SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                                           
                              --------------------

                                   FORM 10-KSB

                                 CURRENT REPORT

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 1997

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Transition Period from_____ to _____

                         Commission File Number 0-16936

                                WORLDWATER CORP.
             (Exact name of registrant as specified in its charter)

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

55 Route 31 South, Pennington, New Jersey               08534               
(Address of principal executive offices)              (Zip Code)

Issuer's telephone number, including area code  (609) 818-0700

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, 
                                                            $.001 par value

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

<PAGE>

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  SB  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

      Issuer's revenues were $517,031 for its most recent fiscal year.

      On April 30, 1998, the aggregate market value of the voting and non-voting
common equity held by non-affiliates  was $10,787,464  (computed by reference to
the average bid and asked price of such stock on April 15, 1998).

      The number of shares of Common Stock  outstanding as of April 30, 1998 was
19,613,572.


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<PAGE>

                                     PART I

Item 1. Description of Business

      WorldWater  Corp.  ("Company") was  incorporated in the State of Nevada on
April 3, 1985 under the name Golden Beverage Company. In April 1997, the Company
completed a reverse  acquisition with World Water, Inc., a Delaware  corporation
formed in January 1984. Pursuant to the acquisition agreement,  WorldWater, Inc.
shareholders  were offered one share of the Company's common stock for one share
of WorldWater,  Inc.  common stock.  The Company  acquired  8,141,126  shares of
WorldWater,  Inc.  common  stock (80%) in exchange for  8,141,126  shares of the
Company's post-reverse split common stock. Under the terms of the Agreement, the
Company's  prior  management  resigned  and was replaced by  WorldWater,  Inc.'s
management.  In June 1997,  the  Company  changed its name to  WorldWater  Corp.
Holders of approximately 94% of WorldWater, Inc. common stock have agreed to the
stock  exchange  and  tendered  their  shares.  As a  result,  the  Company  and
WorldWater,  Inc. remain as two separate entities and WorldWater,  Inc. operates
as a subsidiary of WorldWater  Corp. The operations of the newly combined entity
are currently comprised solely of the operations of WorldWater, Inc.

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

      The Company designs,  develops and markets proprietary technology relating
to solar water power,  including  solar power products and  international  water
management  consulting.  The Company's primary products are cost effective power
systems driven entirely by solar energy,  such as proprietary  water pumping and
solar electric systems. The Company's primary customers are developing countries
which require non-traditional means of fulfilling their energy and water needs.

      The Company has centralized its production,  servicing and  administration
functions  at its main  plant  located at 55 Route 31 South in  Pennington,  New
Jersey.

Major Customers And Export Sales

      In 1997,  the Republic of the  Philippines  ("Philippines")  accounted for
approximately  83% of the  Company's  net  sales.  Because  of the nature of its
technology and product line most of the Company's markets are outside the United
States.  The Philippine  Government has notified the Company that it is planning
to  activate an ongoing  series of orders by setting up a  revolving  fund to be
managed by Winrock International ("Winrock").  The fund is to be supplemented by


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<PAGE>

funds from Winrock and possibly the World Bank and/or the Asian Development Bank
to give long term financing to villages and farming  cooperatives to enable them
to purchase  renewable energy products,  such as  solar-irrigation  and drinking
water pumps, village electrification,  individual housing electrification, solar
lanterns etc. The Company will be the primary  contractor,  with  indications by
the Philippine  Government  and Winrock that orders should  continue for several
years because there are many  thousands of villages and farming  co-ops  without
water and/or power. At this point, the Company can provide no assurance that the
above-described  fund  will be in  place  or that it will  generate  significant
business for the Company.

      In December,  1997, the Company  installed  AquaSafe(TM)  systems in South
Africa (a  village  in the  Eastern  Cape  Province,  with  formal  installation
attended  by the  Premier,  his  cabinet  and 600  guests);  Angola  (water  and
electricity for a medical clinic); Namibia and Ecuador. In February/March, 1998,
the Company  installed  such systems in  Mozambique  (for the Anglican  Church),
Uganda  (President  Museveni's  cattle  ranch) and Tanzania (for the Ministry of
Water).  Also in early 1998,  shipments and installations are planned for Malawi
(see below),  Cape Verde (UNICEF) and India.  The Company has a 6-year  contract
with the government of the Republic of Mozambique whereby the Company will serve
as the government's Master Water Consultant.

Products

AquaSafe

      The Company's  photovoltaic solar water pumping systems deliver from 2,400
to 60,000 gallons of water daily for drinking or irrigation purposes. The volume
generated  depends on a range of factors such as the depth of the water,  number
of solar panels used, pump size,  amount of solar radiation,  season of the year
and the daily hours of  sunlight.  The  principal  markets for such  systems are
located in the  developing  world where an  estimated  two  billion  people live
without  adequate  water  supplies for  personal  consumption,  sanitation,  and
agriculture.

AquaTester

      The  Company is  developing  a water test kit which can detect  e-coli and
coliform  bacteria in  drinking  water.  This kit is ideal for remote  locations
because it can be powered by solar power,  car batteries and the electric  grid.
The  markets  for this  product  are for use by  non-governmental  organizations
("NGO"), military and government organizations working in remote locations.

SolPower

      The  Company's  solar  powered  electricity  systems  are used to generate
electricity for lighting,  TV, radio and a host of other uses. The major purpose
is to offer electric power to locations  which are off the electric grid such as
a village  hall or school in a remote  location.  


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<PAGE>

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.

Marketing

      The  Company's  products are marketed  domestically  and  internationally.
Foreign sales account for virtually 100% of total revenues in 1996 and 1997. The
Company  now has its  proprietary  solar  pumping and solar  electrical  systems
operating in the Philippines, South Africa, Angola, Namibia, Mozambique, Uganda,
Tanzania, Malawi, Egypt and Ecuador.

Market Size

      Over the last 15 years  the  photovoltaic  ("PV")  industry  has  grown in
revenues  from $2 million to over $1  billion.  Advances  in PV  technology  and
corresponding  reduction in costs continue to fuel the increasing  demand for PV
power. The greatest potential for PV technology is in developing countries where
roughly two  billion  people lack  electricity.  Applications  range from remote
pumping,  irrigation,  telecommunications  and  lighting,  to village size power
production.  Worldwide PV module  shipments  continues at an accelerating  rate.
Global  shipments of PV modules  reached 89.6  megawatts  ("MW") in 1996 with as
much as 120 MW estimated to have been  shipped in 1997.  Researchers  at Arizona
State  University  East have  estimated the  potential  market for PV electrical
power and pump systems among the emerging nations at $2 to $3 billion.

      The  Company  is   presently   creating  a  network  of   representatives,
distributors,  licensees  and  joint  ventures  in the  most  significant  world
markets. The Company has initiated discussion with potential Philippine partners
to set up a joint venture,  WorldWater-Philippines,  to  manufacture  and market
solar modules and  AquaSafe(TM)  systems in the  Philippines  and, as the market
develops, for export to other Southeast Asian nations. Another production center
is being  discussed with the Company's  exclusive  distributor in Egypt to serve
markets in the Middle East and Islamic countries in North Africa. The Company is
also  considering  establishing a joint venture to produce its solar products in
the Eastern Cape of South Africa for Southern African countries.

Marketing Strategies

      The Company is marketing  the  AquaSafe(TM)  pumping  system and its other
water/solar products worldwide to both institutional public and private markets.
The institutional public and private sectors, including governments,  contribute
literally  billions  of dollars  in  emerging  nations to water and small  power
projects  which fall within the scope of the Company's  business.  These sectors
represent the largest potential  markets for the Company's  products in the near
future. In addition to governments, the public institutions consist primarily of
national and international  organizations that assist developing countries, most
of which are in tropical zones and have a dramatic, recognized need for water in
areas  without   available  and  economical   electric  power   supplies.   Such
organizations  include:  Government Water,  Energy and Agricultural  Ministries,


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<PAGE>

multilateral  international assistance agencies, such as the World Bank, UNICEF,
the United Nations  Development  Programme (UNDP), the World Health Organization
(WHO) and the Food and Agricultural Organization (FAO), and regional banks, such
as the African  Development  Bank, the  Inter-American  Development Bank and the
Asian  Development  Bank, and bilateral  development  agencies in the aid-giving
nations  (e.g.  U.S.  Agency for  International  Development  (USAID),  Canadian
International  Development Agency (CIDA) and Swedish  International  Development
Agency  (SIDA)) as well as  smaller  agencies  in the  developing  nations,  and
quasi-public  (non-profit,  private) NGOs, such as CARE (USA, Canada etc.), Save
the Children,  World Vision,  Food for the Hungry,  Doctors Without Borders etc.
and various  religious  organizations  (e.g.  Christian and Islamic  groups) and
service  clubs  (Rotary,  Lions  etc.)  which  contribute  substantially  to aid
efforts.

      All of the above agencies and organizations  work with and assist emerging
nation governments which wish to purchase the Company's products.  International
bureaucracies  and NGO's  can be slow to  approve a new  product.  The  Company,
however,  has already  achieved a high  initial  visibility  and  interest.  The
advantages  of  dealing  with  these  organizations  are that:  the  development
agencies/NGOs  serve many different  countries that combine a desperate need for
low cost water pumping with a good  availability of solar energy,  acceptance by
one development agency promotes  acceptance by the others, thus greatly reducing
the length of the business  development cycle,  acceptance by recognized experts
in the  international  community gives the Company an implied  endorsement  that
helps in private  marketing,  and the international  development  agencies/NGO's
have substantial available monies for water supply systems and pay dependably.

      Marketing to the public sector is being done  principally  through Company
personnel, consultants and sales representatives, as well as through information
articles in relevant  international  newsletters  and  magazines  (such as solar
journals, UNICEF's WATERfront, USAID and World Bank publications), participation
in international  trade shows and conferences,  targeted  mailings,  and journal
advertising. These methods are used to contact government agencies in developing
countries  that  have a program  to  purchase  the  pumps and the  international
assistance  agencies  that fund these  programs.  Quentin  Kelly,  the Company's
president, and the Company's marketing executives and consultants have extensive
contacts  with  government  officials  in  many  countries  that  are  potential
customers  and with  the  highest  executive  levels  in many key  international
assistance  agencies.  For example,  Mr. Kelly has demonstrated the AquaSafe(TM)
pump to President Ramos of the Philippines, President Chissano of Mozambique and
senior  government  officials in other  countries,  with resultant orders and/or
strong indications of future orders. For example, President Ramos authorized the
initial  order of 25 systems  sold to the  Philippines  in 1997 after  viewing a
demonstration in a Philippine rice field. Those systems have now been installed,
and a revolving fund for  additional  orders is being prepared by the Philippine
Government.


