ITEM 1.
BUSINESS
COMPANY OVERVIEW
On May 15, 2008, World Waste Technologies, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Vertex Energy, LP, a Texas limited partnership (“Vertex LP”), Vertex Energy, Inc., a Nevada corporation (“Vertex Nevada”), Vertex Merger Sub, Inc., a California corporation and wholly-owned subsidiary of Vertex Nevada, and Benjamin P. Cowart, as agent for the shareholders of Vertex Nevada (the “Agent”). On May 19, 2008, we, Vertex LP, Vertex Nevada, and Vertex Merger Sub, LLC, a California Limited Liability Company and wholly-owned subsidiary of Vertex Nevada (“Merger Sub”), entered into an Amended and Restated Merger Agreement (as so amended and restated, the “Merger Agreement”). Vertex LP is a Texas-based privately held limited partnership controlled by the Agent. Among other businesses, Vertex LP engages in the business of recycling of used motor oil and other hydrocarbons.
At a special meeting of our shareholders held on March 6, 2009, the holders of a majority of the outstanding shares of each of our common stock, Series A preferred stock and Series B preferred stock, adopted the Merger Agreement. Upon consummation of the merger, the Company will become a wholly-owned subsidiary of Vertex Nevada, and Vertex Nevada will succeed to our company’s reporting obligations under the Securities Exchange Act of 1934. The parties anticipate that the merger will be consummated on April 1, 2009.
Our management team is currently focused on completing our pending merger with the wholly-owned subsidiary of Vertex Nevada, while maintaining the viability of our renewable energy business plan. Upon the closing of the merger, it is anticipated that the renewable energy business plan will continue to be pursued by Vertex Nevada through a subsidiary. Expenditures related to the renewable energy business are being minimized as we manage relationships, contract negotiations and other relevant activities related to the potential development of renewable energy projects without encumbering our ability to meet the closing conditions of the merger in a timely manner. While the renewable energy project development effort remains viable, the primary focus of the combined company post merger will become Vertex Nevada’s hydrocarbon recycling business and the pursuit of growth opportunities related to this business segment. The following is an overview of World Waste and its business operations prior to consummation of the pending merger and other transactions contemplated by the associated merger agreement.
We are a development stage company formed to develop, design, build, own and operate facilities which employ systems and technologies designed to profitably convert municipal solid waste (“MSW”) and other waste streams, such as wood waste and construction and demolition debris, into usable commodities and products. These products are expected to include renewable energy and recyclable commodities. We may continue our efforts on producing renewable energy from waste materials through the use of gasification and pyrolysis technologies in order to meet the rapidly growing demand for renewable power. We believe that this increased demand is being driven, to a large extent, by the adoption of Renewable Portfolio Standards in a number of states, which require or encourage utilities to have a specific percentage of their electricity sales come from renewable sources.
To implement our renewable energy platform, we may pursue the development of facilities in targeted markets where we believe we will be able to earn a “tipping” fee for accepting wastes and a premium for the sale of renewable energy products or receive a very low cost biomass feedstock. We also may plan to develop or obtain the rights to use gasification technologies in demonstration application to gain operating experience with the unique aspects of gasifying biomass derived from municipal solid waste and other waste streams such as construction and demolition debris, and to develop detailed design criteria for larger-scale systems.
We anticipate that the development of projects using these technologies could position us to generate three distinct revenue streams: (a) “tipping” fees charged to the entities that supply us with MSW or other waste materials, (b) recycling revenue from the sale of commodity recyclables (such as beverage containers, aluminum, steel, plastics, and glass) that our process recovers and which otherwise would be interred in landfills, and (c) revenue from the sale of our end products, anticipated to be primarily renewable electricity, and potentially bio-fuels. We believe that our receipt of fees from waste generators or handlers could provide us with a low cost fuel source, which is an important and beneficial characteristic of our business model.
MARKET OVERVIEW
We believe there is a large and growing market for the production and sale of renewable energy in the United States, driven by: (1) high costs of hydrocarbon based fuels; (2) high political and economic costs to obtain fossil fuels from unstable foreign countries; (3) harder to reach (therefore more expensive) locations for exploration and development of new oil and gas reserves; (4) increasing competition from developing countries such as China and India for finite amounts of hydrocarbon based energy; and (5) a growing public awareness of the environmental damages brought on by increasing levels of greenhouse gasses in the atmosphere created by carbon-based energy fuels which may be contributing to global warming. These factors have led to state and federal legislation. For example, the California Renewable Portfolio Standard established in 2002 requires certain retail electricity sellers to have 20% of their retail sales come from renewable energy sources by the year 2010. Twenty-two other states have some form of Renewable Portfolio Standard and popular support for such requirements appears to be growing.
ELECTRICITY OPPORTUNITIES
We plan to focus our efforts on the utilization of one or more gasification technologies that will generate various renewable energy products from MSW and other waste streams. We plan to seek to enter into strategic relationships with companies that have developed gasification technologies, and to further investigate the commercialization of our own technology. A process which we believe has significant potential for successful commercialization involves using a gasification technology to produce a synthetic gas (or "syngas") from the cellulose biomass fraction of MSW derived from a materials' separation and classification process. Wood waste, sewage sludge and other commercial waste streams are also potential feedstocks. The resulting syngas would be used to fire a boiler driving a steam turbine. We also believe that after a gas clean-up process it may be possible to put the syngas directly into a gas-fired turbine. In either case, we believe the process has the potential to produce a significant amount of renewable electricity for sale to utilities.
STRATEGY
Our goal is to develop and/or acquire full-scale commercial facilities which profitably transform residual MSW, wood waste and other waste streams into usable renewable energy or products, including electricity, synthetic gas, bio-oil and/or bio-fuels.
Pursuit of this strategy entails work in the following areas:
REPLICATE AND ROLLOUT NEW FACILITIES WITH TECHNOLOGIES, PRODUCTS, AND FINANCING TAILORED TO THE LOCATION
We anticipate using a suite of technologies, each of which would be specifically applied on a site by site basis to profitably meet the needs of a particular local market. We expect that these needs will change from market to market and will be influenced by many factors, including the materials composition of feedstock at that facility, local permitting and land use requirements, and local political considerations. We plan to seek to develop facilities, implementing the most profitable end product platforms on a site by site basis in the most favorable locations within the United States. We also anticipate exploring licensing opportunities to accelerate the rollout inside the U.S. We plan to leverage experienced engineering and construction partners for the most effective utilization of our resources. Also, we expect each project to operate independently and to possibly have different financial partners and ownership structures.
SEEK OUT POTENTIAL ACQUISITIONS WHICH STRENGTHEN OUR EFFORTS AND ACCELERATE IMPLEMENTATION
As part of the implementation of our strategy, we may pursue acquisitions. In general, we may seek acquisition candidates with characteristics that include: (a) technology, strategy, or people which complement our focus, (b) projects which will allow us to manage and control the feedstock for our renewable energy generation facilities, (c) projects or companies which can be accelerated through participation by us, or (d) projects or companies with established or growing revenue and cash flow.
Our ability to implement these strategies will be dependent upon our ability to raise significant additional capital. While the market demand for renewable energy is high, there can be no assurance that we will be able to raise the financing necessary to execute this business plan.
TRENDS IN OUR BUSINESS
The Resource Conservation and Recovery Act of 1991 requires landfills to install expensive liners and other equipment to control leaching toxins. Due to the increased costs and expertise required to run landfills under this Act, many small, local landfills closed during the 1990's. Larger regional landfills were built requiring increased logistics costs for the waste haulers.
In addition, state and federal governments have continued to increase the pressure on the industry to improve their recycling percentages. California currently mandates one of the highest standards in the United States by requiring 50% of all incoming MSW to be diverted from landfills. We believe that the trend in state law throughout the U.S. is to migrate toward this California standard.
We expect that the resale price of our products, including renewable electricity and bio-fuels will be tied to commodity markets. The market demand for these materials can be volatile, which could significantly impact our results of operations.
CORPORATE HISTORY OF REVERSE MERGER
We were formed as a result of two mergers that occurred in 2004. First, in March 2004, World Waste of America, Inc. ("WWA") merged with and into a wholly-owned subsidiary of Waste Solutions, Inc. ("WSI"), a California corporation. Cagan McAfee Capital Partners and its affiliates were the controlling shareholders of WSI. As a result of this merger, WSI continued as the surviving corporation, assumed the operations and business plan of WWA, the shareholders of WWA became shareholders of WSI, and WSI changed its name to World Waste Technologies, Inc. ("Old WWT").
Second, in March 2004, Old WWT entered into an Agreement and Plan of Reorganization with Voice Powered Technologies International, Inc., a California corporation ("VPTI"), to merge with and into a wholly-owned subsidiary of VPTI. VPTI was a publicly traded company trading under the stock symbol VPTI.OB. VPTI had no material assets, liabilities or operations. The merger of Old WWT with VPTI's wholly-owned subsidiary was completed on August 24, 2004. Pursuant to the merger, Old WWT's shareholders became the holders of approximately 95% of the outstanding shares of VPTI. Upon completion of this merger, VPTI changed its name to World Waste Technologies, Inc. VPTI was incorporated on June 21, 1985 and provided voice recognition and voice activated products. Because the shareholders of Old WWT became the controlling shareholders of VPTI after the merger, Old WWT was treated as the acquirer for accounting purposes, and therefore the transaction was accounted for as a reverse merger. Accordingly, for accounting purposes, the historical financial statements presented are those of Old WWT. Additionally, the prior operating results of VPTI are not indicative of our future operations, and none of the assets or liabilities on our balance sheet as of December 31, 2008 and 2007 relate to VPTI prior to the merger.
Since the formation of WWA in 2002, our efforts have been principally devoted to research and development activities, construction of our initial facility (which facility is no longer a component of our business strategy), raising capital, and recruiting additional personnel and advisors. To date, we have not generated any significant revenues. Before the effect of our pending merger with Vertex Nevada, we do not anticipate generating significant revenue until sometime in 2011, if ever.
Our stock is quoted on the OTC Bulletin Board under the symbol WDWT.OB
OUR PLANNED REVENUE AND ANTICIPATED MARKETS
Pursuant to our current business model, we anticipate our product and services could result in three distinct revenue streams. First, we would receive a "tipping fee" for each ton of MSW or other waste material delivered to and processed by us. Second, our process might be designed to mechanically sort and collect standard recyclable materials such as scrap steel, cans, and aluminum. Third, we would produce and sell commodity products such as electricity or bio-fuel. We plan to accomplish this through our development and/or acquisition of gasification technologies.
Our plan is to provide waste processing services to other companies and municipalities in the MSW industry throughout the United States. The MSW industry in the United States is dominated by large MSW processors such as Waste Management, Inc. and Republic Services, Inc. Many other smaller regional companies and municipalities are also in the waste handling business. Many state governments in the United States mandate that certain percentages of all MSW be recycled. The State of California, where our headquarters are located, currently
mandates the highest standard in the United States by requiring that 50% of all incoming MSW be diverted from landfills. We believe that the trend in state law throughout the country is to migrate toward this California standard. Accordingly, we anticipate providing our processing services to MSW handlers looking for efficient ways to increase the percentage of their recycled MSW.
SALES AND MARKETING
We currently plan to market our services to waste handlers, waste collectors and municipalities, focusing on higher recycling rates, with the goal of lowering use of the landfills and creating a cost savings for these customers. In addition, we plan to market and to sell bio-fuels and steam/electricity into their respective markets.
We currently plan to market and promote our services with a team of officers and outside consultants. Alternatively, we may enter into strategic alliances with larger companies. We currently expect that our services and products will be marketed in the U.S., although we may also pursue specified international opportunities.
COMPETITION
We expect to compete with numerous other products, technologies and services that are in use currently or may subsequently be developed by companies, academic institutions and research institutions. These competitors consist of both large established companies as well as small, single product or service development stage companies. Two companies dominate the MSW industry in the United States: Waste Management, Inc. ($13.4 billion in revenues); and Republic Services, Inc. who recently acquired Allied Waste Industries ($9.4 billion in combined revenues). There are also many smaller regional companies and municipalities in the waste handling business. We expect competition from these companies as they develop different and/or novel approaches to the processing of MSW. Some of these approaches may directly compete with the products or services that we are currently developing.
Although we do not view MSW haulers as competitors, but rather as consumers for the services we plan to provide, such haulers would be competitors to the extent they make capital investments in material recovery facilities, incineration, composting, or landfills rather than outsourcing through us. We believe that the primary competitive factors in our industry are price, reliability of service, and quality of recycling programs.
Several companies have developed businesses burning MSW to generate energy. Others have focused on converting MSW to recyclables, ethanol or other beneficial uses. These companies may compete against us for MSW supply contracts.
REGULATION
Our business is subject to extensive federal, state and local environmental, health, safety and transportation laws and regulations. These laws and regulations are administered by the Environmental Protection Agency ("EPA") and various other federal, state and local environmental, zoning, transportation, land use, health and safety agencies in the United States. Many of these agencies regularly examine our operations to monitor compliance with these laws and regulations and have the power to enforce compliance, obtain injunctions or impose civil or criminal penalties in case of violations.
Because a major component of our business is expected to be the processing of solid waste in an environmentally sound manner, a portion of our future capital expenditures will likely be related, either directly or indirectly, to environmental protection measures, including compliance with federal, state or local provisions that regulate the discharge of materials into the environment. We anticipate that there will be significant costs relating to our compliance with environmental laws if and when a plant is operational on a commercial-scale level and that there will be significant costs associated with sighting, design, operations, monitoring, site maintenance, corrective actions, and financial assurance of each facility that we might in the future operate. In connection with our development or expansion of a facility, we expect that we will need to spend considerable time, effort and money to obtain or maintain necessary required permits and approvals. There cannot be any assurances that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agency. Compliance with these and any future regulatory requirements could require us to make significant capital and operating expenditures.
The primary United States federal statutes affecting our business as currently conducted are summarized below:
The Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), regulates handling, transporting and disposing of hazardous and non-hazardous wastes and delegates authority to the states to develop programs to ensure the safe disposal of solid wastes. In 1991, the EPA issued its final regulations under Subtitle D of RCRA, which set forth minimum federal performance and design criteria for solid waste landfills. These regulations must be implemented by the states, although states can impose requirements that are more stringent than the Subtitle D standards. We expect to incur costs in complying with these standards in the ordinary course of our operations.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), which is also known as Superfund, provides for federal authority to respond directly to releases or threatened releases of hazardous substances into the environment. CERCLA's primary means for addressing such releases is to impose liability for cleanup of disposal sites upon current and former site owners and operators, generators of the hazardous substances at the site and transporters who selected the disposal site and transported substances to the site. Liability under CERCLA is not dependent on the intentional disposal of hazardous substances; it can be based upon the release or threatened release, even as a result of lawful, unintentional and non-negligent action, of hazardous substances as the term is defined by CERCLA and other applicable statutes and regulations.
The Federal Water Pollution Control Act of 1972 (the "Clean Water Act") regulates the discharge of pollutants into streams, rivers, groundwater, or other surface waters from a variety of sources. If run-off from our operations may be discharged into surface waters, the Clean Water Act would require us to apply for and obtain discharge permits, conduct sampling and monitoring, and, under certain circumstances, reduce the quantity of pollutants in those discharges. In addition, if a landfill or a transfer station discharges wastewater through a sewage system to a publicly owned treatment works, the facility must comply with discharge limits imposed by the treatment works. The Clean Water Act provides for civil, criminal and administrative penalties for violations of its provisions.
