UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

Form 10-KSB/A

Amendment No. 3
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

Commission file number: 000-16936

---

WorldWater & Solar Technologies Corp.(formerly World Water & Power Corp.)(Name of small business issuer in its charter)

|Delaware                                                       |  | 33-0123045                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification Number)
|200 Ludlow Drive, Ewing, NJ                                    |  | 08638                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             

Issuer's
telephone number(609) 818-0700

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

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non accelerated filer (as defined by Exchange Act
Rule 12b-2).

|Large accelerated filer o |  | Accelerated filer o |  | Non-accelerated filer ý
|------------------------- |  | ------------------- |  | -----------------------

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

The issuer's revenues for its most recent fiscal year was $17,333,681.

On
March 30, 2007 the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $79,918,296.

As
of March 30, 2007 the Registrant had outstanding 151,395,297 shares of Common Stock and 51,462,759 shares of Preferred Stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional
Small Business Disclosure Format (check
one) Yes o No ý



---



TABLE OF CONTENTS

|PART I   |                                                                                                                         | 3                                                   
|-------- | ----------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------
|         | ITEM 1. DESCRIPTION OF BUSINESS                                                                                         |                                                     
|         |                                                                                                                         | a)    Overview                                      
|         |                                                                                                                         | b)    Major Customers By Geographic Location        
|         |                                                                                                                         | c)     Implementation Strategy                      
|         |                                                                                                                         | d)    Products and Services                         
|         |                                                                                                                         | e)    Marketing                                     
|         |                                                                                                                         | f)     Research and Development                     
|         |                                                                                                                         | g)     Intellectual Property                        
|         |                                                                                                                         | h)    Source And Availability of Components         
|         |                                                                                                                         | i)     Competitive Conditions Affecting the Company 
|         |                                                                                                                         | j)     Subsidiaries                                 
|         |                                                                                                                         | k)    Government Regulations                        
|         |                                                                                                                         | l)     Employees                                    
|         |                                                                                                                         | m)   Risks and Uncertainties                        
|         | ITEM 2. DESCRIPTION OF PROPERTIES                                                                                       |                                                     
|         | ITEM 3. LEGAL PROCEEDINGS                                                                                               |                                                     
|         | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |                                                     
|PART II  |                                                                                                                         | 17                                                  
|         | ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                        |                                                     
|         |                                                                                                                         | a)    Price Range of Common Stock                   
|         |                                                                                                                         | b)    Holders of Common Stock                       
|         |                                                                                                                         | c)     Dividends                                    
|         |                                                                                                                         | d)    Preferred Stock                               
|         | ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION                                                               |                                                     
|         |                                                                                                                         | OVERVIEW                                            
|         |                                                                                                                         | CRITICAL ACCOUNTING POLICIES AND ESTIMATES          
|         |                                                                                                                         | REVENUE RECOGNITION                                 
|         |                                                                                                                         | ALLOWANCE FOR DOUBTFUL ACCOUNTS                     
|         |                                                                                                                         | ACCOUNTING FOR INCOME TAXES                         
|         |                                                                                                                         | SELECTED FINANCIAL DATA                             
|         |                                                                                                                         | RESULTS OF OPERATIONS                               
|         |                                                                                                                         | COMPARISON OF YEARS ENDED DECEMBER 31, 2006 AND 2005
|         |                                                                                                                         | HISTORICAL CASH FLOW ANALYSIS                       
|         |                                                                                                                         | LIQUIDITY AND CAPITAL RESOURCES                     
|         |                                                                                                                         | COMMITMENTS AND GUARANTEES                          
|         |                                                                                                                         | INCOME TAXES                                        
|         |                                                                                                                         | PROPOSED ACQUISITION                                
|         |                                                                                                                         | RECENT ACCOUNTING PRONOUNCEMENTS                    
|         | ITEM 7. FINANCIAL STATEMENTS                                                                                            |                                                     
|         | ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |                                                     
|         | ITEM 8A. CONTROLS AND PROCEDURES                                                                                        |                                                     
|PART III |                                                                                                                         | 73                                                  
|         | ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT |                                                     
|         | ITEM 10. EXECUTIVE COMPENSATION                                                                                         |                                                     
|         | ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                 |                                                     
|         | ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                 |                                                     
|         | ITEM 13. EXHIBITS                                                                                                       |                                                     
|         | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                         |                                                     

1

---



EXPLANATORY NOTE

Restatement of Financial Statements due to Review of Equity Instruments

December 31, 2005 and 2006

The Company has re-evaluated its accounting for its July 2005 convertible debentures. In reviewing the accounting treatment, the Company determined
that the embedded conversion options did not require bifurcation and fair value accounting in accordance with FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", and EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company's Own Stock". The Company concluded that
EITF 00-27: "Application of Issue No. 98-5 to Certain Convertible Instruments" ("EITF 00-27") should have been applied.

The
Company initially calculated the Beneficial Conversion Feature ("BCF) using the guidance in EITF 98-5, which stated that the BCF is amortized over the life of the
debt or immediately if the debt is convertible immediately. The Company failed to apply the guidance in EITF 00-27 (Issue #6), which states that EITF 98-5 should
be modified to require the discount related to the BCF to be accreted from the date of issuance to the stated redemption date regardless of when the earliest conversion date occurs using the effective
interest method.

The
Company noted another error whereby the total amount of the debt discount attributed to the debt ($3,072,964) exceeded the proceeds allocated to the debt ($2,171,453).
EITF 98-5, paragraph 6 indicates that the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible instrument.

Lastly,
the value of the warrants related to the debt discount ($1,428,547) were amortized over the life of the debt using the straight-line method and not the effective
interest method.

The
total impact of this restatement on the Company's statement of operations was to decrease the net loss applicable to common stockholders for the year ended December 31, 2005
by approximately $3,800,000, and to increase the net loss applicable to common stockholders by approximately $2,800,000 for the year ended December 31, 2006.

December 31, 2006

The Company noted an error in its calculation of its "Preferred Stock Dividends attributable to Beneficial Conversion and warrant amortization" in its
December 31, 2006 financial statements, which was a result of the issuance of its November 2006 Series D Preferred Stock and Warrants. The Company failed to properly account for the
preferred stock discount attributable to the warrants as outlined in EITF 00-27, Part II Issue I. As a result, the Company increased its "Preferred Stock Dividends
attributable to Beneficial Conversion and warrant amortization" from $3,184,642 to $4,066,796. The Company recorded the value of the warrants and preferred stock, net of issuance costs, as mezzanine
in the December 31, 2006 balance sheet. The Company reclassified the relative fair value assigned to the warrants separately from the preferred stock in the accompanying financial statements.

The
Company also reclassified $1,588,000 from Beneficial Conversion and Warrant Amortization Expense to Warrant Exercise Inducement Expenses for the year ended December 31, 2006.
The Warrant Exercise Inducement Expense was mislabeled in the original filing.

Additionally,
the Company will restate the interim financial statements for the quarterly and year-to-date periods ended March 31, 2006, June 30,
2006 and September 30, 2006 that will be included in its quarterly reports on Form 10Q for the comparable quarters and year-to-date in our current fiscal year.

The
Company will also restate the interim financial statements for the quarterly and year-to-date periods ended September 30, 2005, which will be included
in the amended September 30, 2006 Form 10QSB/A.

The
Company's Audit Committee has discussed the matters described in this Explanatory Note with the Company's independent accountants.

2

---





PART I.

ITEM 1.    DESCRIPTION OF BUSINESS

a)    OVERVIEW

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

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

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

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

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

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

3

---



beyond
the agricultural applications and is extremely well-suited for a wide range of industrial and commercial uses.

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

The
Company was incorporated in the state of Nevada on April 3, 1985 under the name of Golden Beverage Company. In April 1997, the Company entered into a reverse merger
transaction with WorldWater, Inc., a Delaware corporation formed in January 1984. Since the merger transaction, the Company, operating under the name of WorldWater Corp., has been engaged
exclusively in the solar/water power industry. In June of 2000, the Company shareholders voted to change the state of incorporation from Nevada to Delaware. In June 2005, the Company shareholders
voted to change the name to WorldWater & Power Corp. from WorldWater Corp. The Company stock is publicly traded on the NASDAQ OTC Bulletin Board under the symbol WWAT.OB.

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

b)    MAJOR CUSTOMERS BY GEOGRAPHIC LOCATION



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

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

During
2006, the Company completed two commercial projects with recognized revenue of $1,819,624 and had six commercial projects in progress as of December 31, 2006, with
recognized revenue of $9,658,362. The Company completed nine residential projects with aggregate revenue of $524,389, and completed one consulting services project with revenue of $24,777. The company
had one residential project in progress at December 31, 2006 with recognized revenue of $7,775. This project was completed in the first quarter of 2007.

Four
other residential projects, with aggregate contract value of $231,763 were awarded in 2006, but had no recognized revenue in 2006. These projects were started in the first quarter
of 2007, and are expected to be completed in 2007.

4

---





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

Six
commercial projects were completed in 2006 with recognized revenue of $2,108,018.

The
company recognized revenue of $25,019 in 2006 from a NJBPU grant that is for research in the development of cost effective, grid-tied motor drives for photovoltaic
applications.

Three
commercial projects, with recognized revenue of $2,127,695 in 2006, were in progress as of December 31, 2006. These projects are a total of 310 kW.

As
of December 31, 2006, the Company had one contract that was awarded, but has not started. The start of this project is subject to securing the appropriate building permits and
project financing. The project has an aggregate contract value of approximately $1,039,584.

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



The Company had completed two projects in 2006 with recognized revenue of $149,267. The Company completed a contract with a large publicly-traded chemical
company, and covers the design and installation of a solar electric power generation system for its photovoltaic solutions technical laboratory. The project has a contract value of $363,000; revenue
of $234,000 was recognized in 2005 and $129,267 was recognized in 2006. The 40 kW installation will serve as a photovoltaic demonstration unit for this customer.

The
Company had one project with recognized revenue of $418,688 in progress as of December 31, 2006 which was completed in the first quarter of 2007. This project is the Company's
first venture into the poultry market and is anticipated to lead to more projects within this industry.



The Company had one project in Texas with recognized revenue of $278,190 in progress as of December 31, 2006 which was completed by end of the first
quarter 2007.



WorldWater operated in the Philippines from 1997 to 2006 when the Company delivered 25 solar powered pumps for installation by the National Irrigation Authority
(NIA) under a directive from former President Fidel V. Ramos. The Company had a Philippine subsidiary, WorldWater (Phils) Inc.
from 1997 to 2006. The Company is evaluating its Philippine strategy and, as of December 31, 2006, the Company has written down all non-cash assets of the subsidiary.

In
2005, the Company was awarded a $360,000 grant by the U.S. Trade and Development Agency (USTDA) to support completion of a pilot project for water supply in Sri Lanka. Billings of
$213,054 were rendered as of December 31, 2006. Revenue of $191,873 was recognized in 2006; the remaining revenue is expected to be recognized in 2007. The project is designed to assess the
hydro-geological conditions of the project area, and to provide safe, sustainable water supplies to people in six villages

5

---



near
the tsunami-ravaged southern coast of Sri Lanka. Subject to satisfactory results of WorldWater's ground water assessment study, WorldWater anticipates further contracts with the Ministry of Urban
Development and Water Supply to pump and deliver water to 13,600 people in approximately 4,000 households in the six villages through use of its AquaMax solar water pumping systems.



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

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

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

It
is the Company's intention to purchase ENTECH through a newly-formed subsidiary. The financing of the acquisition is intended to be based solely on the business prospects and assets
of the acquired entity, ENTECH.

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

To
obtain the exclusive opportunity through December 31, 2006 to conduct due diligence, the Company made a $500,000 non-refundable payment to ENTECH to be used for
operating and working capital requirements of ENTECH. Additional due diligence fees of $290,769 were recorded on the balance sheet as of December 31, 2006; and along with the $500,000 payment
to ENTECH, left a capitalized amount of $790,769 as a balance sheet asset on December 31, 2006, classified as deferred cost on proposed acquisition. Should this acquisition not go forward in
2007, the capitalized amount would need to be expensed in that year.

As
of March 30, 2007, the company is continuing to negotiate the acquisition of ENTECH.

c)     IMPLEMENTATION STRATEGY

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

6

---



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

In
accordance with his contract, James Farrin left the company effective January 23, 2007. Mr. Farrin is expected to continue assisting the company, as needed, in the role
of consultant.

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

Frank
Smith joined the company in the position of COO effective February 5, 2007.

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

d)    PRODUCTS AND SERVICES



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



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

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

WorldWater
has crossed another technological threshold in the deployment and use of photovoltaics into previously conventional electricity areas. Idyllwild Water District in California
is the first water utility to be fully self-sustainable by solar power, in addition to saving up to 70% of the electricity costs of its operation. This is due to WorldWater's technology
running its booster pumps and operating its major wells while also being available to perform net metering while providing back-up power capability in the event of grid power interruption.
Should the grid fail, disengagement from the grid will occur and power will be assumed by the solar equipment, allowing operations to continue running until the electric grid is restored, with solar
power eliminating the use of diesel or natural gas

7

---



during
this potentially peak demand period. WorldWater believes it is uniquely positioned to provide this service to the water utility market, as well as the agricultural market.

e)     MARKETING

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

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

WorldWater
provides solar solutions for water and power by:



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

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

f)     RESEARCH AND DEVELOPMENT

A key strategy of WorldWater is to continue developing innovative, cutting edge products to meet water and electricity needs with proprietary solar technology.
The Company was awarded a patent in 2001 on the electronic board controller, AquaDrive, of the AquaMax system. In 2003, the Company also was awarded a patent on its automatic
switching technology, which enables the system to perform multiple functions such as water pumping and battery charging and also to switch automatically between solar and grid-tied, diesel
or battery power sources. Through the end of 2006, the Company has been granted six patents, with five more pending (see table on page 10).

8

---



g)     INTELLECTUAL PROPERTY

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

INTELLECTUAL PROPERTY

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

h)    SOURCE AND AVAILABILITY OF COMPONENTS

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

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

9

---





i)     COMPETITIVE CONDITIONS AFFECTING THE COMPANY

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

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

j)     SUBSIDIARIES

WorldWater has an active 100% wholly-owned domestic subsidiary, WorldWater Holdings Inc., dba Quantum Energy Group.

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



k)    GOVERNMENT REGULATIONS

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

l)     EMPLOYEES

On December 31, 2006, the company employed 45 people on a full-time basis. The Company also hires consultants on an as-needed basis
and has informal arrangements with two water consulting companies, the hydrogeological firm of Vincent Uhl Associates and Morehouse Engineering, specialists in power control, and water/wastewater
treatment systems integration.

m)   RISKS AND UNCERTAINTIES

Fixed-price Contracts

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



10

---





Intellectual Property Rights

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

Technological Developments

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

Technical Personnel

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

Government Incentives

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

Effective Internal Controls

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

The
Company is preparing for compliance with Section 404 by strengthening, assessing and testing its system of internal controls to provide the basis for its report. The process
of strengthening its internal controls and complying with Section 404 is expensive and time-consuming, and requires significant management attention. The Company cannot be certain
that these measures will ensure that it will maintain adequate controls over its financial processes and reporting in the future. Furthermore,

11

---



as
the Company grows its business, its internal controls will become more complex and will require significantly more resources to ensure its internal controls remain effective.

In
February 2007, the Company engaged RSM McGladrey, who will perform a Sarbanes-Oxley Act Consulting engagement designed to assist the Company in its efforts to comply with SOX
Section 404, "Management's Assessment of Internal Controls." The engagement was designed with the understanding that should the Company meet the criteria for an accelerated filing, the
Company's external auditor will also be required to attest to the internal controls over financial reporting in the fiscal year ending December 31, 2007.

In
March 2007, the Company engaged Microstrategies, Inc. to provide an improved IT, financial reporting, and ERP system to enhance efficiencies and financial and operating
controls as it works to implement Sarbanes-Oxley requirements and procedures.

Foreign Operations

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



In
2006, foreign contract revenue was limited to grant revenue, funded by USTDA, of $216,892, derived from work in Sri Lanka. Unsettled political conditions, social unrest, acts of
terrorism, force majeure, war or other armed conflict, exploitation or other governmental actions, inflation, exchange controls or currency devaluation may result in increased business risk in these
regions.

RISK FACTORS

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

Since 1997, we have lost money. In the fiscal year ended December 31, 2006, we sustained losses from operating activities of $5,257,298; the accumulated
deficit as of December 31, 2006 was $49,147,157. Future losses are likely to occur. Accordingly, we may experience significant liquidity and cash flow problems and additional operating losses
if we are not able to raise additional capital as needed and on acceptable terms and, in such events, our operations may be reduced or curtailed.