                                       6
<PAGE>

Research and Development

      Research and Development ("R&D") expenditures were approximately  $241,209
and  $681,974  in 1997 and  1996,  respectively,  reflecting  the fact  that the
Company  was in a largely  R&D mode until late 1996.  In addition to its present
pumps which have delivery  capacities  between 5 and 250 gallons per minute, the
Company has  additional  water and solar  products in various stages of research
and development.

      For example,  the Company is developing a water diagnostics kit called the
AquaTester(TM)  which can determine if water is  contaminated by placing a small
quantity in the AquaTester(TM)  incubator,  which can be operated by solar power
in the field or by other electrical input.  After 24 hours, the user can tell if
the water is polluted by viewing  certain color changes.  The Company is working
in collaboration  with IDEXX  Laboratories of Maine,  which produce the chemical
reagents used in the AquaTester(TM) process.

      The  Company  is  also  exploring  the   possibilities  of  combining  its
AquaSafe(TM)and  AquaTester(TM)systems  with various water purification units in
those areas where clean water is  otherwise  difficult  to find.  The Company is
also researching  theft-prevention  technology for its solar systems  (automatic
control shut-offs). In general, the Company recognizes the dynamic status of its
markets  and product  applications  and the  continuing  need to develop new and
improved systems to keep ahead of present and future competition.

Manufacturing

      Sub-contractors  currently  manufacture parts for the AquaSafe(TM) systems
in the United States.  The Company will continue to source materials  worldwide,
based on quality and cost considerations.

      In the future,  when justified by marketing and  production  requirements,
the Company  intends to locate  AquaSafe(TM)  and other product  assembly  sites
overseas.   Joint  venture   discussions  include  proposed  production  in  the
Philippines  and  South  Africa  (a  solar  panel  manufacturing   facility  for
production and sales of solar modules  throughout  southern  Africa),  Egypt and
India.  Such  projects  will  leverage  the  Company's  ability to obtain  local
permits,  finance  production  and  better  market its  products  in many of the
world's largest and most promising  potential  markets.  Other prospective joint
venture  partners  are  seeking  technical   assistance  from  the  Company  for
developing  local  manufacturing  capability,  particularly to produce the solar
panels,  with the Company  shipping the proprietary  electronics.  Finally,  New
Jersey state and county development agencies work with the Company by granting a
revolving export line of credit.

Patents

      The  Company's  president and CEO,  Quentin T. Kelly,  together with Steve
Slaby,  the late David  Harrje and Tony Poli of Princeton  University  and three
other  co-inventors,  was issued U.S.  Patent  5,163,821  on  November  17, 1992
covering the solar  collection,  heat  exchange and 


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<PAGE>

power module of a solar pump system.  They have all assigned  this patent to the
Company. The Company is preparing  additional patents and  continuations-in-part
and may also  seek and  file for  protections  of its  patents  in  certain  key
countries  outside the United States. At this time, the Company has not made any
such filings outside the United States.

      The Company's  proprietary  technology is a solar powered  pumping  system
(AquaSafe(TM))  comprising  a PV solar  array  which  generates  DC current  and
voltage; a variable speed motor drive connected to the array (AquaDrive(TM));  a
three-phase  AC motor  connected  to the motor  drive;  a pump  connected to the
motor.  The motor drive includes a maximum power tracking circuit which controls
motor speed in alignment  with the maximum power  produced by the PV array.  The
Company can provide no assurance that a competitor will not develop and market a
solar  powered  pump system which may complete  effectively  with the  Company's
products, notwithstanding the patent.

Source and Availability of Raw Materials

      The Company's  solar  modules are composed of silicon and like  substances
which have risen in price recently for several  reasons.  Firstly,  silicon is a
by-product of the computer  industry and higher quality control has meant higher
quality  computer  silicon  chips,  thus reducing the quantity of impure silicon
which is recycled  for use in solar  panels.  Secondly,  the overall  market for
solar modules has grown consistently thus putting pressure on supply and driving
up prices  from $3.85 per watt to $4.14 per watt in 1997 (the first  increase in
recent years,  totaling 8%). Prices may stabilize as new solar panel  production
capacity is being added and scheduled to come on-stream  later in 1998 and 1999.
The chief suppliers of solar modules to the Company are BP Solar,  Evergreen and
Solarex, all based in the United States.

Competition

      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 grid extension  which is very  expensive.
The Company's proprietary technology permits the use of "off-the-shelf" AC pumps
opening a whole range of previously  unavailable  options for solar power. These
AC pumps  are  widely  available  allowing  replacement  pumps  and  parts to be
supplied on a local  basis.  Other forms of solar  powered PV pumping  currently
available are either less reliable or more costly.

      The principal competitive factors affecting the Company's products are the
up front cost of a solar pump system compared to a less expensive diesel option.
However studies by GTZ (West German counterpart of US Aid) indicated that PV had
a simple payback period of 18 months for remote power applications.  Electricity
costs per kilowatt hour for PV systems at  $0.50-$1.00  compare  favorably  with
diesel at $1.00-$3.00.

      The  Company  believes  that it has a strong  lead in the  markets  it has
developed.  In many regions of the world competitive products are not available.
In  those  markets  where  competition  


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<PAGE>

exists, the most commonly  encountered  competitor is Grundfos A/S of Denmark, a
manufacturer of a large range of water pumps including a solar pump line,  which
is sold through an  established  distribution  system  worldwide.  However their
product  line  tends to be  10%-20%  more  expensive  than the  Company's  and a
Grundfos  specialty  motor is required to run the  Grundfos  system.  WorldWater
Corp. systems can operate with a broad line of motors.

      The Company believes Grundfos to be its strongest competitor.  Grundfos is
better established and far stronger  financially than is the Company.  There can
be no assurance that, in the event the markets developed by the Company prove to
be lucrative, other, better established players will not enter the arena.

Subsidiaries

      The Company's sole  subsidiary is  WorldWater,  Inc., of which the Company
owns approximately 94% of the issued and outstanding capital stock.

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.

Employees

      As of April 15, 1998, the Company employed 10 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 Company is developing a
worldwide  capability for installing and  maintaining  its line of products.  In
some cases this involves additional consulting contracts to evaluate local water
usage requirements, find the needed water sources, drill the necessary wells and
supply the desired  water  storage  facilities.  It may also involve  training a
local   installation   and  servicing  team  and  supplying   assistance  on  an
as-requested basis. The Company works closely with the  hydrogeological  firm of
Vincent Uhl and Associates in preparing and providing  many of these  additional
services  in  developing  countries  such  as  Mozambique,  and  with  Morehouse
Engineering, specialists in water distribution and wastewater treatment.

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 in Pennington,  New
Jersey.  This facility is leased under an operating  lease  expiring in June 14,
2002.  The  Company  also uses a second  facility  in  Hopewell,  New Jersey for
conferences,  meetings and  demonstrations  of its  products.  This  facility is
leased from the Company's president on a month-to-month basis.


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<PAGE>

Item 3. Legal Proceedings

      The Company entered into a settlement  agreement on December 30, 1997 with
Royal Capital Incorporated ("Royal") resolving claims of breach of certain stock
purchase  agreement  between the Company and Royal dated August 28, 1996.  Under
the Purchase Agreement,  Royal rendered investment banking,  financial and other
advisory  services to the Company in exchange for securities and cash consulting
fees.  Under the  Settlement  Agreement:  1) the  Company  and  Royal  agreed to
mutually  terminate  their  contractual  relationship;  2) the Company agreed to
issue  and  deliver  certain  shares  of the  Company's  common  stock to Global
Portfolios PTY Ltd., all in accordance with  preexisting  subscriptions;  3) the
Company  agreed to issue  certain  warrants to Global  Portfolios  PTY Ltd.  and
Schurch Asset Management  GmbH, all in accordance with  preexisting  contractual
commitments;  4) Royal  agreed to deliver to the  Company  50,000  shares of the
common stock of Proformix Systems, Inc., a public company; 5) the Company agreed
to issue and deliver, pursuant to a preexisting subscription agreement,  125,000
shares of the Company's common stock, to Sage Capital Investments  Limited;  and
6) the Company and Royal agreed to exchange full mutual releases. In addition to
the  foregoing,   the  Company  and  Royal  agreed  to  certain  indemnification
provisions.

      On or about  August 12,  1997,  the  Company  received  a letter  from the
special  counsel  to  the  bankruptcy  trustee  in  the  Chapter  11  bankruptcy
proceedings of Richard F. Clowes ("Clowes"), Case No. 94B43278 (PBA), pending in
the U.S.  Bankruptcy Court for the Southern  District of New York. The trustee's
counsel asserted claims under a certain Loan & Settlement Agreement. This matter
was  preliminarily  settled with the trustee in November,  1997.  The settlement
called for the payment of $90,000 in cash and the conversion of $135,000 in debt
and $78,775 in accrued  interest  into 431,250  shares of the  Company's  common
stock. The Bankruptcy Court affirmed this settlement on March 30, 1998.

      The  Company  has  received  correspondence  from the estate of one of its
creditors  who  asserts  that the  Company  owes this  entity the amount of debt
included in Note 9 to the Financial Statements,  plus accrued interest since the
date of the note (1984). The Company believes that the terms of the note clearly
indicate that it is a non interest bearing note.

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

      None


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<PAGE>

                                     PART ll

Item 5. Market for Common Equity and Related Stockholder Matters

      The  Company's  common stock is traded on the NASDAQ  Electronic  Bulletin
Board and is listed on the National  Association of Securities Dealers Automated
Quotation  System  (NASDAQ)  under the stock symbol  "WWAT".  The following sets
forth  the high and low bid  prices  of the  Company's  common  stock  since the
Company's acquisition of WorldWater, Inc. in April 1997.

For the year ended December 31, 1997

                                                HIGH               LOW

First Quarter .............................     N/A*               N/A
Second Quarter ............................     $1.875             $0.625
Third Quarter .............................     $0.75              $0.25
Fourth Quarter ............................     $0.54              $0.15625

-----------                                     
      * The  Company's  stock  prices  prior to April  1997 do not  reflect  the
Company's business activities and as such, are not listed here.

      As of May 1, 1998, there were approximately 725 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.