The Clean Air Act of 1970, as amended, provides for increased federal, state and local regulation of the emission of air pollutants. The Clean Air Act would likely apply to certain of our planned and potential operations, including gasification of MSW, solid waste landfills and waste collection vehicles.
The Occupational Safety and Health Act of 1970, as amended ("OSHA"), establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the OSHA, and various record keeping, disclosure and procedural requirements.
There are also various state and local regulations that are expected to affect our potential future operations, which are stricter than comparable federal laws and regulations.
Many states, provinces and local jurisdictions have enacted "fitness" laws that allow the agencies that have jurisdiction over waste services contracts or permits to deny or revoke these contracts or permits based on the applicant's or permit holder's compliance history. Some states, provinces and local jurisdictions go further and consider the compliance history of the parent, subsidiaries or affiliated companies, in addition to the applicant or permit holder. These laws authorize the agencies to make determinations of an applicant or permit holder's fitness to be awarded a contract to operate, and to deny or revoke a contract or permit because of unfitness, unless there is a showing that the applicant or permit holder has been rehabilitated through the adoption of various operating policies and procedures put in place to assure future compliance with applicable laws and regulations.
RESEARCH AND DEVELOPMENT
During 2008, 2007, and 2006, we spent $16,359, $2,380,943, and $273,894, respectively, on research and development activities.
INTELLECTUAL PROPERTY
On June 21, 2002, we entered into a U.S. technology sub-license agreement with Bio-Products International, Inc., an Alabama corporation, with respect to several patent claims and other related intellectual property relating to the methods and processes developed by the University of Alabama in Huntsville ("UAH").
On May 1, 2006, we purchased the patent for this technology, subject to existing licenses, from UAH, for a payment of $100,000 in cash and 167,000 shares of our common stock. The common stock was valued at $698,000, the fair value on May 1, 2006.
We have determined that we will not use the patented technology in our future facilities. In March 2008, we entered into an agreement to sell the patent and all of the rights associated with it, including the sublicense agreement, to Clean Earth Solutions, Inc. (“CES”). After receiving the first two payments, CES failed to make the third payment, thereby placing it in default under the agreements governing the sale of the patent. In October 2008, we sold the patent and related intellectual property rights in our pressurized steam classification process to CleanTech Biofuels, Inc. (“CTB”) for consideration composed of cash, debt and warrants.
EMPLOYEES
As of March 20, 2009, we had 2 full-time employees, both members of our executive management team. We are not a party to any collective bargaining agreements. We also had 3 part-time employees. We have not experienced work stoppages and we believe that our relationship with our employees is good.
ITEM 1A.
ITEM 1A.
NOT APPLICABLE.
ITEM 1B.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2.
PROPERTIES
Our principal executive offices are in Cupertino, California. We utilize the office space of Cagan McAfee Capital Partners, for which we do not pay rent.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders for a vote during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5.
ITEM 5.
MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock has been traded on the OTC Bulletin Board over-the-counter market since August 24, 2004 under the symbol "WDWT.OB" Prior to the merger in which World Waste Technologies, Inc. became our wholly-owned subsidiary on August 24, 2004, our common stock was listed on the OTC Bulletin Board over-the-counter market under the symbol "VPTI.OB"
The following table sets forth, for the periods indicated, the high and low closing bid prices for our Common Stock on the OTC Bulletin Board, for the quarters presented. Bid prices represent inter-dealer quotations without adjustments for markups, markdowns, and commissions, and may not represent actual transactions:
HOLDERS
As of March 19, 2009 there were approximately 442 holders of record of our common stock, not including holders who hold their shares in street name.
DIVIDENDS
We have not paid any dividends on our common stock to date and do not anticipate that we will be paying dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our anticipated capital requirements and other factors that our Board of Directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future. Additionally, the terms of our preferred stock impose restrictions on our ability to pay dividends.
ITEM 6.
ITEM 6.
NOT APPLICABLE.
ITEM 7.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion, as well as information contained elsewhere in this report, contain "forward-looking statements." These statements include statements regarding the intent, belief or current expectations of us, our directors or our officers with respect to, among other things: anticipated financial or operating results, financial projections, business prospects, future product performance and other matters that are not historical facts. The success of our business operations is dependent on factors such as the impact of competitive products, product development, commercialization and technology difficulties, the results of financing efforts and the effectiveness of our marketing strategies, and general competitive and economic conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors.
OVERVIEW
We were formed as a result of two mergers that occurred in 2004. First, in March 2004, World Waste of America, Inc. ("WWA") merged with and into a wholly-owned subsidiary of Waste Solutions, Inc. ("WSI"), a California corporation. Cagan McAfee Capital Partners and its affiliates were the controlling shareholders of WSI. As a result of this merger, WSI continued as the surviving corporation, assumed the operations and business plan of WWA, the stockholders of WWA became stockholders of WSI, and WSI changed its name to World Waste Technologies, Inc. ("Old WWT").
In March 2004, Old WWT entered into an Agreement and Plan of Reorganization with Voice Powered Technologies International, Inc., a California corporation ("VPTI"), to merge with and into a wholly-owned subsidiary of VPTI. VPTI was a publicly traded company trading under the stock symbol VPTI.OB. VPTI had no material assets, liabilities or operations. The merger of Old WWT with VPTI's wholly-owned subsidiary was completed on August 24, 2004. Pursuant to the merger, Old WWT's stockholders became the holders of approximately 95% of the outstanding shares of VPTI. Upon completion of this merger, VPTI changed its name to World Waste Technologies, Inc. VPTI was incorporated on June 21, 1985 and provided voice recognition and voice activated products. Because the stockholders of Old WWT became the controlling stockholders of VPTI after the merger, Old WWT was treated as the acquirer for accounting purposes, and therefore the transaction was accounted for as a reverse merger. Accordingly, for accounting purposes, the historical financial statements presented are those of Old WWT. Additionally, the prior operating results of VPTI are not indicative of our future operations, and none of the assets or liabilities on our balance sheet as of December 31, 2008 relate to VPTI prior to the merger.
Since the formation of WWA in 2002, our efforts have been principally devoted to research and development activities, construction of a facility (which facility is no longer a component of our business strategy), raising capital, and recruiting additional personnel and advisors. To date, we have marketed and sold only a limited amount of product and have not generated any significant revenues, therefore, we continue to report as a Development Stage Company.
PLAN OF OPERATIONS
COMPANY OVERVIEW
On May 15, 2008, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Vertex Energy, LP, a Texas limited partnership (“Vertex LP”), Vertex Energy, Inc., a Nevada corporation (“Vertex Nevada”), Vertex Merger Sub, Inc., a California corporation and wholly-owned subsidiary of Vertex Nevada, and Benjamin P. Cowart, as agent for the shareholders of Vertex Nevada (the “Agent”). On May 19, 2008, we, Vertex LP, Vertex Nevada, and Vertex Merger Sub, LLC, a California Limited Liability Company and wholly-owned subsidiary of Vertex Nevada (“Merger Sub”), entered into an Amended and Restated Merger Agreement (as so amended and restated, the “Merger Agreement”). Vertex LP is a Texas-based privately held limited partnership controlled by the Agent. Among other businesses, Vertex LP engages in the business of recycling of used motor oil and other hydrocarbons.
At a special meeting of our shareholders held on March 6, 2009, the holders of a majority of the outstanding shares of each of our common stock, Series A preferred stock and Series B preferred stock, adopted the Merger Agreement. Upon consummation of the merger, the Company will become a wholly-owned subsidiary of Vertex Nevada, and Vertex Nevada will succeed to our company’s reporting obligations under the Securities Exchange Act of 1934. The parties anticipate that the merger will be consummated on April 1, 2009.
Our management team is currently focused on completing the above-described merger, while maintaining the viability of our renewable energy business plan. Upon the closing of the merger, it is anticipated that the renewable energy business plan will continue to be pursued by Vertex Nevada through a subsidiary. Expenditures related to the renewable energy business are being managed as we seek to maintain relationships, contract negotiations and other relevant activities related to the potential development of renewable energy projects without encumbering our ability to meet the closing conditions of the merger in a timely manner. While the renewable energy project development effort remains viable, the primary focus of the combined company post merger will become Vertex Nevada’s hydrocarbon recycling business and the pursuit of growth opportunities related to this business segment. The following is an overview of World Waste and its business operations prior to consummation of the pending merger and other transactions contemplated by the associated merger agreement.
We are a development stage company formed to develop, design, build, own and operate facilities which employ systems and technologies designed to profitably convert municipal solid waste (“MSW”) and other waste streams, such as wood waste and construction and demolition debris, into usable commodities and products. These products are expected to include renewable energy and recyclable commodities. We will continue our efforts on producing renewable energy from waste materials through the use of gasification and pyrolysis technologies in order to meet the rapidly growing demand for renewable power. We believe that this increased demand is being driven, to a large extent, by the adoption of Renewable Portfolio Standards in a number of states, which require or encourage utilities to have a specific percentage of their electricity sales come from renewable sources.
To implement our renewable energy platform, we may pursue the development of facilities in targeted markets where we believe we will be able to earn a “tipping” fee for accepting wastes and a premium for the sale of renewable energy products or receive a very low cost biomass feedstock. We also may plan to develop or obtain the rights to use gasification technologies in demonstration application to gain operating experience with the unique aspects of gasifying biomass derived from municipal solid waste and other waste streams such as construction and demolition debris, and to develop detailed design criteria for larger-scale systems.
We anticipate that the development of projects using these technologies could position us to generate three distinct revenue streams: (a) “tipping” fees charged to the entities that supply us with MSW or other waste materials, (b) recycling revenue from the sale of commodity recyclables (such as beverage containers, aluminum, steel, plastics, and glass) that our process recovers and which otherwise would be interred in landfills, and (c) revenue from the sale of our end products, anticipated to be primarily renewable electricity, and potentially bio-fuels. We believe that our receipt of fees from waste generators or handlers could provide us with a low cost fuel source, which is an important and beneficial characteristic of our business model.
ELECTRICITY OPPORTUNITIES
We plan to focus our efforts on the utilization of one or more gasification technologies that will generate various renewable energy products from MSW and other waste streams. We plan to seek to enter into strategic relationships with companies that have developed gasification technologies, and to further investigate the commercialization of our own technology. A process which we believe has significant potential for successful commercialization involves using a gasification technology to produce a synthetic gas (or "syngas") from the cellulose biomass fraction of MSW derived from a materials' separation and classification process. Wood waste, sewage sludge and other commercial waste streams are also potential feedstocks. The resulting syngas would be used to fire a boiler driving a steam turbine. We also believe that, after a gas clean-up process, it may be possible to put the syngas directly into a gas-fired turbine. In either case, we believe the process has the potential to produce a significant amount of renewable electricity for sale to utilities.
TRENDS IN OUR BUSINESS
We believe there is a large and growing market for the production and sale of renewable energy in the United States, driven by: (1) high costs of hydrocarbon based fuels; (2) high political and economic costs to obtain fossil fuels from unstable foreign countries; (3) harder to reach (therefore more expensive) locations for exploration and development of new oil and gas reserves; (4) increasing competition from developing countries such as China and India for finite amounts of hydrocarbon based energy; and (5) a growing public awareness of the environmental damages brought on by increasing levels of greenhouse gasses in the atmosphere created by carbon-based energy fuels which may be contributing to global warming. These factors have led to state and federal legislation. For example, the California Renewable Portfolio Standard established in 2002 requires certain retail electricity sellers to have 20% of their retail sales come from renewable energy sources by the year 2010. Twenty-two other states have some form of Renewable Portfolio Standard and popular support for such requirements appears to be growing.
We expect that the resale price of our products, including renewable electricity and bio-fuels, will be tied to commodity markets. The market demand for these materials can be volatile, which could significantly impact our results of operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, bad debts, impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our 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 materially from these estimates under different assumptions or conditions.
Our significant accounting policies are summarized in note 3 to the accompanying audited financial statements included in this report. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Furthermore, there is a high likelihood that materially different amounts would be reported under different conditions or using different assumptions.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We used estimates to perform the undiscounted cash flow projections used in the impairment analysis of the Anaheim plant assets (see Fixed Assets below). We also used estimates in determine the employee stock based compensation expense.
REVENUE RECOGNITION
In 2006, revenue for receiving Municipal Solid Waste (MSW) was recognized when the MSW was delivered. Revenue for products sold, such as unbleached fiber, metals and aluminum, were recognized when the product was delivered to the customer. We recorded no revenue during 2008 or 2007.
All shipping and handling costs were included in gross sales and accounted for as cost of goods sold.
INTANGIBLES
Intangible assets are recorded at cost. On May 1, 2006, pursuant to a Patent Assignment Agreement and a Patent Assignment, both dated as of May 1, 2007, (the "Patent Assignment Agreement and a Patent Assignment"), we completed the purchase of all right, title and interest in United States Patent No. 6,306,248 (the "Patent") and related intellectual property, subject to existing licenses, from the University of Alabama in Huntsville for $100,000 and 167,000 shares of our unregistered common stock valued at approximately $698,000, based on the market price of the stock on the date issued, May 1, 2006.
During the fourth quarter of 2007, we determined that we would not use the patented technology in our future facilities and consequently ceased amortization of the patent and moved the unamortized intangible assets to assets held for sale and stated at its book value, which was lower of fair value less costs to sell in accordance with SFAS 144. In February 2008, and again in October 2008, we entered into agreements to sell the patent and all of its associated rights.
FIXED ASSETS
Machinery and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful asset lives or for leasehold improvements or equipment installed in our Anaheim plant (no longer being used), over the remaining life of the lease, whichever is shorter.
We completed the construction of our initial plant in Anaheim, California early in the second quarter of 2006. We capitalized all costs directly associated with developing the plant, including interest and labor, throughout the construction period. We placed into service and began depreciating the assets related to this facility in the second quarter of 2006.
Our policy regarding fixed assets is to review such fixed assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the review indicates that intangible assets are not recoverable (i.e. the carrying amounts are more than the future projected undiscounted cash flows), their carrying amounts would be reduced to fair value.
The assets at the Anaheim plant were comprised of two basic technologies; the front half of the plant consisted of assets related to our patented technology related to "steam classification" and material separation and the back half of the plant consisted of assets related to screening and cleaning of the cellulose biomass material to prepare it for sale to paper mills. During the plant start up phase, we became aware of several issues, including the creation of an unexpectedly high level of biological oxygen demand (BOD) from organic wastes in the wastewater from the pulp screening and cleaning process, and design issues related to the steam classification vessels. We decided not to make the capital improvements necessary to the Anaheim plant's wetlap process, or "back half," which we considered necessary in order to recover the carrying amount of the wetlap plant assets through projected future undiscounted cash flow from its operation. Consequently, in 2006, we recorded a charge of $9,737,344 which represented the net carrying value of the wetlap process or back half equipment. The charge was equal to the carry cost of the assets of the wetlap process, net of accumulated depreciation. We did not record an impairment charge for the steam classification equipment or front half of the plant at that time because we intended to use that equipment in research and development activities as part of our development of alternative back end processes such as, but not limited to, gasification and acid hydrolysis.
During the third quarter of 2007, we determined that our ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, our research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on our renewable energy process, we initiated conversations with Taormina Industries, Inc. (“Taormina”) regarding termination of the lease of the Anaheim facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007. Consequently, we recorded a charge of $8,454,106 in the third quarter of 2007 which represented the net carrying value of the assets at the Anaheim plant, net of estimated fair value of the equipment and estimated costs of the equipment removal and scrap. The estimated carrying value was revalued and adjusted at December 31, 2007. In February 2008, we sold the assets related to the "front-end" process of the facility, and as of December 31, 2008, we had no fixed assets.
