10-Q 1 worldwaste_10q-063008.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2008 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to ____________. Commission file number 1-11476 WORLD WASTE TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in its Charter) CALIFORNIA 95-3977501 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 13500 EVENING CREEK DRIVE, SUITE 440, SAN DIEGO, CALIFORNIA 92128 (Address of Principal Executive Offices) (858) 391-3400 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non- accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer |_| Accelerated Filer |_| Non-accelerated Filer |_| Smaller Reporting Company |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes |_| No |X| State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 27,596,491 shares issued and outstanding as of August 1, 2008. ================================================================================ WORLD WASTE TECHNOLOGIES, INC. FORM 10-Q TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION Item 1 Condensed Financial Statements: Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Operations 2 Condensed Consolidated Statements of Stockholders' Equity (Deficit) 4 Condensed Consolidated Statements of Cash Flow 6 Condensed Notes to Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 4 Controls and Procedures 26 PART II OTHER INFORMATION 27 Item 1 Litigation 27 Item 1A Risk Factors 27 Item 6 Exhibits 27 SIGNATURES 28 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2008 2007 ---------------------------------- ASSETS: (UNAUDITED) Current Assets: Cash and cash equivalents $ 3,856,488 $ 2,711,200 Short-term investments 4,542,966 7,093,418 Prepaid expenses 310,549 336,726 Assets held for sale, less equipment sold to date 88,977 1,083,223 ---------------------------------- Total Current Assets 8,798,980 11,224,567 ---------------------------------- Fixed Assets: Machinery, equipment net of accumulated depreciation of $25,991 on 6/30/08 and $23,358 on 12/31/07. 30,535 35,302 ---------------------------------- Total Fixed Assets 30,535 35,302 Other Assets: Deposit L/T 4,719 36,519 ---------------------------------- TOTAL ASSETS $ 8,834,234 $ 11,296,388 ================================== LIABILITIES AND STOCKHOLDERS' (DEFICIT): LIABILITIES: Current Liabilities: Accounts payable $ 394,493 $ 359,988 Accrued salaries payable 194,117 108,992 Capital lease S/T - 49,524 Accrued liabilities 292,755 - Other liabilities 39,994 290,181 ---------------------------------- Total Current Liabilities 921,359 808,685 ---------------------------------- Long Term Liabilities: Capital lease L/T - 30,826 ---------------------------------- Total Long Term Liabilities - 30,826 ---------------------------------- TOTAL LIABILITIES 921,359 839,511 ---------------------------------- Convertible Redeemable preferred stock (See Note 5) 27,885,429 22,812,640 ---------------------------------- Commitments and Contingencies (See Note 7) STOCKHOLDERS' (DEFICIT): Common Stock - $.001 par value: 100,000,000 shares authorized, 27,596,491 and 27,576,046 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively. 27,595 27,575 Additional paid-in-capital 58,701,540 57,782,888 Deficit accumulated during development stage (78,112,999) (70,000,282) Accumulated comprehensive income (loss) (588,690) (165,944) ---------------------------------- TOTAL STOCKHOLDERS' (DEFICIT) (19,972,554) (12,355,763) ---------------------------------- TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) $ 8,834,234 $ 11,296,388 ================================== SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1 WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Three Months June 18, 2002 Ended Ended Inception to June 30, 2008 June 30, 2007 June 30, 2008 * ----------------------------------------------------------------- GROSS REVENUE: $ - $ - $ 93,784 Disposal of rejects (65,526) Plant operation cost (2,720,922) Depreciation (1,843,615) ----------------------------------------------------------------- Total cost of goods sold - - (4,630,063) ----------------------------------------------------------------- Gross Margin - - (4,536,279) G&A Expense Research and development - (804,018) (3,438,582) General and administrative (1,401,814) (1,425,176) (19,188,033) Impairment of assets (18,191,450) ----------------------------------------------------------------- Loss from operations (1,401,814) (2,229,194) (45,354,344) ----------------------------------------------------------------- Interest income 78,134 105,717 757,141 Financing transaction expense - - (7,442,426) Other income - - 1,969,073 ----------------------------------------------------------------- Net loss before provision for income tax (1,323,680) (2,123,477) (50,070,556) ----------------------------------------------------------------- Income taxes - - - ----------------------------------------------------------------- Net loss $ (1,323,680) $ (2,123,477) $ (50,070,556) ----------------------------------------------------------------- Preferred stock dividend and amortization of beneficial conversion feature, warrant discount and offering costs (2,566,197) (3,347,388) (27,974,918) ----------------------------------------------------------------- Net loss attributable to common shareholders $ (3,889,877) $ (5,470,865) $ (78,045,474) ================================================================= BASIC AND DILUTED NET LOSS PER SHARE $ (0.14) $ (0.20) $ (3.86) ================================================================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN CALCULATION 27,596,491 26,723,264 20,240,293 ================================================================= *APPROXIMATELY $67,526 IN CONSULTING AND TRAVEL EXPENSES INCURRED PRIOR TO INCEPTION OF THE BUSINESS ON JUNE 18, 2002 ARE NOT INCLUDED. SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Six Months June 18, 2002 Ended Ended Inception to June 30, 2008 June 30, 2007 June 30, 2008 * ----------------------------------------------------------------- GROSS REVENUE: $ - $ - $ 93,784 Disposal of rejects (65,526) Plant operation cost (2,720,922) Depreciation (1,843,615) ----------------------------------------------------------------- Total cost of goods sold - - (4,630,063) ----------------------------------------------------------------- Gross Margin - - (4,536,279) G&A Expense Research and development (16,359) (1,749,875) (3,438,582) General and administrative (3,178,745) (2,408,667) (19,188,033) Impairment of assets - - (18,191,450) ----------------------------------------------------------------- Loss from operations (3,195,104) (4,158,542) (45,354,344) ----------------------------------------------------------------- Interest income 147,871 235,854 757,141 Financing transaction expense - - (7,442,426) Other income 24,940 - 1,969,073 ----------------------------------------------------------------- Net loss before provision for income tax (3,022,293) (3,922,688) (50,070,556) ----------------------------------------------------------------- Income taxes - - - ----------------------------------------------------------------- Net loss $ (3,022,293) $ (3,922,688) $ (50,070,556) ----------------------------------------------------------------- Preferred stock dividend and amortization of beneficial conversion feature, warrant discount and offering costs (5,090,424) (7,051,028) (27,974,918) ----------------------------------------------------------------- Net loss attributable to common shareholders $ (8,112,717) $ (10,973,716) $ (78,045,474) ================================================================= BASIC AND DILUTED NET LOSS PER SHARE $ (0.29) $ (0.42) $ (3.86) ================================================================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN CALCULATION 27,592,010 26,273,342 20,240,293 ================================================================= *APPROXIMATELY $67,526 IN CONSULTING AND TRAVEL EXPENSES INCURRED PRIOR TO INCEPTION OF THE BUSINESS ON JUNE 18, 2002 ARE NOT INCLUDED. SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) Additional Accumulated Paid in Common Stock Accumulated Comprehensive Shares Dollars Capital Subscription Deficit * Income (Loss) Total ------------------------------------------------------------------------------------- $ $ $ $ $ $ Preformation expenses (67,526) (67,526) Formation - June 18, 2002 9,100,000 100 73,036 73,136 Net Loss - 2002 (359,363) (359,363) ------------------------------------------------------------------------------------ December 31, 2002 9,100,000 100 73,036 (426,889) (353,753) ==================================================================================== Additional paid in capital 100 100 Common stock subscribed 125,000 125,000 Net Loss - 2003 (804,605) (804,605) ------------------------------------------------------------------------------------ December 31, 2003 9,100,000 100 73,136 125,000 (1,231,494) (1,033,258) ==================================================================================== Merger with Waste Solutions, Inc. 7,100,000 63 2,137 2,200 Common stock subscriptions 125,000 1 124,999 (125,000) - Common stock and warrants net of offering cost prior to VPTI merger 3,045,206 31 3,952,321 3,952,352 Shares cancelled (500,000) (5) 5 - Warrants issued 281,171 281,171 Merger with VPTI 1,200,817 21,062 (21,062) - Conversion of promissory notes 1,193,500 12 1,193,488 1,193,500 Accrued Interest on notes forgiven 135,327 135,327 Common stock and warrants net of offering cost 1,460,667 1,461 2,865,462 2,866,923 Amortization of stock options and warrants to employees and consultants 217,827 217,827 Net loss - 2004 (2,496,188) (2,496,188) ------------------------------------------------------------------------------------ December 31, 2004 22,725,190 22,725 8,824,811 (3,727,682) 5,119,854 ==================================================================================== Common stock and warrants net of offering cost 1,961,040 1,961 3,072,116 3,074,077 Amortization of stock options and warrants to employees and consultants 654,220 654,220 Dividend redeemable (Preferred Stock) 106,645 (671,769) (565,124) Warrants issued 861,853 861,853 Bridge financing warrants 1,114,105 1,114,105 Beneficial conversion feature on redeemable preferred stock 1,328,066 1,328,066 Amortization of beneficial conversion feature, warrant discount and offering costs on redeemable preferred stock (562,704) (562,704) Net loss - December 2005 (3,078,917) (3,078,917) ------------------------------------------------------------------------------------ December 31, 2005 24,686,230 24,686 15,961,816 (8,041,072) 7,945,430 ==================================================================================== 4 Additional Accumulated Paid in Common Stock Accumulated Comprehensive Shares Dollars Capital Subscription Deficit * Income (Loss) Total ------------------------------------------------------------------------------------ Common stock and warrants net of offering cost 262,851 263 9,561 9,824 Amortization of stock options and warrants to employees and consultants 989,252 989,252 Dividend (Preferred Stock) 386,954 (2,920,893) (2,533,939) Warrants issued preferred stock 1,647,250 1,647,250 Bridge financing warrants 787,500 787,500 Beneficial conversion feature - Series B 18,207,102 18,207,102 Conversion of Series B preferred stock 296,581 296 840,716 841,012 Series B Investor & placement warrants 7,922,663 7,922,663 Series A Investor warrants 3,065,931 3,065,931 Elimination of warrant liabilities 674,420 674,420 UAH stock for purchase of patent 167,000 167 697,833 698,000 Registration filing fees (11,529) (11,529) Amortization of beneficial conversion feature, warrant discount and offering costs on redeemable preferred stock (5,717,378) (5,717,378) Net loss - 2006 (24,956,520) (24,956,520) ------------------------------------------------------------------------------------ December 31, 2006 25,412,662 25,412 51,179,469 (41,635,863) 9,569,018 ==================================================================================== Common stock for services 302,660 302 261,192 261,494 Warrant exercises Amortization of stock options and warrants to employees and consultants 1,638,128 1,638,128 Dividend (Preferred Stock) (3,173,396) (3,173,396) Conversion of Series B preferred stock 1,860,724 1,861 4,704,099 4,705,960 Amortization of beneficial conversion feature, warrant discount and offering costs on redeemable preferred stock (9,838,354) (9,838,354) Net loss - 2007 (15,352,669) (15,352,669) Unrealized gain (loss) on short term investments held for sale (165,944) (165,944) ------------------------------------------------------------------------------------ December 31, 2007 27,576,046 27,575 57,782,888 $ 0 (70,000,282) (165,944) (12,355,763) ==================================================================================== Amortization of stock options and warrants to employees and consultants 901,037 901,037 Dividend (Preferred Stock) (1,595,434) (1,595,434) Conversion of Series B preferred stock 20,445 20 17,615 17,635 Amortization of beneficial conversion feature, warrant discount and offering costs on redeemable preferred stock (3,494,990) (3,494,990) Net loss - June 30, 2008 (Unaudited) (3,022,293) (3,022,293) Unrealized gain (loss) on short term investments held for sale (422,746) (422,746) ------------------------------------------------------------------------------------ June 30, 2008 (Unaudited) 27,596,491 $27,595 $58,701,540 $ 0 $(78,112,999) $(588,690)$(19,972,554) ==================================================================================== * During 2002, the Company issued $67,526 of Convertible Promissory Notes payable for preformation funds received and expended prior to Inception. SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW Six Months Six Months June 18, 2002 Ended Ended (Inception) to June 30, 2008 June 30, 2007 June 30, 2008 -------------------------------------------------------------- Cash Flow from operating activities: $ $ $ Net loss (3,022,293) (3,922,688) (50,070,556) Adjustments to reconcile net loss to net cash used in operating activities: Impairment of assets 18,191,450 Depreciation and amortization 4,767 686,314 3,021,562 Interest forgiveness 135,327 Warrant and common stock Issued for consulting 84,566 Amortization of warrants & options to employees 901,037 631,198 3,923,825 Fair value adjustment warrant liability (1,789,134) Financial transaction expense 7,442,426 Amortization of offering cost 252,277 Changes in operating assets and liabilities: Accounts receivable 12,517 - Prepaid expenses/Emp. receivable 26,177 (8,775) (310,549) Asset held for sale 994,246 650,398 Accounts payable 34,505 (57,098) 394,493 Accrued salaries 85,125 (23,410) 194,117 Accrued other liabilities 42,568 209,694 592,249 -------------------------------------------------------------- Net Cash used in operating activities (933,868) (2,472,248) (17,287,549) -------------------------------------------------------------- Cash flows from investing activities: Construction in progress (4,043,205) Leasehold improvements (6,222) (2,970,548) Deposits on equipment (5,231,636) Purchase machinery & equipment (80,350) (147,025) (8,333,759) Patient license Deposits 31,800 (4,719) (Purchase)sale of short-term investments 2,127,706 (9,813,486) (5,131,656) -------------------------------------------------------------- Net Cash provided by(used in)investing activities 2,079,156 (9,966,733) (25,715,523) -------------------------------------------------------------- Cash flows from financing activities: Capital Lease Redeemable preferred stock 30,346,461 Senior secured debt 6,265,000 Repayment of senior secured debt Senior secured debt offering cost (420,523) Payment of senior secured debt (2,785,000) Warrants, common stock and Additional paid in capital 1,996 13,453,622 -------------------------------------------------------------- Net Cash provided by financing activities 0 1,996 46,859,560 -------------------------------------------------------------- Net increase (decrease)in cash and cash equivalents 1,145,288 (12,436,985) 3,856,488 Beginning cash and cash equivalents 2,711,200 14,330,840 -------------------------------------------------------------- Ending cash and cash equivalents 3,856,488 1,893,855 3,856,488 ============================================================== Non-cash investing and financing activities: Interest (Paid) Received $ 105,717 $ 236,207 $ 787,143 Income Taxes Paid -- -- -- *During 2002, the Company issued $67,526 of Convertible Promissory Notes payable for preformation funds received and expended prior to Inception. *The Company issued warrants to purchase 315,354 shares of common stock to the placement agent for services rendered in connection with the fund raising effort. *The Company issued warrants to purchase 50,000 shares of common stock for consulting services in 2004 and 100,000 shares of common stock upon the exercise of a warrant in exchange for services rendered. *The Company issued 1,193,500 shares of common stock upon conversion of the Convertible Promissory notes payable and accrued interest of $135,327. *The Company issued warrants to purchase 250,000 shares of its common stock for a modification to the technology license agreement. *During the six months ended June 30, 2007, the Company issued 103,340 shares in exchange for services rendered in 2006. *During the six month periods ended June 30, 2007 and 2008, the Company issued 1,209,646 shares and 20,445, respectively, of common stock in exchange for conversion of Preferred Series B stock. *Short-term investments have been adjusted for unrealized losses of $588,690. SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 6
WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2008 AND 2007 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Company is a new enterprise in the development stage as defined by Statement No. 7 of the Financial Accounting Standards Board, since it has not derived substantial revenues from its activities to date. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INTERIM FINANCIAL STATEMENTS The accompanying consolidated financial statements include all adjustments (consisting of only normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation. Operating results for the six months ended June 30, 2008 are not necessarily indicative of the results to be expected for a full year. December 31, 2007 balances were derived from audited financial statements. The consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2007. RESEARCH AND DEVELOPMENT Research and development costs are charged to operations when incurred. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, the Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible and may be limited due to future changes in control. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment. The Company adopted FIN 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109, on January 1, 2007. There was no material impact on the Company's financial statements as a result of the adoption. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased, which are not securing any corporate obligations, to be cash equivalents. 