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

Recent Sales of Unregistered Securities

          SALES OF RESTRICTED SECURITIES DURING THE FOURTH QUARTER 1997

1. Settlement

      A total of 548,066  shares  were issued to Global  Portfolios  Pty Ltd. Of
Victoria,  Australia,  as part of the  settlement of the Royal Capital  contract
termination. These were the balance of the shares due from the equity investment
in the Company.

2.  Equity Investment

      Global  Portfolios Pty Ltd.  invested $50,000 in the company by purchasing
125,000  shares at $0.40  each.  Two  smaller  investors  (S.  Morehouse  and T.
Carroll)  also invested  $5,000 each 


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<PAGE>

and  purchased  16,666  shares at $0.30 each.  Schurch  Asset  Management of St.
Gallen,  Switzerland  invested  $75,000  as  the  initial  part  of  a  $410,000
investment. This investment consisted of the purchase of 187,500 shares at $0.40
each.

3. Conversion to shares

      Two trusts  holding  loan  debentures  totaling  $55,000  converted  their
principal and interest receivable into 121,942 shares.

4. Bankruptcy

      200,000 shares were issued to Alan Nisselson,  Trustee of the Clowes/Hecht
estate as part of a deal in which a $225,000  debenture  will be  purchased  for
$90,000 (plus 200,000 WorldWater Corp. shares) by Ueli Schurch.  He will convert
the loan into  631,250  shares  (and  receive  the  balance of 431,250  less the
200,000).

5. Penalty

      50,000  shares were issued to Sagax Fund as penalty for late  payment on a
$50,000 loan.

6. Services

      1,000 shares were issued to Scott  Barbera for services  rendered  when he
had been an employee.


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<PAGE>

Item 6. Management's Discussion and Analysis and Results of Operations.

Background

      The Company designs,  develops and markets proprietary technology relating
to solar water power,  including  solar power products and  international  water
management  consulting.  The Company's primary products are cost effective power
systems driven entirely by solar energy,  such as proprietary  water pumping and
solar electric systems. The Company's primary customers are developing countries
which require non-traditional means of fulfilling their energy and water needs.

Results of Operations

Year Ended December 31, 1997 ("Fiscal 1997)
Compared to December 31, 1996 ("Fiscal 1996)

      The net sales  increase to $517,031 from $13,988 in 1996 was primarily due
to the opportunity,  late in 1996, to market the Company's new product line, and
the sale of product totalling  $427,500 to the Philippine  government.  Although
several  solar  powered  electric  systems  were sold in 1997,  the  majority of
revenue was generated by the sale of solar powered  drinking water or irrigation
pump systems.

      Cost of sales  for the 1997  year was  $478,027,  or 92% of  sales,  which
reflects the fixed overhead required to sell into an international market, while
retaining  experienced  solar  industry  engineers  and  marketers.  Comparative
figures for 1996,  which do not reflect a full year of sales  activity are not a
good indicator of typical sales costs.

      Marketing,  General and Administrative expenses were $1,023,715 or 198% of
sales.  This  compares to a 1996 figure of $371,911,  an increase of 175%.  This
increase is largely  explained by a reallocation  of resources from Research and
Development to Marketing. During 1997 the Company also incurred expenses when it
centralized its production and administrative functions in its Pennington plant,
and hired a new General Manager/Financial Officer.

         Research and  Development  expenses  were  $241,209 in 1997 compared to
$681,974 in 1996,  a decrease  of 65%,  which  reflects  the move to a marketing
stance late in 1996 and throughout 1997.

      The net loss of  $1,725,996  reflects a one-time  charge of  $334,336  for
penalty shares issued on debt which was past its maturity date. The company paid
no tax in 1996 or 1997,  and ended 1997 with net  operating  loss  carryforwards
totalling $6,283,886.

      The  accompanying  consolidated  financial  statements  have been prepared
assuming  that the Company will continue as a going  concern.  The going concern
basis contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business over a 


                                       13
<PAGE>

reasonable length of time.

      Management is working with current debt holders  seeking the conversion of
their debt into shares of common stock. To help raise  additional  capital,  the
Company retained the investment banking firm Dominick and Dominick,  Inc. to act
as a financial  advisor.  Dominick  and  Dominick,  Inc. is seeking  private and
institutional investors to fund Company sales efforts (see Financial Note 20).

      In  addition,  management  is  continuing  to  market  their  products  to
developing countries.  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
concerning uncertainty.

Liquidity and Capital Resources

      Net cash provided by all activities in fiscal year 1997 was $48,342 versus
$7,722  in 1996.  The net cash  used in  operating  activities  during  1997 was
$746,576 compared to $940,063 in 1996. The net loss figure of $1,725,996 was the
primary  reason for the  consumption  of cash used in  operating  activities.  A
charge of $867,029  reflects the cost of Common Stock issued to consultants  for
services  related to the acquisition of WorldWater,  Inc. in April 1997, and the
issuance of shares to creditors  for  violations  of debt  repayment  schedules.
Inventory  levels  declined due to strict control and accrued  interest  charges
decreased as debt was  converted.  The accounts  receivable  increase of $60,059
reflects a higher level of sales  activity by the Company in its first full year
of market-led operations.

      The Company's  auditors have indicated  that there is a substantial  doubt
about its ability to continue as a going  concern.  The Company has taken action
to respond to this  issue,  including  (i) working  with  current  debt  holders
seeking conversion of their debt into shares of common stock; and (ii) retaining
the  investment  banking firm,  Dominick & Dominick,  Inc. to act as a financial
advisor.  Dominick  &  Dominick,  Inc.  is  seeking  private  and  institutional
investors to fund the  Company's  sales  efforts.  In  addition,  the Company is
continuing to market its products to developing companies.

      Cash  consumed by  investing  activities  in 1997 was $75,929  compared to
$15,532 in 1996. The increase was primarily related to a performance  deposit on
the Philippine  Government sale. Cash generated by financing  activities in 1997
was $870,847  compared to $963,317 in 1996.  This reflects an increase in equity
participation offset by a decrease in debt used to fund Company operations.

      Subsequent to December 31, 1997, the Company  converted,  with the consent
of its note holders,  an additional  $901,000 of long-term  debt and $246,540 of
accrued interest into 2,455,024 shares of common stock. This conversion  reduces
balance sheet debt to $1,120,650 by the end of the first quarter of 1998.

      On January 22, 1998,  the Company signed an investment  banking  agreement
with Dominick and Dominick,  Inc. The agreement calls for Dominick and Dominick,
Inc. to act as a financial  advisor to the Company in matters such as financing,
joint ventures, mergers, etc. (See Note 20). Potential investment groups are now
being contacted in the United States and Europe by Dominick & Dominick on behalf
of the  Company and the Company  expects to raise $3 - $5 million  from  private
investors and funds.


                                       14
<PAGE>

      The  Company is also  encouraging  its warrant  holders to exercise  their
warrants at this time, which would provide an efficient and inexpensive means of
raising capital. In order to obtain the stated 1998 $5 million revenue goal, the
Company needs to continue to ramp up its marketing efforts, which is the primary
purpose of the prospective capital raising referenced above. However,  there can
be no assurances that the Company will be successful in these efforts.

Item 7. Financial Statements

      The  financial  statements of the Company,  including  the notes  thereto,
together with the report of the independent certified public accountant thereon,
are presented beginning at page F-1.

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

      Not Applicable.


                                       15
<PAGE>

                                                     PART III


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

      The names and ages of all directors and executive  officers of the Company
are as follows:

Name                            Age     Position
----                            ---     --------
Quentin T. Kelly                63      President, CEO and Chairman of the Board
                                          of Directors
Thomas Leyden                   42      Vice-President, Marketing
Peter I. Ferguson               54      Vice-President
Brian McInerney                 41      Financial Officer
Joseph Cygler                   62      Secretary and Director
Ueli Schurch                    36      Director
Dr. Russell L. Sturzebecker     81      Director
Dr. Martin G. Beyer             66      Director

      There  are no  family  relationships  among  the  Company's  officers  and
directors.

      Quentin T. Kelly  founded  the Company in 1984 and has been  Chairman  and
President since then. Mr. Kelly was previously Director of Information  Services
and Assistant to the President of Westinghouse Electric Corporation from 1965 to
1971 and  subsequently  became  President of Kelly-Jordan  Enterprises,  Inc., a
publicly-held  leisure products company from 1971 to 1975, and then President of
Pressurized  Products,   Inc.,  manufacturers  and  international  marketers  of
specialized  water  systems and  products,  from 1976 to 1984.  Mr.  Kelly is an
alumnus  of Kenyon  College.  He has many  years'  experience  in  international
business  relating  to water and power  needs in the  developing  world.  He has
worked on water supply and solar power projects with  governments and several of
the international assistance agencies (USAID, UNDP and UNICEF),  particularly in
the Philippines, Lebanon, Sudan, North Africa and Sub-Saharan Africa and India.

      Dr. Anand  Rangarajan  joined  WorldWater  as Vice  President  and General
Manager in April 1998. Having started his career at MIT Lincoln  Laboratory,  he
has 20 years  experience in all aspects of the solar  electric  business and has
pioneered the development of several proprietary systems,  products and markets.
He was  co-founder  and  executive  Vice  President  of  TriSolarCorp,  Bedford,
Massachusetts  which was sold to Chronar  Corporation,  Princeton,  New  Jersey.
There,  as Vice  President of Standard  Products,  he established a new business
unit commercialize a variety of solar electric pumping and lighting products. In
this  connection  he was  responsible  for  setting  up sales  and  distribution
networks in the US and  overseas.  He was 


                                       16
<PAGE>

also responsible for starting a new company,  named Thermolyte,  for ThermoPower
Corporation,   a   subsidiary   of   ThermoElectron   Corporation   of  Waltham,
Massachusetts.  Thermolyte  now markets hand held  consumer  lighting  products,
which use a small canister of propane instead of batteries.  Dr.  Rangarajan has
extensive  experience in  international  markets;  his products and systems have
been installed in over twenty  countries.  He has a Ph.D. from the University of
Wisconsin.  He also  holds  patents  in solar  energy  and other  areas.  He has
published  several  technical papers and has been an invited speaker at national
and international conferences.