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

Our operations have relied almost entirely on external financing to fund our operations. Such financing has historically come from a combination of borrowings
from, and sale of common stock to, third parties. We will need to raise additional capital to fund our anticipated operating expenses and

12

---



future
expansion. Among other things, external financing will be required to cover our operating costs. The sale of our common stock to raise capital may cause dilution to our existing shareholders.
Our inability to obtain adequate financing will result in the need to curtail business operations. Any of these events would be materially harmful to our business and may result in a lower stock
price.

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

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

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

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

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

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

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

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

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

13

---



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

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

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

Competitive conditions affecting WorldWater may limit our growth and profitability.

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

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

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

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

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

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

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

In addition to our marketing efforts in the United States, we market our products to developing nations. The ability of these customers to order and pay for our
products and services is dependent on a variety of factors including government approval, adequate funding and vigorous testing procedures.

14

---



We
have experienced significant obstacles in marketing products and services in developing nations, including delays caused by budget constraints, bureaucratic inefficiencies and regime changes.

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

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

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

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

No dividends have been paid by the Company.

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

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

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

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

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

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

Effective internal controls are necessary for us to provide reliable financial reports. We have in the past discovered, and may in the future discover, areas of
our internal controls that need improvement. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and
have our independent auditors annually attest to our evaluation, as well as issue their own opinion on our internal controls over financial reporting, beginning with our Annual Report on
Form 10-KSB for the fiscal year ending December 31, 2007. We are preparing for compliance with Section 404 by strengthening, assessing and testing our system of
internal controls to provide the basis for our report. The process of strengthening our internal controls

15

---



and
complying with Section 404 is expensive and time consuming, and requires significant management attention. We cannot be certain that these measures will ensure that we will maintain
adequate controls over our financial processes and reporting in the future. Furthermore, as we rapidly grow our business, our internal controls will become more complex and will require significantly
more resources to ensure our internal controls overall remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our
operating results or cause us to fail to meet our reporting obligations. If we or our auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the
market's confidence in our financial statements and harm our stock price.

ITEM 2.    DESCRIPTION OF PROPERTIES

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

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

In
July 2004, the Company opened a sales and technical support office in Foster City, California under a two-year lease expiring May 31, 2006, and which office was
closed in June 2005

ITEM 3.    LEGAL PROCEEDINGS

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

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

None.

16

---





PART II.

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

a)    Price
Range of Common Stock

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

High

Low

CloseFISCAL 2006First Quarter

$
0.48

$
0.31

$
0.46Second Quarter


0.59


0.25


0.28Third Quarter


0.30


0.17


0.19Fourth Quarter


0.50


0.14


0.39


|
|

High

Low

CloseFISCAL 2005First Quarter

$
0.31

$
0.25

$
0.29Second Quarter


0.29


0.20


0.25Third Quarter


0.67


0.20


0.49Fourth Quarter


0.49


0.30


0.32


b)    Holders
of Common Stock

On
December 31, 2006 there were approximately 689 holders of record of common stock. This number does not include beneficial owners of the common stock whose shares are held in
the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

c)    Dividends

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

d)    Preferred
Stock

As
of October 1, 2004, the Series A preferred shareholder converted 66,667 shares of Series A 7% Convertible Preferred Stock into a like number of common shares. As
of December 31, 2006, the Company had 611,111 shares of Series B 7% Convertible Preferred Stock, 750,000 shares of Series C 6% Convertible Preferred Stock, and 4,892,857 shares of
Series D Convertible Preferred Stock outstanding.

Series B Convertible Preferred Stock

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

17

---



It
is the Company's position that the holder of these preferred shares failed to convert to shares of the Company's common stock in accordance with the terms of issuance, and that the
preferred shares expired on September 8, 2003. It is the Company's position that the obligations for the payment of dividends on such shares also terminated on that date. The Company is engaged
in negotiations with the holder of the Series B preferred shares to resolve the disputed terms of conversion. Dividends were accrued through September 30, 2004 at the rate of 7%.

Series C Convertible Preferred Stock

On June 30, 2006 the Company issued 750,000 shares of Series C 6% Convertible Preferred Stock at $1.00 per share. The Series C Convertible
Preferred Stock proceeds were used to fund: (i) a $500,000 payment made to the ENTECH, Inc. ("ENTECH") to secure a binding letter of intent allowing the Company the opportunity to
conduct due diligence for the proposed acquisition of all of the common shares of ENTECH by the Company or an affiliate; and (ii) due diligence expenses directly incurred in connection with the
proposed acquisition transaction.

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

Dividends
on the Series C Convertible Preferred Stock accrue at the annual rate of 6%, payable the first day of each month, except that during the period July 1, 2006
through June 30, 2007 dividends will be accrued but not paid. As of December 31, 2006, the Series C Convertible Preferred Stock had accrued and unpaid dividends in the aggregate
amount of $22,500, which will be payable upon conversion.

Series D Convertible Preferred Stock

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

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

On
November 29, 2006, EMCORE invested $13.5 million in the Company, representing the first tranche of its $18 million investment, in return for which WorldWater
issued to EMCORE (i) four

18

---



million,
eight hundred and ninety two thousand, eight hundred and fifty seven (4,892,857) shares of Series D Convertible Preferred Stock and (ii) five hundred and five thousand and
forty-four (505,044) warrants (the "Tranche A Warrants") to purchase five hundred and five thousand and forty-four (505,044) shares of Series D Stock.

The
investment of the remaining $4.5 million second tranche (the "Tranche B Closing") will be consummated subject to the execution of a definitive strategic agreement
between the Parties and certain other conditions set forth in the Investment Agreement. The Parties currently expect the execution of the definitive strategic agreement and the Tranche B
Closing to occur before the end of the year. At the Tranche B Closing, WorldWater will issue to EMCORE (i) an additional one million, six hundred and thirty thousand, nine hundred and
fifty-three (1,630,953) shares of Series D Convertible Preferred Stock and (ii) one hundred and sixty-three thousand and ninety-five (163,095) warrants to purchase one
hundred and sixty-three thousand and ninety-five (163,095) shares of Series D Stock. In the Investment Agreement, the Company and EMCORE made customary representations, warranties
and covenants. The Company agreed to indemnify EMCORE and its affiliates, successors and assigns from any and all costs and expenses actually incurred by them resulting from the breach of any
representation or warranty made by the Company in connection with EMCORE's investment; the breach of or failure to perform any covenant or agreement by the
Company contained in the investment documents; or any action instituted against EMCORE or any of its affiliates, by any shareholder of the Company who is not an affiliate of EMCORE, with respect to
any of the transactions contemplated by the investment documents. Pursuant to the terms of the Investment Agreement, EMCORE has been granted the following rights, among others: (i) the right to
participate pro-rata in future financings and equity issuances by the Company; (ii) certain rights to obtain information regarding the financial results, financial performance,
business and operations of WorldWater; and (iii) the right to nominate and appoint two individuals to WorldWater's Board of Directors.

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

19

---



Series C and D Preferred Stock Classification

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

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

The
value of the warrants to purchase Series D preferred stock was calculated by converting them to their common share equivalents, then utilizing the Black-Scholes Method to
arrive at a fair value. The amounts allocated to the preferred stock and warrants were equivalent to their fair value and relative fair value, respectively.

Liquidation Preference

Upon liquidation, holders of the Series C and D Convertible Redeemable Preferred Stock will be entitled to the greater of (1) a per share amount
equal to the original purchase price plus any dividends accrued but not paid and (2) the amount that the holder would receive in respect of a share of Series C and D, preferred if
immediately prior to dissolution and liquidation, all shares of Series C and D Convertible Redeemable Preferred Stock were converted into shares of common stock. The liquidation preference of
Series C and D is $772,500 and $13,500,000, respectively.

20

---



ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION

Statements in this Management's Discussion and Analysis, and elsewhere in this Annual Report on Form 10-KSB concerning the Company's outlook or
future economic performance; anticipated profitability, gross billings, commissions and fees, expenses or other financial items; and, statements concerning assumptions made or exceptions to any future
events, conditions, performance or
other matters constitute forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are
subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not
limited to, (1) that there can be no assurance that the Company will grow and/or manage its growth profitably, (2) risks-associated reliance on governmental regulations,
(3) competition, (4) the Company's results have fluctuated in the past and are expected to fluctuate in the future, (5) the loss of services of key individuals which could have a
material adverse effect on the Company's business, financial condition or operating results, and (6) risks associated with operating in emerging countries.

OVERVIEW

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

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

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

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

The
cash raised through the issuance of convertible debt and private equity sales has provided the Company with the working capital resources needed to meet its operating activities in
2006 and 2005. The Company will continue to seek to raise significant additional financing as required to fund the Company's growing operations in 2007.

The
Company does not know whether it will be able to raise additional financing or financing on terms favorable to it. If adequate funds are not available or are not available on
acceptable terms, the Company's ability to fund current operations or otherwise respond to competitive pressures will be significantly limited.

21

---



CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

REVENUE RECOGNITION

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

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

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

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

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

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

The
Company performed a sensitivity analysis to determine the impact of fluctuations in our estimates for our allowance for doubtful accounts. As of December 31, 2006, the
allowance for doubtful accounts was $29,000. If this amount were in error by plus or minus one percent of the account receivable balance, the impact would be an additional $53,000 of income or
expense.

22

---



ACCOUNTING FOR INCOME TAXES

The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of its consolidated financial statements. This
involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences together with
net operating loss carryforwards and tax credits may be recorded as deferred tax assets or liabilities on the balance sheet. A judgment must then be made of the likelihood that any deferred tax assets
will be recovered from future taxable income. To the extent that the Company determines that it is more likely than not that deferred tax assets will not be utilized, a valuation allowancen is
established. Taxable income in future periods significantly
different from that projected may cause adjustments to the valuation allowance that could materially increase or decrease future income tax expense. As of December 31, 2006 and 2005 an
allowance equal to 100% of the deferred tax asset was recorded.

Share-Based Compensation

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

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

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

SELECTED FINANCIAL DATA

The data set forth below should be read in conjunction with the Company's financial statements and related notes and this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this filing. The statement of operations data presented below for the fiscal years ended December 31, 2006, 2005, and 2004
and the balance sheet data at December 31, 2006, 2005, and 2004 have been derived from the audited financial statements which appear elsewhere in this filing. The statement of operations data
presented below for the year ended December 31, 2004,

23

---



and
the balance sheet data at December 31, 2004 have been derived from the Company's prior year's audited financial statements, which are not included in this filing.

|                                                                       |  | Year Ended December 31, |            
|---------------------------------------------------------------------- |  | ----------------------- | -----------
|
|Revenue                                                                |  | $                       | 17,333,681 
|Gross Profit (Loss)                                                    |  |                         | 2,719,587  
|Loss From Operations                                                   |  |                         | (5,257,298 
|Loss Attributable to Common Shareholders                               |  |                         | (15,138,688
|Net Loss Per Basic & Diluted Share Attributable To Common Shareholders |  | $                       | (0.11      

|
|

|                                                            |  | As of December 31, |           
|----------------------------------------------------------- |  | ------------------ | ----------
|
|Cash and Cash Equivalents                                   |  | $                  | 5,801,852 
|Working Capital Surplus (Deficit)                           |  |                    | 10,688,277
|Total Assets                                                |  |                    | 17,268,146
|Long term obligationsless current portion                  |  |                    | 289,300   
|Redeemable Series C and D Preferred Stock Series D Warrants |  |                    | 12,884,388
|Stockholders' Deficiency                                    |  |                    | (1,423,724

RESULTS OF OPERATIONS(amounts are rounded to the nearest thousand)

Contract Revenue.Contract revenue for 2006 amounts to $17,117,000, and represents 99% of the Company's revenue. Revenue of
$17,117,000, or 100% of the total contract revenue, was generated by domestic commercial and residential projects. The significant revenue growth can be attributed to the Company moving away from its
entrepreneurial roots in 2006. The expanded revenue base from 2005 to 2006 was a mixture of upgrading the sales and marketing staff, along with taking a more aggressive approach to the bid proposal
process. Staffing, both at an office and crew level, were increased and skills upgraded, which played a big part in the Company securing the biggest contract in its existence, a $7.8 million
deal with an irrigation farm in California. Overall, the increase in revenue over 2005 was obtained as follows; In California, the Company completed two commercial projects with recognized revenue of
$1,820,000 and had six commercial projects in progress as of December 31, 2006, with recognized revenue of $9,658,000. The Company also completed nine residential projects with aggregate
revenue of $524,000. In New Jersey, six commercial projects were completed in 2006 with recognized revenue of $2,108,000. Three commercial projects, with recognized revenue of $2,128,000 in 2006, were
in progress as of December 31, 2006. The Company also recorded revenue of $567,000 from three commercial projects in Delaware and $278,000 from one project in Texas.

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

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

24

---



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

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

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

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

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

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

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

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

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

25

---



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

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

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

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

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

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

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

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

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

Warrant Exercise Inducement Expense.This expense is a non-cash charge incurred as a result of the Company
granting short term inducements to certain warrant holders, whereby the exercise price was lowered for a limited period of time. In the years ended December 31, 2006 and 2005, the Company
incurred $1,588,000 and $0 of warrant exercise inducement expenses, respectively. At various

26

---



times
during 2006, the Company offered all individuals who were granted detachable warrants (issued in connection with convertible loans) in 2003 and 2004 a short-term inducement to
exercise the warrants at a reduced exercise price ($0.20). The offers were short term in nature and expired anywhere from 30-60 days from the initial offer. The Company notes that
9,099,698 warrants were exercised as a result of the offers. Since the warrants were issued in connection with convertible loans, the Company recorded an expense related to the notes. The expense for
the inducement was recorded by obtaining the difference between the Black-Scholes value of the initial fair value of the warrants and that of the short-term modification multiplied by the
number of parties who accepted the inducement. The Company used the current stock price, modified exercise price, current volatility, current interest and dividend rate and the
30-60 day term as their inputs for the Black-Scholes model. The Company notes that the expense incurred as a result of these offers was $1,216,527. The additional $371,905 of
expense related to the Company issuing 1,447,422 shares of common stock to a debt holder to induce them to exercise their outstanding warrants (not at a discount). The company calculated this portion
of the expense by multiplying the market price of the stock the date the inducement was offered by the number of shares issued.

Interest Expense.Interest expense was $662,000 and $1,029,000 in the years ended December 31, 2006 and 2005,
respectively, a decrease of $367,000 or 36%. This decrease was due to significant decrease in outstanding debt from 2005 to 2006.

Income Taxes.The Company recognized an income tax benefit of $0 and $201,000 for the years ended December 31, 2006
and 2005, respectively. The Company participates in the State of New Jersey's Corporation Business Tax Benefit Certificate Transfer Program (the "Program"), which allows certain high technology and
biotechnology companies to sell unused New Jersey net operating loss carryovers and research and development tax credits to other New Jersey corporate taxpayers.

HISTORICAL CASH FLOW ANALYSIS

The "Historical Cash Flows Analysis" section discusses consolidated cash flow from operations, investing activities and financing activities. Amounts have been
rounded to the nearest thousand.

Cash Flows from Operating Activities

Year ended December 31,2006

2005Net Cash Used in Operating Activities

$
10,385,000

$
4,305,000


In
2006, the Company had an increase in net cash used in operating activities of $6,080,000 in a period when the Company had an increase in net loss of $4,694,000. An analysis of the
decreased loss is above in the RESULTS OF OPERATIONS and COMPARISON OF YEARS ENDED DECEMBER 31, 2006 and 2005. The increase in net cash used in operating activities in 2006, a period when the
Company's net loss decreased, is attributable to changes in non-cash charges and from the timing of cash receipts and disbursements related to working capital items in 2006. These changes
in

27

---



working
capital items relate mainly to the significant increase in job contracts from 2005 to 2006, along with an increase in staffing to coincide with the growth of the company.

Increases (decreases) in non-cash charges:Beneficial conversion and Warrant amortization

$
3,400,000Warrant exercise inducement expenses


1,588,000Issuance of stock for service


16,000Depreciation and amortization


(37,000
)Issuance of warrants as inducement for warrants exercise


53,000Stock-based employee compensation cost


1,124,000Amortization of interest expense


(319,000
)Issuance of options and warrants for services


70,000Amortization of intangibles and loan origination costs


(168,000
)Amortization of deferred compensation


15,000Issuance of stock in lieu of interest


(302,000
)5,440,000Changes in timing of cash receipts and disbursements related to working capital items


(6,826,000
)(1,386,000
)Change in net loss2006 compared to 2005


(4,694,000
)Increase in net cash used in operating activities

$
(6,080,000
)


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

Cash Flows from Investing Activities

Year ended December 31,2006

2005Net Cash Used in Investing Activities

$
966,000

$
36,000


In
2006 and 2005, investing activities included the purchase of office equipment including computers for the increased workforce.