7 SHORT TERM INVESTMENTS The Company determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. All investments held at June 30, 2008 are short-term available for sale securities. At June 30, 2008, their face value was $5.1 million. They are carried at quoted fair market value of $4.5, with unrealized gains and losses reported in shareholders' equity as a component of accumulated comprehensive income. Due to the uncertainty in the financial markets, auction rate securities have experienced liquidity uncertainty. In August 2008, the Company sold securities with a face value of $3.6 million for $3.3 million, which was equal to their fair market value at June 30, 2008. The Company has not been able to liquidate the remaining $1.5 million securities as of August 14, 2008. The Company has not been required to liquidate any of these investments for operating purposes and the failure to sell the securities has not affected the Company's operations. The Company is working with its investment advisor and closely monitoring the market in an effort to reduce its risk and minimize any losses. The Company has evaluated the solvency of the issuers of these securities as of August 14, 2008 and, as of this date, did not believe that a further write-down or recognition of any losses other than temporary was necessary in accordance with FSP 115-1 "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments." The net unrealized loss of $588,690 recorded in shareholders' equity as of June 30, 2008 was comprised entirely of unrealized losses. Maturity dates of investments, primarily auction rate securities, classified as available for sale securities extend to 2050. CONCENTRATION OF CREDIT RISK The Company maintains its cash balances at financial institutions. Cash balances at the institution are insured by the Federal Deposit Insurance Corporation up to $100,000. FIXED ASSETS Machinery and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful asset lives or for leasehold improvements or equipment installed in our Anaheim plant (no longer leased or otherwise being used by us),over the remaining life of the lease, whichever is shorter. Our policy regarding fixed assets is to review such fixed assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the review indicates that fixed assets are not recoverable (i.e. the carrying amounts are more than the future projected undiscounted cash flows), their carrying amounts would be reduced to fair value. During the third quarter of 2007, we determined that our ongoing research and development work, if necessary, would more efficiently be carried out at a facility other than our Anaheim Facility. As of June 30, 2008, the Anaheim Facility lease had been terminated and all assets had been sold or scrapped. We capitalize leases in accordance with FASB 13. 8 INTANGIBLES Intangible assets are recorded at cost and are classified as held for sale at June 30, 2008. At June 30, 2008, the remaining intangible asset value is associated with the patent purchased from the University of Alabama in Huntsville on May 1, 2006. In February of 2008, we entered into an agreement to, among other things, sell the patent and all of its associated rights. The sale was scheduled to be completed by July 31, 2008. As of August 14, 2008, the sale had not been completed. The Company is still in discussions with CES for the purchase of the patent. The Company believes a sale will be completed within one year, as prescribed by the requirements in SFAS 144, and therefore the Company has concluded that the "held for sale" classification is appropriate. REDEEMABLE CONVERTIBLE PREFERRED STOCK Convertible Preferred Stock which may be redeemable for cash at the determination of the holder is classified as mezzanine equity, in accordance with FAS 150 "Accounting for Certain Financial Instruments with Characteristics of Both Debt and Equity," EITF Topic D 98 and ASR 268, and is shown net of discounts for offering costs, warrant values and beneficial conversion features. STOCK-BASED COMPENSATION As of June 30, 2008, the Company had two share-based compensation plans, which are described below. The compensation cost that has been charged against income for the plans was $451,036 and $446,090 for the three months ended June 30, 2008 and 2007, respectively, and $901,037, $631,198 and $3,923,825 for the six months ended June 30, 2008 and 2007 and for the period from inception to June 30, 2008, respectively. Because the Company is in a net loss position, no income tax benefit has been recognized in the income statement for share-based compensation arrangements. As of June 30, 2008 and 2007, no share-based compensation cost had been capitalized as part of inventory or fixed assets. The Company's 2004 Incentive Stock Option Plan (the "2004 Plan"), which is shareholder-approved, provides for the issuance by the Company of a total of up to 2.0 million shares of common stock and options to acquire common stock to the Company's employees, directors and consultants. At December 31,2007, there were 1,812,000 options outstanding under the 2004 Plan. In May of 2007, the board of directors approved the Company's 2007 Incentive Stock Plan (the "2007 Plan"), which is not shareholder-approved. The 2007 plan provides for the issuance by the Company of a total of up to 6.0 million shares of common stock and options to acquire common stock to the Company's employees, directors and consultants. The Company granted options to acquire 2,856,000 shares during the year ended December 31, 2007 to employees, members of the board of directors and consultants. During the quarter ended June 30, 2008, the Company granted options to acquire 1,575,000 shares to employees and members of the board of directors. In November of 2007, the board of directors approved the extension of the period of time in which an optionee has to exercise vested options after termination of employment from three months to three years. The Company's calculation of the incremental expense resulting from this change in accordance with SFAS 123R paragraph 51 was approximately $70,000. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of grant; those option awards generally vest based on 2 to 4 years of continuous service and have 10-year contractual terms. Certain option awards provide for accelerated vesting if there is a change in control (as defined in each Plan). 9 The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the table below. Expected volatilities are based on the historical volatility of the Company's common stock from August 24, 2004 through the date of the respective grant. The Company uses historical data to estimate option exercise and employee terminations within the valuation model. The expected term of options granted was estimated using the simple method which the Company believes provides a reasonable estimation of the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the LIBOR rate at the time of grant. SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2008 JUNE 30, 2007 ------------------- ------------------ Expected volatility 81.20 - 94.46 % 75% Expected dividends 0 % 0 % Expected term (in years) 5.15 - 9.45 5.5 - 9.9 Risk-free rate 1.55 - 4.19% 4.98 - 5.1% In an effort to provide certain employees and consultants with an incentive to remain committed to the Company's business while it is evaluating its strategic alternatives (as described below), on February 27, 2008, the Company's Board of Directors granted an option to acquire up to 300,000 shares of its common stock to John Pimentel, the Company's Chief Executive Officer, and an option to acquire up to 75,000 shares of its common stock to David Rane, the Company's former Chief Financial Officer (currently serving in a consulting capacity), in each case pursuant to the Company's 2007 Plan. Each option has an exercise price equal to $0.155 per share (the closing price of the Company's common stock on the date of grant) and vests in 12 equal monthly installments commencing as of March 27, 2008. On February 27, 2008, the Company also announced that it has formed a Special Committee of its Board of Directors to evaluate the Company's strategic alternatives, and that the Special Committee plans to retain a financial advisor to assist in this process. These alternatives may include, but are not limited to, a sale or merger of the Company and/or a restructuring. As compensation for serving on the Special Committee, each of the members thereof is entitled to receive $5,000 per month for up to 6 months and was granted an option to acquire up to 300,000, or a total of 1,200,000, shares of common stock pursuant to the Company's 2007 Plan. Each option has an exercise price equal to $0.155 per share (the closing price of WWT's common stock on the date of grant) and vests in six equal monthly installments commencing as of March 27, 2008. EARNINGS PER SHARE The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, such as stock options, warrants or convertible securities. Due to their anti-dilutive effect, common stock equivalents of 30,579,551, consisting of employee options of 6,418,000, non-employment warrants of 6,829,827, Preferred Series A of 6,253,341 and Preferred Series B of 11,078,382, were not included in the calculation of diluted earnings per share at June 30, 2008 . Due to their anti-dilutive effect, common stock equivalents of 28,526,234, consisting of employee options of 4,843,000, investor warrants of 6,803,827, Preferred Series A of 5,777,119 and Preferred Series B of 11,102,288, were not included in the calculation of diluted earnings per share at June 30, 2007. NEW ACCOUNTING PRONOUNCEMENTS 10 SFAS NO. 162, THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The FASB has issued FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles. Statement 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. Statement 162 is effective 60 days following the SEC's approval of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. Management does not believe the adoption of SFAS No. 162 will have a material impact on the Company's financial statements. ISSUE NO. 08-4, "TRANSITION GUIDANCE FOR CONFORMING CHANGES TO ISSUE NO. 98-5" ------------------------------------------------------------------------------- At the November 2007 EITF meeting, the FASB staff and EITF discussed a document highlighting revisions that should be made to Issue 98-5 as a result of the guidance in: (a) EITF Issue No. 00-27, "Application of EITF Issue No. 98-5, 'Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,' to Certain Convertible Instruments," and (b) FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. At the FASB meeting of June 12, 2008, the FASB ratified the final consensus reached in this issue. Management does not believe the adoption of Issue No. 08-4 will have a material impact on the Company's financial statements. ISSUE NO. 08-3, "ACCOUNTING BY LESSEES FOR MAINTENANCE DEPOSITS UNDER LEASE AGREEMENTS" -------------------------------------------------------------------------------- Equipment lease agreements often call for the lessee to repair and maintain a leased asset over the term of the lease. In some cases, the lease agreement requires the lessee to pay a