SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB
                                 Amendment No. 1
Annual report under section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2002

                        Commission File Number: 000-16936

                                WorldWater Corp.
                 (name of small business issuer in its charter)

                              Delaware 33-0123045

(State or other jurisdiction of                   (I.R.S. Identification Number)
Employer corporation or organization)

55 Route 31 South, Pennington, NJ                 08534

(Address of principal executive offices)          (Zip Code)

Issuers telephone number (609) 818-0700

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

Securities registered under Section 12 (g) of the Exchange Act: Common Stock,
$0.001 par value

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports, and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part ll of this Form 10-KSB or any amendment to
this form 10-KSB. [X]

The issuers revenue for its most recent fiscal year was $643,541.

On June 2, 2003 the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $8,085,091.

As of June 2, 2003 the Registrant had outstanding 50,427,552 shares of Common
Stock and 677,778 shares of Preferred Stock.


                                       1
<PAGE>

The Company is restating its previously issued consolidated financial statements
as of December 31, 2002 and 2001 and for the years ended December 31, 2002 and
2001 to correct errors in the accounting treatment relating to previously
disclosed financing transactions. The amounts presented herein reflect the
restatement of these financial statements. The effects of this restatement on
the consolidated financial information as of and for the years ended December
31, 2002 and 2001 are presented in Part II. Item 6 "Selected Financial Data" and
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 19 to Notes to the Consolidated Financial Statements of
this Form 10-KSB. The effects of this restatement on the consolidated financial
information for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 and
as of such year ends are presented in Item 6 "Selected Financial Data."


                                       2
<PAGE>

Part l
------

Item 1. Description of Business
-------------------------------

      WorldWater  Corporation is a solar  engineering/water  management  company
with unique,  high-powered solar technology  providing solutions to water supply
problems. The Company has developed patented solar water pumping systems capable
of operating pumps up to 600 horsepower for irrigation,  refrigeration and water
utility  pumping  systems.   WorldWater's   proprietary  AquaMax(TM)  System  is
controlled by the Company's  patented  AquaDrive(TM),  an electronic  board that
reads and  translates the output of solar electric DC current from solar panels,
converting the flow into AC current for delivery to water pumps in deep wells or
rivers.  The Company's  AquaMax(TM)  hybrid solar irrigation  pumps, are able to
operate  on solar  alone or in  combination  with the  electric  grid or  diesel
generators.  Among the advantages of the Company's  proprietary solar technology
is that during  non-irrigation  or compressor  usage during daylight periods the
customer is able to transfer the unused self-generated electric solar power back
to the utility company for net-metering credit and later free use as required.

      Our  proprietary  technology  permits the use of Alternate  Current ("AC")
pumps,  an option  previously  unavailable  for solar power. AC pumps are widely
available in countries  throughout  the world,  allowing  replacement  pumps and
parts to be supplied on a local basis. Other forms of solar powered photovoltaic
(PV) pumping  currently  available  use less  reliable  and less durable  Direct
Current  ("DC")  pumps or custom AC pumps  which are more costly and not readily
available in most developing countries.

      Until the Spring of 2002, our business was focused  exclusively on helping
developing  countries with water and power problems,  but the Company's  sharply
increased power capability coupled with growing energy shortages in the U.S. has
opened widespread and immediate domestic market opportunities.

      Our ability to operate large scale pumps is especially  important in areas
where electricity is expensive and diesel considered too pollutive.  California,
for  example,  a major target  market for the  Company,  is striving to increase
renewable energy usage to reduce demand on state electric  utilities grid and to
improve the  state's  air  quality by granting  50% rebates to buyers and giving
significant tax credits and other incentives for purchases of renewable  energy.
In New Jersey,  rebates from the electric  utilities plus federal tax incentives
for the  purchase  of  renewable  power can  reduce  the  price of our  systems,
including  the  high-powered  hybrid  AquaMax(TM)  irrigation  pump, by up to 60
percent.   This  enables   renewables  in  general  to  better  compete  against
traditional  energy  sources  in  agriculture   industries  in  New  Jersey  and
California.

      By employing the hybrid  AquaMax(TM)  irrigation  system which can operate
motors up to 600 horsepower by sunshine  alone or in  combination  with existing
electric  grid or  diesel,  a  farmer  can  irrigate  his land at  little  or no
additional  costs over what is paid  currently  for  irrigation  powered by grid
electricity.  Current  costs are fixed for a period of time after  which he owns
the equipment and obtains most or all of his irrigation  electrical  power free.
This  occurs  because  when  the  farmer  is not  irrigating,  the sun is  still
developing  electricity  through  our  system and the power is  returned  to the
electrical  utility for storage for credit and later use. This process is called
net metering and is already in  operation in both New Jersey and


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<PAGE>

California as well as other states. By automatically switching between solar and
the other power sources, the AquaMax(TM) enables the farmer to protect against a
loss of irrigation water (even during daylight power shortages or blackouts) and
can operate during day or night hours.

      The Company was incorporated in the state of Nevada on April 3, 1985 under
the name of Golden Beverage  Company.  In April 1997, the Company entered into a
reverse merger transaction with WorldWater,  Inc., a Delaware corporation formed
in January 1984. Since the merger  transaction,  the Company,  under the name of
WorldWater  Corp.,  has  been  engaged  exclusively  in  the  solar/water  power
industry. In June of 2000, the Company shareholders voted to change the state of
incorporation  from Nevada to Delaware.  The Company stock is publicly traded on
the OTC Bulletin Board under the symbol WWAT.OB.

      The Company has its corporate headquarters and manufacturing facilities at
its plant located at 55 Route 31 South in Pennington,  New Jersey 08534. Through
this  central  office,  WorldWater  designs,  develops  and markets  proprietary
technology relating to solar energy and water engineering, including solar power
projects and international water management consulting.

(a) Major Customers and Export Sales

      The Company offers a wide range of water resource  services  driven by its
solar-powered  pumping  systems for worldwide  application  for  irrigation  and
refrigeration and water utility pumping systems. Our initial focus in the United
States has been  California  and New Jersey  because of energy  shortages,  high
energy costs and rebates available to customers from the local utilities,  along
with tax credits from federal and state  governments.  The Company is looking to
broaden our focus to other  states to  increase  revenues as well as continue to
submit proposals to various foreign governments (particularly,  the Philippines)
in  need  of  solving   critical  water  supply  problems  using  the  company's
high-powered solar technology.

      In addition to its more recent domestic business,  we have operated in the
Philippines  since 1997 when we delivered 25 solar pumps for installation by the
National  Irrigation  Authority  (NIA) under a directive  from former  President
Fidel V. Ramos. We have formed a Philippine subsidiary, WorldWater (Phils) Inc.,
and have established a local management team to develop and implement business.

      We are working the first phase of a project to bring safe  drinking  water
to  municipalities  in the island province of Cebu. This project was launched in
November   1999  with  a  United   States   Trade  and   Development   Authority
(USTDA)-supported  feasibility  study  that  has  led to  implementation  of the
initial  system in two  communities in 2002 funded by the  Philippines  National
Bank  (PNB).  A  resolution  has  been  passed  by  the  Cebu  Provincial  Board
authorizing the Governor of that province to negotiate and enter into a contract
with us on behalf of all the other communities under its political jurisdiction.
We are working  with Cebu  officials  to  identify  additional  communities  for
implementation of our systems. In addition,  the Company is currently working on
a project with the Cebu Electric Corporation to supply rural  electrification to
the island of Cebu.


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<PAGE>

      The Company has signed a Memorandum of Agreement  for with the  Philippine
Department of Agriculture  National Irrigation  Administration for a solar power
project to bring potable water, irrigation, and power to rural Mindanao, Visayas
and Luzon. The USTDA initiated the program by again funding a feasibility  study
by  hydrogeologists  and engineers  engaged by us in 2002 to create  groundwater
maps for later equipment installations.  Preparation of the groundwater maps has
commenced.

(b) Products

Solar Water Systems
-------------------

AquaSafe(TM)  photovoltaic  (PV)  pumping  systems use a  proprietary  method of
control  to drive  off-the-shelf  AC  motors  from PV  power.  The  systems  are
low-cost,  require  no  maintenance  and have a long  track  record of  reliable
service.  AquaSafe(TM)  systems for drinking  water and  livestock  watering are
engineered  to deliver  water from  shallow or deep wells.  Multi-stage  stacked
impeller  submersible  pumps give the flexibility of flow from 5 gallons/min (20
lpm) to 260  gallons/min  (1,000  lpm).  The  pumps are sized to power 1 to 5 HP
motors.

AquaMax2200(TM)   high  yield   hybrid   irrigation   pumps  take   WorldWater's
AquaSafe(TM) remote water pumping systems to unprecedented levels. For the first
time,  more than 5,000 gallons per minute of water for irrigation can be powered
by solar energy alone or in automatic  combination with diesel generators or the
electric  grid.  Irrigating  fields in remote areas with solar  requires no fuel
costs, no need for regular maintenance, generates no noise and no pollution. And
now with  WorldWater's  hybrid systems,  if sun is not available the AquaMax(TM)
automatically switches to another diesel or electrical power source.

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

The AquaCard(TM)/SmartCard(TM)  water meter allows consumers to buy water with a
pre-paid  electronic  card.  During each sale,  the meter deducts the charge and
indicates  the  balance  remaining  on the  card,  which can be  recharged  at a
designated   vendor  site  with   additional   cash  payment.   Designed  to  be
tamper-proof,  the meter discourages  wasteful spillage.  Revenue collected from
the  AquaCard(TM)/SmartCard(TM)  is  used to pay for  the  solar  water  system.
Generally,  after five years the  community  owns the system and has a source of
income for the duration of the system's life, expected to exceed 20 years.

SolPower(TM) Systems
--------------------

SolPower(TM)PV  power systems are designed for off-grid homes,  schools,  health
clinics,  and village  community  centers.  The systems produce  electricity for
lighting, TV, radio, computers and a host of other uses. The key market for this
power system is in developing  countries where those living outside major cities
are not connected to the electrical grid system.


                                       5
<PAGE>

Solar Lighting
---------------

SolBrite(TM), WorldWater's solar charged portable lantern, can be used virtually
anywhere. A PV module charges a high-quality,  maintenance-free battery, located
in the base of the unit, to illuminate a bright fluorescent light.

SolLite(TM)  WorldWater's  solar light  fixture,  was  developed  by  WorldWater
engineers to meet the demands of the marketplace for an affordable light at half
the price of the  competition.  SolLite(TM)  also conserves  energy,  using less
power while still achieving similar output.

(c) Marketing

      We are marketing the AquaMax(TM) and AquaSafe(TM)  pumping systems and our
other  solar  products  worldwide  to  both  institutional  public  and  private
commercial  markets.  Until  2002,  our  products  were  primarily  marketed  in
developing  nations where there is a great need for  electrical  power and clean
water.  In 2002, we began  marketing  domestically in California and New Jersey.
Until our products were introduced,  U.S. farms and water utilities had not been
able to take advantage of the  substantial  statewide  financial  incentives for
solar  powered  systems.  Our  high-powered  solar pumps qualify to supply these
markets and enable the buyer to benefit from the rebates and credits.  Potential
markets include agriculture,  dairies, livestock farms, water utility districts,
wineries and food processing  (refrigeration pumps and compressors).  Currently,
in California,  we have completed two  installations  driving a 50 HP irrigation
pump and a 300 HP refrigeration compressor pump system, are engaged in the early
stages of engineering and implementation of two 500 HP and two 300HP well pumps,
and are conducting a field study for  installation of solar  irrigation  pumping
systems.  In New Jersey, we have completed  construction of a 22 kilowatt system
for  electricity  for an organic farm.  The price of the pumping  systems we are
marketing in California and New Jersey is in the $150,000  -$1,000,000 range. We
have opened a sales and  technical  office in San Diego,  California  to service
that market.

      Our   international   marketing   efforts  are  largely   concentrated  in
identifying specific project opportunities that have the potential for long-term
growth,  and identifying  institutional  sources that are capable and willing to
finance  these  projects.  In general,  the  long-term  market  potential in any
emerging  country  is  less  predictable  compared  with  that  of  a  developed
industrial  country because emerging nations present higher degrees of political
and currency risks.

      The need and price for water  worldwide  is growing  annually.  The United
Nations  estimates that $8 billion annually is currently spent in providing safe
drinking water in developing  countries,  and that $100 billion will be required
over the next five years.  The problem of how to bring safe  drinking  water and
electricity  to the rural  households  in need is the  focus of our  proprietary
solar  technology.  Solar energy is a plentiful  resource that is well suited to
the dispersed communities off the electrical grid.


                                       6
<PAGE>

(d) Market Size

      Over the last 15  years,  the  photovoltaic  (PV)  industry  has  grown in
revenues  from $2 million to over $1.5  billion.  By 2020,  worldwide  annual PV
direct  sales are  estimated at $27 billion and related  sales are  estimated at
more than $50 billion per year as stated by the U.S.  National  Renewable Energy
Laboratory Report,  "Photovoltaics:  Energy for the New Millennium,"  January 1,
2000. Advances in PV technology and corresponding reduction in costs continue to
fuel the increasing demand for PV power.  Great potential for PV technology also
lies in developing countries where roughly 2 billion people lack electricity and
water.  Applications range from remote pumping,  irrigation,  telecommunications
and lighting, to village size power production.

      Based on estimates by the United  Nations  Development  Programme  and the
World  Bank,  the cost of bringing  clean water to the 2 billion  people who are
without access to safe drinking water will be approximately  $50 per person,  or
$100  billion  total.  Governments  may be forced to  reallocate  their  funding
resources  to address  what the World  Bank says will be a major  problem of the
21st century - water shortages.

