration to ENTECH stockholders in 2008:

· $4.5 million in cash, (in addition to, $500,000 that was paid during 2007), and

· 19,672,131 shares of the Company’s common stock for an aggregate value of $42,295,082. This determination of value is based on a $2.15 per share value of the Company’s common stock, which was its estimate of the fair market value of its common stock for a reasonable period before and after the date of merger agreement, October 29, 2007.

Additionally, the ENTECH stockholders are entitled to receive future earn-out consideration calculated as 5% of Merger Sub’s gross revenues determined in accordance with generally accepted accounting principles until the accumulated total of such earn-out payments paid by WorldWater to the ENTECH stockholders equals $5.0 million. WorldWater also was responsible for the payment of $1.3 million of ENTECH’s liabilities, which was paid at the closing on January 28, 2008.

With the combined technologies of the Company and ENTECH, the Company believes its solar systems will be capable of generating and delivering electrical and thermal energy on site at prices competitive to retail prices without relying on government sponsored rebates. ENTECH’s patented concentrator technology allows for the installation of large solar “farms” with greatly reduced requirements for solar cell materials (silicon or multi-junction). Due to the advantages of ENTECH’s concentrator, a significantly lesser amount of silicon used in flat plate solar modules is required by current ENTECH modules to generate the same electrical power. Consequently, the ENTECH technology greatly lessens the impact of the silicon material shortage currently constricting flat plate solar panel supply. ENTECH concentrators utilize a two-axis tracker to follow the sun’s position throughout the day, maximizing energy production.

ENTECH will maintain its identity, location, and business operations in both terrestrial and space solar energy. The Company anticipates that ENTECH will continue to perform its contract work for NASA, the U.S. Department of Defense, and other customers, as well as its internal R&D programs leading to improved future products.

In addition to the $500,000 non-refundable standstill payment to ENTECH in 2006, we made another $500,000 standstill payment in the second quarter 2007 which was released to the ENTECH stockholders prior to the completion of the merger transaction. Due diligence fees of $411,442 through December 31, 2007 and along with the two $500,000 payments to ENTECH, resulted in a capitalized amount of $1,411,442, which has been included in Deferred costs and advances to acquiree – ENTECH on the Consolidated Balance Sheet. Such amount will be added to the total purchase price consideration.

In addition to the consideration to be paid to ENTECH’s stockholders, WorldWater was required to provide to ENTECH $5.0 million of working capital to provide research and development engineering related to the implementation of a new manufacturing plant in Texas. Approximately $2.7 million of working capital was provided to ENTECH as of December 31, 2007, of which $500,000 was expensed as research and development expense on WorldWater’s Statement of Operations in the quarter ending September 30, 2007. The balance of such funds was recorded as tangible assets or was in the bank accounts of ENTECH as of the acquisition date. The remaining $2.3 million of working capital was provided to ENTECH subsequent to December 31, 2007 and prior to the merger which was completed on January 28, 2008.

c) IMPLEMENTATION STRATEGY

James S. Farrin was appointed Interim CEO on January 23, 2006, with Quentin T. Kelly, the founder of the Company, retaining the Chairman’s role.

Mr. Farrin established a strategy direction which was to optimize 2006 revenue by focusing the sales force on two states, New Jersey and California, and the engineering/operations department on effective implementation of booked projects.

In accordance with his contract, James Farrin left the company effective January 23, 2007. Mr. Farrin has continued to assist the Company, in the role of consultant.

Upon Mr. Farrin’s departure, Mr. Kelly resumed the role of CEO.

On March 14, 2008 the Company announced that its Chief Executive Officer, Quentin T. Kelly was resigning his position as CEO effective March 20, 2008; Mr. Kelly will remain as a non-executive Chairman. Mr. Kelly’s contract compensation package and stock options will not be affected as he will continue to provide services to the Company.

Frank Smith joined the company in the position of COO effective February 5, 2007 with the mission to develop the sales, marketing and operational infrastructure required to take the company to $100 million in revenue. Effective March 21, 2008 Dr. Smith was promoted to CEO. As the finance and human resource areas were simultaneously improved by the Chief Financial Officer, Larry Crawford, through the addition of a new IT system, SOX implementation and additional financial professionals, Frank Smith added significantly to the company’s engineering, sales and operational capabilities through strategic additions in those areas.

On January 28, 2008, the Company completed the acquisition of ENTECH, Inc. With the combined technologies of the Company and ENTECH, we believe our solar systems will be capable of generating and delivering electrical and thermal energy on site at prices competitive to retail prices without relying on government sponsored rebates. ENTECH’s patented concentrator technology allows for the installation of large solar “farms” with greatly reduced requirements for solar cell materials (silicon or multi-junction). Due to the advantages of ENTECH’s concentrator, a significantly lesser amount of silicon used in flat plate solar modules is required by current ENTECH modules to generate the same electrical power. Consequently, the ENTECH technology greatly lessens the impact of the silicon material shortage currently constricting flat plate solar panel supply. ENTECH concentrators utilize a two-axis tracker to follow the sun’s position throughout the day, maximizing energy production.

The Company is implementing appropriate processes, policies, and procedures to make the Company more effective and to increase productivity. In addition, the Company is improving the organization by making key additions to the infrastructure, especially project managers and application engineers to better handle the increasing load of projects to be implemented.

d) PRODUCTS AND SERVICES

SOLAR POWER SYSTEMS

WorldWater’s photovoltaic (PV) net-metering systems are designed to “zero out” electrical usage charges for residential, commercial, industrial, and governmental applications. Such electrical usage charges are reduced and potentially eliminated because the systems generate clean electricity from the sun and, when the power from the sun exceeds the amount consumed by the facility, are able to “spin the meter backwards,” thus accumulating credit from the local electric utilities. These systems allow organizations to manage their present and future energy costs by significantly reducing the energy purchased from the utility. Therefore, hedging escalation of electricity charges over time, the net-metered client will be significantly less affected.

SOLAR WATER SYSTEMS

AquaMax™ high-yield hybrid irrigation pumps take solar water pumping systems to unprecedented production levels. WorldWater has the technological capability to drive motors and pumps up to 1,000 hp, delivering thousands of gallons of water per minute by solar energy alone, or in automatic combination with the electric grid or diesel generators. Irrigating fields in remote areas with solar power requires no fuel costs, limited maintenance, while generating no noise and no pollution. With WorldWater’s hybrid systems, if sunlight is not available or decreases as a result of cloud cover, the AquaMax™ can automatically switch to an alternate power source: diesel generation, batteries, or the electric grid.

The patented AquaDrive™ controller converts solar DC current to AC, then supplies the AC power to a motor or pump from either the solar array or the grid (or other sources such as diesel generators, wind generators, etc.) or simultaneously from both sources. The hybrid operation is programmed to be completely automatic so manual intervention is not required to switch from one power source to the other.

WorldWater has crossed another technological threshold in the deployment and use of photovoltaics into previously conventional electricity areas. Idyllwild Water District in California is the first water utility to be fully self-sustainable by solar power, in addition to saving up to 70% of the electricity costs of its operation. WorldWater’s technology runs its booster pumps and operates its major wells while also is available to perform net metering and provide back-up power capability in the event of grid power interruption. Should the grid fail, disengagement from the grid will occur and power will be assumed by the solar equipment, allowing operations to continue running until the electric grid is restored, with solar power eliminating the use of diesel or natural gas during this potentially peak demand period. WorldWater believes it is uniquely positioned to provide this service to the water utility market, as well as the agricultural market.

Mobile Max Pure® is a portable, solar-powered pumping and water purification system. A self-contained, stand-alone unit, the Mobile Max Pure® also is equipped with a satellite-based communications system and a 3KW inverter with battery bank for emergency power needs. Compact and rugged, easy to operate and maintain, the Mobile Max Pure® harnesses the power of the sun to bring water and electricity to those in need.

The Mobile Max Pure® unit is capable of purifying up to 30,000 gallons of potable water daily and can draw from both surface and well water sources. It can be powered by solar power alone or in combination with an optional back-up generator. The Mobile Max Pure® water purification system incorporates a multi-stage micro filtration process and ultraviolet light treatment to sanitize water contaminated by dirt, silt, bacteria, cysts, parasites, viruses and other pathogens.

Mobile MaxPower™ is a 1.3 kilowatt solar array that feeds electric current through WorldWater’s patented AquaMax™ technology, which then pumps 200 gallons of water per minute from any water source, deep or surface. The unit is built into a 21-foot trailer for portability.

e) MARKETING

Today, the price of the WorldWater commercial systems marketed in California and New Jersey ranges from approximately $300,000 to several million dollars. Residential solar installations average $30,000 to $50,000. In California, WorldWater has a sales and technical support office in Applegate, north of Sacramento. WorldWater’s east coast and international operations are managed from its headquarters in Ewing, New Jersey.

The market for the photovoltaic industry is significantly increasing, aided by steep increase in oil prices. The total market is expected to soar from $5 billion to $27 billion by 2020 (Source: March 2006 Electric Power Monthly published by the Energy Information Administration of the U.S. Department of Energy). Management believes that WorldWater is positioned to capitalize on this trend with its solar expertise and proprietary technology in both power and water.

WorldWater provides solar solutions for water and power by:

	·	Combining the two technological requirements of solar engineering and water engineering, thus enabling the Company to more effectively implement sustainable turnkey programs;

	·	Utilizing Company specialists to locate and evaluate power sources;

	·	Conducting site assessments to appropriately size solar electrical and water pumping and electrical systems;

	·	Installing the Company’s proprietary solar products;

	·	Focusing sufficient resources on community preparation and capacity-building for the technology;

	·	Arranging project financing.

A key marketing strategy is the utilization of strategic alliances. WorldWater, as a water and power solutions provider, has partnered with major international organizations to enhance its financing capabilities and with local organizations to enhance project implementation.

WorldWater has a longstanding relationship with the U.S.-based firm Vincent Uhl Associates for hydro-geological studies and with Morehouse Engineering, a power system controls engineering firm. The companies have collaborated successfully in a number of international markets. Vincent Uhl Associates has located, drilled and tested new groundwater sources in the Americas, Africa and Asia including a detailed analysis of the available water resources in Sri Lanka; Morehouse Engineering has teamed with the Company in Africa and Pakistan.

f) RESEARCH AND DEVELOPMENT

A key strategy of WorldWater is to continue developing innovative, cutting edge products to meet water and electricity needs with proprietary solar technology. The Company was awarded a patent in 2001 on the electronic board controller, AquaDrive™, of the AquaMax™ system. In 2003, the Company also was awarded a patent on its automatic switching technology, which enables the system to perform multiple functions such as water pumping and battery charging and also to switch automatically between solar and grid-tied, diesel or battery power sources. Through the end of 2007, the Company has been granted six patents, with five more pending (see table below).

g) INTELLECTUAL PROPERTY

WorldWater has obtained six patents and continuations-in-part for its newly developed electronics systems and has filed for protections of its patents. WorldWater engineers Thomas McNulty, Sr., Dr. Anand Rangarajan, Douglas Williams, and Quentin T. Kelly, Chairman and former Chief Executive Officer, together with Princeton University engineers, have been issued patents, all of which are assigned to WorldWater. Among other patents, the Company holds patents on the electronic board controller AquaDrive™ of the AquaMax™ system and on an electronic board that allows, in case of the interruption of service in an AC grid power system, the automatic transfer to solar-powered systems for uninterrupted operation of motors and other power loads. The following table shows the Company’s existing patents and pending patent applications.

INTELLECTUAL PROPERTY

	Domestic/
Patent Title	International	Patent File No.	Status	Expiration
Solar Thermal Powered Water Pump	Domestic	U.S. 5,163,821	Granted	2011
Bias controlled DC to AC converter and systems	Domestic	US 6,275,403	Granted	2018
Switchable Multiple Source Power Supply	Domestic	US 6,583,522	Granted	2020
Bias controlled DC to AC converter and systems	Int’l Philippines	1-1999-03261	Granted	2019
No load motor cutoff method and apparatus	Domestic		Pending
AC/DC Hybrid Power System	Domestic	US 7,145,265 B2	Granted	2025
Maximum Power Point Motor Control	Domestic	US 7,148,650 B1	Granted	2025
Multiple Motor Operation using Solar Power	Domestic		Pending
Using a Variable Frquency for Non motor Loads	Domestic		Pending
Mobile MaxPure	Domestic		Pending/Provisional
Solar Power Control Using Irradiance	Domestic		Pending

h) SOURCE AND AVAILABILITY OF COMPONENTS

The solar modules used in the Company’s systems are composed of silicon and other photovoltaic materials. Suppliers of solar modules include Sharp Electronics, GE Energy LLC, SolarWorld (formerly Shell Solar), Kyocera, BP Solar, SunTech, RWE Schott, and EMCORE Corporation (“EMCORE”). WorldWater orders solar modules and related articles from several suppliers and has not entered into any exclusive term supply contracts, except that WorldWater has entered into a letter agreement with EMCORE under which EMCORE will be the Company’s exclusive supplier of multi-junction cells subject to certain conditions.

Sub-contractors currently manufacture components of the AquaMax™ systems in the United States. WorldWater will continue to source components, specifically solar modules, worldwide, based on quality and cost considerations.

i) COMPETITIVE CONDITIONS AFFECTING THE COMPANY

The Company’s products compete with both conventional power generation and other renewable energy technologies. The main competitive technologies are fossil-fuel generators, and electric grid extension. The cost of installing a solar energy system may be more or less than the cost of an electric grid extension, depending on the particular installation. However, the life-cycle cost benefit of the solar-driven motor or pump is the reduction in ongoing electric costs. Solar generation is a hedge against escalation in fossil fuel prices, without the negative pollution attributes. The initial cost of acquiring a diesel pump is less than the initial cost of a solar pumping system, but the ongoing incremental operating and maintenance costs of the diesel pump are greater and, in remote areas, the supply of fuel and spare parts are not always readily available.

The Company’s most commonly encountered solar pumping competitor is Grundfos A/S of Denmark, a manufacturer of a large range of water pumps, including a solar pump line. The Grundfos pumps run off a specially wound AC motor. Aero-Environment of California has somewhat similar technology using limited size AC pumps. There are a number of other solar pump companies, including Solar Jack of the US, Sun Motor of Canada, Southern Cross of Australia, and Total Energie from Europe, which produce limited horsepower DC pumps. The Company offers the only systems able to operate conventional AC powered pumps up to 1000 hp.

j) SUBSIDIARIES

WorldWater has the following active 100% wholly-owned domestic subsidiaries

WorldWater Holdings Inc., dba Quantum Energy Group

ENTECH, Inc.

WorldWater has the following 100% wholly-owned inactive subsidiaries:

WorldWater, Inc.

WorldWater East Africa Ltd.

WorldWater Pakistan (Pvt.), Ltd.

k) GOVERNMENT REGULATIONS

Compliance with federal, state, and local provisions regarding the production and discharge of materials into the environment is expected to have no effect on capital expenditures, earnings and competitive position. The Company has a program to comply fully with the U.S. Foreign Corrupt Practices Act.

l) EMPLOYEES

On December 31, 2007, the company employed 93 people on a full-time basis. The Company also hires consultants on an as-needed basis and has informal arrangements with two water consulting companies, the hydrogeological firm of Vincent Uhl Associates and Morehouse Engineering, specialists in power control, and water/wastewater treatment systems integration.

m) RISKS AND UNCERTAINTIES

Fixed-price Contracts

The Company utilizes fixed-price contracts which result in business risk, such as:

	·	uncertainty in estimating the technical aspects and effort involved to accomplish the work within the contract scope and schedule;

	·	labor availability and productivity;

	·	supplier and subcontractor pricing and performance; and

	·	availability and pricing of components (particularly solar modules).

Intellectual Property Rights

The Company relies on a variety of intellectual property rights in the performance of its product and service delivery to its customers. The Company may not be able to preserve these intellectual property rights in the future and these rights could be invalidated, circumvented or challenged. In addition, the laws of some foreign countries in which our equipment may be sold do not protect intellectual property rights to the same extent of the United States. Failure to protect the Company’s proprietary information and successfully defend challenges or infringement proceedings against the Company could materially and adversely affect the Company’s competitive position.

Technological Developments

The market for our equipment and services is characterized by continual technological developments to provide better and more reliable performance and services. If the Company is not able to design, develop, and produce commercially competitive products and complete installation in a timely manner in response to changes in technology, the business and revenues could be materially and adversely affected. Similarly, if the Company’s proprietary technologies and equipment become obsolete, it may no longer be competitive and its business and revenues could be materially and adversely affected.

Technical Personnel

The engineering services provided by the Company are complex and highly engineered and often must be performed in harsh conditions. The Company’s success depends on its ability to employ and retain technical personnel with the ability to design, utilize and enhance these products and services. In addition, our ability to expand our operations depends in part on our ability to increase our skilled labor force. The demand for skilled workers is high and the supply is limited. A significant increase in wages paid by competing employers could result in a reduction of our skilled labor force and/or increases in wage rates that we must pay. If either of these events were to occur, our cost structure could increase, our margins decrease and our growth potential could be impaired.

Government Incentives

The competitiveness of our technology and equipment is very much dependent upon governmental and utility rebates and incentives. If these rebates and incentives were to be materially reduced or eliminated, the Company’s business and revenues could be materially and adversely affected.

Effective Internal Controls

Effective internal controls are necessary for the Company to provide reliable financial reports. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to evaluate and report on its internal controls over financial reporting and have its independent auditors annually attest to its evaluation, as well as issue their own opinion on the Company’s internal controls over financial reporting, beginning with our Annual Report on Form 10-K for the year ending December 31, 2007.

The Company has prepared for compliance with Section 404 by strengthening, assessing and testing its system of internal controls to provide the basis for its report. The process of strengthening its internal controls and complying with Section 404 is expensive and time-consuming, and requires significant management attention. The Company cannot be certain that these measures will ensure that it will maintain adequate controls over its financial processes and reporting in the future. Furthermore, as the Company grows its business, its internal controls will become more complex and will require significantly more resources to ensure its internal controls remain effective.

In February 2007, the Company engaged RSM McGladrey, who is completing the process of performing a Sarbanes-Oxley Act Consulting engagement designed to assist the Company in its efforts to comply with SOX Section 404, “Management’s Assessment of Internal Controls.” As of June 30, 2007, it was determined that the Company met the criteria for an accelerated filing, which requires the Company, as well as its external auditor to attest to the internal controls over financial reporting in the fiscal year ending December 31, 2007.

In March 2007, the Company engaged Microstrategies, Inc. to provide an improved IT, financial reporting, and ERP system to enhance efficiencies and financial and operating controls as it works to implement Sarbanes-Oxley requirements and procedures. On January 1, 2008, the Company went live with a new financial reporting system.

A material weakness regarding the Company’s failure to design and maintain adequate and timely controls over financial reporting was identified during the 2007 audit; the Company is currently working to allocate additional resources to the financial reporting area.

The Company operates in various countries that are subject to risks peculiar to each country. With respect to any particular country, these risks may include:

	·	expropriation and nationalization of our assets (including intellectual property) in that country;

	·	political and economic instability;

	·	social unrest, acts of terrorism, force majeure, war or other armed conflict;

	·	inflation;

	·	currency fluctuations, devaluations and conversion restrictions;

	·	confiscatory taxation or other adverse tax policies;

	·	governmental activities that limit or disrupt markets, restrict payments or limit the movement of funds;

	·	governmental activities that may result in the deprivation of contract rights; and

	·	trade restrictions and economic embargoes imposed by the United States and other countries.

In 2007, foreign contract revenue was limited to grant revenue, funded by USTDA, of $1,400, derived from work in Sri Lanka. Unsettled political conditions, social unrest, acts of terrorism, force majeure, war or other armed conflict, exploitation or other governmental actions, inflation, exchange controls or currency devaluation may result in increased business risk in these regions.

Item 1A. RISK FACTORS

We have historically incurred losses and losses may continue in the future.

Since 1997, we have lost money. In the fiscal year ended December 31, 2007, we sustained losses from operating activities of $14,456,285; the accumulated deficit as of December 31, 2007 was $64,009,607. Future losses are likely to occur. Accordingly, we may experience significant liquidity and cash flow problems and additional operating losses if we are not able to raise additional capital as needed and on acceptable terms and, in such events, our operations may be reduced or curtailed.

If we are unable to raise additional capital to finance operations, our business operations will be curtailed.

Our operations have relied almost entirely on external financing to fund our operations. Such financing has historically come from a combination of borrowings from, and sale of common and convertible preferred stock to, third parties. We will need to raise additional capital to fund our anticipated operating expenses and future expansion. Among other things, external financing will be required to cover our operating costs. The sale of our common stock to raise capital may cause dilution to our existing shareholders. Our inability to obtain adequate financing will result in the need to curtail business operations. Any of these events would be materially harmful to our business and may result in a lower stock price.

Our common stock may be affected by limited trading volume and may fluctuate significantly.

There has been a limited public market for our common stock, and an active trading market for our common stock may not develop. As a result, this could reduce our shareholders’ ability to sell our common stock in short time periods, or possibly at all. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations which could reduce the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially.

Failure to retain or attract key personnel will have a material negative impact on the sales, development and enhancement of our products.

Our future success depends, in significant part, on the continued services of key officers. We may not able to find an appropriate replacement for any of our key personnel. Any loss or interruption of our key personnel’s services could have a material negative impact on our ability to develop our business plan. The Company maintains a key man life insurance policy on Quentin Kelly in the amount of $1,100,000.

In addition, our business plan relies heavily on attracting and retaining industry specialists with extensive technical and industry experience and existing relationships with many industry participants. Our business plan also relies heavily on attracting and retaining qualified technical employees so we can fully develop and enhance our technology. The markets for many of our experienced employees are extremely competitive. The sale of our products, and the future development and enhancement of our products will be limited if we are not successful in our efforts to recruit and retain the personnel we will need.

Our projects require substantial up-front costs before any revenues will be realized.

A significant portion of our revenue is expected to be derived from projects which require significant up-front expense to us. Revenues are not realized until the projects or certain significant milestones are met or are completed. Our failure, or any failure by a third-party with which we may contract, to perform services or deliver our products on a timely basis could result in a substantial loss to us.

We may not be able to protect our intellectual property rights, and we inadvertently may be infringing on the intellectual property rights of others, which could result in significant expense and loss of intellectual property rights.

If a court determines that we infringed on the rights of others, we may be required to obtain licenses from such other parties and may be required to pay significant sums as damages to such parties. The persons or organizations holding the desired technology may not grant licenses to us or the terms of such licenses may not be acceptable to us. In addition, we could be required to expend significant resources to develop non-infringing technology, or to defend claims of infringement brought against us.

We rely on the registration of trademarks and trade names, as well as on trade secret laws and confidentiality agreements with our employees. In addition, we may need to expend significant resources to protect and enforce our intellectual property rights.

Any failure to meet the technological requirements of our customers may hinder sales of our products.

Our ability to continue to increase sales and use of our products is dependent on the advancement of our existing technology. In order to obtain and maintain a significant market share, we are required to continually make advances in technology. Any failures in such research and development efforts could result in significant delays in product development and have a material adverse effect on us. We may encounter unanticipated technological obstacles which either delay or prevent us from completing the development of our products and processes.

Competitive conditions affecting WorldWater may limit our growth and profitability.

Our products compete with both conventional and solar technologies that generate electric power. The main competitive technologies are diesel or gasoline generators and electrical grid line extension.

The cost of installing a solar array to drive a pump or motor may be more or less than the cost of grid line extension, depending upon the extent of the grid line extension. However, the cost of operating a pump or motor driven by solar power is less expensive than the cost of running a conventional electric pump or motor because of the on-going cost of electric energy from the local electric utility. It should be noted that the cost of electric line extension is usually subsidized by government authorities, which can impact our ability to compete with installation costs.

The initial cost of acquiring a diesel pump or motor is less expensive than the initial cost of a solar pump. However, the operations and maintenance cost of the diesel pump or motor is greater than a solar driven pump or motor; in remote areas, availability of fuel and spare parts are also unreliable. An end user can pay off the higher installation cost of the solar driven pump or motor over time from the savings otherwise spent on operations and maintenance of the diesel pump.

Our proprietary technology permits use of “off-the-shelf” AC pumps and motors—AC driven pumps and motors are available in countries throughout the world, allowing replacement and maintenance parts to be supplied on a local basis. Other forms of solar powered photovoltaic (PV) pumps and motors currently available use less reliable and less durable DC pumps and motors or custom AC pumps which are more costly and not readily available in most developing countries.

In many regions of the world, competitive products are not available. In those markets where competition exists, the most commonly encountered competitors are Grundfos A/S of Denmark, a manufacturer of a large range of water pumps including a solar pump line, and Aero-Environment of California, which produces AC pumps. There are a number of other solar pump companies including Solar Jack of the US, Sun Motor of Canada, Southern Cross of Australia, and Total Energie from Europe which produce DC powered pumps. Our competitors generally have far greater financial resources, more experienced marketing organizations and a greater number of employees than we do.

We may not be successful in competing with these competitors for new customers or in retaining existing customers. Our results of operations will likely suffer if we cannot compete with larger and better-capitalized companies.

Our marketing efforts in developing nations have encountered significant obstacles that have impeded sales.

In addition to our marketing efforts in the United States, we market our products to developing nations. The ability of these customers to order and pay for our products and services is dependent on a variety of factors including government approval, adequate funding and vigorous testing procedures. We have experienced significant obstacles in marketing products and services in developing nations, including delays caused by budget constraints, bureaucratic inefficiencies and regime changes.

Our directors are not personally liable and are indemnified for breach of fiduciary duties.

Our Certificate of Incorporation provides, as permitted by the Delaware General Corporation Law (“the DGCL”), and with certain exceptions, that our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. These provisions may discourage our stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders against a director. In addition, our bylaws provide for mandatory indemnification of directors and officers to the fullest extent permitted by the DGCL.

We depend on a limited number of suppliers of components for our systems, and any delay in supply could affect our ability to fill orders.

We currently purchase parts and materials from a limited number of suppliers. In addition, although historically we have not been dependent on any one supplier or group of suppliers of components for our systems, we may become dependent in the future. The inability to obtain certain components on a timely basis would limit our ability to complete projects in a timely manner.

No dividends have been paid by the Company.

We have never paid, nor do we anticipate paying, any cash dividends on our common stock. Future debt, equity instruments or securities may impose additional restrictions on our ability to pay cash dividends.

Delaware law and our charter may inhibit a takeover of our company that stockholders may consider favorable.

Provisions of Delaware law, such as its business combination statute, may have the effect of delaying, deferring or preventing a change in control of our company, even if such transactions would have significant benefits to our stockholders. As a result, these provisions could limit the price some investors might be willing to pay in the future for shares of our common stock.

We are subject to foreign exchange rate fluctuations that may result in losses.

Operations overseas are subject to foreign currency exchange rate fluctuations. We may suffer losses due to adverse foreign currency exchange rate fluctuations.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

Effective internal controls are necessary for us to provide reliable financial reports. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and have our independent auditors annually attest to our evaluation, as well as issue their own opinion on our internal controls over financial reporting, beginning with our Annual Report on Form 10—K for the fiscal year ending December 31, 2007. We have prepared for compliance with Section 404 by strengthening, assessing and testing our system of internal controls to provide the basis for our report. The process of strengthening our internal controls and complying with Section 404 is expensive and time consuming, and requires significant management attention. We cannot be certain that these measures will ensure that we will maintain adequate controls over our financial processes and reporting in the future. Furthermore, as we rapidly grow our business, our internal controls will become more complex and will require significantly more resources to ensure our internal controls overall remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price.

The Company has a limited number of authorized common shares available.

As of March 12, 2008, the Company had 93,391 authorized and unissued shares of common stock. The board of directors has approved an increase in the Company’s authorized common stock from 275,000,000 shares to 450,000,000 shares and the issue will

be voted on by the Company’s stockholders at the next stockholders meeting which is expected to occur in May 2008. If the increase in the authorized number of shares is not approved by the Company’s stockholders, the Company may not have the ability to raise capital funds that may be necessary to further develop its core business, to fund other potential acquisitions, to finance working capital requirements, to have shares available for use in connection with its stock option plans, and to pursue other corporate purposes that may be identified by the board of directors.

The solar power industry is currently experiencing an industry-wide shortage of polysilicon. This shortage poses several risks to our business, including possible constraints on revenue growth and possible decreases in our gross margins and profitability.

There is currently an industry-wide shortage of polysilicon, which has resulted in significant price increases in solar cells. Polysilicon is an essential raw material used in the production of solar cells. We expect that the average spot price of polysilicon will continue to increase in the near-term. Increases in polysilicon prices could increase the price we pay for solar cells, which could impact our manufacturing costs and our net income. Even with these price increases, demand for solar cells has increased, and many of our principal competitors have announced plans to add additional manufacturing capacity. As this manufacturing capacity becomes operational, it may increase the demand for polysilicon in the near-term and further exacerbate the current shortage. Polysilicon is also used in the semiconductor industry generally and any increase in demand from that sector will compound the shortage. The production of polysilicon is capital intensive and adding additional capacity requires significant lead time. While we are aware that several new facilities for the manufacture of polysilicon are under construction, we do not believe that the supply imbalance will be remedied in the near-term, which could lead to higher prices for, and reduced availability of, solar cells.

As polysilicon supply increases, the corresponding increase in the global supply of solar cells and panels may cause substantial downward pressure on the prices of our products, resulting in lower revenues and earnings.

The scarcity of polysilicon has resulted in the underutilization of solar panel manufacturing capacity. As additional polysilicon becomes available in the future, we expect solar panel production globally to increase. Decreases in polysilicon pricing and increases in solar panel production could each result in substantial downward pressure on the price of solar cells and panels, including our products. Such price reductions could have a negative impact on our revenue and earnings, and materially adversely affect our business and financial condition.

The reduction or elimination of government and economic incentives could cause our revenue to decline.

We believe that the growth of the market for our applications depends in large part on the availability and size of government-generated economic incentives. At present, the cost of producing solar energy generally exceeds the price of electricity in the U.S. from traditional sources. As a result, to encourage the adoption of solar technologies, the U.S. government and numerous state governments have provided subsidies in the form of cost reductions, tax write-offs and other incentives to end users, distributors, systems integrators and manufacturers of solar power products. Reduction, elimination and/or periodic interruption of these government subsidies and economic incentives because of policy changes, fiscal tightening or other reasons may result in the diminished competitiveness of solar energy, and materially and adversely affect the growth of these markets and our revenues. Electric utility companies that have significant political lobbying powers may push for a change in the relevant legislation in our markets. The reduction or elimination of government subsidies and economic incentives for solar energy applications, especially those in our target markets, could cause our revenues to decline and materially and adversely affect our business, financial condition and results of operations.

We act as the general contractor for our customers in connection with the installations of our solar power systems and are subject to risks associated with construction, bonding, cost overruns, delays and other contingencies, which could have a material adverse effect on our business and results of operations.

We act as the general contractor for our customers in connection with the installation of our solar power systems. All essential costs are estimated at the time of entering into the sales contract for a particular project, and these are reflected in the overall price that we charge our customers for the project. These cost estimates are preliminary and may or may not be covered by contracts between us or the other project developers, subcontractors, suppliers and other parties to the project. In addition, we require qualified, licensed subcontractors to install most of our systems. Shortages of such skilled labor could significantly delay a project or otherwise increase our costs. Should miscalculations in planning a project or defective or late execution occur, we may not achieve our expected margins or cover our costs. Also, some systems customers require performance bonds issued by a bonding agency. Due to the general performance risk inherent in construction activities, it has become increasingly difficult recently to secure suitable bonding agencies

willing to provide performance bonding. In the event we are unable to obtain bonding, we will be unable to bid on, or enter into, sales contracts requiring such bonding.

Delays in solar panel or other supply shipments, other construction delays, unexpected performance problems in electricity generation or other events could cause us to fail to meet these performance criteria, resulting in unanticipated and severe revenue and earnings losses and financial penalties. Construction delays are often caused by inclement weather, failure to timely receive necessary approvals and permits, or delays in obtaining necessary solar panels, inverters or other materials. The occurrence of any of these events could have a material adverse effect on our business and results of operations.

The execution of our growth strategy for our systems segment is dependent upon the continued availability of third-party financing arrangements for our customers.

For many of our projects, our customers have entered into agreements to finance the power systems over an extended period of time based on energy savings generated by our solar power systems, rather than pay the full capital cost of purchasing the solar power systems up front. For these types of projects, many of our customers choose to purchase solar electricity under a power purchase agreement with a financing company that purchases the system from us. These structured finance arrangements are complex and may not be feasible in many situations. In addition, customers opting to finance a solar power system may forgo certain tax advantages associated with an outright purchase on an accelerated basis which may make this alternative less attractive for certain potential customers. If customers are unwilling or unable to finance the cost of our products, or if the parties that have historically provided this financing cease to do so, or only do so on terms that are substantially less favorable for us or these customers, our growth will be adversely affected.

The success of our systems segment will depend in part on the continuing formation of such financing companies and the potential revenue source they represent. In deciding whether to form and invest in such financing companies, potential investors weigh a variety of considerations, including their projected return on investment. Such projections are based on current and proposed federal, state and local laws, particularly tax legislation. Changes to these laws, including amendments to existing tax laws or the introduction of new tax laws, tax court rulings as well as changes in administrative guidelines, ordinances and similar rules and regulations could result in different tax consequences which may adversely affect an investor’s projected return on investment, which could have a material adverse effect on our business and results of operations.

We may be subject to unexpected warranty expense; if we are subject to warranty and product liability claims, such claims could adversely affect our business and results of operations.

The possibility of future product failures could cause us to incur substantial expense to repair or replace defective products. We have agreed to indemnify our customers and our distributors in some circumstances against liability from defects in our solar systems. A successful indemnification claim against us could require us to make significant damage payments, which would negatively affect our financial results.

Like other retailers, distributors and manufacturers of products that are used by consumers, we face an inherent risk of exposure to product liability claims in the event that the use of our solar system products results in injury. We may be subject to warranty and product liability claims in the event that our solar power systems fail to perform as expected or if a failure of our solar power systems results, or is alleged to result, in bodily injury, property damage or other damages. Since our solar power products are electricity producing devices, it is possible that our products could result in injury, whether by product malfunctions, defects, improper installation or other causes. Moreover, we may not have adequate resources in the event of a successful claim against us. We have evaluated the potential risks we face and believe that we have appropriate levels of insurance for product liability claims. We rely on our general liability insurance to cover product liability claims and have not obtained separate product liability insurance. However, a successful warranty or product liability claim against us that is not covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our goodwill and reputation, which could also adversely affect our business and operating results.

Warranty and product liability claims may result from defects or quality issues in certain third-party technology and components incorporated into its solar power systems, particularly solar cells and panels, over which we have no control. While our agreements with suppliers generally include warranties, such provisions may not fully compensate us for any loss associated with third-party claims caused by defects or quality issues in such products. In the event we seek recourse through warranties, we will also be dependent on the creditworthiness and continued existence of these suppliers.

Expansion of our manufacturing capacity has and will continue to increase our fixed costs, which increase may have a negative impact on our financial condition if demand for our products decreases.

We have recently expanded, and plan to continue to expand, our manufacturing facilities. As we build additional manufacturing lines or facilities, our fixed costs will increase. If the demand for our solar power products or our production output decreases, we may not be able to spread a significant amount of our fixed costs over the production volume, thereby increasing our per unit fixed cost, which would have a negative impact on our financial condition and results of operations.

Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our products and services.

The market for electricity generation products is heavily influenced by foreign, U.S. federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the U.S. and in a number of other countries, these regulations and policies are being modified and may continue to be modified. Customer purchases of, or further investment in the research and development of, alternative energy sources, including solar power technology, could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for our solar power products. For example, without a regulatory mandated exception for solar power systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility network. These fees could increase the cost to our customers of using our solar power products and make them less desirable, thereby harming our business, prospects, results of operations and financial condition.

We anticipate that our solar power products and their installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar power products may result in significant additional expenses to us and our resellers and their customers and, as a result, could cause a significant reduction in demand for our solar power products.

We will continue to be dependent on a limited number of third-party suppliers for key components for our solar systems products during the near-term, which could prevent us from delivering our products to our customers within required timeframes, which could result in installation delays, cancellations, liquidated damages and loss of market share.

In addition to our reliance on a small number of suppliers for its solar cells and panels, we rely on third-party suppliers for key components for our solar power systems, such as inverters that convert the direct current electricity generated by solar panels into alternating current electricity usable by the customer.

If we fail to develop or maintain our relationships with our limited number of suppliers, we may be unable to manufacture our products or our products may be available only at a higher cost or after a long delay, which could prevent us from delivering our products to our customers within required timeframes and we may experience order cancellation and loss of market share. To the extent the processes that our suppliers use to manufacture components are proprietary, we may be unable to obtain comparable components from alternative suppliers. The failure of a supplier to supply components in a timely manner, or to supply components that meet our quality, quantity and cost requirements, could impair our ability to manufacture our products or decrease their costs. If we cannot obtain substitute materials on a timely basis or on acceptable terms, we could be prevented from delivering our products to our customers within required timeframes, which could result in installation delays, cancellations, liquidated damages and loss of market share, any of which could have a material adverse effect on our business and results of operations.

Acquisitions of other companies or investments in joint ventures with other companies could adversely affect our operating results, dilute our stockholders’ equity, or cause us to incur additional debt or assume contingent liabilities.

To increase our business and maintain our competitive position, we have acquired other companies and may in the future acquire additional other companies or engage in joint ventures. Acquisitions and joint ventures involve a number of risks that could harm our business and result in the acquired business or joint venture not performing as expected, including:

insufficient experience with technologies and markets in which the acquired business is involved, which may be necessary to successfully operate and integrate the business;

problems integrating the acquired operations, personnel, technologies or products with the existing business and products;

diversion of management time and attention from the core business to the acquired business or joint venture;

potential failure to retain key technical, management, sales and other personnel of the acquired business or joint venture;

difficulties in retaining relationships with suppliers and customers of the acquired business, particularly where such customers or suppliers compete with us;

subsequent impairment of the acquired assets, including intangible assets; and

assumption of liabilities including, but not limited to, lawsuits, tax examinations, warranty issues, etc.

To the extent that we invest in upstream suppliers or downstream channel capabilities, we may experience competition or channel conflict with certain of our existing and potential suppliers and customers. Specifically, existing and potential suppliers and customers may perceive that we are competing directly with them by virtue of such investments and may decide to reduce or eliminate their supply volume to us or order volume from us.

For example, as a result of our acquisition of ENTECH, we now directly compete with some of our own suppliers of solar cells and panels. As a result, the acquisition could cause one or more solar cell and panel suppliers to reduce or terminate their business relationship with us. Any such reductions or terminations could adversely affect our ability to meet customer demand for solar power systems, and materially adversely affect our results of operations and financial condition, which would likely materially adversely affect our results of operations and financial condition.

The demand for products requiring significant initial capital expenditures such as our solar power products and services are affected by general economic conditions, such as increasing interest rates that may decrease the return on investment for certain customers or investors in projects, which could decrease demand for our systems products and services and which could have a material adverse effect on our business and results of operations.

The United States and international economies have recently experienced a period of slow economic growth. A sustained economic recovery is uncertain. In particular, terrorist acts and similar events, continued turmoil in the Middle East or war in general could contribute to a slowdown of the market demand for products that require significant initial capital expenditures, including demand for solar cells and solar power systems and new residential and commercial buildings. If the economic recovery slows down as a result of the recent economic, political and social turmoil, or if there are further terrorist attacks in the United States or elsewhere, we may experience decreases in the demand for our solar power products, which may harm our operating results.

We have benefited from historically low interest rates in recent years, as these rates have made it more attractive for our customers to use debt financing to purchase our solar power systems. Interest rates have fluctuated recently and may eventually continue to rise, which will likely increase the cost of financing these systems and may reduce an operating company’s profits and investors’ expected returns on investment. This risk is becoming more significant to direct sales to financial institutions which sell electricity to end customers under a power purchase agreement. This sales model is highly sensitive to interest rate fluctuations and the availability of liquidity, and would be adversely affected by increases in interest rates or liquidity constraints. Rising interest rates may also make certain alternative investments more attractive to investors, and therefore lead to a decline in demand for our solar power systems, which could have a material adverse effect on our business and results of operations.

Risks Related to ENTECH

ENTECH’s products include complex solar technology for markets which are subject to operational risks.

ENTECH is engaged in the development of complex solar technology for the solar energy market. The technology developed by ENTECH is complex and susceptible to unique engineering elements that are not tested in the actual operating environment until commissioned. As a result, ENTECH may incur unanticipated engineering requirements which may cause it to incur additional operating, development and production expenses that have not been anticipated.