maintenance deposit to the lessor. The purpose of this deposit is to protect the lessor in the event the lessee does not fulfill its repair and maintenance responsibilities related to the leased asset. Requiring such a deposit from the lessee does not excuse the lessee from its obligation to repair and maintain the leased asset. In addition, the lessor's acceptance of such a deposit does not transfer the responsibility for repairing and maintaining the leased asset to the lessor, nor does it transfer to the lessor the cost or quality risk associated with the repair and maintenance activities. As the lessee incurs costs to repair and maintain the leased asset, the lessor may be required to reimburse the lessee for these costs using the maintenance deposit, to the extent the maintenance deposit includes sufficient funds. If there are funds left in the maintenance deposit at the end of the lease term, the lease agreement may call for either: (a) the lessor making a payment to the lessee for that remaining amount or (b) the lessor retaining that remaining amount. The former is often referred to as a refundable maintenance deposit. The latter is often referred to as a nonrefundable maintenance deposit. At the FASB meeting of June 12, 2008, the FASB ratified the final consensus reached in this issue. Management does not believe the adoption of Issue No. 08-4 will have a material impact on the Company's financial statements. FASB STAFF POSITION NO. EITF 03-6-1 DETERMINING WHETHER INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES ------------------------------------------------------------------------------- This FASB Staff Position (FSP) addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, Earnings per Share. Management does not believe the adoption of this staff position will have a material impact on the Company's financial statements. FASB STAFF POSITION NO. APB 14-1 ACCOUNTING FOR CONVERTIBLE DEBT INSTRUMENTS THAT MAY BE SETTLED IN CASH UPON CONVERSION (INCLUDING PARTIAL CASH SETTLEMENT) ------------------------------------------------------------------------------- This FSP applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be separately accounted for as a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Management does not believe that the adoption of this staff position will have a material impact on the Company's financial statements. FASB STAFF POSITION NO. FAS 142-3 DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS -------------------------------------------------------------------------------- This FASB Staff Position (FSP) amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. generally accepted accounting principles (GAAP). Management does not believe that the adoption of the staff position will have a material impact on the Company's financial statements. 11 NOTE 2. GOING CONCERN The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had a net loss for the six months ended June 30, 2008 of $8,112,717 and an accumulated deficit attributable to common shareholders of $78,112,999 for the six months ended June 30, 2008. The Company expects to incur substantial additional losses and costs and capital expenditures before it can operate profitably. These issues raise substantial doubt about the Company's ability to continue as a going concern. The ability to operate profitably is subject to, among other things, developing products. The Company's ability to accomplish this is dependent on successful research and development, engineering and obtaining additional funding. If the Company is unsuccessful, it may be unable to continue as a going concern for a reasonable period of time. There can be no assurance that the Company's research and development and engineering activities or any future efforts to raise additional debt and/or equity financing will be successful. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. In addition to looking for traditional capital, the Company is looking for a joint venture partner to assist in the development of its gasification strategy and is also evaluating strategic alternatives, such as a merger or acquisition, to help generate additional financing. In this regard, on May 15, 2008, the Company entered into a definitive agreement to merge with Vertex Energy, Inc., which agreement was amended and restated on May 19, 2008. There can be no assurance that the transaction will be completed, and the Company's continuation as a going concern remains dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing, and ultimately to attain successful operations. NOTE 3. LICENSE AGREEMENT On June 21, 2002, the Company entered into a U.S. technology sub-license agreement with Bio-Products International, Inc. (BPI), an Alabama corporation, with respect to certain intellectual property and patented methods and processes. This agreement was amended on June 21, 2004 and again on August 19, 2006. The technology was designed to provide for the processing and separation of material contained in Municipal Solid Waste (MSW). Through April 30, 2006, the University of Alabama in Huntsville ("UAH") owned the patent for this technology. On May 1, 2006, the Company acquired the patent from UAH for $100,000 and 167,000 shares of the Company's unregistered common stock valued at its fair value on the date of issuance of approximately $698,000. The patent reverts to UAH in the event of bankruptcy of the Company. This patent is licensed to BPI. The license to the patent in the United States was assigned to the Company. In April 2007, the Company filed a lawsuit against BPI alleging, among other things, breach of contract and negligence with respect to the construction of the vessels. 12 During the fourth quarter of 2007, the Company determined it would not use the technologies related to the intangible assets in its future plants. Consequently, it reclassified the unamortized intangible assets to Assets Held for Sale and accounted for at the lower of fair value less cost to sell (net fair value) or carrying value. In March of 2008, the Company entered into a definitive agreement to sell the intangible assets, settle the lawsuit with BPI and sell a significant amount of the assets which were used in the Anaheim plant to exploit the patent, for a total of approximately $1.9 million. As of August 14, 2008, the Company had not received the entire payment for the purchase of the patent. Because the carrying value of $89,000 is less than the net fair value no adjustment was recorded. NOTE 4. TERMINATION OF SIGNIFICANT CONTRACT In June 2003, the Company entered into a multi-year recycle agreement with Taormina Industries, Inc. pursuant to which, among other things, Taormina agreed to deliver residual municipal solid waste (MSW) to the Company for processing and the Company agreed to lease a building for the related recycling facility on Taormina's campus in Anaheim, California (the "Anaheim Facility"). The lease for the Anaheim Facility was entered into in July 2004. The recycling agreement, as amended, provided that the recycling agreement would terminate automatically upon termination of the lease. As previously disclosed, during early 2007 the Company began using the Anaheim Facility to conduct research and development activities related to the production of renewable energy from MSW. The Company subsequently determined that the ongoing research and development work, if necessary, would more efficiently be carried out at another location. Consequently, in order to reduce costs and focus management attention and cash resources on the Company's renewable energy process, the Company initiated conversations with Taormina regarding termination of the lease of the Anaheim Facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007. On November 7, 2007, Taormina filed an unlawful detainer action in the Superior Court of the State of California, County of Orange (the "Action") against the Company as to the Anaheim Facility. On March 5, 2008, Taormina and the Company entered into a stipulation for entry of judgment in the Action (the "Stipulation"). The Stipulation provides for: (a) the cancellation and forfeiture of the lease; (b) the Company to make a payment of $192,217.57 (the "Payment") to Taormina; and (c) the Company to remain in possession of the Anaheim Facility until June 30, 2008. The Company has made the Payment to Taormina and, on May 8, 2008, vacated the premises. The non-competition and right of first refusal provisions of the recycle agreement will survive termination of such agreement through July 25, 2014 (the date that the lease would have expired had it not been terminated). NOTE 5. REDEEMABLE CONVERTIBLE PREFERRED STOCK The Company has outstanding two classes of Preferred Stock, Series A and Series B. Holders of both series of preferred stock are entitled to receive cumulative dividends, payable quarterly in additional shares of preferred stock, at the rate of 8% per annum as and if declared by the Board of Directors. The holders of a majority of each class of preferred shares have the option to require the Company to redeem all outstanding shares on April 28, 2010. If all of the shares that are outstanding at June 30, 2008 were outstanding and redeemed at April 28, 2010, the liability would be approximately $46 million. In the event the holders do not exercise this redemption right, all shares of Series A and Series B will automatically convert into shares of common stock on such date. The warrant values, offering costs and beneficial conversion features of both classes of preferred stock have been treated as discounts to the carrying value of the preferred stock, and are being accreted through their redemption date under an acceptable method in accordance with EITF Topic D-98. For the Series B Preferred Stock the Company deemed the straight-line method to be a preferable method, giving rise to a more appropriate distribution of the dividend recognition over the accretion period. The amortization costs are treated consistent with the treatment of preferred stock dividends. 13 THE SUMMARY FOR THE SERIES A AND B IS AS FOLLOWS:
SERIES A SERIES B TOTAL ---------------- ---------------- ---------------- Gross proceeds $ 10,189,000 $ 28,488,800 $ 38,677,800 Cumulative in kind dividends 3,099,351 4,771,762 7,871,113 Converted to common stock -- (5,564,608) (5,564,608) ---------------- ---------------- ---------------- Total outstanding 13,288,351 27,695,954 40,984,305 Unamortized beneficial conversion feature (581,610) (7,175,024) (7,756,634) Unamortized offering costs (685,014) (1,806,431) (2,491,445) Unamortized warrant value (581,611) (2,269,186) (2,850,797) ---------------- ---------------- ---------------- Balance at June 30, 2008 $ 11,440,116 $ 16,445,313 $ 27,885,429 ================ ================ ================ NOTE 6. CAPITAL LEASE OBLIGATION Capital Lease obligation is comprised as follows: JUNE 30, 2008 DECEMBER 31, 2007 -------------------- ------------------- Capital Lease for Front End Loader, 0 monthly $ 80,350 installments were remaining at June 30, 2008 , interest was imputed at 8.25% Less: Current portion 49,524 -------------------- ------------------- $0 $ 30,826 ==================== =================== The capital lease was terminated in March of 2008.
NOTE 7. COMMITMENT AND CONTINGENCIES On October 29, 2007 the lease for the Company's Anaheim plant was terminated (see Note 4). Consequently, the Company has not included the future rent obligations in the schedule below. The Company has an operating lease obligation for its San Diego office space through September 2008 of approximately $13,029: Less than 1 year $13,029 more than 1 less than 3 $ -- more than 3 less than 5 $ -- after 5 years $ -- 14 NOTE 8. SUBSEQUENT EVENTS As previously disclosed, in March 2008, the Company entered into an agreement with Clean Earth Solutions, Inc. ("CES"), pursuant to which the Company agreed (i) to sell to CES specified assets relating to the "front end" process of the Company's Anaheim Facility for a cash payment to us of $500,000 (the "First Closing"), (ii) to settle a dispute arising from design issues related to the steam classification vessels that the Company had intended to use in its operations, in exchange for a payment to the Company of $640,000 (the "Second Closing") and (iii) to sell to CES all of the Company's intellectual property rights in the Company's pressurized steam classification process in exchange for a payment to the Company of $800,000 (of which $236,000 was previously paid by CES to the Company) (the "Third Closing"). On March 7, 2008, CES paid the Company $500,000 and the First Closing was consummated. In June 2008, CES paid the Company $640,000 for the Second Closing. Pursuant to this agreement, the Third Closing is to occur on such a date as determined by CES, provided that the Third Closing must occur no later than July 31, 2008. As of August 14, the Third Closing had not occurred. At June 30, 2008, approximately $4.5 million of our securities were in the form of auction rate securities. These securities are stated at the lower of cost or market. The face value of these securities was approximately $5.1 million. The securities had been offered for sale during the quarter ended June 30, 2008. However, due to the failure of the auctions, no securities were sold. The failure of the auctions did not affect the Company's ability to meet its obligations in the normal course of business. Management has evaluated the solvency of the issuers of these securities and does not believe an additional reserve is necessary. In August of 2008, the Company sold some of its auction rate securities with a face value of $3.6 million for $3.3 million, which was the stated fair market value at June 30, 2008. As of August 14, 2008, the Company continues to hold auction rate securities with a face value of $1.5 million. The market value of these securities at June 30, 2008, as reflected in the financial statements, was estimated to be approximately $1.2 million. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS The following discussion, as well as information contained elsewhere in this report, contains "forward-looking statements." These statements include statements regarding the intent, belief or current expectations of us, our directors or our officers with respect to, among other things: anticipated financial or operating results, financial projections, business prospects, future product performance and other matters that are not historical facts. The success of our business operations is dependent on factors such as the impact of competitive products, product development, commercialization and technology difficulties, the results of financing efforts and the effectiveness of our marketing strategies, and general competitive and economic conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors, including those described under "Item 1A - Risk Factors" in our annual report on Form 10K for the year ended December 31, 2007. PROPOSED MERGER On May 15, 2008, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Vertex Energy, LP, a Texas limited partnership ("Vertex LP"), Vertex Energy, Inc., a Nevada corporation ("Vertex Nevada"), Vertex Merger Sub, Inc., a California corporation and wholly owned subsidiary of Vertex Nevada, and Benjamin P. Cowart, as agent for the shareholders of Vertex Nevada (the "Agent"). On May 19, 2008, the Company, Vertex LP, Vertex Nevada and Vertex Merger Sub, LLC., a California limited liability company and wholly owned subsidiary of Vertex Nevada ("Merger Sub"), entered into an Amended and Restated Merger Agreement (as so amended and restated, the "Merger Agreement"). Vertex LP is a Texas-based privately held limited partnership controlled by the Agent. Among other businesses, Vertex LP engages in the recycling of used motor oil and other hydrocarbons. This is accomplished (1) through Vertex LP's Black Oil division, which aggregates used motor oil from third-party collectors and manages the delivery of its feedstock primarily to a third-party re-refining facility, and (2) through Vertex LP's Refining and Marketing division, which aggregates hydrocarbon streams from collectors and generators and manages the delivery of the hydrocarbon waste products to a third-party facility for further processing, and then manages the sale of the end products. In addition, Vertex LP proposes to implement proprietary re-refining technology that will process used motor oil and convert it to higher value products such as marine diesel oil and vacuum-gas oil. Vertex Nevada generated revenues of approximately $36.5 million and approximately $42 million in 2006 and 2007, respectively. Pursuant to the merger, Vertex LP will transfer the assets relating to the foregoing businesses to Vertex Nevada. Immediately following the merger and assuming no appraisal rights are exercised, the existing partners of Vertex LP will hold approximately 45% of the outstanding shares of Vertex Nevada (including shares to be held by advisors and consultants to Vertex LP), the existing holders of the Company's common stock will hold approximately 20% of the outstanding shares of Vertex Nevada, the existing holders of the Company's Series A Preferred Stock will hold approximately 14% of the outstanding shares of Vertex Nevada, and the existing holders of the Company's Series B Preferred Stock will hold approximately 21% of the outstanding shares of Vertex Nevada (in each case, treating as outstanding, shares issuable upon the exercise of warrants to acquire shares of common stock at a nominal exercise price). Immediately prior to the Merger, the Company will be required to make a cash payment to the existing Vertex shareholders of $4.4 million. As a result of these transactions, immediately following the merger the existing shareholders of World Waste will own approximately 55% of the capital stock of Vertex Nevada, in exchange for which World Waste will have made net payments of $7.0 million (comprised of (1) the $4.4 million just described, plus (2) $5.0 million that World Waste is required to transfer to Vertex Nevada, less (3) $2.4 million of World Waste indebtedness being assumed by Vertex Nevada). The Merger Agreement contains customary and mutual representations, warranties, covenants and indemnification provisions. Either party has the right to terminate the Merger Agreement if the merger has not closed by December 31, 2008. 16 The obligation of each party to consummate the Merger is subject to the approval of the Merger by the shareholders of the Company in accordance with California law and the Company's charter documents, the exemption of the issuance of the shares of Vertex Nevada to the Company's shareholders from the registration requirements of the Securities Act of 1933, as amended (or the inclusion of such shares on a registration statement declared effective by the SEC), and the satisfaction or waiver (where permissible) of other customary closing conditions set forth in the Merger Agreement. The obligation of Vertex to consummate the Merger is subject to the satisfaction or waiver (where permissible) of additional closing conditions including the following: o the Company has no liabilities (except for up to $2.4 million of permitted indebtedness); o after taking into account the $4.4 million payment by the Company to the Vertex LP partners, the Company has at least $5.0 million of cash on hand (inclusive of the proceeds of up to $2.4 million of permitted indebtedness). In order to satisfy these cash requirements, the Company will need to liquidate its short term investments in auction rate securities ("ARS's"). Due to the illiquidity of the ARS market, the Company may not be able liquidate these securities at their face amount. Accordingly, the Company may not be able to meet this cash on hand requirement; and o the Agent and certain members of his immediate family have been removed as personal guarantors on certain indebtedness of Vertex LP to be assumed by Vertex Nevada. COMPANY OVERVIEW World Waste management is currently focused on completing the merger with Vertex Nevada while maintaining the viability of its renewable energy business plan. Following the merger, it is anticipated that the renewable energy business plan may continue to be pursued by Vertex Nevada