We capitalize leases in accordance with FASB 13.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when incurred.
STOCK-BASED COMPENSATION
During the fourth quarter of 2004, we adopted SFAS No. 123 entitled, "Accounting for Stock-Based Compensation" retroactively to our inception. Accordingly, we have expensed the compensation cost for the options and warrants issued based on their fair value at their grant dates. During the quarter ended March 31, 2006, we adopted SFAS No. 123R, "Share Based Payments." The adoption had no material effect on our financial statements.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Convertible preferred stock which may be redeemable for cash at the determination of the holder is classified as mezzanine equity, in accordance with FAS 150, EITF Topic D 98 and ASR 268, and is shown net of discounts for offering costs, warrant values and beneficial conversion features.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2008 AND 2007
EXPENSES
Operating expense of $4.8 million during the year ended December 31, 2008 decreased approximately $11.2 million compared to the year ended December 31, 2007. The main driver of the variance was approximately $8.5 million of impairment charges recorded in 2007 relating to disposal of our Anaheim facility. Other significant decreases occurred in expenditures relating to research and development and general and administrative expenses.
Research and development expenses of $16,359 for the year ended December 31, 2008 decreased $2,364,584 compared to the year ended December 31, 2007. This was primarily due to $2,074,000 of expense incurred in connection with activities and deprecation at our Anaheim facility, which was sold in 2007. Expenditures incurred in connection with gasification also decreased in 2008, as we began to focus more on negotiating and closing our pending merger transaction.
General and administrative expenses of $4,832,861 for the year ended December 31, 2008 decreased by approximately $419,027 compared to the year ended December 31, 2007. The decrease was primarily due to lower payroll and related costs as a result of our smaller organization in 2008. This decrease was partially offset by an increase in legal and board of director fees incurred in connection with activities required for our pending merger.
During the third quarter of 2007, we determined that our ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, our research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on our renewable energy process, we initiated conversations with Taormina regarding termination of the lease of the Anaheim facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007. Consequently, we recorded a charge of $8,454,106 in the third quarter of 2007 which represented the net carrying value of the assets at the Anaheim plant, net of estimated fair value of the equipment and estimated costs of the equipment removal and scrap.
Interest income for the year ended December 31, 2008 of $235,641 decreased $343,627, due to lower cash and investment balances in 2008 as compared to 2007, and due to the lack of interest income earned during the collapse of the auction rate securities market. We were able to liquidate our portfolio of auction rate securities by the end of the third quarter 2008, and we recorded a $389,289 loss in connection with the conversion of such securities into US government treasury bills.
Other income is comprised primarily of a $60,524 gain that we recorded in connection with the sale of our patent to CTB.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, we had cash and cash equivalents on hand of approximately $7.6 million.
During the year ended December 31, 2008, net cash used for operating activities was approximately $3.1 million. The use of cash was primarily for general and administrative expenses and significant expenses associated with our pending merger. In addition to the $3.1 million used in operating activities we received approximately $8.0 million in proceeds from asset sales and from the sales of short term investments.
As part of the merger, World Waste will deliver to certain of Vertex Nevada’s existing shareholders a total of $4.4 million in cash, World Waste will transfer at least $2.4 million of cash to Vertex Nevada and Vertex Nevada will assume up to $1.6 million of Vertex LP’s indebtedness as well as other specified liabilities of Vertex LP comprised primarily of trade accounts payable (in each case, unless and to the extent that such condition to closing is waived or modified).
World Waste recently loaned Vertex Nevada $1.0 million for general working capital. Unless repaid prior to the closing of the merger, proceeds of such loan will reduce the amount of cash required to be transferred by World Waste to the Vertex LP partners at the closing. We currently anticipate the merger will close on April 1, 2009.
The holders of our preferred stock have the right to require us to redeem their shares on April 10, 2010, at a price equal to the original issuance price (with accrued but unpaid dividends being treated as outstanding for purposes of calculating the total redemption price), for a total of approximately $47.3 million (assuming none of such shares of preferred stock are converted to common stock prior to any such redemption). In the event that the proposed merger with Vertex Nevada does not close, we will need to raise significant additional capital or restructure the terms of our preferred stock in order to meet this redemption obligation if and when it becomes due. If we are unable to do so, and if the holders of our preferred stock exercise their redemption right, World Waste would likely be rendered insolvent. In addition, if the merger does not close, the holders of World Waste's Series A Preferred Stock could exercise their right to elect a majority of our Board of Directors, which would give such holders effective control over World Waste.
As a result of the default by CES relating to the sale of our patent, on October 22, 2008, we sold the patent and related intellectual property rights in our pressurized steam classification process to CleanTech Biofuels, Inc. (“CTB”) in exchange for $150,000 in cash, a $450,000 secured promissory note and warrants to purchase up to 900,000 shares of CTB’s common stock. The promissory note matures on July 22, 2009, bears interest at 6.0% per annum and is secured by the patent. The warrants are exercisable at any time for five years from the date of issuance at a price of $0.45 per share. In addition, CTB issued us a contingent warrant to purchase up to an additional 900,000 shares of its common stock on the same terms, except that this warrant is exercisable only if CTB defaults on its obligations under the note. Due to realizability concerns, we have fully reserved the note and have assigned no value to the warrants in our financial statements. Similarly, our assessment of the warrants in accordance with SFAS No. 157 “Fair Value Measurements” resulted in an immaterial value, so are therefore not reflected in our consolidated financial statements.
In the event the proposed merger with Vertex is not consummated, we estimate that our cash will sustain operations through at least March of 2010, based on our current level of expenditures. We may, however, plan to change our current cash use levels if and when we are able to move forward on certain initiatives, primarily related to gasification.
As of December 31, 2008, we had no long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations, or other similar long-term liabilities. We terminated a capital lease in 2008.
CONTRACTUAL COMMITMENTS
As of December 31, 2008, we had no long-term contractual obligations.
We are not a party to any off-balance sheet arrangements, and we do not engage in trading activities involving non-exchange traded contracts. In addition, we have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets.
We do not believe that inflation has had a material impact on our business or operations.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 157, Fair Value Measurements - In September 2006, the FASB issued SFAS No. 157 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 became effective for our company beginning January 1, 2008. The adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements.
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - The FASB issued SFAS No. 159 which permits an entity to chose to measure many financial instruments and certain other items at fair value. SFAS No. 159 became effective for our company beginning January 1, 2008. The adoption of SFAS No. 159 did not have a material impact on our consolidated financial statements.
SFAS No. 141 (Revised 2007), Business Combinations. On December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007). Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Statement 141R will change the accounting treatment for certain specific items, including: acquisition costs will be generally expensed as incurred; noncontrolling interests (formerly known as "minority interests" -- see Statement 160 discussion below) will be valued at fair value at the acquisition date; acquired contingent liabilities will be
recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. Statement 141R also includes a substantial number of new disclosure requirements. Statement 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We do not expect Statement 141R to have a material impact on our financial statements.
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51. On December 4, 2007, the FASB issued FASB Statement No. 160. Statement 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Statement 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Because we have no such arrangements currently, the adoption of this principle will not have a material impact on our financial statements. However, as we pursue our gasification strategy, we may have such arrangements in the future.
ITEM 7A.
ITEM 7A.
NOT APPLICABLE.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income (Loss)
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Audited Consolidated Financial Statements
Schedules have been omitted since they are either not required, are not applicable or the required information is shown in the financial statements or the related notes.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors and Stockholders of World Waste Technologies, Inc.
Cupertino, California
We have audited the accompanying consolidated balance sheets of World Waste Technologies, Inc. and subsidiaries (a developmental stage enterprise) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of World Waste Technologies, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the company as a going concern. As discussed in Note 2, the Company has incurred significant net losses since its inception and has an accumulated deficit of $85,205,864 and expects to incur substantial additional losses and costs. The foregoing matters raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2 of the accompanying financial statements. These financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/ Stonefield Josephson, Inc.
Los Angeles, California
March 30, 2009
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
The accompanying notes form an integral part of these consolidated financial statements.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
-------
*
approximately $67,526 in consulting and travel expenses incurred prior to inception of the business on June 18, 2002 are not included.
The accompanying notes form an integral part of these consolidated financial statements.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND OTHER
COMPREHENSIVE LOSS
The accompanying notes form an integral part of these consolidated financial statements.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND OTHER
COMPREHENSIVE LOSS
(Continued)
The accompanying notes form an integral part of these consolidated financial statements.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes form an integral part of these consolidated financial statements.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Non-Cash Investing and Financing Activities:
*
During 2002, the Company issued $67,526 of Convertible Promissory Notes payable for preformation funds received and expended prior to inception.
*
The Company issued warrants to purchase 315,354 shares of common stock to the placement agent for services rendered in connection with the fund raising effort during 2004 and 2005.
*
The Company issued warrants to purchase 50,000 shares of common stock for consulting services in 2004 and 100,000 shares of common stock upon the exercise of a warrant in exchange for services rendered in 2005.
*
The Company issued 1,193,500 shares of common stock upon conversion of the Convertible Promissory notes payable and accrued interest of $135,327 during 2004.
* The Company issued warrants to purchase 250,000 shares of its common stock for a modification to the technology license agreement during 2004.
*
Accounts Payable of $1,266,060 and other liabilities of $ 114,242 at December 31, 2005 related to asset acquisitions. The impact has been adjusted in the year ended December 31, 2006 statement of cash flow.
*
During the year ended December 31, 2006, non-cash interest expense of $340,343 was capitalized in fixed assets.
*
During the year ended December 31, 2006, $3,488,000 of Senior Secured Debt was exchanged for Series B Preferred Stock.
*
During the year ended December 31, 2006, the Company issued 167,000 shares of common stock for the purchase of a patent from the University of Alabama in Huntsville at a fair value on the date of issuance of approximately $698,000.
*
During the year ended December 31, 2006, the Company transferred all of its construction in progress to Leasehold Improvements and Machinery and Equipment.
*
During the year ended December 31, 2007, the Company issued 103,340 shares in exchange for services rendered in 2006.
*
During the years ended December 31, 2008 and 2007, the Company issued 20,445 and 1,860,724 shares of common stock in exchange for conversion of $17,635 and $4,705,960 of Preferred Series B stock, respectively.
The accompanying notes form an integral part of these consolidated financial statements.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of World Waste Technologies, Inc. (Formerly World Waste of America, Inc.) and its wholly owned subsidiaries World Waste of Anaheim, Inc., and World Waste of California, Inc. (collectively the “Company”). All significant inter-company accounts and transactions have been eliminated upon consolidation. World Waste Technologies, Inc. (WWTI), a California corporation, was formed on June 18, 2002 as World Waste of America, Inc. WWTI held the United States license from Bio-Products International, Inc. with respect to patented technology developed at the University of Alabama in Huntsville, and other related intellectual property, which technology was designed to convert a significant percent of municipal solid waste into a cellulose biomass containing material.
On March 6, 2009, a majority of the Company’s shareholders voted to merge with a wholly-owned subsidiary of Vertex Energy, Inc. (“Vertex Nevada”). Vertex Nevada, a Nevada corporation based in Houston, Texas, is engaged in the business of recycling used motor oil and other hydrocarbons. Vertex Nevada operates through its Black Oil division, which aggregates used motor oil from third-party collectors and manages the delivery of this feedstock primarily to a third-party re-refining facility, and (2) through its Refining and Marketing division, which aggregates hydrocarbon streams from collectors and generators and manages the delivery of the hydrocarbon waste products to a third-party facility for further processing, and then manages the sale of the end products. In addition, Vertex Nevada proposes to implement proprietary thermo-chemical upgrading technology that will process used motor oil and convert it to higher value products such as marine diesel oil and vacuum-gas oil. The accompanying financial statements and footnote disclosures do not reflect the financial impact of the merger, which is expected to close on April 1, 2009. See Note 13.
In March 2004, World Waste of America, Inc. (WWA), merged with a wholly owned subsidiary of Waste Solutions, Inc. (WSI), a California corporation, and changed its name to World Waste Technologies, Inc. (Old WWTI). Cagan McAfee Capital Partners and its affiliates were the controlling shareholders of WSI. Prior to the merger WSI had 7,100,000 shares of common stock outstanding and WWA had 9,100,000 shares of common stock outstanding. The merger was transacted by WSI issuing one of its shares for each share of WWA. After the merger there were 16,200,000 shares outstanding. The transaction was accounted for as a reverse merger of WWA, similar to a recapitalization, because the shareholders of WWA became the controlling shareholders of the entity after the exchange. Accordingly, for accounting purposes, the historical financial statements presented are those of WWA.
In March 2004, Old WWTI entered into an Agreement and Plan of Reorganization with Voice Powered Technologies International, Inc., a California corporation (“VPTI”), to merge with and into VPTI. VPTI was a publicly traded company trading under the stock symbol VPTI.OB. VPTI had no material assets, liabilities or operations. The merger with VPTI was completed on August 24, 2004. Pursuant to the merger, Old WWTI shareholders received 20,063,706 VPTI shares or approximately 95% of the outstanding shares of VPTI in exchange for 20,063,706 Old WWTI shares, or a one for one exchange. Upon completion of the merger, VPTI changed its name to World Waste Technologies, Inc. Because the shareholders of Old WWTI became the controlling shareholders of VPTI after the exchange, Old WWTI was treated as the acquirer for accounting purposes, and therefore the transaction was accounted for as a reverse merger. Accordingly, for accounting purposes, the historical financial statements presented are those of Old WWTI.
NOTE 2.
GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had a net loss for the year ended December 31, 2008 of $15,205,581 and an accumulated deficit attributable to common shareholders at December 31, 2008 of $85,205,864. The Company expects it will incur substantial additional losses, costs and capital expenditures before it can operate profitably. These issues raise substantial doubt about the Company’s ability to continue as a going concern. The Company is party to a merger agreement with Vertex Energy, Inc. If this transaction fails to close as contemplated, the Company may be unable to continue as a going concern for a reasonable period of time.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2.
GOING CONCERN (CONTINUED)
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. On May 15, 2008, the Company entered into a definitive agreement to merge with Vertex Energy, Inc. The agreement was amended and restated on May 19, 2008. There can be no assurance that the transaction will be completed. If not closed as contemplated, the Company’s continuation as a going concern remains dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing, and ultimately to attain successful operations.
NOTE 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Company is a new enterprise in the development stage as defined by Statement No. 7 of the Financial Accounting Standards Board, since it has not derived substantial revenues from its activities to date.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
During 2006, revenue for receiving Municipal Solid Waste (MSW) was recognized when the MSW was delivered. Revenue for products sold, such as unbleached fiber, metals and aluminum, are recognized when the product was delivered to the customer.
All shipping and handling costs were included in gross revenue and accounted for as cost of goods sold.
Research and Development
Research and development costs are charged to operations when incurred.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” In accordance with SFAS No. 109, the Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment.
The Company adopted FIN 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109, on January 1, 2007. There was no material impact on the Company’s financial statements as a result of the adoption.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased, which are not securing any corporate obligations, to be cash equivalents.
Short Term Investments
The Company determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. During the the third quarter 2008, all short term investments held for sale, which included auction rate securities, were sold and the proceeds are included in cash and cash equivalents. The Company recognized a loss of approximately $389,000, recorded in Other Income and (Expense), upon the sale. All investments held at December 31, 2007 were short-term available for sale securities, and were carried at quoted fair value, with unrealized gains and losses reported in shareholders’ equity as a component of accumulated comprehensive income.