The industry in which ENTECH operates is highly competitive, which may result in a loss of market share or a decrease in revenue or profit margin.

ENTECH’s products and services are provided in a highly competitive environment. ENTECH’s products and services are subject to competition from a number of similarly sized or larger businesses which may have greater financial and other resources than are available to ENTECH. Factors that affect competition include timely delivery of products and services, reputation, manufacturing capabilities, price, performance and dependability. Any failure to adapt to a changing competitive environment may result in a loss of market share and a decrease in revenue and profit margins.

ENTECH relies on a few key employees whose absence or loss could disrupt its operations or adversely affect its business.

ENTECH’s continued success is dependent on the continuity of the key management, operating and technical personnel listed below. The loss of these key employees would have a negative impact on its future growth and profitability. ENTECH does not maintain key person insurance on any of these individuals.

ENTECH’s failure to attract and retain qualified personnel could lead to a loss of revenue or profitability.

The development, manufacture and installation of ENTECH’s products and services require continued access to qualified personnel at appropriate compensation levels. The labor market for these labor categories, including electrical engineers and experienced licensed electricians, has been and is tightening. Further, the solar energy industry in general, and ENTECH’s market in particular, has not attracted an adequate level of skilled personnel at all levels during the last two decades. The continuation of this trend could impact ENTECH’s growth and profitability as well as cause unanticipated quality difficulties.

Natural disasters, terrorism, acts of war, international conflicts or other disruptions to ENTECH’s operations could harm its business.

Natural disasters, acts or threats of war or terrorism, international conflicts, and the actions taken by the United States and other governments in response to such events could cause damage to or disrupt ENTECH’s business operations or those of its customers, any of which could have an adverse effect on ENTECH’s business.

ENTECH could suffer a material loss as a result of such disruptions because it is not possible to predict future events or their consequences, any of which could decrease demand for ENTECH’s products, make it difficult or impossible for ENTECH to deliver its products, or disrupt its supply chain.

ENTECH’s success depends upon its ability to secure raw materials and supplies on acceptable terms.

Aluminum, steel and silicon represent a significant element of ENTECH’s material cost. Significant increases in the prices of these materials can reduce ENTECH’s estimated operating margins if it is unable to recover such increases from customer revenues.

We have not yet fully evaluated the disclosure controls and procedures and internal control over financial reporting of ENTECH and its subsidiaries, and any deficiencies in ENTECH’s internal controls that we may find would require us to spend resources to correct those deficiencies and could undermine market confidence in our reported consolidated financial information and reduce the market price of our common stock.

Maintaining effective disclosure controls and procedures and internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. We are currently subject to certain provisions of the Sarbanes-Oxley Act of 2002 and the related rules of the Securities and Exchange Commission, which require, among other things, our management to make quarterly assessments of the effectiveness of our disclosure controls and procedures. In the future, we will be subject to additional requirements to annually assess and report on our internal control over financial reporting and our independent registered public accounting firm will be required to issue a report on management’s assessment of our controls and procedures, which will be included in our annual reports filed with the Securities and Exchange Commission. ENTECH is not currently subject to the Sarbanes-Oxley Act of 2002, and we are continuing to evaluate the strength of ENTECH’s disclosure controls and procedures and internal control over financial reporting. If we identify any significant deficiencies or material weaknesses in ENTECH’s disclosure controls and procedures and internal control over financial reporting following the completion of the merger, we will be required to spend time and money to remedy those deficiencies. If we are unable to sufficiently integrate ENTECH’s disclosure and control structure into our

structure or correct any deficiencies we identify in a timely manner, we may conclude that these circumstances constitute a material weakness in disclosure controls and procedures and/or internal control over financial reporting and that our disclosure controls and procedures and/or internal control over financial reporting was not effective. Investors could lose confidence in our reported consolidated financial information as a result, and the market price of our common stock could decline.

Risks related to the combined company

· The combined company may not realize the anticipated benefits of the merger due to the challenges associated with integrating the companies or other factors.

The success of the merger will depend in part on the success of management of the combined company in integrating the operations, technologies, business, financial accounting systems and personnel of the two companies following the effective time of the merger. The inability of the combined company to meet the challenges involved in integrating successfully the operations of ENTECH and WorldWater or otherwise to realize any of the anticipated benefits of the merger could seriously harm the combined company’s results of operations. In addition, the overall integration of the two companies may result in unanticipated operations problems, expenses, liabilities and diversion of management’s attention. The challenges involved in integration include:

·		coordinating and integrating sales and marketing functions;

·		demonstrating to the combined company’s customers that the merger will not result in adverse changes in the business focus or the quality of the products and services previously provided by each company;

·		assimilating the personnel of both companies and integrating the business cultures of both companies;

·		consolidating corporate and administrative infrastructures and eliminating duplicative operations; and

·		maintaining employee morale and motivation.

WorldWater and ENTECH may not be able to successfully integrate their operations in a timely manner, or at all, and the combined company may not realize the anticipated benefits of the merger, including potential synergies or sales or growth opportunities, to the extent or in the time frame anticipated. The anticipated benefits and synergies of the merger are based on assumptions and current expectations, not actual experience, and assume a successful integration. In addition to the potential integration challenges discussed above, the combined company’s ability to realize the benefits and synergies of the business combination could be adversely impacted to the extent either company’s relationships with existing or potential customers, suppliers or strategic partners is adversely affected as a consequence of the merger.

ITEM 1B. UNRESOLVED STAFF COMMENTS

The Company has received comments from the staff of the Securities and Exchange Commission on the Company’s proxy statement, Form 10-KSB for the year ended December 31, 2006 and Form 10-QSB for the quarterly period ended September 30, 2007. The Company intends to respond to these comments in a timely fashion.

ITEM 2. PROPERTIES

New Jersey

The Company’s executive office, research and development facility is housed in a 30,000 square foot site located at 200 Ludlow Drive, Ewing, New Jersey 08638. The facility is leased under an operating lease commencing July 1, 2007, and expiring June 30, 2015. The Company also occupies 13,270 square feet at 55 Route 31 South, Pennington, NJ 08534. This facility is leased under an operating lease expiring on June 25, 2008.

Colorado

In September 2007, the Company opened a sales and technical support office in Greenwood Village, CO under a six month lease expiring February 29, 2008. The Company now leases the facility on a month to month basis.

California

In September 2005, the Company acquired Quantum Energy Group in Applegate, California which included the transfer of their five year lease expiring April 30, 2009, with two five-year options to extend the lease.

In December 2007, the Company opened a sales office in Poway, CA under a two year lease expiring December 24, 2009. This office will serves as the sales center for Southern California.

In March 2007, the Company opened a technical support office in Fresno, CA under a month to month lease.

Texas

In January 2008, the Company acquired Entech, Inc. in Keller, TX which included the transfer of their lease expiring June 1, 2009.

On March 7, 2008, the Company entered into a lease for a 71,000 square foot manufacturing facility in Fortworth, TX. The lease is for a period of ten (10) years and provides for monthly payments that include rental expense, real estate taxes & common area maintenance of $42,061 per month for the first five (5) years of the lease and payments of $46,395 in the final five (5) years.

ITEM 3. LEGAL PROCEEDINGS

Although WorldWater is involved in ordinary, routine litigation from time to time incidental to its business, it is not presently a party to any other legal proceeding, the adverse determination of which, either individually or in the aggregate, would be expected to have a material adverse affect on the Company’s business or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II.

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

a) Price Range of Common Stock

The Company’s common stock is included on the National Association of Securities Dealers Automated Quotation OTC Bulletin Board under the symbol “WWAT.OB.” The following table sets forth the quarterly high and low closing bid prices for the common stock as reported on the OTC Bulletin Board for the periods indicated. These prices are based on quotations between dealers, and do not reflect retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions.

There were no Unregistered Securities Sold during the quarter ended December 31, 2007.

	High		Low		Close
FISCAL 2007
First Quarter	$	0.69	$	0.38	$	0.60
Second Quarter	1.58		0.52		1.52
Third Quarter	2.52		1.07		1.92
Fourth Quarter	2.36		1.70		1.96

	High		Low		Close
FISCAL 2006
First Quarter	$	0.48	$	0.31	$	0.46
Second Quarter	0.59		0.25		0.28
Third Quarter	0.30		0.17		0.19
Fourth Quarter	0.50		0.14		0.39

b) Holders of Common Stock

On December 31, 2007 there were approximately 673 holders of record of common stock. This number does not include beneficial owners of the common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

c) Dividends

To date, the Company has not declared or paid any dividends on common stock. The payment by the Company of dividends, if any, is within the discretion of the Board of Directors and will depend on its earnings, if any, capital requirements and financial condition, as well as other relevant factors. The Board of Directors does not intend to declare any dividends in the foreseeable future.

d) Preferred Stock

As of December 31, 2007, the Company had 611,111 shares of Series B 7% Convertible Preferred Stock, 500,000 shares of Series C 6% Convertible Preferred Stock, and 4,892,857 shares of Series D Convertible Preferred Stock outstanding.

Series B Convertible Preferred Stock

In 2000, the Company issued 611,111 shares of Series B 7% three-year Convertible Preferred Stock at $0.90 per share. The Series B Preferred Stock proceeds were intended to be used by the Company for the initial operating requirements of WorldWater (Phils) Inc., the Company’s Philippine subsidiary. The conversion privileges, which expired September 2003, were convertible either into 10% of WorldWater (Phils) Inc. or into 611,111 common shares of the Company.

It is the Company’s position that the holder of these preferred shares failed to convert to shares of the Company’s common stock in accordance with the terms of issuance, and that the preferred shares expired on September 8, 2003. It is the Company’s position that the obligations for the payment of dividends on such shares also terminated on that date. The Company is engaged in negotiations with the holder of the Series B preferred shares to resolve the disputed terms of conversion.

Series C Convertible Preferred Stock

The Company issued 750,000 shares of Series C 6% Convertible Preferred Stock at $1.00 per share. The Series C 6% Convertible Preferred Stock proceeds were used to fund: (i) a $500,000 payment made to ENTECH, Inc. (“ENTECH”) to secure a binding Letter of Intent allowing the Company the opportunity to conduct due diligence for the proposed acquisition of all of the common shares of ENTECH by the Company or an affiliate; and (ii) due diligence expenses directly incurred in connection with the proposed acquisition transaction.

The Series C 6% Convertible Preferred Stock held by each subscriber is convertible on an all or none basis, into either: (i) common stock of the Company; or (ii) each holder’s proportionate share of a 6.5% interest in the entity formed for the purpose of purchasing the common shares of ENTECH. Each holder of the Series C 6% Convertible Preferred Stock may elect to convert into his or her proportionate share of a 6.5% interest in the entity formed to purchase the common stock of ENTECH during the 120 day period following the closing of the ENTECH transaction or, alternatively, may convert into the common stock of the Company at any time prior to January 1, 2009. The conversion price to be used for conversions into common stock of the Company will be equal to the closing bid price of the common stock on December 31, 2006, equal to $0.39 per share of our common stock.

Dividends on the Series C 6% Convertible Preferred Stock accrue at the annual rate of 6%, payable the first day of each month. The Dividend payable at December 31, 2007 was approximately $5,900.

During the third quarter 2007, three shareholders exercised their right to convert 250,000 preferred shares at a per share price of $0.39 to 641,025 shares of common stock.

At December 31, 2007 500,000 shares of Series C Convertible Preferred Stock remain outstanding.

Series D Convertible Preferred Stock

On November 30, 2006, the Company issued a press release announcing the entry into three agreements with EMCORE Corporation (“EMCORE”), involving EMCORE’s agreement to purchase up to 26.5% of WorldWater on a fully-diluted basis in exchange for $18 million. The three agreements entered into on November 29, 2006, are an Investment Agreement (the “Investment Agreement”), a Registration Rights Agreement (the “Registration Right Agreement”) and a Letter Agreement (the “Letter Agreement”, and together with the Investment Agreement and Registration Rights Agreement, the “Agreements”). The Boards of Directors of EMCORE and WorldWater each approved the Agreements.

Pursuant to the Investment Agreement, EMCORE agreed to invest up to $18.0 million (the “Investment”) in return for (i) six million, five hundred and twenty-three thousand, eight hundred and ten (6,523,810) shares of Series D Convertible Preferred Stock of WorldWater, par value $0.01 per share (the “Series D Stock”) and (ii) six hundred and sixty-eight thousand, one hundred and thirty-nine (668,139) warrants to purchase six hundred and sixty-eight thousand, one hundred and thirty-nine (668,139) shares of Series D Stock (the “Warrants”). The Series D Stock and Warrants to be received by EMCORE are equivalent to an approximately thirty-one percent (31%) equity ownership in WorldWater, or approximately twenty-six and half percent (26.5%) on a fully diluted basis.

On November 29, 2006, EMCORE invested $13.5 million in the Company, representing the first tranche of its $18 million investment, in return for which WorldWater issued to EMCORE (i) four million, eight hundred and ninety two thousand, eight hundred and fifty seven (4,892,857) shares of Series D Convertible Preferred Stock and (ii) five hundred and five thousand and forty-four (505,044) warrants (the “Tranche A Warrants”) to purchase five hundred and five thousand and forty-four (505,044) shares of Series D Stock.

The investment of the remaining $4.5 million second tranche (the “Tranche B Closing”) will be consummated subject to the execution of a definitive strategic agreement between the Parties and certain other conditions set forth in the Investment Agreement. At the Tranche B Closing, WorldWater will issue to EMCORE (i) an additional one million, six hundred and thirty thousand, nine hundred and fifty-three (1,630,953) shares of Series D Convertible Preferred Stock and (ii) one hundred and sixty-three thousand and ninety-five (163,095) warrants to purchase one hundred and sixty-three thousand and ninety-five (163,095) shares of Series D Stock.

In the Investment Agreement, the Company and EMCORE made customary representations, warranties and covenants and the Company agreed to indemnify EMCORE against certain potential losses incurred in connection with its investment in the Company. Pursuant to the terms of the Investment Agreement, EMCORE has been granted the following rights, among others: (i) the right to participate pro-rata in future financings and equity issuances by the Company; (ii) certain rights to obtain information regarding the financial results, financial performance, business and operations of WorldWater; and (iii) the right to nominate and appoint two individuals to WorldWater’s Board of Directors.

The Series D Stock has the designations, preferences and rights set forth in the certificate of designation filed with the Secretary of State for the State of Delaware on November 29, 2006 (the “Certificate of Designation”). Pursuant to the Certificate of Designation, holders of Series D Stock have the following rights, among others: (i) the sole right and discretion to convert their shares of Series D Stock at any time and from time to time into such number of fully paid and non-assessable shares of common stock, par value $0.001, of WorldWater (the “Common Stock”) initially equal to such number of shares of Series D Stock multiplied by ten, subject to certain adjustments as more fully set forth in the Certificate of Designation including weighted average anti-dilution rights, (ii) the right to vote together with the holders of Common Stock as a single class on all matters submitted for a vote of holders of Common Stock, (iii) for so long as the beneficial ownership by the holders of Series D Stock (on a fully-diluted basis) does not fall below ten percent (10%) of the then outstanding shares of Common Stock, the exclusive right to elect two members of the Board of Directors of WorldWater, (iv) for so long as the beneficial ownership by the holders of Series D Stock (on a fully-diluted basis) is between five percent (5%) and ten percent (10%) of the then outstanding shares of Common Stock, the exclusive right to elect one member of the Board of Directors of WorldWater, (v) certain liquidation preferences as detailed in the Certificate of Designation and (vi) the right to receive dividends in an amount equal to the amount of dividends that such holder would have received had the holder converted its shares of Series D Stock into shares of Common Stock as of the date immediately prior to the record date for such dividend. The liquidity event is any change in control whereby the new person or entity has 50% or more beneficial ownership in the existing company. Since the potential change in ownership is outside the control of the company, the existing preferred shareholders would have the right to demand cash payment equal to the liquidation value of the preferred stock plus accrued dividends. Closure of the second tranche cannot take place until a sufficient amount of new common shares are authorized by the Company’s shareholders.

The Series D Preferred Stock was classified out of permanent equity since it fit certain criteria in paragraph #2 of EITF Topic D-98 (“D-98”), however it was not classified as a liability since it did not meet the requirements of a liability. Topic D-98, paragraph 8, indicates the following “For convertible preferred securities, any recorded discount resulting from allocation of proceeds to the beneficial conversion feature is analogous to a dividend and should be recognized as a return to the preferred shareholders over the

minimum period from the date of issuance to the date at which the preferred shareholders can realize that return (that is, through the date of earliest conversion) using the effective yield method initially and then allocated the remaining.” In the Company’s case, the discount was recognized as a Preferred Stock Dividend on the day of issuance since the earliest conversion date was immediately. The Company recorded a debit to Preferred Stock Dividend and a Credit to Additional Paid in Capital, which is in accordance with Case 1(a) of Topic D-98.

Full closure of the second tranche cannot take place until new common shares are authorized by the Company’s shareholders.

Series C and D Preferred Stock Classification

The Series C and D Preferred Stock were classified out of permanent equity since it fit certain criteria in paragraph#2 of EITF Topic D-98), however it was not classified as a liability since it did not meet the definition of a liability. The warrants on the Series D Preferred Stock were classified as a current liability under the guidance established in FAS 150.

On November 29, 2006, the Company recorded a beneficial conversion on preferred stock dividends related to Series D Preferred Stock and Series D Preferred Stock Warrants, which needed to be recognized on the preferred shares of 4,892,857 and Preferred D warrants of 505,044. After calculating the intrinsic value, based on the relative fair values of the warrants and preferred stock, an adjustment of $4,066,796 was recorded as a preferred stock dividend. EITF 98-5 paragraph 8, indicates the following “For convertible preferred securities, any recorded discount resulting from allocation of proceeds to the beneficial conversion feature is analogous to a dividend and should be recognized as a return to the preferred shareholders over the minimum period from the date of issuance to the date at which the preferred shareholders can realize that return (that is, through the date of earliest conversion) using the effective yield method.” In the Company’s case, the discount was recognized as a Preferred Stock Dividend on the day of issuance since the earliest conversion date was immediately. The Company recorded a debit to Preferred Stock Dividend and a Credit to Additional Paid in Capital, which is in accordance with Case 1(a) of EITF 98-5.

The value of the warrants to purchase Series D preferred stock was calculated by converting them to their common share equivalents, then utilizing the Black-Scholes Method to arrive at a fair value. The amounts allocated to the preferred stock and warrants were equivalent to their relative fair values. At December 31, 2006, in accordance with SFAS No. 150, the warrants were re-valued from $954,827 to their redemption amount of $1,393,827, resulting in interest expense of $439,000 during the fourth quarter of 2006.

Liquidation Preference

Upon liquidation, holders of the Series C and D Convertible Redeemable Preferred Stock will be entitled to the greater of (1) a per share amount equal to the original purchase price plus any dividends accrued but not paid and (2) the amount that the holder would receive in respect of a share of Series C and D, preferred if immediately prior to dissolution and liquidation, all shares of Series C and D Convertible Redeemable Preferred Stock were converted into shares of common stock. The liquidation preference of Series C and D is $505,900 and $13,500,000, respectively.

ITEM 6. SELECTED FINANCIAL DATA

The data set forth below should be read in conjunction with the Company’s financial statements and related notes and this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this filing. The statement of operations data presented below for the fiscal years ended December 31, 2007, 2006, and 2005 and the balance sheet data at December 31, 2007 and 2006 have been derived from the audited financial statements appearing elsewhere in this filing. The statement of operations data presented below for the fiscal years ended December 31, 2004, and 2003 and the balance sheet data at December 31, 2005, 2004, and 2003 have been derived from audited financial statements, not included elsewhere herein.

	Year Ended December 31,
Operating Results	2007			2006			2005			2004			2003
Revenue	$	18,466,020		$	17,333,681		$	2,031,480		$	5,837,224		$	1,279,573
Gross Profit (Loss)	1,738,838			2,719,587			(485,336		)	(149,085		)	318,928
Loss From Operations	(14,456,285		)	(5,257,298		)	(5,075,285		)	(6,087,358		)	(3,301,020		)
Loss Attributable to Common Shareholders	(14,423,450		)	(15,577,688		)(1)	(6,377,646		)	(8,056,694		)	(3,924,774		)
Net Loss Per Basic & Diluted Share Attributable To Common Shareholders	$	(0.09	)	$	(0.11	)	$	(0.07	)	$	(0.12	)	$	(0.08	)
Weighted Average Common Shares Used in Per Share Calculation	168,960,895			135,921,421			93,767,378			65,360,690			51,008,306

	As of December 31,
Balance Sheet Data	2007		2006			2005			2004			2003
Cash and Cash Equivalents	$	6,873,448	$	5,770,595		$	798,649		$	38,852		$	59,045
Working Capital Surplus (Deficit)	14,215,991		9,294,450		(1)	(674,523		)	(2,324,752		)	(2,350,312		)
Total Assets	31,489,988		17,268,146			2,664,404			1,790,868			221,225
Long term obligations—less current portion	268,073		289,300			667,668			2,026,589			1,665,396
Series C and D Preferred Stock; Series D Warrants	11,679,561		11,929,561		(1)	—			—			—
Stockholders’ Equity (Deficiency)	7,610,889		(1,862,724		)(1)	(852,837		)	(4,273,641		)	(3,941,442		)

(1) Amounts have been restated. See Note 3 to the consolidated financial statements.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements in this Management’s Discussion and Analysis, and elsewhere in this Annual Report on Form 10 K concerning the Company’s outlook or future economic performance; anticipated profitability, gross billings, commissions and fees, expenses or other financial items; and, statements concerning assumptions made or exceptions to any future events, conditions, performance or other matters constitute forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, (1) that there can be no assurance that the Company will grow and/or manage its growth profitably, (2) risks-associated reliance on governmental regulations, (3) competition, (4) the Company’s 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, and (6) risks associated with operating in emerging countries.

OVERVIEW

WorldWater & Solar Technologies Corp. (formerly WorldWater &Power Corp.) is an international solar engineering and project management company with unique, high-powered solar electric technology and expertise, providing alternative energy solutions to a wide variety of customers in both domestic and international markets. Until 2002, WorldWater’s business was focused exclusively on providing developing countries with water and power solutions. Since then, the Company has placed increasing

emphasis on domestic markets, principally in California, New Jersey, and surrounding states, and is addressing the needs of residential, commercial and industrial customers, in both the public and private sectors. The Company will continue to selectively submit proposals to various foreign governments in need of solving critical water supply and energy problems using the Company’s proprietary solar technology.

The Company continues to evolve from an entrepreneurial operating mode to that of a fast growth company. This transition will mean development of more policies, procedures, and processes to enable effective implementation of booked projects.

The Company plans to continue work to develop innovative new products to meet customer needs using new technology to seek to clearly differentiate its products from competitive products.

ENTECH will maintain its identity, location, and business operations in both terrestrial and space solar energy. The Company anticipates, but can provide no assurance, that ENTECH will continue to perform its contract work for NASA, the U.S. Department of Defense, and other customers, as well as its internal R&D programs leading to improved future products.

The cash raised through the issuance of convertible debt and private equity sales has provided the Company with the working capital resources needed to meet its operating activities in 2007 and 2006. The Company will continue to seek to raise significant additional financing as required to fund the Company’s growing operations in 2008.

On September 28, 2007, the Company raised $13,365,000 through a Stock and Warrant Purchase Agreement with the Quercus Trust, whereby the Quercus Trust purchased 7.5 million shares of WorldWater’s common stock at a price of $1.782 per share.

On February 13, 2008 the Company announced that it has raised $35.64 million from The Quercus Trust in a private placement of 20,000 shares of WorldWater Series F Convertible Preferred Stock at a price of $1,782.00 per share.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,

and related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of these consolidated financial statements:

REVENUE RECOGNITION

The Company derives revenue primarily from fixed-price contracts through which the Company provides engineering, design, and procurement services, materials and equipment, and construction / installation services. Revenue is also generated through the sale of solar-related equipment and, to a lesser extent, from consulting projects and government-funded grants.

Contract revenues are recorded when there is persuasive evidence that a binding contractual arrangement exists, the price is fixed and determinable, the Company has commenced work on the project, and collectibility is reasonably assured.

Contract revenues are recognized using the percentage of completion method. The percentage of completion is calculated by dividing the direct labor and other direct costs incurred by the total estimated direct cost of the project. Contract value is defined as the total value of the contract, plus the value of approved change orders. Estimates of costs to complete are reviewed periodically and modified as required. Provisions are made for the full amount of anticipated losses, on a contract-by-contract basis. These loss provisions are established in the period in which the losses are first determined. Changes in estimates are also reflected in the period they become known. The Company maintains all the risks and rewards, in regard to billing and collection.

Revenues from equipment sales containing acceptance provisions are recognized upon customer acceptance. Cash payments received in advance of product or service revenue are recorded as customer deposits.

Revenues from consulting projects are recognized as services are rendered. Grant revenues are recognized when received, or if based on entitlement periods, when entitlement occurs.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the data we used to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. In recording any additional allowances, a respective charge against income is reflected in the general and administrative expenses, and would reduce the operating results in the period in which the increase is recorded.

The Company performed a sensitivity analysis to determine the impact of fluctuations in our estimates for our allowance for doubtful accounts. As of December 31, 2007, the allowance for doubtful accounts was $221,000. If this amount were in error by plus or minus one percent of the account receivable balance, the impact would be an additional $103,000 of income or expense.

ACCOUNTING FOR INCOME TAXES

The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of its consolidated financial statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences together with net operating loss carryforwards and tax credits may be recorded as deferred tax assets or liabilities on the balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be recovered from future taxable income. To the extent that the Company determines that it is more likely than not that deferred tax assets will not be utilized, a valuation allowance is established. Taxable income in future periods significantly different from that projected may cause adjustments to the valuation allowance that could materially increase or decrease future income tax expense. As of December 31, 2007 and 2006 an allowance equal to 100% of the deferred tax asset was recorded.

Share-Based Compensation

On January 1, 2006, The Company adopted SFAS No. 123R, “Share-Based Payment,” which requires all companies to measure and recognize compensation expense at fair value for all stock-based payments to employees and directors. SFAS No. 123R is being applied on the modified prospective basis. Prior to the adoption of SFAS No. 123R, the Company accounted for its stock-based compensation plans for employees and directors under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations, and accordingly, the

Company recognized no compensation expense related to the stock-based plans for grants to employees or directors. Grants to consultants under the plans were recorded under SFAS No. 123.

Under the modified prospective approach, SFAS No. 123R applies to new grants of options and awards of stock as well as to grants of options that were outstanding on January 1, 2006 and that may subsequently be repurchased, cancelled or materially modified. Under the modified prospective approach, compensation cost recognized for the year ended December 31, 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested on, January 1, 2006, based on fair value as of the prior grant-date and estimated in accordance with the provisions of SFAS No. 123R. Prior periods were not required to be restated to reflect the impact of adopting the new standard.

We utilize the Black-Scholes option pricing model to estimate the fair value of stock-based compensation at the date of grant. The Black-Scholes model requires subjective assumptions regarding dividend yields, expected volatility, expected life of options and risk free interest rates. The assumptions reflect management’s best estimate. Changes in these assumptions can materially affect the estimate of fair value and the amount of our stock-based compensation expenses.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2007 AND 2006 (amounts are rounded to the nearest thousand)

Contract Revenue. Contract revenue for 2007 amounts to $17,530,000, and represents 95% of the Company’s revenue. This revenue was generated by domestic commercial and residential projects. The Company implemented an aggressive upgrade of the sales and marketing staff in 2007, along with taking a more aggressive approach to the bid proposal process. Staffing, both at an office and field crew level, were increased and skills upgraded, which played a big part in the Company securing a $16.25 million deal with Fresno International Airport in Fresno. Overall, the increase in revenue over 2007 was obtained as follows; In California, the Company completed four commercial projects with recognized revenue of $406,000 and had one commercial project in progress as of December 31, 2007, with recognized revenue of $13,347,000. The Company also completed fifteen residential projects with aggregate revenue of $667,000. In New Jersey, fourteen commercial projects were completed in 2007 with recognized revenue of $2,692,000. Three residential jobs were completed with recognized revenue of $324,000. In Texas, the company concluded a 2006 job, recognizing revenue of $51,000. One small international job was completed in 2007, recognizing revenue of $3,000.

Contract Revenue — Related Party. The Company also recorded related party revenue from a sale to a principal shareholder of 12 Mobil MaxPure^® units, recognizing revenue of $900,000 in 2007.

Grant Revenue. The Company recognized grant revenue of $36,000 in 2007. This is composed of $1,400 from the U.S. Trade and Development Agency (USTDA) and $34,000 from the New Jersey Board of Public Utilities (NJBPU). The USTDA grant is in connection with a pilot project for water supply in Sri Lanka. This project is designed to assess solar technology methods to provide safe, sustainable water supplies to people in six villages near the tsunami-ravaged southern coast of Sri Lanka. The NJBPU grant is for research in the development of cost effective, grid-tied motor drives for photovoltaic applications. Both jobs were completed in 2007.

Cost of Contract Revenue. Cost of contract revenue consists primarily of third party construction and installation expense, materials and supplies required for construction and component equipment, including the solar panels, solar array, inverters, variable speed drives and meters.

Cost of Grant Revenue. Cost associated with grant revenue consists primarily of third party subcontracted costs incurred for consulting expenses and prototype costs. The Company expenses internal research, engineering and development costs, as incurred. See Research and Development expense below.

Gross Profit on Contracts. The Company generated gross profits on contracts totaling $1,489,000. Gross profits were offset by warranty reserves and other expenses not allocated to individual contracts totaling $135,000 in 2007.

Gross Profit on Contracts- Related Party. The Company generated gross profits on related party contracts totaling $214,000.

Gross Profit on Grants. A Gross profit of $36,000 in 2007 was earned in connection with the Company’s grant revenue.

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses amount to $15,369,000 in 2006, and consist primarily of salaries and related personnel costs, travel, professional fees, including legal and accounting, rent, insurance, and other sales and marketing expenses.

Debt Sourcing Fees and Commissions. The Company historically has financed its operations through a combination of convertible debt, convertible preferred stock, and equity.

Research and Development Expense. Research and development expense consists primarily of salary expense for internal personnel, and related personnel costs, as well as prototype costs incurred to improve the design of the Company’s installations, and expand the Company’s product line. Research and development are critical to the Company’s strategic objectives of enhancing its technology to meet the requirements of its targeted customers. The Company expects to maintain, if not increase, its current level of expenditure for research and development on a going-forward basis.

COMPARISON OF YEARS ENDED DECEMBER 31, 2007 AND 2006

(amounts are rounded to the nearest thousand)

Contract Revenue. Contract revenue for the year ended December 31, 2007 was $17,530,000, an increase of $413,000, or 2%, from $17,117,000 for 2006. The Company continued its expanded revenue base with further continuing to upgrade the sales and marketing staff, along with taking a more aggressive approach to the bid proposal process. Staffing, both at an office and crew level, were increased and skills upgraded, which played a big part in the Company securing the biggest contract in its existence, a $16.25 million deal with an international airport in Fresno, California. Overall, the in revenue over 2007 was obtained as follows; In California, the Company completed four commercial projects with recognized revenue of $406,000 and had one commercial project in progress as of December 31, 2007, with recognized revenue of $13,347,000. The Company also completed fifteen residential projects with aggregate revenue of $667,000. In New Jersey, fourteen commercial projects were completed in 2007 with recognized revenue of $2,692,000. Three residential jobs were completed with recognized revenue of $324,000. In Texas, the company concluded a 2006 job, recognizing revenue of $51,000. One small international job was completed in 2007, recognizing revenue of $3,000.

Contract Revenue — Related Party. The Company also recorded related party revenue from a sale to a principal shareholder of 12 Mobil MaxPure^® units, recognizing revenue of $900,000 in 2007 as compared to $0 in 2006.

Grant Revenue. Grant revenue for the year ended December 31, 2007 was $36,000, a decrease of $181,000, or 84% from $217,000 for 2006. The fluctuation is a reflection of the timing of grant awards and completion of associated tasks/milestones called for under the grants. Grant revenue is expected to be an immaterial portion of the Company’s revenue stream going forward into 2008.

Cost of Contract Revenue. The cost of contract revenue for the year ended December 31, 2007 was $16,042,000, an increase of $1,630,000 or 11% from $14,411,000 in 2006. The increase in cost of contract revenue is principally the result of higher volume in 2007.

Cost of Contract Revenue — Related Party. The Company also recorded related party cost from from a sale to a principal shareholder of 12 Mobil MaxPure^® units, of $685,000 in 2007 as compared to $0 in 2006.

Cost of Grant Revenue. There was no cost of grant revenue recorded for the year ended December 31, 2007, as compared to $203,000 in 2006.

Gross Profit on Contracts. The Company generated a gross profit on contracts in 2007 of $1,489,000, representing a decrease of $1,216,000, versus the gross profit of $2,705,000 in 2006. Gross profits totaling $1,840,000 were attributable to 36 projects. Gross profits were offset by $216,000 in gross losses generated by five projects. Gross profits are also offset by warranty reserves and other expenses not allocated to individual contracts totaling $135,000. The Company attributes the decrease in margin primarily to its main job at the Fresno Yosemite International Airport in 2007, a highly competitively bidded contract, which generated a gross profit margin of 8%, as opposed to the main job in 2006, that offered a margin of 27%. The Company continued to achieve better overall efficiencies, bid processes, and trained staff in support of the increasingly challenging and complex job bid process.

Gross Profit on Contracts- Related Party. The Company generated gross profits on related party contracts totaling $214,000, as compared to $0 in 2006.

Gross Profit from Grants. The Company generated gross profit of $36,000 from grants in 2007, versus a gross profit of $14,000 in 2006.

Marketing, General and Administrative. Marketing, general and administrative expenses for the year ended December 31, 2007 were $15,369,000, an increase of $7,594,000 or 98%, from $7,775,000 in 2006. The $7,594,000 increase includes increases in salaries and benefits of $2,278,000 associated with increased headcount in 2007. The number of full-time employees increased from 45 as of December 31, 2006 to 93 as of December 31, 2007. The increases were also a result of increases in professional fees totaling $2,900,000 made up of increased costs for legal, accounting, consulting and investor relations. Increases in Sales & Marketing of $700,000 were a result of increased staff and more focus on international markets. Facilities and Office expenses were up $885,000 covering areas such as our new facility in Ewing, recruiting expenses for high level staff, depreciation expense, and general office supplies, printing and postage. Insurance expenses increased by $250,000 due to the need for increased coverages on high exposure contracts, and significant increase in overall headcount. Shareholders expense increased by $160,000 due primarily to directors fees. Bad Debt write-offs, which the Company recorded as MG&A expense, increased by $318,000, mainly due to an isolated large contract settlement related to revenue recognized prior to 2007. The Company does not expect this

type of write-off level to continue in 2008. Increases in other expenses of $103,000 accounted for the balance of the $7,594,000 change from 2006 to 2007.

Research and Development Expenses. Research and development expenses incurred in the year ended December 31, 2007 were $826,000, an increase of $624,000 or 308% from $202,000 in 2006. The increase is partly a result of Mobil MaxPure^®, which accounted for $326,000, and the balance was related to development work being performed by Entech (see Proposed Acquisition section). The Company continues to develop its intellectual property, and its increased efforts to market the MobilMax product line.

Loss from Operations. In the year ended December 31, 2007 the Company incurred a loss from operations of $14,456,000, an increase of $9,199,000 or 175% from $5,257,000 in 2006.

Debt Sourcing Fees and Commissions. There were no fees and commission expenses incurred to raise debt funding in the year ended December 31, 2007 as compared to $284,000 in 2006.

Beneficial Conversion and Warrant Amortization. This expense is a non-cash charge incurred as a result of the market price of the Company’s common stock on the date of issuance of convertible notes being higher than the effective conversion price of the convertible notes being issued. In the year ended December 31, 2007, the Company incurred $125,000 of beneficial conversion and warrant inducement fees, associated with the issuance of convertible notes in July of 2005. For the year ended December 31, 2006, the Company incurred beneficial conversion and warrant inducement fees of $3,400,000. The increase is attributable to the amortization of the July 2005 convertible notes, using the effective interest method.

Warrant Exercise Inducement Expense. This expense is a non-cash charge incurred as a result of the Company granting short term inducements to certain warrant holders, whereby the exercise price was lowered for a limited period of time. In the years ended December 31, 2007 and 2006, the Company incurred $0 and $1,588,000, respectively. At various times during 2006, the Company offered all individuals who were granted detachable warrants (issued in connection with convertible loans) in 2003 and 2004 a short-term inducement to exercise the warrants at a reduced exercise price ($0.20). The offers were short term in nature and expired anywhere from 30-60 days from the initial offer. The Company notes that 9,099,698 warrants were exercised as a result of the offers. Since the warrants were issued in connection with convertible loans, the Company recorded an expense related to the notes. The expense for the inducement was recorded by obtaining the difference between the Black-Scholes value of the initial fair value of the warrants and that of the short-term modification multiplied by the number of parties who accepted the inducement. The Company used the current stock price, modified exercise price, current volatility, current interest and dividend rate and the 30-60 day term as their inputs for the Black-Scholes model. The Company notes that the expense incurred as a result of these offers was $1,216,527. The additional $371,905 of expense related to the Company issuing 1,447,422 shares of common stock to a debt holder to induce them to exercise their outstanding warrants (not at a discount). The company calculated this portion of the expense by multiplying the market price of the stock the date the inducement was offered by the number of shares issued.

Interest(Expense)/Income(net). Was $196,000 and ($959,000) in the years ended December 31, 2007 and 2006, respectively, a decrease of $1,155,000 or 120%. This decrease was due to significant decreases in outstanding debt from 2007 to 2006, an expense due to an increase in the value of our Series D Preferred Stock warrant liability of $439,000 during 2006, along with Capital raises in 2007 that resulted in positive interest income.

Income Taxes. The Company recognized an income tax benefit of $0 and $0 for the years ended December 31, 2007 and 2006, respectively. 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 sell unused New Jersey net operating loss carryovers and research and development tax credits to other New Jersey corporate taxpayers.

Accretion of Preferred Stock Dividends. These dividends are associated with Series C Preferred Stock, and are accrued for at an interest rate of 6%, paid monthly. In 2007 dividend expense was $38,000, as compared to $23,000 in 2006, where the dividend was only accrued over a six month period from the issuance of the preferred shares.

RESULTS OF OPERATIONS — YEARS ENDED DECEMBER 31, 2006 and 2005 (amounts are rounded to the nearest thousand)

Contract Revenue. Contract revenue for 2006 amounts to $17,117,000, and represents 99% of the Company’s revenue. This revenue, was generated by domestic commercial and residential projects. The significant revenue growth can be attributed to the Company moving away from its entrepreneurial roots in 2006. The expanded revenue base from 2005 to 2006 was a mixture of upgrading the sales and marketing staff, along with taking a more aggressive approach to the bid proposal process. Staffing, both at an office and crew level, were increased and skills upgraded, which played a big part in the Company securing the biggest contract in its existence, a $7.8 million deal with an irrigation farm in California. Overall, the increase in revenue over 2005 was obtained as follows; In California, the Company completed two commercial projects with recognized

revenue of $1,820,000 and had six commercial projects in progress as of December 31, 2006, with recognized revenue of $9,658,000. The Company also completed nine residential projects with aggregate revenue of $524,000. In New Jersey, six commercial projects were completed in 2006 with recognized revenue of $2,108,000. Three commercial projects, with recognized revenue of $2,128,000 in 2006, were in progress as of December 31, 2006. The Company also recorded revenue of $567,000 from three commercial projects in Delaware and $278,000 from one project in Texas.

Grant Revenue. The Company recognized grant revenue of $217,000 in 2006. This is composed of $192,000 from the U.S. Trade and Development Agency (USTDA) and $25,000 from the New Jersey Board of Public Utilities (NJBPU). The USTDA grant is in connection with a pilot project for water supply in Sri Lanka. This project is designed to assess solar technology methods to provide safe, sustainable water supplies to people in six villages near the tsunami-ravaged southern coast of Sri Lanka. The NJBPU grant is for research in the development of cost effective, grid-tied motor drives for photovoltaic applications.

Cost of Contract Revenue. Cost of contract revenue consists primarily of third party construction and installation expense, materials and supplies required for construction and component equipment, including the solar panels, solar array, inverters, variable speed drives and meters.