      A  similar   size   investment   is  needed  to  supply   electricity   to
underdeveloped nations. For example, our analysis of the remote power markets in
the  Philippines,  where only 28 of the 2,800  inhabited  islands have access to
electricity,  shows that a modest 10%  penetration by solar power  represents an
outstanding market opportunity.

(e) Marketing Strategies

      WorldWater  is marketing  the  AquaSafe(TM)  and  AquaMax2200(TM)  pumping
systems and its other solar products worldwide to both institutional  public and
private markets.  These  AquaMax(TM)  solar water pumping systems are capable of
operating pumps up to 600  horsepower,  making it the first solar company in the
world with the power to deliver mainstream electric pumping capacity.

      The new hybrid, AquaMax(TM), is a true breakthrough in terms of both power
and flexibility.  It will work by solar alone or  interchangeably  with existing
grid  electricity  or  diesel  generators  and  operate  pumps  up  to  600  HP,
contributing  significantly  to a farmer's bottom line by cutting  electrical or
fuel costs  whenever the sun is shining,  which also happens to be the peak cost
period for grid users.

      WorldWater  is unique  among its  competition  in that it does not  merely
solicit and await  tendered  contracts  from emerging  markets,  governments  or
international agencies, but actively initiates projects by proposing rural water
and power solutions to key  decision-makers  at the highest  government  levels.
This "top down"  water and power  solution  strategy is key for  WorldWater  and
differentiates  the  Company  from  its  competitors.  Once  WorldWater  obtains
recognition and acceptance at the highest levels,  project development  meetings
are held with  national and local level  decision-makers.  After the benefits of
WorldWater's  solar technology are made clear to officials,  demonstrations  and
pilot programs are implemented.  These field demonstrations give decision-makers
a  first  hand  look  at how  the  systems  operate  and  help  to  project  the
effectiveness of the Company's technology for large water and power schemes.


                                       7
<PAGE>

      WorldWater  is also unique in that it provides  solar  solutions for water
and electricity needs by:

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

      Utilizing Company specialists to find water sources;

      Conducting site  assessments for  appropriately-sized  solar water pumping
      and electrical systems;

      Installing the Company's proprietary solar products;

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

      Arranging project financing.

      Most solar water projects are approached by large corporations as simply a
means  to  sell  solar  panels.  Community  preparation  - if  done  at all - is
accomplished by very small local companies.  WorldWater's  competitors have been
unable to match the comprehensiveness of its programs.

      Another key marketing strategy is the utilization of strategic  alliances.
WorldWater,  as a water and power solutions provider, is in an ideal position to
partner  with  major  international   organizations  to  enhance  its  financing
capabilities  and with  local  organizations  to  enhance  implementation.  (See
Siemens  Solar  Industries - now Shell Solar - alliance for potential Sri Lankan
business)

      WorldWater has a longstanding relationship with the U.S. based Vincent Uhl
& Associates for  hydrogeological  studies.  The two companies have successfully
worked together in a number of markets. Mr. Uhl and his associates have located,
drilled and tested new groundwater sources in Asia, Africa, and the Americas.

      In  addition  to  alliances  with  solar  panel  manufacturers,  community
preparation   organizations,   governmental   agencies,   and   hydrogeologists,
WorldWater  also  works  closely  with  financial  institutions  such as private
investment funds, the U.S. Trade & Development  Agency, the Export-Import  Bank,
World Bank, Winrock and USAID. Given the recognized need for safe drinking water
and power in emerging nations, these financial organizations "earmark" funds for
such projects in the form of loans, grants, or as guarantees to local banks.

      Domestically,  WorldWater  has  worked  closely  with  Rutgers  University
agro-engineers and Cumberland County College in developing solar drip irrigation
systems  for use in  fresh  and  brackish  water.  WorldWater  is  currently  in
discussions with California State University of Fresno for use of solar power in
domestic irrigation.


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<PAGE>

(f) Research and Development

      Research and Development  expenditures  were $169,837 and $302,332 in 2002
and 2001,  respectively.  A key strategy of WorldWater is to continue developing
innovative,  cutting  edge  products  to meet water and  electricity  needs with
proprietary solar technology. The Company holds a patent on the electronic board
controller  (AquaDrive(TM))  of the  AquaSafe(TM) and AquaMax systems and have a
patent pending on the electronics  which match pump  performances with available
solar power input.

In addition to the AquaMax(TM) and  AquaSafe(TM),  WorldWater  markets these and
other solar products:

o     SolPower(TM)  PV systems  that  supply  electricity  for  lights,  radios,
      television,  and  refrigerators  in villages and towns  without  access to
      electrical grids
o     SolPower(TM)for telecommunications networks, including cell phones
o     Rechargeable solar lanterns

      Other  new  products  under  development  include  solar  drip  irrigation
systems,  and solar  brackish  water  irrigation  systems.  We work with Rutgers
University agro-engineers and Cumberland County College in developing solar drip
irrigation  systems  for use in fresh and  brackish  water.  Brackish  water,  a
mixture of fresh  water and salt,  and useless for  drinking or  irrigation,  is
prevalent  throughout most of the world. If our research and development in this
area is  successful,  our systems  could turn  brackish  water into a new usable
water source.

(g) Manufacturing

      Sub-contractors  currently  manufacture  components of the AquaSafe(TM)and
AquaMax2200(TM)systems  in the United States. WorldWater will continue to source
materials worldwide, based on quality and cost considerations.

(h) Patents

      We have filed and have obtained patents and  continuations-in-part for our
newly  developed  electronics  systems  and have  filed for  protections  of our
patents in certain key countries including the Philippines.  Thomas McNulty, Sr.
and  Douglas  Williams  of our staff and  Quentin T.  Kelly,  Chairman  and CEO,
together with Princeton  University  engineers have been issued patents,  all of
which are  assigned  to  WorldWater.  We hold a patent on the  electronic  board
controller  (AquaDrive ) of the AquaSafe and  AquaMax2200  systems.  The Company
also holds a patent for the Solar  Thermal  Powered  Water Pump. In addition the
company has another  patent  pending on an  electronic  board which matches pump
performances with available solar power input.

(i) Source and Availability of Raw Materials

      The solar  modules  used in our systems are  composed of silicon and other
photovoltaic  materials.  Suppliers of solar  modules  include  Shell Solar,  BP
Solar, Kyocera, Sharp and Matrix Technologies. We have ordered solar modules and
related  articles  from several  suppliers  and have not entered into any supply
contracts.


                                       9
<PAGE>

(j) Competitive Conditions Affecting the Company

      Our products compete with both  conventional and solar  technologies  that
bring power to off-grid areas. The main competitive  technologies are diesel and
gasoline  generators,  and  electrical  grid  extension.  The cost of installing
asolar pump may be more or less than the cost of an electrical  grid  extension,
depending on the particular  installation.  The benefit of the solar pump is the
reduction  in on-going  electric  costs.  The initial cost of acquiring a diesel
pump is less than the initial cost of a solar pump. However,  the operations and
maintenance  costs of the diesel pump are greater and, in remote areas, fuel and
spare parts are not always readily available.

      Our most commonly  encountered  competitor  is Grundfos A/S of Denmark,  a
manufacturer of a large range of water pumps including a solar pump line.  Their
pumps run off a specially wound AC motor which is  significantly  more expensive
than the  conventional AC pumps that we use.  Grundfos units are also limited in
capacity  to about 4 kW.  Our  systems  can  operate  pumps in the 300 KW range.
Aero-Environment  of California has somewhat  similar  technology using AC pumps
but they currently are limited in size to about 3 horsepower. There are a number
of other  solar  pump  companies,  including  Solar Jack of the US, Sun Motor of
Canada,  Southern  Cross of  Australia,  and Total  Energie from  Europe,  which
produce DC powered pumps.

(k) Subsidiaries

      100% wholly owned by WorldWater Corp. -
            WorldWater, Inc.
            WorldWater Holdings Inc.
            WorldWater East Africa Ltd.
            WorldWater Pakistan (Pvt.), Ltd.
            WorldWater (Phils) Inc.

(l) Government Regulations

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

(m) Employees

      On December 31, 2002, the company employed 14 people on a full-time basis.
The  company  also hires  consultants  on an  as-needed  basis and has  informal
arrangements with two water consulting  companies,  the hydrogeological  firm of
Vincent Uhl Associates and Morehouse  Engineering,  specialists in water pumping
and distribution and waste water treatment.


                                       10
<PAGE>

Risk Factors

Our business, results of operations and financial condition are subject to the
risks set forth below. You should carefully consider these risks. Additional
risks and uncertainties, including those that are not yet identified or that we
currently think are insignificant, may also adversely affect our business,
results of operations and financial condition.

THE COMPANY HAS HISTORICALLY INCURRED LOSSES AND LOSSES MAY CONTINUE IN THE
FUTURE

Since 1997, the Company has lost money. For the years ended December 31, 2002
and 2001, the Company sustained losses from operations of $2,007,536 and
$1,547,865, respectively; the accumulated deficits for these periods were
$15,648,510 and $13,642,779, respectively. Future losses are likely to occur.
Accordingly, the Company may experience significant liquidity and cash flow
problems if we are not able to raise additional capital as needed and on
acceptable terms and, in such events, our operations may be reduced or
curtailed.

THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN DUE
TO RECURRING LOSSES AND WORKING CAPITAL SHORTAGES, WHICH MEANS THAT WE MAY NOT
BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING

The reports of our independent accountants on our 2002 and 2001 financial
statements, include an explanatory paragraph indicating that there is
substantial doubt about the ability to continue as a going concern due to
recurring losses and working capital shortages. The ability to continue as a
going concern will be determined by the ability to obtain additional funding.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

IF THE COMPANY IS UNABLE TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS, THE
BUSINESS OPERATIONS WILL BE CURTAILED.

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

THE COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY.

There has been a limited public market for the Company's common stock and an
active trading market for the common stock may not develop. As a result, this
could reduce shareholders' ability to sell common stock in short time periods,
or possibly at all. The common stock has experienced, and is likely to
experience in the future, significant price and volume fluctuations which could
reduce the market price of our common stock without regard to operating
performance. In addition, the Company believes that factors


                                       11
<PAGE>

such as quarterly fluctuations in the financial results and changes in the
overall economy or the condition of the financial markets could cause the price
of the Company's common stock to fluctuate substantially.

THE CONVERSION OF PREFERRED STOCK WILL CAUSE DILUTION TO SHAREHOLDERS

The Company has designated and issued 66,667 shares of 7% convertible preferred
stock, Series A, and 611,111 shares of 7% convertible preferred stock, Series B.
The Series A convertible preferred stock was issued in September 2001 and has a
term of three years. The Series B convertible preferred stock was issued in
September 2000 and also has a term of three years. The Series A and Series B
convertible preferred stock are convertible into an aggregate of 677,778 shares
of common stock and automatically convert into common shares upon expiration at
the end of three years. The conversion of the preferred stock will cause
dilution to existing shareholders.

THE COMPANY'S COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO RESELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS

The Company's common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock:

o     With a price of less than $5.00 per share;

o     That are not traded on a "recognized" national exchange;

o     Whose prices are not quoted on the Nasdaq automated quotation system
      (Nasdaq listed stock must still have a price of not less than $5.00 per
      share); or

o     In issuers with net tangible assets less than $2.0 million (if the issuer
      has been in continuous operation for at least three years) or $5.0 million
      (if in continuous operation for less than three years), or with average
      revenues of less than $6.0 million for the last three years.

Broker-dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker-dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for the Company's common stock by reducing the
number of potential investors. This may make it more difficult for investors in
the Company's common stock to sell shares to third parties or to otherwise
dispose of them. This could cause the stock price to decline.

FAILURE TO RETAIN OR ATTRACT KEY PERSONNEL WILL HAVE A MATERIAL NEGATIVE IMPACT
ON OPERATIONS

Our future success depends, in significant part, on the continued services of
Quentin Kelly (our Chairman and Chief Executive Officer) and several other key
officers. We may not able to find an appropriate replacement for any key
personnel. Any loss or interruption of key personnel's services could have a
material negative impact on our ability to develop our


                                       12
<PAGE>

business plan. The Company maintains a key man life insurance policy on Quentin
Kelly in the amount of $1,100,000.

In addition, the business plan relies heavily on attracting and retaining
industry specialists with extensive technical and industry experience and
existing relationships with many industry participants. The business plan also
relies heavily on attracting and retaining qualified technical employees so the
Company can fully develop and enhance its technology. The markets for
experienced employees are extremely competitive. The ability to efficiently
operate the business will be limited if the Company is not successful in our
efforts to recruit and retain the personnel needed.


PROJECTS REQUIRE SUBSTANTIAL UP-FRONT COSTS BEFORE ANY REVENUES WILL BE REALIZED

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

THE COMPANY MAY NOT BE ABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS, AND THE
COMPANY MAY INADVERTENTLY BE INFRINGING ON THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL
PROPERTY RIGHTS.

If a court determines that we infringed on the rights of others, the Company may
be required to obtain licenses from such other parties. The persons or
organizations holding the desired technology may not grant licenses or the terms
of such licenses may not be acceptable. In addition, the Company could be
required to expend significant resources to develop non-infringing technology.

The Company relies on the registration of trademarks and trade names, as well as
on trade secret laws and confidentiality agreements with its employees.

ANY FAILURE TO MEET THE TECHNOLOGICAL REQUIREMENTS CUSTOMERS MAY HINDER SALES OF
PRODUCTS

The ability to continue to commercialize products is dependent on the
advancement of existing technology. In order to obtain and maintain a
significant market share, the Company is required to continue to make advances
in technology. Any failures in such research and development efforts could
result in significant delays in product development and have a material adverse
effect. The Company may encounter unanticipated technological obstacles which
either delay or prevent it from completing the development of its products and
processes.