      Joseph  Cygler has been the Secretary of the Company since January 1984, a
Director of the Company since 1993, and a former Vice President of Marketing and
Executive Vice-President. He has been Chief Executive Officer of the CE&O Group,
an  organization  assisting  companies  in  operations  management,  since 1986.
Previously he was an executive at Kepner-Tregoe, Inc., an international business
consulting  firm,  from 1976 to 1986, an executive  with  Honeywell  Information
Systems from 1964 to 1976,  and a marketing  representative  with  International
Business Machines from 1961 to 1964. Mr. Cygler has a BS in Engineering from the
U.S. Military Academy at West Point.

      Thomas  Leyden has been Vice  President of Marketing for the Company since
October,  1996. He has 16 years  experience  in the solar and  renewable  energy
industry.  He has been president of a U.S. solar thermal  company and a Canadian
spring water bottling company.  Before joining the Company,  he was an executive
with a photovoltaic manufacturing and marketing company which conducted business
in the United States,  Europe and Asia. Mr. Leyden was the founding president of
the Maryland-DC Solar Energy Industry  Association and represents the Company in
the national SEIA. He is a graduate of Princeton University.

      Peter I. Ferguson was appointed Vice President of  Administration in 1989.
He previously  served as a vice president and general  management  executive and
accountant for RCA Corporation,  Crompton & Knowles,  Inc. and Sterling Drug Co.
He graduated from Rutgers University.

      Brian McInerney has been Financial Officer since July, 1997. Prior thereto
he was a Senior Bank  Official  with  Allied  Irish Banks of Ireland and Product
Manager of Perrier and Pepsi Cola in Ireland as well as Manager of environmental
activities with EnSys, Inc. and Manager with the American  Institute of Chemical
Engineers in the United States.  He holds  undergraduate and graduate degrees in
Business, Finance and Marketing from University College Dublin in Ireland.

      Ueli  Schurch  was  appointed  a Director  of the  Company in 1997.  He is
President of Schurch Asset  Management  GmbH based in St.  Gallen,  Switzerland,
principal  investors  in  the  Company.  He  is  a  former  banker  for  one  of
Switzerland's largest banks based in Zurich.

      Dr.  Russell L.  Sturzebecker  was  appointed a Director of the Company in
1997 and serves as Consultant - International  Health.  He is a retired Director
of Health and  Education of West  Chester  University  (Pennsylvania).  He is an
author and  publisher of histories  of World War  II-


                                       17
<PAGE>

Pacific Theater and of the Olympic Games. He is a retired Colonel, US Air Force,
who  accompanied  General  Douglas  MacArthur's  troops in the  invasion  of the
Philippines  and is a  close  associate  of  President  Fidel  V.  Ramos  of the
Philippines.

      Dr.  Martin G. Beyer was  appointed  a Director of the Company in 1993 and
serves Consultant - International  Marketing.  He was  Secretary-General  of the
Global  Consultation  on Water and  Sanitation,  sponsored by the United Nations
Development  Programme and the World Bank, held in New Delhi,  India in 1990 and
attended by over 600 delegates  from 115  countries.  Previously,  Dr. Beyer was
Senior  Advisor for Water  Supply and  Sanitation  for  UNICEF,  Chairman of the
United  Nations  Intersecretariat  Group for Water  Resources,  Chairman  of the
Advisory Panel to the UNDP/World  Bank global project for testing and developing
of hand pumps,  and Deputy  Regional  Director for UNICEF in the  Americas.  Dr.
Beyer has a Ph.D.  degree in Economic  Geology from the  University of Stockholm
and speaks  ten  languages,  including  French,  Spanish,  German,  Italian  and
Portuguese. He resides in Princeton, New Jersey. He became a Director in 1995.

      Based  solely upon a review of Forms 3, 4 and 5  furnished  to the Company
during its most recent  fiscal  year,  the Company  believes  that there were no
Section 16(a) reports filed  untimely  during the Company's  year ended December
31, 1997.

Item 10. Executive Compensation

      The Company's Summary  Compensation Table for the years ended December 31,
1997,  1996  and  1995 is  provided  herein.  There  are no  Option/SAR  Grants,
Aggregated  Option/SAR  Exercises or Fiscal Year-End  Option/SAR Value Table for
the  years  ended  December  31,  1997,  1996 and 1995.  There are no  long-term
incentive plan ("LTIP")  awards,  or stock option or stock  appreciation  rights
except as discussed below.

                                               Securities Underlying 
Name                       Year     Salary       Other Options (#)
----                       ----     ------     ---------------------

Quentin T. Kelly,          1997    $42,000            --
 President and CEO         1996    $42,000          37,975
                           1995    $42,000            --

      Quentin T. Kelly has entered into an employment  agreement  dated March 1,
1995 pursuant to which he received an annual  salary of $42,000 from  1995-1997.
However Mr.  Kelly did not  receive his full salary  during the years 1994 -1997
and has accrued salary payments of $64,750  outstanding as of December 31, 1997.
He did not receive any other compensation or stock options during the years 1995
or 1997,  but did receive  Incentive  Stock Options  totaling  37,975 shares for
deferred  salary in 1996.  No company  executive  earned a salary  plus bonus in
excess of $100,000.


                                       18
<PAGE>

      Year End Option Table. The following table sets forth certain  information
regarding  the stock  options  held as of December  31, 1997 by the  individuals
named in the above Summary Compensation Table.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUE

<TABLE>
<CAPTION>
                                                            Securities Underlying             Value of Unexercised
                                                            Unexercised Options at            In-the-Money-Options
                                                              Fiscal Year End(#)             at Fiscal Year End ($)
                        Shares Acquired     Value         ---------------------------     ---------------------------
  Name                  on Exercise (#)   Realized ($)    Exercisable   Unexercisable     Exercisable   Unexercisable
------                  ---------------   ------------    -----------   -------------     -----------   -------------
<S>                          <C>            <C>           <C>               <C>             <C>              <C>   
Quentin T. Kelly             --              --           37,975(1)         0               $6,456           --
</TABLE>

(1)  Computed based on a common stock price of $.57 as of December 31, 1997.

------------

Compensation of Directors

      The Company currently pays no outside directors' fees.

Stock Option Plan

      Incentive Stock Option Plans and Stock Option Plans

      During the year ended December 31, 1995,  WorldWater,  Inc., the Company's
subsidiary,  adopted an Executive  Stock  Option Plan "to provide a  competitive
means by which the company may seek, acquire and retain highly qualified persons
as officers,  employees,  directors and consultants."  Shares granted under this
plan shall not exceed  850,000 shares with a term of the option not greater than
7 years from the date  granted.  No options  have been issued to date under this
plan.

      During the year ended December 31, 1996,  WorldWater,  Inc. awarded shares
of its  common  stock  directly  to  employees.  However,  to  comply  with  IRS
regulations  and the Company's  new capital  structure  stock options  issued to
employees in 1996 were replaced by Company  Incentive  Stock Options  ("ISO") in
1997.  During the year ended  December 31, 1996,  WorldWater,  Inc.  created new
categories for ISOs. Employees who had qualified for common stock shares as part
of their current of future  compensation  qualified  under this plan. A total of
29,700 Company common stock share options were issued to replace  options earned
in 1996.  A total of 86,300  Company  stock  options  were  granted  under  this
category during the year of ended December 31, 1997.

      An additional  123,025  common stock options were also issued to employees
in compensation for deferred loan repayments or deferred  salaries at a ratio of
0.70  percent of one ISO to each $1 deferred  for the year  December  31,  1996.
Also,  a further  stock  option  category  was created  for  Company  directors,
investors  and  consultants  having  outstanding  matured  loans to the Company.
Relating to this,  stock options  totaling  83,175 were granted  during the year
ended December 31, 1996.  (See Note 6 in the Financial  Section for a summary of
stock option activity).


                                       19
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

      The  following  table sets  forth,  as of April 15,  1998,  the record and
beneficial  ownership  of  Common  Stock  of the  Company  by each  officer  and
director,  all officers and  directors as a group,  and each person known to the
Company to own beneficially or of record five percent or more of the outstanding
shares of the Company:

                                    Shares
Officers, Directors and             Beneficially             Percent of Shares
Principal Stockholders              Owned                  Beneficially Owned(1)
----------------------              -----                  ---------------------
Quentin T. Kelly                    2,500,000                    12.8%
Joseph Cygler                       250,000                      1.3%
Peter Ferguson                      162,000                      **
Dr. Martin Beyer                    43,000                       **
Dr. Russell Sturzebecker            36,141                       **
Ueli Schurch(2)                     748,750                      3.8%
Thomas Leyden                       50,700                       **
Brian McInerney                     17,000                       **

All directors,                      3,807,091                    19.4%
executive officers
as a group (8 persons)

----------- 
**  Less than 1%

(1)   For purposes of this table, a person or group of persons is deemed to have
      "beneficial ownership" of any shares of Common Stock which such person has
      the right to acquire  within 60 days of April 15,  1998.  For  purposes of
      computing  the  percentage of  outstanding  shares of Common Stock held by
      each  person or group of persons  named  above,  any  security  which such
      person or  persons  has or have the right to acquire  within  such date is
      deemed  to be  outstanding  but is not  deemed to be  outstanding  for the
      purpose of computing the percentage ownership of any other person.  Except
      as  indicated in the  footnotes  to this table and pursuant to  applicable
      community  property  laws,  the  Company  believes  based  on  information
      supplied by such  persons,  that the persons named in this table have sole
      voting and  investment  power with  respect to all shares of Common  Stock
      which they beneficially own.

(2)   Ueli Schurch may be deemed to be a beneficial  owner of 222,000  shares of
      the  Company's  common stock held by Schurch  Asset  Management  GmbH.  In
      addition, Schurch Asset Management GmbH has subscribed for the purchase of
      an  additional  187,500  Mr.  Schurch  has also  purchased  a  convertible
      debenture  from a bankruptcy  estate (see "Sales of Restricted  Securities
      During the Fourth  Quarter")  and  intends to convert  the loan which will
      result in the  issuance of 431,250  additional  shares to him.  The figure
      shown above assumes the issuance of all shares described herein.


                                       20
<PAGE>

Item 12. Certain Relationships and Related Transactions

      Included in notes  payable  and  long-term  debt at December  31, 1997 and
1996, are amounts payable to employees,  directors and their immediate relatives
as follows:

                                                 1997           1996
                                               --------       --------
          Directors                            $375,250       $430,250
          Employees                              46,000         32,000
          Immediate relatives                    12,000         17,000
                                               --------       --------
                   Total                       $433,250       $479,250
                                               ========       ========

      The Company occupied space in 1997 and 1996 that is owned by its President
and  leased  this  space on a month  to  month  basis.  The  amount  paid to the
President amounted to $30,000 in 1997 and $30,000 in 1996.