Gross Profit (Loss) on Contracts. The Company generated gross profits on contracts totaling $2,705,000 in 2006. Gross profits totaling $3,463,000 were attributable to 27 projects. Gross profits were offset by $99,000 in gross losses generated by four projects. Gross profits are also offset by warranty reserves and other expenses not allocated to individual contracts totaling $659,000.

Gross Profit (Loss) on Grants. Gross profit of $14,000 was earned in connection with the Company’s grant revenue; A gross loss of $9,000 from the USTDA grant, and a gross profit of $25,000 from the NJBPU grant.

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses amount to $7,775,000 in 2006, and consist primarily of salaries and related personnel costs, travel, professional fees, including legal and accounting, rent, insurance, and other sales and marketing expenses.

Debt Sourcing Fees and Commissions. The Company historically has financed its operations through a combination of convertible debt, convertible preferred stock, and equity. To date, the increased working capital required to support the Company’s rapid revenue growth have been a net user of cash, and this is expected to continue through the end of 2007.

Research and Development Expense. Research and development expense consists primarily of salary expense for internal personnel, and related personnel costs, as well as prototype costs incurred to improve the design of the Company’s installations, and expand the Company’s product line. Research and development are critical to the Company’s strategic objectives of enhancing its technology to meet the requirements of its targeted customers. The Company expects to maintain, if not increase, its current level of expenditure for research and development on a going-forward basis.

COMPARISON OF YEARS ENDED DECEMBER 31, 2006 AND 2005 (amounts are rounded to the nearest thousand)

Contract Revenue. Contract revenue for the year ended December 31, 2006 was $17,117,000, an increase of $15,199,000, or 792%, from $1,918,000 for 2005. The significant revenue growth can be attributed to the Company moving away from its entrepreneurial roots in 2006. The expanded revenue base from 2005 to 2006 was a mixture of upgrading the sales and marketing staff, along with taking a more aggressive approach to the bid proposal process. Staffing, both at an office and crew level, were increased and skills upgraded, which played a big part in the Company securing the biggest contract in its existence, a $7.8 million deal with an irrigation farm in California. Overall, the increase in revenue over 2005 was obtained as follows; In California, the Company completed two commercial projects with recognized revenue of $1,820,000 and had six commercial projects in progress as of December 31, 2006, with recognized revenue of $9,658,000. The Company also completed nine residential projects with aggregate revenue of $524,000. In New Jersey, six commercial projects were completed in 2006 with recognized revenue of $2,108,000. Three commercial projects, with recognized revenue of $2,128,000 in 2006, were in progress as of December 31, 2006. The Company also recorded revenue of $567,000 from three commercial projects in Delaware and $278,000 from one project in Texas.

Grant Revenue. Grant revenue for the year ended December 31, 2006 was $217,000, an increase of $104,000, or 92% from $113,000 for 2005. The fluctuation is a reflection of the timing of grant awards and completion of associated tasks/milestones called for under the grants. Grant revenue is expected to be an immaterial portion of the Company’s revenue stream going forward into 2007.

Cost of Contract Revenue. The cost of contract revenue for the year ended December 31, 2006 was $14,411,000, an increase of $11,966,000 or 489% from $2,445,000 in 2005. The increase in cost of contract revenue is principally the result of higher volume in 2006 (revenue is up 792%).

Cost of Grant Revenue. The cost of grant revenue for the year ended December 31, 2006 was $203,000, an increase of $132,000 from $71,000 in 2005.

Gross Profit (Loss) on Contracts. The Company generated a gross profit on contracts in 2006. The gross profit of $2,705,000 in 2006, represents an increase of $3,232,000, versus the gross loss of $527,000 in 2005. Gross profits totaling $3,463,000 were attributable to 27 projects. Gross profits were offset by $99,000 in gross losses generated by four projects. Gross profits are also offset by warranty reserves and other expenses not allocated to individual contracts totaling $659,000. The Company attributes its significant rise in gross profit partly to its evolution from an entrepreneurial to a fast growth company. Better overall efficiencies, bid processes, and trained staff have also supported the increased job margins.

Gross Profit (Loss) from Grants. The Company generated gross profit of $14,000 from grants in 2006, versus a gross profit of $42,000 in 2005. Gross profit is made up of a gross loss of $9,000 from the USTDA grant, and a gross profit of $25,000 from the NJBPU grant.

Marketing, General and Administrative. Marketing, general and administrative expenses for the year ended December 31, 2006 were $7,775,000, an increase of $3,327,000 or 75%, from $4,448,000 for 2005. The $3,327,000 increase includes increases in salaries and benefits of $1,450,000 and stock option expense of $1,124,000 associated with increased headcount in 2006. The number of full-time employees increased from 33 as of December 31, 2005 to 45 as of December 31, 2006. The increases were also associated with the September 2005 acquisition of Quantum Energy Group. The increases were also a result of increases in professional fees totaling $657,000 made up of increased costs for legal, consulting and investor relations.

Research and Development Expenses. Research and development expenses incurred in the year ended December 31, 2006 were $202,000, an increase of $60,000 or 42% from $142,000 in 2005. The increase is a result of the Mobil Max Product line. The Company has continued to develop its intellectual property as evidenced by the filing of two patent applications in 2006.

Loss from Operations. In the year ended December 31, 2006 the Company incurred a loss from operations of $5,257,000, an increase of $182,000 or 4% from $5,075,000 in 2005.

Debt Sourcing Fees and Commissions. Fees and commission expenses incurred to raise debt funding in the year ended December 31, 2006 were $284,000, a decrease of $158,000 or 64% from $442,000 in 2005.

Beneficial Conversion and Warrant Amortization. This expense is a non-cash charge incurred as a result of the market price of the Company’s common stock on the date of issuance of convertible notes being higher than the conversion price of the convertible notes being issued. In the year ended December 31, 2006, the Company incurred $3,400,000 of beneficial conversion and warrant interest expense, associated with the issuance of convertible notes in July of 2005. For the year ended December 31, 2005, the Company incurred beneficial conversion and warrant interest expense of $6. The increase is attributable to the amortization of the July 2005 convertible notes, using the effective interest method.

Warrant Exercise Inducement Expense. This expense is a non-cash charge incurred as a result of the Company granting short term inducements to certain warrant holders, whereby the exercise price was lowered for a limited period of time. In the years ended December 31, 2006 and 2005, the Company incurred $1,588,000 and $0 of warrant exercise inducement expenses, respectively. At various times during 2006, the Company offered all individuals who were granted detachable warrants (issued in connection with convertible loans) in 2003 and 2004 a short-term inducement to exercise the warrants at a reduced exercise price ($0.20). The offers were short term in nature and expired anywhere from 30-60 days from the initial offer. The Company notes that 9,099,698 warrants were exercised as a result of the offers. Since the warrants were issued in connection with convertible loans, the Company recorded an expense related to the notes. The expense for the inducement was recorded by obtaining the difference between the Black-Scholes value of the initial fair value of the warrants and that of the short-term modification multiplied by the number of parties who accepted the inducement. The Company used the current stock price, modified exercise price, current volatility, current interest and dividend rate and the 30-60 day term as their inputs for the Black-Scholes model. The Company notes that the expense incurred as a result of these offers was $1,216,527. The additional $371,905 of expense related to the Company issuing 1,447,422 shares of common stock to a debt holder to induce them to exercise their outstanding warrants (not at a discount). The company calculated this portion of the expense by multiplying the market price of the stock the date the inducement was offered by the number of shares issued.

Interest Expense. Interest expense was $1,079,000 and $1,029,000 in the years ended December 31, 2006 and 2005, respectively, an increase of $50,000 or 5%. This increase was due to a significant decrease in outstanding debt from 2005 to 2006 offset by an expense due to an increase in the value of our Series D Preferred Stock warrant liability of $439,000 during 2006.

Income Taxes. The Company recognized an income tax benefit of $0 and $201,000 for the years ended December 31, 2006 and 2005, respectively. 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 sell unused New Jersey net operating loss carryovers and research and development tax credits to other New Jersey corporate taxpayers.

HISTORICAL CASH FLOW ANALYSIS

The “Historical Cash Flows Analysis” section discusses consolidated cash flow from operations, investing activities and financing activities.

Cash Flows from Operating Activities

	Year ended December 31,
	2007			2006 (restated)
Net Cash Used in Operating Activities	$	(16,549,549	)	$	(10,362,259	)

In 2007, the Company had an increase in net cash used in operating activities of $6,187,290 in a period when the Company also had an increase in net loss of $2,896,647. An analysis of the increased loss is above in the RESULTS OF OPERATIONS and COMPARISON OF YEARS ENDED DECEMBER 31, 2007 and 2006. The increase in net cash used in operating activities in 2007, a period when the Company’s net loss increased, is attributable to changes in non-cash charges and from the timing of cash receipts and disbursements related to working capital items in 2007. These changes in working capital items relate mainly to the significant increase in job contracts from 2006 to 2007, along with an increase in staffing to coincide with the growth of the company.

Increases (decreases) in non-cash charges:
Beneficial conversion and Warrant amortization	(3,275,034		)
Warrant exercise inducement expenses	(1,588,432		)
Issuance of stock for service	19,018
Depreciation and amortization	89,185
Loss on disposal of asset	160,279
Stock-based employee compensation cost	(106,034		)
Interest expense attributable to increase in value of warrant liability	(439,000		)
Amortization of interest expense	(333,823		)
Issuance of options and warrants for services	(10,000		)
Amortization of intangibles and loan origination costs	(290,688		)
Share-based non-employee compensation cost	(44,280		)
Amortization of deferred compensation	(45,000		)
Issuance of stock in lieu of interest	(43,237		)
	(5,907,046		)
Changes in timing of cash receipts and disbursements related to working capital items	2,616,403
	(3,290,643		)
Change in net loss—2007 compared to 2006	(2,896,647		)
Increase in net cash used in operating activities	$	(6,187,290	)

Refer to Warrant Exercise Inducement Expense section on the MD&A for a detailed description of the transactions.

Cash Flows from Investing Activities

	Year ended December 31,
	2007			2006
Net Cash Used in Investing Activities	$	(4,396,035	)	$	(966,234	)

In 2007 and 2006, investing activities included the deferred acquisition costs and advances to ENTECH Inc. Investing activities also included leasehold improvements for the company’s corporate headquarters in Ewing, NJ, and the purchase of office equipment including computers for the increased workforce.

As part of the merger agreement, the Company required to provide to ENTECH $5.0 million of working capital to provide research and development engineering related to the implementation of a new manufacturing plant in Texas. Approximately $2.7 million of working capital was provided to ENTECH as of December 31, 2007, of which $500,000 was expensed as research and development expense on WorldWater’s Statement of Operations in the quarter ending September 30, 2007. The remaining $2.3 million of capital was provided to ENTECH subsequent to December 31, 2007 and prior to the merger which was completed on January 28, 2008.

Cash Flows from Financing Activities

	Year ended December 31,
	2007		2006 (restated)
Net Cash Provided By Financing Activities	$	22,048,437	$	16,300,439

In 2007, the Company issued 1,233,666 shares of 10% convertible debentures maturing in 2007 and 2008 generating net proceeds of $185,050. In addition, 18,884,465 shares of common stock were issued upon the exercise of warrants and stock options, raising $3,621,555.

On September 28, 2007, the Company entered into a Stock and Warrant Purchase Agreement with the Quercus Trust, whereby the Quercus Trust purchased 7.5 million shares of WorldWater’s common stock at a price of $1.782 per share, for total proceeds of $13,365,000. The Agreement also provides for the issuance of warrants to the Quercus Trust for the purchase of 9.0 million additional shares of WorldWater’s common stock at an exercise price of $1.815, subject to certain adjustments. The exercise of warrants into common stock cannot take place until additional shares are authorized by the company’s shareholders. Prior to September 28, 2007, the Quercus Trust and its affiliates owned approximately 21.6 million shares of WorldWater common stock, representing approximately 12.2% of the equity ownership in the Company, or 8.2% on a fully diluted basis. With this Agreement, the Quercus Trust and its affiliates own approximately 16.4% of the equity ownership in WorldWater, or 10.6% on a fully diluted basis as of September 30, 2007.

On April 12, 2007, the Company initiated a private offering. A summary of the offering included 10,900,000 Shares of the Company’s Common stock issued at $0.50 per share, with a five-year warrant attached to purchase 3,500,000 Shares of the Company’s common stock at $0.50. Net proceeds from this offering amounted to $5,117,000. The net proceeds from this Offering were used by the Company primarily for working capital.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2007, our current ratio was 2.19 compared to 2.34 at December 31, 2006. As of December 31, 2007, we had $14,215,991 of working capital compared to working capital of $9,294,450 as of December 31, 2006. Cash and cash equivalents were $6,873,448 as of December 31, 2007, as compared to $5,801,852 as of December 31, 2006.

The Company has historically financed operations and met capital expenditures requirements primarily through sales of capital stock and solar system equipment sales. Management plans to continue to raise funds through the sale of capital and forecasts increased revenues.

The Company has budgeted for $5.5 million of capital expenses in 2008, mainly consisting of machinery and equipment for its 71,000 square foot technical and manufacturing facility, which is leased in the County of Tarrant, TX.

In January 2008, Quercus Trust, advanced the Company $6.0 million at a rate of 8%. These funds were used primarily to expedite the acquisition of ENTECH on January 28, 2008. The outstanding principal amount of the note and all accrued and unpaid interest was repaid on February 12, 2008.

We believe that our existing cash balance together with our other existing financial resources, including our capital raise in 2008, and revenues from sales of our solar systems, will be sufficient to meet our operating and capital requirements beyond the first quarter of 2009.

Below is a table showing the potential issuable shares and available authorized common to be issued as of December 31, 2007.

		As of December 31, 2007
Number of authorized common shares:		275,000,000
Less common shares outstanding:		189,352,674
Less potential issuable common shares:
Warrants		13,484,226
Debt conversion rights		1,454,470
Stock options		14,589,417
Preferred stock conversion rights		55,842,797
Total Potential Issuable Common Shares		85,370,910
Available common shares to be issued:		276,416

On October 29, 2007, we entered into a merger agreement to acquire ENTECH. The merger agreement requires, among other things, the payment of $5 million and the issuance of 19,672,131 shares of WorldWater common stock to the ENTECH stockholders. Since we did not have sufficient authorized and unissued shares of common stock to complete the merger, on January 25, 2008, we entered into a Stock Exchange Agreement with The Quercus Trust pursuant to which agreement the Company issued 19,700 shares of its Series E Convertible Preferred Stock in exchange for 19,700,000 shares of the Company’s common stock held by The Quercus Trust. Each share of the Series E Convertible Preferred Stock will automatically convert into 1,000 shares of the Company’s common stock upon the approval of the holders of WorldWater common stock to the increase in our authorized common stock discussed in this Proposal. The merger was completed on January 28, 2008. As a result, our stockholders must approve the amendment of our Certificate of Incorporation to increase our authorized common stock in order for to convert the Series E Convertible Preferred Stock to common stock. (See “The Acquisition of ENTECH” below.) If the Company’s stockholders approve the proposed increase in authorized shares, no further action or authorization by the Company’s stockholders will be necessary to convert the Series E Convertible Preferred Stock to common stock.

Additionally, the increase in the authorized number of shares is required in order to accommodate the Company’s anticipated growth and to pursue new business. The increased share authorization will provide the Company with an ability to raise capital funds that may be necessary to further develop its core business, to fund other potential acquisitions, to finance working capital requirements, to have shares available for use in connection with its stock option plans, and to pursue other corporate purposes that may be identified by the board of directors. The board of directors will determine whether, when and on what terms the issuance of shares of common stock may be warranted in connection with any future actions. No further action or authorization by the Company’s stockholders would be necessary prior to issuance of these additional shares of common stock authorized under the amendment, except as may be required for a particular transaction by the Company’s Certificate of Incorporation, by applicable law or regulatory agencies or by the rules of the NASDAQ Stock Market or of any stock exchange on which the Company’s common stock may then be listed.

Although an increase in the authorized shares of common stock could, under certain circumstances, also be construed as having an anti-takeover effect (for example, by permitting easier dilution of the stock ownership of a person seeking to effect a change in the composition of the board of directors or contemplating a tender offer or other transaction resulting in the acquisition of the Company by another company), the proposed amendment is not in response to any effort by any person or group to accumulate the

Company’s stock or to obtain control of the Company by any means. In addition, the proposal is not part of any plan by the board of directors to recommend or implement a series of anti-takeover measures.

COMMITMENTS AND GUARANTEES

The Company’s commitments as of December 31, 2007, for the years 2008 through 2012 and thereafter as summarized below:

	2008		2009		2010		2011		2012		Thereafter		Total
Long-tem debt maturities (face amount)	$	560,897	$	—	$	38,456	$	—	$	—	$	—	$	599,353
Employment obligations	1,352,707		1,440,680		1,082,347		316,667		—		—			4,192,401
Renewable energy credit guarantee obligations	64,701		64,701		64,701		64,701		35,509				294,313
Operating lease payments	885,743		829,469		772,631		772,631		772,631		3,516,555			7,549,660
Total	$	2,864,048	$	2,334,850	$	1,958,135	$	1,153,999	$	808,140	$	3,516,555	$	12,635,731

INCOME TAXES

As of December 31, 2007, the Company had federal and state net operating loss carryforwards totaling approximately $44,845,500 and $29,409,800, respectively, available to reduce future taxable income and tax liabilities which expire at various dates between 2007 and 2026. In addition, as of December 31, 2007, the Company had federal research and development tax credit carryforwards of approximately $180,600 available to reduce future taxable income and tax liabilities which expire at various dates between 2026. Under provisions of the Internal Revenue Code, substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards and research and development credit carryforwards, which can be used in future years.

ACQUISITION

On May 25, 2007, we entered into a second letter of intent to acquire ENTECH. This letter of intent was subsequently amended on August 1, 2007 to extend the date by which the merger must be completed. On October 29, 2007, the Company and ENTECH entered into an Agreement and Plan of Merger. The merger was completed on January 28, 2008. Specifically, ENTECH merged with and into a wholly-owned subsidiary of the Company and the subsidiary survived the merger as a wholly-owned subsidiary of the Company. Under the terms of the merger agreement, WorldWater paid the following consideration to ENTECH stockholders in 2008:

· $4.5 million in cash, (in addition to, $500,000 that was paid during 2007), and

· 19,672,131 shares of the Company’s common stock for an aggregate value of $42,295,082. This determination of value is based on a $2.15 per share value of the Company’s common stock, which is its estimate of the fair market value of its common stock for a reasonable period before and after the date of merger agreement, October 29, 2007.

With the combined technologies of the Company and ENTECH, we believe our solar systems will be capable of generating and delivering electrical and thermal energy on site at prices competitive to retail prices without relying on government sponsored rebates. ENTECH’s patented concentrator technology allows for the installation of large solar “farms” with greatly reduced requirements for solar cell materials (silicon or multi-junction). Due to the advantages of ENTECH’s concentrator, a significantly lesser amount of silicon used in flat plate solar modules is required by current ENTECH modules to generate the same electrical power. Consequently, the ENTECH technology greatly lessens the impact of the silicon material shortage currently constricting flat plate solar panel supply. ENTECH concentrators utilize a two-axis tracker to follow the sun’s position throughout the day, maximizing energy production.

In addition to the $500,000 non-refundable standstill payment to ENTECH in 2006, we made another $500,000 standstill payment in the second quarter 2007 which was released to the ENTECH stockholders prior to the completion of the merger transaction. Due diligence fees of $411,442 were recorded on the balance sheet through September 30, 2007, and along with the two $500,000 payments to ENTECH, resulted in a capitalized amount of $1,411,442 on the balance sheet at September 30, 2007, classified as deferred cost on proposed acquisition. Such amount will be added to the purchase price consideration.

In addition to the consideration to be paid to ENTECH’s stockholders, WorldWater was required to provide to ENTECH $5.0 million of working capital to provide research and development engineering related to the implementation of a new manufacturing plant in Texas. Approximately $2.7 million of working capital was provided to ENTECH as of December 31, 2007, of which $500,000 was expensed as research and development expense on WorldWater’s Statement of Operations in the quarter ending September 31, 2007. The balance of such funds was recorded as tangible assets or was in the bank accounts of ENTECH as of the acquisition date. The remaining $2.3 million of working capital was provided to ENTECH subsequent to December 31, 2007 and prior to the merger which was completed on January 28, 2008.

As a result of the ENTECH merger transaction, ENTECH’s current stockholders own approximately 10% of the fully-diluted post-transaction common stock of WorldWater.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141R”), which replaces FASB Statement No. 141. FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree, and the goodwill acquired. FAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. FAS 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51” (“FAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. FAS 160 is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning January 1, 2009. We are currently evaluating the potential impact, if any, of the adoption of FAS 160 on our consolidated financial position, results of operations and cash flows.

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for us beginning with the first quarter of 2008. We have not yet determined the impact of the adoption of SFAS No. 159 on our financial statements and footnote disclosures.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

WorldWater is exposed to certain market risks arising from transactions it has entered into in the normal course of business. These risks primarily relate to fluctuations in commodity prices.

Foreign Currency Transaction Risk

WorldWater does not believe it is exposed to foreign currency exchange risk because all of its sales and purchases are denominated in United States dollars.

Commodity Price Risk

WorldWater is subject to market risk from fluctuating market prices of certain raw materials. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. WorldWater endeavors to recoup these price increases from its customers on an individual contract basis to avoid operating margin erosion. WorldWater has historically not entered into any contracts to hedge its commodity risk although it may do so in the future. Commodity price changes can have a material impact on WorldWater’s prospective earnings and cash flows.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .

Report of Independent Registered Public Accounting Firm

We have audited the accompanying consolidated balance sheets of WorldWater & Solar Technologies Corp. and Subsidiaries (formerly WorldWater & Power Corp. and Subsidiaries) (the “Company”) as of December 31, 2007 and 2006 (as restated), and the related consolidated statements of operations, changes in stockholders’ equity (deficiency), and cash flows for each of the years in the three-year period ended December 31, 2007. We also have audited WorldWater & Solar Technologies Corp. and Subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made my management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness regarding Management’s failure to design and maintain adequate and timely controls over financial reporting has been identified and described in Management’s Assessment. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2007 financial statements.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WorldWater & Solar Technologies Corp. and Subsidiaries (formerly WorldWater & Power Corp. and Subsidiaries) as of December 31, 2007 and 2006 (as restated), and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. However, in our opinion, WorldWater & Solar Technologies Corp. and Subsidiaries did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As discussed in Note 4 to the consolidated financial statements, effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment.

As discussed in Note 3 to the consolidated financial statements, the Company has restated its consolidated financial statements for the year ended December 31, 2006.

/s/ Amper, Politziner & Mattia, P.C.

March 27, 2008

Edison, New Jersey

WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF

	December 31, 2007			December 31, 2006
				(Restated)
Assets

Current Assets:
Cash and cash equivalents	$	6,873,448		$	5,770,595
Restricted cash	—			31,257
Accounts receivable - trade, (net of allowance of $220,916 and $29,257 at December 31, 2007 and 2006, respectively)	10,155,589			5,288,241
Accounts receivable - other	—			22,500
Rebates receivable	1,153,800			—
Inventory	1,399,168			748,470
Costs and estimated earnings/losses in excess of billings	5,548,631			2,548,427
Prepaid expenses and deposits	973,795			1,763,293
Travel advances to employees	43,024			33,676
Total Current Assets	26,147,455			16,206,459

Equipment and Leasehold Improvements, Net	1,467,794			195,808

Intangible And Other Assets
Other intangible assets, net	26,667			66,667
Deferred costs on and advances to acquiree - ENTECH	3,795,362			790,769
Other deposits	52,710			8,443
Total Assets	$	31,489,988		$	17,268,146

Liabilities, Convertible Redeemable Preferred Stock, and Stockholders’ Equity/(Deficiency)

Current Liabilities:
Accounts payable and accrued expenses	9,392,944			4,862,877
Long-term debt and notes payable, current portion	298,092			360,897
Notes payable, related parties	—			3,000
Customer deposits	4,000			43,453
Customer deposits - related party	775,000			—
REC guarantee liability, current portion	64,701			98,710
Billings in excess of costs and estimated earnings/losses	2,900			149,245
Series D preferred stock warrants	1,393,827			1,393,827
Total Current Liabilities	11,931,464			6,912,009

Long-term debt and notes payable	38,456			38,456
REC guarantee liability, net of current portion	229,618			250,844
Total Liabilities	12,199,538			7,201,309

Convertible redeemable preferred stock
Series C convertible redeemable preferred stock	500,000			750,000
Series D convertible redeemable preferred stock	11,179,561			11,179,561
Total Convertible Redeemable Preferred Stock	11,679,561			11,929,561

Stockholders’ Equity / (Deficiency):
Preferred Stock Convertible $.01 par value authorized
10,000,000; issued and outstanding:
Series B 7%- 611,111 shares liquidation preference $550,000	6,111			6,111
Common Stock, $.001 par value; authorized 275,000,000;
189,352,674 and 149,359,052 issued and outstanding at December 31, 2007 and 2006, respectively	189,353			149,359

Additional paid-in capital	71,425,032			47,567,963
Accumulated deficit	(64,009,607		)	(49,586,157		)
Total Stockholders’ Equity / (Deficiency)	7,610,889			(1,862,724		)

Total Liabilities, Convertible Redeemable Preferred Stock and Stockholders’ Equity/(Deficiency)	$	31,489,988		$	17,268,146

The Notes to Consolidated Financial Statements are an integral part of these statements.

WORLDWATER & SOLAR TECHNOLOGIES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

	Years Ended:
	2007			2006			2005
	(Restated)
Revenues:
Contract	$	17,530,167		$	17,116,789		$	1,918,420
Contract - Related Party	900,000			—			—
Grant	35,853			216,892			113,060
Total	18,466,020			17,333,681			2,031,480

Cost of Revenues:
Contract	16,041,611			14,411,406			2,445,441
Contract - Related Party	685,571			—			—
Grant	—			202,688			71,375

Total	16,727,182			14,614,094			2,516,816

Gross Profit (Loss):
Contract	1,488,556			2,705,383			(527,021		)
Contract - Related Party	214,429			—			—
Grant	35,853			14,204			41,685
Total	1,738,838			2,719,587			(485,336		)

Operating Expenses:
Marketing, general and administrative expenses	15,369,285			7,774,871			4,447,767
Research and development expense	825,838			202,014			142,182
Total Operating Expenses	16,195,123			7,976,885			4,589,949
Loss from Operations	(14,456,285		)	(5,257,298		)	(5,075,285		)

Other (Expense) Income
Debt sourcing fees and commissions	—			(284,138		)	(441,956		)
Beneficial Conversion and Warrant Amortization	(124,964		)	(3,399,992		)	(6		)
Warrant exercise inducement fees	—			(1,588,432		)	—
Interest Income	271,587			120,103			168,278
Interest Expense	(75,377		)	(1,078,635		)	(1,028,677		)
Total Other (Expense) Income, Net	71,246			(6,231,094		)	(1,302,361		)
Net Loss	(14,385,039		)	(11,488,392		)	(6,377,646		)

Accretion of preferred stock dividends	(38,411		)	(22,500		)	—

Preferred Stock Dividends attributable to Beneficial Conversion and Warrant Amortization	—			(4,066,796		)	—

Net Loss Attributable to Common Shareholders	$	(14,423,450	)	$	(15,577,688	)	$	(6,377,646	)

Net Loss applicable per Common Share (basic and diluted)	$	(0.09	)	$	(0.11	)	$	(0.07	)

Weighted Average Common Shares Outstanding used in Per Share Calculation (Basic and Diluted)	168,960,895			135,921,421			93,767,378

The Notes to the Consolidated Financial Statements are an integral part of these statements.

WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

	2007			2006			2005
	(Restated)

Cash Flows from Operating Activities:
Net loss attributable to common shareholders	$	(14,423,450	)	$	(15,577,688	)	$	(6,377,646	)
Preferred stock dividends attributable to Beneficial Conversion and Warrant amortization	—			4,066,746			—
Accretion of preferred stock dividends	38,411			22,500			—

Adjustments to reconcile net cash used in operating activities:
Issuance of warrants as inducement for warrant exercise	—			1,588,432			—
Beneficial conversion and warrant amortization	124,964			3,399,998			6
Stock based employee compensation cost	1,017,721			1,123,755			—
Interest expense attributable to increase in value of warrant liability	—			439,000			—
Amortization of interest expense	—			333,823			654,126
Amortization of intangibles and loan origination costs	40,000			330,688			498,214
Issuance of stock for service	246,500			227,481			211,272
Issuance of options and warrants for services	60,000			70,000			—
Share based non-employee compensation cost	8,500			52,780			—
Amortization of deferred compensation	—			45,000			30,000
Issuance of stock in lieu of interest	25,736			68,973			371,087
Loss on disposal of fixed assets	160,279			—			—
Depreciation and amortization	119,457			30,272			67,015

Changes in assets and liabilities:
Accounts receivable	(4,867,348		)	(4,933,503		)	1,223,339
Accounts receivable — related parties	22,500			9,926			(32,426		)
Rebates receivable	(1,153,800		)	—			—
Inventory	(650,698		)	(364,748		)	(381,272		)
Costs and estimated earnings/losses in excess of billings	(3,000,204		)	(2,081,442		)	(466,985		)
Prepaid expenses and deposits	745,232			(1,621,248		)	(61,337		)
Advances to employees	(9,348		)	(16,394		)	(3,049		)

Accounts payable and other accrued expenses	4,412,033			2,574,270			(275,619		)

Accrued losses on construction in progress	—			(155,090		)	155,090
Billings in excess of costs and estimated earnings/losses	(146,345		)	117,443			31,802
Renewable energy credits guarantee liability	(55,236		)	(67,017		)	22,954
Customer deposits	(39,453		)	(46,266		)	28,920
Customer deposits — related party	775,000			—			—
Net Cash (Used in) Operating Activities	(16,549,549		)	(10,362,259		)	(4,304,509		)

Cash Flows from Investing Activities:
Purchase of equipment and leasehold improvements	(1,391,442		)	(175,465		)	(35,872		)
Deferred costs on and advances to acquiree — ENTECH	(3,004,593		)	(790,769		)	—
Net Cash (Used in) Investing Activities	(4,396,035		)	(966,234		)	(35,872		)

Cash Flows from Financing Activities:
Proceeds from issuance of debt, and notes payable with detachable warrants	185,050			—			3,780,000
Proceeds from exercise of warrants and stock options	3,621,555			3,532,085			1,316,955
Proceeds from issuance of redeemable convertible preferred stock and warrants	(250,000		)	12,884,388			—
Proceeds from issuance of common stock	18,482,000			—			1,222,222
Increase/(Decrease) in Restricted Cash and Restricted Cash Equivalents	31,257			(19,114		)	—
Increase in Loan Origination costs	—			—			(418,832		)
Payments on long-term debt	(21,425		)	(96,920		)	(855,402		)
Net Cash Provided by Financing Activities	22,048,437			16,300,439			5,044,943

Net effect of currency translation on cash	—			—			55,235

Net Increase in cash and cash equivalents	1,102,853			4,971,946			759,797

Cash and cash equivalents, Beginning of year	5,770,595			798,649			38,852

Cash and cash equivalents, End of year	$	6,873,448		$	5,770,595		$	798,649

Supplemental Disclosure:
Beneficial Conversion and Warrants on Preferred Stock Dividend	$	—		$	4,066,796		$	—
Accretion of preferred stock dividends	(38,411		)	(22,500		)	—

The Notes to the Consolidated Financial Statements are an integral part of these statements.

WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIENCY)

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 (RESTATED) AND 2005

							Additional		Additional
							Paid-In		Paid-In
	Preferred Stock			Common Stock			Capital		Capital			Accumulated
	Shares	Par Value		Shares	Par Value		(Preferred)		(Common)			Deficit			Total
Balance, December 31, 2004	611,111	6,111		79,834,341	79,834		537,331		22,864,141			(27,761,058		)	(4,273,641		)

Beneficial conversion feature of convertible notes	—	—		—	—		—		2,171,444			—			2,171,444
									94,149			—			94,149
Conversion of convertible notes	—	—		12,530,017	12,530		—		2,222,470			—			2,235,000
Issuance of Common Stock:	—	—							—			—			—
For Services	—	—		361,416	361		—		111,189			—			111,550
Under SPA (SBI & CAMOFI)	—	—		5,000,001	5,000		—		1,217,222			—			1,222,222
Exercise of Warrants	—	—		6,177,605	6,179		—		1,149,996			—			1,156,175
Exercise of “cash-less” Warrants	—	—		1,207,341	1,207		—		(1,207		)	—			—
Exercise of options	—	—		1,430,382	1,430		—		320,325			—			321,755
In lieu of payment of interest	—	—		1,495,837	1,496		—		369,590			—			371,086
Purchase of QuantumEnergy Net Assets	—	—		750,000	750		—		239,250			—			240,000
Warrants granted for financing commissions	—	—		—	—		—		282,001			—			282,001
Warrants granted for services	—	—		—	—		—		60,523			—			60,523
Detachable warrants granted with convertible debt	—	—		—	—		—		1,447,310			—			1,447,310
Amortization of deferred compensation	—	—		—	—		—		—			30,000			30,000
Comprehensive loss	—	—		—	—		—		—			—			—
Net loss	—	—		—	—		—		—			(6,378,491		)	(6,378,491		)
Other comprehensive expense -	—	—		—	—		—		—			—
Currency translation adjustment	—	—		—	—		—		—			56,080			56,080
Total comprehensive loss	—	—		—	—		—		—			—
Balance, December 31, 2005	611,111	6,111		108,786,940	108,787		537,331		32,548,403			(34,053,469		)	(852,837		)

Beneficial Conversion and Warrants on Preferred Stock Dividend									4,066,796			(4,066,796		)	—
Conversion of convertible notes	—	—		21,422,223	21,422		—		3,771,078			—			3,792,500
Issuance of common stock:												—			—
For services and to induce exercise of warrants	—	—		425,000	425		—		228,171			—			228,576
Exercise of warrants	—	—		16,620,276	16,620		—		3,404,679			—			3,421,299
Exercise of options	—	—		450,561	451		—		109,220			—			109,671
In lieu of payment of interest	—	—		206,630	207		—		68,765			—			68,972
Warrants granted to induce exercise of warrants	—	—		1,447,422	1,447		—		1,586,985			—			1,588,432
Warrants granted for services	—	—		—	—		—		70,000			—			70,000
Share-based employee compensation cost	—	—		—	—		—		1,123,755			45,000			1,168,755
Share-based non-employee compenstation cost	—	—		—	—		—		52,780			—			52,780
Accretion of Preferred Stock Dividends									—			(22,500		)	(22,500		)
Net loss	—	—		—	—		—		—			(11,488,392		)	(11,488,392		)
Balance, December 31, 2006	611,111	6,111		149,359,052	149,359		537,331		47,030,632			(49,586,157		)	(1,862,724		)

Beneficial Conversion and Warrants on Preferred Stock Dividend									—			—			—
Conversion of convertible notes	—	—		1,233,666	1,234		—		183,816			—			185,050
Stock issued for services	—	—		755,000	755		—		245,745			—			246,500
Sale of Common Stock				18,400,000	18,400				18,463,600						18,482,000
Exercise of warrants	—	—		12,745,271	12,745		—		1,868,439			—			1,881,184
Exercise of options	—	—		6,139,194	6,139		—		1,734,232			—			1,740,371
Conversion of Preferred C Stock	—	—		641,025	641		—		249,359			—			250,000
In lieu of payment of interest	—	—		79,466	80		—		25,657						25,737
Warrants granted for services	—	—		—	—		—		60,000			—			60,000
Share-based employee compensation cost	—	—		—	—		—		1,017,721			—			1,017,721
Share-based non-employee compenstation cost	—	—		—	—		—		8,500			—			8,500
Accretion of Preferred Stock Dividends									—			(38,411		)	(38,411		)
Net loss	—	—		—	—		—		—			(14,385,039		)	(14,385,039		)
Balance, December 31, 2007	611,111	$	6,111	189,352,674	$	189,353	$	537,331	$	70,887,701		$	(64,009,607	)	$	7,610,889

The Notes to Consolidated Financial Statements are an integral part of these statements.

WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note (1) Liquidity and Capital Resources

At December 31, 2007, our current ratio was 2.19. As of December 31, 2007, we had $14,215,991 of working capital. Cash and cash equivalents were $6,873,448 as of December 31, 2007.

On January 28, 2008, the Company announced that it has closed the merger with ENTECH, Inc. (ENTECH) of Keller, Texas. For the years ended September 30, 2007 and 2006, ENTECH had revenue of $1,102,253 and $1,135,069, respectively and net income (loss) of $71,228 and $(106,167), respectively. This transaction was made possible through agreement with one of WorldWater’s largest investors, the Quercus Trust (Quercus). Quercus exchanged 19.7 million of its common shares of WorldWater for 19,700 shares of convertible preferred stock and supplied WWAT with a $6 million bridge loan. The 19.7 million common shares and the bridge loan were subsequently utilized to complete the ENTECH merger. Pursuant to the exchange agreement, once a shareholders meeting is held and a sufficient amount of additional common shares are authorized, a subsequent exchange with Quercus will be implemented. As a result, Quercus will receive 19.7 million common shares in exchange for the 19,700 shares of convertible preferred stock previously issued.

Specifically, ENTECH merged with and into a wholly-owned subsidiary of the Company. Under the terms of the merger agreement, WorldWater gave the following consideration to ENTECH stockholders in 2008:

· $4.5 million in cash, and (in addition, $500,000 was paid during 2007); and

· 19,672,131 shares of the Company’s common stock for an aggregate value of $42,295,082. This determination of value is based on a $2.15 per share value of our common stock, which is our estimate of the fair market value of our common stock for a reasonable period before and after the date of merger agreement, October 29, 2007.

On January 28, 2008, and in connection with the merger described above, the Company entered into a $6 million Promissory Note (the “Note”) with The Quercus Trust. The Note bears interest at a rate of 8% per annum. The outstanding principal amount of the Note and all accrued and unpaid interest was repaid on February 12, 2008.

On February 13, 2008 the Company raised $35.64 million from The Quercus Trust in a private placement of 20,000 shares of WorldWater Series F Convertible Preferred Stock at a price of $1,782 per share.

The Company believes that its existing cash balance together with its other existing financial resources, including a capital raise in 2008, and revenues from sales of its solar systems, will be sufficient to meet its operating and capital requirements beyond the first quarter of 2009.

Note (2) Nature of the Business

Effective May 2, 2007 the Company announced that the Board of Directors had approved a change in its corporate name to WorldWater & Solar Technologies Corp. (“WorldWater” or the “Company”). On September 7, 2007, legal confirmation of the name change was confirmed. The Company stock symbol, WWAT.OB, remains the same.

WorldWater is an international solar engineering and project management company with unique, high-powered solar electric technology and expertise, providing alternative energy solutions to a wide variety of customers in both domestic and international markets. Until 2002, WorldWater’s business was focused exclusively on providing developing countries with water and power

solutions. Since then, the Company has placed increasing emphasis on domestic markets, principally in California, New Jersey, and their surrounding states, and is addressing the needs of residential, commercial and industrial customers, in both the public and private sectors. The Company will continue to selectively submit proposals to various foreign governments in need of solving critical water supply and energy problems using the Company’s proprietary solar technology.

With significantly rising energy prices and related shortages, along with significant state and federal incentives, and utility company rebate programs, domestic markets have emerged as the Company’s highest priority. The Company is uniquely positioned to deliver a wide range of product and service offerings, from solar-powered equipment and installations, both fixed and mobile, to large-scale, turnkey solar energy and water system solutions, specializing in variable frequency drive (VFD) applications that deliver high customer value. The foundation and enabler for these offerings is WorldWater’s substantial technical expertise and proprietary solar technology, including its AquaMax™ System, AquaDrive™ Controller, AquaMeter™ Water Meter, and MobileMaxPure™.

On January 28, 2008, the Company completed the acquisition of ENTECH, Inc. With the combined technologies of the Company and ENTECH, it is believed the Company’s solar systems will be capable of generating and delivering electrical and thermal energy on site at prices competitive to retail prices without relying on government sponsored rebates. ENTECH’s patented concentrator technology allows for the installation of large solar “farms” with greatly reduced requirements for solar cell materials (silicon or multi-junction). Due to the advantages of ENTECH’s concentrator, a significantly lesser amount of silicon used in flat plate solar modules is required by current ENTECH modules to generate the same electrical power. Consequently, the ENTECH technology greatly lessens the impact of the silicon material shortage currently constricting flat plate solar panel supply. ENTECH concentrators utilize a two-axis tracker to follow the sun’s position throughout the day, maximizing energy production.