                                       13
<PAGE>

COMPETITIVE CONDITIONS AFFECTING WORLDWATER MAY LIMIT GROWTH AND PROFITABILITY

The Company's products compete with both conventional and solar technologies
that bring power to remote areas. The main competitive technologies are diesel
or gasoline generators and electrical grid line extension.

The cost of installing a solar pump may be more or less than the cost of grid
line extension, depending upon the extent of the grid line extension. However, a
pump run by solar power is less expensive than the cost of running a
conventional electric pump because of the cost of grid line electricity from the
local electric utility. It should be noted that the cost of electric line
extension is usually subsidized by government authorities.

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

The Company's proprietary technology permits the use of "off-the-shelf" AC pumps
opening a range of previously unavailable options for solar power. AC pumps are
available in countries throughout the world, allowing replacement pumps and
parts to be supplied on a local basis. Other forms of solar powered photovoltaic
(PV) pumping currently available use less reliable and less durable DC pumps or
custom AC pumps which are more costly and not readily available in most
developing countries.

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

The Company may not be successful in competing with these competitors for new
customers or in retaining existing customers. Results of operations may suffer
if we cannot compete with larger and better capitalized companies.

THE COMPANY'S MARKETING EFFORTS IN DEVELOPING NATIONS HAVE ENCOUNTERED
SIGNIFICANT OBSTACLES THAT HAVE IMPEDED SALES

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


                                       14
<PAGE>

DIRECTORS ARE NOT PERSONALLY LIABLE AND ARE INDEMNIFIED FOR BREACH OF FIDUCIARY
DUTIES

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

THE COMPANY DEPENDS ON A LIMITED NUMBER OF SUPPLIERS OF COMPONENTS FOR OUR
SYSTEMS, AND ANY DELAY IN SUPPLY COULD AFFECT ITS ABILITY TO FILL ORDERS

The Company currently purchases parts and materials from a limited number of
suppliers. In addition, although historically the Company has not been dependent
on any one supplier or group of suppliers of components for systems, it may
become dependent in the future. The inability to obtain certain components on a
timely basis would limit its ability to complete projects in a timely manner.
However, the Company believes that acceptable alternative suppliers exist for
each of the components in the event a supplier fails to provide components on a
timely basis.

NO DIVIDENDS HAVE BEEN PAID BY THE COMPANY

The Company has never paid, nor does it anticipate paying, any cash dividends on
its common stock. Future debt, equity instruments or securities may impose
additional restrictions on its ability to pay cash dividends.

DELAWARE LAW AND THE COMPANY'S CHARTER MAY INHIBIT A TAKEOVER OF THE COMPANY
THAT STOCKHOLDERS MAY CONSIDER FAVORABLE

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

THE COMPANY IS SUBJECT TO FOREIGN EXCHANGE RATE FLUCTUATIONS THAT MAY RESULT IN
LOSSES

Operations overseas are subject to foreign currency exchange rate fluctuations.
With respect to the Philippine currency, the parent will transfer funds to our
Philippine subsidiary on an as needed basis and to the extent funds are
available to avoid significant exposure to currency fluctuations. The Company
may suffer losses due to adverse foreign currency exchange rate fluctuations.


                                       15
<PAGE>

FUTURE SALES BY STOCKHOLDERS MAY HAVE THE AFFECT OF LOWERING THE STOCK PRICE

Sales of the Company's common stock in the public market following this offering
could lower the market price of the common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Of
the 50,365,052 shares of our common stock outstanding as of December 31, 2002,
30,702,195 shares are, or will be, freely tradable without restriction, unless
held by our "affiliates." The total number of shares that are freely tradeable
less the amount held by affiliates is 30,230,195 shares. As of December 31,
2002, 18,569,107 shares of common stock held by existing stockholders are
"restricted securities" and may be resold in the public market only if
registered or pursuant to an exemption from registration. In addition, there are
outstanding options and warrants, which, upon exercise or conversion would
result in the issuance of an additional 15,697,896 shares of our common stock.

THE COMPANY'S COMMON STOCK HAS BEEN RELATIVELY THINLY TRADED AND WE CANNOT
PREDICT THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP

The common stock has traded on the Over-the-Counter Bulletin Board. Thinly
traded common stock can be more volatile than common stock trading in an active
public market.

Item 2.  Description of Property
--------------------------------

The Company's executive office, manufacturing facility and research and
development facility are housed in a 12,000 square foot site located at 55 Route
31 South, Pennington, New Jersey 08534. This facility is leased under an
operating lease expiring June 25, 2007. The Company also uses a second facility
in Hopewell, New Jersey for conferences, meetings and demonstrations of its
products. This facility is leased from Quentin T. Kelly, our Cahirman and Chief
Executive Officer, on a month-to-month basis. See "Certain Relationships and
Related Transactions."

      In August of 2002, the Company opened a sales and government liaison
office in Sacramento, California under a one year lease expiring August 15,
2003.

Item 3.  Legal Proceedings
--------------------------

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

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

None


                                       16
<PAGE>

PART ll.

Item 5. Market for Common Equity and Related Stockholder Matters

(a) Price Range of Common Stock.

WorldWater Corp.'s common stock is traded on the OTC Electronic Bulletin Board
and is listed under the stock symbol "WWAT.OB". High and low bid quotations are
listed below:

                                            For the year ended December 31, 2002

                                                   HIGH              LOW

First Quarter............................         $0.30             $0.12
Second Quarter...........................         $0.28             $0.12
Third Quarter............................         $0.18             $0.12
Fourth Quarter...........................         $0.19             $0.11

(b) Holders of Common Stock

As of March 28, 2003, the common stock price was $0.14 and there were
approximately 791 shareholders of record for the Company's common stock. The
number of record holders does not include holders whose securities are held in
street name.

(c) Dividends

The Company has not declared or paid, nor has it any intention to pay any cash
dividends on its common stock in the foreseeable future.

(d) Redemption Provisions of Preferred Stock

The Company issued 0 and 66,667 shares in 2002 and 2001, respectively, of Series
A 7% three year Convertible Preferred Stock at $0.90 per share. The Series A
Preferred Shares are callable at $1.80 if the market bid price remains over the
call level for 20 days.

In November 2001 the Company converted 1,111,055 shares plus preferred dividends
of $104,995 at $0.25 per share for a total of 4,419,778 common shares. In
accordance with SFAS No. 84, "Induced Conversions of Convertible Debt (an
Amendment of APB Opinion No. 26)", the Company recorded a charge to retained
earnings of $722,478. The charge was equal to the fair value of the common stock
received less the fair value of the common stock that would have been received
pursuant to the original conversion terms of the Series A Preferred Stock. This
charge was recorded as accretion of preferred stock dividends on the
accompanying statement of operations and as a component of the net loss
available to common shareholders.


                                       17
<PAGE>

The Company will pay 7% dividends annually on both the Series A and Series B
Preferred Stock based on its per share value as determined by the Board of
Directors based upon the results of operations and the financial condition of
the Company.

The Series A and Series B preferred stock shares automatically convert into
common shares upon expiration at the end of three years.

SALES OF RESTRICTED SECURITIES DURING THE FOURTH QUARTER 2002

      In October 2002 the Company issued 1,000,000 common stock shares for cash
totaling $100,000 and attached warrants to purchase 500,000 common stock shares
with an exercise price of $0.10 and a two-year term to a qualified investor.
This transaction did not involve a public offering and therefore was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Act").

      On November 8, 2002, we entered into a Securities Purchase Agreement with
Millennium 3 Opportunity Fund, LLC. Under the terms of the purchase agreement,
Millennium acquired:

-     an aggregate of $500,000 principal amount of our 10% Convertible Notes Due
      2005 (using the original issue discount the effective interest rate is 32%
      per annum and $309,877 loan value), which are currently convertible at the
      option of the holder at $0.14 per common share for an aggregate of
      3,571,430 shares;

-     warrants to purchase an aggregate of 1,190,500 shares of our common stock
      at an exercise price of $.20 per share; and

-     warrants to purchase an aggregate of 1,190,500 shares of our common stock
      at an exercise price of $.50 per share.

      The notes bear interest at a rate of 10% per annum payable semi-annually
commencing May 2003. Interest is payable in cash or shares of our common stock
at the election of Millennium. The $.20 warrants contain a cashless exercise
provision, but otherwise have the same rights as the $.50 warrants, which do not
contain a cashless exercise provision. Millennium also had the right to acquire
up to an additional $2,000,000 in principal amount of our 10% Convertible Notes
due 2005, prior to December 31, 2002. Millennium did not exercise its right to
acquire the additional securities.

      We also entered into an Investor Rights Agreement with Millennium under
which Millennium has certain rights, including the right but not the obligation,
to designate one member of our board of directors, who shall also serve on our
compensation committee and executive committee. As of this date, Millennium has
not designated a board member.


                                       18
<PAGE>

      We are registering the shares of common stock issuable upon conversion of
the notes and exercise of the warrants beneficially owned by Millennium under
the terms of a Registration Rights Agreement between us and Millennium. In the
event we fail to register the shares of common stock underlying the notes and
warrants beneficially owned by Millennium pursuant to the terms of the
Registration Rights Agreement, the conversion price under the notes will be
lowered as set forth in the Registration Rights Agreement.

      The sales of securities described in this section were made to accredited
investors as defined in Rule 501 of Regulation D in transactions not involving a
public offering and therefore exempt from registration pursuant to the Act.

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                 2002              2001             2000             1999            1998
                                                 ----              ----             ----             ----            ----
                OPERATING RESULTS             (Restated)        (Restated)
<S>                                             <C>               <C>              <C>             <C>               <C>
Net sales                                       $643,541          $241,045         $279,531        $526,924          $45,451
Income (loss) from operations                 (2,007,536)       (1,547,865)      (1,958,821)     (1,225,600)      (1,362,015)
Net income (loss)                             (2,005,731)       (2,494,757)      (1,704,179)       (787,318)      (1,566,842)
Net income (loss) per share - Basic                (0.04)            (0.07)           (0.06)          (0.03)           (0.08)
Net income (loss) per share - Diluted              (0.04)            (0.07)           (0.06)          (0.03)           (0.08)

               FINANCIAL POSITION
Total assets                                   1,177,970           265,084          441,299         485,569          175,493
Long term obligations - less
     current portion                             349,878            61,270           20,480         200,000               --
Shareholders' equity (deficiency)             (1,339,968)         (939,952)        (254,046)     (1,788,250)      (2,078,574)
</TABLE>

Item 7. Management's Discussion and Analysis and Results of Operations

Certain statements contained in Management's Discussion and Analysis, and
elsewhere in this annual report, concerning the Company's outlook or future
economic performance such as anticipated profitability, gross billings,
commissions and fees, expenses or other financial items; and conditions of
performance or other matters, are "forward looking statements" as that term is
defined under the Federal Securities Laws. Forward looking statements are
subject to risks, uncertainties, and other factors which would cause actual
results to differ materially from those states in such statements. Such risks,
uncertainties and factors include, but are not limited to, the following: (1)
there can be no assurance that the Company will grow profitably or manage its
growth, (2) risk associated with acquisitions, (3) competition, (4) the
Company's quarterly results have fluctuated in the past and are expected to
fluctuate in the future, (5) the loss of services of key individuals which could
have a material adverse effect on the Company's business, financial condition or
operating results, (6) risks associated with operating in emerging countries.

General

The Company is a solar engineering - water management company with high-powered
solar technology providing solutions to water supply problems. Until the first
quarter of 2002, it had been a development-stage enterprise organized to design,
develop, manufacture and


                                       19
<PAGE>

market solar water pumping systems. Its business was
focused exclusively on helping developing countries with water and power
problems. Its solar water pumping systems were capable of running only small
pumps that were adequate to meet the needs of villages and rural communities in
developing countries. The Company continues to seek opportunities throughout the
world, including the Philippines, Sri Lanka and East Africa. Through research
and development, the Company's technology is now capable of operating up to 600
horsepower pumps for irrigation, refrigeration and water utility pumping
systems. This increased power capability coupled with growing energy shortages
in the United States has opened domestic market opportunities that have become
the principal focus of its business. Throughout 2003, the Company intends to
focus efforts on the enhancement and aggressive implementation of its marketing
program, which includes institutional public and private commercial markets in
California, New Jersey and other states that offer incentives for alternative
power sources.

Results of Operations:

Year ended December 31, 2002 ("Fiscal 2002")
Year ended December 31. 2001 ("Fiscal 2001")

Revenue

For the year ended December 31, 2002 net revenues increased to $643,541 as
compared to $241,045 for the year ended December 31, 2001. Equipment sales and
grant revenue for the year ended December 31, 2002 were $386,916 and $256,625 as
compared to $118,212 and $122,833 for the year ended December 31, 2001.
Equipment sales increased by $268,704 or 227% as compared to the previous year
and grant revenue increased by $133,792 or 109%.

In January of 2002, the Company began work on a water and power feasibility
study for the Government of the Philippines (Department of Agriculture) funded
by the U.S. Trade and Development Agency (USTDA) in the amount of $302,500.
During 2002, the Company realized $256,625 of revenue from this grant entered
into by and between the Philippines National Irrigation Administration and the
Company for the preparation of a feasibility study on the Mindanao Appropriate
Irrigation Technologies for Enhanced Agricultural Production project. A
nationwide irrigation development project is scheduled to follow on completion
of the study. The Company also began work installing its first solar pumping
system in the community of Ronda on the island of Cebu, Philippines.

