UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12 (b) OR 12 (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OCEAN POWER CORPORATION
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(Name of Small Business Issuer in its charter)
Delaware 94-3350291
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(State or Other Jurisdiction (IRS Employer Identification No)
Of Incorporation or Organization)
5000 Robert J. Mathews Parkway, El Dorado Hills, California 95672
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (916) 933-8100
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
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FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-SB CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS UNDER THE CAPTIONS "DESCRIPTION OF BUSINESS
OPERATIONS," AND "MANAGEMENT'S DISCUSSION AND ANALYSIS," INCLUDING STATEMENTS
CONCERNING (I) THE COMPANY'S STRATEGY; (II) THE COMPANY'S EXPANSION PLANS, (III)
THE MARKET FOR THE COMPANY'S PRODUCTS; (IV) THE EFFECTS OF GOVERNMENT REGULATION
OF THE COMPANY'S PRODUCTS; AND (V) THE EFFECTS ON THE COMPANY OF CERTAIN LEGAL
PROCEEDINGS. BECAUSE SUCH STATEMENTS INVOLVE RISKS OF UNCERTAINTIES, ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED TO CONSIDER SPECIFIC RISK
FACTORS DESCRIBED HEREIN (SEE ITEM 2 "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS," UNDER SECTION (a) "PLAN OF OPERATION"). THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE HEREOF, EXCEPT AS
REQUIRED BY ITS REPORTING OBLIGATIONS.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
DEVELOPMENT STAGE COMPANY:
Ocean Power Corporation (the "Company") is the result of a reverse
merger of an essentially inactive company called PTC Group, Inc. into a
corporation with operating assets called PTC Holdings, Inc., on June 22, 1999,
as described in History, below. The Company is currently devoting all of its
efforts to establishing a new business, namely the production and sale of
seawater desalination and renewable power generation systems. These activities
have begun, but there have been no revenues from them.
HISTORY OF COMPANY:
------------------
(a) PTC Group, Inc.
--------------
PTC Group, Inc. was originally known as Kaniksu American Mining
Company, Inc.(this entity will hereafter be referred to as the "Predecessor" or
PTC Group, Inc.). The Predecessor was organized under the laws of the State of
Idaho on April 24, 1969. The Predecessor was originally organized to engage in
various mining activities. It conducted limited and sporadic mining activities
until its mining operations ceased in 1987. It remained inactive until 1996.
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In March 1996, the Predecessor changed its name to Kaniksu Ventures,
Inc., and began seeking new business opportunities. To that end the Predecessor
purchased Tessier Resources LTD. and its wholly owned subsidiary, Pulvuriser
Inc. from VentureTech, Inc., which were engaged in the business of developing
ice removal technology. This was a related party transaction. The Predecessor
assigned its interest in Tessier back to the original shareholders of Tessier
before it underwent the reverse merger which led to its current operations as
the Company.
In exchange for Tessier, the Predecessor issued a $3,000,000 debenture
convertible into 2,000,000 shares of the Predecessor's common stock. The
Debenture matured in four (4) years from the date of issuance, carried no
interest, and was convertible into the Predecessor's common stock at the
conversion price of $1.50 per share at any time prior to repayment of the
debenture. During 1999, VentureTech, Inc. converted the Debenture into 2,000,000
shares of the Predecessor's common stock. 500,000 shares were converted in
January 1999 and the remaining 1,500,000 shares were converted in June 1999. The
2,000,000 shares were subsequently reduced to 200,000 shares due to the one (1)
share of ten (10) shares reverse stock split effected by the Predecessor.
As additional consideration for the acquisition of Tessier, Predecessor
agreed to issue, to eligible shareholders of VentureTech 31,000 shares of
Predecessor's common stock and 62,000 rights to purchase additional shares.
In April of 1997 the Predecessor changed its name to Intryst, Inc. The
Predecessor's strategy was to become a systems integrator for the Internet
casino gaming industry. This strategy soon failed.
In September, 1997, the Predecessor initiated negotiations to acquire
PTC Holdings, Inc., a Delaware corporation engaged in hydrogen fuel cell and
desalination product development with its principal offices in Fair Oaks,
California ("PTC Holdings"). In October, 1997, in connection with the proposed
acquisition of PTC Holdings, the Predecessor assigned its interest in Tessier
back to the original shareholders of Tessier, because management of the
Predecessor advised Tessier that its technology was not synergistic with the
proposed new business strategy of the Predecessor (hydrogen fuel cells and
seawater desalination) and that management preferred to not further fund
Tessier's operations. An agreement was reached with Tessier to transfer the
assets of Tessier to Tessier in exchange of the abrogation of all outstanding
liabilities and indemnification for existing commitments or obligations. In
addition, management of Tessier agreed to relinquish control of its board of
directors and corporate officer positions in PTC Group. At the time of the
transfer, Tessier did not have any revenues from its operations nor did it have
any expectations of near term agreements or licenses. There were no other
considerations for the transfer of the interests of Tessier.
At this point the Predecessor had no operating or other assets. On December 24,
1997, the Predecessor changed its name from Intryst, Inc. to PTC Group, Inc.,
("PTC Group").
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(b) PTC Holdings, Inc.
On March 26, 1992, H Power Technologies was incorporated under the laws
of Delaware. On November 25, 1997, H Power Technologies filed a Certificate of
Amendment of Certificate of Incorporation wherein the name changed to PTC
Holdings, Inc. On February 13, 1998, PTC Holdings, Inc., filed a Certificate of
Status Foreign Corporation in the State of California qualifying to transact
intrastate business in this State. On June 22, 1999 PTC Holdings, Inc., merged
with PTC Group, whereby PTC Group became the surviving entity. On July 12, 1999
PTC Group changed its name to Ocean Power Corporation.
(c) Merger and Creation of Ocean Power Corporation
On June 22, 1999, PTC Group merged with PTC Holdings, with PTC Group
being the surviving entity, whereby PTC Group issued 25,044,146 shares of its
common stock in exchange for all of the outstanding common stock of PTC
Holdings.
On July 12, 1999, PTC Group, changed its name to Ocean Power
Corporation (Idaho).
On July 21, 1999, Ocean Power Corporation (Delaware) was formed for the
purpose of changing the domicile of Ocean Power Corporation (Idaho).
On July 28, 1999, to change domicile, Ocean Power Corporation (Idaho)
merged with Ocean Power (Delaware) and Ocean Power Corporation (Delaware) (the
"Company") was the surviving entity, and is traded on the OTC "Pink Sheets"
under the symbol PWRE.
BUSINESS OF THE COMPANY
The Company is engaged in developing seawater desalination and
renewable power generation systems that are modular and mass-produced. The
Company currently has an operating prototype in Malta. It has no commercially
available products at this time.
Ocean Power's seawater desalination system is designed to be a
modularized, standardized grouping of components the engineering specifics of
which are called the "H20kW Systems". There is currently a copyright application
for "H20kW Systems" pending. These systems are configured of five subsystems:
Pretreatment Subsystem
Desalination Subsystem
Post Treatment Subsystem
Pump and Support Equipment Subsystems
Power Subsystems
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The specific set of technology selected for each H20kW System is a function of
each specific desalination plant site. The principal features of each site that
determine the technology set are fuel or energy availability, seawater
chemistry, and the customers product water quality requirements. The following
discussion addresses each subsystem in terms of the technology available from
Ocean Power and describes that technology and its availability.
Pretreatment Subsystem:
----------------------
This set of equipment conditions the seawater being drawn into
the H20kW Systems so as to control various qualities of the
water including its ability to form various soft scales, the
generation of foaming during high concentrations of organic
material, and the destruction of living organisms. Throughout
the desalination industry, these controls are currently
accomplished by adding significant quantities of various
chemicals which then enter the brine stream of the
desalination equipment. From there they are deposited into the
ocean. Ocean Power is developing a set of physical and
electrochemical water treatment equipment which is aimed at
accomplishing the required seawater pretreatment without the
production of a chemical waste stream and which is intended to
be more economic than the current pretreatment techniques.
Such equipment is likely to be a combination of existing
commercially available components together with Ocean Power's
proprietary equipment now in development. The first such
pretreatment subsystem is scheduled to go to field-testing in
November of 2000.
Desalination Subsystem:
-----------------------
This is the heart of the water portion of the H20kW Systems
and is available in two different technologies, each with the
same standard module capacity of 1,000 cubic meters of product
water per day. The two technologies are reverse osmosis and
thermal distillation.
The specific implementation of the reverse osmosis technology
is currently available, and offers one of the most efficient
implementations of sea water reverse osmosis techniques (SWRO)
available today. The SWRO subsystem employs commercially
available membrane, pressure vessels, pumps and energy
recovery components in a configuration which accomplishes
water production at less then 3 kWh per cubic meter of product
water. Further, Ocean Power's desalination subsystem is
configured to best employ the waste heat of the power cell, or
commercial generator power subsystems. This desalination
technology would be used by customers requiring water
production of 1,000 cubic meters per day to 4,000 cubic meters
per day (roughly 1 million gallons per day), and where water
quality requirements are not more stringent than those of the
current World Health Organization or the current U.S.
Environmental Protection Agency. For more stringent water
quality requirements and for larger capacity systems, thermal
distillation technology would be employed.
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Ocean Power's implementation of thermal distillation employs a
process known as vapor compression distillation. Equipment to
accomplish this process has been commercially available for
more that 50 years. Historically, such equipment has been
neither economic nor reliable enough for Ocean Power's needs.
As a result, Ocean Power has embarked upon the development of
a new configuration of the vapor compression process, which
has been demonstrated, to date, to be more reliable than
historic designs.
Ocean Power's initial compression equipment employs a
mechanical compressor and an all plastic evaporator/condenser
assembly in a vacuum vessel. The equipment is referred to as
Mechanical Vapor Compression ("MVC"). The process accomplished
by this equipment involves taking pretreated seawater, heating
it in a commercial compact counter flow heat exchanger, and
then passing the seawater into a vacuum vessel where the
seawater is evaporated in contact with a plastic evaporator.
The resultant steam is compressed by a mechanical compressor
and fed to a plastic condenser thermally connected to the
evaporator where the steam condenses to the product water. The
basic physical state change from liquid to vapor back to
liquid accomplishes the separation of dissolved solids in the
seawater from the desired product water. A waste stream of
seawater with double concentrated dissolved solids is passed
from the evaporator back to the ocean, and is referred to as
the brine stream. The process is very energy efficient because
the energy required to cause the state change of the water
(i.e. liquid to vapor to liquid) is largely recovered.
An improved version of vapor compression equipment is in
development by Ocean Power; referred to as Ejector Vapor
Compression ("EVC") and is expected to be available during the
year 2001. This equipment is aimed at accomplishing the
textbook vacuum vapor compression distillation cycle using
improved plastic heat exchange surfaces, a highly reliable
ejector in place of the mechanical compressor, and a lower
cost vacuum vessel. Like the SWRO desalination subsystem
modules, both the MVC and EVC modules are intended to be
capable of producing 1,000 cubic meters of product water per
day. Unlike the SWRO technology, both the MVC and EVC is
expected to produce much higher quality product water to
address current European Union standards and developing U.S.
EPA standards.
Yet another generation of the EVC is also in development by
Ocean Power and is referred to as the Concrete Vessel ("CV")
equipment. This configuration employs all the components of
the EVC subsystem except for the vacuum chamber, which is
being designed for construction on site, and is expected to
employ economic materials and processes. The CV subsystems are
being designed for larger product water requirements, starting
at 10,000 cubic meters per day. Both the EVC and CV
configurations of the equipment are expected to have greatly
improved specific power consumption (i.e. the amount of
electrical power required to produce a unit of water) than the
MVC equipment.
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Post Treatment Subsystem:
-------------------------
This portion of the H20kW Systems includes sets of
commercially available equipment to adjust the pH of the
product water and accomplish storage and residual water
quality control. This subsystem is not always required and
will be configured to each specific site. All components are
readily available today and Ocean Power currently manufactures
none.
Pumps and Support Equipment Subsystems:
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This set of components accomplishes the lift of the seawater
to the pretreatment system, the delivery of the product water
and the disposal of the brine. This subsystem also includes
the monitor and control equipment, often referred to in the
industry as SCADA (Supervisory Control and Data Acquisition)
equipment as well as power conditioning and distribution and
liquid distribution components. All required components are
currently available to Ocean Power from multiple vendors. It
is not currently the intention of Ocean Power to manufacture
any of these components.
Power Subsystems:
-----------------
Grid Power:
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This is electrical power from an existing power grid. For much
of Ocean Power's target market, this is not a viable power
source, due to a lack of availability or environmental
regulation. Ocean Power does not supply unique technology to
this configuration, rather it will subcontract with a local
utility to install commercial power conditioning and
distribution components as required by the desalination system
for that site.
On-Site Commercial Power Generators:
-----------------------------------
This is electrical power from a variety of commercially
available power generation equipment such as industrial gas
turbines or micro turbines. These systems are currently
available to Ocean Power from a variety of suppliers. They
will be selected based upon local fuel source and
environmental constraints, and are an interim technology until
more advanced renewable power systems are available.