                                     PART IV

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

      The Company did not file any Current Reports on Form 8-K during the fourth
quarter of 1997.

      Exhibits to be filed by amendment.


                                       21
<PAGE>

      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)

Date: May 11, 1998                          By: /s/ Quentin T. Kelly
                                                --------------------------------
                                                    Quentin T. Kelly

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         President/Chief Executive              May 11, 1998
--------------------------    Officer/Chairman of the Board                     
Quentin T. Kelly              (Principal Executive Officer)                     
                             
/s/ Brian McInerney          Financial Officer (Principal           May 11, 1998
---------------------------    Financial Officer) 
Brian McInerney                                       

/s/ Joseph Cygler            Secretary/Director                     May 11, 1998
---------------------------  
Joseph Cygler                                                      
                                                                   
/s/ Martin Beyer             Director                               May 11, 1998
---------------------------  
Martin Beyer
                                                                   
/s/ Russell Sturzebecker     Director                               May 11, 1998
---------------------------  
Russell Sturzebecker                                               
                                                                   
/s/ Ueli Schurch             Director                               May 11, 1998
---------------------------  
Ueli Schurch                 

<PAGE>

                         WORLDWATER CORP. AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997



                                                                       Page
                                                                       ----
Independent  Auditors' Report                                           F-2

Consolidated Balance Sheets
December 31, 1997 and 1996                                              F-3

Consolidated Statements of Operations
For the Years Ended December 31, 1997 and 1996                          F-4

Consolidated Statements of Stockholders' Deficiency
For the Years Ended December 31, 1997 and 1996                          F-5

Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996                          F-6

Notes to Consolidated Financial Statements                          F-7 - F-23


                                      F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders,
WorldWater Corp.:

We have audited the accompanying consolidated balance sheets of WorldWater Corp.
and  subsidiary as of December 31, 1997 and 1996,  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  generally   accepted  auditing
standards.  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 that our audits provide 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
subsidiary as of December 31, 1997 and 1996,  and the results of its  operations
and its cash  flows  for the  years  then  ended in  conformity  with  generally
accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. The Company's working capital
deficit,   stockholders'  deficiency  and  lack  of  adequate  sales  growth  or
development  raises substantial doubt about the Company's ability to continue as
a  going  concern.   Management's  plans  regarding  these  matters  and  future
operations are described in Note 4. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


Withum, Smith & Brown
Princeton, New Jersey
March 13, 1998, except for the second paragraph of
Note 17 as to which the date is 
March 30, 1998


                                      F-2
<PAGE>

                        WORLDWATER CORP. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

       ASSETS                                            1997          1996
                                                         ----          ----

Current Assets:
   Cash                                              $    61,160    $    12,818
   Accounts receivable, net of allowance for
     doubtful accounts of $-0- in 1997 and 1996           60,529            470
   Marketable securities available for sale              162,500           --
   Inventory                                              83,858        102,998
   Prepaid expenses                                        2,627           --
                                                     -----------    -----------

       Total Current Assets                              370,674        116,286

Property and Equipment, Net                               47,875         44,503
Short-Term Investment - Restricted                        43,973           --
Deposits                                                   8,384            384
                                                     -----------    -----------
       TOTAL ASSETS                                  $   470,906    $   161,173
                                                     ===========    ===========

       LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
   Accounts payable and accrued expenses             $   368,424    $   377,974
   Accrued interest                                      498,136        473,378
   Accrued salaries                                      169,250        145,250
   Notes payable                                         179,181        140,984
   Current maturities of long-term debt                2,021,650      1,752,000
                                                     -----------    -----------
       Total Current Liabilities                       3,236,641      2,889,586

Long-Term Debt, Net of Current Maturities                   --          550,000
                                                     -----------    -----------

       TOTAL LIABILITIES                               3,236,641      3,439,586

Stockholders' Deficiency:
   Common stock, $.001 par value;
      authorized 20,000,000
      shares at December 31,
      1997 and 1996; issued and
      outstanding 15,288,502 shares
      at December 31, 1997 and
      9,565,408 shares at
      December 31, 1996                                   15,289          9,566
   Additional paid-in capital                          4,229,884      1,996,933
   Accumulated deficit                                (7,010,908)    (5,284,912)
                                                     -----------    -----------
       Total Stockholders' Deficiency                 (2,765,735)    (3,278,413)
                                                     -----------    -----------

       TOTAL LIABILITIES AND STOCKHOLDERS'
          DEFICIENCY                                 $   470,906    $   161,173
                                                     ===========    ===========

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


                                      F-3
<PAGE>

                        WORLDWATER CORP. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                                     1997              1996
                                                     ----              ----

Sales                                           $    517,031       $     13,988

Cost of Goods Sold                                   478,027              4,346
                                                ------------       ------------

Gross Profit                                          39,004              9,642

Research and Development
   Expenses                                          241,209            681,974
Marketing, General and
   Administrative Expenses                         1,023,715            371,911
                                                ------------       ------------
       Total Expenses                              1,264,924          1,053,885
                                                ------------       ------------

Loss from Operations                              (1,225,920)        (1,044,243)

Other Expense (Income):
   Debt term violations expense                      334,336               --
   Interest expense                                  166,966            203,469
   Interest income                                    (1,226)              --
                                                ------------       ------------
      Total Other Expense
        (Income), Net                                500,076            203,469
                                                ------------       ------------

Net Loss Applicable to
   Common Shareholders                          $ (1,725,996)      $ (1,247,712)
                                                ============       ============

Net Loss Applicable Per
   Common Share:

             Basic                              $      (0.13)      $      (0.15)
                                                ============       ============

             Diluted                            $      (0.13)      $      (0.15)
                                                ============       ============

Shares Used in Per Share
   Calculation:

             Basic                                13,164,859          8,484,048
                                                ============       ============

             Diluted                              13,164,859          8,484,048
                                                ============       ============

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


                                      F-4
<PAGE>

                        WORLDWATER CORP. AND SUBSIDIARY
              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>

                                                  Common Stock                Additional
                                                  ------------                 Paid-In         Accumulated
                                             Shares           Amount           Capital           Deficit           Total
                                             ------           ------           -------           -------           -----
<S>                                         <C>             <C>               <C>              <C>               <C>        
Balance, January 1, 1996                    7,945,908       $    7,946       $1,498,553       $(4,037,200)      $(2,530,701)
Issuance of common stock
  to Royal Capital Inc. for cash            1,250,000            1,250          498,750              --             500,000
Issuance of common stock
  per debt agreements                         325,000              325             (325)             --                --
Issuance of common stock
  for services                                 44,500               45              (45)             --                --
Net loss for the year                            --               --               --          (1,247,712)       (1,247,712)
                                           ----------       ----------       ----------       -----------       -----------
Balance, December 31, 1996                  9,565,408            9,566        1,996,933        (5,284,912)       (3,278,413)
Issuance of common stock
  to Royal Capital Inc. 
  for cash and marketable
  securities                                1,839,386            1,839          776,661              --             778,500
Issuance of common stock
  to Golden Beverage Company
  stockholders                                113,501              113             (113)             --                --
Issuance of common stock
  to Royal Capital Inc. 
  for consulting services                   1,478,869            1,479          530,914              --             532,393
Issuance of common stock
  for cash                                    480,401              480          255,520              --             256,000
Debt and accrued interest
  converted into common stock                 685,484              686          335,459              --             336,145
Issuance of common stock
  for debt term violations                  1,114,453            1,115          333,221              --             334,336
Issuance of common stock
  for services                                  1,000                1              299              --                 300
Issuance of common stock
  for warrants exercised                       10,000               10              990              --               1,000
Net loss for the year                            --               --               --          (1,725,996)       (1,725,996)
                                           ----------       ----------       ----------       -----------       -----------
Balance, December 31, 1997                 15,288,502       $   15,289       $4,229,884       $(7,010,908)      $(2,765,735)
                                           ==========       ==========       ==========       ===========       ===========
</TABLE>

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


                                      F-5
<PAGE>

                        WORLDWATER CORP. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                                        1997            1996
                                                        ----            ----
Cash Flows from Operating Activities:
   Net loss                                         $(1,725,996)    $(1,247,712)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
        Depreciation                                     20,584           8,600
        Charges relating to common stock
             issued for services and debt
             term violations                            867,029            --
        Changes in assets and liabilities:
         Accounts receivable                            (60,059)          8,310
         Inventory                                       19,140        (102,998)
         Prepaid expenses                                (2,627)           --
         Accounts payable and
            accrued expenses                             (9,550)        136,782
         Accrued interest                               120,903         201,455
         Accrued salaries                                24,000          55,500
                                                    -----------     -----------
             Net Cash Used in
               Operating Activities                    (746,576)       (940,063)

Cash Flows from Investing Activities:
   Change in deposits                                    (8,000)          1,200
   Capital expenditures                                 (23,956)        (16,732)
   Purchase of short-term
     investment - restricted                            (43,973)           --
                                                    -----------     -----------
             Net Cash Used in
                Investing Activities                    (75,929)        (15,532)

Cash Flows from Financing Activities:
   Proceeds from issuance of long-term debt              40,000         466,000
   Payments on long-term debt                           (80,350)         (2,683)
   Proceeds from notes payable                           84,931            --
   Payments on notes payable                            (46,734)           --
   Proceeds from issuance of common stock               873,000         500,000
                                                    -----------     -----------
             Net Cash Provided by
                Financing Activities                    870,847         963,317
                                                    -----------     -----------

Net Increase in Cash                                     48,342           7,722

Cash at Beginning of Year                                12,818           5,096
                                                    -----------     -----------

Cash at End of Year                                 $    61,160     $    12,818
                                                    ===========     ===========

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


                                      F-6
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Nature of Operations

      WorldWater  Corp.'s  and  subsidiary's primary products are cost effective
      power systems driven entirely by solar energy,  such as proprietary  water
      pumping and solar electric  systems.  The Company's  primary customers are
      developing  countries  which require non  traditional  means of fulfilling
      their energy and water needs.