Concentration of Credit Risk
The Company maintains its cash balances at financial institutions. Cash balances at the institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. All cash equivalents are invested in government securities.
Fixed Assets
The Company reviews fixed assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the review indicates that fixed assets are not recoverable (i.e. the carrying amounts are more than the future projected undiscounted cash flows), their carrying amounts would be reduced to fair value.
During 2008, all remaining fixed assets were liquidated. Machinery and equipment was stated at cost. Prior to the fixed assets being recorded as held for sale, depreciation was computed on the straight-line method over the estimated useful asset lives or for leasehold improvements or equipment installed in our Anaheim plant (no longer leased or otherwise being used by us), over the remaining life of the lease, whichever was shorter. Due to the fact that at the time the assets were placed into service the lease had 8 years and two months remaining, all assets and leasehold improvements at the Anaheim facility were being depreciated over a maximum of 8 years and two months on a straight line basis. Maintenance and repairs are expensed as incurred.
The Company completed the construction of its initial plant in Anaheim, California early in the second quarter of 2006. The Company placed into service and began depreciating the assets related to this facility in the second quarter of 2006.
The assets at the Anaheim plant were comprised of two basic technologies; the front half of the plant consisted of assets related to the Company’s patented technology related to “steam classification” and material separation and the back half of the plant consist of assets related to screening and cleaning of the cellulose biomass material to prepare it for sale to paper mills. During the plant start up phase, we confronted several issues, including an unexpected high level of biological oxygen demand from organic waste in the wastewater from the pulp screening and cleaning process. The Company decided not to make the capital improvements necessary to the Anaheim plant’s wetlap process, or “back half” which the Company considered necessary in order to recover the carrying amount of the wetlap plant assets through projected future undiscounted cash flow from its operation. Consequently, the Company recorded a charge of $9,737,344 in 2006 which represented the net carrying value of the wetlap process (or “back half”) equipment.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fixed Assets (Continued)
The Company did not record an impairment charge for the steam classification equipment (or “front half”) of the plant at that time because the Company intended to use that equipment in research and development activities as part of its development of alternative back end processes such as, but not limited to, gasification and acid hydrolysis.
During the third quarter of 2007, the Company determined that the ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, the Company’s research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on the Company’s renewable energy process, the Company initiated conversations with Taormina regarding termination of the lease of the Anaheim Facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007. Consequently, the Company recorded a charge of $8,454,106 in the third quarter of 2007 which represents the net carrying value of the assets at the Anaheim plant, net of estimated fair value of the equipment and estimated costs of the equipment removal and scrap. The estimated net carrying value was reevaluated at December 31, 2007. As of December 31, 2008, the Company had sold or disposed of all the equipment.
The Company capitalizes leases in accordance with FASB 13, “Accounting for Leases.”
Intangibles
Intangible assets are recorded at cost.
The Company’s policy regarding intangible assets is to review such intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the review indicates that intangible assets are not recoverable (i.e. the carrying amounts are more than the future projected undiscounted cash flows), their carrying amounts would be reduced to fair value.
Redeemable Convertible Preferred Stock
Convertible Preferred Stock which may be redeemable for cash at the determination of the holder is classified as mezzanine equity, in accordance with FAS 150 “Accounting for Certain Financial Instruments with Characteristics of Both Debt and Equity,” EITF Topic D 98 and ASR 268, and is shown net of discounts for offering costs, warrant values and beneficial conversion features.
Stock-Based Compensation
As of December 31, 2008, the Company had two share-based compensation plans, which are described below. The compensation cost that has been charged against income for the plans was $1,638,319 and $1,638,128 for the years ended, December 31, 2008 and December 31, 2007, respectively. Because the Company is in a net loss position, no income tax benefit has been recognized in the income statement for share-based compensation arrangements. As of December 31, 2008, no share-based compensation cost had been capitalized as part of inventory or fixed assets.
The Company’s 2004 Incentive Stock Option Plan (the 2004 Plan), which is shareholder-approved, provides for the issuance by the Company of a total of up to 2.0 million shares of common stock and options to acquire common stock to the Company’s employees, directors and consultants. The Company granted options to acquire no shares under this Plan during the year ended December 31, 2008 to employees, members of the board of directors and consultants. At December 31, 2008, there were 1,696,167 options outstanding under the Plan.
In May of 2007 the board of directors approved the Company’s 2007 Incentive Stock Plan (the 2007 Plan), which is not shareholder-approved. The 2007 Plan provides for the issuance by the Company of a total of up to 6.0 million shares of common stock and options to acquire common stock to the Company’s employees, directors and consultants in 2008. The Company formed a Special Committee of its Board of Directors, comprised of four
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
directors, to evaluate the Company’s strategic alternatives, and the Special Committee retained a financial advisor to assist in this process. These alternatives included, but were not limited to, a sale or merger of the Company and/or a restructuring. As compensation for serving on the Special Committee, each of the members thereof is entitled to receive a monthly payment of $5,000 for the period the Special Committee continues to function, and was granted an option to acquire up to 300,000, or a total of 1,200,000, shares of common stock pursuant to the Company’s 2007 Plan. Each option has an exercise price equal to $0.155 per share (the closing price of the Company’s common stock on the date of grant) and vested in six equal monthly installments commencing as of March 27, 2008.
The Company granted options to acquire a total of 1,575,000 shares during the year ended December 31, 2008 to employees, members of the board of directors and consultants. At December 31, 2008, there were 4,292,120 options outstanding under the Plan.
The Company believes that option awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest based on 2 to 4 years of continuous service and have 10-year contractual terms. Certain option awards provide for accelerated vesting if there is a change in control (as defined in each Plan).
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the table below. Expected volatilities are based on the historical volatility of the Company’s common stock from August 24, 2004 through the date of the respective grant. The Company uses historical data to estimate option exercise and employee terminations within the valuation model. The expected term of options granted was estimated using the simple method which the Company believes provides a reasonable estimation of the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the LIBOR rate at the time of grant.
A summary of option activity under the Plan as of December 31, 2008, and changes during the year then ended is presented below:
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
The weighted-average grant-date fair value of options granted during 2008, 2007 and 2006, was $0.16, $0.92 and $2.38, respectively. There have been no options exercised since inception. When options are exercised, the Company will issue new shares to the recipient.
As of December 31, 2008, there was $716,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of approximately one year.
Non employee stock warrants outstanding:
Earnings per Share
The Company has adopted Statement of Financial Accounting Standards No. 128, “Earnings per Share” (SFAS No. 128). SFAS No. 128 provides for the calculation of basic and diluted earnings per share.
Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, such as stock options, warrants or convertible securities. Due to their anti-dilutive effect, common stock equivalents of 30,851,374, consisting of employee options of 5,988,000, non employment warrants of 6,829,828, Preferred Series A of 6,505,978 and Preferred Series B of 11,527,568, were not included in the calculation of diluted earnings per share at December 31, 2008. Common stock equivalents of 28,337,007, consisting of employee options of 4,843,000, non employment warrants of 6,829,827, Preferred Series A of 6,010,516 and Preferred Series B of 10,653,664, were not included in the calculation of diluted earnings per share at December 31, 2007.
New Accounting Pronouncements
FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”. This new standard provides guidance for using fair value to measure assets and liabilities and information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS 157 also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. Adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements (Continued)
The FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115(SFAS No. 159). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. The accounting provisions of SFAS No. 159 are effective for financial statements issued for fiscal years beginning after November 15, 2007. Adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.
On December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007). Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Statement 141R will change the accounting treatment for certain specific items, including: acquisition costs will be generally expensed as incurred; noncontrolling interests (formerly known as “minority interests” -- see Statement 160 discussion below) will be valued at fair value at the acquisition date; acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. Statement 141R also includes a substantial number of new disclosure requirements. Statement 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption No. 141R to have a material impact on its consolidated financial statements.
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51. On December 4, 2007, the FASB issued FASB Statement No. 160. Statement 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Statement 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Because the Company has no such arrangements currently, the adoption of this principle will not have a material impact on the Company’s financial statements. However, as the Company pursues its gasification strategy, it may have such arrangements in the future.
NOTE 4.
PATENT AND LICENSE AGREEMENT
On June 21, 2002, the Company entered into a U.S. technology sub-license agreement with Bio-Products International, Inc. (BPI), an Alabama corporation with respect to certain intellectual property and patented methods and processes. This agreement was amended on June 21, 2004 and again on August 19, 2006. The technology was designed to provide for the processing and separation of material contained in Municipal Solid Waste (MSW). Through April 30, 2006, the University of Alabama in Huntsville (“UAH”) owned the patent for this technology. On May 1, 2006, the Company acquired the patent from UAH for $100,000 and 167,000 shares of the Company’s unregistered common stock valued at its fair value on the date of issuance of approximately $698,000. The patent reverts to UAH in the event of bankruptcy of the Company. This patent is licensed to BPI. The license to the patent in the United States was assigned to the Company.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4.
PATENT AND LICENSE AGREEMENT (CONTINUED)
In April 2007, the Company filed a lawsuit against BPI alleging, among other things, breach of contract and negligence with respect to the construction of the vessels.
During the fourth quarter of 2007, the Company determined it would not use the technologies related to the intangible assets in its future plants. Consequently, it reclassified the unamortized intangible assets to Assets Held for Sale and accounted for at the lower of fair value less cost to sell (net fair value) or carrying value. In March of 2008, the Company entered into a definitive agreement to sell the intangible Assets, settle the lawsuit with BPI and sell a significant amount of the assets which were used in the Anaheim plant to exploit the patent for a total of approximately $1.9 million. Because the carrying value is less than the net fair value no adjustment was recorded.
In March 2008, the Company entered into an agreement with Clean Earth Solutions, Inc. (“CES”), pursuant to which it agreed (i) to sell to CES specified assets relating to the “front end” process of World Waste’s Anaheim Facility for a cash payment to the Company of $500,000 (the “First Closing”), (ii) to settle a dispute arising from design issues related to the steam classification vessels that the Company had intended to use in its operations, in exchange for a payment to us of $640,000 (the “Second Closing”) and (iii) to sell to CES all of the Company’s intellectual property rights in its pressurized steam classification process in exchange for a payment of $800,000 (of which $236,000 was previously paid by CES) (the “Third Closing”). On March 7, 2008, CES paid $500,000, and the First Closing was consummated. In June 2008, CES paid the Company $640,000 for the Second Closing. Pursuant to this agreement, the Third Closing was to occur on such a date as determined by CES, provided that the Third Closing could not occur later than July 31, 2008.
As a result of the default by CES, the Third Closing never occurred. On October 22, 2008, the Company sold the patent and related intellectual property rights in its pressurized steam classification process to CleanTech Biofuels, Inc. (“CTB”) in exchange for $150,000 in cash, a $450,000 secured promissory note and warrants to purchase up to 900,000 shares of CTB’s common stock. The promissory note matures on July 22, 2009, bears interest at 6.0% per annum and is secured by the patent. The warrants are exercisable at any time for five years from the date of issuance at a price of $0.45 per share. In addition, CTB issued the Company a contingent warrant to purchase up to an additional 900,000 shares of its common stock on the same terms, except that this warrant is exercisable only if CTB defaults on its obligations under the note. Due to the uncertainty of the collectability of the note, the Company had fully reserved the balance of $450,000 as of December 31, 2008, and is therefore not included in the Company’s consolidated financial statements. The warrants were valued in accordance with SFAS No. 157, utilizing the Black Scholes model. Using the five year treasury bill risk free interest rate of 2.56%, historical volatility of 203%, the contractual exercise price of $0.45 per warrant, and a fair value per warrant of $0.03, the total value of the warrant grnat was immaterial to the Company’s financial statements. The contingent warrant was not valued or reflected in the Company’s financial statements as their issuance is contingent on an event (default of the note) that has not occurred.
NOTE 5.
TERMINATION OF SIGNIFICANT CONTRACT
In June 2003 the Company entered into a multi-year recycle agreement with Taormina Industries, Inc. pursuant to which, among other things, Taormina agreed to deliver residual municipal solid waste (MSW) to the Company for processing and the Company agreed to lease a building for the related recycling facility on Taormina’s campus in Anaheim, California (the “Anaheim Facility”). The lease for the Anaheim Facility was entered into in July 2004. The recycling agreement, as amended, provided that the recycling agreement would terminate automatically upon termination of the lease.
As previously disclosed, during early 2007 the Company began using the Anaheim Facility to conduct research and development activities related to the production of renewable energy from MSW. Recently the Company determined that the ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, the Company’s research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on the Company’s renewable energy process, the Company initiated conversations with Taormina regarding termination of the lease of the Anaheim Facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5.
TERMINATION OF SIGNIFICANT CONTRACT (CONTINUED)
On November 7, 2007, Taormina filed an unlawful detainer action in the Superior Court of the State of California, County of Orange (the “Action”) against the Company as to the Anaheim Facility. On March 5, 2008, Taormina and the Company entered into a stipulation for entry of judgment in the Action (the “Stipulation”). The Stipulation provides for: (a) the cancellation and forfeiture of the lease; (b) the Company to make a payment of $192,218 (the “Payment”) to Taormina; and (c) the Company to remain in possession of the Anaheim Facility until June 30, 2008. As of December 31, 2008, the Company had made the Payment to Taormina and had completed its orderly exit from the facility.
The non-competition and right of first refusal provisions of the recycle agreement will survive termination of such agreement through July 25, 2014 (the date that the lease would have expired had it not been terminated).
NOTE 6.
INCOME TAXES
Income Taxes
The components of the income tax (expense) benefit for the fiscal years ended December 31, 2008 and 2007, and for the period from June 18, 2002 (Inception) to December 31, 2008, are as follows:
The income tax (expense) benefit differs from the federal statutory rate because of the effects of the following items for the fiscal years ended December 31, 2008 and 2007, and for the period from June 18, 2002 (Inception) to December 31, 2008:
Deferred income taxes are provided to reflect temporary differences in the basis of net assets for income tax and financial reporting purposes, as well as available tax credits.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6.
INCOME TAXES (CONTINEUD)
Income Taxes (Continued)
The tax effected temporary differences and credit carryforwards comprising the Company’s deferred income taxes as of December 31, 2008 and 2007 are as follows:
The Company has recorded a valuation allowance in the amount set forth above for certain deferred tax assets where it is more likely than not the Company will not realize future tax benefits related to these items. The net changes in the valuation allowance for the fiscal years ended December 31, 2008 and 2007, and for the period from June 18, 2002 (Inception) through December 31, 2008 were $1,441,369, $6,172,540, and $118,552,662, respectively.
As of December 31, 2008, the Company has federal and state net operating loss carryforwards available to offset future taxable income of approximately $43,304,661 and $41,191,113, respectively. These federal and state net operating loss carryforwards expire through 2027 and 2017, respectively.
The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of NOLs in the event of an “ownership change” (as defined in the Internal Revenue Code) of a corporation. The NOLs attributable to Voice Powered Technology International before its merger with World Waste of America, Inc. are almost completely limited according to these provisions. As such, the Company has excluded a significant portion of them in this analysis.
On January 1, 2007 the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 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. FIN 48 requires that a Company determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefits that are more likely than not of being sustained in the financial statements. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit in the financial statements.
The adoption of FIN 48 did not have a material effect on the financial statements and therefore no portion of the Company's net deferred tax asset (before being fully reserved) has been adjusted by the application of FIN 48.
We have historically classified interest and penalties on income tax liabilities as additional income tax expense and expect to continue to do so after the adoption of FIN 48. As of December 31, 2008, our statement of financial position included no accrued interest or penalties.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6.