Early in 2002, the Company addressed the uncertainty of oversees market
fluctuations with a new focus on domestic business. During the fourth quarter of
2002, the Company completed installation of its first AquaMax(TM) system
powering a 50 horsepower irrigation pump at a ranch located in California which
amounted to $293,000 of revenue. Also in California, the Company began
implementation of a 300 horsepower solar powered system for a food processing
refrigeration unit ($891,000 contract) and instituted engineering and planning
for four pumping systems of 300 and 500 horsepower for a water utility district
in California ($4 million purchase order). In New Jersey, the first contract was
signed with an organic farm ($177,000) where work is underway with anticipated
completion in March 2003. With the current orders which total more than $5
million the Company anticipates being able to cover its fixed and variable
marketing and general and administrative expenses by the third quarter of 2003.
Until that time, the Company will continue to source private funding of equity
and debt.


                                       20
<PAGE>

Cost of Sales and Gross Profit

Cost of sales for the years ended 2002 and 2001 were $531,188 and $181,526,
respectively. Cost of sales for equipment increased $339,114 to $420,800 or 415%
on a 167% increase in sales. Costs associated with grant revenue increased
$10,548 on an increase of revenue of approximately 109%.

Gross profit for the years ended 2002 and 2001 was $112,353 and $59,519,
respectively. Gross loss on equipment sales for the year ended December 31, 2002
was $33,884 as compared to a gross profit of $36,526 from the previous year. The
gross loss in 2002 was attributable to the execution of the Company's first
installation of a 50 horsepower irrigation pump where we experienced slight cost
overruns for various contracted labor. These overruns have been addressed and
fixed contracting prices have now been established.

Marketing, General and Administrative

Marketing, general and administrative expenses were $1,950,052 for the year
ended December 31, 2002 as compared to $1,305,052 in 2001, an increase of 49% on
a 167% increase in revenue. This increase is primarily attributable to an
increase in sales efforts and staffing necessary to capture the newly developed
domestic market. We are gradually increasing our current staffing levels but
have found it necessary to hire consultants from time to time therefore
increasing this expense as compared to the same period in 2001. Assuming that
the domestic business continues to grow steadily, it will be necessary to
recruit additional staff to implement the contracts.

Research and Development

Research and development expenses were $169,837 for the year ended December 31,
2002 compared to $302,332 in 2001. The company introduced its new solar energy
pumping technology capable of generating high power in February of 2002 at the
Agricultural Expo in Tulare, California. Research and development expenses have
since been lower as the company focuses its efforts on introducing this
technology to the marketplace, focusing primarily in the Philippines, California
and New Jersey.

Loss from Operations

Operating loss for the year ended December 31, 2002 was $2,007,536 as compared
to $1,547,865 from the previous year.

Income Taxes

The Company recognized no income tax expense for 2002 and 2001 to date.

The Company participates in the State of New Jersey's corporation business tax
benefit certificate transfer program (the "Program"), which allows certain high
technology and biotechnology companies to transfer unused New Jersey net
operating loss carryovers and research and development tax credits to other New
Jersey corporation business taxpayers. During 2002 and 2001, the Company
submitted applications to the New Jersey Economic Development Authority (the
"EDA") to participate in the Program and the applications were approved. The EDA
then issued certificates certifying the Company's eligibility to participate in
the Program for these years.


                                       21
<PAGE>

The program requires that a purchaser pay at least 75% of the amount of the
surrendered tax benefit. During 2002 and 2001, the Company sold approximately
$1,448,912 and $1,729,498 of its New Jersey state net operating loss
carryforwards and $12,660 and $17,001 of its research and development tax
credits for $121,603 and $145,148, respectively and recognized a tax benefit for
that amount.

In the event of a change in ownership, the Tax Reform Act of 1986 (the "Act")
provides for a potential limitation on the annual use of net operating loss
(NOL) and research and development tax credit carryforwards that could
significantly limit the Company's ability to utilize these carryforwards.
Accordingly, because tax laws limit the time during which these carryforwards
may be applied against future taxes, the Company may not be able to take full
advantage of the net operating losses and credit carryforwards for Federal
income tax purposes.

Liquidity and Capital Resources

The net increase in cash from all activities in 2002 was $122,459 as compared to
net cash used of $49,114 in 2001. The cash used in operating activities was
$1,471,998 compared to $882,732 in 2001. The primary increase for use of cash
for operating activities is attributable to the increase in domestic sales
efforts as the company takes an aggressive approach in capturing this market
opportunity and the payment of accrued taxes at the beginning of the year. The
cash used in investing activities was $10,663 as compared to $19,069 in 2001.

The cash provided by financing activities in 2002 was $1,608,557 as compared to
$863,328 in 2001. The company continued to finance its operations through the
sale of stock and convertible debentures. In January 2002, the Company
consummated an agreement with two related investment companies for the sale of
1,667,000 shares each of common stock for a purchase price of $250,000 each.
Warrants to purchase 1,667,000 shares of common stock also were issued in the
transaction. A total of 1,168,000 warrants were exercised in 2002, generating an
additional $175,200 of proceeds. Under the terms of a Securities Purchase
Agreement executed on November 8, 2002, the Company received $400,940 in net
proceeds from a private placement offering of 10% convertible notes along with
warrants to purchase 1,190,500 shares of common stock. Throughout 2002, an
individual invested an additional $250,000 for 1,666,668 common shares along
with warrants to purchase an additional 1,000,000 shares of common stock.

At December 31, 2002, the Company had a working capital deficiency of $1,082,224
and a stockholders' deficiency of $1,339,968. It has experienced continuing
negative cash flows from operations, which have resulted in the inability to pay
certain existing liabilities in a timely manner. The Company has financed
operations, which historically have mainly focused on research and development,
through private funding of equity and debt.

The Company expects to continue to incur losses until such time as it gains
greater market acceptance of our new technology at selling prices and volumes
which provide adequate gross profit to cover operating costs and generate
positive cash flow. Working capital requirements will depend upon numerous
factors, including the level of resources devoted to the scale-up of
installation activities, and increased sales and marketing.


                                       22
<PAGE>

Management has developed a financial plan to address working capital deficiency
and to increase the cash provided by financing activities. Since early 2000,
this has included the issuance of restricted stock and convertible debentures.
While this financial plan has sufficiently funded operations to date, that is,
funding the development and introduction of its solar technology, and will
continue to do so if executed successfully, the cash balance as of December 31,
2002, and the cash received subsequently, is insufficient to fund operations for
the first quarter of 2003. While the Company is currently pursuing additional
project and purchase order financing from banks and other parties, and believe,
based upon past experience, sufficient funding may be available, it should be
noted that no firm commitment for such funding currently exists.

Critical Accounting Estimates

These consolidated financials are presented on the basis that the Company will
continue as a going concern. The going concern concept contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business over a reasonable length of time. The Company's working capital
deficit and stockholder's deficiency raises substantial doubt about the
Company's ability to continue as a going concern. Management continues to raise
capital through the sale of common stock and additional borrowings.. In
addition, management is continuing to market their products domestically and
internationally. However, there can be no assurances that the company will be
successful in these efforts. The consolidated financial statements do not
include any adjustments that might result from the outcome of this going concern
uncertainty.

Revenue is recognized primarily from the sale and installation of solar pumping
systems and solar energy systems. Revenues are recorded when persuasive evidence
of an arrangement exists, the price is fixed and determinable, delivery has
occurred or services have been rendered and when collectibility is reasonably
assured.

Deferred tax assets and liabilities are determined based on the temporary
differences between the financial reporting and the tax basis of assets and
liabilities, applying enacted statutory tax rates in effect for the year in
which the differences are expected to reverse. Future tax benefits, such as net
operating loss carryforwards, are recognized to the extent that realization of
these benefits is considered more likely than not.

Item 7. Financial Statements

      The financial statements of the Company, including the notes thereto,
together with the report of the independent public accountant thereon, are
presented beginning on page 34.


                                       23
<PAGE>

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Effective January 15, 2003, we dismissed our independent accountants. Since
December 18, 1998, Civale, Silvestri, Alfieri, Martin & Higgins, LLC ('Civale'),
or a predecessor entity, has served as the Company's independent accounts. The
decision not to retain Civale as the company's independent accountants for the
fiscal year 2002 is not a reflection on Civale's capabilities or quality of
service. The reports of Civale on our financial statements for the past two
fiscal years did not contain any adverse opinion, disclaimer of opinion or any
qualifications or modifications related to uncertainty, limitation of audit
scope or application of accounting principles, except that Civales' reports on
our financial statements for the past two fiscal years did contain a
modification as to the uncertainty of our ability to continue as a going
concern. The decision to change the our independent accountant was approved by
our Board of Directors.

In connection with its audits for the two most recent fiscal years and through
January 15, 2003, there have been no disagreements with Civale on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
Civale would have caused them to make reference thereto in their report on the
financial statements for such years. During the two most recent fiscal years and
through January 15, 2003, there have been no reportable events (as defined in
Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities Act of
1933, as amended).

Effective January 15, 2003, we engaged Amper, Politziner & Mattia ('Amper') as
our new independent accountant to audit our financial statements for the year
ended December 31, 2002. During the two most recent fiscal years and through
January 15, 2003, we have not consulted with Amper regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements; or (ii) any matter that was either the subject of a
disagreement or a reportable event as defined in Item 304(a)(2) of Regulation
S-K.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(A) of the Exchange Act

Information with respect to Item 9 is set forth in the Proxy Statement to be
filed with the Securities and Exchange Commission on or before April 30, 2003
and is incorporated herein by reference.

Item 10. Executive Compensation

Information with respect to Item 10 is set forth in the Proxy Statement to be
filed with the Securities and Exchange Commission on or before April 30, 2003
and is incorporated herein by reference.


                                       24
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Information with respect to Item 11 is set forth in the Proxy Statement to be
filed with the Securities and Exchange Commission on or before April 30, 2003
and is incorporated herein by reference.

Item 12. Certain Relationships and Related Transactions

Information with respect to Item 12 is set forth in the Proxy Statement to be
filed with the Securities and Exchange Commission on or before April 30, 2003
and is incorporated herein by reference.

Part IV

Item 13. Exhibits List and Reports on Form 8-K

Exhibit Number          Description

(a) Exhibits:

2.1 Plan of Merger of WorldWater Corp., a Nevada corporation with and into
WorldWater Corp., a Delaware corporation, filed with the State of Delaware April
30, 2001. Incorporated by reference to Exhibit 2.1 to Company's Form SB-2 filed
with the Securities and Exchange Commission on January 3, 2003 (No. 000-16936).

2.2 State of Nevada Articles of Merger, filed with the State of Nevada May 9,
2001. Incorporated by reference to Exhibit 2.2 to Company's Form SB-2 filed with
the Securities and Exchange Commission on January 3, 2003 (No. 000-16936).

2.3 Certificate of Merger of Domestic Corporation and Foreign Corporation filed
with State of Delaware April 30, 2001. Incorporated by reference to Exhibit 2.3
to Company's Form SB-2 filed with the Securities and Exchange Commission on
January 3, 2003 (No. 000-16936).

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

3.2 Certificate of Amendment of Certificate of Incorporation. Incorporated by
reference to Exhibit 3.2 to Company's Form SB-2 filed with the Securities and
Exchange Commission on January 3, 2003 (No. 000-16936).

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

10.1 Securities Purchase Agreement between WorldWater Corp. and Millennium 3
Opportunity Fund, LLC dated November 8, 2002. Incorporated by reference to
Exhibit


                                       25
<PAGE>

10.1 to Company's Form 10QSB/A filed with the Securities and Exchange Commission
on November 18, 2002 (No. 000-16936).

10.2 Investor Rights Agreement between WorldWater Corp. and Millennium 3
Opportunity Fund, LLC. Incorporated by reference to Exhibit 10.2 to Company's
Form 10QSB/A filed with the Securities and Exchange Commission on November 18,
2002 (No. 000-16936).

10.3 Registration Rights Agreement between WorldWater Corp. and Millennium 3
Opportunity Fund, LLC. Incorporated by reference to Exhibit 10.3 to Company's
Form 10QSB/A filed with the Securities and Exchange Commission on November 18,
2002 (No. 000-16936).

10.4 10% Convertible Note Due 2005 between WorldWater Corp. and Millennium 3
Opportunity Fund, LLC. Incorporated by reference to Exhibit 10.4 to Company's
Form 10QSB/A filed with the Securities and Exchange Commission on November 18,
2002 (No 000-16936).

10.5 Warrant to Purchase 595,250 shares at $0.20 between WorldWater Corp.and
Millennium 3 Opportunity Fund, LLC. Incorporated by reference to Exhibit 10.5 to
Company's Form 10QSB/A filed with the Securities and Exchange Commission on
November 18, 2002 (No. 000-16936).

10.6 Warrant to Purchase 595,250 shares at $0.50 between WorldWater Corp. and
Millennium 3 Opportunity Fund, LLC. Incorporated by reference to Exhibit 10.6 to
Company's Form 10QSB/A filed with the Securities and Exchange Commission on
November 18, 2002 (No. 000-16936).

10.7 Stock Purchase Agreement between WorldWater Corp., Kuekenhof Partners L.P.
and Kuekenhof Equity Fund L.P. dated December 31, 2001. Incorporated by
reference to Exhibit 10.7 to Company's Form SB-2 filed with the Securities and
Exchange Commission on January 3, 2003 (No. 000-16936).

10.8 Stock Purchase Agreement between WorldWater Corp. and Joann Jordan, David
D. Jordan and Lavorsia D. Jordan Custodian for Cayla Rae Jordan Dated January
15, 2002. Incorporated by reference to Exhibit 10.8 to Company's Form SB-2 filed
with the Securities and Exchange Commission on January 3, 2003 (No. 000-16936).

10.9 Stock Purchase Agreement between WorldWater Corp. and Peter Teevan dated
January 15, 2002. Incorporated by reference to Exhibit 10.9 to Company's Form
SB-2 filed with the Securities and Exchange Commission on January 3, 2003 (No.
000-16936).