Note 2 - Merger with Golden Beverage

      WorldWater  Corp.  ("Company") was  incorporated in the State of Nevada on
      April 3, 1985 under the name Golden Beverage  Company.  In April 1997, the
      Company completed a reverse acquisition with World Water, Inc., a Delaware
      corporation formed in January 1984. Pursuant to the acquisition agreement,
      WorldWater,  Inc.  shareholders  were  offered one share of the  Company's
      common stock for one share of WorldWater,  Inc. common stock.  The Company
      acquired  8,141,126  shares of  WorldWater,  Inc.  common  stock  (80%) in
      exchange for 8,141,126 shares of the Company's  post-reverse  split common
      stock.  Under the terms of the Agreement,  the Company's prior  management
      resigned and was replaced by WorldWater,  Inc.'s management. In June 1997,
      the Company changed its name to WorldWater Corp.  Holders of approximately
      94% of WorldWater, Inc. common stock have agreed to the stock exchange and
      tendered  their  shares.  As a result,  the Company and  WorldWater,  Inc.
      remain  as two  separate  entities  and  WorldWater,  Inc.  operates  as a
      subsidiary of WorldWater Corp. The operations of the newly combined entity
      are currently comprised solely of the operations of WorldWater, Inc.

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

Note 3 - Summary of Significant Accounting Policies:

      Significant   accounting  policies  followed  by  WorldWater  Corp.  ("The
      Company") in the preparation of the  accompanying  consolidated  financial
      statements are summarized below.

      A. Principles of Consolidation

            The  consolidated  financial  statements  include  the  accounts  of
            WorldWater Corp. and its majority owned subsidiary,  WorldWater Inc.
            All intercompany transactions and balances have been eliminated.

      B. Property and Equipment

            Property and equipment are stated at cost. Depreciation charges with
            respect to  property  and  equipment  have been made by the  Company
            utilizing the  straight-line  method over the estimated useful lives
            of the respective assets.

      C. Use of Estimates

            The preparation of consolidated  financial  statements in conformity
            with generally accepted accounting principles requires management to
            make estimates and assumptions  that affect certain reported amounts
            and  disclosures.  Accordingly,  actual  results  differ  from those
            estimates.


                                      F-7
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Summary of Significant Accounting Policies (Cont'd):

      D. Inventory

            Inventory  is  stated  at the  lower of cost or  market  on the FIFO
            (first-in, first-out) method. Inventory consists mainly of purchased
            system components, not yet assembled.

      E. Research and Development

            Research and  development  costs  consist of  expenditures  incurred
            during  the  course of planned  search  and  investigation  aimed at
            discovery of new knowledge  which will be useful in  developing  new
            products or processes,  or significantly enhancing existing products
            or  production  processes,  and the  implementation  of such through
            design,   testing  of  product   alternatives   or  construction  of
            prototypes.  The Company expenses all research and development costs
            as they are incurred.

      F. Effect of New Accounting Pronouncements

            In March 1997,  the Financial  Accounting  Standards  Board ("FASB")
            issued Statement of Financial  Accounting  Standard ("SFAS") No. 130
            "Comprehensive Income". The Company believes that this pronouncement
            will not have a material impact on the Company's financial statement
            disclosures in 1998 and future years.

      G. Net Loss Per Common Share

            In February 1997, the Financial  Accounting  Standards  Board issued
            Statement of Financial  Accounting Standards No. 128 (SFAS No. 128),
            "Earnings Per Share". SFAS No. 128 supersedes  Accounting Principles
            Board  Opinion  No. 15 (APB 15),  "Earnings  Per  Share,"  and other
            related  interpretations  and is  effective  for the periods  ending
            after  December  15,  1997.  Under SFAS No.  128,  all  prior-period
            earnings per share amounts have been  restated.  Basic  earnings per
            share is based  upon  weighted-average  common  shares  outstanding.
            Diluted  earnings per share is computed  using the  weighted-average
            common shares outstanding plus any potentially  dilutive securities.
            Dilutive securities include stock options, warrants, and convertible
            debt.

            The following  table sets forth the computation of basic and diluted
            net loss per common share:

                                                        1997           1996
                                                        ----           ----

            Numerator:
               Net loss                              $ (1,725,996) $ (1,247,712)
               Preferred stock dividends                     --            --
                                                     ------------  ------------

               Numerator for basic and diluted net
                 loss per common share               $ (1,725,996) $ (1,247,712)
                                                     ============  ============


                                      F-8
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           G. Net Loss Per Common Share (Cont'd)

               Denominator:
                  Denominator for basic net loss
                    per common share weighted -
                    average shares                     13,164,859     8,484,048
                                                     ------------  ------------
                  Effect of dilutive securities:
                    Employee stock options                   --            --
                    Warrants                                 --            --
                    Convertible debt                         --            --
                                                     ------------  ------------

               Dilutive potential common shares              --            --
                  Denominator for diluted net 
                    loss per common share 
                    adjusted weighted-
                    average shares and 
                    assumed conversions                13,164,859     8,484,048
                                                     ------------  ------------

                Basic net loss per common share      $       (.13) $       (.15)
                                                     ============  ============

                Diluted net loss per common share    $       (.13) $       (.15)
                                                     ============  ============

            Options,  warrants and convertible debt were outstanding during 1997
            and 1996,  but were not included in the  computation  of diluted net
            loss per common  share  because  the effect in years with a net loss
            would be antidilutive.

Note 4 - Going Concern:

      These  consolidated  financial  statements are presented on the basis that
      the Company will  continue as a going  concern.  The going  concern  basis
      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,  stockholders'  deficiency and lack of
      adequate sales growth or development  raises  substantial  doubt about the
      Company's  ability to continue as a going  concern.  Management is working
      with current debt holders seeking the conversion of their debt into shares
      of common stock. To help raise  additional  capital,  the Company retained
      the  investment  banking  firm  Dominick  and  Dominick,  Inc. to act as a
      financial  advisor.  Dominick and  Dominick,  Inc. is seeking  private and
      institutional  investors to fund Company  sales  efforts (see Note 20). In
      addition,  management is continuing to market their products to developing
      countries.  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.

Note 5 - Income Taxes:

      The Company accounts for income taxes using Financial Accounting Standards
      Board Statement of Financial Accounting Standards No. 109, "Accounting for
      Income  Taxes"  (SFAS No. 109),  which  requires  the  establishment  of a
      deferred tax asset or liability for the  recognition of future  deductible
      or  taxable  amounts  and  operating  loss and tax  credit  carryforwards.
      Deferred tax expense or benefit is  recognized  as a result of the changes
      in the deferred tax assets or liabilities during the year.


                                      F-9
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 - Income Taxes (Cont'd):

      There were no provisions for income taxes for the years ended December 31,
      1997 and 1996, due to losses generated in each year.

      Temporary differences which give rise to significant deferred income taxes
      at December 31, 1997 and 1996, follow: 

                                                       1997             1996 
                                                       ----             ----

       Net Operating Loss Carryforwards            $ 2,513,554      $ 1,823,156
       Deferred Tax Asset Valuation Allowance       (2,513,554)      (1,823,156)
                                                   -----------      -----------

       Total Deferred Tax Asset, Net               $      --        $      --
                                                   ===========      ===========

      The increases in the valuation allowances for the years ended December 31,
      1997 and 1996, approximated $690,398 and $421,660, respectively.

      At December  31,  1997,  the  Company has  available  net  operating  loss
      carryforwards for tax purposes of approximately $6,283,886 which expire in
      the years 2000 to 2013.

Note 6 - Stock Options and Warrants:

      Accounting for Stock-Based Compensation

      Statement of Financial  Accounting  Standards (SFAS) No. 123,  "Accounting
      for  Stock-Based   Compensation"   requires  that  the  Company   disclose
      additional information about employee stock-based  compensation plans. The
      objective  of SFAS No. 123 is to  estimate  the fair  value,  based on the
      stock price at the grant date,  of the  Company's  stock  options to which
      employees become entitled when they have rendered their requisite  service
      and satisfied any other conditions  necessary to earn the right to benefit
      from the stock  options.  The fair market value of a stock option is to be
      estimated using an option-pricing model that takes into account, as of the
      grant date,  the  exercise  price and  expected  life of the  option,  the
      current  price  of the  underlying  stock  and  its  expected  volatility,
      expected  dividends on the stock, and the risk-free  interest rate for the
      expected term of the options.

      As permitted  under SFAS No. 123, the Company has elected to follow APB 25
      and  related  Interpretations  in  accounting  for stock  based  awards to
      employees. In addition, the Company has calculated the pro forma financial
      results as required  under SFAS No. 123,  and noted that the impact on the
      net loss for the years ended December 31, 1997 and 1996 was immaterial.


                                      F-10
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Stock Options and Warrants (Cont'd):

      Incentive  Stock Option Plans and Stock Option Plans 

      During the year ended  December 31, 1995,  an Executive  Stock Option Plan
      was adopted "to provide a competitive means by which the Company may seek,
      acquire  and  retain  highly  qualified  persons as  officers,  employees,
      directors  and  consultants".  Shares  granted  under  this plan shall not
      exceed  850,000  shares with a term of the option not greater than 7 years
      from the date  granted.  No  options  have been  issued to date under this
      plan.

      During the year ended  December 31, 1996,  the Company  awarded  shares of
      stock directly to employees.  However,  to comply with IRS regulations and
      the Company's new capital  structure  stock options issued to employees in
      1996 were  replaced by Incentive  Stock  Options in 1997.  During the year
      ended December 31, 1996, the Board of Directors created new categories for
      Incentive  Stock  Options  (ISO).  Employees  who had qualified for common
      stock  shares as part of their  current or future  compensation  qualified
      under this plan. A total of 29,700  common stock share options were issued
      to replace  options  earned in 1996. A total of 86,300 stock  options were
      granted under this category during the year ended December 31, 1997.

      An additional  123,025  common stock options were also issued to employees
      in  compensation  for deferred loan  repayments or deferred  salaries at a
      ratio of 0.70 percent of one ISO to each $1 deferred for the year December
      31, 1996.  Also, a further  Stock Option  category was created for Company
      Directors,  investors and consultants having outstanding  matured loans to
      the Company.  Relating to this, Stock Options totaling 83,175 were granted
      during the year ended December 31, 1996.

      All stock options issued to date are  exercisable at $.40.  Stock options
      for  employees  still  employed by the Company must be exercised  within 5
      years of earning  the  options.  Options  earned by others for  service or
      lending to the  Company  must be  exercised  within 3 years of earning the
      options.