INCOME TAXES (CONTINUED)
Income Taxes (Continued)
The Company and its subsidiaries file income tax returns in the U.S. and various state and local jurisdictions. As of December 31, 2008, the Company was not under examination by any major tax Jurisdiction. The tax years that remain subject to examination by significant jurisdiction are as follows:
U.S. federal: 2005 through the current period.
California: 2004 through the current period.
NOTE 7.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
8% Series A Cumulative Redeemable Convertible Participating Preferred Stock
On April 28, 2005, the Company issued and sold 4,000,000 shares of its newly created 8% Series A Cumulative Redeemable Convertible Participating Preferred Stock (the “Series A”) and warrants (the “Warrants,” and, together with the Series A Preferred, the “Securities”) to purchase up to 400,000 shares of common stock of the Company. On May 9, 2005, the Company entered into a Securities Purchase Agreement whereby the Company issued and sold an additional 75,600 shares of Series A Preferred and Warrants to purchase up to 7,560 shares of common stock of the Company. The gross aggregate proceeds to the Company from the sale of the Securities was $10,189,000.
The certificate of determination governing the terms of the Series A provides for the Series A to convert into shares of common stock at a conversion rate of one-for-one. In February 2006, however, the Company contractually agreed with the holders of the Series A to provide for an increase in this conversion rate upon subsequent issuances of shares of common stock (subject to specified exceptions) at a price less than 115% of the conversion rate in effect at the time of issuance. As a result of this agreement, on May 25, 2006 (the date the Company first issued shares of its Series B Preferred, as described below), the conversion rate was adjusted to approximately 1.18 shares of common stock for each one share of Series A.
The Company was required to apply the proceeds of the sale of the Securities primarily to the construction and operation of the Company’s initial plant in Anaheim, California. The holders of the Series A currently have the right to elect a majority of the members of the Company’s Board of Directors. This right will terminate, however, upon the first to occur of the Operational Date (generally defined as if and when the Company generates total operating cash flow of at least $672,000 for any consecutive three month period or the date on which less than 50% of the shares of Series A remain outstanding).
Holders of Series A are entitled to receive cumulative dividends, payable quarterly in additional shares of Series A, at the rate of 8% per annum. This dividend rate was increased to 9% as of January 28, 2006 pursuant to the terms of the Series A as a result of the Company’s failure to comply with certain registration rights provisions. As of December 5, 2006, the registration statement was declared effective and the dividend rate reverted to 8%.
Each share of Series A is entitled to that number of votes equal to the number of whole shares of Common Stock into which it is convertible. In addition, so long as at least 50% of the shares of Series A remain outstanding, the Company is prohibited from taking certain actions without the approval of the holders of a majority of the outstanding shares of Series A.
The holders of a majority of the shares of Series A have the option to require the Company to redeem all outstanding shares of Series A on April 28, 2010 at a redemption price equal to $2.50 per share, plus accrued and unpaid dividends to that date. Assuming no conversion of shares of Series A, this amount will be equal to approximately $15 million. In the event the holders do not exercise this redemption right, all shares of Series A will automatically convert into shares of Common Stock on such date, as described below.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7.
REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Because the Series A is redeemable at the end of five years, at the option of the holder, it has been classified as “mezzanine equity” on the balance sheet, in accordance with FAS 150, EITF Topic D 98 and ASR 268.
Each share of Series A will automatically convert into shares of Common Stock at the stated conversion rate (i) in the event the Company consummates an underwritten public offering of its securities at a price per share not less than $5.00 and for a total gross offering amount of at least $10 million, (ii) in the event of a sale of the Company resulting in proceeds to the holders of Series A of a per share amount of at least $5.00, (iii) in the event that the closing market price of the Common Stock averages at least $7.50 per share over a period of 20 consecutive trading days and the daily trading volume averages at least 75,000 shares over such period, (iv) upon the approval of a majority of the then-outstanding shares of Series A, or (v) unless the Company is otherwise obligated to redeem the shares as described above, on April 28, 2010.
Each holder has the right to convert its shares of Series A into shares of Common Stock at the stated conversion rate at any time (subject to certain contractual restrictions in the event such conversion would result in the holder being the beneficial holder of more than 4.99% of the Company’s outstanding shares of common stock).
The Warrants are exercisable for a period of five years commencing as of their issuance date, initially at an exercise price of $4.00 per share (which exercise price was subsequently revised as described in subheading SERIES A CONSENTS). The fair value of the Warrants was $1,328,066 on the issuance date. The value of the Warrants was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 6.75%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of 5 years. The value of the Warrants was deducted from the face amount of the Series A Preferred and is being amortized as dividends. In accordance with EITF 00-19, the value of the Warrants has been recorded as a liability until such time as the Company meets the registration obligation of the underlying shares. In accordance with SFAS 133, the warrant liability is adjusted at the end of each reporting period to its fair value, and the adjustment is classified as other income (expense). The Company recognized $1,079,721 and $709,412 of other income for the years ended December 31, 2006 and 2005, respectively. The Company met the registration obligation on December 5, 2006 and the warrant liability was eliminated through additional paid in capital. The Company has determined no liability is necessary to be recognized in accordance with SFAS 5.
In accordance with EITF 98-5 and 00-27 it was determined that the Series A’s effective conversion price was issued at a discount to fair value. The value of this discount, called a beneficial conversion feature, was determined to be $1,328,066. The beneficial conversion feature was deducted from the carrying value of the Series A and is being amortized over five years. The amortization amount is treated consistent with the treatment of preferred stock dividends.
In connection with the issuance of the Securities, on April 28, 2005, the Company entered into a registration rights agreement granting the holders certain demand and piggyback registration rights with respect of the common stock issuable upon conversion of the Series A and exercise of the Warrants. The Company filed a registration statement with the SEC on August 4, 2005 to register these shares for resale. This registration statement was withdrawn on December 19, 2005. In May of 2006, the Company entered into an amended and restated registration rights agreement granting the Series A holders all the same rights received by the Series B holders. A new registration statement covering the resale of these shares has been filed. The registration statement was declared effective December 5, 2006. The registration rights agreement stipulated that if the registration statement was not declared effective by November 21, 2006, the Company had to pay 1 percent per month for a maximum of 6 months or 6 percent maximum. Between November 21, 2006 and December 4, 2006, the Company became obligated to pay the Series A Preferred Shareholders $50,000 in liquidated damages in the form of additional shares of Series A Preferred Stock. In connection with this transaction, certain of the Company’s officers and significant shareholders (the “Locked Up Holders”), beneficially owning approximately 13 million shares of Common Stock, agreed that, subject to certain exceptions, they would not offer, sell, contract to sell, lend, pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares of Common Stock, or any options or warrants to purchase
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7.
REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
any shares of Common Stock with respect to which the holder has beneficial ownership until the earlier of 90 days following the conversion into Common Stock of at least 50% of the shares of Series A, or 90 days following the closing of a Qualified Public Offering (as defined in the registration rights agreement).
The fair value of the placement warrants was $861,852. The value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 6.75%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of four years. The value of the warrants was deducted along with the cash placement fees paid, $321,200, from the face value of the Series A.
The accounting for the Series A is as follows:
Series A Consents
The consent of the holders of the Series A was required in order to consummate the issuance of the Senior Secured Debt. On February 6, 2006, the holders of the Series A gave such consent pursuant to a letter agreement with the Company (the “Series A Agreement”). Pursuant to the Series A Agreement, among other things, (i) the Company agreed to call a shareholders meeting to approve an amendment of certain provisions of the certificate of determination governing the terms of the Series A (including the change to the conversion rate described above), and (ii) the holders of Series A agreed to waive certain of their veto rights and contractual rights, in order to facilitate the Company’s next round of financing. In consideration of the foregoing, the Company agreed to deliver to the holders of Series A additional warrants (“Additional Warrants”)to purchase up to a total of 407,560 shares of the Company’s Common Stock at an exercise price of $0.01 per share. The Additional Warrants are exercisable for a period of five years commencing as of their issuance date. The fair value of the warrants, $1,647,250, was expensed during the quarter ended March 31, 2006 as financing expense. The value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 4.82%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of five years.
On April 12, 2006, in connection with obtaining the consent of the holders of the Series A to the issuance of shares of the Company’s Series B Preferred Stock described below, the Company agreed to increase the number of shares issuable upon exercise of the original Warrants from 407,560 shares to 1,018,900 shares (“New Warrants”), and to decrease the exercise price from $4.00 per share to $2.75 per share. The change in the estimated value calculated using the Black-Scholes option pricing model between the original Warrants and the New Warrants of $1,135,487 was charged to other expense during the second quarter of 2006. The value of the warrants was calculated with the following assumptions: average risk-free interest of 5.42%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of 3 years.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7.
REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
In addition, the conversion price of the Series A was decreased. Following the guidance of FAS 123R, paragraph 35 for modification to equity instruments, the incremental value of the modification, computed as the difference between the fair value of the conversion feature at the new conversion price and conversion feature at the old conversion price on the modification date was deducted from earnings available to common stockholders as an effective dividend to preferred shareholders, following the presentation guidance in EITF Topic D-42. The change in the estimated value of the conversion feature using the Black-Scholes option pricing model between the original conversion price to the new conversion price was $3,065,931. The values of the conversion features were calculated with the following assumptions: average risk-free interest of 4.97%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70% and a term of 3 years.
8% Series B Cumulative Redeemable Convertible Participating Preferred Stock
On May 25 and May 30, 2006, the Company issued and sold a total of 284,888 shares of its newly created 8% Series B Cumulative Redeemable Convertible Participating Preferred Stock (the “Series B”) and common stock purchase warrants. A portion of these securities were sold for $25,000,000 in cash and a portion were issued in exchange for the cancellation of $3,488,800 aggregate principal amount of Senior Debt (including accrued interest). Each share of Series B converts into 40 shares of common stock (subject to anti-dilution adjustments). The shares of Series B are convertible into a total of 11,395,520 shares of Common Stock and the warrants provide the holders with the right to purchase up to a total of 2,848,880 additional shares of common stock of the Company.
Each share of Series B is entitled to that number of votes equal to the number of whole shares of the Common Stock into which it is convertible. In addition, so long as at least 50% of the shares of Series B remain outstanding, the Company is prohibited from taking certain actions without the approval of the holders of a majority of the outstanding shares of Series B.
The holders of a majority of the shares of Series B have the option to require the Company to redeem all outstanding shares of Series B on April 28, 2010 at a redemption price equal to $100 per share, plus accrued and unpaid dividends to that date. Assuming no further shares of Series B are converted, this amount will be approximately $32 million. In the event the holders do not exercise this redemption right, all shares of Series B will automatically convert into shares of Common Stock on such date, as described below.
Because the Series B is redeemable at the end of four years, at the option of the holder, it has been classified as “mezzanine equity” on the balance sheet, in accordance with FAS 150, EITF Topic D 98 and ASR 268.
Each share of Series B will automatically convert into shares of Common Stock at the stated conversion rate (i) in the event the Company consummates an underwritten public offering of its securities at a price per share not less than $5.00 and for a total gross offering amount of at least $20 million, (ii) in the event of a sale of the Company resulting in proceeds to the holders of Series B Preferred of a per share amount of at least $200.00, (iii) in the event that the closing market price of the Common Stock averages at least $7.50 per share over a period of 20 consecutive trading days and the daily trading volume averages at least 75,000 shares over such period, (iv) upon the approval of a majority of the then-outstanding shares of Series B, or (v) unless the Company is otherwise obligated to redeem the shares as described above, on April 28, 2010.
Each holder has the right to convert its shares of Series B into shares of Common Stock at the stated conversion rate at any time (subject to certain restrictions in the event such conversion would result in the holder being the beneficial holder of more than 4.99% of the Company’s outstanding shares of common stock).
The Warrants are exercisable for a period of five years commencing as of their issuance date, at an exercise price of $2.75 per share. The fair value of the warrants was $7,225,630. The value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 5.42%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of 3 years. In accordance with APB Opinion 14, the fair value of the warrants issued to the
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7.
REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
8% Series B Cumulative Redeemable Convertible Participating Preferred Stock (Continued)
investors is shown as a discount to the face value of the Series B at its relative fair value of $5,697,760. The warrant value was deducted from the carrying value of the Series B and is being amortized over 47 months. The amortization amount is treated consistent with the treatment of preferred stock dividends.
In accordance with EITF 98-5 and 00-27 it was determined that the Series B effective conversion price was issued at a discount to fair value. The value of this discount, called a beneficial conversion feature, was determined to be $18,207,102. The beneficial conversion feature was deducted from the carrying value of the Series B and is being amortized over 47 months. The amortization amount is treated consistent with the treatment of preferred stock dividends.
In connection with the issuance of the Series B and related warrants, the Company entered into registration rights agreements granting the holders of the Series B certain demand and piggyback registration rights with respect to the common stock issuable upon conversion of the Series B and exercise of the warrants. The Company filed a registration statement with the SEC to register these shares for resale. The registration statement was declared effective December 5, 2006. The registration rights agreement stipulated that if the registration statement was not declared effective by November 21, 2006, the Company had to pay 1 percent per month for a maximum of 6 months or 6 percent maximum. Per paragraph 16 of EITF 00-19, this was determined to be an economic settlement alternative. Therefore, the warrants have been classified as equity. Between November 21, 2006 and December 4, 2006, the Company became obligated to pay the Series B Preferred Shareholders approximately $134,000 in liquidated damages paid in the form of additional shares of Series B Preferred.
In connection with this transaction, certain of the Locked-Up Holders agreed that, subject to certain exceptions, they would not offer, sell, contract to sell, lend, pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares of Common Stock, or any options or warrants to purchase any shares of Common Stock with respect to which the holder has beneficial ownership until the earlier of 90 days following the conversion into Common Stock of at least 50% of the shares of Series B, or 90 days following the closing of a Qualified Public Offering (as defined in the applicable registration rights agreement).
The Company used three placement agents in connection with the offerings of the Series B. The placement agents received cash fees from the Company of $2,275,043, and were issued warrants to acquire up to 869,180 shares of Common Stock at an exercise price of $2.75 per share and otherwise on the same terms as the warrants sold to the investors.
Chadbourn Securities, Inc. served as one of three of the Company’s placement agents in connection with the offering, and for serving as such, received a cash fee from the Company of $446,050, and was issued warrants to acquire up to 210,980 shares of Common Stock at an exercise price of $2.75 per share and otherwise on the same terms as the warrants sold to the investors. These placement fees are included in the fees discussed in the paragraph above. Laird Cagan, a Managing Director of CMCP, acted as a registered representative of Chadbourn in connection with this offering. Our chief executive officer also works with CMCP.
The fair value of the placement warrants was $2,224,903. The value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 5.42%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of 4 years. The value of the warrants was deducted along with the cash placement fees paid and expenses, $2,359,035, from the face value of the Series B, and is being amortized over 47 months. The amortization amount is treated consistent with the treatment of preferred stock dividends.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7.
REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
8% Series B Cumulative Redeemable Convertible Participating Preferred Stock (Continued)
The accounting for the Series B is as follows:
NOTE 8.
SHAREHOLDERS’ EQUITY
Prior to the merger with Waste Solutions, Inc (WSI), WSI received $750,000 for the issuance of a promissory note and obtained a commitment for an additional $250,000 from an investor. The investor also received a warrant for the purchase of 133,333 shares of common stock for $0.01 per share in connection with these additional funds. These warrants were exercised in March of 2004. After the merger, the promissory note was exchanged for 500,000 shares of common stock in World Waste Technologies, Inc. In April 2004, the Company received the additional $250,000 for the purchase of an additional 166,667 shares of common stock. The relative fair value allocated to the warrant was $170,844 using the Black-Scholes calculation. The value of the warrant was estimated using the Black Scholes option pricing model with the following assumptions:
·
average risk free interest of 3.6%; dividend yield of 0%;
·
average volatility factor of the expected market price of the Company’s common stock of 70%; and
·
a term of 4 years.