10.10 Quentin T. Kelly Employment Agreement dated January 1, 2002. Incorporated
by reference to Exhibit 10.10 to Company's Form SB-2 filed with the Securities
and Exchange Commission on January 3, 2003 (No. 000-16936).

10.11 Amendment to Quentin T. Kelly Employment Agreement dated July 1, 2002.
Incorporated by reference to Exhibit 10.11 to Company's Form SB-2 filed with the
Securities and Exchange Commission on January 3, 2003 (No. 000-16936).


                                       26
<PAGE>

10.12 Restricted Stock Agreement for Quentin T. Kelly dated July 1, 2002.
Incorporated by reference to Exhibit 10.12 to Company's Form SB-2 filed with the
Securities and Exchange Commission on January 3, 2003 (No. 000-16936).

23.1 Consent of Amper, Politziner & Mattia, P.C.

23.2 Consent of Civale, Silvestri, Alfieri, Martin & Higgins, LLC

99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K.

There were no Forms 8-K filed by the registrant during the fourth quarter of
2002.

Item 14. Controls and Procedures.

      (a) Evaluation of disclosure controls and procedures. An evaluation was
performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures within 90 days before the filing date of this
Form 10-K. Based on their evaluation, the Company's principal executive officer
and principal financial officer have concluded that the Company's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) are effective 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 Securities and Exchange Commission
rules and forms.

      (b) Changes in internal controls. There have been no significant changes
in the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to their evaluation. There were no
significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.


                                       27
<PAGE>

Signatures

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

WorldWater Corp.
(Registrant)

By:  /s/ Quentin T. Kelly                                     Date: June 2, 2003
--------------------------                                          ------------
Quentin T. Kelly, Chairman/CEO

In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

Signature                                Title                          Date

/s/ Quentin T. Kelly             Chairman/Chief Executive           June 2, 2003
---------------------             Officer
Quentin T. Kelly

/s/ Terri Lyn Harris             Vice President/Controller          June 2, 2003
---------------------
Terri Lyn Harris

/s/ Joseph Cygler                Director                           June 2, 2003
------------------
Joseph Cygler

/s/ Rolf Frauenfelder            Director                           June 2, 2003
----------------------
Rolf Frauenfelder

/s/ Dr. Davinder Sethi           Director                           June 2, 2003
-----------------------
Dr. Davinder Sethi

/s/ Lange Schermerhorn           Director                           June 2, 2003
------------------------
Lange Schermerhorn


                                       28
<PAGE>

CERTIFICATION PURSUANT TO RULE 13-A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT
OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Quentin T. Kelly, certify that:

1. I have reviewed this annual report on Form 10-KSB of WorldWater Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a. designed such disclosure controls and procedures to ensure the material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

      b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date.

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

      a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation,


                                       29
<PAGE>

including any corrective actions with regard to significant deficiencies and
material weaknesses.

By: /s/ Quentin T. Kelly
    ----------------------------------------------------
Name: Quentin T. Kelly
Title: Chief Executive Officer and Chairman of the Board

Dated:  June 2, 2003


                                       30
<PAGE>

CERTIFICATION PURSUANT TO RULE 13-A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT
OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Terri Lyn Harris, certify that:

1. I have reviewed this annual report on Form 10-KSB of WorldWater Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a. designed such disclosure controls and procedures to ensure the material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

      b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date.

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

      a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


                                       31
<PAGE>

By: /s/ Terri Lyn Harris
    --------------------------
Name: Terri Lyn Harris
Title: Chief Financial Officer

Dated:  June 2, 2003


                                       32
<PAGE>

                                                    Independent Auditors' Report

To the Shareholders of
WorldWater Corporation and Subsidiary

We have audited the accompanying consolidated balance sheet of WorldWater Corp.
and Subsidiaries as of December 31, 2002, and the related consolidated statement
of operations, changes in stockholders' equity (deficiency) and cash flows for
the year ended December 31, 2002. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position at December 31, 2002,
the results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a working capital and stockholders'deficiency that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

As discussed in Note 19, the accompanying 2002 and 2001 financial statements
have been restated.

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

March 26, 2003, except for Note 19 which is dated May 30, 2003

Edison, New Jersey


                                       33
<PAGE>

To The Board of Directors and Shareholders,
WorldWater Corp:

We have audited the accompanying consolidated balance sheets of WorldWater Corp.
and Subsidiaries as of December 31, 2001 and 2000 and the related consolidated
statements of operations, stockholders' deficiency and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provided a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WorldWater Corp. and
Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 19 to the financial statements, certain errors in recording
the induced conversion of convertible debt, was discovered by management of the
Company during the year. Accordingly, the 2001 financial statements have been
restated to correct the error.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
these matters and future operations are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


Civale, Silvestri, Alfieri, Martin & Higgins, LLC
Mercerville, New Jersey
April 13, 2002, except for notes 12 and 19
as to which the date is June 2, 2003

                                       34
<PAGE>

                        WORLDWATER CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                           December 31, 2002 and 2001
                             (Restated, see Note 19)
<TABLE>
<CAPTION>
       Assets ......................................................................      2002           2001
                                                                                      ------------   ------------
                                                                                        (Restated)     (Restated)
Current Assets:
    <S>                                                                               <C>            <C>
    Cash and cash equivalents ......................................................  $    140,574   $     18,115
    Accounts receivable, net of allowance for doubtful
        accounts of $8,980in 2002 and $3,760 in 2001 ...............................       283,172         53,634
    Inventory ......................................................................        61,862         55,118
    Deferred contract costs ........................................................       583,643             --
    Prepaid expenses ...............................................................        16,585         15,746
                                                                                      ------------   ------------
       Total Current Assets ........................................................     1,085,836        142,613
    Equipment and leasehold improvements, Net ......................................        88,587        117,698
    Deposits .......................................................................         3,547          4,773
                                                                                      ------------   ------------
       Total Assets ................................................................  $  1,177,970   $    265,084
                                                                                      ============   ============

       Liabilities and Stockholders' (Deficiency)

Current Liabilities:
    Notes payable ..................................................................  $    197,000   $    167,000
    Notes payable, related parties .................................................       102,000         81,500
    Current maturities of long-term debt ...........................................       171,937        177,199
    Customer deposits payable ......................................................       243,172             --
    Accounts payable and accrued expenses ..........................................     1,453,951        718,067
                                                                                      ------------   ------------
       Total Current Liabilities ...................................................     2,168,060      1,143,766
    Long-term debt .................................................................       349,878         61,270
                                                                                      ------------   ------------
       Total Liabilities ...........................................................     2,517,938      1,205,036
                                                                                      ------------   ------------
Commitments and contingencies                                                                   --             --

Stockholders' (Deficiency):
    Preferred Stock 7% Convertible,$.01 par value; authorized
       10,000,000; issued and outstanding at December 31, 2002 and 2001:
            Series A 66,667 shares, liquidation preference $60,000 .................           667            667
            Series B 611,111 shares, liquidation preference $550,000 ...............         6,111          6,111
    Common stock, $.001 par value; authorized 100,000,000;
       issued and outstanding 49,365,052 and 1,000,000 restricted shares at
       December 31, 2002 and 40,761,489 shares at December 31, 2001, ...............        50,365         40,761
    Additional paid-in capital .....................................................    14,400,477     12,665,929
    Deferred compensation ..........................................................      (135,000)            --
    Accumulated other comprehensive loss ...........................................       (14,078)       (10,641)
    Accumulated deficit ............................................................   (15,648,510)   (13,642,779)
                                                                                      ------------   ------------
       Total Stockholders' (Deficiency) ............................................    (1,339,968)      (939,952)
                                                                                      ------------   ------------
       Total Liabilities and Stockholders' (Deficiency) ............................  $  1,177,970   $    265,084
                                                                                      ============   ============
</TABLE>

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

                                       35

<PAGE>
                                          WORLDWATER CORP. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENT OF OPERATIONS
                                      For the years ended December 2002 and 2001
                                                (Restated, see Note 19)

<TABLE>
<CAPTION>
                                                                 2002            2001
                                                             ------------    ------------
                                                              (Restated)      (Restated)
Revenue:
<S>                                                          <C>             <C>
    Equipment sales .....................................    $    386,916    $    118,212
    Grant revenue .......................................         256,625         122,833
                                                             ------------    ------------
        Total ...........................................         643,541         241,045
                                                             ------------    ------------
Cost of Goods Sold:
    Cost of equipment sales .............................         420,800          81,686
    Cost of grant revenue ...............................         110,388          99,840
                                                             ------------    ------------
                                                                  531,188         181,526
                                                             ------------    ------------
Gross Profit ............................................         112,353          59,519
                                                             ------------    ------------
Operating Expenses:
    Research and development expense ....................         169,837         302,332
    Marketing, general and administrative expenses ......       1,950,052       1,305,052
                                                             ------------    ------------
        Total Expenses ..................................       2,119,889       1,607,384
                                                             ------------    ------------
Loss from Operations ....................................      (2,007,536)     (1,547,865)
                                                             ------------    ------------
Other Expense (Income)
    Interest expense (income), net ......................          81,298         214,400
                                                             ------------    ------------
        Total Other Expense (income), net ...............          81,298         214,400
                                                             ------------    ------------
Loss before income taxes and extraordinary item .........      (2,088,834)     (1,762,265)
Benefit from sale of NJ net operating losses ............         121,603         145,148
                                                             ------------    ------------
Net loss ................................................      (1,967,231)     (1,617,117)

    Accretion of preferred stock dividends ..............         (38,500)       (877,640)
                                                             ------------    ------------

Net loss applicable to common shareholders ..............    $ (2,005,731)   $ (2,494,757)
                                                             ============    ============

Net loss applicable per Common Share:
    Basic ...............................................    $      (0.04)   $      (0.07)
                                                             ============    ============
    Diluted .............................................    $      (0.04)   $      (0.07)
                                                             ============    ============

Shares used in Per Share Calculation:
     Basic ..............................................      46,151,102      33,832,459
                                                             ============    ============
     Diluted ............................................      46,151,102      33,832,459
                                                             ============    ============
</TABLE>

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

                                       36
<PAGE>

                        WORLDWATER CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 For the years ended December 31, 2002 and 2001
                             (Restated, see Note 19)

<TABLE>
<CAPTION>
                                                                                       2002          2001
                                                                                   -----------    -----------
                                                                                    (Restated)     (Restated)
Cash Flows from Operating Activities:
    Net loss ...................................................................
    Adjustments to reconcile net loss to
       net cash used in operating activities:
<S>                                                                                     <C>            <C>
           Non-cash compensation expense related to warrants issued ............        46,500         13,417
           Amortization of interest expense ....................................        20,100        131,478
           Issuance of options for service and interest ........................          --           78,250
           Issuance of stock for service .......................................       214,341         60,000
           Depreciation ........................................................        41,000         45,048
           Bad debts ...........................................................         5,220         (6,240)
           Stock based compensation expense ....................................        15,000           --
           Changes in assets and liabilities:
               Accounts receivable .............................................      (234,758)        58,919
               Inventory .......................................................        (6,744)        33,589
               Deferred contract costs .........................................      (583,643)          --
               Prepaid expenses ................................................          (839)        (9,092)
               Customer deposits payable .......................................       243,172           --
               Accounts payable and other accrued expenses .....................       735,884        329,016
                                                                                   -----------    -----------
                   Net Cash (Used in) Operating Activities .....................    (1,471,998)      (882,732)
                                                                                   -----------    -----------

Cash Flows from Investing Activities:
    Purchase of equipment and leasehold improvements ...........................       (11,889)        (4,623)
    Deposits ...................................................................         1,226        (14,446)
                                                                                   -----------    -----------
                   Net Cash Provided by (Used in) Investing Activities .........       (10,663)       (19,069)
                                                                                   -----------    -----------

Cash Flows from Financing Activities:
    Proceeds from issuance of long-term debt ...................................       600,000         10,000
    Payments on long-term debt .................................................      (126,531)        (5,879)
    Proceeds from issuance of notes payable ....................................       351,500        406,000
    Payments on notes payable ..................................................      (301,000)      (205,500)
    Proceeds from issuance of common stock .....................................     1,084,588        658,707
                                                                                   -----------    -----------
                   Net Cash Provided by Financing Activities ...................     1,608,557        863,328
                                                                                   -----------    -----------

Net effect of currency translation on cash .....................................        (3,437)       (10,641)

Net Increase (Decrease) in Cash and cash equivalents ...........................       122,459        (49,114)
Cash and cash equivalents at Beginning of Year .................................        18,115         67,229
                                                                                   -----------    -----------

Cash and cash equivalents at End of Year .......................................   $   140,574    $    18,115
                                                                                   ===========    ===========
</TABLE>

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

                                       37
<PAGE>

                        WORLDWATER CORP. AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                 For the years ended December 31, 2002 and 2001
                             (Restated, see Note 19)

<TABLE>
<CAPTION>
                                                                                           Additional     Additional
                                                                                             Paid-In        Paid-In
                                        Common       Stock       Preferred     Stock         Capital        Capital
                                        Shares     Par Value       Shares     Par Value     (Common)      (Preferred)
                                      ----------   ---------     ---------    ---------    -----------    ----------
<S>                                   <C>            <C>         <C>           <C>         <C>            <C>
Balance, December 31, 2000            32,330,811     $32,331     1,722,166     $17,222     $9,461,695     $1,382,728
Conversion of preferred stock
  - Series A                           4,419,778       4,420    (1,111,055)    (11,111)       995,530       (988,839)
  - Accretion of dividends                    --          --            --          --        827,473         50,167
Issuance of preferred stock
  for cash - Series A                         --          --        66,667         667             --         59,333
Private placement issuance
  Costs                                       --          --            --          --       (112,720)            --
Issuance of common stock
  for cash                             2,456,000       2,455            --          --        486,978             --
Issuance of common stock
  for warrants exercised                 270,750         271            --          --         78,729             --
Issuance of common stock
  for services                           886,000         886            --          --        157,750             --
Issuance of common stock
  for options exercised                  398,150         398            --          --        122,210             --
Warrants granted for financing                --          --            --          --        131,478             --
Warrants granted for consulting               --          --            --          --         13,417             --
services
Comprehensive loss:
  Net loss                                    --          --            --          --             --             --
Other comprehensive income-
  Currency translation adjustment             --          --            --          --             --             --
                                      ----------     -------       -------      ------    -----------       --------