Cash Flows from Financing Activities

Year ended December 31,2006

2005Net Cash Provided By Financing Activities

$
16,323,000

$
5,045,000


In
2006, the Company issued 21,422,223 shares of 10% convertible debentures maturing in 2007 and 2008 generating net proceeds of $3,792,500. In addition, 18,819,948 shares of common
stock were issued upon the exercise of warrants and stock options, raising $3,287,642. In conjunction with the issuance of the convertible debentures, in 2006 the Company issued four-year
warrants for the purchase of up to 17,731,387 shares of the Company's common stock, at an average exercise
price of $0.19 per share, which are exercisable at any time. These capital infusions were reduced by the repayment of $2,965,021 in long-term debt and the incurrence of $284,138 in loan
origination costs.

28

---



LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2006, our current ratio was 2.94 compared to 0.76 at December 31, 2005. As of December 31, 2006, we had $10,688,277 of
working capital compared to a working capital deficit of $674,523 as of December 31, 2005. Cash and cash equivalents were $5,801,852 as of December 31, 2006, as compared to $810,792 as
of December 31, 2005.

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

We
believe that our existing cash balance together with our other existing financial resources, including anticipated additional capital raises in 2007, and revenues from sales of our
solar systems, will be sufficient to meet our operating and capital requirements beyond the first quarter of 2008. In light of our recent private placement of approximately $13.5 million worth
of our convertible preferred stock in November 2006, we believe that we shall have the necessary financing to meet our operating and capital requirements, at a minimum, into 2008.

Below
is a table showing the potential issuable shares and available authorized common to be issued as of December 31, 2006.

As of December 31, 2006Number of authorized common shares:

275,000,000Less common shares outstanding:

149,359,052Less potential issuable common shares:Warrants

24,792,873Debt conversion rights

2,688,137Stock options

20,270,623Stock purchase agreement rights

1,542,000Preferred stock conversion rights

51,462,759100,756,392Available common shares to be issued:

24,884,556


COMMITMENTS AND GUARANTEES

The Company's commitments as of December 31, 2006, for the years 2007 through 2011 and thereafter as summarized below:

|                                              |  | 2007 |           | 2008 |   | 2009      |  | 2010 |         | 2011 |   | Thereafter |  | Total
|--------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | ---- | ------- | ---- | - | ---------- |  | -----
|
|Long-tem debt maturities (face amount)        |  | $    | 360,897   |      | $ | 200,000   |  | $    |        |      | $ | 38,456     |  | $    
|Employment obligations                        |  |      | 585,000   |      |   | 585,000   |  |      | 585,000 |      |   | 250,000    |  |      
|Renewable energy credit guarantee obligations |  |      | 98,710    |      |   | 64,701    |  |      | 64,701  |      |   | 64,701     |  |      
|Operating lease payments                      |  |      | 240,576   |      |   | 321,900   |  |      | 285,900 |      |   | 267,900    |  |      
|Repayment of grant                            |  |      | 35,000    |      |   |          |  |      |        |      |   |           |  |      
|                                              |  |      |           |      |   |           |  |      |         |      |   |            |  |      
|Total                                         |  | $    | 1,320,183 |      | $ | 1,171,601 |  | $    | 935,601 |      | $ | 621,057    |  | $    
|                                              |  |      |           |      |   |           |  |      |         |      |   |            |  |      

29

---



INCOME TAXES

As of December 31, 2006, the Company had federal and state net operating loss carryforwards totaling approximately $34,073,100 and $16,145,500,
respectively, available to reduce future taxable income and
tax liabilities which expire at various dates between 2007 and 2026. In addition, as of December 31, 2006, the Company had federal research and development tax credit carryforwards of
approximately $180,600 available to reduce future taxable income and tax liabilities which expire at various dates between 2026. Under provisions of the Internal Revenue Code, substantial changes in
the Company's ownership may limit the amount of net operating loss carryforwards and research and development credit carryforwards, which can be used in future years.

PROPOSED ACQUISITION

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

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

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

It
is the Company's intention to purchase ENTECH through a newly-formed subsidiary. The financing of the acquisition is intended to be based solely on the business prospects and assets
of the acquired entity, ENTECH.

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

To
obtain the exclusive opportunity through December 31, 2006 to conduct due diligence, the Company made a $500,000 non-refundable payment to ENTECH to be used for
operating and working capital requirements of ENTECH. Additional due diligence fees of $290,769 were recorded on the balance sheet as of December 31, 2006, and along with the $500,000 payment
to ENTECH, left a capitalized amount of $790,769 as a balance sheet asset on December 31, 2006, classified as deferred cost on proposed acquisition. Should this acquisition not go forward, the
capitalized amount would need to be expensed.

As
of March 30, 2007, the company is continuing to negotiate the acquisition of ENTECH.

30

---



RECENT ACCOUNTING PRONOUNCEMENTS

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

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which is effective for the Company on January 1, 2008. The Statement defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The Statement codifies the
definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The
standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those
assumptions. The Company is still determining the impact of this FASB, but does not expect it to have a material effect on the Company's consolidated financial statements.

In
September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) Topic 1N (SAB No. 108), "Financial StatementsConsidering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements," which is effective for calendar year companies as of December 31, 2006. SAB No. 108 provides guidance
on how prior-year misstatements should be taken into consideration when quantifying misstatements in current-year financial statements for purposes of determining whether the
financial statements are materially misstated. Under this guidance, companies should take into account both the effect of a misstatement on the current-year balance sheet as well as the
impact upon the current-year income statement in assessing the materiality of a current-year misstatement. Once a current-year misstatement has been quantified, the
guidance in SAB Topic 1M, "Financial StatementsMateriality," (SAB No. 99) will be applied to determine whether the misstatement is material. The adoption of this Statement has not
had a material effect on the Company's consolidated financial statements.

In
July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109". This
Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Interpretation is effective for
fiscal years beginning after December 15, 2006. The Company does not believe that its historical or expected tax reporting positions, which considered before application of the valuation
allowance, will have a material impact on its consolidated financial statements. See Note 15, Income Taxes.

31

---



Report of Independent Registered Public Accounting Firm

To
the Board of Directors and
Stockholders of WorldWater & Solar Technologies Corp.

We
have audited the accompanying consolidated balance sheets of WorldWater & Solar Technologies Corp. (formerly WorldWater & Power Corp.) and Subsidiaries as of
December 31, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders' deficiency, and cash flows for each of the years then ended. These 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit 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.

As
discussed in Note 1 of the consolidated financial statements, the Company has restated its consolidated financial statements for the years ended December 31, 2006 and
2005.

As
discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for Stock-based compensation upon the adoption of Statement of
Financial Accounting Standard, No. 123(R), "Share-Based Payment".

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WorldWater & Solar Technologies Corp.
(formerly WorldWater and Power Corp.) and Subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years then ended, in conformity
with U.S. generally accepted accounting principles.

|/s/AMPER, POLITZINER & MATTIA, P.C. |  | 
|----------------------------------- |  | 

Edison,
New Jersey
April 9, 2007, except with respect to our opinion on the consolidated financial statements insofar as it relates to the first restatement in Note 1, as to which the date is
October 29, 2007 and the second restatement as to which the date is March 4, 2008

32

---





WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005

|                                                                                       |                                                                                                                                                                            | December 31, 2006                                                                                        |            | December 31, 2005 |           
|-------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ---------- | ----------------- | ----------
|
|Assets                                                                                 |                                                                                                                                                                            |                                                                                                          |            |                   |           
|Current Assets:                                                                        |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       | Cash and cash equivalents                                                                                                                                                  |                                                                                                          | $          | 5,770,595         |           
|                                                                                       | Restricted cash                                                                                                                                                            |                                                                                                          |            | 31,257            |           
|                                                                                       | Accounts receivable, net of allowance of $29,257 and $69,908 at December 31, 2006, and December 31, 2005, respectively                                                     |                                                                                                          |            | 5,288,241         |           
|                                                                                       | Accounts receivable, related party                                                                                                                                         |                                                                                                          |            | 22,500            |           
|                                                                                       | Inventory                                                                                                                                                                  |                                                                                                          |            | 748,470           |           
|                                                                                       | Costs and estimated earnings/losses in excess of billings                                                                                                                  |                                                                                                          |            | 2,548,427         |           
|                                                                                       | Prepaid expenses and depositscurrent                                                                                                                                      |                                                                                                          |            | 1,763,293         |           
|                                                                                       | Advances to employees                                                                                                                                                      |                                                                                                          |            | 33,676            |           
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       |                                                                                                                                                                            | Total Current Assets                                                                                     |            |                   | 16,206,459
|Equipment and Leasehold Improvements, Net                                              |                                                                                                                                                                            |                                                                                                          | 195,808    |                   |           
|Intangible And Other Assets                                                            |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       | Loan origination costs, net                                                                                                                                                |                                                                                                          |            |                  |           
|                                                                                       | Other intangible assets, net                                                                                                                                               |                                                                                                          |            | 66,667            |           
|                                                                                       | Deferred costs on proposed acquisition                                                                                                                                     |                                                                                                          |            | 790,769           |           
|                                                                                       | Other deposits                                                                                                                                                             |                                                                                                          |            | 8,443             |           
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|Total Assets                                                                           |                                                                                                                                                                            | $                                                                                                        | 17,268,146 |                   | $         
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|Liabilities, Convertible Redeemable Preferred Stock, and Stockholders' Deficiency      |                                                                                                                                                                            |                                                                                                          |            |                   |           
|Current Liabilities:                                                                   |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       | Accounts payable and accrued expenses                                                                                                                                      |                                                                                                          | $          | 4,862,877         |           
|                                                                                       | Long-term debt and notes payable, current portion                                                                                                                          |                                                                                                          |            | 360,897           |           
|                                                                                       | Customer deposits                                                                                                                                                          |                                                                                                          |            | 43,453            |           
|                                                                                       | REC guarantee liability, current portion                                                                                                                                   |                                                                                                          |            | 98,710            |           
|                                                                                       | Billings in excess of costs and estimated earnings/losses                                                                                                                  |                                                                                                          |            | 149,245           |           
|                                                                                       | Notes payable, related parties                                                                                                                                             |                                                                                                          |            | 3,000             |           
|                                                                                       | Accrued losses on construction in progress                                                                                                                                 |                                                                                                          |            |                  |           
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       |                                                                                                                                                                            | Total Current Liabilities                                                                                |            |                   | 5,518,182 
|                                                                                       | Long-term debt and notes payable                                                                                                                                           |                                                                                                          |            | 38,456            |           
|                                                                                       | REC guarantee liability, net of current portion                                                                                                                            |                                                                                                          |            | 250,844           |           
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       |                                                                                                                                                                            | Total Liabilities                                                                                        |            |                   | 5,807,482 
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|Commitments and contingencies                                                          |                                                                                                                                                                            |                                                                                                          |           |                   |           
|Convertible redeemable preferred stock                                                 |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       | Series C convertible redeemable preferred stock                                                                                                                            |                                                                                                          |            | 750,000           |           
|                                                                                       | Series D convertible redeemable preferred stock                                                                                                                            |                                                                                                          |            | 11,179,561        |           
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       | Series D preferred stock warrants                                                                                                                                          |                                                                                                          |            | 954,827           |           
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       |                                                                                                                                                                            | Total Convertible Redeemable Preferred Stock                                                             |            |                   | 12,884,388
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|Stockholders' Deficiency:                                                              |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       | Preferred Stock Convertible $.01 par value authorized 10,000,000; issued and outstanding:                                                                                  |                                                                                                          |            |                   |           
|                                                                                       |                                                                                                                                                                            | Series B 7%611,111 shares liquidation preference $550,000 as of December 31, 2006 and December 31, 2005 |            |                   | 6,111     
|                                                                                       | Common Stock, $.001 par value; authorized 275,000,000; 149,359,052 issued and outstanding at December 31, 2006 and 108,786,940 issued and outstanding at December 31, 2005 |                                                                                                          |            | 149,359           |           
|                                                                                       | Additional paid-in capital                                                                                                                                                 |                                                                                                          |            | 47,567,963        |           
|                                                                                       | Deferred compensation                                                                                                                                                      |                                                                                                          |            |                  |           
|                                                                                       | Accumulated deficit                                                                                                                                                        |                                                                                                          |            | (49,147,157       | )         
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           
|                                                                                       |                                                                                                                                                                            | Total Stockholders' Deficiency                                                                           |            |                   | (1,423,724
|Total Liabilities, Convertible Redeemable Preferred Stock and Stockholders' Deficiency |                                                                                                                                                                            | $                                                                                                        | 17,268,146 |                   | $         
|                                                                                       |                                                                                                                                                                            |                                                                                                          |            |                   |           

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

33

---





WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005

|                                                                         |                                                                                          | Years Ended:                      |            
|------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | --------------------------------- | -----------
|
|
|Revenues:                                                                |                                                                                          |                                   |            
|                                                                         | Contract                                                                                 |                                   | $          
|                                                                         | Grant                                                                                    |                                   |            
|                                                                         |                                                                                          |                                   |            
|                                                                         |                                                                                          | Total                             |            
|                                                                         |                                                                                          |                                   |            
|Cost of Revenues:                                                        |                                                                                          |                                   |            
|                                                                         | Contract                                                                                 |                                   |            
|                                                                         | Grant                                                                                    |                                   |            
|                                                                         |                                                                                          |                                   |            
|                                                                         |                                                                                          | Total                             |            
|                                                                         |                                                                                          |                                   |            
|Gross Profit (Loss):                                                     |                                                                                          |                                   |            
|                                                                         | Contract                                                                                 |                                   |            
|                                                                         | Grant                                                                                    |                                   |            
|                                                                         |                                                                                          |                                   |            
|                                                                         |                                                                                          | Total                             |            
|                                                                         |                                                                                          |                                   |            
|Operating Expenses:                                                      |                                                                                          |                                   |            
|                                                                         | Marketing, general and administrative expenses                                           |                                   |            
|                                                                         | Research and development expense                                                         |                                   |            
|                                                                         |                                                                                          |                                   |            
|                                                                         |                                                                                          | Total Expenses                    |            
|                                                                         |                                                                                          |                                   |            
|Loss from Operations                                                     |                                                                                          |                                   | (5,257,298 
|Other (Expense) Income                                                   |                                                                                          |                                   |            
|                                                                         | Debt sourcing fees and commissions                                                       |                                   |            
|                                                                         | Beneficial conversion and Warrant amortization                                           |                                   |            
|                                                                         | Warrant exercise inducement expenses                                                     |                                   |            
|                                                                         | Interest expense, net                                                                    |                                   |            
|                                                                         | Other (Expense) Income, Net                                                              |                                   |            
|                                                                         |                                                                                          |                                   |            
|                                                                         |                                                                                          | Total Other (Expense) Income, Net |            
|                                                                         |                                                                                          |                                   |            
|Net Loss                                                                 |                                                                                          |                                   | (11,071,892
|                                                                         | Preferred Stock Dividends attributable to Beneficial Conversion and Warrant amortization |                                   |            
|                                                                         |                                                                                          |                                   |            
|Net Loss Attributable to Common Shareholders                             |                                                                                          | $                                 | (15,138,688
|                                                                         |                                                                                          |                                   |            
|Basic and diluted net loss per share                                     |                                                                                          | $                                 | (0.11      
|                                                                         |                                                                                          |                                   |            
|Weighted Average Common Shares Outstanding used in Per Share Calculation |                                                                                          |                                   | 135,921,421
|                                                                         |                                                                                          |                                   |            