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On-Site Small Power Generation:
------------------------------
This is electrical power from the Company's Stirling engine
technology. The Stirling engine is a simple external
combustion engine. An external heat source is applied to a
heat exchanger containing a working fluid (in this case helium
or hydrogen). As the fluid is heated, it expands, exerting
pressure on a piston. Once the piston has moved the gas cools
and is rerouted through a heat recovery unit back to the
primary heat exchanger. The piston turns a crankshaft that is
attached to an electrical generator. The primary advantages of
the Stirling engines are that the external combustion is
clean, silent, more efficient than internal combustion engines
and since they have half the number of parts, they are
potentially lower in cost. The Company's Stirling engine
development has not yet achieved high rate production, but the
Company's goal is to do so within the next twenty-four (24)
months. The Company's Stirling engine would employ gas,
diesel, biomass or municipal solid waste as fuel sources. It
is available today for smaller desalination systems in modules
ranging from 3 to 25 kilowatts (kW) of primary electrical
power. Larger sets of Stirling engines, typically of 250Kw
electrical power output, are expected to be available from the
Company within a year. When Stirling engines are employed as
the primary power source, both electrical and thermal outputs
of the engines are used to achieve increased efficiency of the
desalination subsystem.
Wind Power:
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The electrical power from wind turbines requires very specific
local wind conditions, and would generally be used in
conjunction with one of the other candidate power system
technologies in a hybrid configuration. Today this technology
is available to Ocean Power through a variety of equipment
suppliers.
Solar Power:
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This is electrical power from solar heated Stirling engines or
concentrated photovoltaic technology. The Stirling engine
approach may be hybrid in configuration so as to use gas
during periods of low solar energy concentration (e.g. cloudy
days and at night). Both technologies would be available for
use with Ocean Power H20kW Systems during 2001.
Advanced Alkaline Fuel Cell:
---------------------------
This is electrical power from Ocean Power Corporation's
proprietary alkaline fuel cell technology and its related
electrochemical fuel processor which is in development.
Initially, fuels will be natural gas, diesel or biomass and
availability is planned for the year 2002. This power
technology offers the potential of the lowest cost of product
water from the H20kW Systems
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Sea Kinetic:
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This is electrical power from equipment which converts the
kinetic energy of the ocean into electrical power. This
technology is considered "in development" by numerous
companies, of which the Company is not one. This power source,
much like wind power, is most likely to be employed in a
hybrid configuration with one of the other power sources
discussed here.
Proprietary Components and Processes
------------------------------------
Commercially, neither desalination nor power plants have been
mass-produced in the same sense that automobiles, computers or consumer
electronics have.
Ocean Power has a number of proprietary processes that will be applied
to the manufacture of its key components. These include:
Electrode manufacturing process
-------------------------------
This process allows for the fabrication of electrodes in a
continuous spray process. This creates uniform assemblies and
low fabrication cost largely due to reduced labor content.
Hydrophilic coating of plastic heat exchangers
----------------------------------------------
These are evaporator condenser heat exchangers which employ
one surface that is hydrophilic to hot seawater in a vacuum.
By accomplishing this condition, the heat transfer in the heat
exchanger is greatly increased and total power consumption of
the system employing this heat exchanger is reduced. This is
the specific implementation of a concept for which Ocean Power
has a patent pending.
High efficiency ejectors
------------------------
These are components used to increase vapor pressure and
produce a vacuum in a very efficient and reliable manner. They
are high in efficiency and manufacturability and are the topic
of a current Ocean Power patent that is pending.
Water management for fuel cells
-------------------------------
A key factor in increasing performance of Proton Exchange
Membrane (PEM) fuel cells is the management of the water
created as a result of the basic reaction (H2 + 1/202 + H20 +
electron). Ocean Power has proprietary coatings that allow it
to manage this water in such a manner that it can precisely
control the rate of evaporation. This allows it to run at
higher efficiency than most other PEM fuel cells. This will be
particularly advantageous in low-power applications where
weight and mission life are critical.
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Modular system design
---------------------
The system approach of creating larger installations from
multiple small units is not the traditional approach to either
power or water plant design. Traditional companies have sought
economies of scale from larger and larger plants. Ocean Power
will attempt to realize economies of scale from building more
units. This fits with its design philosophy of mass-producing
identical, factory tested modules. This has been the
successful approach of the semiconductor industry for memory
chips and of the heating industry for home boilers. The
advantages of this approach are increased reliability and
reduced unit cost through higher unit production volumes.
All of these factors allow for the system and subsystem level
components to be mass-produced using standard high-rate manufacturing processes.
This has not traditionally been done for either water or power plants. High-rate
manufacturing processes for the desalination equipment include continuous
forming and sealing of plastic heat exchange assemblies, automated injection
molding of liquid distribution manifolds and ejector housings and continuous
hydrophilic treatment of plastic films for evaporators.
To the best knowledge of the Company, the Company is the first company
to attempt to reduce the end cost of desalinated seawater and power by applying
the high-rate manufacturing processes to the various components and subsystems
making up its H20kW System. In order for the Company to do business
internationally, especially in infrastructure services such as water and power,
all manufacturing will be done to the internationally accepted ISO 9000 quality
management and quality standards.
From basic technology through site preparation and assembly, water and
power cost is the factor determining all design decisions. Mass-produced
standardized distillation and power modules will be configured to meet the
customers specific needs and timetables. In all cases, the preference will be to
use the lowest-cost, preferably indigenous, energy source and renewable energy
sources will be a priority as long as they make economic sense.
Business Plan:
-------------
The primary goal of the Company's business plan is to accomplish the
sale of water and power through regional joint ventures, that are located in
water and power challenged markets. These locally controlled joint ventures will
ideally take 15-25 year contracts to build, own and operate water and power
facilities. Although the Company will most likely have a minority ownership
position in these joint ventures, their share of the ongoing royalty income will
be negotiated on a case-by-case basis. The joint venture partners will be
selected for their capabilities in the areas of market development, finance,
civil engineering, project management, and experience with local political
structures.
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The Company is currently in the early stages of certain Joint Ventures.
"Early stages of development" generally refers to a developing relationship with
an affiliate, which is not yet at the point of a signed Joint Venture Agreement.
In Greece and Cyprus the Company has negotiated the terms of a Joint
Venture Agreement with Apollo Water and Power. This agreement is subject to the
approval of the Board of Directors. Apollo Water and Power is a Nevada
Corporation which is developing private water and power systems throughout
Greece and Cyprus.
In Mexico the Company signed a Heads of Agreement with CIMA Capital
Corporation. CIMA Capital Corporation is a California corporation developing
private infrastucture in Mexico, Central America and South America.
A "Heads of Agreement" provides a detailed statement of the nature of
the intended affiliation between Ocean Power Corporation and the candidate
regional joint venture partner, with an obligation to move forward diligently
and in good faith.
Greece, Mexico are anticipating development of 1 million gallon per day
(1mgd) pilot plants in their territories. One million gallons per day has been
selected by Ocean Power Corporation as a "standard" size for pilot plant
configurations of its H20kW Systems. Pilot Plants will be the initial prototype
plants fielded by Ocean Power and its regional affiliates to demonstrate the
Company's ability to enter the market and to accumulate operational and
maintenance experience. The Pilot Plant is designed to provide high quality
product water, using no excess electrical power for a small resort, industrial
park, or a community of about 10,000 people for regions where individual water
consumption is no more than 100 gallons per person per day. One million gallons
per day is approximately 4,000 cubic meters per day, which is the design output
of one standard set of modules of the H20kW Systems.
Licenses, Acquisitions and Alliances
------------------------------------
The company has signed an exclusive worldwide license with Aquamax
International Holdings, BV of the Netherlands and Keeran Corporation N.V. a
Netherland Antilles Corporation for its issued and pending patents relating to
the use of plastic heat exchangers for the distillation of seawater. The scope
of this license covers the distillation of potable water from naturally
occurring saline water in units of 1000 cubic meters per day or larger.
The Company has acquired 100% of the Common Stock of Sigma
Elektroteknisk AS of Norway. Sigma is the developer of a 3kW electrical/9 kW
thermal Stirling Engine power plant for use in a power generation system for the
home. This product will be the first commercial unit to be sold by the Company
into the home power market and Sigma will be the center for the development of
the full range of Stirling engine products that the Company plans on fielding.
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On April 10, 2000, the Company signed an exclusive worldwide license
with STM Corporation of Ann Arbor, Michigan for the desalination market. STM
makes 25 kW Stirling engines that can be used with both solar concentrators or
hydrocarbon fuels.
PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKET
1. The Market:
----------
The Company recognizes that the traditional world markets for seawater
desalination and power systems of any significance have been government owned
and highly conservative. These are traditional municipal utility industries
because they are so critical to human health and well being and because they are
so capital intensive.
The Company believes the path of least resistance to market entry is by
placing a priority upon privately owned water and power systems . Examples of
private water and power utilities are now numerous and demonstrating cost
effectiveness to governments around the world. In France, the water systems have
been operated by the private-sector for over 100 years. In the UK, the water
systems were 100% privatized about a decade ago. Currently in the US, only about
15% of the population gets its water from a private utility or operator. By
focusing on privately owned systems, the set of decision-makers is reduced to a
few individuals with authority and the motivation to make a profit. This opens
the path to a viable as well as traditional economic development bank "project
finance." Ocean Power intends to enter the selected regional markets through
joint ventures with regionally based companies or groups of individuals. Through
careful selection, education and equity participation, management believes these
regional entities will be better able to find, finance, and implement multi-year
build, own, operate and transfer contracts for water and power plants that
employ Ocean Power systems. The Company will participate in the joint ventures
so as to assure optimum ongoing operations and to participate in system
expansions, upgrades and profits.
2. Principal Products and Services:
-------------------------------
The Company's initial products and services will be:
STIRLING POWER SYSTEMS: Small (3kW) Stirling power systems for the
boiler replacement market in Europe. With the acquisition of SIGMA Ocean Power
is poised to enter the European market with a 3kW electrical/9kW, combined heat
and power (CHP) unit for homes. This unit will be manufactured with strategic
partners for both the engine itself, the boiler, generators and
balance-of-plant.
TURN-KEY WATER & POWER FACTORIES: The primary product of the Company
will be turn-key water and power factories using the Company's H20kW systems.
These systems will use mass-produced modular, desalination modules powered
initially with conventional power technologies, such as gas turbines and later
on with Stirling engines and fuel cells. In all cases the choice of power
technology and energy source will be determined as a result of a comprehensive
study of the local conditions regarding energy and environmental issues.
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As Stirling engines are phased in to take advantage of their lower-cost
and higher efficiency, an additional Thermal Vapor Compression (TVC) stage will
be added to some of the H2OKW systems. This will operate on the waste heat from
the Stirling engine. These TVC modules can be purchased from a variety of
commercial suppliers and although they may have a high initial cost, because
they employ both the electrical and thermal output of the internal combustion
engine, they can provide a significant improvement in overall system economics.
"Waste heat from the Stirling engine" refers to the energy exiting the
Stirling engine in the form of thermal energy, which is normally vented to the
atmosphere as a useless byproduct of the combustion process. Ocean Power has
devised system integration configurations to allow much of this energy to be
employed by the overall H2OkW System to increase the efficiency of the system.
The principal mechanism employed is to use the waste heat to pre-heat incoming
seawater by means of a counter-flow heat exchanger so as to gain efficiency in
the desalination process, employing either SWRO or Vapor Compression.
SYSTEM DESIGN: The Company will design systems for the growing private
coastal power and water market which requires multi-year demand contracts for
power and water. Modular design accommodates unpredicted regional growth
patterns while easing initial project finance demands due to the small size of
the initial system. The Company plans to offer the system design, enabling
technology, high quality manufacturing, and project finance to accomplish
efficient modular power and water factories. Design has been standardized to
allow rapid equipment delivery. Environmentally sensitive design addresses the
projected demands of the next century. Project financing in the form of
governmental or banks regional development loans will be sought for regional
joint venture partners.
HIGH PURITY WATER FROM THERMAL DISTILLATION: High quality product water
will be provided by the Company through thermal distillation and non-chemical
pretreatment. Results will be achieved through several proprietary technologies,
including state of the art hypercritical ejectors in place of conventional
compressors. Lower equipment cost will be achieved by employing low cost,
engineered materials.
"Hypercritical Ejectors" are a new technology under development by
Ocean Power to replace mechanical compressors and vacuum pumps used in the
current mechanical vapor compression ("MVC") equipment. The basis of this new
technology is currently in a patent pending status, filed with the U.S. Patent
and Trademark Office. This technology seeks to improve overall efficiency of the
vapor compression cycle, greatly improve reliability of the compression and
evacuation components, and significantly reduce the overall capital cost of the
vapor compression system. Development of this new component has been underway
for the past two years and is planned for completion within the next 18 to 24
months.
WATER HARDWARE: The Company intends to develop specific configurations
of this equipment that will improve reliability and reduce capital cost. The
technology selected to accomplish the separation of pure water from seawater is
Mechanical Vapor Compression Distillation (MVCD).This is a mature technology
perfected over the past fifty years by various companies around the world.
Several thousand seawater desalination plants of this type are in operation.
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POWER HARDWARE: Initial Company installations will be powered using
conventional technologies, i.e. grid power, gas turbines, and Stirling Engines.