      The  following  is  a  summary  of  stock  option   activity  and  related
      information:
      
                                         1997                   1996
                                 ---------------------- ----------------------
                                             Weighted -             Weighted -
                                             Average                Average
                                             Exercise               Exercise
                                 Options     Price      Options     Price 
                                 -------     ------     -------     ------
Options:
   Outstanding at
     beginning of year          235,900      $0.40         --        $--
   Granted                       86,300       0.40      235,900       0.40
   Canceled                        --         --           --         --
   Exercised                       --         --           --         --
                                -------      -----      -------      -----
   Outstanding at
     end of year                322,200      $0.40      235,900      $0.40
                                =======      =====      =======      =====


                                      F-11
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Stock Options and Warrants (Cont'd):

      The following table summarizes  information  about options  outstanding at
      December 31, 1997:

                        Options Outstanding                 Options 
                        -------------------                 ------- 
Exercisable     
-----------                         Weighted -
                    Number      Average Remaining     Number       Weighted
Range of          Outstanding      Contractual      Exercisable      Average
Exercise Prices   at 12/31/97      Life (Years)     at 12/31/97  Exercise Price
---------------- -----------      ------------     -----------   -------------
$ 0.40             322,200         3.62                322,200       $ 0.40

      Warrants

      At December 31, 1997,  warrants to purchase  3,395,195  common  shares are
      outstanding; 813,000 warrants exercisable during 1998, with a strike price
      of $0.10 - $0.50,  994,985 warrants exercisable during the year 2000, with
      a strike price of $0.40 - $0.60,  447,600 warrants  exercisable during the
      year  2001,  with a  strike  price  of  $0.40  -  $0.60,  22,000  warrants
      exercisable  during  the year  2002,  with a strike  price of  $0.60,  and
      1,107,630  warrants  exercisable during the year 2003, with a strike price
      of $0.50 - $0.75.


                                      F-12
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 - Property and Equipment:

      The costs and accumulated  depreciation at December 31, 1997 and 1996, are
      summarized as follows:

                                                     1997            1996
                                                     ----            ----
       Computers                                   $  24,633      $  16,929
       Office Furniture and Equipment                 31,537         27,304
       Leasehold Improvements                          8,123       --
       Test and Assembly Fixtures                     14,069         10,173
       Vehicles                                        7,721          7,721
                                                   ---------      ---------
                                                      86,083         62,127
       Less: Accumulated Depreciation                 38,208         17,624
                                                   ---------      ---------
       Property and Equipment, Net                 $  47,875      $  44,503
                                                   =========      =========

      Depreciation  expense  amounted  to $20,584 and $8,600 for the years ended
      December 31, 1997 and 1996, respectively.

Note 8- Notes Payable:

      At December 31, 1997 and 1996, the Company has  outstanding  several notes
      payable in the aggregate  amounts of $179,181 and $140,984,  respectively.
      The range of  effective  interest  rates at December  31,  1997,  was 0.00
      percent to 10.00 percent. All outstanding notes payable are unsecured. The
      notes payable are summarized as follows at December 31, 1997: 

                                                                        1997
                                                                        ----
      Due on demand                                                   $ 135,931
      Maturity dates have
      elapased                                                           43,250
                                                                      ---------
          Total                                                       $ 179,181
                                                                      =========


                                      F-13
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9- Long-Term Debt:
  
      Long-term debt consist of the following at December 31:

                                                           1997         1996
                                                           ----         ----

      Loans payable to individuals,  with interest
      accrued  monthly at the rate of 8.00 percent
      per annum. These  uncollateralized notes are
      convertible at the option of the borrower at
      the rate of $0.495  per  common  share for a
      total conversion amount of 186,465 shares of
      common  stock.  These loans mature at a date
      six   months   after  the   closing  of  the
      Company's first public offering.                   $ 92,500     $ 57,850

      Loan  payable  to  a  corporation,  with  no
      stated  interest  rate.  This  loan  has  no
      stated maturity date but will be repaid with
      proceeds  of  the  Company's   first  public
      offering.  The  uncollateralized  loan has a
      conversion  option which is  exercisable  at
      the  option of the  borrower  at $0.495  per
      common share for a total  conversion  option
      of 101,010 shares of common stock.                   50,000       50,000

      Loan  payable to an  individual  dated April
      13, 1992, with an original  maturity date of
      April 13, 1997,  bearing an interest rate of
      8.00   percent   per  annum.   The  loan  is
      uncollateralized.  Payment of principal  and
      accrued  interest  will be at  maturity. The
      loan  is  convertible  at  the option of the
      borrower  at the  rate of $0.40  per  common
      share  for  a  total  conversion  amount  of
      125,000 shares of common stock.                      50,000       50,000
                                                         --------     --------
           Subtotal                                      $192,500     $157,850


                                      F-14
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9- Long-Term Debt (Cont'd):

      Balance Carryforward                               $192,500     $157,850

      Loan payable to an individual dated June 29,
      1992, with an original maturity date of June
      29, 1997,  bearing an interest  rate of 8.00
      percent    per    annum.    The    loan   is
      uncollateralized.  Payment of principal  and
      accrued  interest  will be  at maturity. The
      loan is convertible at  the  option  of  the
      borrower  at the  rate of $0.40  per  common
      share  for  a  total  conversion  amount  of
      62,500 shares of common stock.                       25,000       25,000

      Loan payable to an individual dated July 30,
      1992, with an original maturity date of July
      30, 1997,  bearing an interest  rate of 8.00
      percent    per    annum.    The    loan   is
      uncollateralized.  Payment of principal  and
      accrued  interest  will  be at maturity. The
      loan is  convertible  at  the  option of the
      borrower  at the  rate of $0.40  per  common
      share  for  a  total  conversion  amount  of
      62,500 shares of common stock.                       25,000       25,000

      Loan payable to an individual  dated October
      14, 1992, with an original  maturity date of
      October 14, 1997,  bearing interest rates of
      8.00  percent  per  annum.   The  loans  are
      uncollateralized.  Payment of principal  and
      accrued  interest  will be  at maturity. The
      loans  are  convertible  at  the  option  of
      the  borrowers  at the  rate  of  $0.40  per
      common share for a total conversions  amount
      of 125,000 shares of common stock.                   50,000       50,000
                                                         --------     --------
            Subtotal                                     $292,500     $257,850


                                      F-15
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9- Long-Term Debt (Cont'd):

      Balance Carryforward                               $292,500     $257,850

      Loan payable to an individual  dated January
      19,1993,  maturing January 13, 1998, bearing
      an interest  rate of 8.00 percent per annum.
      The  loan is  uncollateralized.  Payment  of
      principal  and  accrued  interest will be at
      maturity.   The  loan  is convertible at the
      option of the  borrower at the rate of $0.40
      per  common  share  for a  total  conversion
      amount of 62,500 shares of common stock.             25,000       25,000

      Loans payable to individuals  dated June 30,
      1993,  maturing  June 30,  1998,  bearing an
      interest  rate of 8.00  percent  per  annum.
      This loan is  uncollateralized.  Payment  of
      principal and  accrued  interest  will be at
      maturity.  The  loan  is  convertible at the
      option  of  the  borrowers  at the  rate  of
      $0.423   per   common   share  for  a  total
      conversion   amount  of  650,118  shares  of
      common stock.                                       275,000      275,000

      Loan payable to an individual  dated October
      26, 1993, maturing October 26, 1998, bearing
      an interest  rate of 8.00 percent per annum.
      The loan is  collateralized by inventory and
      accounts  receivable.  Payment of  principal
      and accrued interest will  be  at  maturity.
      The  loan is  convertible  at  the option of
      the  borrower  at  the  rate  of  $0.48  per
      common   share   for  a   total   conversion
      amount of 406,250 shares of common stock.           195,000      250,000
                                                         --------     --------

            Subtotal                                     $787,500     $807,850


                                      F-16
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9- Long-Term Debt (Cont'd):

      Balance Carryforward                               $787,500     $807,850

      Loan payable to an individual  dated January
      23, 1991, with an original  maturity date of
      January 23, 1997,  bearing an interest  rate
      of  8.00  percent  per  annum.  The  loan is
      uncollateralized.  Payment of principal  and
      accrued  interest  will be paid at maturity.
      The loan is convertible at the option of the
      borrower  at the  rate of $0.48  per  common
      share.                                               90,000      225,000

      Loan payable to an Investment Trust, Calvert
      Social  Investment Fund, dated September 28,
      1994,  maturing  March 31, 1998,  bearing an
      interest rate of 9.00 percent per annum. The
      note is collateralized by inventory accounts 
      receivable,  and  the  related  products and 
      proceeds thereof. Payment of  principal  and
      accrued  interest  will be paid at maturity.
      The note is convertible at the option of the 
      borrower  at  the  rate of $0.50 per  common
      share  for  a  total  conversion  amount  of
      270,000 shares of common stock.                     135,000      150,000
                                                       ----------   ----------

            Subtotal                                   $1,012,500   $1,182,850


                                      F-17
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9- Long-Term Debt (Cont'd):

      Balance Carryforward                             $1,012,500   $1,182,850

      Loans payable to individuals  dated June 28,
      1995  through  May 30,  1996.  The loans are
      currently due upon demand. The loans bear an
      interest  rate of 10% per  annum.  The loans
      are uncollaterized. Payment of principal and
      interest  will be  upon  maturity. The loans
      are   convertible   at  the  option  of  the
      borrower  at the  rate of $0.50  per  common
      share  for a  total  liquidation  amount  of
      882,000 shares of common stock. In addition,
      all  loan  holders   were  granted   485,100
      warrants for the purchase of common stock at
      the price of $0.40  per share in return  for
      signing a Forbearance Agreement.                    441,000      466,000

      Loans payable to individuals  dated July 17,
      1995 through  February  25, 1997.  The loans
      are  currently  due upon  demand.  The loans
      bear an interest rate of 10% per annum.  The
      loans  are   uncollateralized.   Payment  of
      principal  and   interest   will   be   upon
      maturity.  The loans are  convertible at the
      option of the  borrower at the rate of $0.50
      per  common  share  for a total  liquidation
      amount of 1,096,300  shares of common stock.
      In  addition,  all loan holders were granted
      602,965  warrants for the purchase of common
      stock at the price of $0.60 per share.              548,150      653,150
                                                       ----------   ----------

          Subtotal                                     $2,001,650   $2,302,000


                                      F-18
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9- Long-Term Debt (Cont'd):
      
      Balance Carryforward                             $2,001,650   $2,302,000

      A  loan  payable  to  an  individual   dated
      November 10, 1997 maturing February 8, 1998.
      The loan bears an  interest  rate of 10% per
      annum. The loan is uncollateralized. Payment
      of principal  and interest will be maturity.
      The loan is  convertible  at  the  option of 
      the  borrower  at  the  rate  of  $0.50  per
      common share for a total liquidation  amount
      of  40,000  shares  of   common   stock.  In
      addition, the loan holder was granted 22,000
      warrants for the purchase of common stock at
      the price of $0.60 per share.                        20,000           --
                                                       ----------    ---------

      Total Long Term Debt                              2,021,650    2,302,000

      Less: Current Maturities                          2,021,650    1,752,000
                                                       ----------    ---------
      Long-Term Debt,
      Net of Current Maturities                        $       --    $ 550,000
                                                       ==========    =========

      Relating to the above  convertible debt, the Company is required to pay to
      the holders of convertible  debt  "penalty"  shares of its common stock if
      the ultimate maturity date of the loan is at least one year later from the
      original maturity date. The Company issued 1,114,453 "penalty" shares at a
      value of  $334,336,  which they have  included  in the  accompanying  1997
      statement of operations.