Information with respect to the Company’s geographic segments for the years ended December 31, 2007, 2006 and 2005 is presented below:

	Revenue
	2007		2006		2005
United States	$	18,461,272	$	17,141,808	$	1,998,937
Asia	4,748		191,873		32,543
Total	18,466,020		17,333,681		2,031,480

All of the Company’s assets are located in the United States.

Note (3) Restatement of Financial Statements

The Company has re-evaluated its classification and valuation of the warrants to purchase Series D Preferred Stock. In accordance with SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”), more specifically paragraph 22 which indicates, “the instruments shall be measured subsequently at the amount of cash that would be paid under the conditions specified in the contract if settlement occurred at the reporting date, recognizing the resulting change in that amount from the previous reporting date as interest cost.” Based on this guidance, the Company has restated its December 31, 2006 Consolidated Balance Sheet and its Consolidated Statement of Operations for the year then ended with respect to the value and classification of such warrants to reflect their redemption value as a current liability at December 31, 2006. The net effect of this adjustment resulted in an increase to current liabilities, a decrease to Series D Preferred Stock Warrants (mezzanine) and an increase in interest expense and net loss attributable to common shareholders in the amount of $439,000. There was no impact on net loss applicable per common share.

A summary of all adjustments relating to the December 31, 2006 consolidated financial statements included in this Annual Report on Form 10-K is detailed below

The following table reflects the impact of the restatement on the Consolidated Balance Sheet:

	December 31, 2006			December 31, 2006
	(as previously reported and amended)			(restated)

Selected Balance Sheet Data:
Series D preferred stock warrants	$	—		$	1,393,827
Current liabilities	5,518,182			6,912,009
Total liabilities	5,807,482			7,201,309
Series D preferred stock warrants	954,827			—
Total convertible redeemable preferred stock	12,884,388			11,929,561
Accumulated deficit	(49,147,157		)	(49,586,157		)
Total stockholders' deficiency	(1,423,724		)	(1,862,724		)

The following reflects the impact of the restatement on the Consolidated Statement of Operations:

	Fiscal Year Ended
	December 31, 2006			December 31, 2006
	(as previously reported and amended)			(restated)

Selected Statement of Operations Data:
Interest expense, net	$	(662,135	)	$	(1,078,635	)
Total other (expense) income, net	(5,814,594		)	(6,231,094		)
Net loss	(11,071,892		)	(11,488,392		)
Accretion of preferred stock dividends*	—			(22,500		)
Net loss attributable to common shareholders	(15,138,688		)	(15,577,688		)

* This amount was included in Interest expense, net and has been reclassified on the restated financial statements.

The following table reflects the impact of the restatement on the Consolidated Statement of Cash Flows:

	Fiscal Year Ended
	December 31, 2006			December 31, 2006
	(as previously reported and amended)			(restated)

Selected Cash Flow Data:
Net loss attributable to common shareholders	$	(15,138,688	)	$	(15,577,688	)
Accretion of preferred stock dividends*	—			22,500
Interest expense attributable to increase in value of warrant liability	—			439,000
Net cash (used in) operating activities*	(10,384,759		)	(10,362,259		)
Payments on long-term debt*	(74,420		)	(96,920		)
Net cash provided by financing activities*	16,322,939			16,300,439

* See note above.

The following table reflects the impact of the restatement on the Consolidated Statement of Stockholders’ Deficiency:

	Fiscal Year Ended
	December 31, 2006			December 31, 2006
	(as previously reported and amended)			(restated)

Selected Statement of Stockholders' Deficiency Data:
Accretion of preferred stock dividends*	$	—		$	(22,500	)
Net loss	(11,071,892		)	(11,488,392		)
Accumulated deficit	(49,147,157		)	(49,586,157		)

* See note above.

See Note 21 Quarterly Financial Data (Unaudited) for the Balance Sheet effect of these restatements for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007 and the effect on the financial data for the quarter ended December 31, 2006.

Note (4) Summary of Significant Accounting Policies

A summary of the major accounting policies followed by the Company in the preparation of the accompanying financial statements is set forth below.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company’s subsidiaries WorldWater (Phils) Inc. and WorldWater Holdings Inc., a Delaware Corporation, and certain other inactive subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Effective April 17, 2006, the Company divested its Phillipines subsidiary.

The Company’s wholly-owned inactive subsidiaries include:

WorldWater, Inc., a Delaware Corporation

WorldWater East Africa Ltd., a Tanzanian Corporation

WorldWater Pakistan (PVT.), LTD., a Pakistan Company

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are used for, but not limited to, costs to complete contracts, warranty expense, depreciation, taxes, the guaranty liability for the value of Renewable Energy Credits, losses on uncompleted contracts and the value of shares issued. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates.

Fair Value of Financial Instruments

The carrying value of accounts receivable, accounts payable, and accrued expenses approximate their respective fair values due to their short-term nature. The fair value of the Company’s notes payable and debt are estimated based on the current rates offered to the Company for debt of the same remaining maturities and similar terms. See “Guarantor Agreements” below for disclosures regarding the fair value of the Company’s exposure for Renewable Energy Credits (“RECs”) which have been accrued on the Balance Sheet as of December 31, 2007 and 2006.

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with a high quality financial institution. With respect to accounts receivable as of December 31, 2007, 90% of the receivables, including related party receivables, were from one commercial customer, and were paid in 2008. The Company does not require collateral or other security against accounts receivable; however, it maintains reserves for potential credit losses and such losses have historically been within management’s expectations. The Company had one major customer accounting for 72% of revenue for the year ended December 31, 2007, one customer accounting for 45% of revenue for the year ended December 31, 2006, and two customers accounting for 64% of revenue for the year ended December 31, 2005.

Guarantor Arrangements

In November 2002, the FASB issued FIN No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.” The Interpretation requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The following is a summary of the Company’s agreements that have been determined to fall within the scope of FIN No. 45.

Renewable Energy Credit Guarantee (RECs)

Under the equipment sales contract for a 267,840 kW (DC) solar-driven irrigation and energy system built in 2004 and a 42.7 kW solar-pumping and energy system currently in construction, the Company has guaranteed the price of certain Renewable Energy Certificates (RECs) to be generated by the installation during the first seven years of operation. Based on current market indications, the Company estimates its guarantee obligation may result in a potential loss of $452,907 which is tied to the future market and trading value of RECs traded in California. The liability was recorded in accordance with FIN 45, paragraph 8, whereby the Company determined the maximum number of kwh to be generated over the seven year span to be 3,148,936 (449,848 x 7),

multiplied by the guaranteed amount of $0.125, resulting in a liability of $393,617. Without the knowledge of the future value of these RECs, the Company recorded as reductions of Contract Revenue: estimated losses of $0 in the year ended December 31, 2007, and $0, $59,290 and $393,617 in the years ended December 31, 2006, 2005, and 2004, respectively. Adjustments to the estimated guarantee obligation will be recognized as an adjustment of revenue over the seven year term of the respective guarantee obligations. As of December 31, 2007 the Company has made payments on this guarantee in the amount of $55,236.

The offering of renewable energy credit guarantee was an isolated incident, and the Company does not expect to continue this in the future. Further, the maximum liability described is fixed and accrued for and not subject to change over the life of the agreement.

Product Warranty

The Company provides for the estimated cost of product warranties at the time revenue is recognized. Since the Company has a limited operating history, adjustments in future periods may be required as its installations mature. The following table summarizes the activity regarding the Company’s warranty accrual:

Balance, December 31, 2005	$	109,387
Accruals for warranties issued during 2006	272,086
Utilization of warranty reserve during 2006	(3,511		)
Balance, December 31, 2006	377,962
Accruals for warranties issued during 2007	276,990
Utilization of warranty reserve during 2007	(240,456		)
Balance, December 31, 2007	$	414,496

The product warranty accrual is included in Accounts Payable and Accrued Expenses in the Company’s Consolidated Balance Sheet.

Comprehensive Loss

Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income” establishes standards for reporting and presentation of comprehensive loss and its components in a full set of financial statements. Comprehensive loss consists of net loss and foreign currency translation and is presented in the consolidated statements of stockholders’ equity (deficiency) SFAS No. 130 requires only additional disclosures in the financial statements; it does not affect the Company’s financial position or results of operations.

Revenue Recognition

Revenues from consulting projects are recognized as services are rendered. Grant revenues are recognized when received, or if based on entitlement periods, when entitlement occurs.

Allowance for Doubtful Accounts

Accounting for Income Taxes

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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term nature.

Inventory

Inventory is stated at the lower of cost or market determined by the First-In, First-Out (FIFO) method. Historically inventory has consisted mainly of purchased system components.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are carried at cost, less accumulated depreciation and amortization, and are depreciated and amortized for financial reporting purposes using the straight-line method. Depreciation for income tax purposes is computed using accelerated methods. The estimated useful lives are: computers and information equipment, 5 years; office furniture, vehicles, and test and assembly fixtures, 5 to 7 years; and leasehold improvements, the shorter of the useful life or the life of the lease. Upon retirement or disposal, the asset cost and related accumulated depreciation are removed from the accounts and the net amounts, less any proceeds, are charged or credited to income.

Expenditures for maintenance and repairs are expensed as incurred. Expenditures, which significantly increase asset value or extend useful lives, are capitalized.

Loan Origination Costs

The Company finances part of its operations through the issuance of debt and incurs a substantial amount of costs associated with the acquisition of such debt. The Loan Origination Costs are capitalized and amortized over the life of the debt using the effective interest method. Upon early termination of the debt, any remaining costs are charged to Debt Sourcing Fees.

Research and Development

Research and development costs are expensed as incurred.

Advertising Costs

Advertising costs are expensed as incurred and were approximately $157,093, $56,949, and $42,472 for the years ending December 31, 2007, 2006 and 2005 respectively.

Share-Based Compensation

Company recognized no compensation expense related to the stock-based plans for grants to employees or directors. Grants to consultants under the plans were recorded under SFAS No. 123.

Under the modified prospective approach, SFAS No. 123R applies to new grants of options and awards of stock as well as to grants of options that were outstanding on January 1, 2006 and that may subsequently be repurchased, cancelled or materially modified. Under the modified prospective approach, compensation cost recognized for the years ended December 31, 2007 and 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested on, January 1, 2006, based on fair value as of the prior grant-date and estimated in accordance with the provisions of SFAS No. 123R. Prior periods were not required to be restated to reflect the impact of adopting the new standard.

SFAS No. 123R also requires companies to calculate an initial “pool” of excess tax benefits available at the adoption date to absorb any tax deficiencies that may be recognized under SFAS No. 123R. The pool includes the net excess tax benefits that would have been recognized if the Company had adopted SFAS No. 123 for recognition purposes on its effective date. The Company has elected to calculate the pool of excess tax benefits under the alternative transition method described in FASB Staff Position (“FSP”) No. FAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards,” which also specifies the method to calculate excess tax benefits reported on the statement of cash flows. The Company is in a net operating loss position; therefore, no excess tax benefits from share-based payment arrangements have been recognized for the years ended December 31, 2007 and 2006.

The pro-forma information presented in the following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” to stock-based employee compensation for the year ended December 31, 2005:

	Year Ended
	December 31, 2005
Net loss:
As reported	$	(6,377,646	)
Add: Stock based employee compensation expense included in reported net loss, net of related tax effects	30,000
Deduct: Stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(840,210		)
Pro-forma	$	(7,187,856	)
Net loss per share:
As reported	$	(0.07	)
Pro-forma	$	(0.08	)

The Company uses the Black-Scholes option-pricing model to estimate fair value of grants of employee and director stock options, with the following weighted average assumptions:

	Year Ended December 31,
Assumptions for Option Grants	2007		2006		2005
Risk-free interest rate	5	%	5	%	4	%
Volatility	89	%	34	%	49	%
Expected dividend yield	0	%	0	%	0	%
Expected term	4-5 years		10 years		10 years
Estimated forfeiture rate	3	%	1	%	N/A

The Company calculates expected volatility for a share-based grant based on historic daily stock price observations of our common stock during the period immediately preceding the grant that is equal in length to the expected term of the grant. SFAS No. 123R also requires that estimated forfeitures be included as a part of the estimate of expense as of the grant date. The Company has used historical data to estimate expected employee behaviors related to option term, exercises and forfeitures. Prior to our adoption of SFAS No. 123R, the Company reduced pro-forma share-based compensation expense, presented in the notes to its financial statements, for actual forfeitures as they occurred.

With respect to both grants of options and awards of restricted stock, the risk free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the grant or award.

The Company adopted Statement 123(R) on January 1, 2006. This statement applies to all awards granted after the date of adoption and to awards modified, repurchased, or cancelled after that date. The value of the unvested stock options at December 31, 2006 and 2005was approximately $240,720, which was expensed in 2007 under General & Administrative Expense on the Consolidated Statement of Operations.

Net Loss Per Common Share

Basic loss per share includes no dilution and is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. As presented, the Company’s basic and diluted net loss per share attributable to common stockholders is based on the weighted average number of common shares outstanding during the period. The calculation of diluted net loss per common share for the years ended December 31, 2007, 2006 and 2005 does not include other potential common shares, including shares issuable upon exercise of options, warrants and conversion rights, since their effect would be antidilutive due to the Company’s losses. Below is a table of the potential issuable shares as of December 31, 2007, 2006 and 2005, respectively:

	December 31, 2007	December 31, 2006	December 31, 2005
Warrants	13,484,226	24,792,873	36,789,366
Debt conversion rights	1,454,470	2,688,137	24,332,581
Stock options	14,589,417	20,270,623	11,810,392
Stock Purchase Agreement Rights	—	1,542,000	—
Preferred stock conversion rights	55,842,797	51,462,759	611,111
Total	85,370,910	100,756,392	73,543,450

Recent Accounting Pronouncements

2008, which will be our fiscal year beginning January 1, 2009.

Reclassifications

Certain prior year balances have been reclassified to conform to current year presentation.

Note (5) Acquisition

To obtain the exclusive opportunity through December 31, 2006 to conduct due diligence, the Company made a $500,000 non-refundable payment to ENTECH in 2006. From June 2006 through early 2007, we performed due diligence reviews of business, legal and financial matters relating to the acquisition of ENTECH, and negotiations were ongoing regarding the terms of definitive agreements, however, no agreement was completed as originally anticipated under the original letter of intent.

On May 25, 2007, the Company entered into a second letter of intent to acquire ENTECH. This letter of intent was subsequently amended on August 1, 2007 to extend the date by which the merger must be completed. On October 29, 2007, the Company and ENTECH entered into an Agreement and Plan of Merger. The merger was completed on January 28, 2008. Specifically, ENTECH merged with and into a wholly-owned subsidiary of the Company and the subsidiary survived the merger as a wholly-owned subsidiary of the Company. Under the terms of the merger agreement, WorldWater paid the following consideration to ENTECH stockholders in 2008:

· $4.5 million in cash, (in addition, $500,000 was paid during 2007).

Additionally, the ENTECH stockholders are entitled to receive future earn-out consideration calculated as 5% of Merger Sub’s gross revenues determined in accordance with generally accepted accounting principles until the accumulated total of such earn-out payments paid by the Company to the ENTECH stockholders equals $5.0 million. The Company also was responsible for the payment of $1.3 million of ENTECH’s liabilities, which was paid at the closing on January 28, 2008.

In addition to the $500,000 non-refundable standstill payment to ENTECH in 2006, the Company made another $500,000 standstill payment in the second quarter 2007 which was released to the ENTECH stockholders prior to the Completion of the merger transaction. Due diligence fees of $411,442 were recorded on the balance sheet through September 30, 2007, and along with the two $500,000 payments to ENTECH, resulted in a capitalized amount of $1,411,442 on the balance sheet at September 30, 2007, classified as deferred cost on proposed acquisition. Such amount will be added to the total purchase price consideration.

In addition to the consideration to be paid to ENTECH’s stockholders, the Company was required to provide to ENTECH $5.0 million of working capital to provide research and development engineering related to the implementation of a new manufacturing plant in Texas. Approximately $2.7 million of working capital was provided to ENTECH as of December 31, 2007, of which $500,000 was expensed as research and development expense on the Company’s Consolidated Statement of Operations in the quarter ending September 30, 2007. The balance of such funds was recorded as tangible assets or was in the bank accounts of ENTECH as of the acquisition date. The remaining $2.3 million of working capital was provided to ENTECH subsequent to December 31, 2007 and prior to the merger which was completed on January 28, 2008.

Note (6) Contracts

	As of December 31,
	2007			2006
Costs incurred on contracts	$	16,727,182		$	14,411,406
Estimated earnings, less foreseeable losses	1,738,838			2,705,383
	18,466,020			17,116,789
Billings to date	(12,920,289		)	(14,717,607		)
Net costs and estimate earnings/losses in excess of billings	$	5,545,731		$	2,399,182
These amounts are included in the accompanying consolidated balance sheets under the following captions:
Costs and estimated earnings/losses in excess of billings	5,548,631			2,548,427
Billings in excess of costs and estimated earnings/losses	(2,900		)	(149,245		)
	$	5,545,731		$	2,399,182

The Company generates billings based on the fulfillment of milestones, which are set forth in the signed contract for each project. Milestones may include, but are not limited to, initial permits being satisfied, delivery of materials, and installation when substantially complete.

Note (7) Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following at December 31, 2007 and 2006:

	As of December 31,
	2007			2006
Office furniture and equipment	$	284,820		$	130,551
Vehicles	216,425			78,143
Computers	341,710			16,568
Leasehold improvements	$	779,202		$	5,453
	1,622,157			230,715
Less accumulated depreciation and amortization	(154,363		)	(34,907		)
Equipment and leasehold improvements, net	$	1,467,794		$	195,808

Depreciation and amortization expense in 2007, 2006, and 2005 were $133,051, $30,271, and $25,991 respectively. During 2007, the Company abandoned equipment and leasehold improvements totaling $210,037 of which $43,758 was previously depreciated and amortized.

Note (8) Intangible Assets

Intangible assets are listed below as of December 31, 2007 and 2006 and the associated amortization.

	As of December 31,
	2007			2006
Loan origination costs	$	—		$	287,688
Accumulated amortization	—			(287,688		)
Loan origination costs, net	$	—		$	—

Non-compete agreement, customer list and trade name	$	123,000		$	123,000
Accumulated amortization	(96,333		)	(56,333		)
Non-compete agreement, net	$	26,667		$	66,667

Amortization expenses for 2007 and 2006 were $40,000 and $330,688 respectively.

Note (9) Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at December 31, 2007 and 2006:

	As of December 31,
	2007		2006
Accounts payable—contracts	$	4,944,525	$	2,328,963
Accounts payable—other	1,449,708		760,702
Accrued salaries	307,424		271,039
Accrued interest	240,734		268,501
Accrued warranty reserve	414,496		377,962
Accrued sales commission	165,513		190,140
Accrued sales and use taxes	1,004,408		302,000
Accrued project costs	665,855		143,890
Accrued project contingency	—		45,000
Preferred dividend payable	5,895		22,500
Accrued legal expenses	31,560		73,708
Other accrued expenses	162,826		78,472
Total	$	9,392,944	$	4,862,877

Note (10) Long-Term Debt and Notes Payable

Long-term debt (including convertible debt) and notes payable consist of the following uncollateralized loans outstanding at December 31, 2007 and 2006:

											December 31, 2007				December 31, 2006
Maturity Date	Loans Holder	Stated Rate		Effective Interest Rate		Interest Period	Option to Pay Interest in either Stock or Cash	Conversion Price of Common Stock		Potential Number of Shares Upon Conversion @ 12/31/2007	Face Amount		Net Amount Outstanding		Face Amount			Net Amount Outstanding

2007	Funds & Qualified individual investors	10	%	19 - 30	%	Semi-Annual	Yes	$	0.15	—	$	185,050	$	—	$	185,050	(a)	$	165,050
2008	Funds & Qualified individual investors	10	%	625	%	Majority Monthly	Yes	$	0.18	1,111,111	200,000		122,245		200,000		(b)	20,000
On Demand	Qualified individuals	0 - 10	%	0 - 15	%	Majority Monthly & Semi- annually	No	N/A		N/A	30,347		30,347		30,347		(c)	30,347
On Demand	Qualified individual investors	10	%	10	%	Maturity	No	$	0.40	132,500	53,000		53,000		53,000		(d)	53,000
Stated Maturity Date 1997	Qualified individual investors	8	%	8	%	Maturity	No	$	0.40	125,000	50,000		50,000		50,000		(e)	50,000
Not Stated	Qualified individual investors	4.5	%	4.5	%	Not stated	N/A	$	0.50	85,859	42,500		42,500		42,500		(f)	42,500
2010	Financial Institution	8	%			Monthly principal & interet payments	No			N/A	38,456		38,456		38,456		(g)	38,456
										1,454,470	$	599,353	$	336,548	$	599,353		$	399,353
										Less current portion			298,092					360,897
										Long-term portion			$	38,456				$	38,456

(a) In 2004, the Company entered into loan agreements with individual investors totaling $912,550. These loan agreements bear a stated interest rate of 10%, an effective interest rate of between 19-30%, with a conversion price of $0.15. These loans were paid off in the quarter ending March 31, 2007.

(b) In July 2005, the Company entered into a $3,250,000 10% convertible note due July 21, 2008, for total proceeds of $3,000,000, which was convertible into 18,055,556 shares of the Company’s common stock. The note was convertible into the Company’s common stock at a price equal to the lesser of $0.18 or the average of the preceding 10 trading days prior to closing of the transaction. The preceding 10-day average was $0.28, therefore the $0.18 price was used. The shares were fixed and determinable as of the date of the closing of the loan. In addition, the Company also issued 9,611,112 of detachable warrants in connection with the aforementioned convertible debt. The warrants are exercisable immediately to shares of the Company’s common stock. The value of the stock purchase warrants (“warrants”) were determined by using the Black-Scholes Method. The assumptions used were the following: Stock price: $0.28, Exercise Price: $0.18, Term: 4 years, Volatility: 41%, Dividend Rate: 0.0% and Risk Free Interest Rate: 3.99%. The result was a fair value of approximately $0.1486 for each of the warrants issued. The number of warrants issued was 9,611,112, resulting in a total value of $1,428,641.

The warrants issued are not treated as a derivative in accordance with FAS 133, as they do not meet all the criteria in paragraph 6. As a result, in accordance with EITF 00-19, as the warrants do not require a cash settlement or company repurchase option, the warrants are classified as permanent equity in accordance with consensus reached in paragraph 9 of EITF 00-19.

The warrants were accounted for as equity and the allocation of the proceeds were based upon the relative fair values of the debt and warrants in accordance with paragraph 15 of APB 14.

As of December 31, 2007 there was $122,245 of the July 2005 convertible note outstanding.

In July 2005, the Company entered into two convertible notes totaling $350,000: $250,000 with an investment fund and $100,000 with a private investor. The notes bear 10% interest which at the option of the Company can be paid in cash or in shares of the common stock of the Company, or a combination of both. The note holders have the option to convert all or any part of the outstanding principal into common stock of the Company at a conversion price of $0.18 per share. Through the third quarter of 2006, the investment fund holder converted $125,000, respectively, of their outstanding principal into 694,444 common shares of the Company.

The Company determined that the fair market value of the stock on the date of issuance was lower than the conversion price of $0.18 (effective conversion price of $0.13). The Company noted a debt discount attributable to the fair value of the warrants and the Beneficial Conversion Feature (“BCF”) in the amount of $1,428,547 and $2,171,452, respectively. The Company determined that the total debt discount attributable to the debt would have exceeded the cash proceeds allocated to the debt, however EITF 98-5, paragraph 6 indicates that the amount of the discount assigned to the debt is limited to the amount of the proceeds allocated to the convertible instrument, therefore the amounts attributed to the BCF is limited to $2,171,452. As a result, the face value of the debt upon issuance is essentially $1.

The Company will be amortizing the debt discount over the term of the debt using the effective interest method (EITF 00-27, Issue #6). If and when a conversion (or partial conversion) occurs, any unamortized debt discount will be accelerated (proportionately) and recognized in that periods statement of operations.

The aggregate fair value of the common stock that the holder received (assuming all $3,600,000 of debt was converted to 20,000,000 shares of common stock) was $5,600,000. This amount exceeded the proceeds of $3,600,000 by $2,000,000.

For the years ended December 31, 2007, 2006, and 2005, the Company recognized interest expense related to the July 2005 convertible notes in the amount of $124,964 and $3,399,992,and $6 respectively.

(c) Loans payable to individual investors totaling $518,600. These loans were entered into in 1997. The notes bear 10% interest and are payable on demand. The loan balance as of December 31, 2007 was $30,347.

(d) Loans payable to individual investors totaling $53,000. These loans were entered into in 2000. The notes bear 10% interest and are payable on demand.

(e) Loans payable to individual investors totaling $50,000. These loans were entered into in 1992. The notes bear 8% interest and had an original maturity date of October 14, 1997.

(f) Loans payable to individuals, with no stated interest rate or maturity date. Imputed interest is calculated at a rate of 4.50% and is included in accrued interest. Accrued interest as of December 31, 2007 was $44,556.

(g) Loans payable to individual investors totaling $110,747. These loans were entered into in 2005. The notes bear 8% interest and had an original maturity date in 2010. The loan balance as of December 31, 2007 was $38,456.

The maturities of long-term debt (face amount) are:

2008	560,897
2009	—
2010	38,456
Total	$	599,353

Note (11) Related Party Transactions

Notes Payable

The Company had outstanding notes payable owed to directors, officers and employees of the Company as of December 31, 2007 and 2006 as follows:

	2007		2006
Directos	$	—	$	3,000
Officers and employees	—		32,748
Total	—		35,748
Less current maturities	—		(35,748		)
Total long term note payable, related party	$	—	$	—

Notes payable to directors, officers and employees are due on demand and accrue interest at 10% per annum.

Other Related Party Transactions

The Company recorded a related party sale to a principal shareholder of twelve Mobil MaxPure^® units, recognizing revenue of $900,000 in 2007. The principal shareholder in turn, donated such units to a charitable foundation. The Company also recorded a related party deposit, from the same principal shareholder of $775,000 on the balance sheet at December 31, 2007, in relation to 10 additional units, to be donated to a charity and shipped in 2008.

The Company leased office and laboratory facilities from the Chairman of the Company. Lease payments to the Chairman were $0, $18,000 and $36,000 in 2007, 2006 and 2005, respectively, plus utilities and maintenance. This lease was terminated as of June 30, 2006.

Note (12) Convertible Preferred Stock

In 2001, the Company issued a total of 66,667 shares of Series A 7% three-year Convertible Preferred Stock in exchange for financial public relations services. The shares were issued at $0.90 per share and the services were valued at $60,000 and recorded in the financial statements. In October 2004, the shares of Series A Preferred Stock were converted into 66,667 shares of common stock issued at $0.90 per share.

Dividends on the Series B were accrued through September 30, 2004 at the rate of 7% and shown as “Accretion of preferred stock dividends’ in the Consolidated Statements of Operations.

Series C Convertible Preferred Stock

The Company issued 750,000 shares of Series C 6% Convertible Preferred Stock at $1.00 per share. The Series C Convertible Preferred Stock proceeds were used to fund: (i) a $500,000 payment made to the ENTECH, Inc. (“ENTECH”) to secure a binding letter of intent allowing the Company the opportunity to conduct due diligence for the proposed acquisition of all of the common shares of ENTECH by the Company or an affiliate; and (ii) due diligence expenses directly incurred in connection with the proposed acquisition transaction.

The Series C Convertible Preferred Stock held by each subscriber is convertible on an all or none basis, into either: (i) common stock of the Company; or (ii) each holder’s proportionate share of a 6.5% interest in the entity formed for the purpose of purchasing the common shares of ENTECH. Each holder of the Series C Convertible Preferred Stock may elect to convert into his or her proportionate share of a 6.5% interest in the entity formed to purchase the common stock of ENTECH during the 120 day period following the closing of the ENTECH transaction or, alternatively, may convert into the common stock of the Company at any time prior to January 1, 2009. The conversion price to be used for conversions into common stock of the Company will be equal to the closing bid price of the common stock on December 31, 2006, equal to $0.39 per share of our common stock.

Dividends on the Series C Convertible Preferred Stock accrue at the annual rate of 6%, payable the first day of each month, except that during the period July 1, 2006 through June 30, 2007 dividends will be accrued but not paid. As of December 31, 2007, the Series C Convertible Preferred Stock had accrued and unpaid dividends in the aggregate amount of $5,895, which will be payable upon conversion.

Series D Convertible Preferred Stock

On November 30, 2006, the Company issued a press release announcing its entry into three agreements with EMCORE Corporation (“EMCORE”), involving EMCORE’s agreement to purchase up to 26.5% of the Company on a fully-diluted basis in exchange for $18 million. The three agreements entered into on November 29, 2006, are an Investment Agreement (the “Investment Agreement”), a Registration Rights Agreement (the “Registration Right Agreement”) and a Letter Agreement (the “Letter Agreement”, and together with the Investment Agreement and Registration Rights Agreement, the “Agreements”). The Boards of Directors of EMCORE and the Company approved the Agreements.

Pursuant to the Investment Agreement, EMCORE agreed to invest up to $18.0 million (the “Investment”) in return for (i) six million, five hundred and twenty-three thousand, eight hundred and ten (6,523,810) shares of Series D Convertible Preferred Stock of the Company, par value $0.01 per share (the “Series D Stock”) and (ii) six hundred and sixty-eight thousand, one hundred and thirty-nine (668,139) warrants to purchase six hundred and sixty-eight thousand, one hundred and thirty-nine (668,139) shares of Series D Stock (the “Warrants”). The Series D Stock and Warrants to be received by EMCORE are equivalent to an approximately thirty-one percent (31%) equity ownership in the Company, or approximately twenty-six and half percent (26.5%) on a fully diluted basis.

On November 29, 2006, EMCORE invested $13.5 million in the Company, representing the first tranche of its $18 million investment, in return for which the Company issued to EMCORE (i) four million, eight hundred and ninety two thousand, eight hundred and fifty seven (4,892,857) shares of Series D Convertible Preferred Stock and (ii) five hundred and five thousand and forty-four (505,044) warrants (the “Tranche A Warrants”) to purchase five hundred and five thousand and forty-four (505,044) shares of Series D Stock.

The investment of the remaining $4.5 million second tranche (the “Tranche B Closing”) will be consummated subject to the execution of a definitive strategic agreement between the Parties and certain other conditions set forth in the Investment Agreement. At the Tranche B Closing, the Company will issue to EMCORE (i) an additional one million, six hundred and thirty thousand, nine hundred and fifty-three (1,630,953) shares of Series D Convertible Preferred Stock and (ii) one hundred and sixty-three thousand and ninety-five (163,095) warrants to purchase one hundred and sixty-three thousand and ninety-five (163,095) shares of Series D Stock.

In the Investment Agreement, the Company and EMCORE made customary representations, warranties and covenants and the Company agreed to indemnify EMCORE and its affiliates, successors and assigns against certain potential losses incurred in connection with its investment in the Company, including any and all costs and expenses actually incurred by them resulting from the breach of any representation or warranty made by the Company in connection with EMCORE’s investment; the breach of or failure to perform any covenant or agreement by the Company contained in the Investment Agreement or related documents; or any action instituted against EMCORE or any of its affiliates, by any stockholder of the Company who is not an affiliate of EMCORE, with respect to any of the transactions contemplated by the Investment Agreement or related documents. Pursuant to the terms of the Investment Agreement, EMCORE has been granted the following rights, among others: (i) the right to participate pro-rata in future financings and equity issuances by the Company; (ii) certain rights to obtain information regarding the financial results, financial performance, business and operations of the Company; and (iii) the right to nominate and appoint two individuals to the Company’s Board of Directors.

The Series D Stock has the designations, preferences and rights set forth in the certificate of designation filed with the Secretary of State for the State of Delaware on November 29, 2006 (the “Certificate of Designation”). Pursuant to the Certificate of Designation, holders of Series D Stock have the following rights, among others: (i) the sole right and discretion to convert their shares of Series D Stock at any time and from time to time into such number of fully paid and non-assessable shares of common stock, par value $0.001, of the Company (the “Common Stock”) initially equal to such number of shares of Series D Stock multiplied by ten, subject to certain adjustments as more fully set forth in the Certificate of Designation including weighted average anti-dilution rights, (ii) the right to vote together with the holders of Common Stock as a single class on all matters submitted for a vote of holders of Common Stock, (iii) for so long as the beneficial ownership by the holders of Series D Stock (on a fully-diluted basis) does not fall below ten percent (10%) of the then outstanding shares of Common Stock, the exclusive right to elect two members of the Board of Directors of the Company, (iv) for so long as the beneficial ownership by the holders of Series D Stock (on a fully-diluted basis) is between five percent (5%) and ten percent (10%) of the then outstanding shares of Common Stock, the exclusive right to elect one member of the Board of Directors of the Company, (v) certain liquidation preferences as detailed in the Certificate of Designation and (vi) the right to receive dividends in an amount equal to the amount of dividends that such holder would have received had the holder converted its shares of Series D Stock into shares of Common Stock as of the date immediately prior to the record date for such dividend. The liquidity event is any change in control whereby the new person or entity has 50% or more beneficial ownership in the existing company. Since the potential change in ownership is outside the control of the Company, the existing preferred shareholders would have the right to demand cash payment equal to the liquidation value of the preferred stock plus accrued dividends. Closure of the second tranche cannot take place until a sufficient amount of additional common shares are authorized by the Company’s shareholders.

Series C and D Preferred Stock Classification

The Series C and D Preferred Stock were classified out of permanent equity since it fit certain criteria in paragraph #2 of EITF Topic D-98), however it was not classified as a liability since it did not meet the requirements of a liability. The warrants on the Series D Preferred Stock were classified as a current liability under the guidance established in SFAS No. 150.

On November 29, 2006, the Company recorded preferred stock dividends related to a Beneficial Conversion Feature of the Series D Preferred Stock and the value associated with the Series D Preferred Stock Warrants, which needed to be recognized on the preferred shares of 4,892,857 and warrants of 505,044, respectively. After calculating the intrinsic value, based on the relative fair values of the warrants and preferred stock , an adjustment of $4,066,796 was recorded as a preferred stock dividend. EITF 98-5 paragraph 8, indicates the following “For convertible preferred securities, any recorded discount resulting from allocation of proceeds to the beneficial conversion feature is analogous to a dividend and should be recognized as a return to the preferred shareholders over the minimum period from the date of issuance to the date at which the preferred shareholders can realize that return (that is, through the date of earliest conversion) using the effective yield method.” In the Company’s case, the discount was recognized as a Preferred Stock Dividend on the day of issuance since the earliest conversion date was immediately. The Company recorded a debit to Preferred Stock Dividend and a Credit to Additional Paid in Capital, which is in accordance with Case 1(a) of EITF 98-5.

The warrants to purchase Series D preferred stock were calculated by converting them to their common share equivalent, then utilizing the Black-Scholes Method to arrive at a fair value. The amounts allocated to the preferred stock and warrants were equivalent to their relative fair values. At December 31, 2006, in accordance with SFAS No. 150, the warrants were re-valued from $954,827 to their redemption amount of $1,393,827, resulting in interest expense of $439,000 during the fourth quarter of 2006.

Liquidation Preference

Note (13) Common Stock Transactions

Common stock transactions during the twelve months ended December 31, 2007 consisted of the following:

		Price Per
	Shares	Share
Shares Issued and Outstanding December 31, 2006	149,359,052
Conversion of Convertible Notes	1,233,666	$	0.15-0.18
Warrants exercised	12,745,271	$	0.15-0.50
Conversion of Series C Preferred Stock	641,025	$	0.39
Shares sold under Stock Purchase Agreements	18,400,000	$	0.50-1.78
Shares issued in lieu of payment of cash for interest	79,466	$	0.19
Stock options exercised	6,139,194	$	0.15-0.70
Shares issued as compensation for public relations and business development	755,000	$	0.19
Shares issued during the year ended December 31, 2007	39,993,622	$	0.15-1.78
Shares issued and Outstanding December 31, 2007	189,352,674

The common stock issued in connection with the goods and services were issued for past services. The Company and the service provider agreed on a number of shares to be issued based on the fair value of the stock in relation to the value of the services rendered. The Company expensed the fair value of the stock multiplied by the number of shares issued in accordance with FAS 123R, paragraph 7. The Company notes that the amount expensed in the Company’s Consolidated Statement of Operations approximates the fair value of the services rendered had the Company paid cash for the services.

On April 12, 2007, the Company initiated a private offering. The offering was consummated with 10,800,000 Shares of the Company’s Common stock issued at $0.50 per share, with a Five-Year Warrant attached to purchase 2,700,000 Shares of the Company’s Common stock at $0.50. Net proceeds from this offering amounted to $5,400,000.

On September 28, 2007, the Company entered into a Stock and Warrant Purchase Agreement with the Quercus Trust, whereby the Quercus Trust purchased 7.5 million shares of WorldWater’s common stock at a price of $1.782 per share, for total proceeds of $13,365,000. The Agreement also provides for the issuance of warrants to the Quercus Trust for the purchase of 9.0 million additional shares of WorldWater’s common stock at an exercise price of $1.815, subject to certain adjustments. The exercise of warrants into common stock cannot take place until additional shares are authorized by a vote of the Company’s shareholders. Until such time as authorized shares are made available, the Company will not be required to record any warrant related expense. If sufficient additional shares of common stock have not been authorized by September 28, 2008, the Quercus Trust may require the Company to exchange the warrants for a new class of preferred stock with the following rights, preferences and privileges: each share of preferred stock will have rights, preferences and privileges equivalent to 1,000 shares of common stock, and shall in addition be automatically convertible into common stock at such time as the Company has sufficient authorized shares of common stock to allow such conversion. As of December 31, 2007, the warrants and the new class of preferred stock have no cash redemption features and are not considered to be liquid securities.

Note (14) Warrant Transactions

The Company uses the fair value method to account for transactions with non-employees in which unregistered common stock shares are issued in consideration for extensions of short-term loans, commissions for debt and equity financing, and the provision of goods or services. The fair value of all warrants are calculated using the Black-Scholes pricing model with the following assumptions: dividend yield of zero percent; expected volatility (calculated on a case by case situation), utilizing the current risk free interest rate, and an average term of 10 years. The relative fair value of the warrants resulted in non-cash expense charges of $0, $528,000, and $1,985,000 for the years ended December 31, 2007, 2006, and 2005, respectively. All warrants below are exercisable immediately. All warrants are exercisable into common stock only and do not include Series D Preferred Stock warrants and the common stock warrants issued to the Quercus Trust discussed in Note 13.

Warrant transactions consisted of the following during the year ended December 31, 2007:

	Exercisable
	Warrants		Stock Price
Warrants Outstanding As of December 31, 2006	24,792,873		$	0.15 to $0.50
a) Warrants issued	3,500,000		0.50
Exercise of warrants	(12,745,271	)	0.19
Expiration of outstanding warrants	(2,063,376	)	$	0.15 to $0.50
	(11,308,647	)
Warrants Outstanding As of December 31, 2007	13,484,226		$	0.15 to $0.50

Terms and conditions of the above warrant transactions are listed below:

a) On April 12, 2007, the Company initiated a private offering. A summary of the offering included 10,900,000 Shares of the Company’s Common stock issued at $0.50 per share, with a five-year warrant attached to purchase 3,500,000 Shares of the Company’s common stock at $0.50. Net proceeds from this offering amounted to $5,117,000. The net proceeds from this Offering were used by the Company primarily for working capital. Utilizing the Black-Scholes method, the warrants issued in 2007 had a term of 5 years. The Company used the then current stock price of $0.50, modified exercise price, volatility of 70%, and interest rate of 6%.