However, in parallel, a small percentage of the necessary generating capacity
will be served by more advanced technologies such the as fuel cells. The drive
in this direction is toward even-lower cost and cleaner power.
With the recent acquisition of Sigma Corporation, the Company has added
a near term product line aimed at the home power market. Sigma has developed
prototypes of a 3kW electrical/9kW thermal unit for sale into the home market as
a boiler replacement or a grid-support unit. These units will now go into the
manufacturing engineering phase and limited run production. The first deliveries
of several hundred units per month are planned to start in the third quarter of
2001. The first 2 to 5 concentrator solar systems which employ Stirling engines
should start being installed in the last quarter of this year and larger numbers
(40 and up) in the second half of 2001 if final development, testing and cost
effective manufacturing processes are successful.
The basic building block of all of the Company's products will be a 3kW
and 25kw (net electrical output) module. The initial primary power source of
these modules will be an external combustion engine.
These modules will vary according to the local fuel requirements and
will provide either AC or DC output depending on whether or not they will
interface with a local electrical grid. In all cases, these modules will be
standardized, mass-produced units.
In order to serve the primary stationary market, the Company will use a
modular system architecture. Initially, the Company will use conventional
technology such as gas turbines, which have a proven track record and worldwide
availability. The next phase of development, starting late 2000, will use a
modular system based on the existing 25 kW generators using external combustion
engines. These units will be integrated in racks housed in 20' standard shipping
containers to create modules with capacities up to 900 kW. The external
combustion engines have shown efficiency and air quality characteristics
substantially better than conventional technologies and hold the promise of
substantially lower capital and operating costs.
This family of products will deliver electrical power at efficiencies
of 25-40%. This efficiency number refers to the amount of thermal energy in the
primary fuel (natural gas, propane, etc. ) that is converted to electrical
energy available to the user. For a comparison, central station power plants
(coal, oil, natural gas and nuclear) range from 30 to 45% prior to transmission
losses.
Planned improvements should bring that efficiency level up to 50% or
more over the next several years. Although these efficiencies are extremely
attractive, alkaline fuel cells (AFC) hold the possibility of even higher
efficiencies and lower costs. Since no currently available fuel cell
technologies can match the cost and performance of external combustion engines,
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<PAGE>
the Company has decided to refocus its fuel cell program to not compete at the
current time. It will develop its proprietary hydrogen generation and alkaline
fuel cell technology alongside the commercial deployment of external combustion
engines. The Company believes that over the next three years it will be able to
demonstrate alkaline fuel cell systems with efficiencies 55% or above.
These products should provide near-term commercial sales with the
long-term promise of competitive power cost. It is hoped that the ability of
both the external combustion engines and the Company's alkaline fuel cell
systems to operate a wide range of conventional and renewable fuel cells will
help create significant competitive advantages.
Once the Company has a 3kW and 25 kW power generation module in
reliable production, it intends to add the 75 kw unit to allow it to serve
markets requiring larger installations. There should be a small reduction of
cost of materials per kW and it should allow for the simplification of
installations in the 75 kW size range (such as fast food restaurants, which are
50 kW on average). This will only be done after the 25 kW unit has demonstrated
an acceptable level of reliability. This will slightly reduce capital cost but
still provide for the redundancy, reliability and ease of maintenance that set
this system architecture apart from conventional approaches. The Company is
currently capable of producing the following products, although their commercial
viability has yet to be determined:
1 3kW natural gas Stirling home unit
2 3 kW propane Stirling home unit
3 25 kW solar Stirling unit
CONTROL SOFTWARE: Ocean Power intends to employ the latest proven
process control and enterprise integration architectures with software employing
Java or Juni, and predictive diagnostics technology. This will allow fully
autonomous systems with self-diagnostics, highly efficient regional logistics
support, and worldwide monitor and control of the Company's systems.
DISTRIBUTION METHODS
Ocean Power intends to participate in Joint Ventures ("JVs"), Affiliate
Regional Enterprises, and Strategic Alliances ("SA") to which H2OkW Systems and
its power products will be transferred for a price. Engineering, training, and
financial services may also be transferred to the affiliates.
The Company intends to participate in Regional Joint Ventures and
Strategic Alliances that will build, own, and operate the water and power
plants(as described in the Business Plan section). It is expected the JVs will
enter into 15 to 25 year contracts to provide demand levels of water and power.
The appropriate system will then be integrated on-site using both Company
furnished key components and standard commercial components. Site construction
will be done by local contractors under the supervision of the JVs in accordance
with Company engineering standards and drawings.
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<PAGE>
Although the above business structure supports the company's primary
goals, additional strategic partners will be sought to develop the stand-alone
utility market. These will be utilities and energy service companies in the
marketing side with equipment manufacturing on the supply side.
COMPETITION:
1. In General:
----------
At the present time the Company is not aware of any entity seeking to
manufacture, integrate, install and operate (through joint ventures or directly)
seawater desalination systems powered by sustainable energy sources i.e. solar,
wind, etc. A large and complex array of technical, manufacturing, financial, and
business development barriers exist for others to enter this business.
Several significant companies have expanded rapidly into the private
water business over the past several years, and all are capable of locating and
subcontracting equipment manufactures to supply desalination and power
generation equipment. Among these are:
o Suez Lyonnaise des Eaux, France (a merger of Compagnie de Suez and
Lyonnaise des Eaux)
o Compaignie General des Eau (Vivendi), France
o Thames International, UK
o United Utilities (NWW), UK (Bechtel of US is part owner)
o Azurix
Entities predicted to enter this market in the near term include:
o US Filter, US (Recently acquired by Vivendi of France)
o Edison Capital, US
o CH2M Hill International, US
o Black and Veitch International, US
o United Infrastructure, US (a joint venture of Bechtel and Peter Kiewitt
Sons)
o Enron (In conjunction with Azurix for integrated power and water).
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<PAGE>
All of the above entities are likely direct competitors to the Company
in the area of integrated, modular seawater and power systems. The Company
believes that these possible competitors do not currently have the ability to
manufacture, as well as integrate and install and operate systems powered by
sustainable energy sources. The Company believes that it will be able to provide
these services. Of the competitors listed, only Vivendi now has its own seawater
desalination technology. The Company's competing technology is expected to be
less costly to manufacture and more power efficient.
Other entities currently very active in the privatization of water
systems that could develop an interest in the Company 's market are:
o United Water Resources, US (a joint venture of Suez Lyonnaise of
France)
o Aqua Alliance, US (83% owned by Vivendi of France)
o American Water Works, US
o California Water, US
2. Desalination:
-------------
General competition will be intense from a wide variety of suppliers of
reverse osmosis technologies (RO) because the barrier to entry to this system
technology is very low. The key component technology is available from several
key suppliers throughout the world. However, this common and generic form of
seawater desalination is prone to very poor water quality after a few months of
operation, and operation and maintenance costs over the life of a system have
proven to be much higher than estimated. The Company believes that seawater
desalination through distillation offers a future of superior water quality,
reliability, and much reduced maintenance. Distillation offers superior product
water quality than other desalination technologies. Vacuum Vapor Compression
Distillation, the cycle to be employed by Ocean Power's H2OkW(TM), is both
theoretically and in practice the most efficient distillation cycle. Other key
suppliers of distillation equipment are therefore the only competitors listed
here. For even closer comparison, only manufactures of systems that do not
depend upon waste steam from co-located power generation plants are considered
here.
o IDE: IDE Technologies, Ltd., of Israel is the world's leading
manufacturer of low-temperature distillation systems with over 300
desalination plants fielded in 26 countries. They are wholly owned by
Israel Chemical Ltd. with annual sales of about $40M per year.
o SIDEM: Originally part of the French Government's Nuclear Power
organization, SIDEM is now owned by Vivendi. SIDEM has built and
fielded many high quality vapor compression systems. Through Vivendi's
acquisition of US Filter, SIDEM equipment may become more available
throughout the world.
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<PAGE>
o ALPHA LAVAL: The parent is the world's leading manufacturer of heat
exchangers. Over the past several years, Alpha Laval has attempted to
enter the seawater desalination industry with a significant vapor
compression system in Saudi Arabia.
o MECCO: The only US manufacturer of Vapor Compression Distillation
equipment. The largest installation is in northern Chile. The company
is privately held.
o MITSUBISHI HEAVY INDUSTRIES, LTD.: Builder of turn-key seawater
desalination plants typically employing co-generation schemes, but also
directly powered distillation of the Multiple Stage Effect or Multiple
Effect Distillation type, they are known for pursuing very large
contracts awarded under conventional tenders.
3. Power:
-----
The current status of competitors in small module power generation is
fragmented. Although the worldwide trend is moving to distributed power systems,
the bulk of the competitors are still utilities or independent power producers.
These companies generally tend to be large and burdened with substantial
overhead, a corporate culture which is difficult to change and generally no
proprietary technological advantage.
With the trend toward the use of natural gas and smaller distributed
systems, the primary competitors in this market are using aero-derivative gas
turbines. These devices, based on aircraft engines, generate electricity through
the combustion of hydrocarbons to produce mechanical power by rotating shafts
that then drive electrical generators are available from companies such as:
o Rolls-Royce
o Solar Turbines, a Caterpillar Company
o Allison
o Allied-Signal
o GE
o Pratt and Whitney
o Siemens
o DaimlerChrysler AG
Since the per kilowatt installed cost of these systems ranges around
$1,000, they are starting to see potential competition from smaller capacity,
lower cost generators such as micro-turbines, fuel cells, external combustion
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<PAGE>
engines and solar which project system costs ranging from $300 to less than $50.
Although none of these technologies are yet in commercial production, there is a
great deal of interest and some of the key players are:
o DaimlerChrysler AG/Ballard
o Allied-Signal
o Plug Power/GE
o US Wind Power
o BP Solar
o Siemens
o Toyota
DESCRIPTION OF THE INDUSTRY
The seawater desalination industry has installed a total water
production capacity of about 22,000,000 cubic meters per day over the past 30
years. Over the past 10 years, new plant installation has averaged about
1,000,000 cubic meters per day each year. This represents about $1.5 billion in
equipment sales per year, or about $3 billion in total capital cost for
installed plants per year. The figures stated represent the worldwide historic
market for seawater desalination systems over the past 10 years. Ocean Power's
product geared toward this market is the H2OKW system. These numbers do not
address future markets, nor do they address stand-alone power systems. They do
not represent the expected market for the Company.
In terms of capacity, the vast majority of installed systems continue
to be distillation technology as opposed to reverse osmosis or other
technologies. However, the number of worldwide suppliers of seawater
distillation systems has diminished from perhaps 20 in 1989 to less than 10 in
1999 through industry consolidation (e.g. Vivendi).
The Company is not aware of any company that is producing integrated
seawater distillation and power source systems at this time. Several historic
participants in the industry have reduced capacity to supply equipment and few
have accomplished any significant product improvements in decades. Most
technical innovation and government sponsored research and development has been
applied to seawater reverse osmosis technology. At the present time, reverse
osmosis technology produces water of a lesser quality than distillation for the
same specific power consumption. Only in the past 5 to 8 years has the industry
again invested in significant technical improvements in the area of
distillation.
The best overall analysis of the industry has been produced by Klaus
Wangnick, the Principle of Wangnick Consulting, GMBH, of Gnarrenburg, Germany.
Since 1983, Mr. Wangnick has produced an annual analysis of the industry. His
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overall view of the industry was delivered to the World Congress of the
International Desalination Association in 1997. The Company notes the following
important observations from this report:
1. Growth of the industry will be modest for the next few years.
2. No desalination capacity is installed in countries with a GNP of less
than $1,000 per capita per year.
3. The majority of industrial focus will continue to be on the Middle
East.
4. Substantial growth of the industry will occur only after a dramatic
reduction in both capital and operation costs.
The Company also believes that the following general observations are
correct.
The overall sources of growth for this industry are population,
improved standard of living, reduced energy costs, industrialization, and
diminishing water quality. All of these factors are currently pointing to a
much-expanded market, yet only a few new players have entered the industry in
the past 5 years.
Currently underway throughout the world is a wave of privatization of
both water and power systems. Add to this the growing demand for environmentally
benign power sources and little or no excess power generation at each
desalination site, and the result is a vast new set of demands for the industry
over the next two decades.
Lastly, the industry is often driven by hydropolitics. Currently, the
"Red Dead" project in Jordan, the formation of the Middle East Desalination
Research Center, and the European Union's plans for the Mediterranean are
examples of such political influences upon the industry. Add to this
increasingly stringent drinking water standards and the Kyoto Accords and the
resultant effect on water quality, fuels, and power systems, and the industry is
clearly subject to a revolution.
The "Red Dead" project in Jordan: This refers to one of the major water
projects described in the text of the Jordan-Israel Peace Accord signed in 1994.
The project is estimated to required $5 billion to fund It would, in effect,
extend the Jordan River south to the Gulf of Aqaba, except the water would flow
north 275 kilometers to the Dead Sea.. Near the end point, the seawater would
enter a desalination plant, which would produce about 40% of the flow as potable
water. The remaining brine would be sent into the Dead Sea. The desalinated
water would flow from Israel to Amman and is often referred to as "peace water".
No timetable yet exists for the project.