Total comprehensive loss
Balance, December 31, 2001            40,761,489      40,761       677,778       6,778     12,162,540        503,389
                                      ==========     =======       =======      ======    ===========       ========
Preferred stock
 - Accretion of dividends                     --          --            --          --             --         38,500
Issuance of common stock and
  Warrants for cash                    5,500,335       5,500            --          --        794,525             --
Issuance of common stock
  for warrants exercised               1,168,000       1,168            --          --        174,032             --
Issuance of common stock
  for services                         1,342,335       1,343            --          --        212,998             --
Issuance of common stock
  for options exercised                  592,893         593            --          --        108,770             --
Warrants granted for financing                --          --            --          --        210,223             --
Warrants granted for consulting               --          --            --          --         46,500             --
services
Issuance of common stock pursuant
  to restricted stock plan             1,000,000       1,000            --          --        149,000             --
Amortization of deferred
  compensation restricted stock               --          --            --          --             --             --
Comprehensive loss:
  Net loss                                    --          --            --          --             --             --
Other comprehensive expense -
  Currency translation adjustment             --          --            --          --             --             --

Total comprehensive loss                      --          --
                                      ----------     -------       -------      ------    -----------       --------
Balance, December 31, 2002            50,365,052     $50,365       677,778      $6,778    $13,858,588       $541,889
                                      ==========     =======       =======      ======    ===========       ========

                                                                     Accumulated
                                                                        Other
                                         Deferred     Accumulated   Comprehensive
                                       Compensation     Deficit      Income(Loss)        Total
                                       ------------  ------------    -----------      ---------
Balance, December 31, 2000                     $0    ($11,148,022)            $0      ($254,046)
Conversion of preferred stock
  - Series A                                   --              --             --             --
  - Accretion of dividends                     --        (877,640)            --             --
Issuance of preferred stock
  for cash - Series A                          --              --             --         60,000
Private placement issuance
  Costs                                        --              --             --       (112,720)
Issuance of common stock
  for cash                                     --              --             --        489,433
Issuance of common stock
  for warrants exercised                       --              --             --         79,000
Issuance of common stock
  for services                                 --              --             --        158,636
Issuance of common stock
  for options exercised                        --              --             --        122,608
Warrants granted for financing                 --              --             --        131,478
Warrants granted for consulting                --              --             --         13,417
services
Comprehensive loss:
  Net loss                                     --      (1,617,117)            --     (1,617,117)
Other comprehensive income-
  Currency translation adjustment              --              --        (10,641)       (10,461)
                                        ---------    ------------       --------    -----------
                                                                                     (1,627,758)
Total comprehensive loss                                                            -----------
Balance, December 31, 2001                      0     (13,642,779)       (10,641)      (939,952)
                                        =========    ============       ========    ===========
Preferred stock
 - Accretion of dividends                      --         (38,500)            --             --
Issuance of common stock and
  Warrants for cash                            --              --             --        800,025
Issuance of common stock
  for warrants exercised                       --              --             --        175,200
Issuance of common stock
  for services                                 --              --             --        214,341
Issuance of common stock
  for options exercised                        --              --             --        109,363
Warrants granted for financing                 --              --             --        210.223
Warrants granted for consulting                --              --             --         46.500
services
Issuance of common stock pursuant
  to restricted stock plan               (150,000)             --             --             --
Amortization of deferred
  compensation restricted stock            15,000              --             --         15,000
Comprehensive loss:
  Net loss                                     --      (1,967,231)            --     (1,967,231)
Other comprehensive expense -
  Currency translation adjustment              --              --         (3,437)        (3,437)
                                                                                     -----------
Total comprehensive loss                                                             (1,970,668)
                                        ---------    ------------       --------    -----------
Balance, December 31, 2002              ($135,000)   ($15,648,510)      ($14,078)   ($1,339,968)
                                        =========    ============       ========    ===========
</TABLE>

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


                                       38
<PAGE>

                        WORLDWATER CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Liquidity

      These consolidated financials are presented on the basis that the Company
      will continue as a going concern. The going concern concept contemplates
      the realization of assets and the satisfaction of liabilities in the
      normal course of business over a reasonable length of time. The Company's
      working capital deficit and stockholder's deficiency raises substantial
      doubt about the Company's ability to continue as a going concern.
      Management continues to raise capital through the sale of common stock and
      additional borrowings. In addition, management is continuing to market
      their products domestically and internationally. However, there can be no
      assurances that the company will be successful in these efforts. The
      consolidated financial statements do not include any adjustments that
      might result from the outcome of this going concern uncertainty.

(2) Formation of the Company

      WorldWater Corp. ("Company") was incorporated in the State of Nevada on
      April 3, 1985 under the name Golden Beverage Company ("Golden"). In April
      1997, the Company completed a reverse acquisition with WorldWater, Inc., a
      Delaware corporation formed in January 1984 and changed its name to
      WorldWater Corp. in June 1997. Pursuant to the acquisition agreement, the
      Company issued on a share-for-share basis 8,141,126 post-reverse split
      shares of Golden $0.001 par value voting common stock for 8,141,126 shares
      of WorldWater, Inc. $0.001 par value voting common stock, which equaled
      eighty percent (80%) of all WorldWater, Inc. issued and outstanding common
      stock. The remaining shareholders were offered one share of the Company's
      common stock for one share of WorldWater, Inc.'s common stock and are
      reflected as issued and outstanding common stock of the Company. Holders
      of approximately ninety-one percent (91%) of WorldWater, Inc.'s common
      stock agreed to the stock exchange and tendered their shares.

      Prior to the reverse merger transaction described above, the Company was a
      non-operating publicly held company. As of the closing date, all assets
      and liabilities of Golden Beverage Company were transferred to an
      unrelated entity. Therefore, the reverse acquisition had the effect of
      transferring the assets and liabilities of WorldWater, Inc. into the
      publicly held entity. In consideration for this, the former shareholders
      of Golden Beverage Company received 113,501 shares of the Company's common
      stock.

(3) Nature of the Business and Summary of Significant Accounting Policies

      Description of the Business

      The Company operates in one business segment as a full-service water
      management and solar energy company, designing, developing and marketing
      technology relating to water needs and solar power applications. The
      Company advises and supplies governments and industry throughout the world
      on solar electric applications and on all phases of water needs. The
      Company has customers in developing countries and in the United States.


                                       39
<PAGE>

      Principles of Consolidation

      The consolidated financial statements include the parent company
      WorldWater Corp., and its controlled wholly owned subsidiary company,
      WorldWater (Phils) Inc. and certain other inactive subsidiaries. All
      significant intercompany accounts and transactions have been eliminated in
      consolidation.

      WorldWater Corp., 100% wholly owned inactive subsidiaries include -
            WorldWater, Inc.
            WorldWater Holdings Inc.
            WorldWater East Africa Ltd.
            WorldWater Pakistan (Pvt.), Ltd.

      Use of Estimates

      The preparation of 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 amounts
      reported in the consolidated financial statements and accompanying notes.
      Estimates are used for, but not limited to, foreign currency translation,
      depreciation, taxes and the value of shares issued. Although these
      estimates are based on management's best knowledge of current events and
      actions that the company may undertake in the future, actual results may
      be different from the estimates.

      Foreign Currency Translation

      For International subsidiaries, asset and liability accounts are
      translated at year-end rates of exchange and revenue and expenses are
      translated at average exchange rates prevailing during the year. For
      subsidiaries whose functional currency is deemed to be other than the U.S.
      dollar, translation adjustments are included as a separate component of
      other comprehensive income and stockholders deficiency. Currency
      transaction gains and losses are recorded in income.

      Comprehensive Loss

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

      Revenue Recognition

      The Company derives revenue primarily from the sale and installation of
      its solar pumping systems and solar energy products. Revenues are also
      derived to a lesser extent from government consulting projects and from
      grant revenue received. Revenues are recorded when persuasive evidence of
      an arrangement exists, the price is fixed and determinable, delivery has
      occurred or services have been rendered and when collectibility is
      reasonably assured.


                                       40
<PAGE>

      Revenues from time and material service arrangements are recognized using
      the percentage of completion method measured by labor and other costs
      incurred to total estimated labor and other costs required. Estimates of
      costs to complete are reviewed periodically and modified as required.
      Provisions are made for the full amount of anticipated losses, if any, on
      all contracts in the period in which the losses are first determined.
      Changes in estimates are also reflected in the period they become known.

      Revenues from equipment sales and installation contracts containing
      acceptance provisions are recognized upon customer acceptance. Deferred
      contracts cost represent costs incurred on uncompleted contracts. Cash
      payments received in advance of product or service revenue are recorded as
      customer deposits payable. Some contracts have specified identifiable
      multiple elements whereby upon completion of that stage or milestone and
      customer acceptance is received, the applicable revenue is recognized.

      Revenues from consulting projects are recognized as services are rendered.

      Grant revenues on the basis of entitlement periods are recorded as revenue
      when entitlement occurs.

      Estimated expenses related to contractual product warranties are accrued
      at the time of contract completion. Estimates are established using
      historical information on the nature, frequency, and average cost of
      warranty claims.

      Accounting for Income Taxes

      Deferred tax assets and liabilities are determined based on the temporary
      differences between the financial reporting and the tax basis of assets
      and liabilities, applying enacted statutory tax rates in effect for the
      year in which the differences are expected to reverse. Future tax
      benefits, such as net operating loss carryforwards, are recognized to the
      extent that realization of these benefits is considered more likely than
      not.

      Cash and Cash Equivalents

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

      Inventory

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


                                       41
<PAGE>

      Equipment and Leasehold Improvements

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

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

      Research and Development Expense

      Research and development costs are expensed as incurred. Enhancements to
      products are capitalized once technological feasibility has been
      established.

      Impairment of Long-Lived Assets

      The Company evaluates long-lived assets for potential impairment in
      compliance with SFAS No. 144, Accounting for the Impairment or Disposal of
      Long-Lived Assets. The Company records, in depreciation expense,
      impairment losses on long-lived assets used in operations when events and
      circumstances indicate the assets might be impaired and the undiscounted
      cash flows estimated to be generated by those assets are less than their
      carrying amounts. The current fair market value of the assets is
      determined by recent transactions, expected remaining useful lives, future
      market trends and projected salvage values to determine the fair market
      value of these assets. Impairment losses are measured by comparing the
      fair value of the asset to its carrying amount.

      Stock-Based Compensation

      The Company granted options for a fixed number of shares to key employees
      with the exercise price equal to the fair value of shares at the date of
      grant. The Company accounts for stock option grants in accordance with APB
      Opinion No. 25, "Accounting for Stock Issued to Employees", and,
      accordingly recognizes no compensation expense for the stock option
      grants. The Company has adopted the disclosure provisions of SFAS No. 123,
      "Accounting for Stock-Based Compensation", which permits entities to
      provide pro forma net income (loss) disclosure for stock-based
      compensation as if the fair-value method had been applied.

      Transactions with non-employees and consultants, in which goods or
      services are considered received for the issuance for equity instruments,
      are accounted for under the fair value method defined in SFAS No. 123.

      Equity Security Transactions

      Since inception, the Board of Directors has established the fair value of
      common stock based upon quoted market prices existing at the dates such
      equity transactions occurred.


                                       42
<PAGE>

      Net Loss Per Common Share

      Basic loss per share includes no dilution and is computed by dividing the
      loss attributable to common stockholders by the weighted average number of
      common shares outstanding for the period. Diluted loss per share reflects
      the potential dilution of securities that could share in our earnings. As
      presented, our basic and diluted loss per share attributable to common
      stockholders is based on the weighted average number of common shares
      outstanding during the period and does not include other potential common
      shares, including shares issuable upon exercise of options, warrants and
      conversion rights, since their effect would be antidilutive due to our
      losses.

      Reclassification

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

      Impact of Accounting Pronouncements

      Effective January 1, 2002, the Company adopted Statement of Financial
      Accounting Standards ("SFAS") No. 141, "Business Combinations" and No.
      142, "Goodwill and Other Intangible Assets", effective for fiscal years
      beginning after December 15, 2001. Under the new rules, goodwill and
      intangible assets deemed to have indefinite lives will no longer be
      amortized but will be subject to annual impairment tests. Other intangible
      assets will continue to be amortized over their useful lives. The adoption
      of FAS No.141 and No. 142 had no impact on the Company's operating results
      and financial position.

      Effective January 1, 2002, the Company adopted SFAS No. 144, "Impairment
      of Long-Lived Assets and for Long-Lived Assets to Be Disposed of",
      effective for fiscal years beginning after December 15, 2001. SFAS No. 144
      supercedes SFAS No. 121, removes goodwill from its scope and identifies
      the methods to be used in determining fair value. The adoption of SFAS No.
      144 had no impact on the Company's operating results and financial
      position.

      In June 2002, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standards 146, "Accounting for Costs
      Associated with Disposal or Exit Activities" ("SFAS 146"). SFAS 146
      requires that liabilities for the costs associated with exit or disposal
      activities be recognized when the liabilities are incurred, rather than
      when an entity commits to an exit plan. We will adopt SFAS 146 on January
      1, 2003. The new rules will change the timing of liability and expense
      recognition related to exit or disposal activities, but not the ultimate
      amount of such expenses. The adoption of this standard is not expected to
      have an impact on the Company's operating results or financial position.