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

34

---





WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005

|                                             |                                                                                         | 2006                                                   |                                                           | 2005                                      |          
|-------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------ | --------------------------------------------------------- | ----------------------------------------- | ---------
|
|Cash Flows from Operating Activities:        |                                                                                         |                                                        |                                                           |                                           |          
|                                             | Net loss applicable to Common Shareholders                                              |                                                        | $                                                         | (15,138,688                               | )        
|                                             | Preferred Stock Divideds attributable to Beneficial Conversion and Warrant amortization |                                                        |                                                           | 4,066,796                                 |          
|                                             | Adjustments to reconcile net loss to net cash used in operating activities:             |                                                        |                                                           |                                           |          
|                                             |                                                                                         | Beneficial conversion and Warrant amortization         |                                                           |                                           | 3,399,998
|                                             |                                                                                         | Warrant exercise inducement expense                    |                                                           |                                           | 1,588,432
|                                             |                                                                                         | Stock based employee compensation cost                 |                                                           |                                           | 1,123,755
|                                             |                                                                                         | Amortization of interest expense                       |                                                           |                                           | 333,823  
|                                             |                                                                                         | Amortization of intangibles and loan origination costs |                                                           |                                           | 330,688  
|                                             |                                                                                         | Issuance of stock for service                          |                                                           |                                           | 227,481  
|                                             |                                                                                         | Issuance of options and warrants for services          |                                                           |                                           | 70,000   
|                                             |                                                                                         | Share based non-employee compensation cost             |                                                           |                                           | 52,780   
|                                             |                                                                                         | Amortization of deferred compensation                  |                                                           |                                           | 45,000   
|                                             |                                                                                         | Issuance of stock in lieu of interest                  |                                                           |                                           | 68,973   
|                                             |                                                                                         | Depreciation and amortization                          |                                                           |                                           | 30,272   
|                                             |                                                                                         | Changes in assets and liabilities:                     |                                                           |                                           |          
|                                             |                                                                                         |                                                        | Accounts receivable                                       |                                           |          
|                                             |                                                                                         |                                                        | Accounts receivablerelated parties                       |                                           |          
|                                             |                                                                                         |                                                        | Inventory                                                 |                                           |          
|                                             |                                                                                         |                                                        | Costs and estimated earnings/losses in excess of billings |                                           |          
|                                             |                                                                                         |                                                        | Prepaid expenses and deposits                             |                                           |          
|                                             |                                                                                         |                                                        | Advances to employees                                     |                                           |          
|                                             |                                                                                         |                                                        | Accounts payable and other accrued expenses               |                                           |          
|                                             |                                                                                         |                                                        | Accrued losses on construction in progress                |                                           |          
|                                             |                                                                                         |                                                        | Billings in excess of costs and estimated earnings/losses |                                           |          
|                                             |                                                                                         |                                                        | Renewable energy credits guarantee liability              |                                           |          
|                                             |                                                                                         |                                                        | Customer deposits                                         |                                           |          
|                                             |                                                                                         |                                                        |                                                           |                                           |          
|                                             |                                                                                         |                                                        |                                                           | Net Cash (Used in) Operating Activities   |          
|                                             |                                                                                         |                                                        |                                                           |                                           |          
|Cash Flows from Investing Activities:        |                                                                                         |                                                        |                                                           |                                           |          
|                                             | Purchase of equipment and leasehold improvements                                        |                                                        |                                                           | (175,465                                  | )        
|                                             | Deferred costs on proposed acquisition                                                  |                                                        |                                                           | (790,769                                  | )        
|                                             |                                                                                         |                                                        |                                                           |                                           |          
|                                             |                                                                                         |                                                        |                                                           | Net Cash (Used in) Investing Activities   |          
|                                             |                                                                                         |                                                        |                                                           |                                           |          
|Cash Flows from Financing Activities:        |                                                                                         |                                                        |                                                           |                                           |          
|                                             | Proceeds from issuance of debt, and notes payable with detachable warrants              |                                                        |                                                           |                                          |          
|                                             | Proceeds from exercise of warrants and stock options                                    |                                                        |                                                           | 3,532,085                                 |          
|                                             | Proceeds from issuance of redeemable convertible preferred stock                        |                                                        |                                                           | 12,884,388                                |          
|                                             | Proceeds from issuance of common stock                                                  |                                                        |                                                           |                                          |          
|                                             | Increase in Restricted Cash and Restricted Cash Equivalents                             |                                                        |                                                           | (19,114                                   | )        
|                                             | Increase in Loan Origination costs                                                      |                                                        |                                                           |                                          |          
|                                             | Payments on long-term debt                                                              |                                                        |                                                           | (74,420                                   | )        
|                                             |                                                                                         |                                                        |                                                           |                                           |          
|                                             |                                                                                         |                                                        |                                                           | Net Cash Provided by Financing Activities |          
|                                             |                                                                                         |                                                        |                                                           |                                           |          
|Net effect of currency translation on cash   |                                                                                         |                                                        |                                                          |                                           |          
|Net Increase in cash and cash equivalents    |                                                                                         |                                                        | 4,971,946                                                 |                                           |          
|Cash and cash equivalents, Beginning of year |                                                                                         |                                                        | 798,649                                                   |                                           |          
|                                             |                                                                                         |                                                        |                                                           |                                           |          
|Cash and cash equivalents, End of year       |                                                                                         | $                                                      | 5,770,595                                                 |                                           | $        
|                                             |                                                                                         |                                                        |                                                           |                                           |          

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

35

---





WORLDWATER & SOLAR TECHNOLOGIES CORP.AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

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

|                                                                                          |  | Preferred Stock |  | Common Stock |       | Additional
Paid-In
Capital
(Preferred) |             | Additional
Paid-In
Capital
(Common) |   |         |  | Accumulated
Other
Comprehensive
Income (loss) |         |  |   |            |  
|----------------------------------------------------------------------------------------- |  | --------------- |  | ------------ | ----- | -------------------------------------- | ----------- | ----------------------------------- | - | ------- |  | --------------------------------------------- | ------- |  | - | ---------- | -
|
|
|Balance, December 31, 2004                                                                |  | 611,111         |  | $            | 6,111 |                                        | 79,834,341  |                                     | $ | 79,834  |  | $                                             | 537,331 |  | $ | 22,864,141 |  
|                                                                                          |  |                |  |              |      |                                        |            |                                     |   |         |  |                                               |         |  |   |            |  
|Beneficial conversion feature of convertible notes                                        |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   | 2,171,444  |  
|Interest on convertible notes                                                             |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   | 94,149     |  
|Conversion of convertible notes                                                           |  |                |  |              |      |                                        | 12,530,017  |                                     |   | 12,530  |  |                                               |        |  |   | 2,222,470  |  
|Issuance of Common Stock:                                                                 |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   |           |  
|For Services                                                                              |  |                |  |              |      |                                        | 361,416     |                                     |   | 361     |  |                                               |        |  |   | 111,189    |  
|Under SPA (SBI & CAMOFI)                                                                  |  |                |  |              |      |                                        | 5,000,001   |                                     |   | 5,000   |  |                                               |        |  |   | 1,217,222  |  
|Exercise of Warrants                                                                      |  |                |  |              |      |                                        | 6,177,605   |                                     |   | 6,179   |  |                                               |        |  |   | 1,149,996  |  
|Exercise of "cash-less" Warrants                                                          |  |                |  |              |      |                                        | 1,207,341   |                                     |   | 1,207   |  |                                               |        |  |   | (1,207     | )
|Exercise of options                                                                       |  |                |  |              |      |                                        | 1,430,382   |                                     |   | 1,430   |  |                                               |        |  |   | 320,325    |  
|In leui of payment of interest                                                            |  |                |  |              |      |                                        | 1,495,837   |                                     |   | 1,496   |  |                                               |        |  |   | 369,590    |  
|Purchase of QuantumEnergy Net Assets                                                      |  |                |  |              |      |                                        | 750,000     |                                     |   | 750     |  |                                               |        |  |   | 239,250    |  
|Warrants granted for financing commissions                                                |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   | 282,001    |  
|Warrants granted for services                                                             |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   | 60,523     |  
|Detachable warrants granted with convertible debt                                         |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   | 1,447,310  |  
|Amortization of deferred compensation                                                     |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   |           |  
|Comprehensive loss"                                                                       |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   |           |  
|Net loss                                                                                  |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   |           |  
|Other comprehensive expense                                                              |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   |           |  
|Currency translation adjustment                                                           |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   |           |  
|Total comprehensive loss                                                                  |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   |           |  
|                                                                                          |  |                 |  |              |       |                                        |             |                                     |   |         |  |                                               |         |  |   |            |  
|Balance, December 31, 2005                                                                |  | 611,111         |  |              | 6,111 |                                        | 108,786,940 |                                     |   | 108,787 |  |                                               | 537,331 |  |   | 32,548,403 |  
|Balance, December 31, 2005                                                                |  | 611,111         |  | $            | 6,111 |                                        | 108,786,940 |                                     | $ | 108,787 |  | $                                             | 537,331 |  | $ | 32,548,403 |  
|Preferred Stock Dividends attributable to Beneficial Conversion and Warrants amortization |  |                 |  |              |       |                                        |             |                                     |   |         |  |                                               |         |  |   | 4,066,796  |  
|Conversion of convertible notes                                                           |  |                |  |              |      |                                        | 21,422,223  |                                     |   | 21,422  |  |                                               |        |  |   | 3,771,078  |  
|Issuance of common stock::                                                                |  |                 |  |              |       |                                        |             |                                     |   |         |  |                                               |         |  |   |            |  
|For services                                                                              |  |                |  |              |      |                                        | 425,000     |                                     |   | 425     |  |                                               |        |  |   | 228,171    |  
|Exercise of warrants                                                                      |  |                |  |              |      |                                        | 16,620,276  |                                     |   | 16,620  |  |                                               |        |  |   | 3,404,679  |  
|Exercise of options                                                                       |  |                |  |              |      |                                        | 450,561     |                                     |   | 451     |  |                                               |        |  |   | 109,220    |  
|In lieu of payment of interest                                                            |  |                |  |              |      |                                        | 206,630     |                                     |   | 207     |  |                                               |        |  |   | 68,765     |  
|Warrant exercise Inducement expense                                                       |  |                |  |              |      |                                        | 1,447,422   |                                     |   | 1,447   |  |                                               |        |  |   | 1,586,985  |  
|Warrants granted for services                                                             |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   | 70,000     |  
|Share-based employee compensation cost                                                    |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   | 1,123,755  |  
|Share-based non-employee compenstation cost                                               |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   | 52,780     |  
|Net loss                                                                                  |  |                |  |              |      |                                        |            |                                     |   |        |  |                                               |        |  |   |           |  
|                                                                                          |  |                 |  |              |       |                                        |             |                                     |   |         |  |                                               |         |  |   |            |  
|Balance, December 31, 2006                                                                |  | 611,111         |  | $            | 6,111 |                                        | 149,359,052 |                                     | $ | 149,359 |  | $                                             | 537,331 |  | $ | 47,030,632 |  
|                                                                                          |  |                 |  |              |       |                                        |             |                                     |   |         |  |                                               |         |  |   |            |  

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

36

---





WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note (1) Restatement of Financial Statements due to Review of Equity Instruments

December 31, 2005 and 2006

The Company has re-evaluated its accounting for its July 2005 convertible debentures. In reviewing the accounting treatment, the Company determined
that the embedded conversion options did not require bifurcation and fair value accounting in accordance with FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", and EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company's Own Stock". The Company concluded that
EITF 00-27: "Application of Issue No. 98-5 to Certain Convertible Instruments" ("EITF 00-27") should have been applied.

The
Company initially calculated the Beneficial Conversion Feature ("BCF) using the guidance in EITF 98-5, which stated that the BCF is amortized over the life of the
debt or immediately if the debt is convertible immediately. The Company failed to apply the guidance in EITF 00-27 (Issue #6), which states that EITF 98-5 should
be modified to require the discount related to the BCF to be accreted from the date of issuance to the stated redemption date regardless of when the earliest conversion date occurs using the effective
interest method.

The
Company noted another error whereby the total amount of the debt discount attributed to the debt ($3,072,964) exceeded the proceeds allocated to the debt ($2,171,453).
EITF 98-5, paragraph 6 indicates that the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible instrument.

Lastly,
the value of the warrants related to the debt discount ($1,428,547) were amortized over the life of the debt using the straight-line method and not the effective
interest method.

The
total impact of this restatement on the Company's statement of operations was to decrease the net loss applicable to common stockholders for the year ended December 31, 2005
by approximately $3,800,000, and to increase the net loss applicable to common stockholders by approximately $2,800,000 for the year ended December 31, 2006.

December 31, 2006

The Company noted an error in its calculation of its "Preferred Stock Dividends attributable to Beneficial Conversion and warrant amortization" in its
December 31, 2006 financial statements, which was a result of the issuance of its November 2006 Series D Preferred Stock and Warrants. The Company failed to properly account for the
preferred stock discount attributable to the warrants as outlined in
EITF 00-27, Part II Issue I. As a result, the Company increased its "Preferred Stock Dividends attributable to Beneficial Conversion and warrant amortization" from $3,184,642
to $4,066,796. The Company recorded the value of the warrants and preferred stock, net of issuance costs, as mezzanine in the December 31, 2006 balance sheet. The Company reclassified the
relative fair value assigned to the warrants separately from the preferred stock in the accompanying financial statements.

The
Company also reclassified $1,588,000 from Beneficial Conversion and Warrant Amortization Expense to Warrant Exercise Inducement Expenses for the year ended December 31, 2006.
The Warrant Exercise Inducement Expense was mislabeled in the original filing.

Additionally,
the Company will restate the interim financial statements for the quarterly and year-to-date periods ended March 31, 2006, June 30,
2006 and September 30, 2006 that will be included

37

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (1) Restatement of Financial Statements due to Review of Equity Instruments (Continued)

in
its quarterly reports on Form 10Q for the comparable quarters and year-to-date in our current fiscal year.

The
Company will also restate the interim financial statements for the quarterly and year-to-date periods ended September 30, 2005, which will be included
in the amended September 30, 2006 Form 10QSB/A.

A
summary of all adjustments included in this Annual Report on Form 10-K/A is detailed below (in thousands).

The
following table reflects the impact of the first restatement on the cumulative net loss for the years ended December 31, 2006 and December 31, 2005 (in thousands):

|                                      |                                                |   |       | Fiscal Year
|------------------------------------- | ---------------------------------------------- | - | ----- | -----------
|
|Increase/(Decrease) to Net Loss       |                                                |   |       |            
|                                      | Beneficial conversion and Warrant amortization |   | $     | (3,400     
|                                      | Warrant exercise inducement expense            |   |       | 3,073      
|                                      | Interest expense, non-warrant, net             |   |       | 1,334      
|                                      |                                                |   |       |            
|Total increase/(decrease) to net loss |                                                | $ | 1,007 |            
|                                      |                                                |   |       |            

The
effects of our first restatement on previously reported consolidated financial statements as of December 31, 2006 and December 31, 2005 and for the years then ended are
summarized as follows.

The
following table reflects the impact of the restatement on the Consolidated Balance Sheets (in thousands):

|                             |                                                   | December 31, 2006 |   | December 31, 2006 |   | December 31, 2005 |         | December 31, 2005 |  
|---------------------------- | ------------------------------------------------- | ----------------- | - | ----------------- | - | ----------------- | ------- | ----------------- | -
|
|Selected Balance Sheet Data: |                                                   |                   |   |                   |   |                   |         |                   |  
|                             | Long-term debt and notes payable, current portion |                   | $ | 495               |   | $                 | 361     |                   | $
|                             | Current liabilities                               |                   |   | 5,653             |   |                   | 5,518   |                   |  
|                             | Long-term debt and notes payable                  |                   |   | 104               |   |                   | 38      |                   |  
|                             | Total liabilities                                 |                   |   | 6,007             |   |                   | 5,807   |                   |  
|                             | Additional paid-in capital                        |                   |   | 47,493            |   |                   | 46,686  |                   |  
|                             | Accumulated deficit                               |                   |   | (49,272           | ) |                   | (48,265 | )                 |  
|                             | Total stockholders' deficiency                    |                   |   | (1,624            | ) |                   | (1,424  | )                 |  

38

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (1) Restatement of Financial Statements due to Review of Equity Instruments (Continued)

The following table reflects the impact of the first restatement on the Consolidated Statements of Operations (in thousands, except per share
data):

|                                       |                                                | Fiscal Year |  
|-------------------------------------- | ---------------------------------------------- | ----------- | -
|
|
|Selected Statement of Operations Data: |                                                |             |  
|                                       | Warrant exercise inducement fees               |             | $
|                                       | Beneficial conversion and warrant amortization |             |  
|                                       | Interest expense, net                          |             |  
|                                       | Total other (expense) income, net              |             |  
|                                       | Net loss                                       |             |  
|                                       | Net loss attributable to common shareholders   |             |  
|                                       | Basic and dilluted net loss per share          |             |  

The following table reflects the impact of the first restatement on the Consolidated Statements of Cash Flows (in thousands, except per share
data):

|                         |                                                    | Fiscal Year |  
|------------------------ | -------------------------------------------------- | ----------- | -
|
|
|Selected Cash Flow Data: |                                                    |             |  
|                         | Net loss                                           |             | $
|                         | Beneficial Conversion feature of convertible notes |             |  
|                         | Beneficial conversion and Warrant amortization     |             |  
|                         | Warrant exercise inducement expense                |             |  
|                         | Amortization of interest expense                   |             |  

39

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (1) Restatement of Financial Statements due to Review of Equity Instruments (Continued)

The following table reflects the impact of the first restatement on the Consolidated Statements of Stockholders' Deficiency (in thousands, except
per share data):

|                         |                                                                          | Fiscal Year |  
|------------------------ | ------------------------------------------------------------------------ | ----------- | -
|
|
|Selected Cash Flow Data: |                                                                          |             |  
|                         | Beneficial conversion feature on convertible notes                       |             | $
|                         | Interest on convertible notes                                            |             |  
|                         | Issuance of common stock for services and to induce exercise of warrants |             |  
|                         | Issuance of common stock for services                                    |             |  
|                         | Issuance of common stock to induce warrants                              |             |  
|                         | Exercise of warrants                                                     |             |  
|                         | Warrants granted to induce exercise of warrants                          |             |  
|                         | Net loss                                                                 |             |  
|                         | Total comprehensive loss                                                 |             |  
|                         | Total additional paid in capital common                                  |             |  
|                         | Accumulated deficit                                                      |             |  
|                         | Total stockholders' deficiency                                           |             |  

There was no impact to the subtotals for the operating, investing, or financing sections of the consolidated statements of cash flows, because all
adjustments occurred within the operating activities component.