"The Middle East Desalination Research Center": This center was
established in December of 1996, is located in Muscat, Oman, and is dedicated to
basic and applied research in desalination technology. Its mission is to seek to
bring together scientists, engineers, water policy-makers, and water system
operators in the Middle East and North Africa to work on the reduction of the
cost of desalination technology
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<PAGE>
"European Union's plans for the Mediterranean". The European Commission
through its Directorate-General for Energy is developing extensive plans for the
provision of desalinated water and associated power generation. The program is
funded by the European Union's Fourth Framework Programme for Research and
Technological Development and is one of the most extensive research funding
initiatives in Europe.
"Kyoto Accord": An international agreement by treaty, signed initially
in Kyoto, Japan in 1997, which establishes a protocol to cut back on greenhouse
emissions in order to slow the onset of global warming. This treaty could
greatly effect how power is generated in the future and supports the use of
renewable power sources, especially for large power consumers such as
desalination plants.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company will use a wide range of materials in its various
components and subsystems. Since its primary function is as a system integrator,
it is generally purchasing subassemblies or complete subsystems such as pumps,
blowers, valves, etc. All of these are designed to have multiple vendors
worldwide.
In regard to the proprietary components such as plastic heat exchangers
and catalyst formations, the materials are commonplace and there are multiple
sources worldwide.
As part of the Company's Seawater Desalination Systems Product
Development Program, these materials will constantly be reduced in quantity,
and where possible, changed for lower cost, i.e. replacing coated stainless
steel pressure vessels with lower cost materials such as concrete.
DEPENDENCE ON ONE OR MORE MAJOR CUSTOMERS
Not applicable
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, ROYALTY AGREEMENTS OR LABOR
CONTRACTS, INCLUDING DURATION
To protect its rights to its intellectual property, the Company will
rely on a combination of trademark and copyright law, patent, trade secret
protection, confidentiality agreements, and other contractual arrangements with
its employees, affiliates, clients, strategic partners, and others. The
protective steps it has taken may be inadequate to deter misappropriation of the
Company's proprietary information. The Company may be unable to detect the
unauthorized use of, or take appropriate steps to enforce its intellectual
property rights. The Company has applied for its "H2oKW System" trademark in the
United States. It is in the process of filing U.S. applications for patents.
There are no registered patents at this time. Effective trademark, copyright,
patent, and trade secret protection may not be available in every country in
which it offers or intends to offer its products. In addition, although the
Company believes that its proprietary rights do not infringe on the intellectual
property rights of others, other parties may assert infringement claims against
the Company or claims that it has violated a patent or infringed a copyright,
trademark, or other proprietary right belonging to them.
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<PAGE>
These claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources on its part, which could
materially adversely affect the Company's business, results of operations, and
financial condition. The Company incorporates certain licensed third-party
technology in some of its services. In these license agreements, the licensors
have generally agreed to defend, indemnify, and hold the Company harmless with
respect to any claim by a third party that the licensed technology infringes on
any patent or other proprietary right.
The Company cannot assure that these provisions will be adequate to
protect from infringement claims. The loss or inability to obtain or maintain
any of these technology licenses could result in delays in introduction of new
services.
GOVERNMENT APPROVAL
Government approval for the Company's systems will vary from country to
country. Regarding the water quality, certification to World Health Organization
standards was completed in Malta in January 2000. This will qualify the
desalination technology worldwide, with the exception of the U.S. Since all
initial plants will be overseas, off-shore certification will be adequate for
the Company's needs.
EFFECT OF ANY EXISTING OR PROPOSED GOVERNMENT REGULATIONS
Other than normal government regulations that any business encounters,
the Company's business is not effected by any government regulations. As with
any business, other governmental regulations and requirements may have a
substantial effect on the Company's business operations. The Company must meet
the following requirements for Water Quality of the World Health Organization,
the European Community, the U.S. Environmental Agency and of the Company itself.
The standards of the Company are more stringent than the above governmental
agencies. The Company believes that it can meet its standards.
Water Quality
(A summary of drinking water standards)
(Values in milligrams per litre)
<TABLE>
<CAPTION>
(Values in milligrams per litre)
Constituents WHO(2) EC(2) EPA(2) Ocean Power
------------ ------ ----- ------ -----------
<S> <C> <C> <C> <C>
Total Dissolved
Solids (TDS) less than less than less than less than
or equal to or equal to or equal to or equal to
100 200 500 50
pH (units) - - 6.5-8.5 5.5-8.5
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
(Values in milligrams per litre)
Constituents WHO(2) EC(2) EPA(2) Ocean Power
------------ ------ ----- ------ -----------
<S> <C> <C> <C> <C>
Sodium less than 200 less than 20 NS less than 20
Chloride less than 250 less than 25 less than 250 less than 25
Bromide - - - less than 25
Heavy Metals - less than 30 less than 1 less than or equal to EPA
Turbidity 0.5-1.0 NTU's
Odor 3 Threshold
Taste - - - B1 or B2 (Note 1)
Coliform NS NS less than
1 colony/100ml 0
Giardia Lambila NS NS 0 0
Le Gionella 0 0 0
</TABLE>
Note 1: International Association on Water Pollution Research and Control Flavor
Wheel for Drinking Water, Water Quality Bulletin, Vol. 13, No 2-3, 1988.
Note 2: WHO is the World Health Organization; EC is the European Community; EPA
is the U.S. Environmental Protection agency; Ocean Power is the Company.
RESEARCH AND DEVELOPMENT COSTS
During fiscal years 1998 and 1999, the Company has expended
approximately $360,000.00, and $258,000.00 respectively, on research and
development of its products. The costs were expressed in the Company's financial
statements to reflect expenditures and salaries, equipment and related to
research and development primarily in the areas of hydrogen generation and
alkaline fuel cells. The bulk of the technology to be integrated into the H2OkW
systems will be acquired from outside through acquisition, joint ventures,
licenses or purchase. The Company anticipates expenditure of approximately
$500,000 on Research and development for 2000.
Fees generated, while paying directly for research and technology costs
accrued to date, will fund the operations of the Company, which includes funding
on-going technological development.
The Company bases the sales prices for its products on the nature of
the product, market conditions and market norms, and competition, therefore, it
is not possible for the Company to estimate the extent to which the Company's
research and development expenses will be borne directly by the customer.
COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
The Company is not involved in a business which uses materials in a
manufacturing stage where such materials are likely to result in the violation
of any existing environmental rules and/or regulations. Further, the Company
does not own any real property which would lead to liability as a land owner.
Therefore, the Company does not anticipate that there will be any costs
associated with the compliance of environmental laws and regulations.
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Both the product water and power must comply with various government
regulations regarding quality. This compliance reflects in the cost of equipment
and operations of the Company's desalination and power generation equipment.
EMPLOYEES
As of the date hereof, the Company employed 18 full-time employees, to
include, the President, Vice President, Secretary Treasurer, 2 Executive
Assistants to the President and Vice President, 2 Chemists, Manufacturing
Manager, Design Engineer and an Administrative Assistant. The Company hires
independent contractors on an "as needed" basis only. The Company has no
collective bargaining agreements with its employees. The Company believes that
its employee relationships are satisfactory. In the long term, the Company will
add staff through acquisitions and will attempt to hire additional employees as
needed based on its growth rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
These financial projections contain figures relating to plans,
expectations, future results, performance, events or other matters. When used in
the Plan of Operations, or elsewhere in this Form, words such as "estimate",
project, "intend" "expect", "anticipate" and similar expressions are intended to
identify forward-looking statements.
Such forward looking statements involve numerous risks and
uncertainties, pertaining to technology, development of the Company's products
and markets for such products, timing and level of customers orders, competitive
products and pricing, changes in economic conditions and markets for the
Company's products and other risks and uncertainties.
Actual results, performance and events are likely to differ and may
differ materially and adversely. Investors are cautioned not to place undue
reliance on these forward-looking statements which speak only as to the date of
the Plan of Operations.
The Company undertakes no obligation to release or deliver to investors
revisions to these forward-looking statements to reflect events or circumstances
after the date of the Plan of Operations, the occurrence of unanticipated events
or other matters.
1. PLAN OF OPERATION:
-----------------
The Company began its current operations in January, 1997 as
Manufacturing Technologies Corporation (MTC). This is a Delaware Corporation and
was originally set up to develop a business manufacturing modular seawater
desalination and power plants. In March of 1998, MTC became a wholly owned
subsidiary of PTC Holdings, Inc., when PTC Holdings acquired 100% of the stock
of MTC in return for assuming 100% of its debt. PTC Holdings which subsequently
merged with PTC Group in June 1999, PTC Holdings business was the survivor;
although Group continued as the corporate entity. The Company is developing
modular seawater desalination systems integrated with environmentally friendly
power sources. It is also developing stand alone modular Stirling based power
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<PAGE>
systems. These systems are intended to be sold to a series of regional joint
ventures that will ideally take 15-25 year contracts to sell water and power. If
successful, this will provide the Company dual income streams from both
equipment sales and royalties from the sale of water and power.
The Company has no profit to date. It has experienced a total of
$19,448,460 in losses from inception of current operations on March 26, 1992
through to June 30, 2000. The Company's losses have resulted from the fact that
its products are still in development and no sales have been generated.
The Company currently has enough cash to continue its present level of
operations for about 6 months. Due to the increased level of activity projected
during the next three years, additional funding will be needed and is being
sought. The Company believes that such current funding is available from private
issuances of its equity securities.
The Company has a limited operating history on which to evaluate its
prospects. The risks, expenses and difficulties encountered by start-up
companies must be considered when evaluating the Company's prospects. All
development efforts share the risks that the technology being pursued may not
perform to expectations. Also the cost to manufacture may exceed the product's
value in the market. Changing market conditions and new technological
breakthroughs by competitors also pose risks.
Due to these uncertainties, the exact cost of the development program
described below cannot be guaranteed. Difficulties and setbacks occur and can
adversely affect the Company. All plans contain contingencies but they may prove
insufficient.
If market conditions change, financial performance projections may
prove unreachable. All of these factors must be weighed when evaluating the
future prospects (value) of a development stage company.
The Company does not have an established source of revenue sufficient
to cover its operating costs and to allow it to continue as a going concern.
Also, management cannot provide any assurances that the Company will be
successful in accomplishing any of its plans. The ability of the Company to
continue as a going concern is dependent upon its ability to successfully
accomplish the plan described in the following paragraphs and eventually attain
profitable operations.
The Company's plan of operation for the next twelve months is as
follows:
(i) Since completion of its water quality certification on 9
December 1999, the Company has raised approximately $10
million pursuant to private placement financing which has
allowed the Company to implement its Product Development
Program, as well as to further business development, strategic
partnering and acquisition activities. Based on an analysis of
its sales and development costs, the Company intends to raise
an additional $20-30 million pursuant to private placement and
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financing by the end of 2000, depending on the pace of actual
sales and the acquisition activities of the Company, an
additional round of financing (for a minimum of $100 million
dollars) in the first half of 2001. The exact method by which
this additional round of financing will be raised will be
based on the maximization of shareholder value. The additional
equity, if raised by the Company, will allow the Company to
execute its business plan.
Maximization of shareholder value is the basic lens through which all
investment and other business decisions are made. One of the major
reasons that the Company prefers to enter into joint ventures to
finance its endeavors is to off-load the bulk of the expense of market
development onto the joint venture partners. This brings market share
without dilution of Ocean Power shareholders. Similarly, the choice to
subcontract manufacturing and engineering wherever possible is done for
the same reason. The only in-house manufacturing will be of extremely
proprietary components using processes protected by trade secrets that
cannot be otherwise protected.
(ii) The Company will be doing technology and product development
in a number of areas. They are:
a) low-temperature hydrogen generation
b) ejectors
c) chemical-free water pretreatment
d) enhanced heat transfer in plastic heat exchangers
e) high-performance alkaline fuel cells
f) Stirling engines
This work is all aimed at improving the performance and reducing the
capital cost of the Company's products.
(iii) The Company intends to build and install additional facilities
in the next year. They are:
a) laboratory and test facilities
b) system integration facilities, and
c) a manufacturing facility for proprietary components
(iv) Although the Company plans to subcontract out as much work as
possible, it still anticipates increasing the number of
employees from the current eighteen (18) full time to
approximately 40 full time.
ITEM 3 DESCRIPTION OF PROPERTY
(a) The main office of the Company is currently located at 5000 Robert
J. Mathews Parkway, El Dorado Hills, California 95762. It leases a 21,600 square
feet building which is currently configured as office, engineering and warehouse
space. The term of the Lease is for 5 years commencing April, 1997 and ending
April 30, 2002. The company has two, three year options to extend the lease. As
adequate financing becomes available to the Company, laboratory, test
facilities, and system integration facilities and a manufacturing facility for
proprietary components will be built.
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<PAGE>
(b) Investment Property: It is and will be the Company's policy to
generally avoid investments in illiquid assets such as real estate and
manufacturing equipment. It will contract for the manufacture of its product.
Services for such manufacturing are readily available. With regards to excess
funds and retained earnings, the Company generally will invest such funds in
money market funds or treasury funds. The Company typically funds ongoing
operations from cash flow, and generally should not have significant funds
available for long-term investment.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
1. The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of July 5, 2000 by (i)
each stockholder known by the Company to be the beneficial owner of more than
five percent (5%) of the outstanding Common Stock, (ii) each director of the
Company, (iii) each executive officer of the Company, and (iv) all directors and
executive officers as a group.