Prior to the merger of the Company with Voice Powered Technologies, Inc (VPTI), 500,000 shares of common stock were contributed to the Company by the founder of VPTI in connection with an agreement in which the founder sold approximately 1,000,000 other shares of common stock to accredited investors in a private sale.
During the second and third quarters ended June 30, 2004 and September 30, 2004 respectively, the Company obtained through a private placement an additional $3,093,910 from the sale of 2,311,872 shares of common stock, net of fees paid of $273,890 (2,245,206 of these shares were issued prior to the merger with VPTI on August 24, 2004). Under a Registration Rights Agreement, the Company agreed to use commercially reasonable efforts to prepare and file a registration statement to register the resale of such shares within ninety days of completion of the Merger, August 23, 2004, and use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC as soon as practicable. The registration statement was declared effective December 5, 2007.
During July 2004, the Company issued a warrant to a consultant for the purchase of 50,000 shares of common stock at an exercise price of $0.01 per share in consideration for investment banking, financial structuring and advisory services provided. The fair value of the warrant was $74,567. The value of the warrant was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 3.6%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 26.4%; and a term of 4 years. The fair value of the warrant was expensed during the year ended December 31, 2004. The warrant was exercised in full in September 2004.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8.
SHAREHOLDERS’ EQUITY (CONTINUED)
Effective August 24, 2004, World Waste Technologies, Inc. was merged into VPTI. Prior to the merger with VPTI, the holders of the convertible promissory notes converted these notes into 1,193,500 shares of common stock of World Waste Technologies, Inc.
Subsequent to the merger with VPTI, during the third and fourth quarters of the year ended December 31, 2004, in connection with a private placement of securities, the Company sold 1,192,000 units; each unit comprised of one (1) share of common stock in the Company and warrants exercisable for 0.25 shares (298,000 shares) of common stock of the Company at an exercise price of $0.01 per share for 5 years. The fair value of the warrants was $742,222. The value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 3.6%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of 1 to 4 years. The consideration paid for the units was $2.50 per unit, for aggregate net proceeds to the Company of $1,879,770. As of December 31, 2004, 152,000 of these warrants had been exercised for net proceeds to the Company of $1,520. Under the Registration Rights Agreement, the Company agreed to use commercially reasonable efforts to prepare and file a registration statement within ninety days of completion of the private placement and use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC as soon as practicable registering the resale of the shares and shares underlying the warrants. The registration statement was declared effective December 5, 2007.
During the quarter ended June 30, 2006, in connection with private placements of unregistered securities, the Company raised gross proceeds of $3,387,000 by issuing 1,354,800 units (each unit comprised of one (1) share of common stock in the Company (1,354,800 shares of common stock) and warrants exercisable for 0.25 shares (338,700 warrants)) at a purchase price of $2.50 per unit. The warrants expire five years after the date of the sale of the shares and are exercisable at $0.01 per share, subject to adjustment. All of the warrants were exercised during the quarter ended March 31, 2006. The fair value of the warrants was $843,487. The value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 3.75%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of one year. Under the Registration Rights Agreement, the Company agreed to use commercially reasonable efforts to prepare and file a registration statement within ninety days of completion of the private placement and use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC as soon as practicable registering the resale of shares and the shares underlying the warrants. The registration statement was declared effective December 5, 2006.
NOTE 9.
CAPITAL LEASE OBLIGATION
Capital Lease obligation is comprised as follows:
The capital lease was terminated in March of 2008.
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY WORLD WASTE OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10.
COMMITMENT AND CONTINGENCIES
As of December 31, 2008, the Company had in place one employment agreement, pursuant to which the total annual salary was $224,000. The officer is entitled to receive 12 months salary and continuation of benefits in the event the Company terminates his agreement for other than “good cause” or the officer resigns from the Company for “good reason” (as such terms are defined in the agreements). On February 1, 2008, the officer terminated his employment for “good reason.” As of December 31, 2008, approximately $20,930 was to be paid in January 2009 in connection with this agreement.
NOTE 11.
RELATED PARTY TRANSACTIONS
During 2006, Chadbourn Securities Inc. (“Chadbourn”) acted as the placement agent for the Company in connection with the private placement of 1,354,800 shares of the Company’s common stock and warrants to purchase 338,700 shares of the Company’s common stock, the private placement of 4,075,600 shares of the Company’s Series A Preferred Stock and warrants to purchase 407,560 shares of the Company’s common stock, and $4,015,000 aggregate principal amount of the Company’s senior secured promissory notes and warrants to purchase up to a total of 529,980 shares of Common Stock. In connection with those private placements, the Company paid the Placement Agent a commission of approximately $961,550. In addition, the Company paid the Placement Agent a non-accountable expense allowance of $267,740 and issued the Placement Agent, or its affiliates, warrants to purchase 548,486 of the Company’s common shares, at exercise price of $2.50. The values of the warrants, $756,247, were estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest rate 3.6% to 6.75%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s common stock of 70%; and a term of 4 years.
During the quarter ended March 31, 2007, the Placement Agent acted as the placement agent for the Company in connection with the private placement of the Company’s senior secured promissory notes and warrants to purchase up to a total of 297,000 shares of Common Stock. In connection with this private placement, the Company paid the Placement Agent a commission of $27,500.
Chadbourn served as one of three of the Company’s placement agents in connection with the offering of the Company’s Series B Preferred Stock, and for serving as such, received a cash fee from the Company of $446,050, and was issued warrants to acquire up to 210,980 shares of Common Stock at an exercise price of $2.75 per share and otherwise on the same terms as the Warrants sold to the investors.
NOTE 12.
UNAUDITED QUARTERLY FINANCIAL INFORMATION
See management’s discussion and analysis for explanations of signification quarterly items effecting the quarterly fluctuations.
NOTE 13.
SUBSEQUENT EVENTS
On February 2, 2009, the Company loaned Vertex Energy, LP $1.0 million. The note accrues interest at 12% per annum and is due at the earliest of: the consummation of the close of the merger with the Company, April 30, 2009, or 60 days following the termination of the merger. Upon an event of default, interest accrues at 15%. The proceeds were used by Vertex Energy, LP for working capital purposes. The note is secured by the assets of Vertex Energy, LP and is junior to existing bank debt.
At a special meeting of its shareholders held on March 6, 2009, the holders of a majority of the outstanding shares of each of World Waste’s common stock, Series A preferred stock and Series B preferred stock, adopted the merger agreement among the Company, Vertex Energy, LP, a Texas limited partnership, Vertex Nevada, Vertex Merger Sub, LLC, a California limited liability company and wholly owned subsidiary of Vertex Nevada, and Benjamin P. Cowart, as agent for the shareholders of Vertex Nevada. Upon consummation of the merger, the Company will become a wholly owned subsidiary of Vertex Nevada, and Vertex Nevada will succeed to the Company’s reporting obligations under the Securities Exchange Act of 1934. Although the parties believe that all of the conditions to the closing of the merger have been met, the parties anticipate that the merger will not be consummated until the close of business on April 1, 2009.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No disclosure required pursuant to Item 304 of Regulation S-K.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report.
Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recoded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our 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.
Management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control over Financial Reporting - Guidance for Smaller Public Companies.
Based on our assessment and those criteria, our management believes that World Waste Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2008.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
(b) Changes in Internal Controls
There was no change in the Company's internal control over financial reporting during the quarter that ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION
At a special meeting of our shareholders held on March 6, 2009, the holders of a majority of the outstanding shares of each of our common stock, Series A preferred stock and Series B preferred stock, adopted the Merger Agreement. Upon consummation of the merger, the Company will become a wholly-owned subsidiary of Vertex Nevada, and Vertex Nevada will succeed to the Company’s reporting obligations under the Securities Exchange Act of 1934. The parties anticipate that the merger will be consummated on April 1, 2009.
PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our board of directors currently consists of five members. Each of our directors is elected annually by our stockholders to serve until the next annual meeting or until his or her successor is duly elected and qualified. Our executive officers all serve at the pleasure of our board.
DIRECTORS
The following table sets forth certain information concerning our current directors.
JOHN PIMENTEL has been the chief executive officer of our company since September 1, 2006, and he has served as a director of our company since February 2004. From 1993-1996, Mr. Pimentel served as Deputy Secretary for Transportation for the State of California where he oversaw a $4.5 billion budget and 28,000 employees including the Department of Transportation, the California Highway Patrol, and parts of the Department of Motor Vehicles. From 1998 to 2002, he worked with Bain & Company in the firm's Private Equity Group and the general consulting practice. Since 2003, Mr. Pimentel has worked with Cagan McAfee Capital Partners, LLC where he is responsible for business development, investment structuring and portfolio company management. Mr. Pimentel has an M.B.A. from Harvard Business School and a B.A. from University of California at Berkeley. From 2004 to 2006, Mr. Pimentel also served as a member of the board of directors of Pacific Ethanol, Inc. (PEIX), a company he co-founded.
JAMES L. FERRIS, PH.D. joined our board of directors in 2004. On November 4, 2006, Dr. Ferris was appointed to serve as our chief operating officer and President, positions that he held through July 2007. In 2007, and prior to his appointment as an officer, Dr. Ferris provided us with consulting services. Dr. Ferris served as a member of the board of directors of Albany International from 2000 - 2004. Dr. Ferris has been a trustee of the Institute of Paper Chemistry Foundation since 2003 and prior to that he was the president and chief executive officer of the Institute of Paper Science and Technology from 1996 to 2003. Prior to that, he was vice president of research for the Pulp, Paper, and Packaging Sector of Weyerhaeuser Corporation, where he was employed for 30 years in various business, manufacturing and research positions. Dr. Ferris completed the Advanced Management Program at Harvard Business School in 1992, received his Ph.D. (1972) and M.S. (1969) from the Institute of Paper Chemistry at Lawrence University, and obtained his B.S. in Chemical Engineering from the University of Washington in 1966.
ROSS M. PATTEN joined our board of directors in 2006. Mr. Patten was Chairman of the Board and a Vice President of Synagro Technologies, Inc., a residuals management company. Mr. Patten served as the Chief Executive Officer of Synagro Technologies, Inc. from February 1998 until September 2003. Prior to joining Synagro Technologies, Inc., Mr. Patten served at Browning-Ferris Industries for 17 years, where he last served as Divisional Vice President-Corporate Development. He also served as Executive Vice President for Development of Wheelabrator Technologies, a Waste Management, Inc. subsidiary, and director and Vice President-Business Development at Resource NE, Inc. prior to its acquisition by Waste Management, Inc. Mr. Patten was a founder, principal and Managing Director of Bedford Capital, an investment firm specializing in environmental companies, and of Bedford Management, which provides consulting services to publicly held waste management and environment-related companies in the areas of growth and acquisition strategy, formation and implementation. Pursuant to a contractual right granted to the holders of our Series A Preferred Stock, Mr. Patten was initially designated by the holders of our Series A Preferred Stock to fill a board vacancy.
SAM CORTEZ joined our board of directors in 2006. Mr. Cortez has been a principal at KCL Development, LLC since 2003, where he provides business consulting and financial advisory services, primarily to growth companies and new business ventures. Prior to KCL Development, Mr. Cortez spent over 12 years in investment banking, focused primarily in the environmental industry. From 2000 to 2003, Mr. Cortez was a Senior Vice President of Investment Banking at Lehman Brothers, and prior to that he worked as an investment banker at
Donaldson, Lufkin & Jenrette, Alex. Brown & Sons Incorporated and Morgan Stanley International. Mr. Cortez received an M.B.A. from the Harvard Graduate School of Business Administration and a B.S. in Chemical Engineering from the University of California, Berkeley. Pursuant to a contractual right granted to the holders of our Series A Preferred Stock, Mr. Cortez was initially designated by the holders of our Series A Preferred Stock to fill a board vacancy.
DAVID GUTACKER joined our board of directors in December 2007. Mr. Gutacker provided consulting services to our company in 2007, prior to his appointment as a director. Mr. Gutacker has served as the chief executive officer of the Gutacker Group, a consulting firm specializing in evaluating and improving energy, waste-to-energy and other industrial projects, since 2004. From 2006 to 2007 he served as president and chief executive officer of Agrifos Fertilizer, a phosphate fertilizer company, and from 1987 to 2001 worked for American Re-fuel, a waste-to-energy company, his most recent position being president and chief operating officer. Mr. Gutacker obtained his B.S. in Industrial Technology from the University of New York at Buffalo and his MBA from Canisius College.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our current executive officers.
Information for Mr. Pimentel is set forth above under "Directors."
ADAM SHORE has served as a consultant to us since February 2008. From 1999 to June 2007, Mr. Shore, age 36, was employed by Calpine Corporation, a public company engaged in the generation and sale of electricity and electricity-related products, where he served in a number of capacities including Vice President-SEC & Financial Reporting and, most recently, Vice President-Financial Planning and Analysis. Mr. Shore holds a BA degree from Tufts University and an MBA, with an accompanying MS in Accounting, from Northeastern University.
MATTHEW LIEB was appointed to serve as our Chief Operating Officer in May 2007. Since 1999, Mr. Lieb has served as Chairman of the Board and Chief Executive Officer of Kingsley Management LLC, a company he founded that acquires and operates car wash facilities. Mr. Lieb holds a BS in Finance from Georgetown University and an MBA from Harvard Business School.
AUDIT COMMITTEE
In August 2004, our board of directors established an audit committee. Our board of directors has instructed the audit committee to meet periodically with our management and independent accountants to, among other things, review the results of the annual audit and quarterly reviews and discuss the financial statements, select the independent accountants to be retained, and receive and consider the accountants' comments as to controls, adequacy of staff and management performance and procedures in connection with audit and financial controls. The audit committee is also authorized to review related party transactions for potential conflicts of interest. Messrs. Patten, Gutacker, and Cortez (chairman) served as members of the audit committee in 2008.
While our board of directors believes that our audit committee members are financially literate and have a level of financial sophistication necessary to serve on the audit committee, it has determined that we do not have an "audit committee financial expert," as defined under Item 401(h)(2) of Regulation S-K of the Securities Act of 1933, serving on the audit committee. Given the limited scope of our operations to date, our board of directors believes that we do not currently need to have an audit committee financial expert serving on the audit committee.
CODE OF ETHICS
We have adopted a "Code of Ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules that applies to our officers, directors and employees. Our board of directors will not permit
any waiver of any ethics policy for any director or executive officer. A copy of the Code of Ethics will be made available to our shareholders without charge upon request by contacting us at (408) 517-3308.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than 10% of the outstanding shares of our common stock to file reports of common stock ownership and changes in ownership with the SEC. Reporting persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. Based solely on our review of the copies of such forms received or written representations from the reporting persons, we believe that, with respect to the fiscal year ended December 31, 2007, all of the reporting persons complied with all applicable Section 16 filing requirements on a timely basis.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR ENDED DECEMBER 31, 2008
The following table sets forth information concerning the compensation of our chief executive officer, former chief financial officer and the next most highly compensated executive officers whose total compensation in 2008 was in excess of $100,000. Further information regarding compensation of our names executives officers is provided under our descriptions of our “2007 Stock Option Plan” and “Employment and Consulting Agreements”.