through a subsidiary. Expenditures related to the renewable energy business are being minimized as World Waste seeks to maintain relationships, contract negotiations and other relevant activities related to the potential development of renewable energy projects without encumbering its ability to meet the closing conditions of a merger in a timely manner. However, the primary focus of the combined company post merger will be Vertex's hydrocarbon recycling business and the pursuit of growth opportunities related to this business segment. The following is an overview of World Waste and its business operations prior to consummation of the merger and other transactions contemplated by the merger agreement. World Waste is a development stage company formed to develop, design, build, own and operate facilities which employ systems and technologies designed to profitably convert municipal solid waste (MSW) and other waste streams, such as wood waste and construction and demolition debris, into usable commodities and products. These products are expected to include renewable energy, recyclable commodities, and potentially bio-fuels. World Waste plans to continue to concentrate its efforts on producing renewable energy from waste materials through the use of gasification and pyrolysis technologies in order to meet the rapidly growing demand for renewable power. World Waste believes that this increased demand is being driven, to a large extent, by the adoption of Renewable Portfolio Standards in a number of states, which require or encourage utilities to have a specific percentage of their electricity sales come from renewable sources. 17 To implement its renewable energy platform, World Waste may plan to pursue the development of facilities in targeted markets where it believes World Waste will be able to earn a "tipping" fee for accepting wastes and a premium for the sale of renewable energy products or receive a very low cost biomass feedstock. World Waste also may plan to develop or obtain the rights to use gasification technologies in demonstration application to gain operating experience with the unique aspects of gasifying biomass derived from municipal solid waste and other waste streams such as construction and demolition debris, and to develop detailed design criteria for larger-scale systems. World Waste anticipates that the development of projects using these technologies could position it to generate three distinct revenue streams: (a) "tipping" fees charged to the entities that supply it with MSW or other waste materials, (b) recycling revenue from the sale of commodity recyclables (such as beverage containers, aluminum, steel, plastics, and glass) that its process recovers and which otherwise would be interred in landfills, and (c) revenue from the sale of its end products, anticipated to be primarily renewable electricity, and potentially bio-fuels. World Waste believes that its receipt of fees from waste generators or handlers could provide it with a low cost fuel source, which is an important and beneficial characteristic of its business model. RENEWABLE ELECTRICITY OPPORTUNITIES World Waste may plan to continue to focus its efforts on the utilization of one or more gasification and/or pyrolysis technologies that may be used to generate various renewable energy products from MSW and other waste streams. It may plan to seek to continue to enter into strategic relationships with companies that have developed gasification technologies, and to further investigate the commercialization of its own technology. A process, which it believes has significant potential for successful commercialization, involves using a gasification technology to produce a synthetic gas (or "syngas") from the cellulose biomass fraction of MSW and construction and demolition debris derived from a materials' separation and classification process. Wood waste, sewage sludge and other commercial waste streams are also potential feedstocks. The resulting syngas or bio-oil would be used to fire a boiler driving a steam turbine. World Waste also believes that after a gas clean-up process, it may be possible to put the syngas directly into a gas-fired turbine. In either case, World Waste believes the process has the potential to produce a significant amount of renewable electricity for sale to utilities. STRATEGY World Waste's goal is to develop and/or acquire full-scale commercial facilities which profitably transform residual MSW, wood waste and other waste streams into usable renewable energy or products, including electricity, synthetic gas and bio-oil and/or bio-fuels. AGREEMENT WITH CES In March 2008, we entered into an agreement with Clean Earth Solutions, Inc. ("CES"), pursuant to which we agreed (i) to sell to CES specified assets relating to the "front end" process of our Anaheim Facility for a cash payment to us of $500,000 (the "First Closing"), (ii) to settle a dispute arising from design issues related to the steam classification vessels that we had intended to use in our operations, in exchange for a payment to us of $640,000 (the "Second Closing") and (iii) to sell to CES all of our intellectual property rights in our pressurized steam classification process in exchange for a payment to us of $800,000 (of which $236,000 was previously paid by CES to us) (the "Third Closing"). On March 7, 2008, CES paid $500,000 to us, and the First Closing was consummated. In June 2008, CES paid The Company $640,000 for the Second Closing. Pursuant to this agreement, the Third Closing is to occur on such a date as determined by CES, provided that the Third Closing must occur no later than July 31, 2008. As of August 14, 2008, the Third Closing had not occurred. In the event that CES is unable to comply with its commitments as set forth in this agreement, taking into account any agreed-upon extensions, we would continue to pursue our rights with respect to the dispute (unless it is otherwise resolved) and we would seek an alternative buyer or licensee for our intellectual property rights, in addition to any pursuing any other remedies we might be entitled to from CES. 18 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are summarized in Note 1 to our audited financial statements for the year ended December 31, 2007 and our unaudited financial statements dated June 30, 2008. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: BASIS OF PRESENTATION The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Company is a new enterprise in the development stage as defined by Statement No. 7 of the Financial Accounting Standards Board, since it has not derived substantial revenues from its activities to date. INTERIM FINANCIAL STATEMENTS The accompanying consolidated financial statements include all adjustments (consisting of only normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation. Operating results for the six months ended June 30, 2008 are not necessarily indicative of the results to be expected for a full year. The consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2007. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We used estimates to perform the undiscounted cash flow projections used in the impairment analysis of the Anaheim plant assets (see Fixed Assets below). We also used estimates to determine the employee stock-based compensation expense. 19 SHORT TERM INVESTMENTS The Company determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. All investments held at June 30, 2008 are short-term available for sale securities. They are carried at quoted fair value, with unrealized gains and losses reported in shareholders' equity as a component of accumulated comprehensive income. FIXED ASSETS Machinery and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful asset lives or for leasehold improvements or equipment installed in our Anaheim plant (no longer being used), over the remaining life of the lease, whichever is shorter. Our policy regarding fixed assets is to review such fixed assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the review indicates that fixed assets are not recoverable (i.e. the carrying amounts are more than the future projected undiscounted cash flows), their carrying amounts would be reduced to fair value. During the third quarter of 2007, we determined that our ongoing research and development work, if necessary, would more efficiently be carried out at a facility other than our Anaheim Facility. As of June 30, 2008, the Anaheim Facility lease had been terminated and all assets had been sold or scrapped. We capitalize leases in accordance with FASB 13. 20 INTANGIBLES Intangible assets are recorded at cost and are classified as held for sale at June 30, 2008. At June 30, 2008, the remaining intangible asset value is associated with the patent purchased from the University of Alabama in Huntsville on May 1, 2006.In February of 2008, we entered into an agreement to, among other things, sell the patent and all of its associated rights. The sale was scheduled to be completed by July 31, 2008. As of August 14, 2008, the sale had not been completed. The Company is still in discussions with CES for the purchase of the patent. The Company believes a sale will be completed within one year, as prescribed by the requirements in SFAS 144, and therefore the Company has concluded that the "held for sale" classification is appropriate. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, the Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment. The Company adopted FIN 48 on January 1, 2007. There was no material impact on the Company's financial statements as a result of this adoption. REDEEMABLE CONVERTIBLE PREFERRED STOCK Convertible preferred stock which may be redeemable for cash at the determination of the holder is classified as mezzanine equity, in accordance with FAS 150, EITF Topic D 98 and ASR 268, and is shown net of discounts for offering costs, warrant values and beneficial conversion features. STOCK-BASED COMPENSATION During the fourth quarter of 2004, we adopted SFAS No. 123 entitled, "Accounting for Stock-Based Compensation" retroactively to our inception. Accordingly, we have expensed the compensation cost for the options and warrants issued based on their fair value at their grant dates. During the quarter ended March 31, 2006, we adopted SFAS No. 123R, "Share Based Payments." NEW ACCOUNTING PRONOUNCEMENTS SFAS NO. 162, THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ----------------------------------------------------------------------- The FASB has issued FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles. Statement 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. Statement 162 is effective 60 days following the SEC's approval of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. Management does not believe the adoption of SFAS No. 162 will have a material impact on the Company's financial statements. ISSUE NO. 08-4, "TRANSITION GUIDANCE FOR CONFORMING CHANGES TO ISSUE NO. 98-5" ------------------------------------------------------------------------------- At the November 2007 EITF meeting, the FASB staff and EITF discussed a document highlighting revisions that should be made to Issue 98-5 as a result of the guidance in: (a) EITF Issue No. 00-27, "Application of EITF Issue No. 98-5, 'Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,' to Certain Convertible Instruments ," and (b) FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. At the FASB meeting of June 12, 2008, the FASB ratified the final consensus reached in this issue. Management does not believe the adoption of Issue No. 08-4 will have a material impact on the Company's financial statements. 21 ISSUE NO. 08-3, "ACCOUNTING BY LESSEES FOR MAINTENANCE DEPOSITS UNDER LEASE AGREEMENTS" ------------------------------------------------------------------------------- Equipment lease agreements often call for the lessee to repair and maintain a leased asset over the term of the lease. In some cases, the lease agreement requires the lessee to pay a maintenance deposit to the lessor. The purpose of this deposit is to protect the lessor in the event the lessee does not fulfill its repair and maintenance responsibilities related to the leased asset. Requiring such a deposit from the lessee does not excuse the lessee from its obligation to repair and maintain the leased asset. In addition, the lessor's acceptance of such a deposit does not transfer the responsibility for repairing and maintaining the leased asset to the lessor, nor does it transfer to the lessor the cost or quality risk associated with the repair and maintenance activities. As the lessee incurs costs to repair and maintain the leased asset, the lessor may be required to reimburse the lessee for these costs using the maintenance deposit, to the extent the maintenance deposit includes sufficient funds. If there are funds left in the maintenance deposit at the end of the lease term, the lease agreement may call for either: (a) the lessor making a payment to the lessee for that remaining amount or (b) the lessor retaining that remaining amount. The former is often referred to as a refundable maintenance deposit. The latter is often referred to as a nonrefundable maintenance deposit. At the FASB meeting of June 12, 2008, the FASB ratified the final consensus reached in this issue. Management does not believe the adoption of Issue No. 08-4 will have a material impact on the Company's financial statements. FASB STAFF POSITION NO. EITF 03-6-1 DETERMINING WHETHER INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES -------------------------------------------------------------------------------- This FASB Staff Position (FSP) addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, Earnings per Share. Management does not believe the adoption of this staff position will have a material impact on the Company's financial statements. FASB STAFF POSITION NO. APB 14-1 ACCOUNTING FOR CONVERTIBLE DEBT INSTRUMENTS THAT MAY BE SETTLED IN CASH UPON CONVERSION (INCLUDING PARTIAL CASH SETTLEMENT) ------------------------------------------------------------------------------- This FSP applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be separately accounted for as a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Management does not believe that the adoption of this staff position will have a material impact on the Company's financial statements. FASB STAFF POSITION NO. FAS 142-3 DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS -------------------------------------------------------------------------------- This FASB Staff Position (FSP) amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. generally accepted accounting principles (GAAP). Management does not believe that the adoption of the staff position will have a material impact on the Company's financial statements. 22 RESULTS OF OPERATIONS COMPARISON OF QUARTERS ENDED JUNE 30, 2008 AND 2007 REVENUES AND COST OF GOODS SOLD During the plant start-up phase of our Anaheim plant, we confronted several issues, including an unexpected high level of biological oxygen demand from organic waste in the wastewater from the pulp screening and cleaning process. In January 2007, we decided not to make the capital improvements necessary to the Anaheim plant's wetlap process which the Company considered necessary to operate the plant with the expectation of being profitable. Therefore, beginning in January 2007, we began to operate the plant only as part of research and development projects including but not limited to the development of alternative back-end processes such as gasification and acid hydrolysis for the production of ethanol. Consequently, we have not recognized any revenue since. We essentially ceased utilizing the plant for any purpose in the third quarter of 2007 and vacated the plant completely in May 2008. World Waste management is currently focused on completing the merger with Vertex Nevada while attempting to maintain the viability of its renewable energy business plan. EXPENSES There was no research and development expense during the quarter ended June 30, 2008, a decrease from approximately $800,000 during the comparable quarter in 2007. The decrease was primarily due to the closure of the Anaheim plant and our focus on completing the transaction with Vertex Nevada as described above. General and administrative expense decreased to $1,401,814 during the quarter ended June 30, 2008 from $1,425,176 for the comparable period in 2007. This $23,362 decrease was primarily the result of a decrease in payroll expenses due to a decrease in headcount, offset by an increase in employee stock option expense of approximately $270,000. General and administrative expense for the quarter ended June 30,2008 was comprised primarily of employee option expense of approximately $451,000, compensation expense, including Board of Director's fees, of approximately $296,000, including severance of $50,000, business development expenses of approximately $200,000, professional fees of approximately $267,000, property taxes of $107,000 and other expenses of $83,000. The Company's "cash burn" rate (net loss before depreciation, stock compensation and accrued severance expense) decreased during the quarter ended June 30, 2008 to approximately $820,000 from approximately $1,360,000 for the quarter ended June 30, 2007. This is a result of our focus on completing the transaction with Vertex Nevada as described above. Interest income of $78,134 and $105,717 for the second quarter of 2008 and 2007, respectively, represents the interest earned on the cash received for the issuance of the Series B Preferred Stock in May of 2006. Preferred stock dividend and amortization of beneficial conversion feature, warrant discount and offering costs decreased to $2,556,197 in the quarter ended June 30, 2008 from $3,347,388 during the comparable period in 2007 due to the amortization of beneficial conversion feature. COMPARISON OF SIX MONTHS ENDED JUNE 30, 2008 TO THE SIX MONTHS ENDED JUNE 30, 2007 REVENUES AND COST OF GOODS SOLD During the plant start up phase of our Anaheim plant, we confronted several issues, including an unexpected high level of biological oxygen demand from organic waste in the wastewater from the pulp screening and cleaning process. In January 2007, we decided not to make the capital improvements necessary to the Anaheim plant's wetlap process which the Company considers necessary to operate the plant with the expectation of being profitable. Therefore, beginning in January 2007, we began to operate the plant only as part of research and development projects including but not limited to the development of alternative back end processes such as gasification and acid hydrolysis for the production of ethanol. Consequently, we did not recognize any revenue since. We essentially ceased utilizing the plant for any purpose in the third quarter of 2007 and vacated the plant completely in May 2008. World Waste management is currently focused on completing the merger with Vertex Nevada while maintaining the viability of its renewable energy business plan. EXPENSES Research and development expense decreased from $1,749,875 for the six months ended June 30, 2007 to $16,359 for the six months ended June 30, 2008. The decrease was primarily due to the closure of the Anaheim plant in 2008 and our focus on the transaction with Vertex Nevada compared to the cost of research and development activities related to gasification of approximately $150,000, Anaheim plant costs of approximately $750,000, and plant depreciation of $630,000 in the 2007 period being classified as research and development expense due to the then-current nature and intent of the plant operations. 