      In November 2002, the FASB issued Interpretation 45, "Guarantor's
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a
      guarantor to recognize, at the inception of a guarantee, a liability for
      the fair value of the obligation undertaken in issuing the guarantee. FIN
      45 also expands the disclosures required to be made by a guarantor about
      its obligations under certain guarantees that it has issued. Initial
      recognition and measurement provisions of FIN 45 are


                                       43
<PAGE>

      applicable on a prospective basis to guarantees issued or modified. The
      disclosure requirements are effective immediately and are provided in Item
      8. "Financial Statements and Supplementary Data, Note 8 - Commitments". We
      do not expect FIN 45 to have a material effect on our results of
      operations.

      In December 2002, the FASB issued Statement of Financial Accounting
      Standards No. 148, "Accounting for Stock-Based Compensation - Transition
      and Disclosure" ("SFAS No. 148"). SFAS No. 148 amends FASB Statement No.
      123, "Accounting for Stock-Based Compensation." SFAS 148 provides
      alternative methods of transition for a voluntary change to the fair value
      method of accounting for stock-based employee compensation as originally
      provided by SFAS No.123. Additionally, SFAS No. 148 amends the disclosure
      requirements of SFAS 123 to require prominent disclosure in both the
      annual and interim financial statements about the method of accounting for
      stock-based employee compensation and the effect of the method used on
      reported results. The transitional requirements of SFAS No. 148 are
      effective for all financial statements for fiscal years ending after
      December 15, 2002.. The application of the disclosure portion of this
      standard will have no impact on our consolidated financial position or
      results of operations. The FASB recently indicated that they will require
      stock-based employee compensation to be recorded as a charge to earnings
      beginning in 2004. We will continue to monitor their progress on the
      issuance of this standard as well as evaluate our position with respect to
      current guidelines.

      Proforma Stock Based Compensation

      The company has adopted the disclosure-only provisions of SFAS No. 123,
      "Accounting for Stock-Based Compensation." Accordingly, no compensation
      cost has been recognized for the stock option plans because the exercise
      price of employee stock options equals the market prices of the underlying
      stock on the date of grant. Had compensation cost been determined based on
      the fair value at the grant date for awards in the years ended December
      31, 2002 and 2001, respectively, consistent with the provisions of SFAS
      No. 123, the Company's net income and earnings per share would have been
      reduced to the pro forma amounts indicated below.

                                                    2002              2001
                                                    ----              ----

Net loss, as reported -                         $(2,005,731)      $(2,494,757)
Deduct:  Total stock based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects                          (43,407)         (121,950)
                                                -----------       -----------

Pro forma net loss                              $(2,049,138)      $(2,616,707)
         Earnings per share:
Basic-as reported                               $     (0.04)      $     (0.07)
Basic-pro forma                                 $     (0.04)      $     (0.07)

Diluted-as reported                             $     (0.04)      $     (0.07)
Diluted-pro forma                               $     (0.04)      $     (0.07)

      In January 2003, the FASB issued Interpretation 46 - "Consolidation of
      Variable Interest Entities" ("FIN 46"). FIN 46 requires that companies
      that control another entity through interests other than voting interests
      should consolidate the controlled entity. FIN 46 applies to


                                       44
<PAGE>

      variable interest entities created after January 31, 2003, and to variable
      interest entities in which an enterprise obtains an interest in after that
      date. The related disclosure requirements are effective immediately. We do
      not expect FIN 46 to have a material effect on our results of operations.

(4) Equipment and Leasehold improvements

                                                          2002           2001
                                                          ----           ----
         Computers                                     $  36,537       $ 30,117
         Office furniture and equipment                   98,695        100,775
         Test and assembly fixtures                       34,140         33,550
         Vehicles                                         99,266         92,307
         Leasehold improvements                            8,123          8,123
                                                       ---------       --------
                                                         276,761        264,872
         Less:  Accumulated depreciation                 188,174        147,174
                                                       ---------       --------
         Equipment and leasehold improvements, net     $  88,587       $117,698
                                                       =========       ========

(5) Notes Payable

      The Company has outstanding several notes payable in the aggregate amounts
      of $197,000 and $167,000 at December 31, 2002 and 2001, respectively. The
      effective interest rates on these notes range from 0.00% to 10%. All
      outstanding notes payable are unsecured. As of December 31, 2002 $80,000
      of short term convertible notes were in default.

(6) Related Party Transactions

      Note Payable

      Amounts payable to employees, directors and their immediate relatives are
      due on demand.

                                                        2002            2001
                                                        ----            ----
                  Directors                           $  3,000        $ 3,000
                  Employees                             99,000         78,500
                                                      --------        -------
                      Total                           $102,000        $81,500
                                                      ========        =======

      Leases

      The Company leased office and laboratory facilities from the Chairman of
      the Company on a month to month basis. Lease payments to the Chairman were
      $33,000 for 2002 and $30,000 in 2001.

(7) Accounts Payable and Accrued Expenses

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

                                                         2002          2001
                                                          ----         ----
                Accounts payable                      $1,013,936     $325,477
                Accrued interest                         153,075      113,867
                Accrued salaries - officers              242,560      143,393
                Accrued payroll taxes                     14,384      122,362
                Other accrued expenses                    29,996       12,968
                                                      ----------     --------
                                                      $1,453,951     $718,067
                                                      ==========     ========


                                       45
<PAGE>

(8) Long-Term Debt

      Long-term debt consist of the following at December 31:   2002       2001
                                                                ----       ----
      Uncollateralized loans payable to a Fund dated          $309,877        0
      November 8th and 15th, 2002, face value bears interest
      at 10.00 percent per annum with, using the original
      issue discount the effective interest rate is 32% per
      annum with three year maturity dates. Payments of
      interest are due semi-annually beginning May 8th and
      15th, 2003. The loans are convertible at the option of
      the holder at $0.14 per common share for a total of
      3,571,430 shares.

      Loans payable to individuals, with no stated interest
      rate or maturity date. Imputed interest is calculated
      at a rate of 4.50% and is included in accrued
      interest. These uncollateralized notes are convertible
      at the option of the holder at $0.495 per common share
      for 106,060 shares of common stock.                       52,500    52,500

      Loan payable to an individual dated October 14, 1992,
      bearing interest at 8.00 percent per annum with an
      original maturity date of October 14, 1997. Payment of
      principal and accrued interest were due at maturity.
      The loan is uncollateralized and is convertible at the
      option of the holder at the rate of $0.40 per share
      for a total conversion amount of 125,000 shares of
      common stock.                                             50,000    50,000

      Loans payable to individuals dated July 17, 1995
      through February 25, 1997 bearing interest at 10.00
      percent per annum and due on demand.The loans are
      uncollateralized and are convertible at the option of
      the holder at $0.50 per common share for 106,000
      shares of common stock. In addition, all holders were
      granted 602,965 warrants for the purchase of common
      stock at the price of $0.60 per share.                    53,000    53,000

      Loan payable to an individual dated December 14, 2001,
      bearing interest at 8.00 percent per annum with a
      maturity date of September 14, 2003. The loan is
      uncollateralized and is convertible at the option of
      the holder at $0.25 per common share for 40,000 shares
      of common stock.                                          10,000    10,000

      Loans payable to certain institutions collateralized
      by autos.                                                      0    20,131


                             46
<PAGE>

      Loan payable to PNC Bank dated November 2001 bearing
      interest at 7.75% per annum payable in monthly
      installments of $813 with a maturity date of November
      2008 and is guaranteed by the Chairman                    46,438    52,838
                                                                ------    ------

      Total                                                   $521,815  $238,469

      Less current maturities                                  171,937   177,199
                                                              --------  --------
      Total long-term debt                                    $349,878  $ 61,270
                                                              ========  ========

      The current maturities of long-term debt are:
            2002                 $171,937
            2003                    6,953
            2004                  317,389
            2005                    8,115
            2006 thereafter        17,421
                                 --------
                                 $521,815
                                 --------

      In July 2000, the Company entered into a $50,000 Line of Credit with a
      commercial bank, of which approximately $52,000 was outstanding at
      December 31, 2000. In November of 2001, the Line of Credit and accrued
      interest was converted to a 7 year term loan payable in monthly
      installments bearing interest at a fixed rate of 7.75% per annum and is
      included in long-term debt.

(9) Income Taxes

      The components of income tax expense (benefit) are as follows:

                                                           2002          2001
                                                         --------      --------
               Federal:
                  Current                                $     --      $     --
                  Deferred                                     --            --
                  Foreign                                      --            --
                                                         --------      --------
                                                         $     --      $     --
                                                         ========      ========

               State:
                  Current                                $     --      $     --
                  Deferred                                     --            --
                  Benefit from sale of state NOL's        121,603       145,148
                                                         --------      --------

                                                         $121,603      $145,148
                                                         ========      ========


                                                            2002         2001
                                                            ----         ----
         Expected tax benefit at 34%                     $ 669,000    $ 550,000
         State tax benefit before allowance               (209,000)     (48,950)
         Change in deferred tax valuation allowance       (460,000)    (501,050)
         Sale of state net operating loss and research
           & development credit                            121,603      145,148
                                                         ---------    ---------
         Income tax benefit                              $ 121,603    $ 145,148
                                                         =========    =========


                                       47
<PAGE>

      The tax effect of significant items comprising the Company's deferred tax
      asset are as follows:

                                                          2002          2001
                                                          ----          ----

                  Net operating losses carryforwards   $4,359,391    $3,899,391
                  Valuation allowance                   4,359,391     3,899,391
                                                       ----------    ----------

                  Net deferred tax asset               $      --     $       --
                                                       =========     ==========

      Due to the current uncertainty of realizing the benefits of the tax loss
      carryforward, valuation allowances equal to the U.S. deferred taxes have
      been established. The full realization of the tax benefit associated with
      the carry forward depends predominantly upon the Company's ability to
      generate taxable income during the carryforward period. The valuation
      allowance will be evaluated at the end of each reporting period,
      considering positive and negative evidence about whether the deferred tax
      asset will be realized.

      At December 31, 2002, the Company had net operating loss carryforwards
      (NOL) and research and development credits which may be available to
      offset future Federal and state taxable income, if any and will expire as
      follows:

                                Net Operating Loss      Research and Development
            Year Expiring          Carryforwards               Tax Credits
            -------------          -------------               -----------
                                 Federal       State        Federal      State
                                 -------       -----        -------      -----
                2003         $    29,505         -               -           -
                2004              95,302         -               -           -
                2005              94,557                         -           -
                2006             402,684         -               -           -
                2007             251,079         -               -           -
                2008             641,341         -               -           -
                2009             887,929     2,007,000      19,646        21,400
                2010             912,453         -          15,207           -
                2011             981,193         -          15,387           -
                2012           1,263,193         -          12,923           -
                2013           1,337,702         -          20,398           -
                2014             660,000         -          16,100           -
                2015           1,729,498         -          17,701           -
                2016           1,381,244         -          12,795           -
                2017           2,007,000                    21,400        21,400
                              ----------     ---------     -------        ------
                              12,674,680     2,007,000     151,557        21,400
                              ==========     =========     =======        ======

      The Company participates in the State of New Jersey's corporation business
      tax benefit certificate transfer program (the "Program"), which allows
      certain high technology and biotechnology companies to transfer unused New
      Jersey net operating loss carryovers and research and development tax
      credits to other New Jersey corporation business taxpayers. During 2002
      and 2001, the Company submitted applications to the New Jersey Economic
      Development Authority (the "EDA") to participate in the Program and the
      applications were approved. The EDA then issued certificates certifying
      the Company's eligibility to participate in the Program for these years.


                                       48
<PAGE>

      The program requires that a purchaser pay at least 75% of the amount of
      the surrendered tax benefit. During 2002 and 2001, the Company sold
      approximately $1,448,912 and $1,729,498 of its New Jersey state net
      operating loss carryforwards and $12,660 and $17,001 of its research and
      development tax credits for $121,603 and $145,148, respectively and
      recognized a tax benefit for that amount.

      In the event of a change in ownership, the Tax Reform Act of 1986 (the
      "Act") provides for a potential limitation on the annual use of net
      operating loss (NOL) and research and development tax credit carryforwards
      that could significantly limit the Company's ability to utilize these
      carryforwards. Accordingly, because tax laws limit the time during which
      these carryforwards may be applied against future taxes, the Company may
      not be able to take full advantage of the net operating losses and credit
      carryforwards for Federal income tax purposes.

(10) Stock-Based Compensation Plans

      The Company provides a stock option plan, for the granting of incentive
      stock options to key employees, directors, officers, key consultants, and
      advisor to the Company. The Company may grant up to 1,257,629 shares, with
      an option term not to exceed ten years.