Name and Address Percentage
Of Beneficial Number of Beneficially
Title of Class Owner Shares Owned (1)
-------------- ----- ------ ---------
Common Joseph P.Maceda* 10,641,579 28%
5019 Susan Oaks Drive
Fair Oaks, CA 95628
Common Robert L. Campbell* 6,980,341 19%
15009 Rio Circle
Rancho Murieta,
CA 95683
Common Gloria Rose Ott* 2,610,000 27%
20250 Edgewood Farm Lane
Purcellville, VA 20132
Common J. Michael Hopper* 901,320 2%
135 Alder Avenue
Davis, CA 95616
* Indicates directors and/or executive officers.
1. Based upon 37,461,942 shares of common stock outstanding on October 19, 2000.
Unless otherwise indicated in the footnote below, the Company has been advised
that each person above has sole voting power over the shares indicated above.
27
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a) DIRECTORS AND EXECUTIVE OFFICERS:
NAME AGE OFFICE (1)
---- --- ------
Gloria Rose Ott 46 Chairman of the Board and
Director
Joseph P. Maceda 48 President and Director
Robert L. Campbell 56 Vice President and Director
J. Michael Hopper 52 Secretary/Treasurer
1. Directors serve a term of one year. Gloria Rose Ott has served as Director
and Chairman of the Board since October, 1998; Joseph P. Maceda has served as a
Director since January, 1997; Robert L. Campbell has been a Director since June,
1997.
b) BACKGROUND INFORMATION:
MS. GLORIA ROSE OTT - CHAIRMAN OF THE BOARD. Ms. Ott joined the Company as
Chairman of the Board in October, 1998. Ms. Ott was founder and Chairman of
RapidTech, Inc., from 1995 through 1999. RapidTech, a privately held
corporation, managed a Defense Advanced Research project that employed agile
manufacturing standards to the eventual mass-production of hybrid vehicles,
teaming with Detroit Center Tools and the Taylor Dunn Company.
In 1994, Ms. Ott received a Presidential Appointment and served on the Board of
Directors of the Overseas Private Investment Corporation (OPIC) until 1999. OPIC
sells investment services to assist U.S. companies in some 140 emerging
economies around the world with an active portfolio of $18.3 billion. In
addition, from 1992-1998 Ms, Ott served as the President of Miraido Corporation,
building a $24 million mixed-used real estate project on a city block in San
Jose, California. Ms. Ott earned her Bachelor of Arts Degree at San Francisco
State University and completed her graduate studies at Sonoma State University.
JOSEPH P. MACEDA - PRESIDENT. In January of 1997, Mr. Maceda founded
Manufacturing Technologies Corporation to pursue the modular seawater
desalination and power markets. This company became a wholly owned subsidiary of
PTC Holdings, Inc, in March of 1998. Mr. Maceda also served as President. In
June, 1997, PTC Holdings merged with PTC Group, Inc. (OTCBB Symbol: PWRE), and
Mr. Maceda became President of the merged company.
Mr. Maceda has 22 years of experience in business development, management,
finance, technology acquisition, and development in support of product
commercialization.
Since Mr. Maceda founded the Company in January 1997, he has devoted 100% of his
time to the development of the business that has evolved into Ocean Power. As
the financials show, Ocean Power has had no sales since its inception. For the
seven and half years prior, Mr. Maceda, was the VP of Development of H Power.
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In March of 1987, Mr. Maceda founded Teledata International, Inc., which was
developing wireless, wide-area networks for remote monitoring and control
systems. Fuel cells were a subsidiary technology development as power supplies
but in June 1988, because of the potential of fuel cells, all other technologies
were shelved and a new corporation was formed call H Power Corporation, to
develop fuel cell, hydrogen generation, and storage technologies for use in the
battery replacement, stationary power, and transportation markets.
From June 1998 until he left H Power in December, 1996, Mr. Maceda raised money,
found technologies and developed strategic partnerships for marketing and
manufacturing with companies such as Singapore Technologies, Rolls-Royce; Neste
Oy; IBM; Duquesne; Sumitomo; British Nuclear Fuels; the U.S. Department of
Defense; the U.K. Ministry of Defense, and others
ROBERT L. CAMPBELL - VICE PRESIDENT. Mr. Campbell has 24 years experience in the
high technology sectors of the defense electronics industry, is a pioneer in the
conversion of defense technologies to peaceful applications, and has 10 years
experience in the seawater desalination industry. Prior to founding Integrated
Water & Power,(IW&P) during 1997, Mr. Campbell was founding President and Chief
Executive Officer of Advanced Distillation Technology (ADTech, founded 1991). He
was responsible for the identification and negotiation of Kaiser Aerospace &
Electronics, Saudi Industries for Desalination Membranes and Systems, and
Singapore Technologies Automotive as key investors and partners. He was
responsible for ADTech's system design and the location and selection of all key
technologies and personnel. While Mr. Campbell was President and CEO of Advanced
Distillation Technologies, a development stage company, working on exactly what
its name describes. This company had no sales in the time Mr. Campbell was
running it.
In 1983, Mr. Campbell founded, operated and developed Advanced Counter Measure
Systems (ACMS) a privately held corporation which supplied advanced technology
electronic systems to all U.S. military services and several federal agencies.
During 1987 and 1988 Mr. Campbell arranged and concluded the significant sale of
equity in ACMS to TRW, Inc., of Delaware and EDO Corporation of New York.
While at Watkins-Johnson Co. from 1966 to 1983 Mr. Campbell progressed from
Member to the Technical Staff in Device R&D to Staff Scientist in Electronics
Warfare Systems, to Founding Department Manager of the Electronics Warfare
Systems group.
From 1967 to 1970 while in military service ((U.S. Army Security Agency and
Strategic Communications Command) he designed and deployed extensive test
networks used to explore Electromagnetic Pulse effects in support of the
Safeguard Anti-Ballistic Missile System development.
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Mr. Campbell is a graduate of St. Mary's College of Moraga, California (B.S.
Physics, 1966), did graduate studies at the University of Arizona (Systems
Engineering 1968), participated in the Honors Program at Stanford University
(Microwave Engineering, 1975) and holds a California State Teaching Credential
(lifetime).
J. MICHAEL HOPPER - SECRETARY/TREASURER. Mr. Hopper joined the Company in
January of 1997. Prior to his current position, from 1986 to 1996 Mr. Hopper was
President, Founder and Partner of Rainbow Video Duplicating, Inc., of New York,
a video duplicating service company with clients in corporate, medicine,
entertainment, and instructional fields. Mr. Hopper worked closely with clients
through all stages of package, design, printing, duplication, fulfillment and
final production of an annual distribution exceeding 3 million units. Mr. Hopper
has a Bachelor of Arts degree in communications from the University of Florida.
SIGNIFICANT EMPLOYEES:
ROBERT ZHAO, Ph.D., DIRECTOR OF FUEL CELL TECHNOLOGY
Dr. Robert Zhao has 17 years of research and development experience in the field
of electrochemical energy generation and storage, ranging from primary and
secondary batteries to fuel cells. He holds a Ph.D. in Electrochemistry from
Case Western Reserve University, Cleveland, Ohio. As the director of the
Company's fuel cell technology, he oversees the development of fuel cell
components and low temperature fuel processors.
Before he joined the Company, Dr. Zhao was the program manager of high power PEM
fuel cells and a member of the company's strategic planning committee at H Power
Corporation. He was with H Power for two months before accepting his present
position with the Company in May 1997. His responsibilities at both companies
are in the area of electrochemical development. Specifically he has worked on
advanced fuel cell electrodes, stacks, and systems. Currently he is working on
advanced alkaline fuel cell technology as well as low-temperature hydrogen
generators.
While Dr. Zhao was working on Defense Advance Research Projects Agency (DARPA)
projects at CCES (Case Center for Electrochemical Sciences), he accumulated five
years of experience on the electrochemical properties of small organic molecular
fuels. He has designed and expanded a variety of technology tools to enhance the
development of direct organic fuel cell technologies, such as direct methanol
fuel cells (DMFC).
Dr. Zhao's experience also includes the development of maintenance-free
lead-acid and lithium batteries.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and
Principle Other Annual
Position Year Salary Bonus Compensation
-------- ---- ------ ----- ------------
Joseph P. Maceda 1998 $182,000 N/A N/A
President 1999 $186,368 N/A N/A
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Name and
Principle Other Annual
Position Year Salary Bonus Compensation
-------- ---- ------ ----- ------------
Robert L. Campbell 1998 $182,000 N/A N/A
V. President 1999 $186,368 N/A N/A
J. Michael Hopper 1998 $130,000 N/A N/A
Secretary/Treasurer 1999 $133,120 N/A N/A
No other compensation was given to any of the above-listed employees
during the relevant time periods. Except for providing standard-form health
insurance to it's employees, during such time period, the Company did not pay
any bonuses, or grant any stock awards, options or stock appreciation rights, or
pay any other form of compensation of perquisite.
Management Incentive Option Plan: The Company's Board of Directors has
directed the creation and implementation of a stock incentive option plan for
all employees. Details of this plan are in development, however, a block of 7
million shares of common stock has been authorized for use by such a plan. A
plan will be developed and a proposal will be presented to the Board of
Directors.
There are no standard arrangements pursuant to which the Company
directors are compensated for services provided as a director. No additional
amounts are payable to the Company's directors for committee participation or
special assignments.
Employment Contracts: The Company has executed contracts with Joseph P.
Maceda, Robert L. Campbell, J. Michael Hopper and Lori O'Brien. Terms of these
contracts are in effect for three additional years and include basic
compensation. Other terms unique to each individual address issues of travel
restitution, transportation compensation, executive health benefits, and
professional association dues. These contracts are attached as part of the
exhibits.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1999, related parties advanced the Company $650,000 in the form
of convertible debentures, as follows:
During November 1999, the Company issued three convertible debentures for
$100,000 each, one to Freedom Funding, Inc., one to Regis Investment Co.
Ltd., and one to Venture Investment Group, Inc.. Two of the debentures are
due August 1, 2004 and the third is due November 1, 2004. The debentures
accrue interest at 12% per annum. The holders of the debentures retain the
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option to convert for a period of five years any portion of the debt into the
Company's restricted common stock at a price of $1.50 per share. Any shares
issued under the conversion privileges of these debentures carry two purchase
warrants allowing the holder to purchase one additional restricted share for
each share purchase warrant held at a price of $0.75 per share. The share
purchase warrants are valid for five years after the purchase. The market
value of the Company's shares on the date of issuance of the Debenture(s) was
$1.50.
During November 1999, the Company issued one debenture to Freedom Funding,
Inc., for $350,000. The debenture is due August 1, 2004. The debenture
accrues interest at 12% per annum. The holder of the debenture retains the
option to convert for a period of five years any portion of the debt into the
Company's restricted common stock at a price of $1.50 per share. Any shares
issued under the conversion privileges of these debentures carry two purchase
warrants allowing the holder to purchase one additional restricted share for
each share purchase warrant held at a price of $0.75 per share. The share
purchase warrants are valid for five years after the purchase. The market
value of the Company's shares on the date of issuance of the Debenture(s) was
$1.50.
During 1997, 1998 and 1999, the Company made cash advances to employees. The
advances were formalized through the signing of notes receivable bearing
interest at 7% per annum with each employee at the end of each year. Per the
terms of the notes, interest is added to the balance of the notes at the end
of each year.
In 1999, 1998 and 1997 the Company advanced employees $420,334, and
$114,805 and $123,826 respectively.
During 1999 and 1998, related parties advanced the Company $1,024,357 and
$2,274,878 in the form of notes payable and wages payable, respectively.
Notes payable to related parties as of December 31, 1999 consist of the
following:
Note payable to K. Rissler bearing interest at 10% per $ 500,000
annum, due upon demand, secured by personal guarantee of
officer.
Unsecured note payable to E. Mettler for unpaid wages 215,704
bearing interest at 10% per annum, all unpaid interest and
principle due on demand.
Unsecured note payable to J.M. Hopper for unpaid wages 350,550
bearing interest at 10% per annum, all unpaid interest and
principle due on demand.
Unsecured note payable to G. Franklin for unpaid wages 174,223
bearing interest at 10% per annum, all unpaid interest and
principle due on demand.
Unsecured note payable to J.P. Maceda for unpaid wages 663,059
bearing interest at 10% per annum, all unpaid interest and
principle due on demand.
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Unsecured note payable to J.P. Maceda bearing interest at 609,818
10% per annum, due upon demand.
Unsecured note payable to L. O'Brien for unpaid wages 121,718
bearing interest at 10% per annum, due upon demand.
Unsecured note payable to L. Arikara for unpaid wages 121,647
bearing interest at 10% per annum, due upon demand.
Unsecured note payable to R. Johnson for unpaid wages 31,209
bearing interest at 10% per annum, due upon demand.
Unsecured note payable to R.L. Campbell for unpaid wages 402,186
bearing interest at 10% per annum, due upon demand.
Unsecured note payable to R. Leibowits bearing interest at 61,884
10% per annum, due upon demand.