December 31, 2006

The
effects of this second restatement on previously reported consolidated financial statements as of December 31, 2006 and for the year then ended, are summarized as follows.

The
following table reflects the impact of the second restatement on the Consolidated Balance Sheets (in thousands):

December 31, 2006

December 31, 2006(as previously reported)

(restated)Selected Balance Sheet Data:Additional paid-in capital

46,686

47,568Accumulated deficit

(48,265
)
(49,147
)


40

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (1) Restatement of Financial Statements due to Review of Equity Instruments (Continued)

The
following table reflects the impact of the second restatement on the Consolidated Statements of Operations (in thousands, except per share data):

Fiscal YearDecember 31, 2006

December 31, 2006(as previously reported)

(restated)Selected Statement of Operations Data:Preferred Stock Dividends attributable to Beneficial Conversion and Warrant amortization

$
(3,185
)
$
(4,067
)Net loss attributable to common shareholders


(14,257
)

(15,139
)Basic and dilluted net loss per share


(0.10
)

(0.11
)


The
following table reflects the impact of the second restatement on the Consolidated Statements of Cash Flows (in thousands, except per share data):

Fiscal YearDecember 31, 2006

December 31, 2006(as previously reported)

(restated)Selected Cash Flow Data:Net loss attributable to common shareholders

$
(14,257
)
$
(15,139
)Preferred Stock Dividends attributable to Beneficial Conversion and Warrant amortization


(3,185
)

4,067
)


There
was no impact to the subtotals for the operating, investing, or financing sections of the consolidated statements of cash flows, because all adjustments occurred within the
operating activities component.

Note (2) Liquidity and Capital Resources

At December 31, 2006, our current ratio was 2.94 compared to 0.76 at December 31, 2005. As of December 31, 2006, we had $10,688,277 of
working capital compared to a working capital deficit of $674,523 as of December 31, 2005. Cash and cash equivalents were $5,801,852 as of December 31, 2006, as compared to $810,792 as
of December 31, 2005.

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

We
believe that our existing cash balance together with our other existing financial resources, including anticipated additional capital raises in 2007, and revenues from sales of our
solar systems, will be sufficient to meet our operating and capital requirements beyond the first quarter of 2008. In light of our recent private placement of approximately $13.5 million worth
of our convertible preferred stock in November 2006, we believe that we shall have the necessary financing to meet our operating and capital requirements, at a minimum, into 2008.

41

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (3) Nature of the Business

Effective June 22, 2005 the shareholders of the Company approved the change of the Company's name from WorldWater Corp. to WorldWater & Power Corp.

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

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

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

Revenue

Long-lived Assets2006

2005

2006

2005United States

$
17,141,808

$
1,998,937

$
195,808

$
50,615Philippines





32,543





Sri Lanka


191,873








Total

$
17,333,681

$
2,031,480

$
195,808

$
50,615


Note (4) Summary of Significant Accounting Policies

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

Principles of Consolidation

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

42

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (4) Summary of Significant Accounting Policies (Continued)

The
Company's wholly-owned inactive subsidiaries include:



Use of Estimates

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

Fair Value of Financial Instruments

The carrying value of accounts receivable, accounts payable, and accrued expenses approximate their respective fair values due to their short maturities. The fair
value of the Company's notes payable and debt are estimated based on the current rates offered to the Company for debt of the same remaining maturities and similar terms. See "Guarantor Agreements"
below for disclosures regarding the fair value of the Company's exposure for Renewable Energy Credits ("RECs") which have been accrued on the Balance Sheet as of December 31, 2006 and 2005.

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and
accounts receivable. The Company places its cash and cash equivalents with a high quality financial institution. With respect to accounts receivable as of December 31, 2006, 76% of the
receivables, including related party receivables, were from three commercial customers and 2% were rebates owed by state agencies administering clean energy initiatives generated from the sale of
solar equipment installed in the United States. The Company does not require collateral or other security against accounts receivable; however, it maintains reserves for potential credit losses and
such losses have historically been within management's expectations. The Company had one major customer accounting for 45% of revenue for the year ended December 31, 2006, and 52% of
receivables at December 31, 2006; and two customers accounting for 64% of revenue for the year ended December 31, 2005.

Guarantor Arrangements

In November 2002, the FASB issued FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34." The Interpretation requires that a guarantor recognize, at
the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires

43

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (4) Summary of Significant Accounting Policies (Continued)

additional
disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The following is a summary of the
Company's agreements that have been determined to fall within the scope of FIN No. 45.

Renewable Energy Credit Guarantee (RECs)

Under the equipment sales contract for the 267,840 kW (DC) solar-driven irrigation and energy system built in 2004 and a 42.7 kW solar-pumping and energy system
currently in construction, the Company has guaranteed the price of certain Renewable Energy Certificates (RECs) to be generated by the installation during the first seven years of operation. Based on
current market indications, the Company estimates its guarantee obligation may result in a potential loss of $452,907 which is tied to the future market and trading value of RECs traded in California.
The liability was recorded in accordance with FIN 45, paragraph 8, whereby the Company determined the maximum number of kwh to be generated over the seven year span to be 3,148,936
(449,848 × 7), multiplied by the guaranteed amount of $0.125, resulting in a liability of $393,617. Without the knowledge of the future value of these RECs, the Company recorded as
reductions of Contract Revenue: estimated losses of $393,617, $59,290 and $0 in the years ended December 31, 2004, 2005, and 2006, respectively. Adjustments to the estimated guarantee
obligation will be recognized as an adjustment of revenue over the seven year term of the respective guarantee obligations. During of December 31, 2006 the Company has made payments on this
guarantee in the amount of $92,658.

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

Product Warranty

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

Balance, December 31, 2004

$
107,000Accruals for warranties issued during 2005


6,863Utilization of warranty reserve


(4,476
)Balance, December 31, 2005

$
109,387Accruals for warranties issued during 2006


272,086Utilization of warranty reserve


(3,511
)Balance, December 31, 2006

$
377,962


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

44

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (4) Summary of Significant Accounting Policies (Continued)

Comprehensive Loss

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

Revenue Recognition

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

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

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

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

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

Allowance for Doubtful Accounts

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

45

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (4) Summary of Significant Accounting Policies (Continued)

Accounting for Income Taxes

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

Cash and Cash Equivalents

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

Inventory

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

Equipment and Leasehold Improvements

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

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

Loan Origination Costs

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

Research and Development

Research and development costs are expensed as incurred.

Advertising Costs

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

46

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (4) Summary of Significant Accounting Policies (Continued)

Share-Based Compensation

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

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

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

The
pro-forma information presented in the following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended SFAS No. 148, "Accounting for

47

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (4) Summary of Significant Accounting Policies (Continued)

Stock-Based
CompensationTransition and Disclosure," to stock-based employee compensation for the year ended December 31, 2005:

Year Ended
December 31, 2005Net loss:As reported

$
(6,377,646
)Add: Stock based employee compensation expense included in reported net loss, net of related tax effects


30,000Deduct: Stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(840,210
)Pro-forma

$
(7,187,856
)Net loss per share:As reported

$
(0.07
)Pro-forma

$
(0.08
)


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

Year Ended December 31,Assumptions for Option Grants

2006

2005Risk-free interest rate

5
%
4
%Volatility

34
%
49
%Expected dividend yield

0
%
0
%Expected life

10 years

10 yearsEstimated forfeiture rate

1
%
N/A


The
Company calculates expected volatility for a share-based grant based on historic daily stock price observations of our common stock during the period immediately preceding the grant
that is equal in length to the expected term of the grant. For estimating the expected term of share-based grants made in the year ended December 31, 2006, the Company has adopted the
simplified method authorized in Staff Accounting Bulletin No. 107. SFAS No. 123R also requires that estimated forfeitures be included as a part of the estimate of expense as of the grant
date. The Company has used historical data to estimate expected employee behaviors related to option exercises and forfeitures. Prior to our adoption of SFAS No. 123R, the Company reduced
pro-forma share-based compensation expense, presented in the notes to its financial statements, for actual forfeitures as they occurred.

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

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

48

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (4) Summary of Significant Accounting Policies (Continued)

Net Loss Per Common Share

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

As of
December 31, 2006

As of
December 31, 2005Warrants

24,792,873

36,789,366Debt conversion rights

2,688,137

24,332,581Stock options

20,270,623

11,810,392Stock Purchase Agreement Rights

1,542,000

Preferred stock conversion rights

51,462,759

611,111Total

100,756,392

73,543,450


Recent Accounting Pronouncements

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

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which is effective for the Company on January 1, 2008. The Statement defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The Statement codifies the
definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The
standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. The adoption of this Statement is not expected to have a material effect on the Company's consolidated financial statements.

49

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (4) Summary of Significant Accounting Policies (Continued)

In
September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) Topic 1N (SAB No. 108), "Financial StatementsConsidering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements," which is effective for calendar year companies as of December 31, 2006. SAB No. 108 provides guidance
on how prior-year misstatements should be taken into consideration when quantifying misstatements in current-year financial statements for purposes of determining whether the
financial statements are materially misstated. Under this guidance, companies should take into account both the effect of a misstatement on the current-year balance sheet as well as the
impact upon the current-year income statement in assessing the materiality of a current-year misstatement. Once a current-year misstatement has been quantified, the
guidance in SAB Topic 1M, "Financial StatementsMateriality," (SAB No. 99) will be applied to determine whether the misstatement is material. The adoption of this Statement has not
had a material effect on the Company's consolidated financial statements.

In
July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109". This
Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Interpretation is effective for
fiscal years beginning after December 15, 2006. The Company does not believe that its historical or expected tax reporting positions, which considered before application of the valuation
allowance, will have a material impact on its consolidated financial statements. See Note 15, Income Taxes.

Reclassifications

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

Note (5) Proposed Acquisition

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

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

50

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (5) Proposed Acquisition (Continued)

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

It
is the Company's intention to purchase ENTECH through a newly-formed subsidiary. The financing of the acquisition is intended to be based solely on the business prospects and assets
of the acquired entity, ENTECH.

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

To
obtain the exclusive opportunity through December 31, 2006 to conduct due diligence the Company made a $500,000 non-refundable payment to ENTECH to be used for
operating and working capital requirements of ENTECH. Additional due diligence fees of $290,769 were recorded on the balance sheet as of December 31, 2006, and along with the $500,000 payment
to ENTECH, left a capitalized amount of $790,769 on the balance sheet asset at December 31, 2006, classified as deferred cost on proposed acquisition. Should the proposed acquisition not go
forward in 2007, the capitalized amount would need to be expenses in that year.

As
of March 30, 2007, the company is continuing to negotiate the acquisition of ENTECH.

Note (6) Contracts

|                                                                                                         |                                                           | As of December 31, |            
|-------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------ | -----------
|
|Costs incurred on contracts                                                                              |                                                           | $                  | 14,411,406 
|Estimated earnings, less foreseeable losses                                                              |                                                           |                    | 2,705,383  
|                                                                                                         |                                                           |                    |            
|                                                                                                         |                                                           |                    | 17,116,789 
|Billings to date                                                                                         |                                                           |                    | (14,717,607
|                                                                                                         |                                                           |                    |            
|Net costs and estimate earnings/losses in excess of billings                                             |                                                           | $                  | 2,399,182  
|                                                                                                         |                                                           |                    |            
|These amounts are included in the accompanying consolidated balance sheets under the following captions: |                                                           |                    |            
|                                                                                                         | Costs and estimated earnings/losses in excess of billings |                    | $          
|                                                                                                         | Billings in excess of costs and estimated earnings/losses |                    |            
|                                                                                                         |                                                           |                    |            
|                                                                                                         |                                                           | $                  | 2,399,182  
|                                                                                                         |                                                           |                    |            

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

51

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (7) Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following at December 31, 2006 and 2005:

2006

2005Office furniture and equipment

$
130,551

$
8,224Vehicles


78,143


34,634Computers


16,568


5,319Test equipment and assembly fixtures





4,903Leasehold improvements


5,453


2,171230,715


55,251Less accumulated depreciation and amortization


(34,907
)

(4,636
)Equipment and leasehold improvements, net

$
195,808

$
50,615


Depreciation
expenses in 2006 and 2005 were $30,271 and $25,991 respectively. During 2005, we abandoned fully depreciated equipment and leasehold improvements totaling $253,381.

Note (8) Intangible Assets

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

As of December 31,2006

2005Loan origination costs

$
287,688

$
661,634Accumulated amortization


(287,688
)

(373,946
)Loan origination costs, net

$


$
287,688Non-compete agreement, customer list and trade name

$
123,000

$
123,000Accumulated amortization


(56,333
)

(13,333
)Non-compete agreement, net

$
66,667

$
109,667Purchased customer contracts

$


$
98,500Accumulated amortization





(98,500
)Purchased customer contracts, net

$


$



Amortization
expenses for 2006 and 2005 were $330,688 and $455,288 respectively.

52

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (9) Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at December 31, 2006 and 2005:

2006

2005Accounts payablecontracts

$
2,328,963

$
854,397Accounts payableother


760,702


761,809Accrued salaries


271,039


250,085Accrued interest


268,501


226,446Accrued warranty reserve


377,962


109,387Accrued sales commission


190,140


56,991Accrued payroll taxes and withholdings





13,127Accrued sales & use taxes


302,000


Accrued project costs


143,890


Accrued project contingency


45,000


Preferred dividend payable


22,500


Accrued legal expenses


73,708


Other accrued expenses


78,472


16,365Total

$
4,862,877

$
2,288,607


Note (10) Securities Purchase Agreements

2004-Securities Purchase Agreement with SBI Brightline VIII LLC ("SBI Brightline SPA")

In April 2004, the Company entered into the SBI Brightline SPA calling for the sale of common stock and issuance of warrants as shown in the table below.

|                                                  |   | Common Stock Purchase Rights |           | Warrant Rights
|------------------------------------------------- | - | ---------------------------- | --------- | --------------
|
|Purchased Prior to December 31, 2004              |   |                              |           |               
|                                                  | 1 |                              | 7,000,000 |               
|                                                  | 2 |                              | 5,000,000 |               
|Available to Be Purchased As of December 31, 2004 |   |                              |           |               
|                                                  | 3 |                              | 5,000,000 |               
|Total/Average                                     |   | 17,000,000                   |           | $             

The
trading price of the Company's common stock during the several weeks leading up to April 1, 2004, the effective date of the SBI Brightline SPA, was generally greater than the
price per share for the Tranche No. 1 shares that were sold under the SBI Brightline SPA; however, the average closing price during March 2004 was slightly more than $0.20 per share and the
average share price of all of the shares to be sold under the SBI Brightline SPA is slightly greater than $0.21 per share.

In
the first quarter of 2005, the Company issued and sold to SBI Brightline 740,740 shares of common stock at a price of $0.27 per share as the initial installment of the third Tranche
resulting in equity proceeds of $200,000. In conjunction with the sale of the stock, the Company issued 222,222 unregistered warrants at a price of $0.27 per share included in the third Tranche shown
above.

53

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (10) Securities Purchase Agreements (Continued)

On
July, 2005, SBI Brightline assigned its rights to the remaining shares of the third tranche of the SPA to Camofi 2005.

2005 Securities Purchase Agreement with Camofi Master LDC ("Camofi SPA")

Under the terms of the Camofi SPA agreement entered in July, 2005, Camofi acquired:



In
the fourth quarter of 2006, Camofi converted 250,000 shares at $0.18 per share, in full settlement of the outstanding debt due from the Company.