Warrants outstanding expire as follows:

Year	Warrants Expiring	Strike Price
2008	700,696	$	0.15-0.30
2009	5,064,670	0.15-0.41
2010	—	—
2011	4,318,860	0.22-0.38
2012	3,400,000	0.50
	13,484,226

Note (15) Income Taxes

Income tax benefit for the years ended December 31, 2007, 2006 and 2005 were as follows:

	2007		2006		2005
Federal:
Current	$	—	$	—	$	—
Deferred	—		—		—
	—		—		—
State:
Current	—		—		—
Deferred	—		—		—
Benefit from sale of net operating losses and research credits	—		—		(200,953		)
	$	—	$	—	$	(200,953	)

Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate primarily due to the following for the years ended December 31, 2007, 2006, and 2005:

	2007			2006			2005
Income tax benefit at US federal statutory tax rate	$	(4,891,000	)	$	(3,906,000	)	$	(2,168,400	)
State income taxes, net of federal tax effect	(781,300		)	(211,200		)	(426,800		)
Permanent items	405,900			1,362,300			(274,400		)
Change in deferred tax asset valuation allowance	5,266,400			2,754,900			2,869,600
Benefit from sale of New Jersey net operating losses and research credits	—			—			(200,953		)
	$	—		$	—		$	(200,953	)

As of December 31, 2007, the Company had Federal and State net operating loss carryforwards totaling approximately $44,845,500 and $29,409,800, respectively, available to reduce future taxable income and tax liabilities which expire at various dates between 2008 and 2027. In addition, as of December 31, 2007, the Company had federal research and development tax credit carryforwards of approximately $180,600 available to reduce future taxable income and tax liabilities which expire at various dates between 2009 and 2024. Under provisions of the Internal Revenue Code, substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards and research and development credit carryforwards, which can be used in future years.

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. In 2005, the Company submitted applications to the New Jersey Economic Development Authority (the “EDA”) to participate in the Program for the years 2004 and 2003, and the applications were approved. The EDA then issued certificates certifying the Company’s eligibility to participate in the Program for these years.

During 2005, the Company sold approximately $2,207,000 and $210,000 of its 2004 and 2003 New Jersey State net operating loss carryforwards, respectively, and $10,800 of its 2004 research and development tax credits, resulting in the recognition of a $200,953 tax benefit.

Deferred Taxes at December 31, 2007 and 2006 are summarized as follows:

	2007				2006
Gross deferred tax assets
Net operating loss carryforwards	$		17,807,000		$		12,327,100
Warranty reserve	165,600				169,000
Accrued expenses and deferred compensation	323,900				534,000
Gross deferred tax liabilities	18,296,500				13,030,100

Deferred tax valuation allowance	(18,296,500			)	(13,030,100			)
	$	—			$	—

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN No.48”), which clarifies the accounting for uncertainty in Income taxes recognized in the financial statement in accordance with FASB Statement No. 109 Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return that have been recorded on the Company’s consolidated financial statements for the year ended December 31, 2007.

Additionally, FIN No. 48 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2007, 2006 and 2005.

The Company files corporate income tax returns to the United States, both in the Federal Jurisdiction and in various state jurisdictions. The Company is subject to Federal income tax examination for calendar tax years 2005 through 2007 and is also subject to various state income tax examinations for calendar years 2002 through 2007.

Note (16) Stock-Based Compensation Plans

Incentive Stock Option Plan

In 1999, the Board of Directors and stockholders approved the Company’s 1999 Incentive Stock Option Plan (the “1999 Plan”), which was amended in 2006 with the approval of the Board of Directors and stockholders to increase the amount of available shares under the plan to a maximum of 25,000,000 shares. The 1999 Plan authorizes the issuance of incentive stock options and nonqualified stock options. The Compensation Committee determines the type, amount and terms, including vesting, of any award made under the incentive plan. Incentive stock options granted generally vest as follows: grants to officers—generally over a defined term up to three years; and grants to employees—over the succeeding twelve months and expire between three and ten years from the date of the grant. Nonqualified stock option grants to directors and consultants generally vest immediately upon grant and expire three years from the date of grant.

The following is a summary of stock option activity:

	Shares		Weighted- Average Exercise Price
Balance, December 31, 2004	10,015,325		$	0.25
Granted	3,430,988		0.31
Forfeited or expired	(205,539	)	0.27
Exercised	(1,430,382	)	0.23
Balance, December 31, 2005	11,810,392		0.27
Granted	2,996,000		0.30
Forfeited or expired	(997,600	)	0.32
Exercised	(450,561	)	0.24
Balance, December 31, 2006	13,358,231		0.27
Granted	7,539,000		0.42
Forfeited or expired	(218,620	)	0.32
Exercised	(6,089,194	)	0.28
Balance, December 31, 2007	14,589,417		0.27
Options Exercisable, December 31, 2007	9,006,956		0.26

The Company adopted Statement 123(R) on January 1, 2006. This statement applies to all awards granted after the date of adoption and to awards modified, repurchased, or cancelled after that date. The value of the unvested stock options at December 31, 2007 is approximately $1,330,865, of which $473,365 will be expensed in 2008, with the remaining $857,500 to be expensed in 2009 and beyond, under General & Administrative Expense on the Consolidated Statement of Operations.

Summarized information about stock options outstanding is as follows:

Range	Number of Options Outstanding at December 31, 2007	Average Remaining Life	Average Exercise Price		Options Exercisable, As of December 31, 2007	Average Exercise Price of Exercisable Options
$0.02-0.15	2,163,846	4.13	$	0.14	2,163,846	$	0.14
0.19-0.30	3,589,175	6.36	0.27		3,148,770	0.27
0.31-0.40	7,700,396	8.64	0.38		2,881,788	0.36
0.41-0.50	654,000	8.51	0.44		654,000	0.44
0.51-0.74	482,000	8.13	0.70		158,552	0.64
	14,589,417				9,006,956

The aggregate intrinsic value of options outstanding and exercisable at December 31, 2007 was $15,067,603.

In regard to Paragraph A240(c) of SFAS 123R, for each year for which an income statement is provided:

(1) The weighted-average grant-date fair value (or calculated value for a nonpublic entity that uses that method or intrinsic value for awards measured at that value pursuant to paragraphs 24 and 25 of this Statement) of equity options or other equity instruments granted during the year ended December 31, 2007 was $0.29, and $0.18 for those granted during the year ended December 31, 2006.

(2) The total intrinsic value of options exercised (or share units converted), share-based liabilities paid, and the total fair value of shares vested during the year was $7,723,186 as of December 31, 2007 and $1,432,228 as of December 31, 2006.

Restricted Stock Agreement

In 2002, the Company granted 1,000,000 shares of restricted common stock for the benefit of its Chairman. Compensation expense for the grant was based on the market price ($0.15) for the common stock and is being amortized on a straight-line basis over the five year vesting period based on continuous service. The recipient has the right to vote all shares subject to the grant, whether or not the shares have vested. These shares were issued in January, 2007.

The balance of unearned compensation related to the restricted shares as of December 31, 2007 was $0. Compensation expense recognized in each of the years ended December 31, 2007, 2006, and 2005 was $0, $45,000, and $30,000 respectively.

Note (17) Employees’ Savings Plan

The Company established a 401(k) plan in 2000 for eligible employees. Under the provisions of the plan, eligible employees may voluntarily contribute a portion of their compensation up to the statutory limit. In addition, the Company can make a matching contribution at its discretion. As of December 31, 2007, the Company has never made any contributions to the plan.

Note (18) Commitments and Guarantees

The Company’s commitments as of December 31, 2007*, for the years 2008 through 2012 and thereafter are estimated below:

	2008		2009		2010		2011		2012		Thereafter		Total
Long-tem debt maturities (face amount)	$	560,897	$	—	$	38,456	$	—	$	—	$	—	$	599,353
Employment obligations	1,352,707		1,440,680		1,082,347		316,667		—		—			4,192,401
Renewable energy credit guarantee obligations	64,701		64,701		64,701		64,701		35,509				294,313
Operating lease payments	885,743		829,469		772,631		772,631		772,631		3,516,555			7,549,660
Total	$	2,864,048	$	2,334,850	$	1,958,135	$	1,153,999	$	808,140	$	3,516,555	$	12,635,731

Operating Leases

New Jersey

Colorado

California

In December 2007, the Company opened a sales office in Poway, CA under a two year lease expiring December 24, 2009. This office serves as the sales center for Southern California.

In March 2007, the Company opened a technical support office in Fresno, CA under a month to month lease.

Texas*

In January 2008, the Company acquired Entech, Inc. in Keller, TX which included the transfer of their lease expiring June 1, 2009.

Both of these Texas Leases are included in the above table.

Employment Agreements

On December 18, 2006, the Company entered into a five-year employment agreement with Mr. Kelly, our former Chief Executive Officer (see Note 22 as to subsequent events), effective January 1, 2007. Adjusted compensation under the agreement is $250,000 annual salary and $1,200 per month auto allowance. Mr. Kelly participates in the Company’s “fringe benefits” including health coverage and the maintenance of a whole life policy. The benefits continue if employment is terminated without cause or by reason of death or disability to Mr. Kelly or his estate for the remaining term of the agreement or a period of 24 months, whichever is longer. Effective January 19, 2007, Mr. Kelly was granted 5,000,000 stock options at an exercise price of $0.40, fair market value at the date of the grant. These shares will vest twenty percent (20%) per year, with the first twenty percent (20%) vesting immediately upon the grant of the options and the remaining options vesting twenty percent (20%) per year on the annual anniversary of the initial grant.

In July 2002, Mr. Kelly was granted 1,000,000 shares of restricted stock, all of which are vested as of December 31, 2006. Compensation expense recognized in each of the years ended December 31, 2007, 2006, and 2005 was $0, $45,000, and $30,000 respectively.

Included in accrued sales commissions as of December 31, 2006 is $58,622 owed to Mr. Kelly under a Management Services Fee Agreement expired on December 31, 2006, calling for a management services/sales incentive fee equal to one-half percent (0.5%) of the Company’s gross product revenues less any related product returns, rebates, allowances, freight charges, tariffs and sales taxes, not to exceed $250,000 per annum.

On July 10, 2006, the Company entered into an employment agreement with Mr. Larry L. Crawford, Executive Vice President and Chief Financial Officer with a term which expires July 9, 2009. Annual compensation under the agreement is $150,000 and included an initial grant of 600,000 stock options vesting over the term of the employment agreement. On March 8, 2007, the Company entered into a new three-year employment agreement with Mr. Crawford. The contract was effective January 1, 2007 and includes his appointment as Executive Vice President. Adjusted compensation under this contract is $175,000 annual salary and $750 monthly auto allowance.

On December 18, 2006, the Company entered into an employment agreement with Douglas L. Washington, Executive Vice President, Marketing, effective January 1, 2007 for a period of three years. Annual compensation under the agreement is $160,000 and includes an initial grant of 600,000 stock options vesting over the term of the employment agreement.

On May 24, 2004, the Company entered into an employment agreement with James S. Brown. Executive Vice President, Project Finance with a term which expired December 31, 2006. Annual compensation under the agreement is $150,000 and included an initial grant of 250,000 stock options vesting over the term of the employment agreement.

On March 18, 2008, the Company entered into an Executive Employment Agreement (the “Agreement”) with Robert A. Gunther, the Company's Senior Vice President and General Counsel. The Agreement provides for a three term and an annual base salary of $200,000. Mr. Gunther will receive options to purchase 300,000 shares of the Company's common stock under the terms of the Company's 1999 Incentive Stock Option Plan (the “Plan”), subject to the approval of the Company's stockholders to an increase in the number of authorized shares of common stock in the Plan. Options to purchase 50,000 shares of common stock will vest on July 7, 2008 and the balance will vest in 30 equal monthly installments commencing August 2008 and continuing in each of the next 29 months.

Note (19) Contingencies

The Company is subject to various claims and suits from time to time in the ordinary course of its business. The Company is not aware of any pending or threatened litigation that could have a material adverse effect on the Company’s business, financial condition or results of operations.

Note (20) Supplemental Disclosure of Cash Flow Information

	2007		2006		2005
Issuance of stock lieu of Interest (non-cash)	$	25,736	$	68,973	$	371,087
Issuance of stock for services (non-cash)	$	246,500	$	227,481	$	211,272
Issuance of options and warrants for services (non-cash)	$	60,000	$	70,000	—
Cash paid during the year for interest	$	23,467	$	80,597	$	242,154

Note (21) Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for the years ended December 31, 2007, and 2006 is as follows (in thousands except per share data):

2007	First			Second			Third			Fourth
Total revenues	$	949		$	2,238		$	4,369		$	10,910
Gross profit	199			337			564			639
Net loss	(2,160		)	(2,807		)	(3,753		)	(5,665		)
Net loss applicable to common shareholders	(2,172		)	(2,818		)	(3,761		)	(5,672		)
Basic & diluted net loss per common share (1)	(0.01		)	(0.02		)	(0.02		)	(0.03		)

2006	First			Second			Third			Fourth (Restated)
Total revenues	$	1,957		$	1,787		$	6,532		$	7,058
Gross profit	131			277			1,452			860
Net loss	(5,728		)	(1,999		)	(869		)	(2,892		)
Net loss applicable to common shareholders	(5,728		)	(1,999		)	(869		)	(6,892		)
Basic & diluted net loss per common share (1)	(0.05		)	(0.01		)	(0.01		)	(0.05		)

(1) Basic and diluted net income (loss) per common share is computed independently for each quarter. Therefore, the sum of the quarters will not necessarily equal the basic and diluted net income (loss) per common share for the full year.

The Company has restated its December 31, 2006 Consolidated Balance Sheet and Consolidated Statement of Operations for the year then ended to correct the classification and valuation of the Series D Preferred Warrants (see Note 3).

The following presents the summarized unaudited quarterly financial data for the quarter ended December 31, 2006, restated for the classification and valuation of the Series D Preferred Warrants:

Quarter Ended:	December 31, 2006			December 31, 2006
	(historic)**			(restated)

Selected Statement of Operations Data:
Interest expense, net	$	(343,560	)	$	(760,060	)
Total other (expense) income, net	(1,023,216		)	(1,439,716		)
Net loss	(2,476,681		)	(2,893,181		)
Accretion of preferred stock dividends*	—			(22,500		)
Net loss applicable to common shareholders	(6,543,477		)	(6,982,477		)

* This amount was included in Interest expense, net and has been reclassified on the restated financial statements.

** This quarterly financial data was not previously presented, in as much as the Company was a 10-KSB filer for the year ended December 31, 2006.

The following presents the summarized unaudited quarterly balance sheet data for 2007, restated for the classification of the Series D Preferred Warrants:

Quarter Ended:	March 31, 2007			June 30, 2007			September 30, 2007
	(restated)			(restated)			(restated)

Selected Balance Sheet Data:
Series D preferred stock warrants	$	1,393,827		$	1,393,827		$	1,393,827
Current liabilities	4,692,743			4,736,047			7,717,192
Total liabilities	5,009,592			5,080,909			8,069,337
Series D preferred stock warrants	—			—			—
Total convertible redeemable preferred stock	11,929,561			11,929,561			11,679,561
Accumulated deficit	(51,757,866		)	(54,576,027		)	(58,337,343		)
Total stockholders' equity (deficiency)	(3,272,237		)	759,859			12,625,362

Quarter Ended:	March 31, 2007			June 30, 2007			September 30, 2007
	(as previously reported and amended)			(as previously reported and amended)			(as previously reported and amended)

Selected Balance Sheet Data:
Series D preferred stock warrants	$	—		$	—		$	—
Current liabilities	3,298,916			3,342,220			6,323,365
Total liabilities	3,615,765			3,687,082			6,675,510
Series D preferred stock warrants	954,827			954,827			954,827
Total convertible redeemable preferred stock	12,884,388			12,884,388			12,634,388
Accumulated deficit	(51,318,866		)	(54,137,027		)	(57,898,343		)
Total stockholders' equity (deficiency)	(2,833,237		)	1,198,859			13,064,362

Note (22) Subsequent Events

As of March 7, 2008, Entech, Inc. entered into a lease for a 71,000 square foot manufacturing facility in Fortworth, TX. The lease is for a period of ten (10) years and provides for monthly payments that include rental expense, real estate taxes & common area maintenance of $42,061 per month for the first five (5) years of the lease and payments of $46,395 in the final five (5) years. Entech’s obligations under the terms of the lease are guaranteed by the Company.

On March 11, 2008, the Company announced that the City Council of Ocean City, NJ has awarded the Company a contract to build a $4 million solar system for the City which is expected to produce nearly 550,000 kilowatt hours of energy in its first year. The project is expected to be completed in 2008.

On February 21, 2008, the Company announced three additions to its Board of Directors. David Gelbaum, Trustee of The Quercus Trust; David Anthony, Managing Partner of 21Ventures, and Dr. Walter Hesse, founder and leader of ENTECH, were appointed today and joined the Board effective immediately, increasing the Board’s size from 7 members to 10. Mssrs. Gelbaum and Anthony come as representatives of The Quercus Trust, which owns approximately 24.1% of the equity ownership in the Company on a fully diluted basis, following its recent investment of $35.6 million and earlier open market purchases and private stock placements with the Company. Dr. Hesse joins the Board following the successful completion of the ENTECH merger. All are Board interim appointments to be confirmed by shareholder votes at upcoming Annual Meetings.

On February 12, 2008, the Company entered into a Stock and Warrant Purchase Agreement with The Quercus Trust pursuant to which the Company issued 20,000 shares of its Series F Convertible Preferred Stock at a price of $1,782 per share, and warrants to purchase 29 million shares of the Company’s common stock, at an exercise price of $1.815 per share. The Series F Convertible Preferred Stock has the designations, preferences and rights set forth in the Certificate of Designation filed with the Secretary of State for the State of Delaware on February 19, 2008 (the “CERTIFICATE OF DESIGNATION”). Pursuant to the Certificate of Designation, The Quercus Trust has the right to one vote for each share of the Company’s common stock into which the Series F Convertible Preferred Stock is convertible. These Preferred Shares are not convertible into the Company’s common stock until such time as additional common shares are authorized and available.

On January 28, 2008, and in connection with the merger described in Item 2.01 above, the Company entered into a $6 million Promissory Note (the “Note”) with The Quercus Trust. The Note bears interest at a rate of 8% per annum. The outstanding principal amount of the Note and all accrued and unpaid interest was repaid on February 12, 2008.

On January 25, 2008, the Company entered into a Stock Exchange Agreement with The Quercus Trust pursuant to which agreement the Company issued 19,700 shares of its Series E Convertible Preferred Stock in exchange for 19,700,000 shares of the Company’s common stock held by The Quercus Trust. The Series E Convertible Preferred Stock has the designations, preferences and rights set forth in the certificate of designation filed with the Secretary of State for the State of Delaware on January 28, 2008 (the “Certificate of Designation”). Pursuant to the Certificate of Designation, The Quercus Trust has the right to one vote for each share of the Company’s common stock into which the Series E Convertible Preferred Stock is convertible. Each share of the Series E Convertible Preferred Stock will automatically convert into 1,000 shares of the Company’s common stock upon the authorization of a sufficient number of shares of common stock to allow for such conversion.

On March 21, 2008, the Company promoted Dr. Frank Smith from COO to Chief Executive Officer and elected him to the Board of Directors.

On March 18, 2008, the Company entered into an Executive Employment Agreement (the “Agreement”) with Robert A. Gunther, the Company's Senior Vice President and General Counsel. The Agreement provides for a three term and an annual base salary of $200,000. Mr. Gunther will receive options to purchase 300,000 shares of the Company's common stock under the terms of the Company's 1999 Incentive Stock Option Plan (the "Plan"), subject to the approval of the Company's stockholders to an increase in the number of authorized shares of common stock in the Plan. Options to purchase 50,000 shares of common stock will vest on July 7, 2008 and the balance will vest in 30 equal monthly installments commencing August 2008 and continuing in each of the next 29 months.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of December 31, 2007 to ensure that information required to be disclosed in reports filed or submitted by the Company under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by the Company is accumulated and communicated to the Company’s management to allow timely decisions regarding the required disclosures. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2007 because of a material weakness in internal controls over financial reporting discussed below.

Change in internal controls over financial reporting

As of March 17, 2008, there was one change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company implemented a new general ledger system effective January 1, 2008.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934).

Management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, management applied the criteria based on the “Internal Control — Integrated Framework” set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s assessment included documenting, evaluating, and testing the design and operating effectiveness of the Company’s internal control over financial reporting. Based upon this evaluation, management concluded that the Company’s internal controls over financial reporting were deficient.

A material weakness is a control deficiency, or combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our consolidated financial statements for the year ended December 31, 2007, the Company noted the following material weakness that became evident to management:

· The Company has insufficient resources in place to ensure timely and accurate financial reporting.

The Company intends to take a number of corrective actions to address the above mentioned material weakness as promptly as practicable. These actions are expected to include the hiring of additional internal and/or external accounting and financial reporting professionals.

Amper, Politziner & Mattia, P.C. the Company’s independent registered public accounting firm, has issued an audit report on the Company’s internal control over financial reporting as of December 31, 2007, which appears in the “Report of Independent Registered Public Accounting Firm” included elsewhere in this Annual Report on Form 10-K.

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The following table sets forth the names, ages and positions of the current executive officers and directors of the Company. Their respective backgrounds are described following the table:

NAME	AGE	POSITION WITH THE COMPANY
Quentin T. Kelly	73	Chairman
Dr. Frank W. Smith	49	CEO
Larry L. Crawford	59	Executive Vice President, Chief Financial Officer
Dr. Anand Rangarajan	58	Executive Vice President, Chief Technology Officer
Douglas L. Washington	60	Executive Vice President, Sales
James S. Brown	52	Executive Vice President, Project Finance
Joseph Cygler	72	Director
Dr. Hong Hou	43	Director
Reuben F. Richards, Jr.	52	Director
Lange Schermerhorn	68	Director
Dr. Davinder Sethi	60	Director
Harrison Wellford	67	Director
David Gelbaum	59	Director
David Anthony	47	Director
Dr. Walter Hesse	84	Director

Quentin T. Kelly founded WorldWater, Inc. in 1984 as a consulting and R&D company and has been Chairman since that time. Mr. Kelly also served as CEO from 1984 to January 2006, and resumed his role as CEO in January 2007. Mr. Kelly was previously Director of Information Services and Assistant to the President of Westinghouse Electric Corporation from 1965 to 1971, and subsequently became President of Kelly-Jordan Enterprises, Inc., a leisure products company from 1971 to 1975, and then President of Pressurized Products, Inc., manufacturers and international marketers of specialized water systems and products, from 1976 to 1984. Mr. Kelly is an alumnus of Kenyon College and holds three U.S. patents relating to water systems. He has many years of experience in business relating to water and power needs in the U.S. and the developing world. He has worked on water supply and solar power projects in the U.S. and with more than a dozen governments and private contractors throughout the world. Mr. Kelly’s term as director expires in 2009. On March 14, 2008 the Company announced that its Chief Executive Officer, Quentin T. Kelly was resigning his position as CEO effective March 20, 2008; Mr. Kelly will remain as a non-executive Chairman. Mr. Kelly’s contract compensation package and stock options will not be affected as he will continue to provide services to the Company.

Dr. Frank W. Smith joined the Company as Chief Operating Officer in February 2007. On March 18, 2008, the Company promoted Dr. Smith to Chief Executive Officer and elected him to the Board of Directors. He previously served as Vice President of Strategy and Business Development at EMCORE Corporation in 2006, where he identified target acquisitions, managed the due diligence process, and provided strategic direction for the company. From 2004 to 2005, he was an Operations Director at JDS Uniphase, where he managed several business units between 1999 and 2004, before which he was a Program Manager at Lockheed Martin. He was also a Manager at MIT’s Lincoln Labs and has accumulated five patents under his name as well as having published nearly two dozen articles. Dr. Smith graduated with a B.S. in Engineering & Applied Science from Yale University and completed a Masters and Ph.D. in Electrical Engineering & Computer Science from MIT, with a minor in Business Administration from MIT’s Sloan School of Business.

Larry Crawford, Executive Vice President and Chief Financial Officer, joined the Company in July 2006. Prior to joining the Company, Mr. Crawford served as Chief Financial Officer and Executive Vice President of Escala Group, Inc. from 2001 to 2006. Mr. Crawford served as Chief Financial Officer of Arzee Holdings, Inc. from 1996 to 2001 and as Vice President of Finance and Chief Financial Officer of Talon, Inc., a subsidiary of Coats Viyella plc from 1987 to 1996. Mr. Crawford is a certified public accountant and received his B.A. from Pennsylvania State University and his M.B.A. from the Lubin School of Business of Pace University.

Dr. Anand Rangarajan, Executive Vice President and Chief Technology Officer, has been employed by the Company since 1998. He is a solar and water pump specialist with over 20 years experience in all aspects of the solar electric business and has pioneered the development of several proprietary solar water pumping systems, products and markets. His systems have been installed in over 20 countries. He holds a Ph.D. in Engineering from the University of Wisconsin.

Douglas L. Washington, Executive Vice President, Marketing and International Operations, has been employed by the Company since 2004. He has worked at Johnson & Johnson for 18 years, where he served as Worldwide Director of New Business Development, Consumer Sector, and Director of Business Development, Advanced Materials Company, developing business opportunities with a variety of governmental, educational and other research institutions in the United States and in countries in Asia, Africa and elsewhere. He attended the University of Texas, and has had professional training at the Kellogg School of Business and the Wharton School of Business, and has been a private consultant, specializing in biotechnology and consumer water programs.

James S. Brown, Executive Vice President, Project Finance, joined the Company in May 2004. Mr. Brown has extensive financial experience in the energy industry. From August 2002 until May 2004, Mr. Brown served as an independent financial consultant. From October 1999 until August 2002, he was Director of Structured Finance, Americas, for Energy Wholesale Operations in Houston, Texas. Prior to that, Mr. Brown served as a Project Finance Director for El Paso Energy International. Mr. Brown has also held executive finance positions with Westmoreland Energy Inc. and AMVEST Corporation. Mr. Brown graduated from Georgetown University with a degree in Accounting and holds an MBA from Texas A&M University.

Joseph Cygler has been a Director of the Company since January 1997, and a former Vice President of Marketing and Executive Vice-President. He has been Chief Executive Officer of the CE&O Group, an organization assisting companies in operations management, since 1986. Previously he was an executive at Kepner-Tregoe, Inc., an international business consulting firm, from 1976 to 1986, an executive with Honeywell Information Systems from 1964 to 1976, and a marketing representative with International Business Machines from 1961 to 1964. Mr. Cygler has a BS in Engineering from the U.S. Military Academy at West Point. Mr. Cygler’s term as director expires in 2009.

Dr. Hong Hou has been a Director of the Company since January 2007. Dr. Hou is also a member of the board of directors of EMCORE where he has served in a variety of leadership roles since 1998. He currently is President, Chief Operating Officer of EMCORE Corp. He co-started EMCORE’s Photovoltaics Division, and subsequently managed the Fiber Optics Division. He was Executive Vice President of Business Development and Product Strategy before becoming Vice President and General Manager of EMCORE’s Ortel Division. From 1995 to 1998 he was a Principal Member of the Technical Staff at Sandia National Laboratories, a Department of Energy weapons research laboratory managed by Lockheed Martin. Prior to that, he served with AT&T Bell Laboratories, engaging in research on high-speed optoelectronic devices. He holds a Ph.D. in electrical engineering from the University of California at San Diego. He has published over 150 journal articles and holds seven U.S. patents. Pursuant to the terms of the Investment Agreement between the Company and EMCORE (see “Certain Relationships and Related Transactions—EMCORE Investment in the Company” below), EMCORE is entitled to nominate two directors to the Board. Mr. Hou is one such director. Mr. Hou’s term as director expires in 2008.

Reuben F. Richards, Jr. has been a Director of the Company since January 2007. Mr. Richards, who joined EMCORE Corporation in October 1995 as its President and Chief Operating Officer, and has been Chief Executive Officer since December 1996. Mr. Richards has been a director of EMCORE since May 1995. From December 1993 to December 1995, he has been a member and President of Jesup & Lamont Merchant Partners. From 1991-1993, Mr. Richards was a principal with Hauser, Richards & Co., a firm engaged in corporate restructuring and management turnarounds. From 1986 to 1991, Mr. Richards was a Director at Prudential-Bache Capital Funding in its Investment Banking Division. Mr. Richards has served on the Boards of the University of New Mexico School of Engineering, Sandia National Laboratories External Review Panel and was a member of the board of directors of GELcore, EMCORE’s joint venture with General Electric. Pursuant to the terms of the Investment Agreement between the Company and EMCORE (see “Certain Relationships and Related Transactions—EMCORE Investment in the Company” below), EMCORE is entitled to nominate two directors to the Board. Mr. Richards is one such director.

Lange Schermerhorn has served as a Director of the Company since 2001. She is a retired U.S. Ambassador to Djibouti, is an economist who has spent 30 years in the Foreign Service and has covered the globe as a senior foreign officer in such places as Brussels, where she was Deputy Chief of Mission, with specific emphasis on economics relating to NATO and EU. Ms. Schermerhorn

has also had significant Foreign Service experience in Sri Lanka, Vietnam, Tehran, London and Washington D.C. Ms. Schermerhorn’s education and related experience include Mt. Holyoke College (B.A. 1961), Harvard Business School, and National War College.

Dr. Davinder Sethi has served as a Director of the Company since 2000. He has been an independent advisor in the fields of information technology and finance for more than fifteen years. He has served as Chairman and Chief Executive Officer of iPing, Inc., and was a Director and Senior Advisor to Barclays de Zoete Wedd in mergers and In addition, Dr. Sethi spent seven years at Bell Laboratories in operations research and communications network planning and seven years in corporate finance at AT&T. Dr. Sethi holds a Ph.D. and M.S. in Operations Research, Economics and Statistics from the University of California, Berkeley, and is a graduate of the Executive Management Program at Penn State. Dr. Sethi’s term as director expires in 2008.

W. Harrison Wellford, Esq. became a Director of the Company in January 2007 and has served as the Company’s legal counsel for energy matters. He is a recently retired partner from the firm of Latham & Watkins LLP, where he practiced in the areas of energy, mergers and acquisitions, and project finance law from 1991 to 2006. He currently serves as either a board member or advisor to several private companies in the energy field. Mr. Wellford served as the Executive Associate Director of the President’s Office of Management and Budget from 1977 to 1981. He also has held several senior management positions in Presidential transitions since 1976. In the 1980’s Mr. Wellford was a leading advocate for the creation of the competitive power industry and a founder of the largest trade association for independent power companies. Mr. Wellford earned his B.A. from Davidson College, his M.A. from Cambridge University, his Ph.D. in Government from Harvard University and his J.D. from Georgetown University.

David Gelbaum graduated from the University of California, Irvine, in 1972 and worked for a number of years doing quantitative modeling of stock price returns and derivative securities from 1972 until 2002. As Trustee of The Quercus Trust, Mr. Gelbaum is currently invested almost exclusively in alternative energy companies, both public and private.

David Anthony, Managing Partner of 21Ventures, is an experienced entrepreneur, venture capitalist, and educator. Mr. Anthony sits on the board of portfolio companies: Agent Video Intelligence, Orion Solar, BioPetroClean, Cell2Bet, Juice Wireless, Visioneered Image Systems, and VOIP Logic. David is an Adjunct Professor at the New York Academy of Sciences (NYAS) and also serves as entrepreneur-in-residence at the University of Alabama Birmingham School of Business. In 1995, David launched Notorious Entertainment, a developer of multimedia brands which he later sold in 1988 to entertainment mogul Sean "Puff Daddy" Combs, and ran the company for two subsequent years. David received his MBA from The Tuck School of Business at Dartmouth College in 1989 and a BA in economics from George Washington University in 1982.

Dr. Hesse is former CEO and Board Chairman of ENTECH, Inc. A wholly owned subsidiary of WorldWater & Solar Technologies Corp., ENTECH is a high technology solar energy company with products of concentrating photovoltaic systems. Dr. Hesse has been involved in high technology research and development work for more than 60 years and was a twelve year Board Member and served as Chairman and President of the Solar Energy Industry Association (SEIA). He served on the Advisory Board of the Electrical Engineering Department of the University of Texas at Arlington and the advisory board of the U.S. Solar Energy Research Institute. He was a member of the Scientific Panel to the Congressional House Committee on Science and Astronautics, a member of the Advisory Board for Joint Task Force Two of the Joint Chiefs of Staff, a member of the Texas Commission on Atomic Energy, and was Chairman of the Board of the Aerospace Education Foundation of the Air Force Association. Dr. Hesse holds a PhD (1951), MSME (1948), BSME (1944), all from Purdue University; plus courses at the U.S. Naval Academy where he was Commissioned Ensign (1944), USNR; U.S.N. Submarine Officers School; University of California, Nuclear Engineering; and Sandia National Laboratories, Nuclear Weapons.

MEETING ATTENDANCE

The business of the Company is managed under the direction of the board. The board meets during the Company’s fiscal year to review significant developments affecting the Company and to act on matters requiring board approval. The board held seven meetings and acted by unanimous written consent numerous times during the fiscal year ended December 31, 2007. All of the directors attended the meetings held during the year. While the Company has no policy with regard to board members’ attendance at our annual meetings of stockholders, all of our incumbent directors attended the 2007 annual meeting.

The Board has determined that, except for Mr. Kelly, who serves as the Chairman and Chief Executive Officer, and Mr. Reuben F. Richards Jr. and Dr. Hong Hou who are officers of EMCORE Corp., the holder of our Series D Preferred Stock, each of our current directors is independent.

COMMITTEES OF THE BOARD OF DIRECTORS

The board of directors has a standing Audit Committee and a standing Compensation Committee. The Audit Committee and Compensation Committee met following the end of each of the fiscal quarters in 2007 and 2006.

The Audit Committee of the Company’s Board is comprised of Mr. Joseph Cygler, Dr. Davinder Sethi and Ms. Lange Schermerhorn, all of whom are independent as defined by the listing standards of NASDAQ. The board has determined that Dr. Sethi is an audit committee financial expert within the meaning of regulations adopted by the SEC as a result of his accounting and related financial management expertise and experience. The main function of the Audit Committee is to ensure that effective accounting policies are implemented and that internal controls are in place to deter fraud, anticipate financial risks and promote accurate and timely disclosure of financial and other material information to the public markets, the board and stockholders. The Audit Committee also reviews and recommends to the board approval of the annual financial statements and provides a forum, independent of management, where the Company’s auditors can communicate any issues of concern. In performing all of these functions, the Audit Committee acts only in an oversight capacity and necessarily relies on the work and assurances of the Company’s management and independent auditors, which, in their report, express an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles.

The Audit Committee has adopted a formal, written charter, which has been approved by the full board and which specifies the scope of the Audit Committee’s responsibilities, and how it should carry them out.

Mr. Cygler, Dr. Sethi and Ms. Schermerhorn comprise the Compensation Committee. The Compensation Committee makes recommendations to the board regarding the executive and employee compensation programs of our company. Committee makes recommendations to the board regarding the executive and employee compensation programs of our company.

The Compensation Committee does not have a written charter.

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes the compensation paid to the persons who held the position of Chief Executive Officer and Chief Financial Officer during fiscal years 2006 and 2007 and our other three most highly compensated executive officers at the end of fiscal years 2006 and 2007. The determination of our most highly compensated executive officers is based on total compensation for fiscal years 2006 and 2007 as calculated in the “Summary Compensation Table” shown below.

SUMMARY COMPENSATION TABLE

Name & Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)		Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Quentin T. Kelly Chairman & CEO	2006	160,000	50,000	—	—		—	—		58,000	(1)	268,000
Quentin T. Kelly Chairman & CEO	2007	250,000	59,750	—	270,000	(2)	—	110,072	(5)	58,000	(1)	727,822
Larry Crawford EVP, CFO	2006	71,423	11,093	—	51,000	(3)	—	—		—		184,516
Larry Crawford EVP, CFO	2007	175,000	29,093	—	—		—	—		9,000	(4)	213,093
Dr. Frank W. Smith EVP, COO	2006	—	—	—	—		—	—		—		—
Dr. Frank W. Smith EVP, COO	2007	178,030	27,865	—	52,000	(6)	—	—		—		349,895
Dr. Anand Rangarajan EVP, CTO	2006	123,738	17,748	—	—		—	—		9,000	(4)	150,486
Dr. Anand Rangarajan EVP, CTO	2007	175,000	24,498	—	—		—	—		9,000	(4)	208,498
James S. Brown EVP, Project Finance	2006	131,625	16,269	—	—		—	—		—		147,894
James S. Brown EVP, Project Finance	2007	136,250	21,399	—	—		—	—		—		157,649

(1) Represents the premium paid for a life insurance policy, the beneficiary of which is Mr. Kelly’s wife ($46,000) plus use of the Company vehicle ($12,000).

(2) 120,000 options granted 12/31/2005 at exercise price at date of grant; options vest over one-year. 5,000,000 options granted at 1/1/07 at exercise price at date of grant; options vest over 5 years. FASB 123R expense for 2006 and 2007 was $37,200 and $270,000, respectively.

(3) 600,000 options granted 7/10/2006 in connection with employment contract; options were granted at the market price at date of grant. No options vested during the year ended December 31, 2006. 100,000 options vested on 1/10/2007; the remainder vest monthly through 7/10/2009. FASB 123R expense for 2006 was $0.00; FASB 123R expense for 2007 was $34,000.

(4) Represents $9,000 for Company provided vehicle.

(5) Represents deferred compensation of $110,072 earned in prior years and paid in 2007.

(6) 600,000 options granted 2/11/07 in connection with employment contract; options were granted at the market price at date of grant. 151,723 options vested through the year ended December 31, 2007; FASB 123R expense for 2007 was $44,000.

Estimated future payouts under non-equity incentive plan awards

Estimated future payouts under equity incentive plan awards

All other stock awards: Number of shares of stock or units (#)

All other option awards: Number of securities underlying options (#)

Exercise or base price of option awards ($/Sh)

Grant date fair value of stock and option awards

Name

Grant date

Threshold
($)

Target
($)

Maximum
($)

Threshold
(#)

Target
(#)

Maximum
(#)

The Company does not issue grants of plan-based awards.

EQUITY COMPENSATION PLAN INFORMATION

The following table contains information regarding the Company’s Equity Compensation Plans as of December 31, 2007:

Plan Category	(A) Number of Securities to be Issued Upon Exercise of Outstanding Warrants, Options and Rights	(B) Weighted Average Exercise Price of Outstanding Warrants, Options and Rights		(C) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Securities Reflected in Column (A))
Equity compensation plans approved by security holders(1)	14,589,417	$	0.33	0
Equity compensation plans not approved by security holders	—	—
Total	14,589,417	$	0.33	0

(1) The approved plan is the Amended 1999 WorldWater Corp. Incentive Stock Option Plan.

OPTION GRANTS FOR YEAR ENDED DECEMBER 31, 2007

(INDIVIDUAL GRANTS IN FISCAL YEAR)

Name	Number of Securities Underlying Options	Percent of Total Options Granted to Employees		Exercise Price Per Share(1)		Expiration Date
Joseph Cygler	100,000	1	%	$	0.44	1/16/2017
Dr. Hong Hou	100,000	1	%	0.44		1/16/2017
Quentin T. Kelly	5,000,000	66	%	0.39		1/18/2017
Reuben F. Richards, Jr.	100,000	1	%	0.44		1/16/2017
Lange Schermerhorn	100,000	1	%	0.44		1/16/2017
Dr. Davinder Sethi	100,000	1	%	0.44		1/16/2017
Dr. Frank W. Smith	600,000	8	%	0.39		2/11/2017
Harrison Wellford, Esq.	100,000	1	%	0.44		1/16/2017

(1) All grants of options have been made with exercise prices equal to fair value at date of grant. The amounts shown represent an average share price for the shares indicated.