Unsecured note payable to R. Zhao for unpaid wages bearing 229,968
interest at 10% per annum, due upon demand.
Unsecured note payable to S. Hosey for unpaid wages bearing 43,347
interest at 10% per annum, due upon demand.
Unsecured note payable to Yuyan Luo for unpaid wages bearing 143,644
interest at 10% per annum, due upon demand.
Unsecured note payable to J. Hosey for unpaid wages bearing 51,087
interest at 10% per annum, due upon demand.
Unsecured note payable to Cameron Holdings bearing interest 100,000
at 10% per annum, due upon demand.
Unsecured note payable to Xcel Associates bearing interest 250,000
at 10% per annum, due upon demand.
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES.
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
500,000,000 shares of Common Stock, with a par value of $.01 per share, of which
37,461,942 shares are issued and outstanding.
Holders of shares of common stock are entitled to (one) vote for each
share on all matters to be voted on by the shareholders. Holders of common stock
have no cumulative voting rights.
The Company does not currently anticipate paying any dividends on its
Common Stock. In the event of a liquidation, dissolution or winding up of the
Company, the holders of shares of common stock are entitled to share pro-rata
all assets remaining after payment in full of all liabilities, subject however,
to any rights of the shareholders of preferred shares issued and outstanding at
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the time of such liquidation, dissolution or winding up of the Company (see
Preferred Stock below). Holders of common stock have no preemptive rights to
purchase the Company's common stock. There are no conversion rights or
redemption or sinking fund provisions with respect to the common stock. All of
the outstanding shares of common stock are fully paid and non-assessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of
20,000,000 shares of Preferred Stock, with a par value of $.001 per share. No
such shares have been issued.
The Preferred Stock may be issued in various series and shall have
preference as to dividends and to liquidation of the Corporation. The Board of
Directors of the Company shall establish the specific rights, preferences,
voting privileges and restrictions of such preferred stock, or any series
thereof. Holders of preferred stock have no cumulative voting rights .
WARRANTS
Pursuant to the private placement financing undertaken in January 2000,
the Company has issued 1,963,674 warrants (see Part II, item 4(b)(13)), each to
purchase one additional share of common stock. The exercise price of the
warrants ranges from $1.991 to $5.144, and the warrants are exercisable at
various dates through August 2003.
Pursuant to a private placement financing undertaken in August, 2000,
the Company has issued 1,000,000 warrants (see Part II, item 4(b)(14)), each to
purchase one additional share of common stock. The exercise price of the
warrants is $1.50 and the warrants are exercisable through August, 2003.
DEBENTURES
The Company has issued four convertible debentures (see Item 7, above),
three for $100,000 and one for $350,000. The debentures carry a rate of interest
of 12% per annum, and are due in 2004 (three of the debentures are due on August
1, 2004 and one debenture is due on November 1, 2004). At the option of the
holder, the debentures can be converted into shares of common stock at a price
of $1.50 per share. Any shares issued pursuant to such conversion shall carry
two purchase warrants allowing the holder to purchase from the Company, at a
price of $.75, one additional restricted share for each purchase warrant held.
The share purchase warrants are valid for a period of 5 years after the date of
issuance.
The Company's transfer agent is Interstate Transfer Company, 6084 South
900 East, Suite 101, Salt Lake City, Utah 84121
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PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
The Company's common stock is traded on OTC Pink Sheets under the
symbol PWRE.
The following table sets for the high and low bid prices for the
Company's common stock for the past two years. The prices below also reflect
inter-dealer quotations, without retail mark-up, mark-down or commissions and
may not represent actual transactions.
High Low
Quarter Ended Ask $ Bid $ Close $
------------- ----- ----- -------
March 1998 1.92 1.19 1.75
June, 1998 3.93 2.93 3.00
September, 1998 3.50 2.37 2.40
December, 1998 5.30 4.60 4.80
March, 1999 .81 .62 .68
June, 1999 .54 .51 .53
September, 1999 2.25 1.50 2.12
December, 1999 1.37 1.25 1.37
March, 2000 13.37 1.37 7.50
June, 2000 7.75 2.50 6.25
September, 2000 5.18 4.03 5.12
Source: Financial Web. Historical Data
Please note that until June 22, 1999, which is the date of the merger of PTC
Group (which had a public market for its securities) into PTC Holdings (which
had no market for its securities before the merger), the above prices including
those of June, 1999 were for PTC Group only.
As of October 19, the bid price of the Company's Common Shares was
$4.00 per share.
B. HOLDERS
As of October 19, there were approximately 232 holders of the Company's
common stock, as reported by the Company's transfer agent. This number does not
reflect those shareholders whose shares are held by a broker-dealer or other
institutional nominee.
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C. DIVIDENDS
The Company has not paid any dividends on its Common Stock. The Company
currently intends to retain any earnings for use in its business, and therefore
does not anticipate paying cash dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not subject to any legal proceedings or claims.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
a. CONSULTING AGREEMENTS
---------------------
During July 1997, the Company entered into a consulting agreement with Richard
Morris Associates for services in connection with the development of the
Company's desalination project on an as needed basis. The agreement is for one
year and calls for payments of $1,000 per month plus expenses. During June 1998,
the Company extended this agreement through December 1998. During January 1999,
the Company extended this agreement through December 1999. During January 2000,
the Company extended this agreement through December 2000.
During June 1999, the Company entered into a consulting agreement with D.
Weckstein & Co.Inc.(Weckstein)as financial consultants and investment bankers
for a period of two years. Weckstein & Company is a broker dealer and a member
of the National Association of Securities Dealers. The company has been in
business since 1987 and have extensive contacts befitting Ocean Power's business
plan. It introduced Ocean Power to Prudential Securities; to electrical utility
corporations in Europe; to desalination plants in South America and held
institutional meetings both in the United States and Europe. It will continue to
search for business opportunities for Ocean Power Corporation in the future.
The Weckstein agreement calls for the Company to issue options to
purchase 300,000 shares of the Company's common stock at a price of $5.00 per
share for a period of three years from the date of the agreement. The agreement
also calls for cash payments in connection with certain financial transactions
consummated as a result of introduction by Weckstein such as mergers,
acquisitions, joint ventures, debt or lease placements and similar or other,
on-balance or off-balance sheet corporate finance transactions as follows:
1. 7% of the first $1,000,000 of the consideration paid in such
transaction;
2. 6% of the consideration in excess of $1,000,000 and up to$3,000,000;
3. 5% of the consideration in excess of $3,000,000 and up to $5,000,000;
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4. 4% of the consideration in excess of $5,000,000 and up to $7,000,000;
5. 3% of the consideration in excess of $7,000,000 and up to $9,000,000;
and
6. 2% of the consideration in excess of $9,000,000.
During December 1999, the agreement was amended whereby Weckstein will receive
options to purchase up to 125,000 shares of common stock at a price of $1.00 per
share until December 31, 2003. This amendment supercedes the agreement dated
June 23, 1999. During 1999, the Company paid $10,000 in commissions to
Weckstein. No options were exercised as of December 31, 1999. The market price
for these shares was $1.15 on the date of the amendment.
During February 2000, the Company signed an amendment to its agreement for
consulting services with Weckstein. The amendment calls for the Company to issue
75,000 options to purchase the Company's common stock exercisable at $6.00 per
share for three years. This amendment supercedes the agreement dated December 7,
1999. The market price for these shares was $6.25 on the date of the amendment.
During April 2000, the Company signed an amendment to its agreement for
consulting services with Weckstein dated February 18, 2000. The amendment
cancels the options previously issued and calls for the Company to issue 110,000
options to purchase the Company's common stock exercisable at $3.00 per share
until February 18, 2003. This amendment supercedes the agreement dated February
18, 2000. The market price for these shares was $3.00 on the date of the
amendment.
In August 2000, there was a Fourth Amendment to the agreement for consulting
services with Weckstein which calls for the Company to issue 110,000 options to
purchase the Company's common stock exercisable at $3.50 per share until August
31, 2003. The market price for these shares was $3.58 on the date of the
amendment.
During March 1999, the Company entered into a consulting agreement with Richard
Brown for services in connection with obtaining equity financing for the
Company. The agreements calls for the payment of a 10% commission for any and
all funds delivered to the Company during 1999. No funds were delivered to the
Company and no commission payment were made during 1999.
During July 1999, the Company entered a six month business consulting agreement
with Xcel Associates, Inc. to perform business management and marketing
services, which may be renewed for a provisional three month period upon mutual
agreement of the parties. The agreement calls for the Company to issue 500,000
shares of the Company's common stock as follows: 1) 150,000 shares within one
week of signing the agreement; 2) 150,000 shares within 30 days based on
mutually agreed upon performance as well as the right to purchase up to
1,000,000 shares of common stock at $0.50 per share and the payment of expenses
incurred. The market price for these shares was $4.10 on the date of the signing
of the agreement.
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During November 1999, the Company entered into a 30 day consulting agreement
with Intercontinental Capital Corp. to assist the Company to obtain financing.
The agreement calls for the Company to pay $42,000 for services, $6,000 for
expenses and issue 60,000 shares of the Company's common stock. The Company paid
all fees and expenses and issued 60,000 shares of common stock in conjunction
with this agreement and allowed the agreement to expire. The market price for
these shares was $1.40 on the date of the signing of the agreement.
During January 2000, the Company entered into a three year consulting agreement
with Clement J. Wohlreich to provide financial, marketing and management
services. Clement J. Wohlreich has been a member of various national stock
exchanges from 1967 through 1987 i.e. AMEX, NYSE CBO, etc. In 1987, he formed
his own OTC trading firm and is self employed. He is also the manager of the San
Francisco office of Electronic Trading Group who have 20 offices in the US and
overseas. The agreement calls for the Company to issue 100,000 units at $3.00
per unit, consisting of one share of the Company's common stock and one warrant.
The warrants will have a life of three years and a purchase price of $1.50 per
warrant. The market price for these shares was $1.57 on the date of the signing
of the agreement.
During January 2000, the Company entered into a three year consulting agreement
with EBM, Inc. to disseminate investor information on the Company to the market
place and develop buyer's who purchase the Company's stock. The agreement calls
for the Company to pay $4,000 per month until the Company secures a total of
$5,000,000 in financing, then the Company will pay $6,000 per month for 12
months and grant 100,000 options to purchase the Company's common stock. The
options will have a four year life and will be priced at $1.50 per share. The
market price for these shares was $1.57 on the date of the signing of the
agreement.
EBM specializes in start-up and early stage companies, EBM has provided `new
business consulting' services for over 15 years. The principal of EBM has
provided his clients with assistance in developing marketing plans, securing
early stage financing, locating key personal, and writing business plans.
Recently, EBM has begun providing Investor Relations services for its clients.
EBM is now able to bring its new business development experience in support of
early stage public companies, such as Ocean Power Corporation.
During January 2000, the Company entered into a consulting agreement with Donner
Corp. International to provide initial marketing and promotion services. The
agreement calls for the Company to pay a retainer of $2,500, $100,000 for
services in connection with the assisting the Company to implement its business
objectives and issue 10,000 warrants to purchase the Company's common stock at a
strike price equal to 80% of the lowest five day average stock closing price
from January 2-31, 2000. The warrants are exercisable for three years beginning
February 1, 2000. The market price for these shares was $1.41 on the date of the
signing of the agreement.
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Exemption for Issuance of Securities Described above.
-----------------------------------------------------
The Company claims the exemptions from registration provided by Section
4(2) of the Securities Act of 1933, for the securities issued in connection with
the agreements described in this Part II, Item 4(a). Each such issuance was made
pursuant to individual contracts which are discrete from one another and are
made only with persons who were sophisticated in such transactions and who had
knowledge of and access to sufficient information about the Company to make an
informed investment decision. Among this information was the fact that the
securities were "restricted securities".
b. ISSUANCE OF COMMON STOCK
------------------------
The Company has had several different transactions with respect to its
securities since it began current operations during the past 3 years. They are
presented below, adjusted to give effect to the number of shares and price after
the reverse merger which created the current Company. Unless otherwise stated,
sales of securities made before the reverse merger which is described in History
of the Company, were made by the Company (PTC Holdings) at the fair value of
such shares on the date of the transaction. Such sales were made for what was
then the common stock of PTC Holdings, for consideration given to PTC Holdings
by persons who had a connection with PTC Holdings. The Company claims one or
more exemption from registration or qualification for each such transaction. If
any such exemption is lost or not achieved, the Company may become liable for
substantial liability.
1) RECAPITALIZATION OF PTC HOLDINGS, INC. ("HOLDINGS") AND PTC
---------------- ---------------- ---- --------------------
GROUP, INC. ("GROUP"), JUNE 22, 1999.
-------------------------------------
On June 22, 1999, the Company completed a recapitalization between Group and
Holdings. The presentation of the recapitalization is as follows: The equity of
the acquiring entity (Holdings) is presented as the equity of the combined
enterprise, however, the capital stock account of the acquiring entity
(Holdings) is adjusted to reflect the par value of the outstanding stock of the
legal acquirer (Group) after giving effect to the number of shares issued in the
reverse merger. Accordingly on June 22, 1999, the Company had 6,291,450 shares
of common stock outstanding; and 25,044,146 shares as detailed below have been
retroactively restated for an equivalent number of shares received in the merger
by Holdings.