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(1)
Represents the total grant date fair value during 2008 for options granted under our stock option plans, in each case in accordance with SFAS No. 123R. The assumptions made in the valuation of the options are described in note 3 of the notes to our consolidated financial statements.
(2)
Represents the incremental expense resulting from an extension of the period of time in which vested options may be exercised following termination of employment, from one to three years.
(3)
Mr. Rane resigned as an officer and employee of our company effective February 1, 2008. Compensation in 2008 includes salary for one month, severance, and an options award. He continues to serve us in a consulting capacity.
(4)
Includes $23,833 paid to Mr. Lieb as consulting fees.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2008
The following table provides information on the current holdings of stock option awards by our named executive officers. This table includes unexercised and unvested option awards. Each equity grant is shown separately for each named executive officer. A portion of the options were granted in 2008 and are therefore also included in the Summary Compensation Table. No named executive officer exercised any awards in 2008.
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(1)
On April 18, 2006, Mr. Rane was granted an option to purchase up to 350,000 shares of our common stock that would have become exercisable as to 12/48ths on April 18, 2007 and 1/48th per month thereafter. This option was cancelled on December 23, 2006 in conjunction with the issuance of another option resulting in what was effectively a repricing. Our compensation committee determined to grant Mr. Rane a stock option with an exercise price of $2.70 per share in substitution for his previously granted stock option with an exercise price of $4.45 per share based upon its determination that the exercise price of $4.45 per share was substantially in excess of the fair market value of our common stock on the grant date, after taking into account the limited trading market for our common stock. Our compensation committee determined that an option with an exercise price of $2.70 per share bore a closer relationship to the fair market value of our common stock and would provide a more realistic incentive to Mr. Rane to maximize shareholder value. All of the foregoing options were issued under our 2004 option plan.
(2)
Options vest in equal monthly installments through February 2009.
(3)
Options vest in equal installments through May 2011.
(4)
Options vest in equal installments through May 2009, as long as Mr. Rane remains a consultant to the Company.
COMPENSATION OF DIRECTORS
The following table summarizes the compensation that we paid to our non-employee directors for the year ended December 31, 2008:
Our non-employee directors held the following options as of December 31, 2008:
In 2008, each non-employee member of our board of directors was compensated at the rate of $1,000 per day for attending board or committee meetings or otherwise working on company business. Non-employee directors were also eligible to receive grants of options in the discretion of the compensation committee. Directors who are also our employees receive no additional compensation for serving on our board. In 2007, based upon the recommendation of our compensation committee, our board of directors adopted a new compensation plan for our non-employee directors pursuant to which such directors will receive an annual retainer of $24,000 per year, $1,000 per day for attending board meetings ($500 for attending telephonically), $2,000 per year for each committee on which the director serves ($4,000 for service on the audit committee), an additional $2,000 per year for serving as the chairman of a committee and $1,000 per day for attending other meetings at the request of the chairman of our board. Directors are also entitled to reimbursement for reasonable expenses incurred on behalf of our company.
On March 10, 2008, we formed a Special Committee of our Board of Directors to evaluate our strategic alternatives. As compensation for serving on the Special Committee, each of the members thereof (Sam Cortez, James Ferris, David Gutacker and Ross Patten) was granted an option to acquire up to 300,000 shares of common stock pursuant to our 2007 Stock Plan. Each option has an exercise price equal to $0.16 per share ( the closing price of our common stock on the date of grant) and vested in six equal monthly installments commencing as of March 27, 2008. As additional compensation for serving on the Committee, each member was entitled to a cash fee of $5,000 per month.
2007 STOCK OPTION PLAN
On May 21, 2007, our Board of Directors adopted the 2007 Stock Plan (the "2007 Plan"), pursuant to which we are authorized to grant incentive awards for up to 6,000,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend, recapitalization or similar capital change. Adoption of the 2007 Plan was not subject to shareholder approval. Our Board of Directors approved the 2007 Plan because it believes that additional shares of common stock must be made available to attract, retain and motivate key officers, employees and directors.
PURPOSE. The purpose of the 2007 Plan is to encourage selected employees, directors, consultants and advisors to accept and continue employment with our company and its affiliates and to increase their interest in our welfare with the ability to participate in the growth of the value of our common stock.
ADMINISTRATION. The 2007 Plan may be administered by either our Board of Directors or, at the discretion of the Board, a committee of the Board (the "Administrator"). The Administrator has broad discretion and authority in administering the 2007 Plan, including the right to reduce the exercise price of any option, or to accelerate vesting.
TYPES OF AWARDS. Because the 2007 Plan is not subject to shareholder approval, no options granted thereunder will be "incentive" stock options that satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended. Instead, all options issued thereunder will be non-qualified options.
ELIGIBLE PARTICIPANTS. All directors, employees, consultants and advisors are eligible to receive awards under the 2007 Plan.
SHARES SUBJECT TO THE PLAN. The Company may issue up to 6,000,000 shares of its common stock pursuant to the 2007 Plan. Any shares subject to an option that terminates or expires without being exercised become available for future awards under the 2007 Plan.
TERMS AND CONDITIONS OF OPTIONS. The exercise price of any option may not be less than the fair market value of our common stock on the date of grant. No option may be exercised more than 10 years after the date of grant. No option may be transferred or assigned without the consent of the Administrator except by will or the laws of descent and distribution. The exercise price of options may be paid in cash or, with the consent of the Administrator, by a full recourse promissory note, delivery of other shares of our common stock (including shares acquired upon exercise of the related options), or by cashless exercise, to the extent and subject to applicable regulations.
AMENDMENTS TO THE 2007 PLAN. Our Board may amend, alter, suspend or discontinue the 2007 Plan at any time. No amendment, alteration, suspension or discontinuance requires shareholder approval unless our Board concludes that shareholder approval is advisable or required by law.
TERMINATION OF THE 2007 PLAN. The 2007 Plan will terminate on May 21, 2017. The termination of the 2007 Plan will not affect any outstanding option.
GRANTS UNDER THE 2007 PLAN. On May 21, 2007 and February 27, 2008, our Board granted options covering a total of 2,856,000 and 1,575,000 shares, respectively, under the 2007 Plan. All of the options have a per share exercise price equal to the closing price of the Company's common stock on the date of grant ($1.42 for the 2007 grants and $0.16 for the 2008 grants) and expire ten years from the date of grant. The grants included the following awards made to our executive officers and directors:
On May 21, 2007, John Pimentel, our Chairman of the Board and Chief Executive Officer, was granted three separate option awards. The first award, for Mr. Pimentel's continuing service as Chief Executive Officer, was an option to acquire up to 450,000 shares of common stock vesting 25% on January 1, 2008 and the balance in 36 equal monthly installments on the first day of each month, commencing January 1, 2008. The second award, for Mr. Pimentel's service as Chairman of the Board was an option to acquire up to 250,000 shares of common stock vesting in 24 equal installments on the first day of each month, commencing as of January 1, 2007. The third award, in recognition of Mr. Pimentel's contribution as Chief Executive Officer, was an option to acquire up to 250,000 shares of common stock, with 104,167 shares vested upon grant and the balance vesting in 28 equal monthly installments on the first day of each month commencing June 1, 2007.
On May 21, 2007, each of our other directors, Ross Patten, Dr. James Ferris and Sam Cortez, was granted an option to acquire up to 200,000 shares of common stock vesting in 24 equal installments on the first day of each month, commencing as of January 1, 2007. Dr. Ferris, who also served as President at the time of grant, was also granted an option to acquire up to 50,000 shares of common stock vesting 25% on January 1, 2008 and the balance in 36 equal monthly installments on the first day of each month, commencing January 1, 2008. In consideration for his efforts in helping build our new management team, Mr. Patten was also issued an option to acquire up to an additional 250,000 shares of common stock, vesting in 24 equal installments on the first day of each month, commencing as of January 1, 2007.
David Rane, our then Chief Financial Officer, was awarded an option to acquire up to 250,000 shares of common stock vesting 25% on January 1, 2008 and the balance in 36 equal monthly installments on the first day of each month, commencing January 1, 2008.
Pursuant to his at-will employment agreement, Matthew Lieb, our Chief Operating Officer, was granted options to acquire up to 400,000 Shares of common stock vesting as follows: 40,000 on the date of grant, 90,000 on January 1, 2008 and the balance in 36 equal installments on the first day of each month commencing January 1,2008.
On March 10, 2008, as described above in “Compensation of Directors”, each of our directors, was granted an option to acquire up to 300,000 shares of common stock vesting in 6 equal installments on the first day of each month, commencing from the date of grant. All of the foregoing option awards provide that if the recipient is terminated for any reason other than for cause, the succeeding months of vesting automatically accelerate. The options also provide for full acceleration of vesting upon a change of control. On the same date, David Rane, was granted an option to acquire 75,000 shares of common stock, vesting ratably over twelve months, in consideration for the continued consulting service that he was providing us.
EMPLOYMENT AND CONSULTING AGREEMENTS
John Pimentel is employed as our chief executive officer on an at-will employment basis. He currently receives a monthly salary of $15,000.
David A. Rane was employed by us under an employment agreement that provided a base annual salary of $224,000 plus benefits (which at December 31, 2007 included health, dental and vision insurance). Mr. Rane's employment was at-will. This agreement was entered into with Mr. Rane on April 28, 2006 and superseded Mr. Rane's prior agreement with us. The agreement provided discretion for our board of directors to increase the annual salary based upon Mr. Rane's performance and to provide bonuses as it deemed appropriate. The agreement also provided for salary and a continuance of benefits for one year after death or permanent disability and severance equal to one year of salary ($224,000 as of December 31, 2007), plus a continuation of benefits in the event that Mr. Rane was terminated without cause or resigns for good reason (as such terms are defined in the agreement) (in each case, with payments being made over a one-year period). As consideration for receiving the foregoing payments, Mr. Rane would need to be available to provide us with consulting services on projects identified by our board, and enter into a severance agreement and general release with our company. While any such payments are being made Mr. Rane would be prohibited from engaging in any activities that would compete with our business or from interfering or disrupting any of our business relationships with any of our customers or suppliers or soliciting any of our employees to leave employment with our company. Any of these requirements were subject to waiver by our company. The agreement provided for indemnification of Mr. Rane for decisions made in good faith while performing services for us. Mr. Rane also entered into our standard indemnification agreement for officers of our company, which provides, among other things, that we will indemnify Mr. Rane, under the circumstances set forth therein, for defense expenses, damages, judgments, fines and settlements incurred by him in connection with actions or proceedings to which he may be a party as a result of his position as an officer, employee, agent or fiduciary of our company, and otherwise to the full extent permitted under our bylaws and California law.
On February 1, 2008, Mr. Rane resigned from all positions held by him with us, effective as of such date. Mr.Rane informed us that he was resigning as a result of the pending relocation of our San Diego, California offices to Cupertino, California, and not as a result of any disagreement with us. Accordingly, Mr. Rane's resignation was deemed to be for "good cause" under the terms of his exiting employment agreement. On the same date, we entered into a Separation Agreement and General Release with Mr. Rane (the "Separation Agreement") pursuant to which we released each other from any and all claims.
The Separation Agreement also provides that Mr. Rane will be retained as a consultant for the twelve-month period ending February 1, 2009. During this consultancy period, Mr. Rane will be responsible for (i) preparation and filing with the SEC, on our behalf of the 2007 Annual Report on Form 10-K ; and (ii) preparation and filing with the SEC of our Quarterly Reports on Form 10-Q for the three- and six- months ended March 31, 2008 and June 30, 2008, respectively (or, in the event that at any point during the preparation of either Report, his successor is in place, then to be actively available, in person and/or by telephone, to consult with his successor regarding the full preparation and filing of any such Report). Mr. Rane also agreed to be available to us on a periodic basis with respect to transition activities assigned to him by our Chief Executive Officer, including assisting Mr. Rane's successor with the full preparation and filing of Reports with the SEC. Although not required to account
for his time during the consultancy period, Mr. Rane has agreed to be available on a timely basis to fulfill his enumerated duties.
Consistent with the terms of his employment agreement, Mr. Rane is being paid $18,666.66 per month during the consultancy period and is being reimbursed for the cost of his medical, dental and vision insurance premiums (approximately $2,000 per month). Mr. Rane will retain the options he holds to acquire up to 750,000 shares of our common stock, which options will continue to vest throughout the consulting period and thereafter remain in effect in accordance with their terms.
Effective May 15, 2007, our company and Matthew Lieb entered into an at-will employment agreement pursuant to which Mr. Lieb agreed to serve as our Chief Operating Officer for a salary of $13,500 per month. We agreed to grant Mr. Lieb options to acquire up to 400,000 shares of our common stock. The agreement can be terminated by either party at any time without notice.
Effective February 6, 2008, our company and Adam Shore entered into an at-will consulting agreement pursuant to which Mr. Shore agreed to serve as our Interim Chief Financial Officer for a salary of $8,000 per month. The agreement can be terminated by either party at any time without notice.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2008 with respect to shares of our common stock that may be issued under our equity compensation plans, which include individual compensation arrangements.
The only equity compensation plan approved by our shareholders is our 2004 Stock Option Plan. Except for the 2007 Stock Plan and as described below with respect to the issuance of certain warrants, we have not adopted without the approval of our shareholders any equity compensation plans under which our securities are authorized for issuance.
INDEMNIFICATION
Our articles of incorporation provide that no officer or director shall be personally liable to our company or our stockholders for monetary damages except as provided pursuant to California law. Our bylaws and articles of incorporation also provide that we are required to indemnify and hold harmless each person who serves at any time as a director, officer, employee or agent of our company from and against any and all claims, judgments and liabilities to which such person shall become subject by reason of the fact that he is or was a director, officer, employee or agent of our company, and shall reimburse such person for all legal and other expenses reasonably incurred by him or her in connection with any such claim or liability. We also have the power to defend such person from all suits or claims in accord with California law. The rights accruing to any person under our bylaws and articles of incorporation do not exclude any other right to which any such person may lawfully be entitled, and we
may indemnify or reimburse such person in any proper case, even though not specifically provided for by our bylaws or articles of incorporation.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors, officers and controlling persons of our company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of our common stock as of December 31, 2008 by (i) each person who is known by us to own beneficially more than five percent of our outstanding common stock; (ii) each of our directors; (iii) each of our executive officers; and (iv) all of our current executive officers and directors as a group. As of December 31, 2008, 27,596,491 shares of World Waste’s common stock were issued and outstanding.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and/or investing power with respect to securities. World Waste believes that, except as otherwise noted and subject to applicable community property laws, each person named in the following table has sole investment and voting power with respect to the shares of common stock shown as beneficially owned by such person.
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*
Indicates beneficial ownership of less than 1% of the total outstanding common stock.
(1)
Shares of common stock subject to options, warrants or other convertible securities (including approximately 17 million shares of common stock issuable upon conversion of our preferred stock) that are currently exercisable or convertible, or exercisable or convertible within 60 days of December 31, 2008, are deemed to be outstanding and to be beneficially owned by the person or group holding such options, warrants or other convertible securities for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group. Unless otherwise indicated, the address for each of the individuals listed in the table is care of World Waste Technologies, Inc., 20400 Stevens Creek Road, 7th Floor, Cupertino, California 95014.
(2)
Includes (i) 350,000 shares formerly owned by Mr. Pimentel’s spouse, (ii) 12,500 shares issuable upon conversion of preferred stock and upon exercise of warrants and (iii) 950,000 shares issuable upon exercise of options currently exercisable or exercisable within 60 days of December 31, 2008. Does not include options to acquire 300,000 shares of common stock not exercisable within 60 days of December 31, 2008.