Name

Option awards

Stock awards

Number of
securities
underlying
unexercised
options
(#) exercisable

Number of
securities
underlying
unexercised
options
(#) unexercisable

Equity
incentive plan
awards:
number of
securities
underlying
unexercised
unearned
options (#)

Option
exercise
price
($)

Option
expiration
date

Number
of shares
or units
of stock
that have
not
vested (#)

Market
value
of
shares
or units
of
stock
that
have
not
vested
(#)

Equity
incentive
plan
awards:
number of
unearned
shares,
units or
other
rights that
have not
vested (#)

Equity
incentive plan
awards:
market or
payout
value of
unearned
shares,
units or
other rights
that have
not vested
($)

Quentin T. Kelly, Chairman & CEO:

120,000

0.34

6/29/08

	300,000		0.30	8/24/09
	1,250,000		0.15	12/30/11
	60,000		0.34	12/30/11
	60,000		0.15	12/30/12
	30,000		0.15	6/30/13
	30,000		0.15	9/30/13
	60,000		0.15	12/30/12
	30,000		0.15	6/30/14
	150,000		0.28	12/30/14
	120,000		0.31	12/30/15
	1,000,000	4,000,000	0.39	12/31/16

Larry L. Crawford, EVP & CFO:
	258,333	316,667	0.27	7/9/16

Frank Smith, EVP & COO:
	151,723	448,277	0.39	2/11/17

Anand Rangarajan, EVP & CTO:
	175,000		0.28	12/30/14

James S. Brown, EVP, Project Finance:
	50,000		0.38	6/18/14
	571,430		0.28	12/30/14

Aggregated Option Exercises

For Fiscal Year Ended December 31, 2007

And Year-End Option Values(1)

Name	Option awards		Stock awards
Name	Number of shares acquired on exercise (#)	Value realized on exercise ($)	Number of shares acquired on vesting (#)	Value realized on vesting ($)
Quentin T. Kelly, Chairman & CEO:
	37,975	20,886
Larry L. Crawford, EVP & CFO:
	25,000	25,000
Anand Rangarajan, EVP & CTO:
	939,000	888,340
James S. Brown, EVP, Project Finance:
	325,000	487,200

	Shares Acquired on	Value	Number of Securities Underlying Unexercised Options at Fiscal Year-End (#)(2)		Value of Unexercised In-the-Money Options at Fiscal Year-End ($)(3)
Name	Exercise	Realized ($)	Exercisable	Unexercisable	Exercisable	Unexercisable
Quentin T. Kelly	37,975	20,886	3,210,000	4,000,000	5,452,200	6,280,000
James S. Farrin	1,000,000	1,315,000	—	—	—	—
Larry L. Crawford	25,000	25,000	266,667	308,333	436,583	535,167
Dr. Anand Rangarajan	939,000	883,340	175,000	—	294,000	—
James S. Brown	325,000	487,200	621,430	—	1,039,002	—
Joseph Cygler	4,300	5,891	750,000	—	1,266,000	—
Dr. Hong Hou	—	0	100,000	—	152,000	—
Reuben F. Richards	—	0	100,000	—	152,000	—
Lange Schermerhorn	—	0	400,000	—	668,000	—
Dr. Davinder Sethi	262,600	354,474	450,000	—	768,000	—
Dr. Frank W. Smith	0	0	151,723	448,277	238,205	703,795
Harrison Wellford, Esq.	0	0	100,000	—	152,000	—

(1) No stock appreciation rights are held by the named Executive Officer.

(2) The total number of unexercised options held as of December 31, 2007, separated between those options that were exercisable and those options that were not exercisable on that date.

(3) For all unexercised options held as of December 31, 2007, the aggregate dollar value of the excess of the market value of the stock underlying those options over the exercise price of those unexercised options. As required, the price used to calculate these figures was the closing sale price of the common stock at year’s end, which was $1.96 per share on December 31, 2007.

Pension Benefits

Name		Plan name		Number of years credited service (#)		Present value of accumulated benefit ($)		Payments during last fiscal year ($)

The Company does not have a Pension Plan.

Nonqualified Deferred Compensation

Name		Executive contributions in last FY ($)		Registrant contributions in last FY ($)		Aggregate earnings in last FY ($)		Aggregate withdrawals/distributions ($)		Aggregate balance at last FYE ($)

The Company does not have a Nonqualified Deferred Compensation Plan.

DIRECTOR COMPENSATION

During fiscal year 2007, each non-employee director received $1,000 for each committee meeting held other than in conjunction with a board meeting, other than the Chairs of the Audit and Compensation committees who each received $2,000 and $1,500 per meeting. Each non-employee director also received option grants to purchase 100,000 shares of the Company’s common stock in fiscal year 2007. Directors who are employees of WorldWater do not receive any compensation for their service as directors.

The following table sets forth information regarding compensation paid to current and former non-employee directors of the Company for fiscal year 2007.

Name	Fees earned or paid in cash ($) (1)	Stock awards ($)	Option awards ($) (2) (3) (5)	Non-equity incentive plan compensation ($)	Change in pension value and nonqualified deferred compensation earnings	All other compensation ($)	Total ($)
Joseph Cygler	22,000		32,000				54,000
Dr. Hong Hou (4)	12,000		32,000				44,000
Reuben Richards (4)	12,000		32,000				44,000
Lange Schermerhorn	20,000		32,000				52,000
Dr. Davinder Sethi	24,000		32,000				56,000
Harrison Wellford (4)	12,000		32,000				44,000

Name	Fees Earned or Paid in Cash ($)(1)		Option Awards ($)(2)(3)(5)		Total ($)
Joseph Cygler	$	22,000	$	32,000	$	54,000
Dr. Hong Hou(4)	$	12,000	$	32,000	$	44,000
Reuben F. Richards, Jr.(4)	$	12,000	$	32,000	$	44,000
Lange Schermerhorn	$	20,000	$	32,000	$	52,000
Dr. Davinder Sethi	$	24,000	$	32,000	$	56,000
W. Harrison Wellford(4)	$	12,000	$	32,000	$	44,000

(1) Includes fees earned in fiscal year 2007.

(2) The options vest and become exercisable on the date of the grant. The amounts shown do not reflect compensation actually received by each director. The amounts shown represent expense recognized in the Company’s fiscal year 2007 consolidated financial statements in accordance with FAS 123(R), excluding any impact of assumed forfeiture rates.

(3) As of December 31, 2007, each director then in office or former director had the following number of options outstanding: Joseph Cygler, 750,000; Dr. Hong Hou, 100,000; Reuben F. Richards, Jr., 100,000; Lange Schermerhorn, 400,000; Dr. Davinder Sethi, 450,000; and W. Harrison Wellford, 100,000.

(4) Messers. Hou, Richards, and Wellford were approved as directors of the Company on January 17, 2007.

(5) A 100,000 shares option grant for services, at a price of $0.44 per share, was issued on January 17, 2007 to each of the directors. The Black-Scholes method was utilized to determine the Company expense.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number and percentage of the shares of the registrant’s Common stock owned as of December 31, 2007 by all persons known to the registrant who own more than 5% of the outstanding number of such shares, by all directors of the registrant, and by all officers and directors of the registrant as a group. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned.

Name and Address of Beneficial Owner(1)	Number of Shares Beneficially Owned(1)		Percent of Class
EMCORE Corporation 145 Belmont Drive Somerset, New Jersey 08873	53,979,008	(2)	22.2	%
Quercus Trust 2309 Santiago Drive Newport Beach CA 92660	38,092,500	(3)	19.2	%
Quentin T. Kelly	7,207,000	(4)	3.7	%
Dr. Frank Smith	186,208	(5)	0.1	%
Dr. Anand Rangarajan	175,000	(6)	*	%
Larry L. Crawford	316,666	(7)	0.2	%
James S. Brown	621,430	(8)	0.3	%
Joseph Cygler	1,034,300	(9)	0.5	%
Dr. Davinder Sethi	457,500	(10)	0.2	%
Lange Schermerhorn	610,000	(11)	0.3	%
Dr. Hong Hou	100,000	(12)	*	%
Reuben Richards	100,000	(13)	*	%
Harrison Wellford	1,194,999	(14)	0.6	%
All Directors and Officers as a group (11 persons)	12,003,100		6.1	%

* Percent of ownership is less than 0.1%

(1) For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within sixty days of December 31, 2007. For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any security which such person or persons has or have the right to acquire within such a date is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except community property laws, the Company believes, based on information supplied by such persons, that the persons named in this table have sole voting and investment power with respect to all shares of common stock which they beneficially own.

(2) This amount includes preferred stock convertible into 48,928,571 shares of common stock and warrants to purchase 5,050,437 shares of common stock as of December 31, 2007 representing the securities obtained under the first of two tranches contemplated under the terms of an Investment Agreement, dated November 29, 2006, between the Company and EMCORE Corporation.

(3) This amount includes 29,092,500 shares of common stock owned as of December 31, 2007 and warrants to purchase 9,000,000 shares of the Company’s common stock.

(4) This amount includes 2,363,940 shares of common stock owned as of December 31, 2007; 606,060 shares owned by CFK Limited Partnership and QTK Limited Partnership which were formed for the benefit of Mr. Kelly’s children; 27,000 warrants to purchase common stock; and options vesting within 60 days of December 31, 2007 to purchase 4,210,000 shares of the Company’s common stock as of December 31, 2007.

(5) This amount includes options vesting within sixty days of December 31, 2007 to purchase 186,205 shares of the Company’s common stock as of December 31, 2007.

(6) This amount represents options vesting within sixty days of December 31, 2007 to purchase 175,000 shares of the Company’s common stock.

(7) This amount represents 25,000 shares of common stock and options vesting within sixty days of December 31, 2007 to purchase 291,666 shares of the Company’s common stock.

(8) This amount includes options vesting within sixty days of December 31, 2007 to purchase 621,430 shares of the Company’s common stock.

(9) This amount includes 284,300 shares of common stock and options vesting within sixty days of December 31, 2007 to purchase 750,000 shares of the Company’s common stock.

(10) This amount represents options vesting within sixty days of December 31, 2007 to purchase 450,000 shares of common stock and warrants to purchase 7,500 shares of the Company’s common stock.

(11) This amount includes 210,000 shares of common stock and options vesting within sixty days of December 31, 2007 to purchase 400,000 shares of the Company’s common stock.

(12) This amount includes options vesting within sixty days of December 31, 2007 to purchase 100,000 shares of the Company’s common stock as of December 31, 2007.

(13) This amount includes options vesting within sixty days of December 31, 2007 to purchase 100,000 shares of the Company’s common stock as of December 31, 2007.

(14) This amount includes 83,333 shares of common stock, 1,011,666 warrants to purchase common stock, and options vesting within sixty days of December 31, 2007 to purchase 100,000 shares of the Company’s common stock as of December 31, 2007.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company had outstanding notes payable owed to directors, officers and employees of the Company as of December 31, 2007 and 2006 as follows:

	2007		2006
Directors	$	—	$	3,000
Officers and employees	—		32,748
Total	—		35,748
Less current maturities	—		(35,748		)
Total long term note payable, related party	$	—	$	—

Notes payable to directors, officers and employees are due on demand and accrue interest at 10% per annum. The interest paid by the Company on such notes was $300 in 2006.

Other Related Party Transactions

The Company recorded a related party sale to a principal shareholder of twelve Mobil MaxPune^® units, recognizing revenue of $900,000 in 2007. The Company also recorded a related party deposit of $775,000 on the balance sheet at December 31, 2007, in relation to 10 additional units, to be shipped in 2008, from the same principal shareholder.

The Company leases office and laboratory facilities from the Chairman of the Company. Lease payments to the Chairman were $0 and $18,000 in 2007 and 2006, respectively, plus utilities and maintenance; see Commitments note.

On January 25, 2008, we entered into a Stock Exchange Agreement with The Quercus Trust pursuant to which agreement the Company issued 19,700 shares of its Series E Convertible Preferred Stock in exchange for 19,700,000 shares of the Company's common stock held by The Quercus Trust. Each share of the Series E Convertible Preferred Stock will automatically convert into 1,000 shares of the Company's common stock upon the approval of the holders of WorldWater common stock to the increase in our authorized common stock.

Also on January 25,2008, we borrowed $6 million from The Quercus Trust as evidenced by a Promissory Note (the "Note") dated as of that date. The Note bears interest at a rate of 8% per annum. The outstanding principal amount of the Note and all accrued and unpaid interest are due and payable on July 28, 2008.

On February 12, 2008, we entered into a Stock and Warrant Purchase Agreement with The Quercus Trust pursuant to which the Company issued 20,000 shares of its Series F Convertible Preferred Stock at a price of $1,782 per share, and warrants to purchase twenty nine million shares of the Company’s common stock, at an exercise price of $1.815 per share. The Quercus Trust has the right to one vote for each share of the Company’s common stock into which the Series F Convertible Preferred Stock is convertible.

Transactions between the Company and The Quercus Trust or its trustee, David Gelbaum, may be considered related party transactions. Under the terms of our Related Party Transaction Policy and Procedures, transactions with related parties requiring disclosure under United States securities laws require prior approval of (a) the Board of Directors and the Audit Committee (acting in each case by a majority of the directors then in office who have no interest in a proposed related party transaction) or (b) the Board of Directors and a committee of not less than two independent directors appointed by the Board of Directors who have no interest in the proposed related party transaction being considered (a "Special Committee").

The Board of Directors and either the Audit Committee or a Special Committee will review the material facts of all related party transactions that require approval in accordance with the Company's policy and either approve or disapprove of the entry into the related party transaction. In determining whether to approve a related party transaction, the Board of Directors, the Audit Committee and the Special Committee, as applicable, will take into account, among other factors each deems appropriate, whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party's interest in the transaction.

The issuance of the Series E Convertible Preferred Stock, the loan evidenced by the Note and the issuance of the Series F Convertible Preferred Stock occurred prior to the adoption of our Related Party Transaction Policy and Procedures and, although approved by the board of directors, were not considered by the Audit Committee or a Special Committee.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Company’s Board of Directors reviews and approves audit and permissible non-audit services performed by its independent accountants, as well as the fees charged for such services. In its review of non-audit service fees and its appointment of Amper, Politziner & Mattia, P.C. as the Company’s independent accountants, the Board of Directors considered whether the provision of such services is compatible with maintaining independence. All of the services provided and fees charged by Amper, Politziner & Mattia, P.C. in 2007 were approved by the Audit Committee of the Board of Directors..

AUDIT FEES

The aggregate fees billed to us by the independent auditors, Amper, Politziner & Mattia P.C., for professional services rendered in connection with our Quarterly Reports on Forms 10Q & 10QSB and for the audits of our financial statements included in this Annual Report on Form 10-K and 10-KSB for the years ended December 31, 2007 and 2006 were $293,500 and $110,000, respectively.

AUDIT RELATED FEES

The aggregate fees billed to us by Amper, Politziner & Mattia, P.C. for assurance and related services that are reasonably related to the performance of the audit and review of our financial statements that are not already reported in the paragraph immediately above totaled approximately $187,125 and $64,700 for the years ended December 31, 2007 and 2006, respectively. The 2007 costs are primarily related to services provided in connection with the audits and due diligence target in 2006 of Entech Corporation.

TAX FEES

There were no tax fees billed by our independent auditors during 2007 and 2006.

ALL OTHER FEES

There were no other fees billed by our independent auditors during the last two fiscal years for products and or services.

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a) Financial Statements. The following documents are filed as Appendix A hereto and are included as part of this annual report on Form 10-K.

Report of Independent Registered Public Accounting Firm—Amper, Politziner & Mattia, P.C.

Consolidated Balance Sheets—December 31, 2007 and 2006

Consolidated Statements of Operations—Years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Cash Flows—Years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Changes in Stockholders’ Equity (Deficiency)—Years ended December 31, 2007, 2006 and 2005

Notes to Consolidated Financial Statements

All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted.

(b) Exhibits.

Exhibit Number		Description
2.1		Plan of Merger of WorldWater, a Nevada corporation with and into WorldWater, a Delaware corporation, filed with the State of Delaware April 30, 2001. Incorporated by reference to Exhibit 2.1 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on January 3, 2003 (File No. 333-102348).

2.2		State of Nevada Articles of Merger, filed with the State of Nevada May 9, 2001. Incorporated by reference to Exhibit 2.2 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on January 3, 2003 (File No. 333-102348).

2.3		Certificate of Merger of Domestic Corporation and Foreign Corporation filed with State of Delaware April 30, 2001. Incorporated by reference to Exhibit 2.3 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on January 3, 2003 (File No. 333-102348).

3.1		Certificate of Incorporation. Incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 dated July 23, 2001 filed with the Securities and Exchange Commission on August 1, 2001 (File No. 333-66484).

3.2		Certificate of Amendment of Certificate of Incorporation. Incorporated by reference to Exhibit 3.2 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on January 3, 2003 (File No. 333-102348).

3.3		Amended and Restated By-laws of WorldWater Incorporated by reference to Exhibit 4.2 to the Company’s Form S-8 dated July 23, 2001 filed with the Securities and Exchange Commission on August 1, 2001 (File No. 333-66484).

3.4		Certificate of Amendment of Certificate of Incorporation dated July 7, 2005. Incorporated by reference to Exhibit 3.4 to the Company’s Form 10-KSB filed with the Securities and Exchange Commission on April 14, 2006 (File No. 00016936).

3.5		Certificate of Amendment of Certificate of Incorporation dated October 11, 2006.

4.1		Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock dated November 29, 2006. Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).

10.1		Securities Purchase Agreement between WorldWater Corp. and SBI Brightline VIII LLC dated April 1, 2004. Incorporated by reference to Exhibit 10.1 to the Company’s Form SB-2filed with the Securities and Exchange Commission on July 30, 2004 (File No. 333-115561).

10.2		Term Credit Agreement dated March 29, 2004 by and among WorldWater Corp., Hong Kong League Central Credit Union; HIT Credit Union and SBI Advisors, LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on July 30, 2004 (File No. 333-115561).

10.3		Stock Purchase Warrant dated March 29, 2004. Incorporated by reference to Exhibit 10.3 to Company’s Form SB-2 filed with the Securities and Exchange Commission on July 30, 2004 (File No. 333-115561).

10.4		Registration Rights Agreement by and between WorldWater and SBI Advisors, LLC dated as of March 29, 2004 Incorporated by reference to Exhibit 10.4 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on July 30, 2004 (File No. 333-115561).

10.5		Forms of Warrant Purchase Agreements between WorldWater and certain Selling Stockholders. Incorporated by reference to Exhibit 10.5 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on February 11, 2005 (File No. 333-122756).

10.6		Form of Registration Rights Agreement between WorldWater and certain Selling Stockholders. Incorporated by reference to Exhibit 10.6 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on February 11, 2005 (File No. 333-122756).

10.7		Restricted Stock Agreement for Quentin T. Kelly dated July 1, 2002. Incorporated by reference to Exhibit 10.12 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on January 3, 2003 (File No. 333-102348).

10.8		Quentin T. Kelly Employment Agreement dated effective as of January 1, 2007.

10.9		Douglas Washington Employment Agreement dated effective as of January 1, 2007.

10.10		Larry Crawford Employment Agreement dated effective as of January 1, 2007.

10.11		James S. Brown Employment Agreement dated May 24, 2004. Incorporated by reference to Exhibit 10.10 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on February 11, 2005 (File No. 333-122756).

10.12		Securities Purchase Agreement dated as of July 21, 2005 between WorldWater & Power Corp., a Delaware corporation as the Company and Camofi Master LDC, its successors and assigns as Purchaser. Incorporated by reference to 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 28, 2005 (File No. 000-16936).

10.13		Registration Rights Agreement dated as of July 21, 2005 between WorldWater & Power Corp., a Delaware corporation and CAMOFI Master LDC as Purchaser. Incorporated by reference to 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 28, 2005 (File No. 000-16936).

10.14		Common Stock Purchase Warrant dated July 21, 2005 issued to CAMOFI Master LDC as Holder for 9,027,778 shares of common stock of WorldWater & Power Corp. at the exercise price of $0.18 per share and terminating on July 21, 2009. Incorporated by reference to 10.5 to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 28, 2005 (File No. 000-16936).

10.15		Common Stock Purchase Warrant dated July 21, 2005 issued to CAMOFI Master LDC as Holder for 1,277,778 shares of common stock of WorldWater & Power Corp. at the exercise price of $0.22 per share and terminating on July 21, 2009. Incorporated by reference to 10.6 to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 28, 2005 (File No. 000-16936).

10.16		Common Stock Purchase Warrant dated July 25, 2005 issued to The Water Fund, LP for 416,667 shares of common stock of WorldWater & Power Corp. at the exercise price of $0.22 per share and terminating on August 15, 2009. Incorporated by reference to 10.17 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on October 21, 2005 (File No. 33-0123045).

10.17		Common Stock Purchase Warrant dated July 25, 2005 issued to The Water Fund, LP for 416,667 shares of common stock of WorldWater & Power Corp. at the exercise price of $0.22 per share and terminating on August 15, 2009. Incorporated by reference to 10.18 to the Company’s Form SB-2 filed with the Securities and Exchange Commission on October 21, 2005 (File No. 33-0123045).

10.18		Investment Agreement dated as of November 29, 2006 between WorldWater & Power Corp., a Delaware corporation as the Company and Emcore Corporation. Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).

10.19		Registration Rights Agreement dated as of November 29, 2006 between WorldWater & Power Corp., a Delaware corporation and Emcore Corporation. Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).

10.20		Letter Agreement dated as of November 29, 2006 between WorldWater & Power Corp., a Delaware corporation and Emcore Corporation. Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).

10.21		Series D Convertible Preferred Stock Purchase Warrant dated November 29, 2006 issued to Emcore Corporation for 505,044 shares of Series D Convertible Preferred Stock of WorldWater & Power Corp. at the exercise price of $3.17 per share and terminating on November 29, 2016. Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).

10.22		Lease Agreement dated as of March 7, 2008 by and between ENTECH, Inc., as tenant, and Alliance Gateway No. 23, Ltd., as landlord.

10.23		Lease Guarantee dated as of March 7, 2008 by and between WorldWater & Solar Technologies Corp. as guarantor, and Alliance Gateway No. 23, Ltd.

23		Consent of Independent Registered Public Accounting Firm.

31.1		Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification by the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification by the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

SIGNATURES

In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WorldWater & Solar Technologies Corp.

(formerly WorldWater & Power Corp.)

(Registrant)

By:	/s/ QUENTIN T. KELLY	Date:	March 27, 2008
	Quentin T. Kelly
	Chairman

By:	/s/ LARRY L. CRAWFORD		March 27, 2008
	Larry L. Crawford
	Executive Vice President/ ChiefFinancial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons in the capacities and as of the dates indicated:

Signature	Title	Date

/s/ QUENTIN T. KELLY	Chairman	March 27, 2008
Quentin T. Kelly

/s/ DAVID ANTHONY	Director	March 27, 2008
David Anthony

/s/ LARRY L. CRAWFORD	Executive Vice President, Chief Financial Officer	March 27, 2008
Larry L. Crawford

/s/ JOSEPH CYGLER	Director	March 27, 2008
Joseph Cygler

/s/ DAVID GELBAUM	Director	March 27, 2008
David Gelbaum

	Director	March 27, 2008
Dr. Walter Hesse

	Director	March 27, 2008
Dr. Hong Hou

/s/ DR. DAVINDER SETHI	Director	March 27, 2008
Dr. Davinder Sethi

	Director	March 27, 2008
Reuben F. Richards, Jr.

/s/ LANGE SCHERMERHORN	Director	March 27, 2008
Lange Schermerhorn

/s/ HARRISON WELLFORD	Director	March 27, 2008
Harrison Wellford

EXHIBIT INDEX

10.22		Lease Agreement dated as of March 7, 2008 by and between ENTECH, Inc., as tenant, and Alliance Gateway No. 23, Ltd., as landlord.

10.23		Lease Guarantee dated as of March 7, 2008 by and between WorldWater & Solar Technologies Corp. as guarantor, and Alliance Gateway No. 23, Ltd.

23		Consent of Independent Registered Public Accounting Firm.

31.1		Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification by the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification by the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

EX-10.22 2 a08-8311_1ex10d22.htm EX-10.22

Exhibit 10.22

BASIC LEASE INFORMATION

Lease Date:	March 7, 2008

Tenant:	ENTECH, Inc., a Delaware corporation

Tenant’s Address:	1077 Chisolm Trail,
	Keller, Texas 76248

Contact:	Scott Albertson; Telephone:			(757) 784-3460

Guarantor:	WorldWater & Solar Technologies Corp.,
	a Delaware corporation

Guarantor’s Address:	200 Ludlow Drive,
	Ewing, NJ 08638

Contact:	Larry L. Crawford; Telephone:				(609) 808-0700 ext. 18

Landlord:	Alliance Gateway No. 23, Ltd.

Landlord’s Address:	c/o Hillwood Development Company, LLC
	13600 Heritage Parkway, Suite 200
	Fort Worth, Texas 76177
	Attn:	Bill Burton

With copy to:	Hillwood Development Company, LLC
	Three Lincoln Centre
	5430 LBJ Freeway, Suite 800
	Dallas, Texas 75240
	Attn:	Tom Mason

Contact:	Bill Burton; Telephone:		(817) 224-6000

Premises:	Approximately 71,250 square feet, as indicated by the cross-hatched area on Exhibit “A” attached to the Lease, situated in the building commonly known, or to be known, as Alliance Gateway No. 23 (the “Building”) located or to be located on the land more particularly described on Exhibit “B” attached to the Lease (the “Land”).

Project:	Collectively, the Land, the Building and all other buildings, structures and improvements situated on the Land at any time during the Term.

Term:	120 months, commencing on the Commencement Date and ending at 5:00 p.m. on the last day of the one hundred and twentieth (120^th) full month following the Commencement Date, subject to adjustment and earlier termination as provided in the Lease.

Base Rent:	Months		Monthly Base Rent	Annual Base Rent	Per Square Foot Per Annum

	1-60		$31,646.88	$379,762.50	$5.33

	61-120		$35,981.25	$431,775.00	$6.06

	(Subject to adjustment as provided in the Lease)

Initial Tenant’s proportionate share of Taxes:		$8,075.00 per month

Initial Tenant’s proportionate share of cost of insurance under Paragraph 10A:		$356.25 per month

Initial Tenant’s proportionate share of Common Area Charges:		$1,983.13 per month

Security Deposit:		$100,000.00

Tenant’s Proportionate Share:		50% which is the percentage obtained by dividing (i) the approximately 71,250 square feet of area in the Premises by (ii) the 142,500 square feet of area in the Building.

Landlord’s Broker or Agent:		Hillwood Realty Services Partnership

TABLE OF CONTENTS

1.		PREMISES AND TERM

2.		BASE RENT, SECURITY DEPOSIT AND ESCROW PAYMENTS

3.		COMMON AREA CHARGES

4.		TAXES

5.		LANDLORD’S REPAIRS

6.		TENANT’S REPAIRS AND MAINTENANCE

7.		ALTERATIONS

8.		SIGNS

9.		UTILITIES

10.		INSURANCE

11.		FIRE AND CASUALTY DAMAGE

12.		LIABILITY AND INDEMNIFICATION

13.		USE

14.		INSPECTION

15.		ASSIGNMENT AND SUBLETTING

16.		CONDEMNATION

17.		HOLDING OVER

18.		QUIET ENJOYMENT

19.		EVENTS OF DEFAULT

20.		REMEDIES

21.		MORTGAGES

22.		MECHANIC’S LIENS

23.		HAZARDOUS MATERIALS

24.		MISCELLANEOUS

25.		NOTICES

26.		[INTENTIONALLY OMITTED]

27.		SECURITY SERVICE

28.		GUARANTY OF LEASE

29.		ADDITIONAL PROVISIONS

EXHIBIT “A” — PREMISES

EXHIBIT “B” — LAND

EXHIBIT “C” — LEASEHOLD IMPROVEMENTS

EXHIBIT “D” — MEMORANDUM OF ACCEPTANCE OF PREMISES

EXHIBIT “E” — [INTENTIONALLY OMITTED]

EXHIBIT “F” — RENEWAL OPTIONS

EXHIBIT “G” — [INTENTIONALLY OMITTED]

EXHIBIT “H” — FORM OF SNDA

LEASE AGREEMENT

THIS LEASE AGREEMENT, made and entered into by Alliance Gateway No. 23, Ltd., a Texas limited partnership (“Landlord”) and ENTECH, Inc., a Delaware corporation (“Tenant”);

WITNESSETH:

1. PREMISES AND TERM. In consideration of the mutual obligations of Landlord and Tenant set forth herein, Landlord leases to Tenant, and Tenant hereby takes from Landlord, the Premises situated within the County of Tarrant, State of Texas, more particularly described and indicated by the cross-hatched area on Exhibit “A” attached hereto and incorporated herein by reference (the “Premises”) which Premises are to constitute a portion of the Building that has been constructed on the Land (defined below), together with all rights, privileges, easements, appurtenances, and amenities belonging to or in any way pertaining to the Premises, to have and to hold, subject to the terms, covenants and conditions in this Lease. Tenant’s rights under this Lease shall be subject to all matters of public record, including, without limitation, all easements, deed restrictions, covenants, conditions and restrictions, as may exist from time to time (provided that any amendments to such deed restrictions, restrictive covenants and other covenants, conditions and restrictions as well as amendments to the “Alliance Development Guidelines” shall not materially adversely interfere with the Permitted Use). The term of this Lease (“Term”) shall commence on the Commencement Date (hereinafter defined) and shall end on the last day of the month that is one hundred and twenty (120) months after the Commencement Date. The Premises are situated in the Building located on the “Land” described on Exhibit “B” attached hereto and made a part hereof.

A. The “Commencement Date” shall be the date that is the earlier of (i) the date on which Tenant first occupies the Premises for the purpose of conducting its business or (ii) the date upon which the Leasehold Improvements (hereinafter defined) to be erected in accordance with the Working Drawings (hereinafter defined) described on Exhibit “C” attached hereto and incorporated herein by reference have been substantially completed and notice that a temporary or permanent Certificate of Occupancy has been issued for the Premises (subject to Tenant’s obligation to install fixtures if required by local ordinance) has been given to Tenant. As used herein, the term “substantially completed” shall mean that, in the opinion of Landlord or the architect responsible for the Work (hereinafter defined), such improvements have been completed in accordance with the Working Drawings and the Premises are in good and satisfactory condition, subject only to completion of minor punch list items that do not prevent Tenant from using the Premises for its intended use. As soon as such improvements have been substantially completed, Tenant shall notify Landlord in writing that the Commencement Date has occurred. To the extent that Tenant, its employees, agents or contractors cause construction of such improvements to be delayed, the Commencement Date shall be deemed to be the date that, in the commercially reasonable opinion of Landlord, substantial completion would have occurred if such delays had not taken place. After the Commencement Date, Tenant shall, upon demand, execute and deliver to Landlord a memorandum of acceptance of delivery of the Premises in the form attached hereto as Exhibit “D”.

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B. Notwithstanding the fact that the Term of this Lease and Tenant’s obligation to pay rent does not commence until the Commencement Date, this Lease shall nevertheless be binding upon the parties in accordance with its terms when executed by Landlord and Tenant.

C. Landlord shall provide Tenant vehicular parking spaces on the surface parking lot (the “Parking Lot”) constructed on the Land as generally depicted on the site plan attached as Exhibit “A”. During the Term of this Lease, Tenant shall be permitted to use Tenant’s Proportionate Share of all of the vehicular parking spaces located on the Parking Lot, subject to such terms, conditions and regulations as are from time to time applicable to patrons of the Parking Lot. The parking spaces in the Parking Lot shall be made available to Tenant on a first-come first-served basis, it being agreed that Landlord shall have no obligation to patrol, police, or monitor the Parking Lot or to take any other actions to ensure that Tenant has the use of all such parking spaces; provided, upon notice from Tenant that such spaces are not available to Tenant, Landlord shall reasonably cooperate, at no cost to Landlord, with the tenants of the Building in an endeavor to resolve any such situation.

2. BASE RENT, SECURITY DEPOSIT AND ESCROW PAYMENTS.

A. Tenant agrees to pay to Landlord base rent (“Base Rent”) for the Premises, in advance, without demand, deduction or set off, at the following rates and amounts during the Term hereof:

	Monthly	Annual	Per Square Foot
Months	Base Rent	Base Rent	Per Annum
1-60	$31,646.88	$379,762.50	$5.33
61-120	$35,981.25	$431,775.00	$6.06

The first monthly installment of Base Rent, plus the other monthly charges set forth in Paragraph 2C below, shall be due and payable on the date hereof and subsequent monthly installments shall be due and payable on or before the first day of each calendar month succeeding the Commencement Date, except that all payments due hereunder for any fractional calendar month shall be prorated.

B. In addition, Tenant agrees to deposit with Landlord on the date hereof the sum of One Hundred Thousand and No/100 Dollars ($100,000.00), which shall be held by Landlord as security for the performance of Tenant’s obligations under this Lease, it being expressly understood and agreed that this security deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default. Upon each occurrence of an Event of Default (hereinafter defined), Landlord may use all or part of the security deposit to pay past due rent or other payments due Landlord under this Lease, and the cost of any other damage, injury, expense or liability caused by such Event of Default without prejudice to any other remedy provided herein or provided by law. On demand, Tenant shall pay Landlord the amount that will restore the security deposit to its original amount. The security deposit shall be deemed the property of

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Landlord, but any remaining balance of such security deposit shall be returned by Landlord to Tenant when Tenant’s obligations under this Lease have been fulfilled. Tenant acknowledges that Landlord’s obligation respecting the Security Deposit is not that of a trustee and that no interest shall accrue thereon.

C. In addition to Base Rent and Tenant’s other obligations hereunder, Tenant agrees to pay its proportionate share (as defined in the Basic Lease Information) of the following costs and expenses (collectively, the “Reimbursable Expenses”): (i) Taxes (hereinafter defined) payable by Landlord pursuant to Paragraph 4A below, (ii) the cost of jointly metered utilities payable pursuant to Paragraph 9 below, (iii) the cost of maintaining insurance pursuant to Paragraph 10A below, (iv) Common Area Charges (hereinafter defined) payable by Tenant in accordance with Paragraph 3 below, and (v) the cost of any repair, replacement, or capital expenditures required under any governmental law or regulation that was not applicable to the Building at the Commencement Date. During each month of the Term of this Lease, on the same day that Base Rent is due hereunder, Tenant shall escrow with Landlord an amount equal to 1/12th of Tenant’s proportionate share of such Reimbursable Expenses, as estimated by Landlord. Tenant authorizes Landlord to use the funds deposited with Landlord under this Paragraph 2C to pay such Reimbursable Expenses. Landlord shall be entitled to revise its projection of such Reimbursable Expenses at any time and if Landlord so revises such projection, Tenant shall pay to Landlord, on the same day as Base Rent is due hereunder, an amount equal to 1/12th of Tenant’s proportionate share of such Reimbursable Expenses pursuant to Landlord’s revised estimate thereof. By April 30 of each calendar year (or as soon thereafter as may be practicable) during the Term hereof Landlord shall determine the actual Reimbursable Expenses for the preceding calendar year and shall notify Tenant thereof. If Tenant’s total escrow payments are less than Tenant’s actual proportionate share of all such Reimbursable Expenses, Tenant shall pay the difference to Landlord within thirty (30) days after receipt of invoices and appropriate supporting documentation. If the total escrow payments of Tenant are more than Tenant’s actual proportionate share of all such Reimbursable Expenses, Landlord shall retain such excess and credit it against Tenant’s next annual escrow payments.

D. With respect to the cost of replacements or capital expenditures (as opposed to repairs) (i) required under governmental law or regulation pursuant to Paragraph 2C(v) above, it is agreed that if the replacement or expenditure is applicable to building owners generally (and is not necessitated due to Tenant’s conduct of business or particular operations from the Premises), or (ii) performed pursuant to Paragraph 2C(iv) above, then the cost of any such item shall be amortized over its useful life (at a per annum interest rate equal to the prime rate of interest announced from time to time by JPMorgan Chase Bank, N.A., plus two percentage points) in accordance with generally accepted accounting principles and the portion of the cost that shall be included within Paragraph 2(C)(v) above shall be equal to the product of (i) the actual cost of such item (together with such interest), multiplied by (ii) a fraction the numerator of which is the number of years (including partial years) remaining in the Term of this Lease as of the date of such replacement or expenditure including the number of years in any renewal term under Exhibit “F” attached hereto if the renewal option therefor has been exercised by Tenant prior to the replacement or expenditure (up to but not greater than the following described denominator), and the denominator of which is the useful life of the item in question; provided that if subsequent to any such replacement or expenditure Tenant exercises any renewal option, the

H-3

portion of the cost included within Paragraph 2(C)(v) above under this sentence shall be recalculated to include the length of the renewal term in question. Notwithstanding anything to the contrary contained herein, it is agreed that the cost of any replacement or capital expenditure under Paragraph 2(C)(v) above that is necessitated due to Tenant’s use of the Premises shall not be so amortized, or be allocated to Tenant based upon its proportionate share, but shall, instead, be paid for in full by Tenant upon Landlord’s demand therefor.

Landlord agrees to keep and maintain books and records reflecting the Reimbursable Expenses in accordance with sound accounting principles consistently applied. Tenant shall have the right, upon at least ten (10) days advance written notice to Landlord (“Audit Notice”) and at Tenant’s sole expense, to audit Landlord’s books and records in order to verify actual Reimbursable Expenses. Any such audit shall be performed during Landlord’s normal business hours. Landlord shall have the right to dispute the result of any such audit by Tenant. If Landlord so disputes such audit, and if Landlord and Tenant are unable to resolve such dispute within thirty (30) days, then the dispute shall be submitted to a reputable independent accounting firm reasonably acceptable to Landlord and Tenant (“Firm”) for resolution. The reasonable determination of the Firm shall be binding on Landlord and Tenant. If the parties’ mutual agreement as to the Reimbursable Expenses in question, or the determination of the Firm (as applicable), establishes that Tenant underpaid or overpaid its proportionate share of Reimbursable Expenses (as required pursuant to this Lease), then Landlord shall refund to Tenant any such overpayment, or Tenant shall pay to Landlord any such underpayment (as applicable), promptly upon the agreement of the parties or conclusion of such determination (as the case may be). In addition, if the Firm is engaged as provided hereinabove and the determination of such Firm establishes: (i) that Tenant overpaid or underpaid its proportionate share of Reimbursable Expenses by five percent (5%) or more, then (A) Landlord shall pay all costs of engaging the Firm and Tenant’s reasonable expenses in connection with such audit in case of any such overpayment (provided that Landlord’s obligation to pay such costs and expenses shall not apply to any overpayment made with respect to the first year of the Term of this Lease in which case Tenant shall pay all such costs and expenses), and (B) Tenant shall pay all costs of engaging the Firm and Landlord’s reasonable expenses in connection with such audit in case of any such underpayment; or (ii) that the variance was less than five percent (5%), Tenant shall pay the entire cost of engaging the Firm and Landlord’s reasonable expenses in connection with such audit. In all other circumstances (other than those provided in the immediately preceding sentence) each party shall pay its own expenses in connection with any such audit. Notwithstanding anything to the contrary contained herein, Tenant’s obligation to pay all amounts, and to perform all of its other obligations, under this Lease shall not be abated, suspended or otherwise affected during the pendency of the audit, dispute, reconciliation and determination procedure set forth above. Notwithstanding the foregoing, Tenant shall have the right to audit Landlord’s books and records only with respect to the Reimbursable Expenses for the calendar year immediately preceding the year in which Tenant gives the Audit Notice (but in no event with respect to periods prior to the Commencement Date). Payment by Tenant of Reimbursable Expenses shall not be deemed to constitute a waiver by Tenant of its rights to audit Reimbursable Expenses.

3. COMMON AREA CHARGES. In addition to other amounts required to be paid by Tenant hereunder, Tenant shall pay to Landlord Tenant’s proportionate share of the following costs and expenses (collectively, the “Common Area Charges”):

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A. The cost of repair, maintenance and replacement of: (i) the roof of the Building (except as otherwise provided in Paragraph 5); (ii) the exterior of the Building (including painting), other than those structural repairs and replacements for which Landlord is responsible pursuant to Paragraph 5; (iii) all mechanical, electrical, plumbing, sewer, sprinkler and other life-safety equipment and systems forming a part of the Building or the Project of which the Building forms a part (other than the cost of repair, replacement and maintenance of the items which are Tenant’s responsibility pursuant to Paragraph 6 which shall be paid entirely by Tenant as provided in Paragraph 6); (iv) [intentionally omitted]; and (v) all other common areas and facilities constituting a part of the Building or the Project of which the Building forms a part (including, but not limited to, all paved areas in and about the Building).

B. The cost of maintenance and replacement of the grass, shrubbery and other landscaping in and about the Building and/or the Project.

C. The cost of operating and maintaining in a good, neat, clean and sanitary condition all parking areas, driveways, alleys and grounds in and about the Building (including trash removal).

D. The cost of assessments under any applicable Declaration of Covenants, Restrictions and Easements (as may be amended from time to time) which are assessed by the applicable property owners association.

E. Security services (if furnished by Landlord), and the cost of operating and maintaining any property, facilities or services provided for the common use of Tenant and other lessees of the Building or the Project, which costs shall include, without limitation, management fees (or if no management company is engaged by Landlord for the management of the Project, wages and employee benefits payable to employees of Landlord or affiliates of Landlord whose duties are connected with the operation and maintenance of the Building); provided, however, such management fees (or if no management company is engaged by Landlord, such wages and benefits) shall not exceed an amount equal to three percent (3%) of the Base Rent payable under this Lease.