Exemption For This Issuance:
---------------------------
The Company claims the exemption from registration provided by the
Securities Act of 1933, Section 3(a)(9).
2) OFFERING TO EMPLOYEES AND CONSULTANTS FOR CASH.
-----------------------------------------------
In appreciation for the support of its employees and consultants given to the
Company by not terminating their association with the Company even though it was
experiencing financial difficulties, the Company offered certain key employees
and consultants the opportunity to purchase common shares of the Company at par
value. This offering was open between February 24, 1998 and June 17, 1999.
1,962,754 shares were issued to 24 persons.
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The offered shares were common stock of the Company. No commissions
were paid in connection with these sales. The price of each share was $0.003 (as
adjusted). Each sale was made for cash.
Exemption For This Issuance:
----------------------------
The Company claims the private offering exemption provided by Section 4
(2) of the Securities Act of 1933, among others which may be available. The
offering was made only to those persons who, by reason of their relationship
with the Company, had knowledge of and access to sufficient information about
the Company to make an informed investment decision. Among this information was
the fact that the securities were "restricted securities". The certificates for
their shares were "legended as restricted" and the Company's transfer agent was
notified that these securities were restricted.
3) OFFERING TO VENDORS, LENDERS AND LANDLORD FOR CASH
--------------------------------------------------
In appreciation for the forbearance of the Company's vendors, lenders
and landlord from collecting amounts owed to them when the Company was
experiencing financial difficulties, the Company offered them the opportunity to
purchase common shares of the Company at par value. This offering was open from
April 1, 1998 through June 17, 1999. 254,388 shares were issued to 9 persons.
The offered shares were common stock of the Company. No commissions
were paid in connection with these sales. Each sale was made for cash.
Exemption For This Issuance:
----------------------------
The Company claims the private offering exemption provided by Section 4
(2) of the Securities Act of 1933, among others which may be available. The
offering was made only to those persons who, by reason of their relationship
with the Company, had knowledge of and access to sufficient information about
the Company to make an informed investment decision. Among this information was
the fact that the securities were "restricted securities". The certificates for
their shares were "legended as restricted" and the Company's transfer agent was
notified that these securities were restricted.
4) OFFERING TO LENDERS FOR CANCELLATION OF DEBT.
--------------------------------------------
In appreciation for the support of various employees of the Company,
consultants, friends or insiders for deferment of salary, fees and loans, all
during a period of financial difficulty for the Company, the Company offered
certain key creditors the opportunity to purchase common shares of the Company
in exchange for some of such or all of the amount owed to them. This offering
was open between June, 1998 and March 1, 2000. 21,949,667 were issued to 17
persons. The number of shares issued to each Lender in exchange for debt was
negotiated with each lender.
40
<PAGE>
Each of these shares was common stock of the Company. No commissions
were paid for these transactions.
Exemption For This Issuance:
----------------------------
The private offering exemption provided by Section 4(2) of the
Securities Act of 1933, among others, is claimed by the Company for these
transactions. The offering was made only to a limited number of those creditors
who, by reason of their connection to the Company, had knowledge of and access
to sufficient information about the Company to make an informed investment
decision. Among this information was the fact that the securities were
"restricted securities". The certificates for these securities were "legended as
restricted" and the Company's transfer agent was notified that these securities
were "restricted". Each of these purchasers was given an opportunity to obtain
whatever information he or she needed about the Company.
5) OFFERING TO COMPANY FOUNDERS IN EXCHANGE FOR DEBT
-------------------------------------------------
On June 16, 1998, the Company was approached by three (3) of its
founders; Joseph Maceda, Robert Campbell and Rocco Guarnaccia with the
opportunity to exchange debt owed to them. The Company offered to convert
$83,881.00 worth of debt in exchange for 1,061,400 shares of its common stock
value at $0.079 to the following:
Name of Creditor Amount of Debt No. of Shares
---------------- -------------- -------------
Joseph P. Maceda $27,804.00 348,000
Robert Campbell $27,750.00 348,000
Rocco Guarnaccia $28,327.00 365,400
Exemption For This Issuance:
---------------------------
The Company claims, among others, the private offering exemption
provided by Section 4(2) of the Securities Act of 1933. The offering was made
only to founders and officers and insiders of the Company who, by reason of
their positions with the Company had knowledge of and access to sufficient
information about the Company to make an informed investment decisions. Each
investor was given whatever additional information he required. Among this
information was the fact that the securities were "restricted securities". The
certificates for these securities were "legended as restricted" and the
Company's transfer agent was notified that these securities were "restricted".
Each of these shares was common stock of the Company. No commissions
were paid.
6) MISTAKEN ISSUANCES
------------------
On October 1, 1999, the Company canceled 502,500 shares of common stock
which had been issued prior to the reverse merger. These shares were issued to
Rocco Guarnaccia in the amount of 500,000 shares and 2,500 shares issued to
James Cartwright and his wife. These securities were issued by mistake and were
not properly authorized. All parties agreed to their cancellation. The Company
canceled these shares at a zero valuation because the expense recorded as part
of the retained deficit of Group was eliminated as part of the reverse merger.
41
<PAGE>
7) ISSUANCE TO XCEL
----------------
The Company entered into a six month Contract with Xcel Associates,
Inc. ("Xcel") on July 12, 1999. The contract provided that Xcel would perform
business consulting services. The consideration was composed of two parts. The
first part consisted of three installments of stock issuances based upon
mutually agreed performance. The second part consisted of an option to purchase
100,000 shares.
A first issuance on July 15, 1999 for 15,000 shares was the first
installment of the contract. The second issuance on July 15, 1999 for 10,000
shares was a partial exercise of the Xcel option.
The issuance on July 26,1999 for 10,000 was a partial exercise of Xcel
option.
On August 9, 1999 Xcel made a loan to the Company. Part of the
consideration for making the loan was 100,000 shares . On August 12, 1999 the
Company issued, on instructions from Xcel, 50,000 shares each to Edward Meyer,
Jr. and Edward Whelan.
The first issuance on September 2, 1999 for 15,000 shares was the
second installment of the contract. The second issuance on September 2, 1999 for
5,000 shares was a partial payment on the third installment.
On September 9, 1999 the Company authorized additional stock options to
Xcel. On September 9, 1999, Xcel exercised those options and at there direction
the Xcel issued 50,000 shares each to Xcel and Carl Tortora.
On January 4, 2000, the Company, on instructions from Xcel, issued
25,000 shares each to Edward Meyer, Jr. and Edward Whelan as consideration for
the Xcel loan being in default. This consideration was a part of the loan
document.
Exemption For This Issuance:
---------------------------
The Company claimed the private offering exemption provided by Section
4 (2) of the Securities Act of 1933, among others which may be available. The
offering was made only to those persons who, by reason of their relationship
with the Company, had knowledge of and access to sufficient information about
the Company to make an informed investment decision. Among this information was
the fact that the securities were "restricted securities". The certificates for
their shares were "legended as restricted" and the Company's transfer agent was
notified that these securities were restricted
Facts and Issuees
-----------------
D. Weckstein & Co. Inc. received $31,500 in fees for the
transaction with Xcel
42
<PAGE>
The offered shares were common stock of the Company.
Name of Date of Price per Total Price
Issuee Purchase No. of Shares Market Value $ Share $
-----------------------------------------------------------------------------
XCEL 7/15/99 15,000 7.80 7.80 117,000
-----------------------------------------------------------------------------
XCEL 7/15/99 10,000 7.80 5.00 50,000
-----------------------------------------------------------------------------
XCEL 7/26/99 10,000 6.10 5.00 50,000
-----------------------------------------------------------------------------
MEYER 8/12/99 50,000 2.50 2.50 125,000
-----------------------------------------------------------------------------
WHELAN 8/12/99 50,000 2.50 2.50 125,000
-----------------------------------------------------------------------------
XCEL 9/2/99 15,000 2.90 2.90 43,500
-----------------------------------------------------------------------------
XCEL 9/2/99 5,000 2.90 2.90 14,500
-----------------------------------------------------------------------------
XCEL 9/9/99 50,000 2.90 1.00 50,000
-----------------------------------------------------------------------------
TORTORA 9/9/99 50,000 2.90 1.00 50,000
-----------------------------------------------------------------------------
MEYER 1/4/00 25,000 2.75 2.75 68,750
-----------------------------------------------------------------------------
WHELAN 1/4/00 25,000 2.75 2.75 68,750
-----------------------------------------------------------------------------
8) SECURITIES ISSUED TO FINDERS
----------------------------
On November 29, 1999 the Company issued 400,000 shares of common stock
valued at the then trading price of $1.34 per share for finders fees relating to
the reverse merger acquisition and the original plan and agreement of merger
between PTC Holdings and PTC Group which created the Company. The securities
were issued in the following amounts to the following persons.
Name No. of Shares Total Value Rendered for Services
------------------------ ------------- ---------------------------------
Frankie Fu 20,000 $ 26,800.00
Freedom Funding, Inc. 100,000 $134,000.00
Venture Investment Group 80,000 $107,200.00
Rocco Guarnaccia 200,000 $268,000.00
Exemption For This Issuance:
---------------------------
This offering was made pursuant to the private exemption provided by
Section 4 (2) of the Securities Act of 1933. The offering was made to only a
very limited number of persons or entities (less than 10) who had acted as
finders for the Company and who, by reason of their relationship with the
Company, had knowledge of and access to sufficient information about the Company
to make informed investment decisions. Among this information was the fact that
the securities were "restricted securities". The certificates for these shares
were "legended as restricted" and the Company's transfer agent was notified that
these securities were "restricted".
9) OFFERING PURSUANT TO SECTION 504 TO COLORADO RESIDENTS.
-------------------------------------------------------
In December of 1999 the Company issued a total of 755,085 shares of
common stock to 4 persons. These shares were part of a $600,000 private
placement to Colorado residents only. The shares were issued for cash of
$600,000. The shares were issued at 60% of the closing bid price one day prior
to issuance.
43
<PAGE>
Each of these shares was common stock of the Company. Intercontinental
Capital Corp., a consulting company, received a commission, its expenses, and
also 60,000 shares of common stock. The common stock portion of this
consideration was issued, per Intercontinental Capital Corporation's
instructions, to CJB Consultant Corporation, and Gold Capital Group, Inc.
Exemption For This Issuance:
---------------------------
The offering was made to a limited number of investors in Colorado.
Each investor was a "qualified investor". Each investor had sufficient
information to make a good investment decision and was offered any other
additional information that it required. The Company claims the exemption
provided by Section 504 of Regulation D as well as the private offering
exemption of Section 4(2) of the Securities Act of 1933, among others.
10) OFFER TO PRINCIPAL CREDITORS
----------------------------
On December 31, 1999, the Company offered to exchange $889,116 in debt
owed to the 2 principal financiers of the Company up to that point. The debt was
for funds advanced to the Company to pay general operating expenses.
Exemption For This Issuance:
---------------------------
The Company claims, among other exemptions, the private offering
exemption provided by Section 4(2) of the Securities Act of 1933. The offering
was made only to those creditors who, by reason of their connection to the
Company, had knowledge of and access to sufficient information about the Company
to make an informed investment decision. Among this information was the fact
that the securities were "restricted securities". The certificates for these
securities were "legended as restricted" and the Company's transfer agent was
notified that these securities were "restricted". Each of these purchasers was
given an opportunity to obtain whatever information he or she desired about the
Company.
Facts and Transferees:
---------------------
Each of these shares was common stock of the Company. No
commissions were paid for this transaction.
Total Debt
Name of Creditor Date of Exchange No. of Shares Exchange
-------------------- ---------------- ---------------- -------------------
Bensonal Ltd. 12/31/99 296,372 $444,558
Venture Investments 12/31/99 296,372 $444,558
-------------------- ---------------- ---------------- -------------------
44
<PAGE>
11) PRIVATE OFFERING TO A.J.B. DE JONG LUNEAU FOR $100,000.
-------------------------------------------------------
On January 6, 2000, the Company completed a private offering with Mr.
A.J.B. De Jong Luneau for $100,000. Mr. Luneau is a resident of The Netherlands.
The price per share was $2.10 for a total of 47,619 shares of common stock. The
share price was 80 per cent of the closing price on January 6,2000. The Company
claims, among other exemptions, the private offering exemption provided by
Section 4(2) of the Securities Act of 1933.
12) PRIVATE PLACEMENT PER REGULATION D FOR $6,000,000.
--------------------------------------------------
On January 24, 2000, the Company authorized a Private Placement for $6
Million, which was later increased to $6,919,000. Each participant was required
to submit a "Subscription Agreement and Representations of Investor" documents.
Each investor agreed to purchase unit(s) consisting of one share of common stock
and one warrant. The purchase price of the common share(s) was eighty percent
(80%) of the market value based on the five (5) day average prior to closing.
The warrant(s) have a life of three (3) years and a purchase price of fifty
percent (50%) of the market value of the current common stock based on the five
(5) day average prior to closing. (See Item 4C) below for further discussion of
warrants) Each investor made a representation that it was an accredited
investor. The private placement was closed on August 22, 2000. 1,963,674 shares
were issued to 49 persons.