23 General and administrative expense increased from $2,408,667 for the six months ended June 30, 2007 to $3,178,745 for the comparable period in 2008. This $770,078 increase was primarily the result of an increase in employee stock option expense of $270,000, consulting fees of approximately $262,000 primarily related to technologies and new sites, and legal fees due to agreements with CES, Taormina and the Vertex Nevada merger. General and administrative expense for the six months ended June 30,2008 was comprised primarily of employee option expense of approximately $901,000, compensation expense, including Board of Director's fees, of approximately $864,000, including severance of $288,000, business development expenses of approximately $600,000, professional fees of approximately $556,000, property tax of approximately $93,000,and other expenses of $165,000. The Company's "cash burn" rate (net loss before depreciation and stock compensation) decreased during the six months ended June 30, 2008 to approximately $2 million from approximately $2.7 million for the six months ended June 30, 2007 The interest income of approximately $147,000 for the six months ended June 30, 2008 represents the interest earned on the cash received for the issuance of the Series B Preferred Stock in May of 2006. Interest expense of approximately $235,000 for the six month period ended June 30, 2007 related to interest on the Senior Secured Debt which was issued in November of 2005 and February of 2006. All of the Senior Secured Debt was extinguished in May of 2006. Preferred stock dividend and amortization of beneficial conversion feature, warrant discount and offering costs decreased to $5,090,424 for the first six months ended June 30, 2008 from $7,051,028 from the comparable period in 2007 due to the conversion of some of the preferred stock to common. 24 LIQUIDITY AND CAPITAL RESOURCES At June 30, 2008, we had cash and cash equivalents on hand of approximately $3.9 million and short-term investments of approximately $4.5 million (a total of approximately $8.4 million) representing a decrease of $1.4 million from our December 31, 2007 cash, cash equivalents and short-term investments totaling approximately $9.8 million. During the first six months of 2008, net cash used for operating activities was approximately $934,000, net of cash received from assets held for sale of $994,000. The use of cash was primarily for general and administrative expenses. During the six months ended June 30, 2008, approximately $80,000 was used for the buyout of the Company's capital lease. Cash and cash equivalents and short-term investments were also negatively impacted during the six months ended June 30, 2008 due to the temporary write-down of the Company's auction rate securities (short-term investments) by $422,746, as described below. In March 2008 and June 2008, we received payments from CES of $676,000 and $640,000,respectively, upon the sale of assets relating to the front-end process of our facility. These payments were accounted for as a reduction of the Company's assets held for sale. CES is obligated to make additional payments to us aggregating $564,000 in 2008 pursuant to our sale of certain intellectual property rights. As of August 14, 2008, CES has not made the final payment. We cannot assure you that the Company will receive the final payment. At June 30, 2008, approximately $4.5 million of our securities were in the form of auction rate securities. These securities are stated at the lower of cost or market. As of June 30, 2008, the face value of these securities was approximately $5.1 million. The securities had been offered for sale during the quarter ended June 30, 2008. However, due to the failure of the auctions, no such securities were sold. The failure of the auctions did not affect the Company's ability to meet its obligations in the normal course of business. Management has evaluated the solvency of the issuers of these securities and does not believe an additional reserve is necessary. In August of 2008, the Company sold auction rate securities with a face value of $3.6 million for $3.3 million which was the stated fair market value at June 30, 2008. As of August 14, 2008, the Company continues to hold auction rate securities with a face value of $1.5 million. The market value of these securities at June 30, 2008, as reflected in the financial statements, was estimated to be approximately $1.2 million. In order to close the proposed merger with Vertex Nevada, the Company will need to have a minimum of $9.4 million on hand, after satisfying all of its liabilities (other than up to $2.4 million of permitted indebtedness). Due to a number of factors, including (1) that the transaction has taken longer than originally anticipated to close, (2) the possibility that the Company will be unable to liquidate its remaining auction rate securities at or near their face amount, (3) the possibility that the Company will be unable to secure the necessary borrowing, and (4) the possibility that the transaction costs exceed the Company's estimates, the Company might not have sufficient cash on hand to satisfy this condition to the closing of the Proposed Merger. In this case, absent a waiver of this closing condition by the other party to the transaction, the proposed merger could not be consummated. As of June 30, 2008, the Company had no long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations, or other similar long-term liabilities. The capital lease outstanding at December 31, 2007 was paid off in March 2008. The holders of our preferred stock have the right to require our company to redeem their shares on April 10, 2010, at a price equal to the original issuance price (with accrued but unpaid dividends being treated as outstanding for purposes of calculating the total redemption price), for a total of approximately $46 million (assuming none of such shares of preferred stock are converted to common stock prior to any such redemption). In the event that the proposed merger with Vertex Nevada does not close, we will need to raise significant additional capital or restructure the terms of our preferred stock in order to meet this redemption obligation if and when it become due. If we are unable to do so, and if the holders of World Waste's preferred stock exercise their redemption right, World Waste would likely be rendered insolvent. In addition, if the merger does not close, the holders of World Waste's Series A Preferred Stock could exercise their right to elect a majority of World Waste's Board of Directors, which would give such holders effective control over World Waste. 25 ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and the Acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chief Executive Officer and the Acting Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company's Chief Executive Officer and Acting Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and the Acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There was no change in the Company's internal control over financial reporting during the six months ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 26 PART II - OTHER INFORMATION ITEM 1 - LITIGATION As previously disclosed, during early 2007 we began using our Anaheim Facility to conduct research and development activities related to the production of renewable energy from MSW. In the third quarter of 2007, we determined that the ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, our research and development partner, or at some other outsourced research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on our renewable energy process, we initiated conversations with Taormina regarding termination of the lease of the Anaheim Facility and the cancellation of the associated recycle agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007. On November 7, 2007, Taormina filed an unlawful detainer action against us, and in March 2008, we entered into a stipulation for entry of judgment in this action. The stipulation provided for: (a) the cancellation and forfeiture of the lease; (b) a payment by us to Taormina of $192,218 (which payment was subsequently made by us); and (c) our right to remain in possession of the Anaheim Facility until June 30, 2008. Pursuant to the Stipulation, we gave notice to Taormina of our intention to vacate the premises on May 15, 2008. We engaged in discussions with Taormina concerning the alterations and utility installations to be removed from the premises prior to the return of the premises to Taormina. In connection with those discussions, we entered into a letter agreement with Taormina concerning the South Yard of the property, which letter agreement provided that we would have no further obligation with respect to the turnover condition of the South Yard, in exchange for our payment to Taormina of $29,096 and the release of our rights to a refund of $30,904 of pre-paid rent. We made the $29,096 payment, and, on May 8, 2008, we turned over physical possession of the property to Taormina. On May 12, 2008, we advised Taormina that we had vacated the property, and requested that Taormina dismiss the unlawful detainer action. On June 11, 2008, Taormina requested dismissal of the Action with prejudice, and the dismissal was entered. ITEM 1A - RISK FACTORS There have not been any changes in the risk factors previously disclosed in Form 10K for the year ended December 31, 2007. ITEM 6. EXHIBITS Exhibits 2.1 Amended and Restated Agreement and Plan of Merger, dated May 19, 2008, by and among the Company, Vertex Energy, LP, Vertex Energy, LLC., Vertex Merger Sub, Inc., and Benjamin P. Cowart, as agent for the shareholders of Vertex Energy, Inc. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 31.2 Certification of Acting Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 32.2 Certification of Acting Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 27 SIGNATURES Pursuant to the requirements 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. Date: August 14, 2008 WORLD WASTE TECHNOLOGIES, INC. (Registrant) By: /s/ David Rane ------------------------------ David Rane Acting Chief Accounting Officer 28 INDEX TO EXHIBITS Exhibit Number Description ------ ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated May 19, 2008, by and among the Company, Vertex Energy, LP, Vertex Energy, Inc., Vertex Merger Sub, LLC., and Benjamin P. Cowart, as agent for the shareholders of Vertex Energy, Inc. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 31.2 Certification of Acting Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 32.2 Certification of Acting Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 29