F. As used herein, the term “Common Area Charges” shall specifically exclude each of the following items:

(1) Leasing commissions, attorneys’ fees, costs and disbursements and other expenses incurred in connection with negotiations for leases with tenants and/or other occupants of the Project and similar costs incurred in connection with disputes between Landlord and other tenants of the Project as well as cost of advertising and public relations associated with the Building or Project;

(2) Costs of renovating, decorating or redecorating space for tenants, other occupants or prospective tenant or occupants of the Building;

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(3) Interest on debt or amortization payments on any mortgage or mortgages and rental under any ground or underlying leases or lease (except to the extent the same may be made to pay or reimburse, or may be measured by, ad valorem taxes);

(4) Any charge for depreciation or amortization of the Land or Building, except as otherwise permitted hereunder;

(5) Amounts paid to any affiliate of Landlord for services, goods or labor to the extent that same exceeds the cost of such services, goods or labor rendered by unaffiliated third parties on a competitive basis in a Fort Worth office/warehouse building comparable to the Building;

(6) Costs or expenses of utilities directly metered to tenants of the Building and paid separately by such tenants;

(7) Cost incurred to remedy violations by Landlord or any other tenant of building codes, statutes, laws or ordinances, and any interest, fines or penalties resulting therefrom, that arise by reason of the failure of the Building or Project to comply with any building codes, statutes, laws or ordinances in effect on the Commencement Date;

(8) The costs or expenses of any repair work made by Landlord, the cost of which shall have been reimbursed by insurance, warranties (including, without limitation roof warranties), or condemnation proceeds, or other tenants of the Building;

(9) Except as provided in Paragraphs 2D, 3A-E and 6A hereof, any other capital repairs or replacements, other than those made in order to reduce or minimize an increase in Common Area Charges (the cost of which will be amortized in the same manner as provided in Paragraph 2E above);

(10) Income and franchise taxes of the Landlord which are prohibited from being charged to Tenant as Taxes hereunder, unless such are imposed, wholly or partially, in lieu of real property taxes or ad valorem assessments against the Land, Building and/or Premises or as a sales tax on rents;

(11) Legal fees associated with the financing, refinancing or sale of the Building;

(12) Costs of repairing latent construction defects in the Building;

(13) Costs or expenses incurred in connection with negotiations or disputes with other tenants, other occupants (if any) or prospective tenants;

(14) Costs or expenses solely attributable to a breach by Landlord of its covenants, conditions, obligations and duties hereunder that would not have been incurred at all, but for such breach by Landlord;

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(15) Cost paid or incurred in connection with the removal, replacement, enclosure and capsulation or other treatment of any hazardous materials brought into the Premises prior to the Commencement Date or that were brought onto the Premises by Landlord or any other tenant subsequent to the Commencement Date;

(16) Salaries of Landlord’s employees above the position of Building manager, including, but not limited to, administrative, executive and partner wages and salaries;

(17) Costs of any charitable or political contributions made by Landlord;

(18) Cost of acquiring, leasing, restoring, removing or replacing sculpture, paintings or other objects of art;

(19) To the extent any cost includable in Common Area Charges are incurred with respect to both the Building and other properties, there shall be excluded from the Common Area Charges a fair and reasonable percentage thereof which is properly allocable to such other properties;

(20) Cost of the original construction of the Building, “tap fees” or water, gas or sewer connection fees payable in connection with the original construction of the Building; and

(21) All costs and expenses incurred by Landlord in connection with the formation, and maintaining in good standing, of any corporate or other legal entity that constitutes Landlord.

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4. TAXES.

A. Landlord agrees to pay all taxes, assessments and governmental charges of any kind and nature (collectively referred to herein as “Taxes”) that accrue against the Premises, and/or the Land and/or improvements of which the Premises are a part. (For purposes of this Lease, the term “Taxes” shall include the amount of any taxes that would otherwise be imposed but for the provisions of any tax abatement agreement with respect to which Landlord is a party which is entered into pursuant to chapter 312 of the Texas Tax Code; and for purposes of this Lease, such abated taxes shall be deemed to be payable by Landlord.) Except as provided in the following sentence, Taxes shall exclude franchise, inheritance, gift, gross receipts or income tax, transfer or successor tax or other similar tax. If at any time during the Term of this Lease, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received herefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents from the Premises and/or the Land and improvements of which the Premises are a part (including, without limitation, any and all taxes assessed against Landlord and attributable to taxable margin levied pursuant to Chapter 171 of the Texas Tax Code or any amendment, adjustment or replacement thereof), then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term “Taxes” for the purposes hereof. Landlord shall have the right to employ a tax consulting firm to attempt to assure a fair tax burden on the building and grounds within the applicable taxing jurisdiction. Tenant agrees to pay its proportionate share (which shall not exceed $2,500 per calendar year) of the cost of such consultant.

B. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises. If any such taxes are levied or assessed against Landlord or Landlord’s property and (i) Landlord pays the same or (ii) the assessed value of Landlord’s property is increased by inclusion of such personal property and fixtures and Landlord pays the increased taxes, then, upon demand Tenant shall pay to Landlord such taxes. In addition, if the Building is a multiple occupancy building and the cost of any improvements constructed to Tenant’s Premises is disproportionately higher than the cost of improvements constructed to the premises of other tenants of the Building, then upon demand Tenant shall pay the amount of Taxes attributable to such disproportionately more expensive improvements, in addition to Tenant’s proportionate share of Taxes.

C. Tenant shall have the right (unless Landlord shall in good faith agree to contest, at Tenant’s sole expense, such tax increase) to contest or resist, in good faith, diligently and by appropriate proceedings, the validity of the amount or rate of any increase or proposed increase in the Taxes, all at Tenant’s sole expense. If Landlord shall agree to contest such Taxes, Landlord shall do so at Tenant’s expense (the cost of which contest, if involving the property of Landlord in addition to the Premises, shall be allocated to Tenant on a reasonable and equitable basis but subject to the last sentence of Paragraph 4A), under the direction and control of Landlord (which shall make all decisions in connection therewith, subject to Tenant’s right to monitor Landlord’s conduct of such contest proceeding); if Landlord elects not to contest such Taxes or, having elected to contest such Taxes, fails to contest such Taxes diligently and in good faith, and such failure continues uncured beyond a reasonable time following written notice from Tenant to Landlord, or if Tenant reasonably determines that Landlord is not pursuing an

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adequately aggressive position with respect to such tax contest and Landlord fails to comply with Tenant’s reasonable request with respect thereto, Tenant shall have the right to itself contest such Taxes. It shall be a condition precedent to Tenant’s right to contest any such Taxes that Tenant provide Landlord with security (in a form reasonably acceptable to Landlord and Landlord’s mortgagee) in an amount reasonably necessary to assure full payment of such Taxes being contested, together with all penalties, fines and interest and other fees and amounts that could be collected by the taxing authority in case the contest is unsuccessful (but in any event not less than the amount reasonably required by Landlord’s mortgagee in connection with such contest of Taxes). In determining the security required pursuant to the immediately preceding sentence, due regard shall be given to Tenant’s contractual obligations with respect to Taxes pursuant to Paragraph 2(C) above. Tenant shall in all events pay all such contested Taxes (together with all penalties, fines, interest and such other fees and amounts) at least thirty (30) days prior to the date on which the Premises (or any portion thereof) are scheduled for any unstayed foreclosure on account of nonpayment thereof. Tenant shall indemnify and hold harmless Landlord from and against any and all expenses, liabilities and claims (including but not limited to attorneys’ fees) incurred by or asserted against Landlord or the Project arising as a result of any such contest by Tenant. Landlord and Tenant agree to reasonably cooperate with one another in connection with all contests of Taxes under this Lease.

5. LANDLORD’S REPAIRS.

A. Tenant understands and agrees that Landlord’s maintenance, repair and replacement obligations are limited to those expressly set forth in this Paragraph 5. Landlord, at its own cost and expense, shall be responsible only for repair and replacement of the foundation (below slab on grade) and the structural members of the roof (including the roof membrane and metal decking to the extent covered by any existing warranties, but subject to any penetrations performed by or at the request of Tenant [other than the Leasehold Improvements] which shall be Tenant’s responsibility if performed by a Tenant engaged contractor not certified by the manufacturer or otherwise by Tenant or its contractors in a manner that would void any applicable warranty) and exterior walls of the Building, reasonable wear and tear excluded. The term “walls” as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries. Tenant shall immediately give Landlord written notice of defect or need for repairs after which Landlord shall have reasonable opportunity to repair same or cure such defect. In addition to the foregoing, Landlord shall, at its sole expense (not subject to reimbursement as a Common Area Charge), repair any damage to the Premises or the Building caused by the negligent or intentional acts or omissions of Landlord or Landlord’s employees, agents or invitees, or caused by Landlord’s default hereunder.

B. Additionally, Landlord shall repair, maintain and replace (subject to Tenant’s reimbursement obligations pursuant to Article 2) those items listed in Paragraphs 3A - 3C (other than the repair, replacement and maintenance of the items which are Tenant’s responsibility pursuant to Paragraph 6) in a commercially reasonable manner consistent with the manner in which projects of a similar type, character and location are maintained. Landlord shall promptly commence and diligently pursue to completion the performance of all repairs or maintenance that are the responsibility of Landlord under the Lease and in performing such shall use commercially reasonable efforts to avoid material interference with Tenant’s operations in the

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Premises. Further, Landlord agrees to use commercially reasonable efforts, consistent with the Landlord’s usual practices, to enforce warranties available to Landlord with respect to any repairs required of Landlord under this Lease.

6. TENANT’S REPAIRS AND MAINTENANCE.

A. Subject to the provisions of Article 5 above and Article 11 below, Tenant, at its own cost and expense, shall (i) maintain all parts of the Premises (including, but not limited to, the floor slab of the Premises and the mechanical, electrical, plumbing, sewer, sprinkler and other life-safety equipment, fixtures and systems forming a part of the Premises), in good, neat, clean, sanitary and operable condition and (ii) promptly make all necessary repairs and replacements to the Premises in a good and workmanlike manner. In addition to the foregoing, Tenant shall, at its sole expense, repair any damage to the Premises or the Building caused by the negligent or intentional acts or omissions of Tenant or Tenant’s employees, agents or invitees, or caused by Tenant’s default hereunder.

B. In addition to Tenant’s other obligations hereunder, Tenant, at its own cost and expense, shall enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor approved by Landlord for servicing all hot water, heating and air conditioning and elevator systems and equipment within or serving the Premises. The service contract must include all services suggested by the equipment manufacturer in its operations/maintenance manual (to be provided to Tenant at the time of substantial completion of the Leasehold Improvements) and an executed copy of such contract must be provided to Landlord prior to the date Tenant takes possession of the Premises.

C. Tenant’s obligations with respect to the “floor slab” of the Premises pursuant to Paragraph 6A(i) above (i) shall be construed as referring to the slab on grade of the Premises and not the foundation of the Building, and (ii) shall apply only to the extent that the repair and maintenance of the floor slab is not caused by the failure of the foundation of the Building or by a defect in materials or workmanship in the initial pouring of such slab.

7. ALTERATIONS.

A. Tenant shall not make any alterations, additions or improvements to the Premises without the prior written consent of Landlord provided, however, Tenant may, without Landlord’s consent, make alterations which are non-structural in character, do not affect the Building systems, and the cost of which does not exceed $10,000.00 during the Term of this Lease (“Permitted Non-Structural Alterations”). Tenant, at its own cost and expense, may erect such shelves, racks, bins, machinery and trade fixtures as it desires. Notwithstanding the foregoing, the installation of such shelves, racks, bins, machinery, trade fixtures and Permitted Non-Structural Alterations shall be subject to the conditions that: (i) such items do not alter the basic character of the Premises or the Building and/or improvements of which the Premises are a part; (ii) such items do not overload or damage the Premises, the Building or such improvements; (iii) such items may be removed without injury to the Premises; and (iv) the construction, erection or installation thereof complies with all applicable governmental laws, ordinances, regulations and with Landlord’s specifications and requirements. All alterations, additions,

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improvements and partitions erected by Tenant shall be and remain the property of Tenant during the Term of this Lease. All Permitted Non-Structural Alterations, shelves, racks, bins, machinery and trade fixtures installed by Tenant shall be removed on or before the earlier to occur of the date of termination of this Lease or vacating of the Premises by Tenant, at which time, subject to Paragraph 11, Tenant shall restore the Premises to their original condition, reasonable wear and tear excepted; notwithstanding the foregoing, Tenant shall not be required to remove (i) any Permitted Non-Structural Alterations, if prior to installation, Tenant obtains Landlord’s express written consent for such alterations to remain after termination; and (ii) the skylights and associated ductwork shown on the Plans (as defined in Exhibit “C”), if, prior to lease termination, Landlord provides Tenant with express, written consent to leave such in place. All alterations, installations, removals and restoration shall be performed in a good and workmanlike manner so as not to damage or alter the primary structure or structural qualities of the Building and other improvements situated on the Premises or of which the Premises are a part. Notwithstanding anything to the contrary contained herein, it is agreed that the use of and access to the roof of the Building is expressly reserved to Landlord and is expressly denied to Tenant. Tenant shall not penetrate the roof of the Building in any manner, nor install or construct any alterations, additions or improvements thereon, nor otherwise use or occupy the roof at any time during the Term hereof, without the Landlord’s prior written consent, which may be withheld in Landlord’s sole discretion.

B. Tenant and AIL Investment, L.P., an affiliate of Landlord, have entered into that certain License Agreement dated on or about the date hereof (“Solar License”), regarding Tenant’s right to install and operate a solar photovoltaic system on property situated near the Building. Any default by Tenant under that Solar License shall be an Event of Default hereunder.

8. SIGNS. Any signage, decorations, advertising media, blinds, draperies, window treatments, bars, and security installations Tenant desires for the Premises shall be subject to Landlord’s prior written approval and shall be submitted to Landlord prior to the Commencement Date. Tenant shall repair, paint, and/or replace the Building facia surface to which its signs are attached upon vacation of the Premises, or the removal or alteration of its signage, all at Tenant’s sole cost and expense. Tenant shall not (i) make any changes to the exterior of the Premises, (ii) install any exterior lights, decorations, balloons, flags, pennants, banners or painting, or (iii) erect or install any signs, windows or door lettering, placards, decorations or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord’s prior written consent. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall conform in all respects to the criteria established by Landlord and to the requirements of all covenants, conditions and restrictions applicable to the Premises and the Building (including, but not limited to, approval by the Development Review Board).

9. UTILITIES. Tenant shall timely pay for all separately metered or sub-metered water, gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or at the Premises, together with any taxes, penalties, deposits, surcharges or the like pertaining to Tenant’s use of the Premises, and any maintenance charges for utilities. Other than costs described in Paragraph 3F(20), Tenant shall pay all impact or other fees associated with

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utility hook-ups, meter installations or services to the Premises. Landlord shall have the right to cause any of said services to be separately metered to Tenant at Tenant’s expense. Tenant shall pay its proportionate share of all usage charges for jointly metered utilities (including, but not limited to the cost of utilities consumed in connection with providing electrical power for the Building’s canopy lighting, the lighting of the parking facilities and other common areas and facilities associated with the Building, the Building’s fire pump room and irrigation system, as well as other electricity gauged by the “house meter”). Landlord shall not be liable for any interruption or failure of utility service on the Premises unless caused by Landlord’s negligence or willful misconduct in which case Landlord shall promptly cause such service to be restored.

10. INSURANCE.

A. Landlord shall maintain insurance covering the Building of which the Premises are a part (including the Leasehold Improvements to be installed by Landlord pursuant to Exhibit “C”) in an amount not less than the “replacement cost” thereof insuring against the perils and costs of Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief and such other insurance as Landlord shall deem necessary.

B. Tenant, at its own expense, shall maintain during the Term of this Lease a policy or policies of worker’s compensation and commercial general liability insurance, including personal injury and property damage, with contractual liability coverage, in the amount of Two Million Dollars ($2,000,000.00) for property damage and Two Million Dollars ($2,000,000.00) per occurrence for personal injuries or deaths of persons occurring in or about the Premises. Tenant, at its own expense, also shall maintain during the Term of this Lease (i) “All Risks” or “Special Causes of Loss” property insurance covering the replacement cost of all alterations, additions, partitions and improvements installed or placed on the Premises by Tenant or by Landlord on behalf of Tenant (other than the Leasehold Improvements to be installed by Landlord pursuant to Exhibit “C”), and all of Tenant’s personal property contained within the Premises and (ii) business interruption insurance insuring loss of profits in the event of an insured peril damaging the Premises. Said policies shall (i) name Landlord and Landlord’s property manager (currently, Hillwood Alliance Services, LLC) as additional insureds and insure Landlord’s and Landlord’s property manager’s contingent liability under this Lease (except for the worker’s compensation policy, which instead shall include a waiver of subrogation endorsement in favor of Landlord and Landlord’s property manager), (ii) be issued by an insurance company which is acceptable to Landlord, but in no event with a carrier having an A. M. Best rating lower than A-VII, (iii) provide that said insurance shall not be cancelled unless thirty (30) days prior written notice shall have been given to Landlord, and (iv) include a waiver of subrogation in favor of Landlord, Landlord’s property manager, and Landlord’s mortgagee. In addition, such insurance provided by Tenant shall be primary coverage for Landlord (and Landlord’s property manager, if applicable) when any policy issued to Landlord (and Landlord’s property manager, if applicable) is similar or duplicate in coverage, and Landlord’s policy shall be excess over Tenant’s policies. All insurance policies carried by Tenant hereunder shall expressly provide (by endorsement or otherwise) that Landlord’s rights thereunder shall be assignable to Landlord’s mortgagee who shall be shown as an additional insured thereon. Said policy or policies or certificates thereof shall be delivered to Landlord by Tenant upon commencement of the Term of the Lease and upon each renewal of said insurance.

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C. Tenant will not permit the Premises to be used for any purpose or in any manner that would (i) void the insurance thereon, (ii) increase the insurance risk, or (iii) cause the disallowance of any sprinkler credits, including without limitation, use of the Premises for the receipt, storage or handling of any product, material or merchandise that is explosive or highly inflammable. If any increase in the cost of any insurance on the Premises or the Building of which the Premises are a part is caused by Tenant’s use of the Premises, or because Tenant, in default hereof, vacates the Premises prior to the expiration of this Lease, then Tenant shall pay the amount of such increase to Landlord.

11. FIRE AND CASUALTY DAMAGE.

A. If the Premises or the Building of which the Premises are a part should be damaged or destroyed by fire or other peril, Tenant immediately shall give written notice to Landlord. If the Building of which the Premises are a part should be totally destroyed by any peril which would be covered by the insurance which Landlord is required to maintain under Paragraph 10A above, or if they should be so damaged thereby that, in Landlord’s estimation, rebuilding or repairs cannot be completed within one hundred eighty (180) days after Landlord’s receipt of all insurance proceeds with respect to such damage and receipt of permits and licenses required to commence reconstruction, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage.

B. If the Building of which the Premises are a part should be damaged by any peril which would be covered by the insurance which Landlord is required to maintain under Paragraph 10A above, and in Landlord’s estimation, rebuilding or repairs can be substantially completed within one hundred eighty (180) days after the date of Landlord’s receipt of all insurance proceeds with respect to such damage and receipt of permits and licenses required to commence reconstruction, this Lease shall not terminate, and Landlord shall restore the Premises to substantially its previous condition, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements that may have been constructed, erected or installed in, or about the Premises for the benefit of, or by or for Tenant, other than the Leasehold Improvements described in Exhibit “C.” Effective upon the date of the occurrence of such damage and ending upon substantial completion, if the Premises are untenantable in whole or part during such period, the rent shall be reduced to such extent as may be fair and reasonable under all of the circumstances. If such repairs and rebuilding have not been substantially completed within one hundred eighty (180) days after the date of Landlord’s receipt of all insurance proceeds and receipt of permits and licenses required to commence reconstruction (subject to Force Majeure Delays [hereinafter defined] and any delays caused by Tenant or its employees, agents or contractors), Tenant, as Tenant’s exclusive remedy, may terminate this Lease by delivering written notice of termination to Landlord in which event the rights and obligations hereunder shall cease and terminate (except as expressly provided to the contrary herein).

C. Notwithstanding anything herein to the contrary (i) in no event shall Landlord be required to expend a sum greater than the net insurance proceeds actually received by Landlord

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with respect to the damage in question in connection with Landlord’s repair and restoration obligations hereunder, and (ii) in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made known by any such holder, whereupon all rights and obligations hereunder shall cease and terminate (except as expressly provided to the contrary herein).

D. Landlord hereby waives and releases Tenant (but only to the extent of the insurance coverage required to be maintained by the respective parties hereunder) of and from any and all rights of recovery, claim, action or cause of action, against Tenant and its agents, officers and employees, for any liability, loss or damage that may occur to the Premises, improvements or the Building of which the Premises are a part, or personal property (building contents) within the Building and/or Premises as the result of any fire or other casualty required to be insured against under this Lease. Tenant hereby waives and releases Landlord and Landlord’s property manager (but only to the extent of the insurance coverage required to be maintained by the respective parties hereunder) of and from any and all rights of recovery, claim, action or cause of action, against Landlord and Landlord’s property manager, and their agents, officers and employees, for any liability, loss or damage that may occur to the Premises, improvements or the Building of which the Premises are a part, or personal property (building contents) within the Building and/or Premises as the result of any fire or other casualty required to be insured against under this Lease. Each party to this Lease agrees immediately after execution of this Lease to give each insurance company, which has issued to it policies of fire and extended coverage insurance, written notice of the terms of the mutual waivers contained in this subparagraph and to have the insurance policies properly endorsed to reflect such waivers.

12. LIABILITY AND INDEMNIFICATION. EXCEPT FOR ANY CLAIMS, RIGHTS OF RECOVERY AND CAUSES OF ACTION THAT TENANT HAS RELEASED, LANDLORD SHALL INDEMNIFY, PROTECT, HOLD HARMLESS AND DEFEND TENANT, ITS AGENTS, EMPLOYEES, CONTRACTORS, PARTNERS, DIRECTORS, OFFICERS AND ANY AFFILIATES OF THE ABOVE-MENTIONED PARTIES (COLLECTIVELY, THE “TENANT AFFILIATES”) FROM AND AGAINST ANY AND ALL OBLIGATIONS, SUITS, LOSSES, JUDGMENTS, ACTIONS, DAMAGES, CLAIMS OR LIABILITY (INCLUDING, WITHOUT LIMITATION, ALL COSTS, ATTORNEYS’ FEES, AND EXPENSES INCURRED IN CONNECTION THEREWITH) (I) FOR ANY INJURY OR DAMAGE TO ANY PERSON IN, ON OR ABOUT THE PREMISES OR ANY PART THEREOF AND/OR THE BUILDING OF WHICH THE PREMISES ARE A PART, WHEN SUCH INJURY OR DAMAGE SHALL BE CAUSED BY THE ACT, NEGLECT, FAULT OF, OR OMISSION OF ANY DUTY WITH RESPECT TO THE SAME BY LANDLORD, ITS AGENTS, SERVANTS AND EMPLOYEES OR (II) ARISING FROM A BREACH, VIOLATION OR NONPERFORMANCE OF ANY TERM, PROVISION, COVENANT OR AGREEMENT OF LANDLORD HEREUNDER, OR A BREACH OR VIOLATION BY LANDLORD OF ANY COURT ORDER OR ANY LAW, REGULATION OR ORDINANCE OF ANY FEDERAL, STATE, OR LOCAL AUTHORITY (EXCEPT TO THE EXTENT THE INDEMNIFIED LOSS IS CAUSED BY THE NEGLIGENCE OR INTENTIONAL

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MISCONDUCT OF TENANT AND/OR ANY TENANT AFFILIATES, IN WHICH EVENT THIS INDEMNITY SHALL NOT APPLY TO THE ALLOCABLE SHARE OF SUCH LOSS RESULTING FROM THE NEGLIGENCE OR INTENTIONAL MISCONDUCT OF TENANT AND/OR ANY TENANT AFFILIATES). EXCEPT FOR ANY CLAIMS, RIGHTS OF RECOVERY AND CAUSES OF ACTION THAT LANDLORD HAS RELEASED, TENANT SHALL INDEMNIFY, PROTECT, HOLD HARMLESS AND DEFEND LANDLORD, ITS AGENTS, EMPLOYEES, CONTRACTORS, PARTNERS, DIRECTORS, OFFICERS AND ANY AFFILIATES OF THE ABOVE-MENTIONED PARTIES (COLLECTIVELY THE “LANDLORD AFFILIATES”) FROM AND AGAINST ANY AND ALL OBLIGATIONS, SUITS, LOSSES, JUDGMENTS, ACTIONS, DAMAGES, CLAIMS OR LIABILITY (INCLUDING, WITHOUT LIMITATION, ALL COSTS, ATTORNEYS’ FEES, AND EXPENSES INCURRED IN CONNECTION THEREWITH) IN CONNECTION WITH ANY LOSS, INJURY OR DAMAGE (I) TO ANY PERSON OR PROPERTY WHATSOEVER OCCURRING IN, ON OR ABOUT THE PREMISES OR ANY PART THEREOF AND/OR OF THE BUILDING OF WHICH THE PREMISES ARE A PART, THE USE OF WHICH TENANT MAY HAVE IN ACCORDANCE WITH THIS LEASE, WHEN SUCH INJURY OR DAMAGE SHALL BE CAUSED BY THE ACT, NEGLECT, FAULT OF, OR OMISSION OF ANY DUTY WITH RESPECT TO THE SAME BY TENANT, OR ANY TENANT AFFILIATES, OR INVITEES, OR (II) ARISING FROM A BREACH, VIOLATION OR NON-PERFORMANCE OF ANY TERM, PROVISION, COVENANT OR AGREEMENT OF TENANT HEREUNDER, OR A BREACH OR VIOLATION BY TENANT OF ANY COURT ORDER OR ANY LAW, REGULATION, OR ORDINANCE OF ANY FEDERAL, STATE OR LOCAL AUTHORITY, EXCEPT TO THE EXTENT THE INDEMNIFIED LOSS IS CAUSED BY THE NEGLIGENCE OR INTENTIONAL MISCONDUCT OF LANDLORD AND/OR LANDLORD AFFILIATES IN WHICH EVENT THIS INDEMNITY SHALL NOT APPLY TO THE ALLOCABLE SHARE OF SUCH LOSS RESULTING FROM THE NEGLIGENCE OR INTENTIONAL MISCONDUCT OF LANDLORD AND/OR LANDLORD AFFILIATES. IF ANY CLAIM IS MADE AGAINST LANDLORD OR LANDLORD AFFILIATES, OR AGAINST TENANT OR TENANT AFFILIATES (AS APPLICABLE), THE INDEMNIFYING PARTY, AT ITS SOLE COST AND EXPENSE, SHALL DEFEND ANY SUCH CLAIM, SUIT OR PROCEEDING BY OR THROUGH ATTORNEYS SATISFACTORY TO THE INDEMNIFIED PARTY. THE PROVISIONS OF THIS PARAGRAPH 12 SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THIS LEASE WITH RESPECT TO ANY CLAIMS OR LIABILITY OCCURRING PRIOR TO SUCH EXPIRATION OR TERMINATION.

13. USE. The Premises shall be used only for the purpose of research and development, receiving, storing, assembling, manufacturing, shipping and selling (other than retail) products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto. Tenant acknowledges that it does not intend to use the Premises to serve the public. Outside storage, including without limitation, storage of trucks and other vehicles, is prohibited without Landlord’s prior written consent. Tenant shall comply with (i) all governmental laws, ordinances and regulations applicable to the use and occupancy of the Premises, and promptly shall comply with all governmental orders and directives for the

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correction, prevention and abatement of nuisances in or upon, or connected with, the Premises, all at Tenant’s sole expense, (ii) the requirements of all deed restrictions, restrictive covenants and other covenants, conditions and restrictions affecting the Building and/or the Land, and (iii) the requirements of “Alliance Development Guidelines” as may exist from time to time, and all amendments thereto (provided that any amendments to such deed restrictions, restrictive covenants and other covenants, conditions and restrictions as well as amendments to the “Alliance Development Guidelines” shall not materially adversely interfere with the Permitted Use). Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Landlord or any other lessees of the Building of which the Premises are a part. Tenant shall, at Tenant’s sole cost, obtain all permits required for Tenant’s use of the Premises.

14. INSPECTION. Landlord and Landlord’s agents and representatives shall have the right to enter the Premises at any time, upon at least 24 hours’ prior notice (which may be telephonic notice), and accompanied by a representative of Tenant (which representative Tenant agrees to make available for the purpose of such entry), to (i) inspect the Premises, (ii) make such repairs as may be required or permitted pursuant to this Lease, and (iii) show the Premises to prospective purchasers of, or parties who are anticipated to provide financing with respect to, the Building. Notwithstanding the foregoing, Landlord shall have the right to enter the Premises at any time, without notice to Tenant, in case of an emergency posing a threat to persons or property. During the period that is six (6) months prior to the end of the Term of this Lease, upon telephonic notice to Tenant, Landlord and Landlord’s representatives may enter the Premises upon at least 24 hours’ prior notice (which may be telephonic notice), and accompanied by a representative of Tenant (which representative Tenant agrees to make available for the purpose of such entry) during business hours for the purpose of showing the Premises. In addition, Landlord shall have the right to erect a suitable sign on the Premises stating the Premises are available. Tenant shall notify Landlord in writing at least thirty (30) days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating. If Tenant fails to give such notice or to arrange for such inspection, then Landlord’s inspection of the Premises shall be deemed correct for the purpose of determining Tenant’s responsibility for repairs and restoration of the Premises.

15. ASSIGNMENT AND SUBLETTING

A. Tenant shall not assign (either voluntarily, nor permit assignment by operation of law), sublet, transfer or encumber this Lease, or any interest therein (each, a “Transfer”), without the prior written consent of Landlord. Any attempted Transfer by Tenant in violation of the terms and covenants of this Paragraph shall be void. No Transfer, whether consented to by Landlord or not, shall relieve Tenant of its liability hereunder. In the event Tenant desires to effect a Transfer, Tenant shall give written notice thereof to Landlord within a reasonable time prior to the proposed commencement date of such Transfer, which notice shall set forth the name of the proposed sublessee, assignee or other Transferee (as defined below), the relevant terms of any sublease or assignment and copies of financial reports and other relevant financial information of the proposed Transferee (a “Transfer Request”). Landlord shall be entitled to charge Tenant a reasonable fee for processing Tenant’s request for any Transfer (other than to an

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Affiliate [defined below]), including, but not limited to, Landlord’s reasonable out-of-pocket expenses and attorneys’ fees.

B. In addition to, but not in limitation of, Landlord’s right to approve of any Transferee (other than any Affiliate), Landlord shall have the option, in its sole discretion, in the event of any proposed Transfer (other than to an Affiliate), to terminate this Lease, or in case of a proposed subletting of less than the entire Premises, to recapture the portion of the Premises to be sublet, as of the date the Transfer is to be effective. The option shall be exercised, if at all, by Landlord giving Tenant written notice thereof (“Recapture Notice”) within sixty (60) days following Landlord’s receipt of the Transfer Request as required above. If this Lease shall be terminated with respect to the entire Premises pursuant to this Paragraph, the Term of this Lease shall end on the date stated in the Recapture Notice as if that date had been originally fixed in this Lease for the expiration of the Term hereof (“Cancellation Date”); provided, however, that effective on the Cancellation Date Tenant shall pay Landlord all amounts, as estimated by Landlord, payable by Tenant to such date with respect to taxes, insurance, repairs, maintenance, restoration and other obligations, costs or charges which are the responsibility of Tenant hereunder. Further, upon any such cancellation Landlord and Tenant shall have no further obligations or liabilities to each other under this Lease, except with respect to obligations or liabilities which have accrued hereunder as of such Cancellation Date (in the same manner as if such Cancellation Date were the date originally fixed in this Lease for the expiration of the Term hereof) and except for those obligations and liabilities which, by the express terms of this Lease, are to survive any expiration or termination hereof. If Landlord recaptures only a portion of the Premises under this Paragraph, the Base Rent during the unexpired Term hereof shall abate proportionately based on the rent per square foot contained in this Lease as of the date immediately prior to such recapture. Tenant shall, at Tenant’s own cost and expense, discharge in full any outstanding commission obligation which may be due and owing as a result of any proposed Transfer, whether or not the Premises are recaptured pursuant hereto and rented by Landlord to the proposed tenant or any other tenant.

C. Upon the occurrence of a Transfer (other than to an Affiliate), whether or not consented to by Landlord, or mandated by judicial intervention, Tenant hereby assigns, transfers and conveys to Landlord all rents or other sums received or receivable by Tenant under any such assignment or sublease, which are in excess of the rents and other sums payable by Tenant under this Lease (or in case of a sublease, which are in excess of the rents and other sums payable by Tenant with respect to the portion of the Premises that is subleased), and agrees to pay such amounts to Landlord within ten (10) days after receipt.

D. If this Lease is assigned to any person or entity pursuant to the provisions of the United States Bankruptcy Code, 11 U.S.C. § 101 et. seq. (the “Bankruptcy Code”), and except as otherwise provided in the Bankruptcy Code or orders of the applicable bankruptcy court, any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord’s property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid or delivered to Landlord. Any person or

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entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Landlord an instrument confirming such assumption.

E. Any assignee, sublessee or transferee of Tenant’s interest in this Lease (all such assignees, sublessees and transferees being hereinafter referred to as “Transferees”), by accepting any such Transfer shall be deemed to have assumed Tenant’s obligations hereunder, and shall be deemed to have assumed liability to Landlord for all amounts paid to persons other than Landlord by such Transferees. No Transfer, whether consented to by Landlord or not or permitted hereunder, shall relieve Tenant of its liability hereunder. If an Event of Default occurs while the Premises or any part thereof are assigned or sublet, then Landlord, in addition to any other remedies herein provided, or provided by law, may collect directly from such Transferee all rents payable to Tenant and apply such rent against any sums due Landlord hereunder. No such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant’s obligations hereunder.

F. Notwithstanding any provision of this Lease to the contrary, Tenant may, without Landlord’s consent, but upon prior reasonable notice to Landlord, assign the Lease or sublet the Premises or any portion thereof to any person or entity (i) which controls, is controlled by, or is under common control with Tenant, or (ii) (provided such person or entity would have a tangible net worth [determined in accordance with generally accepted accounting principles consistently applied] immediately following such acquisition that is equal to or greater than the net worth of Tenant as of the date immediately prior to such acquisition) which acquires substantially all the assets of Tenant as a going concern (each such corporation, person or entity described in clauses (i)-(ii) above, an “Affiliate”); provided, however, that the Affiliate assumes in writing all of Tenant’s obligations under the Lease.

G. Landlord agrees that it shall not unreasonably withhold its consent to any assignment or subletting proposed to be entered into by Tenant. In considering whether it should consent to any subletting or assignment requested by Tenant, Landlord may take into consideration (among other factors) the credit standing of the proposed assignee or subtenant, the purpose for which the Premises would be used by the proposed assignee or subtenant (including whether such use would violate any exclusive use rights that might be in existence and by which Landlord may be bound, or violate any deed restrictions, restrictive covenants, covenants, conditions and restrictions, or the “Alliance Developments Guidelines”, as may then be in existence, it being understood and agreed that Landlord shall have the right to refuse its consent if the proposed use by the assignee or subtenant would result in any such violation), the length of the proposed sublease, the business reputation of the proposed assignee or subtenant, whether the proposed assignee’s or subtenant’s operations would involve use of hazardous substances, and all other relevant factors. Notwithstanding the foregoing, it is agreed that Landlord’s determination as to the credit standing and the business reputation of the proposed assignee or sublessee may be made in Landlord’s sole and absolute discretion it being understood and agreed that Landlord shall have the right to refuse its consent if such credit standing or reputation is unacceptable to Landlord. Notwithstanding anything to the contrary contained herein, Landlord, in its sole and absolute discretion, may refuse to consent to a sublease or assignment of any portion of the

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Premises to (i) any party who is a then current tenant of Landlord or an affiliate of a then current tenant of Landlord or a then current tenant of an affiliate of Landlord or an affiliate of a then current tenant of an affiliate of Landlord, or (ii) any other party who owns property in (or who is a user or occupant of property in) the Alliance development or the Circle T development but, in each case, only if Landlord or an affiliate of Landlord has space (in shell condition or better condition) available (at the time Landlord’s consent is sought) which is sufficient to satisfy the applicable needs of the proposed assignee or subtenant and is located within or in the vicinity of the Alliance development or the Circle T development.

16. CONDEMNATION. If any portion of the Project is taken which in Landlord’s judgment would materially impair the ownership or operation of the Building or as a result of such taking Landlord’s mortgagee accelerates the payment of indebtedness secured by the Project, then upon written notice by Landlord this Lease shall terminate and the rent shall be apportioned as of such date. If more than twenty-five percent (25%) of the Premises are taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by a conveyance in lieu thereof, and the taking prevents or materially interferes with the use of the Premises for the purpose for which they were leased to Tenant, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective on the date of such taking. If less than twenty-five percent (25%) of the Premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by a conveyance in lieu thereof, this Lease shall not terminate (except as may be permitted in the first grammatical sentence of this Paragraph 16), but the rent payable hereunder during the unexpired portion of this Lease shall be reduced to such extent as may be fair and reasonable under all of the circumstances. All compensation awarded in connection with or as a result of any of the foregoing proceedings shall be the property of Landlord; and Tenant hereby assigns any interest in any such award to Landlord; provided, however, Landlord shall have no interest in any award made to Tenant for loss of business or goodwill or for the taking of Tenant’s fixtures and improvements, if a separate award for such items is made to Tenant.

17. HOLDING OVER. At the termination of this Lease by its expiration or otherwise, Tenant immediately shall deliver possession of the Premises to Landlord with all repairs and maintenance required herein to be performed by Tenant completed. If, for any reason, Tenant retains possession of the Premises or any part thereof after such termination, or fails to complete any repairs required hereby, then Landlord may, at its option, serve written notice upon Tenant that such holding over constitutes either (i) the creation of a month to month tenancy, upon the terms and conditions set forth in this Lease, or (ii) creation of a tenancy at sufferance, in any case upon the terms and conditions set forth in this Lease; provided, however, that the monthly rental (or daily rental under (ii)) shall, in addition to all other sums which are to be paid by Tenant hereunder, whether or not as additional rent, be equal to double the rental being paid monthly to Landlord under this Lease immediately prior to such termination (prorated in the case of (ii) on the basis of a 365-day year for each day Tenant remains in possession). If no such notice is served, then a tenancy at sufferance shall be deemed to be created at the rent in the preceding sentence. Tenant shall also pay to Landlord all damages sustained by Landlord resulting from retention of possession by Tenant, including the loss of any proposed subsequent tenant for any portion of the Premises. The provisions of this paragraph shall not constitute a

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waiver by Landlord of any right of re-entry as herein set forth; nor shall receipt of any rent or any other act in apparent affirmance of the tenancy operate as a waiver of the right to terminate this Lease for a breach of any of the terms, covenants, or obligations herein on Tenant’s part to be performed. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided. The preceding provisions of this Paragraph 17 shall not be construed as consent for Tenant to retain possession of the Premises in the absence of written consent thereto by Landlord.

18. QUIET ENJOYMENT. Landlord has the authority to enter into this Lease and so long as Tenant pays all amounts due hereunder and performs all other covenants and agreements herein set forth, Tenant shall peaceably and quietly have, hold and enjoy the Premises for the Term hereof without hindrance from Landlord subject to the terms and provisions of this Lease. If this Lease is a sublease, then Tenant agrees to take the Premises subject to the provisions of the prior leases.

19. EVENTS OF DEFAULT. The following events (herein individually referred to as an “Event of Default”) each shall be deemed to be an event of default by Tenant under this Lease:

A. Tenant shall fail to pay any installment of the Base Rent herein reserved when due, or any other payment or reimbursement to Landlord required herein when due, and such failure shall continue until the later to occur of (i) a period of five (5) days from the date such payment was due or (ii) five (5) days after written notice of delinquency is delivered to Tenant; provided, however, Tenant shall be entitled to the written notice and opportunity to cure in clause (ii) on only one (1) occasion during any twelve (12) month period.

B. Any guarantor of Tenant’s obligations hereunder shall: (i) become insolvent; (ii) admit in writing its inability to pay its debts; (iii) make a general assignment for the benefit of creditors; (iv) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property; or (v) take any action to authorize or in contemplation of any of the actions set forth above in this Paragraph.

C. Any case, proceeding or other action against any guarantor of Tenant’s obligations hereunder shall be commenced seeking: (i) to have an order for relief entered against it as debtor or to adjudicate it a bankrupt or insolvent; (ii) reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors; (iii) appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (a) results in the entry of an order for relief against it which is not fully stayed within seven (7) business days after the entry thereof or (b) shall remain undismissed for a period of forty-five (45) days.