<TABLE>
<CAPTION>
                                                                                Weighted-
                                                                                average          Weighted-
                                                     Exercise                   remaining        average
                                                     price per                  contractual      exercise price
                                                     Shares         Options     life (years)     per share
                                                     ---------      -------     ------------     ---------


<S>                                                  <C>          <C>
     Balance, December 31, 2000                      .15-1.00     1,414,161
         Granted                                     .29-.66      1,605,669
         Cancelled                                   .15            (55,600)
         Exercised                                   .15-.38       (398,150)
                                                                  ----------

     Balance, December 31, 2001                      .15-1.00     2,566,080
         Granted                                     .14-.34      3,769,184
         Cancelled                                        --             --
         Exercised                                   .14-.40       (592,893)
                                                                  ----------

     Balance, December 31, 2002                      .14-1.00     5,742,371
                                                                  =========

     Options outstanding and exercisable as of
     December 31, 2002
                                                       .15        3,184,775         8.90        $  .15
                                                       .20          150,000         9.50           .20
                                                       .22           50,000         9.50           .22
                                                       .25           31,000         7.31           .25
                                                       .30          100,000         8.34           .30
                                                       .32          969,900         8.02           .32
                                                       .34          733,000         8.76           .34
                                                       .45           99,500         7.28           .45
                                                       .53           10,800         8.28           .53
                                                       .54           50,000         8.50           .54
                                                       .57           99,996         6.90           .57
                                                       .59          201,400         8.30           .59
                                                       .66           50,000         8.18           .66
                                                      1.00           12,000         7.83          1.00
                                                     -----        ---------         ----         -----
     Balance, December 31, 2002                      .15-1.00     5,742,371         8.46         $0.25
                                                     ========     =========         ====         =====
</TABLE>


                                       49
<PAGE>

      In accordance with APB Opinion No. 25, the Company does not recognize
      compensation expense for stock options granted to employees under the
      plan. SFAS No 123, "Accounting for Stock-Based Compensation" requires a
      Company to determine the fair market value of all awards of stock based
      compensation using an option priced model and to disclose pro forma net
      income as if the resulting stock-based compensation amounts were recorded.
      The table below presents these pro forma disclosures.

<TABLE>
<CAPTION>
                                         2002                         2001
                               -------------------------    -------------------------

                               As reported     Pro forma    As reported    Pro forma
                               -----------    ----------    -----------    ----------

<S>                            <C>            <C>           <C>            <C>
      Net loss                 $2,005,731     $2,049,138    $2,494,757     $2,616,707
                               ==========     ==========    ==========     ==========
      Earnings per share        $(0.04)         $(0.04)       $(0.07)        $(0.07)
                                ======          ======        ======         ======
</TABLE>

      The Company used the Black-Scholes model to value the stock options that
      it granted. The assumptions that the Company used to estimate the fair
      value of the options and the weighted-average estimated fair value of an
      option on the date of the grant are as follows:

                                                        2002            2001
                                                        ----            ----

         Terms (years)                                   10              3-10
         Volatility                                     79%              50%
         Risk-free interest rate (zero coupon U.S.
                    Treasury Notes)                      5%               5%
         Dividend yield                                  0%               0%
         Weighted-average fair value per option      $0.15-$0.34     $0.21-$0.27

(11) Warrants

      The Company accounts for transactions with non-employees, in which goods
      or services are the consideration received for the issuance of equity
      instruments under the fair value based method.


                                       50
<PAGE>

      At December 31, 2002, warrants to purchase 9,988,858 common shares are
      outstanding, exercisable as follows:

               Year              Warrants Exercisable        Strike Price
               ----              --------------------        ------------
               2003                   2,209,525              $0.20-$1.20
               2004                   2,040,000              $0.10-$0.50
               2005                   1,118,333              $0.15-$0.25
               2006                   1,740,000              $0.15-$0.30
               2007                   2,881,000              $0.15-$0.50
                                      ---------
                                      9,988,858
                                      =========

(12) Convertible Preferred Stock

      The Company issued 66,667 shares of Series A 7% three year Convertible
      Preferred Stock in exchange for financial public relations services. The
      shares were issued at $0.90 per share and the services were valued at
      $60,000 and recorded in the financial statements.

      In November 2001 the Company converted 1,111,055 shares of Series A 7%
      three year Convertible Preferred Stock plus accrued interest of $104,995
      at $0.25 per share for a total of 4,419,778 common shares. In accordance
      with SFAS No. 84, "Induced Conversions of Convertible Debt (an Amendment
      of APB Opinion No. 26)", the Company recorded a charge to retained
      earnings of $722,478. The charge was equal to the fair value of the common
      stock received less the fair value of the common stock that would have
      been received pursuant to the original conversion terms of the Series A
      Preferred Stock. This charge was recorded as accretion of preferred stock
      dividends on the accompanying statement of operations and as a component
      of the net loss available to common shareholders.

      In 2000 the Company sold 1,111,055 shares of Series A and 611,111 shares
      of Series B 7% three year Convertible Preferred Stock at $0.90 per share.
      The Series A Preferred Shares are callable at $1.80 if the market bid
      price remains over the call level for 20 days. The Series B Preferred
      Stock proceeds are intended to be used by the Company for the initial
      operating requirements of WorldWater (Phils) Inc., the Philippine
      subsidiary wholly owned by WorldWater Corp. Therefore the conversion
      privilege is either into 10% of WorldWater (Phils) Inc. or into 611,111
      shares of WorldWater Corp. common stock.

      The Company will pay 7% dividends annually on both the Series A and Series
      B Preferred Stock as determined by the Board of Directors based upon the
      results of operations and the financial condition of the Company.
      Dividends have been accrued and are shown in accretion on the statement of
      operations.

      The Series A and Series B preferred shares automatically convert into
      common shares upon expiration at the end of three years.


                                       51
<PAGE>

(13) Employment and Consultant Agreements

      On January 1, 2002, the Company entered into a five-year employment
      agreement with the Chief Executive Officer ("CEO"). Compensation under the
      agreement is $150,000 annual salary, $1,200 per month auto allowance and
      $1,500 per month to cover rental offices in Hopewell, New Jersey. The CEO
      agreed to an amendment which provided for an annual salary of $25,200
      accruing the difference beginning on July 1st. The CEO has full
      participation in the Company "fringe benefits" including health coverage
      and the maintenance of a whole life policy to continue after retirement.
      Bonus and participation in the Stock Option Plan are based upon the
      discretion of the compensation committee. In July 2002, the CEO was
      granted 120,000 stock options vesting in equal installments of 10,000
      shares per month, at an exercise price of $0.15, the fair market value at
      the date of the grant.

      Also on January 1, 2002, the Company entered into three-year employment
      agreements with the Vice President/Controller and the Vice President.
      Total compensation under these agreements amounted to $152,000 annually.
      In July 2002, the Vice President/Controller and Vice President agreed to
      amend their employment agreements such that their combined annual salaries
      were reduced to $73,200. Subsequently, with effect on November 1, 2002,
      the combined salaries of these individuals were increased to $122,000
      annually. In addition, effective July 2002, these individuals were granted
      156,000 stock options, vesting 13,000 per month, at an exercise price of
      $0.15, the fair market value at the date of the grant.

      The Company has unpaid salaries of $242,560 which have been deferred by
      the officers as of December 31, 2002, and are included in accrued
      expenses.

(14) Leases

      The Company leases its production, service and administrative premises
      under a five-year lease agreement expiring June 25, 2007. The lease
      requires the lessee to pay taxes, maintenance, insurance and certain other
      operating costs of the leased property. Rent expense for 2002 and 2001 was
      $66,000.

      The minimum future rental payments under this lease are $297,000 through
      June 14, 2007.

                             2003             $ 66,000
                             2004               66,000
                             2005               66,000
                             2006               66,000
                             2007               33,000
                                              --------
                                              $297,000
                                              ========

      The Company also leases a sales office in Sacramento, California under a
      one year lease agreement expiring August 15, 2003. Rent expense for this
      office in 2002 was $3,000.


                                       52
<PAGE>

(15) Risks and Uncertainties

      The Company markets its products to developing nations. The ability of
      these customers to order and pay for the Company's products and services
      is dependent on a variety of factors including government approval,
      adequate funding and vigorous testing procedures.

      Foreign sales, mostly Philippines, were $89,255 in 2002, all the rest were
      domestic.

(16) Fair Value of Financial Instruments

      The following methods and assumptions were used to estimate the fair value
      of each class of financial instruments for which it is practical to
      estimate that value.

      The carrying value of cash and cash equivalents, receivables, accounts
      payable and accrued expenses approximate fair value because of the short
      maturity of those instruments. The fair value of the Company's debt is
      estimated based on the current rates offered to the Company for debt of
      the same remaining maturities and similar terms. The estimated fair values
      of the Company's debt instruments are as follows:

                                                Carrying              Fair
                                                Amounts              Value
                                                -------              -----
                           2002                $1,010,938          1,010,938
                           2001                   486,969            486,969

(17) Contingencies

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

(18) Supplemental Disclosure of Cash Flow Information

                                                        2002            2001
                                                        ----            ----
         Cash paid during the year for:

                  Interest                           $   6,673       $      --
                                                     =========       =========
Benefit for sale of NJ net operating losses          $(121,603)      $(145,148)
                                                     =========       =========

      Supplemental schedule of non-cash investing and finance activities:

      In 2001, Series A Preferred stockholders converted 1,111,055 shares of
      Preferred stock for 4,419,778 shares of common stock. The Company issued
      66,667 shares of Series A 7% three year Convertible Preferred Stock in
      exchange for financial public relations services. The Shares were issued
      at $0.90 per share and the services were valued at $60,000 and recorded in
      the financial statements.


                                       53
<PAGE>

(19) Restatement

      Subsequent to issuance of the Company's consolidated financial statements
      for the year ended December 31, 2002 it was determined that the Company
      had incorrectly accounted for restricted stock issued in July 2002 to its
      Chairman, Quentin Kelly. The Company incorrectly did not record
      compensation expense. During 2002 and 2001 the Company incorrectly
      recorded certain warrants that were issued to induce the granting of debt
      to the Company. The Company did not allocate the proceeds appropriately
      between the debt and the warrants. In 2001 the company did not correctly
      record the conversion of Preferred Stock and preferred dividends.

      Convertible Preferred Stock

      In November 2001 the Company converted 1,111,055 shares of Series A 7%
      three year Convertible Preferred Stock and preferred dividends of $104,995
      at $0.25 per share for a total of 4,419,778 common shares.

      In accordance with accounting principles generally accepted in the United
      States of America, SFAS No. 84, "Induced Conversions of Convertible Debt
      (an Amendment of APB Opinion No. 26)", the Company has recorded a charge
      to retained earnings of $722,478. The charge was equal to the fair value
      of the common stock received less the fair value of the common stock that
      would have been received pursuant to the original conversion terms of the
      Series A Preferred Stock.

      The Company has also reclassified the preferred dividend on Series A 7%
      three year Convertible Preferred Stock originally reflected as interest
      expense and has recorded preferred dividends on the Series B 7%
      Convertible Preferred Stock in the amount of $50,167.

      These charges were recorded as accretion of preferred stock dividends on
      the accompanying statement of operations and as a component of the net
      loss available to common shareholders.

      Restricted Stock Plan

      In July 2002, WorldWater Corp. granted 1,000,000 shares of restricted
      stock for the benefit of its Chairman. Compensation expense for restricted
      stock is based on the market price of the Company stock at the time of the
      grant ($0.15) and amortized on a straight-line basis over the vesting
      period which is five years. The recipient (Chairman) did not pay any cash
      consideration to the Company for the shares and has the right to vote all
      shares subject to the grant, whether or not the shares have vested. The
      restriction is based upon continuous service.

      The balance of unearned compensation related to these restricted shares as
      of December 31, 2002 was $135,000. Total compensation expense recognized
      for the restricted shares granted was $15,000 for the year ended December
      31, 2002.


                                       54
<PAGE>

(19) Restatement (continued)

      Detachable Warrants

      For the year ended December 31, 2002 the Company was provided $245,000 of
      short term loans and $500,000 of convertible notes (see Part II Item 5,
      Sale of Restricted Stock During the Fourth Quarter) for working capital
      financing. The Company agreed to issue 285,000 warrants for the short term
      notes and 2,381,000 warrants for the convertible notes representing
      additional consideration for the loans provided. Accordingly, the warrants
      have been valued at their fair value and the proceeds from the loans have
      been allocated on a relative fair value basis between the debt and the
      warrants in accordance with Accounting Principles Board Opinion No. 14
      ("APB 14"). This has resulted in a discount on the debt and a charge to
      additional paid in capital of $190,123. The amount of additional interest
      recorded during the years ended December 31, 2002 and 2001 was $20,100 and
      $131,478, respectively.

      Also, the Company provided 425,000 warrants for services. These warrants
      have been valued at their fair value on the date of issuance and recorded
      as compensation expense. The amount of additional compensation expense
      recorded during the years ended December 31, 2002 and 2001 was $46,500 and
      $13,417, respectively.

      Impact of Restatement

      The net impact of the restatement has reduced retained earnings by $0 at
      January 1, 2001.

      As a result the Company has restated its consolidated financial statements
      as of December 31, 2002 and for the years ended December 31, 2002 and 2001
      from the amounts previously reported. A summary of the significant effects
      of the restatement is as follows:

<TABLE>
<CAPTION>
                                                       December 31,  2002                      December 31,  2001
                                                       As previously                           As previously
                                                          Reported           As Restated           Reported         As Restated
                                                          --------           -----------           --------         -----------
<S>                                                  <C>                 <C>                 <C>              <C>
      General and administrative                           $1,888,552          $1,950,052          $1,220,335       $1,305,052
      Operating loss                                       (1,946,036)         (2,007,536)         (1,463,148)      (1,547,865)
      Interest expense, net                                    61,198              81,298             187,980          214,400
      Net loss applicable to common shareholders           (1,924,131)         (2,005,731)         (1,577,217)      (2,494,757)
      Basic and diluted loss per common share                   (0.04)              (0.04)              (0.05)           (0.07)

                                                       As previously                           As previously
                                                          Reported           As Restated           Reported         As Restated
                                                          --------           -----------           --------         -----------
      Long-Term Debt                                         $540,001            $349,878             $61,270          $61,270
      Additional Paid-in-Capital                           13,849,859          14,400,477          11,748,389       12,665,929
      Deferred Compensation                                         0            (135,000)                  0                0
      Accumulated Deficit                                 (15,422,015)        (15,648,510)        (12,725,239)     (13,642,779)
      Total Stockholders' Equity (Deficiency)              (1,530,091)         (1,339,968)           (939,952)        (939,952)
</TABLE>


                                       55
<PAGE>

EXHIBIT INDEX

      99.1  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
            Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      99.2  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
            Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       56