2006 Investment Agreement with EMCORE Corporation



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

54

---





WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (11) Long-Term Debt and Notes Payable

Long-term debt (including convertible debt) and notes payable consist of the following uncollateralized loans outstanding at December 31, 2006
and 2005:

|                          |  |                                        |  |          |   |          |   |                                      |  | Option
to Pay
Interest
in either
Common
Stock
or Cash |  |   |       | Potential
Number of
Shares
Upon
Conversion
@ 2/31/06 |                      |  |   |         |  |   |         | 
|------------------------- |  | -------------------------------------- |  | -------- | - | -------- | - | ------------------------------------ |  | ----------------------------------------------------- |  | - | ----- | ---------------------------------------------------- | -------------------- |  | - | ------- |  | - | ------- | 
|
|
|
|2006                      |  | Funds & Qualified individual investors |  | 10       | % | 19 - 30  | % | Semi-Annual                          |  | Yes                                                   |  |   | N/A   |                                                      |                     |  | $ |        |  | $ |        | 
|2007                      |  | Funds & Qualified individual investors |  | 10       |   | 19 - 30  | % | Semi-Annual                          |  | Yes                                                   |  | $ | 0.15  |                                                      | 1,233,667            |  |   | 185,050 |  |   | 165,050 | 
|2008                      |  | Funds & Qualified individual investors |  | 10       | % | 625      | % | Majority Monthly                     |  | Yes                                                   |  | $ | 0.18  |                                                      | 1,111,111            |  |   | 200,000 |  |   | 20,000  | 
|On Demand                 |  | Qualified individuals                  |  | 0% to 10 | % | 0% to 15 | % | Majority Monthly & Semi-annually     |  | No                                                    |  |   | N/A   |                                                      | N/A                  |  |   | 30,347  |  |   | 30,347  | 
|On Demand                 |  | Qualified individual investors         |  | 10       | % | 10       | % | Maturity                             |  | No                                                    |  | $ | 0.40  |                                                      | 132,500              |  |   | 53,000  |  |   | 53,000  | 
|Stated Maturity Date
1997 |  | Qualified individual investors         |  | 8        | % | 8        | % | Maturity                             |  | No                                                    |  | $ | 0.40  |                                                      | 125,000              |  |   | 50,000  |  |   | 50,000  | 
|Not Stated                |  | Qualified individual investors         |  | 4.50     | % | 4.50     | % | Not stated                           |  | N/A                                                   |  | $ | 0.495 |                                                      | 85,859               |  |   | 42,500  |  |   | 42,500  | 
|2010                      |  | Financial Institution                  |  | 8        | % |          |   | Monthly principal & interet payments |  | No                                                    |  |   | N/A   |                                                      | N/A                  |  |   | 38,456  |  |   | 38,456  | 
|                          |  |                                        |  |          |   |          |   |                                      |  |                                                       |  |   |       |                                                      |                      |  |   |         |  |   |         | 
|                          |  |                                        |  |          |   |          |   |                                      |  |                                                       |  |   | Total |                                                      | 2,688,137            |  | $ | 599,353 |  |   | 399,353 | 
|                          |  |                                        |  |          |   |          |   |                                      |  |                                                       |  |   |       |                                                      |                      |  |   |         |  |   |         | 
|                          |  |                                        |  |          |   |          |   |                                      |  |                                                       |  |   |       |                                                      | Less current portion |  |   |         |  |   | 360,897 | 
|                          |  |                                        |  |          |   |          |   |                                      |  |                                                       |  |   |       |                                                      |                      |  |   |         |  |   |         | 
|                          |  |                                        |  |          |   |          |   |                                      |  |                                                       |  |   |       |                                                      | Long-term portion    |  |   |         |  | $ | 38,456  | 
|                          |  |                                        |  |          |   |          |   |                                      |  |                                                       |  |   |       |                                                      |                      |  |   |         |  |   |         | 

---

55

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (11) Long-Term Debt and Notes Payable (Continued)



56

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (11) Long-Term Debt and Notes Payable (Continued)

On
August 25, 2006, the Company entered into a Bridge Loan totaling $500,000. The note bears 10% interest, which, at the option of the Company, can be paid in cash or in shares of
the common stock of the Company or a combination of both. The loan was repaid on November 30, 2006. The loan was repaid in the fourth quarter. In accordance with the terms of the loan
agreement, the Company issued a five-year warrant for 500,000 shares with an exercise price of $0.22 per share. The
warrants can be found on the table in Note 15 under the line item "Warrants issued in consideration for extensions of short-term loans by a Director and Shareholders."

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

2007

$
360,8972008


200,0002009


2010


38,456Total

$
599,353


Note (12) Related Party Transactions

Notes Payable

The Company had outstanding notes payable owed to directors, officers and employees of the Company as of December 31, 2006 and 2005 as follows:

2006

2005Directors

$
3,000

$
3,000Officers and employees





32,748Total


3,000


35,748Less current maturities


(3,000
)

(35,748
)Total long term note payable, related party

$


$



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

Other Related Party Transactions

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

Note (13) Convertible Preferred Stock

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

57

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (13) Convertible Preferred Stock (Continued)

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

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

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

Series C Convertible Preferred Stock

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

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

Dividends
on the Series C Convertible Preferred Stock accrue at the annual rate of 6%, payable the first day of each month, except that during the period July 1, 2006
through June 30, 2007 dividends will be accrued but not paid. As of December 31, 2006, the Series C Convertible Preferred Stock had accrued and unpaid dividends in the aggregate
amount of $22,500, which will be payable upon conversion.

Series D Convertible Preferred Stock

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

58

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (13) Convertible Preferred Stock (Continued)

the
"Agreements"). The Boards of Directors of EMCORE and WorldWater each approved the Agreements.

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

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

The
investment of the remaining $4.5 million second tranche (the "Tranche B Closing") will be consummated subject to the execution of a definitive strategic agreement
between the Parties and certain other conditions set forth in the

Investment
Agreement. The Parties currently expect the execution of the definitive strategic agreement and the Tranche B Closing to occur before the end of the year. At the
Tranche B Closing, WorldWater will issue to EMCORE (i) an additional one million, six hundred and thirty thousand, nine hundred and fifty-three (1,630,953) shares of Series D
Convertible Preferred Stock and (ii) one hundred and sixty-three thousand and ninety-five (163,095) warrants to purchase one hundred and sixty-three thousand and
ninety-five (163,095) shares of Series D Stock.

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

The
Series D Stock has the designations, preferences and rights set forth in the certificate of designation filed with the Secretary of State for the State of Delaware on
November 29, 2006 (the "Certificate of Designation"). Pursuant to the Certificate of Designation, holders of Series D Stock have the following rights, among others: (i) the sole
right and discretion to convert their shares of Series D Stock at any time and from time to time into such number of fully paid and non-assessable shares of common stock, par value
$0.001, of WorldWater (the "Common Stock") initially equal to such number of shares of Series D Stock multiplied by ten, subject to certain adjustments as more fully set forth in the
Certificate of Designation including weighted average anti-dilution rights, (ii) the right to vote together with the holders of Common Stock as a single class on all matters
submitted for a vote of

59

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (13) Convertible Preferred Stock (Continued)

holders
of Common Stock, (iii) for so long as the beneficial ownership by the holders of Series D Stock (on a fully-diluted basis) does not fall below ten percent (10%) of the then
outstanding shares of Common Stock, the exclusive right to elect two members of the Board of Directors of WorldWater, (iv) for so long as the beneficial ownership by the holders of
Series D Stock (on a fully-diluted basis) is between five percent (5%) and ten percent (10%) of the then outstanding shares of Common Stock, the exclusive right to elect one member of the Board
of Directors of WorldWater, (v) certain liquidation preferences as detailed in the Certificate of Designation and (vi) the right to receive dividends in an amount equal to the amount of
dividends that such holder would have received had the holder converted its shares of Series D Stock into shares of Common Stock as of the date immediately prior to the record date for such
dividend. The liquidity event is any change in control whereby the new person or entity has 50% or more beneficial ownership in the existing company. Since the potential change in ownership is outside
the control of the company, the existing preferred shareholders would have the right to demand cash payment equal to the liquidation value of the preferred stock plus accrued dividends.

Series C and D Preferred Stock Classification

The Series C and D Preferred Stock were classified out of permanent equity since it fit certain criteria in paragraph#2 of EITF Topic D-98),
however it was not classified as a liability since it did not meet the requirements of a liability.

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

The
warrants to purchase Series D preferred stock were calculated by converting them to their common share equivalent, then utilizing the Black-Scholes Method to arrive at a fair
value. The amounts allocated to the preferred stock and warrants were equivalent to their fair value and relative fair value, respectively.

Liquidation Preference

Upon liquidation, holders of the Series C and D Convertible Redeemable Preferred Stock will be entitled to the greater of (1) a per share amount
equal to the original purchase price plus any dividends accrued but not paid and (2) the amount that the holder would receive in respect of a share of Series C and D, preferred if
immediately prior to dissolution and liquidation, all shares of Series C

60

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (13) Convertible Preferred Stock (Continued)

and
D Convertible Redeemable Preferred Stock were converted into shares of common stock. The liquidation preference of Series C and D is $772,500 and $13,500,000, respectively.

Note (14) Common Stock Transactions

Common stock transactions during the twelve months ended December 31, 2006 consisted of the following:

Shares

Price Per
ShareShares Issued and Outstanding December 31, 2005

108,786,940Conversion of Convertible Loans totaling $3,792,500

21,422,223

$
0.15 - 0.18Warrants exercised

16,620,276

$
0.19Shares issued to induce warrant holder to exercise warrant

1,447,422

$
0.22Shares sold under Stock Purchase Agreements



$
Shares issued in lieu of payment of cash for interest

206,630

$
0.19Stock options exercised

450,561

$
0.19Shares issued as compensation for public relations and business development

425,000

$
0.19Shares issued during the year ended December 31, 2006

40,572,112

$
0.15 - 0.22Shares issued and Outstanding December 31, 2006

149,359,052


The
common stock issued in connection with the goods and services in Note 14 of the Company's Form 10KSB/A were issued for past services. The Company and the service
provider agreed on a number of shares to be issued based on the fair value of the stock in relation to the value of the services rendered. The Company expensed the fair value of the stock multiplied
by the number of shares issued in accordance with FAS 123R, paragraph 7. The Company notes that the amount expensed in the Company's Statement of Operations approximates the fair value
of the services rendered had the Company paid cash for the services.

Note (15) Warrant Transactions

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

61

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (15) Warrant Transactions (Continued)

Warrant
transactions consisted of the following during the year ended December 31, 2006:

|                                                                                                      |  | Exercisable
Warrants |   | Stock Price
|----------------------------------------------------------------------------------------------------- |  | -------------------- | - | -----------
|Warrants Outstanding As of December 31, 2005                                                          |  | 36,789,366           |   | $          
|                                                                                                      |  |                      |   |            
|a) Warrants issued in consideration for extensions of short-term loans by a Director and Shareholders |  | 1,958,614            |   | $          
|b) Warrants granted on commissions as debt and equity financings                                      |  | 2,612,169            |   | $          
|c) Warrants for services                                                                              |  | 500,000              |   | $          
|Exercise of warrants                                                                                  |  | (16,620,276          | ) | $          
|Expiration of outstanding warrants                                                                    |  | (447,000             | ) |            
|                                                                                                      |  |                      |   |            
|                                                                                                      |  | (11,996,493          | ) |            
|                                                                                                      |  |                      |   |            
|Warrants Outstanding As of December 31, 2006                                                          |  | 24,792,873           |   | $          
|                                                                                                      |  |                      |   |            

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



At
various times during 2006, the Company offered all individuals who were granted detachable warrants (issued in connection with convertible loans) in 2003 and 2004 a
short-term inducement to exercise the warrants at a reduced exercise price ($0.20). The offers were short term in nature and expired anywhere from
30 - 60 days from the initial offer. The Company notes that 9,099,698 warrants were exercised as a result of the offers. Since the warrants were issued in connection
with convertible loans, the Company recorded an expense related to the notes. The expense for the inducement was recorded by obtaining the difference between the Black-Scholes value of the initial
fair value of the warrants and that of the short-term modification multiplied by the number of parties who accepted the inducement. The Company used the current stock price, modified
exercise price, current volatility, current interest and dividend rate and the 30 - 60 day term as their inputs for the Black-Scholes model. The Company notes that the
expense incurred as a result of these offers was $1,216,527. The additional $371,905 of expense related to the Company issuing 1,447,422 shares of common stock to a debt holder to induce them to
exercise their outstanding warrants (not at a discount). The company calculated this

62

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (15) Warrant Transactions (Continued)

portion
of the expense by multiplying the market price of the stock the date the inducement was offered by the number of shares issued.

Warrants
outstanding expire as follows:

Year

Warrants
Expiring

Strike
Price2007

2,885,666

$
0.15 - 0.502008

2,551,697


0.15 - 0.372009

15,236,650


0.15 - 0.412011

4,118,860


0.18 - 0.37524,792,873


Note (16) Income Taxes

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

2006

2005Federal:Current

$


$
Deferred








State:Current





Deferred





Benefit from sale of net operating losses and research credits





(200,953
)$


$
(200,953
)


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

2006

2005Income tax benefit at US federal statutory tax rate

$
(2,802,600
)
$
(3,541,000
)State income taxes, net of federal tax effect


(211,200
)

(426,800
)Permanent items


258,900


1,098,200Change in deferred tax asset valuation allowance


2,754,900


2,869,600Benefit from sale of New Jersey net operating losses and research credits





(200,953
)$


$
(200,953
)


As
of December 31, 2006, the Company had Federal and state net operating loss carryforwards totaling approximately $32,055,800 and $17,189,500, respectively, available to reduce
future taxable income and tax liabilities which expire at various dates between 2007 and 2026. In addition, as of

63

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (16) Income Taxes (Continued)

December 31,
2006, the Company had federal research and development tax credit carryforwards of approximately $180,600 available to reduce future taxable income and tax liabilities which expire
at various dates between 2026. Under provisions of the Internal Revenue Code, substantial changes in the Company's ownership may limit the amount of net operating loss carryforwards and research and
development credit carryforwards, which can be used in future years. The carryforwards will expire as follows:

|     |  | Net Operating Loss
Carryforwards |            | Research and
Development
Tax Credits
|---- |  | -------------------------------- | ---------- | ------------------------------------
|
|2007 |  | $                                | 251,100    |                                     
|2008 |  |                                  | 641,300    |                                     
|2009 |  |                                  | 887,900    |                                     
|2010 |  |                                  | 912,400    |                                     
|2011 |  |                                  | 981,200    |                                     
|2012 |  |                                  | 1,263,200  |                                     
|2013 |  |                                  | 1,337,700  |                                     
|2014 |  |                                  | 660,000    |                                     
|2015 |  |                                  | 1,687,500  |                                     
|2016 |  |                                  | 1,453,700  |                                     
|2017 |  |                                  | 1,688,400  |                                     
|2018 |  |                                  | 3,101,900  |                                     
|2019 |  |                                  | 4,759,500  |                                     
|2020 |  |                                  | 5,318,200  |                                     
|2021 |  |                                  | 7,111,800  |                                     
|     |  |                                  |            |                                     
|     |  | $                                | 32,055,800 |                                     
|     |  |                                  |            |                                     

Management
of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management has considered the Company's history of
losses and, in accordance with the applicable accounting standards, has fully reserved the deferred tax asset. Deferred tax assets consist of the following at December 31, 2006 and 2005:

2006

2005Gross deferred tax assetsNet operating loss carryforwards

$
12,327,100

$
10,108,500Warranty reserve


169,000


43,900Accrued expenses and deferred compensation


534,000


122,80013,030,100


10,275,200Gross deferred tax liabilitiesDeferred tax valuation allowance


(13,030,100
)

(10,275,200
)$


$



64

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (16) Income Taxes (Continued)

The Company participates in the State of New Jersey's corporation business tax benefit certificate transfer program (the "Program"), which allows certain high
technology and biotechnology companies to transfer unused New Jersey net operating loss carryovers and research and development tax credits to other New Jersey corporation business taxpayers. In 2005,
the Company submitted applications to the New Jersey Economic Development Authority (the "EDA") to participate in the Program for the years 2004 and 2003, and the applications were approved. The EDA
then issued certificates certifying the Company's eligibility to participate in the Program for these years.

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

Note (17) Stock-Based Compensation Plans

Incentive Stock Option Plan

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

The
following is a summary of stock option activity:

Shares

Weighted-
Average
Exercise PriceBalance, December 31, 2004

10,015,325

$
0.25Granted

3,430,988


0.31Forfeited or expired

(205,539
)

0.27Exercised

(1,430,382
)

0.23Balance, December 31, 2005

11,810,392

$
0.27Granted

2,996,000


0.30Forfeited or expired

(997,600
)

0.32Exercised

(450,561
)

0.24Balance, December 31, 2006

13,358,231

$
0.27Options Exercisable, December 31, 2006

11,605,819

$
0.26


65

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (17) Stock-Based Compensation Plans (Continued)

Summarized
information about stock options outstanding is as follows:

|Range of
Exercise Prices |       | Options
Outstanding
as of
December 31, 2006 |            | Average
Remaining
Contractual
Life |       | Average
Exercise
Price |      | Options
Exercisable as of
December 31, 2006 |           | Average
Exercise
Price of
Exercisable
Options
|------------------------ | ----- | ------------------------------------------- | ---------- | ---------------------------------- | ----- | ---------------------- | ---- | ------------------------------------------- | --------- | ---------------------------------------------
|$0.02 - 0.15             |       | 3,365,173                                   |            | 5.0 yrs.                           |       | $                      | 0.14 |                                             | 3,365,173 |                                              
|0.19 - 0.30              |       | 4,928,170                                   |            | 7.6                                |       |                        | 0.27 |                                             | 3,538,170 |                                              
|0.31 - 0.40              |       | 4,860,888                                   |            | 6.8                                |       |                        | 0.34 |                                             | 4,498,476 |                                              
|0.45 - 0.59              |       | 204,000                                     |            | 1.2                                |       |                        | 0.49 |                                             | 204,000   |                                              
|                         |       |                                             |            |                                    |       |                        |      |                                             |           |                                              
|                         | Total |                                             | 13,358,231 |                                    | $0.27 |                        |      | 11,605,819                                  |           | $0.26                                        
|                         |       |                                             |            |                                    |       |                        |      |                                             |           |                                              

The
aggregate intrinsic value of options outstanding and exercisable at December 31, 2006 was $1,369,509.