(3)
Represents shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days of December 31, 2008. Does not include options to acquire 165,000 shares of common stock not exercisable within 60 days of December 31, 2008.
(4)
Includes (i) 10,800 shares of common stock issuable upon the conversion of preferred stock and the exercise of warrants and (ii) 714,083 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days of December 31, 2008. Does not include options to acquire 22,917 shares of common stock not exercisable within 60 days of December 31, 2008.
(5)
Represents 990,000 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days of December 31, 2008.
(6)
Includes (i) 12,500 shares of common stock issuable upon conversion of preferred stock and exercise of warrants and (ii) 720,000 shares issuable upon exercise of options currently exercisable or exercisable within 60 days of December 31, 2008.
(7)
Represents 500,000 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days of December 31, 2008.
(8)
Address: 3849 Pala Mesa Drive, Fallbrook, CA 92028. Mr. Racoosin has voting and dispositive power over the shares that are owned of record by One World Zero Waste, LLC, and such shares are also included in the table opposite Mr. Racoosin’s name. Includes 51,563 shares issuable upon exercise of a warrant. Does not include 23,437 shares issuable upon exercise of a warrant that are not currently exercisable or exercisable within 60 days of December 31, 2008.
(9)
Includes (i) 1,585,000 shares formerly owned of record by Laird Q. Cagan, (ii) 200,000 shares owned of record by the KQC Trust, of which Mr. Cagan is the sole trustee, (iii) 426,122 shares that Mr. Cagan currently has the right to acquire pursuant to warrants, (iv) 95,000 shares out of a total of 190,000 shares that Cagan McAfee Capital Partners, LLC, an entity in which Mr. Cagan holds a 50% interest and shares voting and dispositive power, currently has the right to acquire pursuant to warrants, and (v) 126,400 shares of common stock issuable upon the conversion of preferred stock and the exercise of warrants held by Cagan Capital Private Equity Fund II, LLC, an entity that Mr. Cagan controls. Excludes the remaining 95,000 shares that Cagan McAfee Capital Partners, LLC has the right to acquire pursuant to warrants and as to which Mr. Cagan disclaims beneficial ownership. Mr. Cagan also disclaims beneficial ownership over the shares held by Cagan Capital Private Equity Fund. Address is c/o Cagan McAfee Capital Partners, LLC, 20400 Stevens Creek Rd, 7th Floor, Cupertino, California 95014.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Our full board of directors is responsible for reviewing and approving or ratifying all related party transactions. Although there is no written policy in this regard, it is the practice of our board to review all material facts of interested transactions and take into account, among other factors it determines appropriate, whether the interested transaction is on terms no less favorable than terms generally available to any similarly situated, unrelated third parties under the same or similar circumstances and the extent of the person's interest in the transaction. Additionally, board approval of any interested party transaction must include the affirmative vote of at least a majority of our non-employee directors. The following related party transactions were reviewed and approved by our full board of directors in accordance with the foregoing policy.
In December 2003, we entered into an agreement, amended in March 2004, with Cagan McAfee Capital Partners, LLC ("CMCP"). The agreement provided for CMCP to provide us with advisory and consulting services and for an NASD broker dealer, Chadbourn Securities Inc. ("Chadbourn"), to provide investment banking services to us. We paid CMCP fees totally $60,000 in 2007. John Pimentel, our chief executive officer and chairman of our board of directors, is employed by CMCP. The agreement with CMCP was terminated effective December 31, 2007.
In 2007, Chadbourn and Laird Q. Cagan (a significant shareholder of our company and a director of CMCP), a registered representative of Chadbourn, acted as the placement agents for us in connection with the private placement of our senior secured promissory notes and warrants to purchase up to a total of 297,000 shares of our common stock and one of three placement agents for a private placement of 250,000 shares of our Series B Preferred Stock and warrants to purchase up to 2,500,000 shares of our common stock. In connection with these private placements, we paid Chadbourn's total cash fees of $73,550 and we issued them warrants to acquire up to a total of 210,980 shares of our common stock at an exercise price of $2.75 per share and otherwise on the same terms as the warrants sold to the investors in the offering.
DIRECTOR INDEPENDENCE
Our board is comprised of a majority of "independent" directors as defined in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market. Our independent directors are Sam Cortez, David Gutacker and Ross M. Patten. Our board determined that the consulting fees we paid to board members during 2008 did not impair its independence. John Pimentel, our chief executive officer, and Dr. James Ferris, our former president and chief operating officer, are not independent directors.
Our board of directors has an audit committee, compensation committee and finance committee. The audit and compensation committees consist solely of members who are independent as defined in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market. In addition, each member of the audit and compensation committees is independent as defined in Exchange Act Rule 10a-3.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees billed to us by Stonefield Josephson, Inc. and Levitz, Zacks & Ciceric, our principal accountants, for professional services rendered with respect to our 2008 and 2007 fiscal years were as follows:
(a) Audit Fees -- Consist of professional services rendered in connection with the annual audit of our consolidated financial statements on Form 10-K, quarterly reviews of our interim financial statements on Form 10-Q and services performed in connection with our compliance with the Sarbanes-Oxley Act. Audit fees also include fees for services performed by our accountants that are closely related to the audit and in many cases could only be provided by our independent accountants. Such services include the issuance of consents related to our registration statement and assistance with and review of other documents filed by us with the SEC.
(b) Audit Related Fees -- Consist of services related to due diligence services and accounting consultations. There were no assurance or related services rendered by our independent accounting firms during the years ended December 31, 2008 or December 31, 2007 reasonably related to the performance of the audit or review of our financial statements.
(c) Tax Fees -- There were no tax compliance services rendered by our independent accounting firms during the year ended December 31, 2007.
(d) All Other Fees -- There were no other professional services rendered by our independent accounting firms during the years ended December 31, 2008 or December 31, 2007.
PRE-APPROVAL POLICIES AND PROCEDURES
All services provided by our independent registered public accounting firm, Stonefield Josephson, Inc., are subject to pre-approval by our audit committee. Before granting any approval, the audit committee gives due consideration to whether approval of the proposed service will have a detrimental impact on the independence of our independent registered public accounting firm. The audit committee pre-approved all services provided by Stonefield Josephson, Inc. during the fiscal year ended December 31, 2008.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements:
Report of Independent Registrant Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income (Loss)
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Audited Consolidated Financial Statements
(2) Financial Statement Schedules: Schedules have been omitted since they are either not required, are not applicable or the required information is shown in the financial statements or the related notes.
(3) Exhibits:
The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.
(b) Exhibits: The following exhibits are filed as part of this Annual Report on Form 10-K:
EXHIBIT
NUMBER
DESCRIPTION
2.1
Agreement and Plan of Reorganization between Voice Powered Technology
International, Inc., V-Co Acquisition, Inc. and World Waste
Technologies, Inc., dated as of March 25, 2004. (1)
2.2
First Amendment dated August 24, 2004 to Agreement and Plan of
Reorganization dated as of March 25, 2004 among Voice Powered
Technology International, Inc., V-CO Acquisition, Inc. and World Waste
Technologies, Inc. (2)
2.3
Amended and Restated Agreement and Plan of Merger, dated as May 19, 2008, by and between World Waste Technologies, Inc., on the one hand, and Vertex Energy, LP, Vertex Energy, Inc., Vertex Merger Sub, LLC, and Ben Cowart as agent for all shareholders of Vertex Energy, Inc., on the other hand. (20)
3.1
Amended and Restated Articles of Incorporation of the Registrant. (3)
3.2
Bylaws of the Registrant, as amended. (4)
3.3
Certificate of Determination of Rights, Preferences and Privileges of
the Registrant's 8% Series A Cumulative Redeemable Convertible
Participating Preferred Stock. (5)
3.4
Certificate of Determination of Rights, Preferences and Privileges of
the Registrant's 8% Series B Cumulative Redeemable Convertible
Participating Preferred Stock. (6)
4.1
Specimen Stock Certificate. (3)
4.2
Form of the Registrant's Warrant Agreement. (7)
10.1
Form of Indemnity Agreement entered into among the Registrant and its
directors and officers. (8)
10.2
Form of Registration Rights Agreement. (2)
10.3
2004 Stock Option Plan. (3)
10.4
Form of Stock Option Agreement, pursuant to 2004 Stock Option Plan. (3)
10.5
Lease between World Waste of America, Inc., a wholly-owned subsidiary
of the Registrant, and Legacy Sabre Springs, LLC, dated as of March 10,
2004. (3)
10.6
Securities Purchase Agreement dated as of April 28, 2005 among the
Registrant, Trellus Offshore Fund Limited, Trellus Partners, LP, and
Trellus Partners II, LP. (5)
10.7
Form of Common Stock Purchase Warrant issued by the Registrant on April 28,
2005. (5)
10.8
Registration Rights Agreement dated as of April 28, 2005 among the
Registrant, Trellus Offshore Fund Limited, Trellus Partners, LP, and
Trellus Partners II, LP, a Delaware limited partnership and the
individuals and entities set forth on Exhibit A and Exhibit B thereto. (5)
10.9
Engagement Agreement dated as of April 28, 2005 between the Registrant and John Pimentel. (5)
10.10
Engagement Agreement dated as of April 28, 2005 between the Registrant and Cagan McAfee Capital Partners, LLC. (5)
10.11
Engagement Agreement dated as of April 28, 2005 between the Registrant and Chadbourn Securities, Inc. and Addendum dated April 29, 2005. (5)
10.12
Letter, dated as of May 26, 2005, from Trellus Offshore Fund Limited,
Trellus Partners, LP, and Trellus Partners II, LP (the "Investors") to
the Registrant, amending the terms of that certain Securities Purchase
Agreement dated as of April 28, 2005 by and among the Investors and the
Registrant. (9)
10.13
Subscription Package dated October 7, 2005. (10)
10.14
Common Stock Purchase Warrant issued on November 1, 2005 by the Registrant to various investors. (10)
10.15
Form of Non-Qualified Stock Option Agreement pursuant to 2004 Stock Option Plan. (10)
10.16
Form of Incentive Stock Option Agreement pursuant to 2004 Stock Option Plan. (10)
10.17
Amended and Restated Securities Purchase Agreement dated as of January 23, 2006 among the Registrant and the investors identified therein. (11)
10.18
Form of Common Stock Purchase Warrant dated February 10, 2006 issued by the Registrant. (11)
10.19
Form of 10% Senior Secured Debenture dated February 10, 2006 issued by the Registrant. (11)
10.20
Registration Rights Agreement dated as of February 10, 2006 among the Registrant and the investors identified therein. (11)
10.21
Letter agreement dated February 6, 2007 among the Registrant and the investors identified therein. (11)
10.22
Securities Purchase Agreement dated as of May 25, 2006 between the
Registrant and the purchasers named therein. (Series B - first
offering) (12)
10.23
Securities Purchase Agreement dated as of May 25, 2006 between the Registrant and the purchasers named therein. (Series B - second offering) (12)
10.24
Form of Common Stock Purchase Warrant issued to Placement Agents as partial compensation for acting as placement agent for the Registrant's April and May 2006 offerings of Series B Preferred Stock. (12)
10.25
Form of Common Stock Purchase Warrant issued to Purchasers in Series B Preferred Stock offering. (12)
10.26
Amended and Restated Registration Rights Agreement dated as of May 25, 2006. (12)
10.27
Consulting Project Agreement dated as of October 1, 2006 between the Registrant and James Ferris. (13)
10.28
At-Will Employment Agreement dated as of April 30, 2007, between World Waste Technologies, Inc. and Matthew Lieb. (15)
10.29
2007 Stock Plan. (15)
10.30
Form of Stock Option Agreement. (15)
10.31
Separation Agreement and General Release, dated as of February 1, 2008, between World Waste Technologies, Inc. and David Rane. (16)
10.32
Consulting Agreement, dated as of February 4, 2008, between World Waste Technologies, Inc. and Adam Shore. (16)
10.33
Asset Purchase Agreement, dated as of March 7, 2008, between the Company and Clean Earth Solutions, Inc. (17)
10.34
Employment Agreement dated as of November 4, 2006 between the Registrant and James Ferris. (14)
10.35
Management Services Agreement, dated as of April 14, 2008, between World Waste Technologies, Inc. and ReEnergy Advisory Group LLC. (19)
10.36
Patent Purchase Agreement dated as of October 22, 2008 between CleanTech Biofuels, Inc., and World Waste Technologies, Inc. (21)
10.37
Promissory Note dated as of October 22, 2008 between CleanTech Biofuels, Inc., and World Waste Technologies, Inc. (21)
10.38
Security Agreement dated as of October 22, 2008 between CleanTech Biofuels, Inc., and World Waste Technologies, Inc. (21)
10.39
Common Stock Purchase Warrant dated as of October 22, 2008 between CleanTech Biofuels, Inc., and World Waste Technologies, Inc. (21)
21.1
Subsidiaries of the Registrant. (18)
31.1
Certification of Chief Executive Officer Pursuant to 15 U.S.C. ss. 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer Pursuant to 15 U.S.C. ss. 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. ss. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1)
Incorporated by reference to the Company's Current Report on Form 8-K filed on March 29, 2004.
(2)
Incorporated by reference to the Company's Current Report on Form 8-K filed on August 30, 2004.
(3)
Incorporated by reference to the Company's Annual Report on Form 10-KSB filed on March 31, 2005.
(4)
Incorporated by reference to Company's Registration Statement on Form SB-2, File No. 33-50506, effective October 20, 1993.
(5)
Incorporated by reference to the Company's Current Report on Form 8-K filed on May 4, 2005.
(6)
Incorporated by reference to the Company's Current Report on Form 8-K filed on June 2, 2006.
(7)
Incorporated by reference to the Company's Current Report on Form 8-K filed on September 30, 2004.
(8)
Incorporated by reference to the Company's Current Report on Form 8-K filed on November 5, 2004.
(9)
Incorporated by reference to the Company's Current Report on Form 8-K filed on June 1, 2005.
(10)
Incorporated by reference to the Company's Current Report on Form 8-K
filed on November 7, 2005.
(11)
Incorporated by reference to the Company's Current Report on Form 8-K
filed on February 16, 2006.
(12)
Incorporated by reference to Amendment No. 2 to Form SB-2 to the
Company's Registration Statement on Form S-1 filed on October 13, 2006.
(13)
Incorporated by reference to the Company's Current Report on Form 8-K
filed on October 12, 2006.
(14)
Incorporated by reference to the Company's Current Report on Form 8-K
filed on November 7, 2006.
(15)
Incorporated by reference to the Company's Current Report on Form 8-K
filed on May 21, 2007.
(16)
Incorporated by reference to the Company's Current Report on Form 8-K,
filed on February 6, 2008.
(17)
Incorporated by reference to the Company's Current Report on Form 8-K,
filed on March 13, 2008.
(18)
Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed on March 30, 2006.
(19)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 18, 2008.
(20)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2008.
(21)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2008.
SIGNATURES
Pursuant to the requirements of 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ JOHN PIMENTEL
Chief Executive Officer
March 30, 2009
John Pimentel
/s/ ADAM SHORE
Interim Financial Officer
March 30, 2009
Adam Shore
(Principal Accounting and Financial Officer)
/s/ JAMES L. FERRIS
Director
March 30, 2009
James L. Ferris
/s/ SAM CORTEZ
Director
March 30, 2009
Sam Cortez
/s/ ROSS M. PATTEN
Director
March 30, 2009
Ross M. Patten
/s/ DAVID GUTACKER
Director
March 30, 2009
David Gutacker