Note 10 - Commitments:

      The Company has a signed agreement with its President,  a consultant and a
      senior executive which grants each individual  incentive fees of up to 0.5
      percent of all  revenues  realized  by the  Company  with an annual cap of
      $250,000 per person.  These agreements are effective  through December 31,
      2005.  The Company  incurred  $6,463 and $140 of expense in 1997 and 1996,
      respectively, relating to these agreements.

      The Company has an informal  consulting  agreement  with its former  chief
      financial  officer.  The agreement calls for a fixed payment of $3,000 per
      month.


                                      F-19
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 - Leases:

      The  Company  leases  its  operations   facility  under  a  noncancellable
      operating lease which expires in 2002.

      Minimum  annual rental  commitments  at December 31, 1997,  are payable as
      follows:

               1998                                        $  36,000
               1999                                           45,000
               2000                                           51,000
               2001                                           60,000
               2002                                           33,000
                                                           ---------
                                                           $ 225,000
                                                           =========

      Rent expense for the years ended December 31, 1997 and 1996,  approximated
      $45,784 and $34,950, respectively.

Note 12 - Related Party Transactions:
           
      Included in notes  payable  and  long-term  debt at December  31, 1997 and
      1996,  are amounts  payable to employees,  directors  and their  immediate
      relatives as follows:

                                                      1997              1996
                                                      ----              ----

           Directors                               $ 375,250         $ 430,250
           Employees                                  46,000            32,000
           Immediate relatives                        12,000            17,000
                                                   ---------         ---------
               Total                               $ 433,250         $ 479,250
                                                   =========         =========

      The Company occupied space in 1997 and 1996 that is owned by its President
      and leased  this space on a month to month  basis.  The amount paid to the
      President amounted to $30,000 in 1997 and $30,000 in 1996.

Note 13 - Marketable Securities Available for Sale:

      Effective  December 31, 1997, as part of its settlement with Royal Capital
      Inc.  (see Note 17),  the  Company  acquired  50,000  shares of  Proformix
      Systems,  Inc., a NASDAQ traded company valued at $162,500.  In accordance
      with FASB 115, these securities are being considered as marketable  equity
      securities  available for sale.  Therefore,  future  unrealized  gains and
      losses  will  be  recorded  as  a  separate   component  of  stockholders'
      deficiency.  Since  the  Company  did not  receive  the  securities  until
      December 31,  1997,  there is no  unrealized  gain or loss at December 31,
      1997.


                                      F-20
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 - Short Term Investments - Restricted:

      In connection  with a sale of product to the  Phillipine  Government,  the
      Company  was  required to purchase a  performance  bond,  in the form of a
      restricted  certificate  of  deposit  with  Fleet  Bank,  in the amount of
      $42,750.  The  certificate of deposit bears interest at 4.4% per annum and
      matures  June 10,  1998.  The  Company is  entitled to the funds from this
      certificate  of deposit on July 20,  1998,  if no claims for  warranty  or
      other  such  items  are  presented  by  the  Phillipine  Government.   The
      certificate  of  deposit  is stated at cost plus  accrued  interest  which
      approximates market value.

Note 15 - Fair Value of Financial Instruments:

      With  the  exception  of notes  payable,  long-term  debt  and  marketable
      securities,  the  Company  records  all  financial  investments  including
      accounts  receivable  and  accounts  payable at cost,  which  approximates
      market value.

      Due to the Company's debt (e.g.,  notes payable and long-term  debt) being
      in the process of being  converted into common stock and the nature of the
      various conversion  features,  interest rates, etc., it is not practicable
      to estimate the fair value of the notes payable and long-term debt.

      The Company  records its  marketable  securities  at fair market  value in
      accordance with FASB 115. See Note 13 for additional details.

Note 16 - Significant Risks and Uncertainties:

      The Company is currently  marketing its products to developing nations who
      have  water and  energy  needs  that  cannot  easily or  inexpensively  be
      obtained from traditional sources (e.g. wells, electrical grids, etc.) The
      ability of these entities to order and pay for the Company's  products and
      services  is  dependent  on a variety  of factors  including  governmental
      approval,  adequate funding,  and vigorous testing procedures.  During the
      year ending  December 31, 1997,  83% of the Company's  sales came from one
      such  shipment  to the  Philippine  nation.  The future  viability  of the
      Company is  dependent  on the  Company's  ability to execute  this type of
      transaction with numerous developing countries.

Note 17 - Contingencies:

      The  Company  entered  into  a  settlement   agreement  (the   "Settlement
      Agreement") on December 30, 1997 with Royal Capital Incorporated ("Royal")
      and its  principals,  Bruce  Deichl and Jerry  Swon,  resolving  claims of
      breach of certain stock  purchase  agreement  (the  "Purchase  Agreement")
      between the Company and Royal dated  August 28,  1996.  Under the Purchase
      Agreement, Royal rendered investment banking, financial and other advisory
      services to the Company in exchange  for  securities  and cash  consulting
      fees. Under the Settlement  Agreement:  1) the Company and Royal agreed to
      mutually terminate their contractual  relationship;  2) the Company agreed
      to issue and  deliver  certain  shares of the  Company's  common  stock to
      Global   Portfolios   PTY  Ltd.,  all  in  accordance   with   preexisting
      subscriptions;  3) the Company agreed to issue certain  warrants to Global
      Portfolios PTY Ltd. and Schurch Asset  Management  GMBH, all in accordance
      with preexisting  contractual  commitments;  4) Royal agreed to deliver to
      the Company 50,000 shares of the common stock of Proformix Systems,  Inc.,
      a bulletin board company;


                                      F-21
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 - Contingencies (Con'td):

      5) the Company  agreed to issue and  deliver,  pursuant  to a  preexisting
      subscription  agreement,  125,000 shares of the Company's common stock, to
      Sage Capital Investments  Limited;  and 6) the Company and Royal agreed to
      full mutual releases. In addition to the foregoing,  the Company and Royal
      agreed to certain indemnification provisions.

      On or about  August 12,  1997,  the  Company  received  a letter  from the
      special  counsel to the  bankruptcy  trustee in the Chapter 11  bankruptcy
      proceedings  of Richard F. Clowes  ("Clowes"),  Case No.  94B43278  (PBA),
      pending in the U.S.  Bankruptcy  Court for the  Southern  District  of New
      York.  The  trustee's  counsel  asserted  claims  under a  certain  Loan &
      Settlement Agreement. This matter was preliminary settled with the trustee
      in November,  1997.  The  settlement  called for the payment of $90,000 in
      cash and the  conversion  of  $135,000  in debt  and  $78,775  in  accrued
      interest into 431,250 shares of the Company's common stock. The Bankruptcy
      Court affirmed this settlement on March 30, 1998.

      The  Company  has  received  correspondence  from the estate of one of its
      creditors who asserts that the Company owes this entity the amount of debt
      included  in Note 9,  plus  accrued  interest  since  the date of the note
      (1984).  The Company  believes that the terms of the note clearly indicate
      that it is a non interest bearing note.

Note 18 - Supplemental Disclosure of Cash Flow Information:

      Cash paid during the year for:

          Interest                                     $ 8,167       $ 2,015
                                                       =======       =======
          Income taxes                                 $    --       $    --
                                                       =======       =======

      Supplemental schedule of non-cash investing and financing activities:

      In 1997, the Company received $162,500 in marketable  securities available
      for sale as part of its settlement  agreement with Royal Capital Inc. (see
      Note 17).

      In 1997, the Company's debt holders  converted  $240,000 of debt principal
      and $96,145 of accrued interest into $336,145 worth of common stock.


                                      F-22
<PAGE>

                        WorldWater Corp. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19 - Common Stock Outstanding:

      The following is a  reconciliation  of common shares  outstanding  per the
      consolidated  balance  sheet at  December  31,  1997,  with  those per the
      records of the Company's stock transfer agent:

      Common stock shares outstanding per transfer agent         12,816,208

      Add:  WorldWater, Inc. shares not yet presented for
              conversion into WorldWater Corp. shares             1,205,533

             Shares issued in 1998 for which common stock
             proceeds were received in 1997                         595,611

             Shares issued in 1998 for debt term violations
             incurred in 1997                                       696,150

             Duplicate shares erronously issued in 1997
             (shares to be cancelled in 1998)                       (25,000)
                                                                 ----------

      Shares outstanding as of December 31, 1997                 15,288,502
                                                                 ==========

      At December 31, 1997,  10,086,915  shares are subject to a holding  period
      restriction,   pursuant  to  Rule  144  of  the  Securities  and  Exchange
      Commission.

Note 20 - Subsequent Events (Unaudited):

      Subsequent to December 31, 1997, the Company converted,  at the consent of
      its debt holders, an additional $861,000 of long-term debt and $246,540 of
      accrued interest into 2,455,024 shares of common stock.

      On January 22, 1998,  the Company signed an investment  banking  agreement
      with Dominick and  Dominick,  Inc.   The agreement  calls for Dominick and
      Dominick,  Inc.  to act as a  financial  advisor to the Company in matters
      such  as  finanincing,  joint  ventures,  mergers,  etc.  As  part  of the
      arrangement,  they were given the ability to purchase  for $200, a warrant
      which  entitles them to purchase  750,000  shares of the Company's  common
      stock at $.60 per share.  The Company  also pays this  entity  $15,000 per
      quarter as a retainer  fee for as long as Dominick & Dominick  continue to
      act as the Company's financial advisors.


                                      F-23