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D. Subject to Paragraph 20K below, Tenant shall (i) fail to take possession of the Premises upon substantial completion of the Leasehold Improvements, (ii) vacate, desert, or abandon all or a substantial portion of the Premises, or threaten to do so or (iii) fail to continuously operate its business at the Premises for the permitted use set forth herein, whether or not Tenant is in default in payment of the rental payments due under this Lease.

E. Tenant shall fail to discharge (or bond around as provided in Paragraph 22) any lien placed upon the Premises in violation of Paragraph 22 hereof within thirty (30) days after Tenant has received notice of any such lien or encumbrance.

F. Tenant shall fail to comply with any term, provision or covenant of this Lease (other than those listed above in this Paragraph 19), and shall not cure such failure within thirty (30) days after written notice thereof to Tenant, or such longer time period (not to exceed ninety (90) days) if Tenant is unable to reasonably cure such failure within thirty (30) days so long as Tenant commences such cure within thirty (30) days and diligently pursues such cure to completion.

G. Tenant, its bankruptcy trustee, or any entity authorized by court order to act on behalf of Tenant, shall reject this Lease under 11 U.S.C. sec. 365(a) or any other provision of Title 11 of the United States Code, or the deemed rejection of this Lease by operation of law under 11 U.S.C. sec. 365(d)(4). Any such rejection of this Lease terminates this Lease, without notice of any kind to Tenant, effective on the later of: (1) the date Tenant vacates the Premises following such rejection; (2) the date the Bankruptcy Court with jurisdiction over Tenant’s bankruptcy case enters an order on its docket authorizing Tenant to reject this Lease; or (3) the date this Lease is deemed rejected under 11 U.S.C. sec. 365(d)(4).

H. Failure to deliver subordination or attornment instruments or any estoppel certificate within the time period set forth in Section 21 and Section 24(d) of this Lease and such failure continues for more than ten (10) days after notice thereof.

20. REMEDIES.

A. Upon each occurrence of an Event of Default, Landlord shall have the option to pursue, without any notice or demand, any one or more of the following remedies and/or any other remedies to which Landlord is entitled at law or in equity:

(1) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord. If Tenant fails to do so, Landlord may, without any further notice and without prejudice to any other remedy Landlord may have for possession or arrearages in rental, enter upon and take possession of the Premises and remove Tenant and its effects without being liable for prosecution or any claim for damages therefor, and Tenant shall indemnify Landlord for all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Premises or otherwise, including any loss of rental for the remainder of the Term.

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(2) If the Event of Default relates to nonpayment of Base Rent or any other monetary sum due hereunder, or the desertion, vacation or abandonment of the Premises, terminate this Lease, in which event Tenant’s default shall be deemed a total and entire breach of Tenant’s obligations under this Lease and Tenant immediately shall become liable for damages in an amount equal to the excess of (i) the total rental for the remainder of the Term, discounted at the Prime Rate (hereinafter defined) to the then present value, together with all other expenses incurred by Landlord in connection with Tenant’s default, all sums due pursuant to Paragraph 20B below, and the unpaid rental due as of the date of termination, over (ii) the fair market rental value of the Premises for the balance of the Term, discounted at the Prime Rate to the then present value. For the purposes of clause (i) above, the components of monthly rent (other than Base Rent) for the remainder of the Term shall be deemed to be equal to the respective monthly amounts thereof as were due and payable during the month in which the Lease was terminated. It is acknowledged, intended and agreed that the amounts which Landlord is entitled to recover under this Paragraph 20A(2) constitute liquidated damages and not a penalty for Tenant’s defaults related to nonpayment of rental, or the desertion, vacation or abandonment of the Premises. Such amounts constitute the parties’ best, good faith, and reasonable estimate of the damages which would be suffered by Landlord in the event any such default occurs, the exact amount of such damages being difficult or impractical to calculate.

(3) Enter upon and take possession of the Premises as Tenant’s agent without terminating this Lease and without being liable for prosecution or any claim for damages therefor, and Landlord may relet the Premises as Tenant’s agent and receive the rental therefor, in which event Tenant shall pay to Landlord on demand all sums due pursuant to Paragraph 20B below, together with any deficiency that may arise by reason of such reletting.

(4) Do whatever Tenant is obligated to do under this Lease and enter the Premises, without being liable for prosecution or any claim for damages therefor, to accomplish such purpose. Tenant shall reimburse Landlord immediately upon demand for any expenses which Landlord incurs in thus effecting compliance with this Lease on Tenant’s behalf, together with interest thereon at the highest lawful rate from the date Landlord incurs the expense in question until Landlord is reimbursed therefor.

(5) Require Tenant to pay any rental in quarterly installments in advance of each calendar quarter during the Term by certified or cashier’s check.

(6) Without notice, alter the locks and any other security device or devices which allow Tenant access to the Premises or the Building of which the Premises form a part, and Landlord shall not be required to provide a new key or right of access to Tenant, and restrict or terminate any right to use parking facilities associated with the Building as well as utility services to the Premises. This Paragraph 20A(6) is intended to and shall supersede the provisions of Section 93.002 of the Texas Property Code.

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(7) Landlord shall have a duty to mitigate damages under this Lease to the same extent required under Texas law.

B. Upon the occurrence of an Event of Default, in addition to any other sum provided to be paid herein, Tenant also shall be liable for and shall pay to Landlord: (i) brokers’ fees incurred by Landlord in connection with reletting the whole or any part of the Premises; (ii) the costs of removing and storing Tenant’s or other occupant’s property; (iii) the costs of repairing, altering, remodeling or otherwise putting the Premises into condition acceptable to a new tenant or tenants; (iv) all reasonable expenses incurred in marketing the Premises and (v) all reasonable expenses incurred by Landlord in enforcing or defending Landlord’s rights and/or remedies. If either party hereto institutes any action or proceeding to enforce any provision hereof by reason of any alleged breach of any provision of this Lease, the prevailing party shall be entitled to receive from the losing party all reasonable attorneys’ fees and all court costs in connection with such proceeding. If Tenant files a voluntary petition under any chapter of title 11 of the United States Code, or if an involuntary petition is filed against Tenant seeking relief under any chapter of title 11 of the United States Code, Tenant acknowledges that Landlord may, at its option, retain an attorney to represent Landlord in such bankruptcy case and all attorneys’ fees and expenses (including expenses of consulting or testifying expert witnesses) incurred by Landlord in connection with such bankruptcy case shall be recoverable by Landlord as additional rent under this Lease and shall constitute part of the cure required under 11 U.S.C. sec. 365(b)(1)(A) if Tenant seeks to assume or assume and assign this Lease.

C. In the event Tenant fails to make any payment due hereunder when payment is due (subject to any notice and cure periods provided herein), to help defray the additional cost to Landlord for processing such late payments, Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such payment; and the failure to pay such amount within five (5) days after demand therefor shall be an additional Event of Default hereunder. The provision for such late charge shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner.

D. Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises by Landlord, whether by agreement or by operation of law, it being understood that such surrender can be effected only by the written agreement of Landlord and Tenant. Tenant and Landlord further agree that forbearance by Landlord to enforce its rights pursuant to this Lease, at law or in equity, shall not be a waiver of Landlord’s right to enforce one or more of its rights in connection with that or any subsequent default.

E. The term “Prime Rate” as used herein shall mean the per annum “prime rate” of interest as published, on the date on which this Lease is terminated in accordance with this Paragraph 20, by The Wall Street Journal, Southwest Edition, in its listing of “Money Rates”, or if The Wall Street Journal is not published on the date on which this Lease is terminated, then the “prime rate” of interest as published in The Wall Street Journal on the most recent date prior to the date on which this Lease is so terminated.

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F. If Landlord fails to perform any of its obligations hereunder within thirty (30) days after written notice from Tenant specifying in detail such failure (or if the failure cannot be corrected, through the exercise of reasonable diligence, within such thirty (30)-day period, if Landlord does not commence to correct same within such thirty (30)-day period and thereafter diligently prosecute same to completion), Tenant’s sole and exclusive remedy shall be an action for damages. Unless and until Landlord fails to so cure any default after such notice, Tenant shall not have any remedy or cause of action by reason thereof. All obligations of Landlord hereunder will be construed as covenants, not conditions; and all such obligations will be binding upon Landlord only to the extent accruing during the period of its possession of the Premises and not thereafter. The term “Landlord” shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all covenants and obligations of Landlord thereafter accruing, but such covenants and obligations shall be binding during the Term of this Lease upon each new owner for the duration of such owner’s ownership. Notwithstanding any other provision hereof, Landlord shall not have any personal liability hereunder. In the event of any breach or default by Landlord of any term or provision of this Lease, Tenant agrees to look solely to the equity or interest then owned by Landlord in the Premises or of the Building of which the Premises are a part; however, in no event, shall any deficiency judgment of any kind be sought or obtained against Landlord following Tenant’s realization upon the equity or interest then owned by Landlord in the Premises or the Building of which the Premises are a part.

G. If Landlord repossesses the Premises pursuant to the authority herein granted, then Landlord shall have the right to (i) keep in place and use or (ii) remove and store, all of the furniture, fixtures and equipment at the Premises, including that which is owned by or leased to Tenant at all times prior to any foreclosure thereon by Landlord or repossession thereof by any landlord thereof or third party having a lien thereon. Landlord also shall have the right to relinquish possession of all or any portion of such furniture, fixtures, equipment and other property to any person (“Claimant”) who presents to Landlord a copy of any instrument represented by Claimant to have been executed by Tenant (or any predecessor of Tenant) granting Claimant the right under various circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of Landlord to inquire into the authenticity or legality of said instrument. The rights of Landlord herein stated shall be in addition to any and all other rights that Landlord has or may hereafter have at law or in equity; and Tenant stipulates and agrees that the rights herein granted Landlord are commercially reasonable.

H. Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as rent, shall constitute rent.

I. This is a contract under which applicable law excuses Landlord from accepting performance from (or rendering performance to) any person or entity other than Tenant.

J. Subject to the fourth sentence of Paragraph 17 above, but notwithstanding anything to the contrary, neither Landlord nor Tenant will ever be liable under this Lease for consequential damages, punitive damages, exemplary damages or special damages.

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K. Notwithstanding anything to the contrary contained herein, if an Event of Default exists hereunder solely because of the event described in Paragraph 19D of this Lease (i.e., no other Event of Default exists under this Lease except for the Event of Default described in said Paragraph 19D), and so long as Tenant keeps the Premises secure from vandalism and unauthorized users, Landlord’s sole remedy on account of such Event of Default shall be to terminate this Lease by written notice delivered to Tenant (without pursuing any damages against Tenant and without Tenant being required to indemnify Landlord against any damages suffered as a result of any such termination) in which event this Lease shall terminate and the parties shall have no further rights or obligations hereunder (other than such rights and obligations as have accrued as of the effective date of such termination and such rights and obligations as are expressly provided herein as surviving the expiration or termination of this Lease). The limitation on Landlord’s remedies contained in the immediately preceding sentence shall not apply if another Event of Default (in addition to the Event of Default described in Paragraph 19D) exists, or if Tenant fails to so keep the Premises secure from vandalism and unauthorized users, in which event Landlord shall be entitled to pursue any one or more of its remedies under this Lease, at law and/or in equity.

21. MORTGAGES. Tenant accepts this Lease subject and subordinate to any mortgages and/or deeds of trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon or the Building of which the Premises are a part; provided, however, that if the mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant’s interest in this Lease superior to any such instrument, then by notice to Tenant from such mortgagee, trustee or holder, this Lease shall be deemed superior to such lien, whether this Lease was executed before or after said mortgage or deed of trust. Tenant, at any time hereafter within fifteen (15) days after demand therefor, shall execute any instruments, releases or other documents that may be required by any mortgagee, trustee or holder for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage or deed of trust. Landlord agrees to obtain and deliver to Tenant a subordination non-disturbance and attornment agreement in substantially the form attached hereto as Exhibit “H” and made a part hereof (“SNDA”) executed by Landlord’s current mortgagee with respect to the Building. Tenant agrees to enter into the SNDA with such mortgagee promptly upon Landlord’s request therefor. Notwithstanding the foregoing, the subordination of this Lease to any mortgage or deed of trust that is hereafter placed upon the Building is expressly conditioned upon Tenant and the mortgagee or beneficiary under any such mortgage or deed of trust entering into an SNDA in a form reasonably acceptable to Tenant (Tenant hereby agreeing that an SNDA substantially in the form that is attached hereto as Exhibit “H” and made a part hereof is acceptable to Tenant). Tenant agrees to enter into such SNDA with any such mortgagee or beneficiary promptly upon Landlord’s request therefor. If any future mortgagee or beneficiary under a mortgage or deed of trust hereafter placed upon the Building desires to subordinate its mortgage or deed of trust to this Lease, Tenant agrees that it shall promptly execute such instrument as may be reasonably required by such mortgagee or beneficiary in order to effect such subordination.

22. MECHANIC’S LIENS. Tenant has no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord or Tenant in the Premises or to charge the rentals payable hereunder for

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any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of Landlord in the Premises or under the terms of this Lease. Tenant agrees to give Landlord immediate written notice of the placing of any lien or encumbrance against the Premises. If any mechanics’ or materialmen’s lien (“M&M Lien”) is ever asserted or placed against or attaches to the Project or any portion thereof as a result of any act or omission of Tenant or its agents, then in lieu of paying the claim relating to such M&M Lien Tenant shall have the right to contest the assertion, placement or attachment of such M&M Lien so long as (i) prior to any such contest (and no later than thirty (30) days after such lien has been filed) Tenant at its sole expense provides to Landlord a bond indemnifying against such M&M Lien that complies with Chapter 53, Subchapter H of the Texas Property Code (as amended from time to time) or its successor law, and (ii) Tenant contests such M&M Lien diligently and in good faith; provided, however, the foregoing right of Tenant to contest any such M&M Lien shall not impair or otherwise affect Tenant’s indemnification obligations with respect to such M&M Lien. If any lien is asserted against the Premises due to acts of Landlord or its agents or contractors, Tenant shall not be obligated to remove such lien (it being agreed that the removal of such lien shall be Landlord’s obligation).

23. HAZARDOUS MATERIALS. Tenant shall never incorporate into, or dispose of, at, in or under the Premises, the Building or the Land any toxic or hazardous materials (as defined hereafter). Tenant further agrees not to use at, place in, or store at the Premises any toxic or hazardous materials, except for those toxic or hazardous materials that are either (a) office supplies, (b) materials stored in the normal course of Tenant’s business, or (c) kitchen cleaning materials that are generally considered to be a household cleaner and are purchased in a container not larger than one (1) gallon and then only if (i) all such toxic or hazardous materials, supplies and materials are properly labeled and contained, (ii) all such toxic or hazardous materials are stored, handled, transported and disposed of in accordance with highest accepted industry standards and all applicable laws, rules and regulations (including, without limitation, necessary governing permits obtained by Tenant in connection with such use), and (iii) if a material safety data sheet is required under applicable laws to accompany the toxic or hazardous materials, supplies or materials, a copy of such current material safety data sheet is provided to Landlord. For purposes of this Lease, “toxic or hazardous materials” shall mean hazardous or toxic chemicals or any materials containing hazardous or toxic chemicals at levels or content which cause such materials to be classified as hazardous or toxic as then prescribed by the highest industry standards or by the then current levels or content as set from time to time by the U.S. Environmental Protection Agency (“EPA”) or the U.S. Occupational Safety and Health Administration (“OSHA”) or as defined under 29 CFR 1910 or 29 CFR 1925 or other applicable governmental laws, rules or regulations. In the event there is a spill of toxic or hazardous materials (other than permitted office supplies and kitchen cleaning supplies) at the Premises, the Building or the Land, Tenant shall notify Landlord of the method, time and procedure for any clean-up and removal of such toxic or hazardous materials; and, Landlord shall have the right to require changes in such method, time or procedure in Landlord’s sole discretion. In the event there is a spill of a toxic or hazardous material that comes from office supplies in the Premises,

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Tenant shall notify Landlord if the spill would in any way endanger or pose a threat to Tenant’s employees, Building maintenance or custodial personnel, other Building tenants or the general public. In the event of any breach of this provision by Tenant or any contamination of the Premises, the Building or the Land, by Tenant, Tenant shall pay all costs for the removal or abatement or clean-up of any toxic or hazardous materials at the Premises, the Building and the Land and Tenant at its sole cost and expenses shall remove any contamination to a level satisfactory to Landlord , but in no event to a level and in a manner less than that which complies with the applicable laws. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of hazardous materials during Tenant’s occupancy of the Premises, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as additional charges if such requirement applies to the Premises. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord’s request concerning Tenant’s best knowledge and belief regarding the presence of hazardous substances or materials on the Premises. Except as may be required by law, Tenant agrees not to enter into any agreement with any person, including without limitation any governmental authority regarding the removal of hazardous materials without the written consent of Landlord.

Landlord shall have access to, and a right to perform inspections and tests of, the Premises to determine Tenant’s compliance with environmental requirements, its obligations under this Paragraph 23, or the environmental condition of the Premises. Access shall be granted to Landlord upon Landlord’s prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant’s operations (further, Tenant may require that during such access Landlord’s personnel be accompanied by a representative of Tenant [which representative Tenant agrees to make available for the purpose of such entry]). Such inspections and tests shall be conducted at Landlord’s expense, unless such inspections or tests reveal that Tenant has not complied with any material environmental requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant. Tenant shall promptly notify Landlord of any communication or report that Tenant makes to any governmental authority regarding any possible violation of environmental requirements or release or threat of release of any hazardous materials onto or from the Premises. Except to the extent prohibited by law, Tenant shall, within five (5) days of receipt thereof, provide Landlord with a copy of any documents or correspondence received from any governmental agency or other party relating to a possible violation of environmental requirements or claim or liability associated with the release or threat of release of any hazardous materials onto or from the Premises

In all events, Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease from any release of hazardous materials on the Premises occurring while Tenant is in possession thereof or elsewhere in or about the Project if caused by Tenant or persons acting under Tenant. This Paragraph 23 shall survive the expiration or any termination of this Lease.

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24. MISCELLANEOUS.

A. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

B. The terms, provisions and covenants contained in this Lease shall run with the land and shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, executors, personal representatives, legal representatives, successors and assigns, except as otherwise herein expressly provided. Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations in the Building and property that are the subject of this Lease. Upon any Landlord’s conveyance of the Building or the Land, and the assignment of its rights under this Lease, to another party (“Successor”), such Landlord shall be released from its obligations hereunder and the Successor shall become the “Landlord” hereunder from and after the date of any such conveyance and assignment and shall thereafter have all of the rights and obligations of Landlord hereunder, in accordance with the terms hereof, during the period of its ownership of the Building. Each party agrees to furnish to the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of such party to enter into this Lease.

C. Neither party shall be held responsible for delays in the performance of its obligations hereunder (other than monetary obligations) when caused by material shortages, weather, acts of God, labor disputes or other causes beyond the reasonable control of such party (collectively, the “Force Majeure Delays”).

D. Tenant agrees, from time to time, within fifteen (15) days after request by Landlord, to deliver to Landlord or Landlord’s designee, a certificate of occupancy, financial statements and an estoppel certificate stating (1) that this Lease is in full force and effect, (2) the date to which rent is paid, (3) that there is no default on the part of Landlord or Tenant under this Lease, (4) that Tenant does not have any right of offset, claims or defenses to the performance of its obligations under this Lease, and (5) such other factual matters pertaining to this Lease as may be requested by Landlord.

E. This Lease constitutes the entire understanding and agreement of Landlord and Tenant with respect to the subject matter of this Lease, and contains all of the covenants and agreements of Landlord and Tenant with respect thereto. Landlord and Tenant each acknowledge that no representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations not expressly set forth in this Lease are of no force or effect. This Lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto.

H-28

F. All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the Term of this Lease shall survive the expiration or earlier termination of the Term hereof, including without limitation, all payment obligations with respect to taxes and insurance and all obligations concerning the condition and repair of the Premises. Upon the expiration or termination of this Lease (or termination of Tenant’s right of possession, if sooner), Tenant agrees to deliver up the Premises in the condition and state of repair required pursuant to this Lease (reasonable wear and tear and damage by fire or other casualty excepted).

G. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws effective during the Term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.

H. All references in this Lease to “the date hereof” or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease.

I. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the brokers or agents identified in the Basic Lease Information, and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. Landlord will pay a commission to the brokers or agents identified in the Basic Lease Information pursuant to a separate written agreement.

J. If and when included within the term “Landlord”, as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of a notice specifying some individual at some specific address for the receipt of notices and payments to Landlord. If and when included within the term “Tenant”, as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Tenant. All parties included within the terms “Landlord” and “Tenant”, respectively, shall be bound by notices given in accordance with the provisions of Paragraph 25 hereof to the same effect as if each had received such notice.

K. By taking possession of the Premises, Tenant shall be deemed to have: (a) acknowledged that the Premises and the improvements to be constructed pursuant to Exhibit “C” attached hereto are substantially complete except for “punch list” items (if any) and are accepted “as is” and “with all faults”; (b) accepted the Premises as suitable for the purposes for which the Premises are leased; and (c) acknowledged that the Premises are in a good and satisfactory condition. Landlord expressly disclaims, and Tenant hereby waives to the full extent

H-29

permitted by law, any implied warranty that the Premises or the Building are suitable for Tenant’s intended commercial purpose, and any and all other implied warranties (whether arising by virtue of statute, case law or otherwise). The foregoing shall not be construed to relieve Landlord from its obligations which are expressly set forth in this Lease.

L. Submission of this Lease shall not be deemed to be a reservation of the Premises. Landlord shall not be bound hereby until its delivery to Tenant of an executed copy hereof signed by Landlord, already having been signed by Tenant, and until such delivery Landlord reserves the right to exhibit and lease the Premises to other prospective tenants. Notwithstanding anything contained herein to the contrary, Landlord may withhold delivery or possession of the Premises from Tenant until such time as Tenant has paid to Landlord the security deposit required by Paragraph 2B hereof and one month’s rent as set forth in Paragraph 2A hereof.

M. Landlord and Tenant agree that the terms and conditions of this Lease are confidential and the parties hereto agree not to disclose the terms of this Lease to any third party (other than to its attorneys and accountants and other than to parties who propose to purchase or finance the Building, or the Project of which the Building forms a part, or who propose to become investors in Landlord) except as may be required by law or by the order of a court of competent jurisdiction.

N. [Intentionally Omitted].

O. Tenant agrees that after the Commencement Date Landlord or an affiliate of Landlord may include Tenant’s name and logo in marketing literature for the Alliance development, the Circle T development, and other developments owned and/or operated by Landlord or an affiliate of Landlord, for the limited purpose of informing third parties that Tenant is occupying the Project or the larger development of which the Project is a part.

25. NOTICES. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivering of notice or the making of any payment by Landlord to Tenant, or with reference to the sending, mailing or delivering of any notice or the making of any payment by Tenant to Landlord, shall be deemed to be complied with when and if the following steps are taken:

(a) All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address for Landlord set forth in the Basic Lease Information or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant’s obligation to pay rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such rent and other amounts have been actually received by Landlord. In addition to Base Rent due hereunder, all sums of money and all payments due Landlord hereunder shall be deemed to be additional rental owed to Landlord.

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(b) All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address set forth in the Basic Lease Information, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith.

(c) Any written notice or document required or permitted to be delivered hereunder shall be deemed to be delivered and received, whether actually received or not, when deposited, postage prepaid, in the United States Mail, Certified or Registered Mail, or with a reputable overnight courier service (such as Federal Express or UPS), addressed to the parties hereto at the respective addresses set out in the Basic Lease Information, or at such other address as they have theretofore specified by written notice delivered in accordance herewith.

26. LANDLORD’S LIEN WAIVED. Landlord waives all constitutional, statutory and contractual landlords’ liens. Within thirty (30) days after written request from Tenant (but not more than once in any calendar year), Landlord will confirm such waiver in writing.

27. SECURITY SERVICE. Tenant acknowledges and agrees that, while Landlord may (but shall not be obligated to) patrol the Project, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises.

28. GUARANTY OF LEASE. As a condition precedent to Landlord’s obligations hereunder, Tenant shall cause Guarantor to guarantee this Lease on the form approved by Landlord.

29. ADDITIONAL PROVISIONS. See Exhibits “A” — “H” attached hereto and incorporated by reference herein.

[signatures on the following pages]

H-31

EXECUTED BY LANDLORD, this 7 day of March, 2008.

LANDLORD:

ALLIANCE GATEWAY NO. 23, LTD.,
a Texas limited partnership

	By:	Hillwood Alliance Management, L.P.,
		a Texas limited partnership,
		its general partner

		By:	Hillwood Alliance GP, LLC,
			a Texas limited liability company,
			its general partner


			By:	/s/ Michael K. Berry
			Name:
			Title:

[Tenant’s signature on the following page]

H-32

EXECUTED BY TENANT, this 7 day of March, 2008.

	TENANT:

	ENTECH, INC.
	a Delaware corporation


	/s/


	By:	/s/ Larry L. Crawford
	Name:
	Title:

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EX-10.23 3 a08-8311_1ex10d23.htm EX-10.23

Exhibit 10.23

LEASE GUARANTY

THIS LEASE GUARANTY (“Guaranty”) is made this 7 day of March , 2008, by the undersigned (hereinafter referred to as “Guarantor”, whether one or more) in favor of Alliance Gateway No. 23, Ltd., a Texas limited partnership (“Landlord”).

FOR VALUE RECEIVED, Guarantor hereby unconditionally, irrevocably and absolutely guarantees to Landlord the prompt and full payment and performance, when due, subject to any notice and cure rights of Tenant set forth in the Lease, of all obligations and covenants of ENTECH, Inc. (“Tenant”), fixed or contingent, arising out of the Lease Agreement dated , 2008, executed by and between Tenant and Landlord and any and all renewals, extensions, amendments, and modifications thereof (collectively, the “Lease”), or which Tenant, or its successors or assigns, may in any other manner now or at any time hereafter owe Landlord in connection with the Lease, including, but not limited to, rent, taxes, insurance, operating expenses, maintenance costs, damages and expenses resulting from Tenant’s default under the Lease, interest and collection costs (collectively, the “Obligations”).

1. CONTINUING GUARANTY. This is a continuing Guaranty and shall apply to the Obligations and any renewals, extensions, amendments, modifications, waivers and transfers thereof.

2. OTHER REMEDIES. Landlord shall not be required to pursue any other remedies before invoking the benefits of this Guaranty; specifically, Landlord shall not be required to take any action against Tenant or any other person, to exhaust its remedies against any other guarantor of the Obligations, any collateral or other security, or to resort to any balance of any deposit account or credit on the books of Landlord in favor of Tenant or any other person.

3. OBLIGATIONS NOT IMPAIRED. Prior to performance and satisfaction in full of the Obligations, the liability of Guarantor under this Guaranty shall not be released or impaired without the prior written consent of Landlord, except as provided in Section 18 hereof. Without limiting the generality of the foregoing, the liability of Guarantor shall not be released or impaired on account of any of the following events:

(a) the voluntary or involuntary liquidation, sale or other disposition of all or substantially all of the assets of Tenant, or any receivership, insolvency, bankruptcy, reorganization or other similar proceedings affecting Tenant or any of its assets;

(b) the addition of a new guarantor or guarantors;

(c) any bankruptcy or insolvency proceedings against or by Tenant, its property, or its estate or any modification, discharge or extension of the Obligations resulting from the operation of any present or future provision of the United States Bankruptcy Code or any other similar federal or state statute, or from the decision of any court, it being the intention hereof that Guarantor shall remain liable on the Obligations notwithstanding any act, omission, order, judgment or event which might, but for the provisions hereof, otherwise operate as a legal or equitable discharge of Guarantor;

(d) Landlord’s failure to use diligence in preserving the liability of any person on the Obligations, or in bringing suit to enforce collection of the Obligations;

(e) the substitution or withdrawal of collateral, or release of collateral, or the exercise or failure to exercise by Landlord of any right conferred upon it herein or in any collateral agreement;

(f) if Tenant is not liable for any of the Obligations because the act of creating the Obligations is ultra vires, or the officers or persons creating the Obligations acted in excess of their authority, or for any reason the Obligations cannot be enforced against Tenant;

(g) any payment by Tenant to Landlord if such payment is held to constitute a preference under the bankruptcy laws, or if for any other reason Landlord is required to refund such payment to Tenant or pay the amount thereof to any other party;

(h) if this Guaranty is ever deemed invalid or unenforceable as to the Guarantor;

(i) any extension, renewal, amendment, or modification of the Lease; or

(j) any assignment of the Lease or subletting of all or any portion of the premises leased pursuant to the Lease except as expressly permitted therein without Landlord’s consent.

4. BENEFIT TO GUARANTOR. Guarantor acknowledges and warrants that it derives or expects to derive financial and other advantage and benefit, directly or indirectly, from the Lease, the Obligations and the release of collateral or other relinquishment of legal rights made or granted or to be made or granted by Landlord to Tenant. Guarantor acknowledges that, in entering into the Lease, Landlord is relying on Guarantor’s agreements contained in this Guaranty and on Guarantor’s creditworthiness. Guarantor acknowledges that Landlord would not have entered into the Lease without Guarantor’s guarantee of the Obligations pursuant to the terms hereof.

5. JOINT AND SEVERAL LIABILITY. Unless the context clearly indicates otherwise, “Guarantor” shall mean the guarantor hereunder, or any of them, if more than one. The obligations of said guarantors hereunder if more than one, shall be joint and several. Suit may be brought against said guarantors jointly and severally, and against any one or more of them, or less than all, without impairing the rights of Landlord against the others of said guarantors; and Landlord may compromise with any one of said guarantors for such sums or sum as it may see fit and release such of said guarantors from all further liability to Landlord for such indebtedness without impairing the right of Landlord to demand and collect the balance of such indebtedness from others of said guarantors not so released; but it is agreed among said guarantors themselves, however, that such compromising and release shall not impair the rights and obligations of said guarantors as among themselves.

6. CHANGE IN COMPOSITION. Should the status, composition, structure or name of Tenant change, including, but not limited to, by reason of a merger, dissolution,

consolidation or reorganization, this Guaranty shall continue and also cover the indebtedness and Obligations of Tenant under the new status, composition structure or name according to the terms hereof. If Tenant is a general or limited partnership, no termination of said partnership, nor withdrawal therefrom by, or termination of any ownership interest therein owned by, any general or limited partner of such partnership shall alter, limit or modify Guarantor’s obligations set forth in this Guaranty or otherwise affect this Guaranty in any manner whatsoever, all of which obligations of Guarantor shall remain in effect as herein written.

7. WAIVER AND SUBROGATION OF GUARANTOR’S RIGHTS AGAINST TENANT. Until all of Tenant’s obligations under the Lease are fully performed, Guarantor

a. waives any rights that Guarantor may have against Tenant by reason of any one or more payments or acts in compliance with the obligations of Guarantor under this Guaranty; and

b. subordinates any liability or indebtedness of Tenant held by Guarantor to the obligations of Tenant to Landlord under the Lease.

8. DEATH OR DISSOLUTION OF GUARANTOR. Upon the death, dissolution or bankruptcy of Guarantor, the liability of Guarantor shall continue against its assets as to all Obligations which shall have been incurred by Tenant.

9. FINANCIAL STATEMENTS. The Guarantor warrants and represents to Landlord that all financial statements heretofore delivered by Guarantor to Landlord are true and correct in all material respects and there are no material adverse changes with respect thereto as of the date hereof. Guarantor further agrees to deliver true, correct and complete current, audited financial statements (which shall include, at a minimum, a balance sheet, profit and loss statement), bank references and Dun & Bradstreet reports on Guarantor, if available within ten (10) days after the same are publicly released and ten (10) business days written notice from Landlord.

10. WAIVER OF NOTICE. Guarantor waives diligence on the part of Landlord in the collection and enforcement of the Obligations, protest, and all extensions that may be granted to Tenant with respect thereto. Guarantor waives notice of acceptance of this Guaranty. Guarantor additionally waives grace, demand, presentment, notice of demand and all other notices (to the extent allowed by law).

11. LIMITATION ON INTEREST. To the extent that any law limiting the amount of interest that may be contracted for, charged or received is applicable to the indebtedness of Guarantor under this Guaranty, no provision of this Guaranty shall require the payment or permit the collection of any sum in excess of the maximum lawful amount of interest applicable to Guarantor’s indebtedness under this Guaranty. If any sum in excess of the maximum lawful amount applicable to Guarantor’s indebtedness under this Guaranty is provided for herein, the provision of this paragraph shall govern, and Guarantor shall not be obligated to pay any sum in excess of the maximum lawful amount applicable to Guarantor’s indebtedness under this Guaranty. The intention of Guarantor and Landlord hereunder is to comply with all laws applicable to this Guaranty and Guarantor’s liability hereunder.

12. MODIFICATION OR CONSENT. No modification, consent or waiver of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same shall be in writing and signed by Landlord, and then shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Guarantor, in any case shall, of itself, entitle Guarantor to any other or further notice or demand in similar or other circumstances. No delay or omission by Landlord in exercising any power or right hereunder shall impair any such right or power or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such power preclude other or further exercise thereof or the exercise of any other right or power hereunder. All rights and remedies of Landlord hereunder are cumulative of each other and of every other right or remedy which Landlord may otherwise have at law or in equity or under any other contract or document, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.

13. INDUCEMENT TO LANDLORD. Guarantor acknowledges that this Guaranty is given to induce Landlord to enter into the Lease and to extend credit to Tenant which would not be extended except in reliance upon this Guaranty.

14. ATTORNEYS’ FEES. If a lawsuit is instituted in connection with this Guaranty, then Guarantor agrees to pay to Landlord all expenses incurred in connection with such lawsuit (including, but not limited to, reasonable attorneys’ fees and costs of court).

15. SUCCESSORS AND ASSIGNS. This Guaranty is for the benefit of Landlord, and its successors or assigns. Landlord may assign its rights hereunder in whole or in part; and, upon any such assignment, all the terms and provisions of this Guaranty shall inure to the benefit of such assignee, to the extent so assigned. The liability of Guarantor hereunder shall be binding upon all heirs, estates, executors, administrators, legal representatives, successors and assigns of Guarantor.

16. HEADINGS. The section headings hereof are inserted for convenience of reference only and shall not alter, define or be used in construing the text of this instrument.

17. PLACE OF PERFORMANCE. Guarantor agrees that this agreement is performable in Tarrant County, Texas. Suit on this Guaranty may be brought in any state or federal court in Tarrant County, Texas and Guarantor waives the right to be sued elsewhere. This Guaranty shall be deemed to have been made under and shall be governed by the laws of the State of Texas in all respects.

18. TERM. This Guaranty shall terminate only when all of the Obligations have been fully performed and satisfied.

19. GUARANTY OF PAYMENT AND PERFORMANCE. This is a guaranty of payment and performance and not a guaranty of collection.

20. PAST DUE AMOUNTS. All past due payments of the Obligations shall bear interest at the lesser of (a) the maximum lawful rate, or (b) eighteen percent (18%).

21. REPRESENTATIONS. Guarantor represents and warrants to Landlord that (i) Guarantor has executed this Guaranty of its free will and accord; (ii) Guarantor has read and understands the terms of this Guaranty and the Lease; (iii) Guarantor has had the opportunity to have this Guaranty and the Lease reviewed by an attorney of Guarantor’s choice; and (iv) this Guaranty is duly authorized and valid, and is binding upon and enforceable against Guarantor.

22. ENTIRE AGREEMENT. Guarantor acknowledges and agrees that this Guaranty accurately represents and contains the entire agreement between Guarantor and Landlord with respect to the subject matter hereof, that Guarantor is not relying, in the execution of this Guaranty, on any representations (whether written or oral) made by or on behalf of Landlord except as expressly set forth in this Guaranty, and that any and all prior statements and/or representations made by or on behalf of Landlord to Guarantor (whether written or oral) in connection with the subject matter hereof are merged herein. This Guaranty shall not be waived, altered, modified or amended as to any of its terms or provisions except in writing duly signed by Landlord and Guarantor.

23. SEVERABILITY. A determination that any provision of this Guaranty is unenforceable or invalid shall not affect the enforceability or validity of any other provision.

24. WAIVER OF RIGHT TO JURY TRIAL. GUARANTOR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY KNOWINGLY, INTENTIONALLY, IRREVOCABLY, UNCONDITIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS GUARANTY OR THE LEASE OR ANY CONDUCT, ACT, FAILURE TO ACT OR OMISSION OF OR BY LANDLORD OR GUARANTOR, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LANDLORD OR GUARANTOR, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, OR IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS GUARANTY OR THE LEASE. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS GUARANTY. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GUARANTOR, AND GUARANTOR HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. GUARANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS GUARANTY AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. Neither this provision nor any provision in the Lease regarding waiver of jury trial or submission to jurisdiction or venue in any court is intended or shall be construed to be in derogation of any provision herein or in the Lease for arbitration of any controversy or claim.

25. STATE SPECIFIC PROVISIONS. To the extent allowed by law, this Guaranty shall be effective as a waiver of, and Guarantor waives, any and all rights to which Guarantor may otherwise have been entitled under any suretyship laws or similar laws in effect from time to time including, but not limited to, Chapter 34 of the Texas Business and Commerce Code, Rule 31 of the Texas Rules of Civil Procedure, and Section 17.001 of the Texas Civil Practice & Remedies Code.

[signatures on the following page]

IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day and year first written above.

		GUARANTOR:

ADDRESS OF GUARANTOR:		WorldWater & Solar Technologies Corp.,
		a Delaware corporation


		By:	/s/ Larry L. Crawford
200 Ludlow Drive, Ewing, NJ 08638		Name:
		Title:

THE STATE OF	§
	§
COUNTY OF	§

This instrument was acknowledged before me on the day of , 2008, by of WorldWater & Solar Technologies Corp., on behalf of said corporation.


			Notary Public, State of ______________


My Commission Expires:			Notary’s Printed/Typed Name

EX-23 4 a08-8311_1ex23.htm EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in Registration Statement No. 333-66484 of WorldWater & Solar Technologies Corp. and Subsidiaries (formerly WorldWater & Power Corp. and Subsidiaries) on Form S-8 of our report dated March 27, 2008, appearing in the Annual Report on Form 10-K of WorldWater & Solar Technologies Corp. and Subsidiaries as of and for the three-year period ended December 31, 2007.

/s/ Amper, Politziner & Mattia, P.C.

Edison, New Jersey

March 27, 2008

EX-31.1 5 a08-8311_1ex31d1.htm EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13-A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Quentin T. Kelly, certify that:

1. I have reviewed this annual report of WorldWater & Solar Technologies Corp. (Formerly WorldWater & Power Corp.):

2. Based on my knowledge, this does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 27, 2008	By:	/s/ QUENTIN T. KELLY
	Name:	Quentin T. Kelly
	Title:	Principal Executive Officer

EX-31.2 6 a08-8311_1ex31d2.htm EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13-A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Larry L. Crawford, certify that:

1. I have reviewed this annual report of WorldWater & Solar Technologies Corp. (Formerly WorldWater & Power Corp.):

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 27, 2008	By:	/s/ LARRY L. CRAWFORD
	Name:	LARRY L. CRAWFORD
	Title:	Executive Vice-President, Principal Financial Officer

EX-32.1 7 a08-8311_1ex32d1.htm EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

I, Quentin T. Kelly certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the report of WorldWater & Solar Technologies Corp. (Formerly WorldWater & Power Corp.)on Form 10-K for the annual period ended December 31, 2007 fully complies with the requirements of Section 13(a) and 15(d) of the Securities and Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operation of WorldWater & Solar Technologies Corp. (Formerly WorldWater & Power Corp.).

	By:	/s/ Quentin T. Kelly
	NAME:	Quentin T. Kelly
	Title:	Principal Executive Officer

Dated: March 27, 2008

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.2 8 a08-8311_1ex32d2.htm EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

I, Larry Crawford certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the report of WorldWater & Solar Technologies Corp. (Formerly WorldWater & Power Corp.)on Form 10-K for the annual period ended December 31, 2007 fully complies with the requirements of Section 13(a) and 15(d) of the Securities and Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the

financial condition and results of operation of WorldWater & Solar Technologies Corp. (Formerly WorldWater & Power Corp.)

	By:	/s/ LARRY L. CRAWFORD
	NAME:	Larry L. Crawford
	Title:	Executive Vice President, Principal Financial Officer

Dated: March 27, 2008

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