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



Restricted Stock Agreement

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

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

Note (18) Employees' Savings Plan

The Company established a 401(k) plan in 2000 for eligible employees. Under the provisions of the plan, eligible employees may voluntarily contribute a portion of
their compensation up to the statutory limit. In addition, the Company can make a matching contribution at its discretion. As of December 31, 2006, the Company has not made any contributions to
the plan.

66

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (19) Commitments and Guarantees

The Company's commitments as of December 31, 2006, for the years 2007 through 2011 and thereafter are estimated below:

|Amounts rounded in thousands                  |  | 2007 |           | 2008 |   | 2009      |  | 2010 |         | 2011 |   | Thereafter |  | Total
|--------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | ---- | ------- | ---- | - | ---------- |  | -----
|Long-tem debt maturities (face amount)        |  | $    | 360,897   |      | $ | 200,000   |  | $    |        |      | $ | 38,456     |  | $    
|Employment obligations                        |  |      | 585,000   |      |   | 585,000   |  |      | 585,000 |      |   | 250,000    |  |      
|Renewable energy credit guarantee obligations |  |      | 98,710    |      |   | 64,701    |  |      | 64,701  |      |   | 64,701     |  |      
|Operating lease payments                      |  |      | 240,576   |      |   | 321,900   |  |      | 285,900 |      |   | 267,900    |  |      
|Repayment of grant                            |  |      | 35,000    |      |   |          |  |      |        |      |   |           |  |      
|                                              |  |      |           |      |   |           |  |      |         |      |   |            |  |      
|Total                                         |  | $    | 1,320,183 |      | $ | 1,171,601 |  | $    | 935,601 |      | $ | 621,057    |  | $    
|                                              |  |      |           |      |   |           |  |      |         |      |   |            |  |      

Operating Leases

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

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

In
July 2004, the Company opened a sales and technical support office in Foster City, California under a two-year lease expiring May 31, 2006, and which office was
closed in June 2005

Employment Agreements

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

In
July 2002, Mr. Kelly was granted 1,000,000 shares of restricted stock, all of which are vested as of December 31, 2006. Total other compensation expense recognized was
$45,000 in December 31, 2006 and in 2005.

Included
in accrued sales commissions as of December 31, 2006 is $58,622 owed to Mr. Kelly under a Management Services Fee Agreement expired on December 31, 2006,
calling for a management services/sales incentive fee equal to one-half percent (0.5%) of the Company's gross

67

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (19) Commitments and Guarantees (Continued)

product
revenues less any related product returns, rebates, allowances, freight charges, tariffs and sales taxes, not to exceed $250,000 per annum.

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

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

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

Note (20) Contingencies

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

Note (21) Supplemental Disclosure of Cash Flow Information

2006

2005Cash paid during the year for interest

$
80,957

$
242,154


Note (22) Subsequent Events

In the quarter ending March 31, 2007, the Company issued 377,116 shares of common stock as the result of warrants and stock options being exercised, loans
being converted and the Company issuing common stock for services and in lieu of the payment of interest. The exercise of warrants and common stock options resulted in the infusion of $86,261 in new
capital to the Company in the quarter.

Note (23) Quarterly Financial Data (unaudited):

Refer to Note (1) Restatement of Financial Statements.

68

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (23) Quarterly Financial Data (unaudited): (Continued)

Summarized
unaudited quarterly financial data for fiscal 2006 and 2005, is as follows (in thousands, except per share data):

Profit &
Loss:

|                                           |  | Quarter Ended
March 31, 2006 |        | Quarter Ended
June 30, 2006 |   | Quarter Ended
September 30, 2006 |   | Quarter Ended
December 31, 2006 |      
|------------------------------------------ |  | ---------------------------- | ------ | --------------------------- | - | -------------------------------- | - | ------------------------------- | -----
|
|Net loss Applicable to Common Shareholders |  | $                            | (5,728 | )                           | $ | (1,998                           | ) | $                               | (869 
|Basic net loss per share(1)                |  | $                            | (0.05  | )                           | $ | (0.01                            | ) | $                               | (0.01
|Diluted net loss per share(1)              |  | $                            | (0.05  | )                           | $ | (0.01                            | ) | $                               | (0.01

|
|

|                                           |  | 9 Months Ended
September 30, 2005 |        | Quarter Ended
September 30, 2005 |   | Quarter Ended
December 31, 2005 |  
|------------------------------------------ |  | --------------------------------- | ------ | -------------------------------- | - | ------------------------------- | -
|
|Net loss Applicable to Common Shareholders |  | $                                 | (4,399 | )                                | $ | (1,666                          | )
|Basic net loss per share(1)                |  | $                                 | (0.05  | )                                | $ | (0.02                           | )
|Diluted net loss per share(1)              |  | $                                 | (0.05  | )                                | $ | (0.02                           | )

|
|

|                                           |  | Quarter Ended
March 31, 2006 |        | Quarter Ended
June 30, 2006 |   | Quarter Ended
September 30, 2006 |   | Quarter Ended
December 31, 2006 |      
|------------------------------------------ |  | ---------------------------- | ------ | --------------------------- | - | -------------------------------- | - | ------------------------------- | -----
|
|Net loss Applicable to Common Shareholders |  | $                            | (3,576 | )                           | $ | (1,998                           | ) | $                               | (788 
|Basic net loss per share(1)                |  | $                            | (0.03  | )                           | $ | (0.01                            | ) | $                               | (0.01
|Diluted net loss per share(1)              |  | $                            | (0.03  | )                           | $ | (0.01                            | ) | $                               | (0.01

|
|

|                                           |  | 9 Months Ended
September 30, 2005 |        | Quarter Ended
September 30, 2005 |   | Quarter Ended
December 31, 2005 |  
|------------------------------------------ |  | --------------------------------- | ------ | -------------------------------- | - | ------------------------------- | -
|
|Net loss Applicable to Common Shareholders |  | $                                 | (7,541 | )                                | $ | (4,808                          | )
|Basic net loss per share(1)                |  | $                                 | (0.08  | )                                | $ | (0.05                           | )
|Diluted net loss per share(1)              |  | $                                 | (0.08  | )                                | $ | (0.05                           | )

---

69

---



WORLDWATER & SOLAR TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note (23) Quarterly Financial Data (unaudited): (Continued)

Balance Sheet:

|Quarter Ended:               |                                | March 31, 2006 |   | June 30, 2006 |   | September 30, 2006 |        
|---------------------------- | ------------------------------ | -------------- | - | ------------- | - | ------------------ | -------
|
|Selected Balance Sheet Data: |                                |                |   |               |   |                    |        
|                             | Current liabilities            |                | $ | 4,287         |   | $                  | 5,267  
|                             | Total liabilities              |                |   | 2,364         |   |                    | 6,043  
|                             | Additional paid-in capital     |                |   | 38,899        |   |                    | 40,953 
|                             | Accumulated deficit            |                |   | (39,736       | ) |                    | (41,734
|                             | Total stockholders' deficiency |                |   | 1,274         |   |                    | (1,106 

|
|

|Quarter Ended:               |                                | September 30, 2005 |  
|---------------------------- | ------------------------------ | ------------------ | -
|
|Selected Balance Sheet Data: |                                |                    |  
|                             | Current liabilities            |                    | $
|                             | Total liabilities              |                    |  
|                             | Additional paid-in capital     |                    |  
|                             | Accumulated deficit            |                    |  
|                             | Total stockholders' deficiency |                    |  

|
|

|Quarter Ended:               |                                | March 31, 2006 |   | June 30, 2006 |   | September 30, 2006 |        
|---------------------------- | ------------------------------ | -------------- | - | ------------- | - | ------------------ | -------
|
|Selected Balance Sheet Data: |                                |                |   |               |   |                    |        
|                             | Current liabilities            |                | $ | 4,421         |   | $                  | 5,401  
|                             | Total liabilities              |                |   | 5,251         |   |                    | 6,445  
|                             | Additional paid-in capital     |                |   | 39,706        |   |                    | 41,760 
|                             | Accumulated deficit            |                |   | (41,420       | ) |                    | (43,385
|                             | Total stockholders' deficiency |                |   | (1,613        | ) |                    | (1,508 

|
|

|Quarter Ended:               |                                | September 30, 2005 |  
|---------------------------- | ------------------------------ | ------------------ | -
|
|Selected Balance Sheet Data: |                                |                    |  
|                             | Current liabilities            |                    | $
|                             | Total liabilities              |                    |  
|                             | Additional paid-in capital     |                    |  
|                             | Accumulated deficit            |                    |  
|                             | Total stockholders' deficiency |                    |  

70

---





ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 8A.    CONTROLS AND PROCEDURES.

a)    Evaluation
of disclosure controls and procedures

Limitations On Effectiveness of Controls

The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system
are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company's disclosure controls and
procedures are designed to provide a reasonable assurance of achieving their objectives.

The
Company's management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and
procedures as of December 31, 2006. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are
effective at the reasonable assurance level and ensure that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934, as amended (the "Act"), are recorded, processed, summarized and reported, within the time periods specified in SEC rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Act are
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. Such evaluation did not identify any change in the year ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting; however, one area of material weakness was identified.

In
connection with its audit of, and in the issuance of its report on the Company's financial statements for the year ended December 31, 2006, Amper, Politziner & Mattia,
P.C. delivered a letter to the Audit Committee of our Board of Directors and the Company's management that identified a certain item that it considers to be a material weakness in the effectiveness of
the Company's internal controls pursuant to standards established by the Public Company Accounting Oversight Board. A "material weakness" is a significant deficiency (as defined in the Public Company
Accounting Oversight Board's Auditing Standard No. 2), or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis.

The
material weakness was a lack of adequate controls within the accounting software used by the Company to properly handle the accounting functions of a public company. This material
weakness was first noted and disclosed in the Form 10-KSB for the year ended December 31, 2004. Beginning at that time and going forward, the Company used other mitigating
controls to ensure that the financial statements were being fairly stated.

The
Company believes, that because of the limited number of projects completed in the year ended 2006, and the recruitment of its new CFO, the Company's disclosure controls and
procedures are effective at the reasonable assurance level. The Company agrees with its independent auditors that its system of internal control and reporting controls should be improved in line with
expected continued growth in commercial operations and intends to take the implementation steps to improve its

71

---



accounting
functions. The impact of the above conditions were relevant to the fiscal year ended December 31, 2006 and did not affect the results of this period or any prior period.

Mitigation Steps Being Implemented By The Company

In March 2007, the Company engaged Microstrategies, Inc. to provide an improved IT, financial reporting, and ERP system to enhance efficiencies and
financial and operating controls as it works to implement Sarbanes-Oxley requirements and procedures.

72

---



PART III.

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The following table sets forth the names, ages and positions of the executive officers and directors of the Company as of December 31, 2006. Their
respective backgrounds are described following the table:

|NAME                    |  | AGE |  | POSITION WITH THE COMPANY                         
|----------------------- |  | --- |  | --------------------------------------------------
|Quentin T. Kelly        |  | 72  |  | Chairman, Chief Executive Officer                 
|Dr. Frank W. Smith      |  | 48  |  | Executive Vice President, Chief Operating Officer 
|Larry L. Crawford       |  | 58  |  | Executive Vice President, Chief Financial Officer 
|Dr. Anand Rangarajan    |  | 57  |  | Executive Vice President, Chief Technology Officer
|Douglas L. Washington   |  | 59  |  | Executive Vice President, Sales                   
|James S. Brown          |  | 50  |  | Executive Vice President, Project Finance         
|Joseph Cygler           |  | 71  |  | Director                                          
|Dr. Hong Hou            |  | 42  |  | Director                                          
|Reuben F. Richards, Jr. |  | 51  |  | Director                                          
|Lange Schermerhorn      |  | 65  |  | Director                                          
|Dr. Davinder Sethi      |  | 59  |  | Director                                          
|Harrison Wellford       |  | 66  |  | Director                                          

Quentin
T. Kelly founded WorldWater, Inc. in 1984 as a consulting and R&D company and has been Chairman since then. Mr. Kelly also served as CEO from 1984 to January, 2006,
and resumed his role as CEO in January 2007. Mr. Kelly was previously Director of Information Services and Assistant to the President of Westinghouse Electric Corporation from 1965 to 1971, and
subsequently became President of Kelly-Jordan Enterprises, Inc., a leisure products company from 1971 to 1975, and then President of Pressurized Products, Inc., manufacturers and
international marketers of specialized water systems and products, from 1976 to 1984. Mr. Kelly is an alumnus of Kenyon College and holds three U.S. patents relating to water systems. He has
many years' experience in business relating to water and power needs in the U.S. and the developing world. He has worked on water supply and solar power projects in the U.S. and with more than a dozen
governments and private contractors throughout the world.

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

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

73

---



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

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

James
S. Brown, Executive Vice President, Project Finance, joined the Company in May 2004. Mr. Brown has extensive financial experience in the energy industry. From August 2002
until May 2003, Mr. Brown served as an independent financial consultant. From October 1999 until August 2002, he was Director of Structured Finance, Americas, for Energy Wholesale Operations in
Houston, Texas. Prior to that, Mr. Brown served as a Project Finance Director for El Paso Energy International. Mr. Brown has also held executive finance positions with Westmoreland
Energy Inc. and AMVEST Corporation. Mr. Brown graduated from Georgetown University with a degree in Accounting and holds an MBA from Texas A&M University.

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

Dr. Hong
Hou has been a director of the Company since January 2007. Dr. Hou is also a member of the Board of Directors of EMCORE where he has served in a variety of
leadership roles since 1998. He currently is President, Chief Operating Officer of EMCORE Corp. He co-started EMCORE's Photovoltaics Division, and subsequently managed the Fiber Optics
Division. He was Executive Vice President of Business Development and Product Strategy before becoming Vice President and General Manager of EMCORE's Ortel Division. From 1995 to 1998 he was a
Principal Member of the Technical Staff at Sandia National Laboratories, a Department of Energy weapon research lab managed by Lockheed Martin. Prior to that, he served with AT&T Bell Laboratories,
engaging in research on high-speed optoelectronic devices. He holds a Ph.D. in electrical engineering from the University of California at San Diego. He has published over 150 journal
articles and holds seven U.S. patents.

Reuben
F. Richards, Jr. has been a director of the Company since January 2007. Mr. Richards, who joined EMCORE Corporation in October 1995 as its President and Chief Operating
Officer, became Chief Executive Officer in December 1996. Mr. Richards has been a director of EMCORE since May 1995. From December 1993 to December 1995, he has been a member and President of
Jesup & Lamont Merchant Partners. From 19911993, Mr. Richards was a principal with Hauser, Richards & Co., a firm engaged in corporate restructuring and
management turnarounds. From 19861991, Mr. Richards was a Director at Prudential-Bache Capital Funding in its Investment Banking Division. Mr. Richards has served on the
Boards of the University of New Mexico School of Engineering, Sandia National Laboratories External Review Panel and Board of GELcore, EMCORE's joint venture with General Electric.

74

---



Lange
Schermerhorn has served as a Director since 2001. She is a retired U.S. Ambassador to Djibouti, is an economist who has spent 30 years in the Foreign Service and has covered
the globe as a senior foreign officer in such places as Brussels, where she was Deputy Chief of Mission, with specific emphasis on economics relating to NATO and EU. She has also had significant
Foreign Service experience in Sri Lanka, Vietnam, Tehran, London and Washington D.C. Ms. Schermerhorn's education and related experience include Mt. Holyoke College (B.A. 1961), Harvard
Business School, and National War College.

Dr. Davinder
Sethi has served as a Director since 2000. He has been an independent advisor in the fields of information technology and finance. He has served as Chairman and Chief
Executive Officer of iPing, Inc., and was a Director and Senior Advisor to Barclays de Zoete Wedd. In addition, Dr. Sethi spent seven years at Bell Laboratories in operations research
and communications network planning and seven years in corporate finance at AT&T. Dr. Sethi holds a Ph.D. and M.S. in Operations Research, Economics and Statistics from the University of
California, Berkeley, and is a graduate of the Executive Management Program at Penn State.

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

MEETING ATTENDANCE

The business of the Company is managed under the direction of the Board. The Board meets during the Company's fiscal year to review significant developments
affecting the Company and to act on matters requiring Board approval. The Board held nine meetings and acted by unanimous written consent numerous times during the fiscal year ended
December 31, 2006. All of the Directors attended the meetings held during the year.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has a standing Audit Committee and a standing Compensation Committee. The Audit Committee and Compensation Committee met following the end
of each of the fiscal quarters in 2006 and 2005.

Mr. Cygler,
Dr. Sethi, and Ms. Schermerhorn comprise the Audit Committee. The Audit Committee operates under a formal written charter. The Audit Committee makes
recommendations concerning the engagement of independent public accountants, reviews with the independent accountants the results of the audit engagement, approves professional services provided by
the accountants including the scope of non-audit services, if any, and reviews the adequacy of the Company's internal accounting controls.

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

75

---



ITEM 10.    EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth information with respect to the compensation paid by the Company to its chairman and to each other executive officer of the Company
who received at least $100,000 in salary and bonus during 2006 and 2005. The "Named Executive Officers" are:

|                                   
|-----------------------------------
|
|
|Quentin T. Kelly
Chairman & CEO    
|                                   
|Larry Crawford
EVP, CFO            
|                                   
|Dr. Anand Rangarajan
EVP, CTO      
|                                   
|James S. Brown
EVP, Project Finance
|                                   
|James S. Farrin
Former CEO         
|                                   

76

---



Outstanding Equity Awards at 2006 Fiscal Year-End

|                    
|--------------------
|
|
|
|
|
|Quentin T. Kelly    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|James S. Farrin     
|                    
|Larry L. Crawford   
|                    
|Dr. Anand Rangarajan
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|James S. Brown      
|                    
|                    

Compensation of Directors

Outside directors are entitled to receive options to purchase 50,000 shares of the Company's common stock for each year of service on the Board of Directors.
Members of the standing committees of the Board of Directors are compensated on a quarterly basis for their participation in meetings of the respective committees.

77

---





Director Compensation2006

|                              
|------------------------------
|
|
|
|
|All Non-Employee Board Members
|                              
|Joe Cygler                    
|                              
|Joe Cygler                    
|                              
|Lange Schermerhorn            
|                              
|Lange Schermerhorn            
|                              
|Davinder Sethi                
|                              
|Davinder Sethi                
|                              
|Total                         
|                              

Employment Contracts

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

In
July 2002, Mr. Kelly was granted 1,000,000 shares of restricted stock, all of which were vested as of December 31, 2006. Total other compensation expense recognized was
$45,000 in December 31, 2006 and in 2005.

Included
in accrued sales commissions as of December 31, 2006 is $58,622 owed to Mr. Kelly under a Management Services Fee Agreement expired on December 31, 2005,
calling for a management services/sales incentive fee equal to one-half percent (0.5%) of the Company's gross product revenues less any related product returns, rebates, allowances,
freight charges, tariffs and sales taxes, not to exceed $250,000 per annum.

On
July 10, 2006, the Company entered into an employment agreement with Mr. Larry L. Crawford, Executive Vice President and Chief Financial Officer with a term which
expires July 9, 2009. Annual compensation under the agreement is $150,000 and included an initial grant of 600,000 stock options vesting over the term of the employment agreement.

78

---



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

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

As
of December 31, 2006, the Company has unpaid salaries of $235,760, including $51,450 owed Mr. Kelly (see above), which has been deferred by officers (current and former)
and are included in accrued expenses.

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth the number and percentage of the shares of the registrant's Common stock owned as of December 31, 2006 by all persons known
to the registrant who own more than 5% of the outstanding number of such shares, by all directors of the registrant, and by all officers and directors of the registrant as a group. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned.

Name and Address of Beneficial Owner(1)

Number of Shares
Beneficially Owned(1)

Percent
of ClassCAMOFI Master LDC
C/O Centrecourt Asset Management
30 Third Avenue, 14th Floor
New York, NY 10022

9,431,900
(2)
6
%EMCORE Corporation
145 Belmont Drive Somerset,
New Jersey 08873

53,909,009
(3)
26.7
%Quentin T. Kelly*

5,164,975
(4)
3.4
%James S. Farrin*

1,250,000
(5)
0.8
%Dr. Anand Rangarajan*

1,114,000
(6)
0.7
%Larry L. Crawford*

600,000
(7)
0.4
%James S. Brown*

1,000,000
(8)
0.7
%Joseph Cygler*

934,300
(9)
0.6
%Dr. Davinder Sethi*

670,100
(10)
0.4
%Lange Schermerhorn*

300,000
(11)
0.2
%All Directors and Officers as a group (8 persons)

11,033,275

6.8
%




79

---





For
additional information regarding equity compensation, see Financial Statements note 16.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company had outstanding notes payable owed to directors, officers and employees of the Company as of December 31, 2006 and 2005 as follows:

2006

2005Directors

$
3,000

$
3,000Officers and employees





32,748Total


3,000


35,748Less current maturities


(3,000
)

(35,748
)Total long term note payable, related party

$


$



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

80

---



Other Related Party Transactions

The Company leases office and laboratory facilities from the Chairman of the Company. Lease payments to the Chairman were $18,000 and $36,000 in 2006 and 2005,
respectively, plus utilities and maintenance; see Commitments note.

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

81

---





PART IV

ITEM 13.    EXHIBITS

(a)    Exhibits:

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                            
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Plan of Merger of WorldWater, a Nevada corporation with and into WorldWater, a Delaware corporation, filed with the State of Delaware April 30, 2001. Incorporated by reference to Exhibit 2.1 to the Company's
Form SB-2 filed with the Securities and Exchange Commission on January 3, 2003 (File No. 333-102348).  
|2.2            |  | State of Nevada Articles of Merger, filed with the State of Nevada May 9, 2001. Incorporated by reference to Exhibit 2.2 to the Company's Form SB-2 filed with the Securities and Exchange Commission on
January 3, 2003 (File No. 333-102348).                                                                        
|2.3            |  | Certificate of Merger of Domestic Corporation and Foreign Corporation filed with State of Delaware April 30, 2001. Incorporated by reference to Exhibit 2.3 to the Company's Form SB-2 filed with the
Securities and Exchange Commission on January 3, 2003 (File No. 333-102348).                                     
|3.1            |  | Certificate of Incorporation. Incorporated by reference to Exhibit 4.1 to the Company's Form S-8 dated July 23, 2001 filed with the Securities and Exchange Commission on August 1, 2001 (File
No. 333-66484).                                                                                                         
|3.2            |  | Certificate of Amendment of Certificate of Incorporation. Incorporated by reference to Exhibit 3.2 to the Company's Form SB-2 filed with the Securities and Exchange Commission on January 3, 2003 (File
No. 333-102348).                                                                                              
|3.3            |  | Amended and Restated By-laws of WorldWater Incorporated by reference to Exhibit 4.2 to the Company's Form S-8 dated July 23, 2001 filed with the Securities and Exchange Commission on August 1, 2001
(File No. 333-66484).                                                                                            
|3.4            |  | Certificate of Amendment of Certificate of Incorporation dated July 7, 2005. Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB filed with the Securities and Exchange Commission on
April 14, 2006 (File No. 00016936).                                                                            
|3.5            |  | Certificate of Amendment of Certificate of Incorporation dated October 11, 2006. Incorporated by reference to Exhibit 3.5 to the Company's Form 10-KSB filed with the Securities and Exchange Commission on
April 9, 2007.                                                                                             
|4.1            |  | Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock dated November 29, 2006. Incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed with the
Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).                                    
|10.1           |  | Securities Purchase Agreement between WorldWater Corp. and SBI Brightline VIII LLC dated April 1, 2004. Incorporated by reference to Exhibit 10.1 to the Company's Form SB-2filed with the Securities and
Exchange Commission on July 30, 2004 (File No. 333-115561).                                                  
|10.2           |  | Term Credit Agreement dated March 29, 2004 by and among WorldWater Corp., Hong Kong League Central Credit Union; HIT Credit Union and SBI Advisors, LLC. Incorporated by reference to Exhibit 10.2 to the
Company's Form SB-2 filed with the Securities and Exchange Commission on July 30, 2004 (File No. 333-115561).
|10.3           |  | Stock Purchase Warrant dated March 29, 2004. Incorporated by reference to Exhibit 10.3 to Company's Form SB-2 filed with the Securities and Exchange Commission on July 30, 2004 (File
No. 333-115561).                                                                                                                

82

---



|10.4  |  | Registration Rights Agreement by and between WorldWater and SBI Advisors, LLC dated as of March 29, 2004 Incorporated by reference to Exhibit 10.4 to the Company's Form SB-2 filed with the Securities
and Exchange Commission on July 30, 2004 (File No. 333-115561).                                                                                                                 
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5  |  | Forms of Warrant Purchase Agreements between WorldWater and certain Selling Stockholders. Incorporated by reference to Exhibit 10.5 to the Company's Form SB-2 filed with the Securities and Exchange Commission on
February 11, 2005 (File No. 333-122756).                                                                                                                            
|10.6  |  | Form of Registration Rights Agreement between WorldWater and certain Selling Stockholders. Incorporated by reference to Exhibit 10.6 to the Company's Form SB-2 filed with the Securities and Exchange Commission
on February 11, 2005 (File No. 333-122756).                                                                                                                           
|10.7  |  | Restricted Stock Agreement for Quentin T. Kelly dated July 1, 2002. Incorporated by reference to Exhibit 10.12 to the Company's Form SB-2 filed with the Securities and Exchange Commission on January 3,
2003 (File No. 333-102348).                                                                                                                                                   
|10.8  |  | Quentin T. Kelly Employment Agreement dated effective as of January 1, 2007. Incorporated by reference to Exhibit 10.8 to the Company's Form 10-KSB filed with the Securities and Exchange Commission on
April 9, 2007.                                                                                                                                                                 
|10.9  |  | Douglas Washington Employment Agreement dated effective as of January 1, 2007. Incorporated by reference to Exhibit 10.9 to the Company's Form 10-KSB filed with the Securities and Exchange Commission on
April 9, 2007.                                                                                                                                                               
|10.10 |  | Larry Crawford Employment Agreement dated effective as of January 1, 2007. Incorporated by reference to Exhibit 10.10 to the Company's Form 10-KSB filed with the Securities and Exchange Commission on
April 9, 2007.                                                                                                                                                                  
|10.11 |  | James S. Brown Employment Agreement dated May 24, 2004. Incorporated by reference to Exhibit 10.10 to the Company's Form SB-2 filed with the Securities and Exchange Commission on February 11, 2005
(File No. 333-122756).                                                                                                                                                             
|10.12 |  | Securities Purchase Agreement dated as of July 21, 2005 between WorldWater & Power Corp., a Delaware corporation as the Company and Camofi Master LDC, its successors and assigns as Purchaser. Incorporated by
reference to 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on July 28, 2005 (File No. 000-16936).                                    
|10.13 |  | Registration Rights Agreement dated as of July 21, 2005 between WorldWater & Power Corp., a Delaware corporation and CAMOFI Master LDC as Purchaser. Incorporated by reference to 10.3 to the Company's
Form 8-K filed with the Securities and Exchange Commission on July 28, 2005 (File No. 000-16936).                                                                               
|10.14 |  | Common Stock Purchase Warrant dated July 21, 2005 issued to CAMOFI Master LDC as Holder for 9,027,778 shares of common stock of WorldWater & Power Corp. at the exercise price of $0.18 per share and
terminating on July 21, 2009. Incorporated by reference to 10.5 to the Company's Form 8-K filed with the Securities and Exchange Commission on July 28, 2005 (File No. 000-16936).
|10.15 |  | Common Stock Purchase Warrant dated July 21, 2005 issued to CAMOFI Master LDC as Holder for 1,277,778 shares of common stock of WorldWater & Power Corp. at the exercise price of $0.22 per share and
terminating on July 21, 2009. Incorporated by reference to 10.6 to the Company's Form 8-K filed with the Securities and Exchange Commission on July 28, 2005 (File No. 000-16936).
|10.16 |  | Common Stock Purchase Warrant dated July 25, 2005 issued to The Water Fund, LP for 416,667 shares of common stock of WorldWater & Power Corp. at the exercise price of $0.22 per share and terminating on
August 15, 2009. Incorporated by reference to 10.17 to the Company's Form SB-2 filed with the Securities and Exchange Commission on October 21, 2005 (File No. 33-0123045).   

83

---



|10.17 |  | Common Stock Purchase Warrant dated July 25, 2005 issued to The Water Fund, LP for 416,667 shares of common stock of WorldWater & Power Corp. at the exercise price of $0.22 per share and terminating on
August 15, 2009. Incorporated by reference to 10.18 to the Company's Form SB-2 filed with the Securities and Exchange Commission on October 21, 2005 (File No. 33-0123045).                                                           
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 |  | Investment Agreement dated as of November 29, 2006 between WorldWater & Power Corp., a Delaware corporation as the Company and Emcore Corporation. Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K filed with the Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).                                                                                                                              
|10.19 |  | Registration Rights Agreement dated as of November 29, 2006 between WorldWater & Power Corp., a Delaware corporation and Emcore Corporation. Incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K filed with the Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).                                                                                                                                    
|10.20 |  | Letter Agreement dated as of November 29, 2006 between WorldWater & Power Corp., a Delaware corporation and Emcore Corporation. Incorporated by reference to Exhibit 10.3 to the Company's Form 8-K
filed with the Securities and Exchange Commission on December 5, 2006 (File No. 000-16936).                                                                                                                                                 
|10.21 |  | Series D Convertible Preferred Stock Purchase Warrant dated November 29, 2006 issued to Emcore Corporation for 505,044 shares of Series D Convertible Preferred Stock of WorldWater & Power Corp. at
the exercise price of $3.17 per share and terminating on November 29, 2016. Incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 5, 2006 (File
No. 000-16936).
|31.1  |  | Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                     
|31.2  |  | Certification by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                     
|32.1  |  | Certification by the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                         
|32.2  |  | Certification by the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                         

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Company's Board of Directors reviews and approves audit and permissible non-audit services performed by its independent accountants, as well as
the fees charged for such services. In its review of non-audit service fees and its appointment of Amper, Politziner & Mattia, P.C. as the Company's independent accountants, the
Board of Directors considered whether the provision of such services is compatible with maintaining independence. All of the services provided and fees charged by Amper, Politziner & Mattia,
P.C. in 2006 were approved by the Audit Committee of the Board of Directors.

AUDIT FEES

The aggregate fees billed to us by the independent auditors, Amper, Politziner & Mattia P.C., for professional services rendered in connection with our
Quarterly Reports on Form 10-QSB and for the audits of our financial statements included in this Annual Report on Form 10-KSB for the years ended
December 31, 2006 and 2005 were $110,000 and $87,500, respectively.

84

---



AUDIT RELATED FEES

The aggregate fees billed to us by Amper, Politziner & Mattia, P.C. for assurance and related services that are reasonably related to the performance of
the audit and review of our financial statements that are not already reported in the paragraph immediately above totaled approximately $64,700 and $22,500 for the years ended December 31, 2006
and 2005, respectively. The 2006 costs are primarily
related to services provided in connection with the audits and due diligence target in 2006 of Entech Corporation.

TAX FEES

There were no tax fees billed by our independent auditors during 2006 and 2005.

ALL OTHER FEES

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

85

---





SIGNATURES

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

WorldWater &
Solar Technologies Corp.
(formerly WorldWater & Power Corp.)
(Registrant)

|By: |  | /s/QUENTIN T. KELLYQuentin T. Kelly, Chairman/Chief Executive
Officer                  |  | Date: |  | March 5, 2008
|--- |  | -------------------------------------------------------------------------------------- |  | ----- |  | -------------
|By: |  | /s/LARRY L. CRAWFORDLarry L. Crawford Executive Vice President/
ChiefFinancial Officer |  |       |  | March 5, 2008

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

|Signature                               |  | Title                                             |  | Date         
|--------------------------------------- |  | ------------------------------------------------- |  | -------------
|                                        |  |                                                   |  |              
|/s/QUENTIN T. KELLYQuentin T. Kelly     |  | Chairman. Chief Executive Officer                 |  | March 5, 2008
|/s/LARRY L. CRAWFORDLarry L. Crawford   |  | Executive Vice President, Chief Financial Officer |  | March 5, 2008
|/s/JOSEPH CYGLERJoseph Cygler           |  | Director                                          |  | March 5, 2008
|/s/DR. HONG HOUDr. Hong Hou             |  | Director                                          |  | March 5, 2008
|/s/DR. DAVINDER SETHIDr. Davinder Sethi |  | Director                                          |  | March 5, 2008
|Reuben F. Richards, Jr.                 |  | Director                                          |  | March 5, 2008
|/s/LANGE SCHERMERHORNLange Schermerhorn |  | Director                                          |  | March 5, 2008
|Harrison Wellford                       |  | Director                                          |  | March 5, 2008

86

---





EXHIBIT INDEX

|31.1 |  | Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                            
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Certification by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                            
|32.1 |  | Certification by the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|32.2 |  | Certification by the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

87

---



QuickLinks