The securities were common stock of the Company. A commission of
$26,289.00 was paid to Edward W. Thomas.
Exemption For This Issuance.
---------------------------
The company claims exemption from regulation per Regulation D and the
private offering exemption of the Securities Act of 1933, among others. The
offering was made only to a limited number of persons, all of whom were
accredited investors. Forty-nine (49) persons purchased these shares. Each
investor had adequate information with which to make an informed investment
decision and was given the opportunity to obtain what additional information he
or she required. Each investor acknowledged in writing that its investment was
in restricted securities. No public means of presenting the offer were used.
13) PRIVATE PLACEMENT PER REG. D FOR $3,000,000.
-------------------------------------------
On August 29, 2000, the Company authorized a Private Placement for
$3,000,000. Each participant was required to submit a Subscription Agreement and
Representations of Investor documents. Each investor agreed to purchase unit(s)
consisting of one share of common stock and one warrant. The purchase price of
the unit(s) was $3.00 per unit. The warrant(s) will have a life of three (3)
years and a purchase price of $1.50. 1,000,000 units were issued to 22 persons.
The market value of the shares on August 29 was $5.00. Each investor
acknowledged in writing that its investment was in restricted securities. No
public means of presenting the offer were used.
The securities were common stock of the Company. No Commissions were
paid
Exemption For This Issuance.
----------------------------
The company claims exemption from regulation per Regulation D and the
private offering exemption of Section 4(2) of the Securities Act of 1933, among
others. The offering was made only to a limited number of persons, all of whom
were accredited investors. Twenty-two (22) persons purchased these shares. Each
investor had adequate information with
45
<PAGE>
which to make informed investment decision and was given the opportunity to
obtain what additional information he or she required. Each investor
acknowledged in writing that its investment was in restricted securities. No
public means of presenting the offer were used.
14) ISSUANCE PER MERGER WITH SIGMA ELEKTROTEKNISK
---------------------------------------------
The Company entered into a Share Purchase Agreement ("Agreement") with
the Shareholders of SIGMA Elektroteknisk, ("SIGMA") on July 25, 2000 whereby the
Shareholders of SIGMA agreed to a stock for stock exchange as set forth in the
Agreement. There were no prior material relationships between or among any of
the Shareholders of SIGMA and the Company or any of their officers, directors,
associates or affiliates. The acquisition was completed on August 10, 2000. It
did not require the use of any funds. Pursuant to the terms of the Agreement,
the Company acquired 100% of the issued and outstanding shares of SIGMA from its
Shareholders in return for 1,178,748 shares of the Company's restricted common
stock valued at $3.20 per share or $5,500,000. The common stock of the Company
issued in connection with the acquisition have not been registered under the
Securities Act of 1933. The acquisition will be accounted for as a purchase per
the requirements of APB No. 16.
No finder or commissions are involved.
Exemption For This Issuance.
----------------------------
All transferees were residents of Scandinavia. The requirements of
Regulation S were followed.
c. WARRANTS
--------
During March 1999, the Company issued warrants allowing the holder to
purchase one restricted share of the Company's common stock for each share
purchase warrant held in conjunction with convertible debentures issued in
November 1998. The total warrants granted amounted to 70,000 shares at an
exercise price of $1.50 per share for five years. The market value was $1.50 at
the date of issuance.
During May 1999, the Company issued warrants allowing the holder to
purchase one restricted share of the Company's common stock for each share
purchase warrant held in conjunction with convertible debentures issued in
November 1998. The total warrants granted amounted to 720,738 shares at an
exercise price of $1.50 per share of five years. The market value for these
shares was $1.50 at the date of issuance.
During November 1999, the Company issued warrants allowing the holder
to purchase one additional restricted share of the Company's common stock for
each share purchase warrant held in conjunction with four convertible
debentures. The total warrants granted amounted to 866,666 shares at an exercise
price of $1.50 per share for five years. The market value for these shares was
$1.50 at the date of issuance.
During January 2000, the Company issued warrants allowing the holder to
purchase 100,000 shares of the Company's common stock in conjunction with a
consulting agreement. The warrants are exercisable at a price of $1.50 per share
for three years. The market value for these shares was $1.38 at the date of
issuance.
46
<PAGE>
During January 2000, the Company issued warrants allowing the holder to
purchase 100,000 shares of the Company's common stock in conjunction with a
consulting agreement. The warrants are exercisable at a price of $2.17 per share
for three years. The market value for these shares was $2.71 at the date of
issuance.
January 25 - August 14, 2000, The Company issued warrants (see Part II,
Item 13) allowing the holder to purchase one share of the Company's common stock
for each share purchase warrant held in conjunction with a private placement
memorandum. The total warrants granted amounted to 1,948,411 shares at a
weighted average exercise price of $2.19 per share for three years. The weighted
average market price for these shares was $3.50 between January 25, 2000 and
August 14, 2000.
In August, 2000, the Company has issued 1,000,000 warrants (see Part
II, Item 14) each to purchase one additional share of common stock. The exercise
price of the warrants is $1.50 and the warrants are exercisable in August, 2003.
The market value of the Company's common stock was $5.00 at the time of
issuance.
<TABLE>
<CAPTION>
Exercise Exercise Trading Amount Expiration
Description Warrant Number Price Price Exercised Date
----------- ------- ------ ----- ----- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Freedom Funding]
Freedom Funding] 3-30-99 70,000 $ 1.50 $ 1.50 70,000 3-30-04
Paradon Limited]
Enterprise Capital 5-7-99 720,738 $ 1.50 $ 1.50 720,738 5-7-04
Regis Investment 11-16-99 133,333 $ 0.75 $ 1.50 133,333 11-16-04
Venture Investment 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 466,667 $ 0.75 $ 1.50 - 11-16-04
Clement J. Wohlreich 1-1-00 100,000 $ 1.50 $ 1.38 - 1-1-03
Donner Corp, Int'l 1-20-00 100,000 $ 2.17 $ 2.71 - 2-1-03
Reg. D.
Private placement 1-25-00 to 1,963,674 $ 2.17 $ 3.50 62,792 1-25-00 to
Investors 8-25-00 8-13-03
Reg. D Private
placement investors 8-29-00 1,000,000 $ 1.50 $ 5.00 -0- 8.29.03
</TABLE>
47
<PAGE>
Exemption for Registration.
---------------------------
The Company claims the private offering exemption provided by Section 4
(2) of the Securities Act of 1933, among others which may be available. The
offering was made only to those persons who, by reason of their relationship
with the Company, had knowledge of and access to sufficient information about
the Company to make an informed investment decision. Among this information was
the fact that the securities were "restricted securities". The certificates for
their shares were "legended as restricted" and the Company's transfer agent was
notified that these securities were restricted.
d. DEBENTURES
----------
During November 1999, the Company issued three convertible debentures
for $100,000 each. Two of the debentures are due August 1, 2004 and the third is
due November 1, 2004. The debentures accrue interest at 12% per annum. The
holders of the debentures retain the option to convert for a period of five
years any portion of the debt into the Company's restricted common stock at a
price of $1.50 per share. Any shares issued under the conversion privileges of
these debentures carry two purchase warrants allowing the holder to purchase one
additional restricted share for each share purchase warrant held at a price of
$0.75 per share. The share purchase warrants are valid for five years after the
date of purchase.
During March 2000, 66,667 shares of common stock were issued to convert
one of the three debentures and 133,333 shares were issued in conjunction with
the warrants.
During November 1999, the Company issued a convertible debenture for
$350,000. The debenture is due August 1, 2004 and accrues interest at 12% per
annum. The holder of the debenture retains the option to convert for a period of
five years any portion of the debt into the Company's restricted common stock at
a price of $1.50 per share. Any shares issued under the conversion privileges of
this debenture also carry two purchase warrants allowing the holder to purchase
one additional restricted share for each share purchase warrant held at a price
of $0.75 per share. The share purchase warrants are valid for five years after
the of purchase.(See Item 7 Page 31).
48
<PAGE>
Exemption for Registration.
---------------------------
The Company claims the private offering exemption provided by Section 4
(2) of the Securities Act of 1933, among others which may be available. The
offering was made only to three persons who, by reason of their relationship
with the Company, had knowledge of and access to sufficient information about
the Company to make an informed investment decision. Among this information was
the fact that the securities were "restricted securities". The certificates for
their shares were "legended as restricted" and the Company's transfer agent was
notified that these securities were restricted.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the provisions of the General Corporation Law of the
State of Delaware (the "Delaware Code"), the Company has the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that the person
is or was a director, officer, employee or agent of the corporation if such
officer or director acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interest of the Company. Any such person may be
indemnified against expenses, including attorneys' fees, judgments, fines and
settlements to the extent they have been on the merits or otherwise in defense
of any action, suit or proceeding. Further, the Delaware Code permits a
corporation to purchase and maintain liability insurance on behalf of its
officers, directors, employees and agents. Neither the Company's Articles of
Incorporation nor By-Laws makes provisions for the indemnification of the
Company's officers and directors nor for the purchase of liability insurance on
behalf of its officers, directors, employees and agents. The Company does not
maintain any such liability insurance.
49
<PAGE>
PART F/S
The Company's consolidated financial statements for the fiscal years
ended December 31, 1998 and 1999, have been examined to the extent indicated in
their reports by Jones, Jensen & Company, independent certified public
accountants,and have been prepared in accordance with generally accepted
accounting principles and pursuant to Regulation S-B as promulgated by the
Commission and are included herein in response to Item 15 of this Form 10-SB.
50
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
F1-1
<PAGE>
C O N T E N T S
Independent Auditors' Report................................................F1-3
Consolidated Balance Sheet..................................................F1-4
Consolidated Statements of Operations.......................................F1-6
Consolidated Statements of Stockholders' Equity (Deficit)...................F1-7
Consolidated Statements of Cash Flows.......................................F-13
Notes to the Consolidated Financial Statements.............................F1-15
F1-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ocean Power Corporation
(Formerly PTC Group, Inc. and Subsidiary)
El Dorado Hills, California
We have audited the accompanying consolidated balance sheet of Ocean Power
Corporation (formerly PTC Group, Inc. and Subsidiary) (a development stage
company) as of December 31, 1999, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years ended
December 31, 1999 and 1998 and from inception on March 26, 1992 through December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ocean Power
Corporation (formerly PTC Group, Inc. and Subsidiary) (a development stage
company) as of December 31, 1999, and the results of their operations and their
cash flows for the years ended December 31, 1999 and 1998 and from inception on
March 26, 1992 through December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
consolidated financial statements, the Company is a development stage company
which has generated significant losses from inception and a stockholders deficit
of $5,006,233 at December 31, 1999 which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 8. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
April 30, 2000
F1-3
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
December 31,
1999
CURRENT ASSETS
Cash $ 368,276
Advances to employees 658,965
-----------------
Total Current Assets 1,027,241
-----------------
EQUIPMENT (Note 2) 52,555
-----------------
OTHER ASSETS
Equipment procurement costs (Note 4) 364,110
Deposits 20,402
-----------------
Total Other Assets 384,512
-----------------
TOTAL ASSETS $ 1,464,308
=================
The accompanying notes are an integral part of these consolidated financial
statements.
F1-4
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
December 31,
1999
CURRENT LIABILITIES
Accounts payable $ 1,453,908
Accrued expenses (Note 7) 326,582
Notes payable - related parties (Note 5) 4,040,051
Convertible debentures payable (Note 6) 650,000
-----------------
Total Current Liabilities 6,470,541
-----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.001 par value; no shares outstanding -
Common stock: 500,000,000 shares authorized of
$0.01 par value; 32,835,925 shares issued and outstanding 328,359
Additional paid-in capital 5,844,025
Deficit accumulated during the development stage (11,178,617)
-----------------
Total Stockholders' Equity (Deficit) (5,006,233)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,464,308
=================
The accompanying notes are an integral part of these consolidated financial
statements.
F1-5
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception on
March 26,
For the Years Ended 1992 Through
December 31, December 31,
1999 1998 1999
---------------- ----------------- -----------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
EXPENSES
General and administrative 4,857,844 2,292,181 8,760,259
Research and development 258,000 360,000 1,250,000
Depreciation and amortization 18,742 17,136 50,694
--------------- ----------------- -----------
Total Expenses 5,134,586 2,669,317 10,060,953
--------------- ----------------- -----------
LOSS FROM OPERATIONS (5,134,586) (2,669,317) (10,060,953)
--------------- ----------------- -----------
OTHER INCOME (EXPENSE)
Loss on sale of assets (387,649) -- (387,649)
Interest expense (432,052) (248,647) (730,015)
--------------- ----------------- -----------
Total Other Income (Expense) (819,701) (248,647) (1,117,664)
--------------- ----------------- -----------
NET LOSS $ (5,954,287) $ (2,917,964) $ (11,178,617)
=============== ============== ==============
BASIC LOSS PER SHARE $ (0.22) $ (0.23) --
=============== ============== ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING 26,465,941 12,501,630 --
=============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F1-6
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
Inception, March 26, 1992 -- $ -- $ -- $ --
Net loss from inception on
March 20, 1992 through
December 31, 1997 -- -- -- (2,306,366)
-------- --------- ---------- ----------
Balance, December 31, 1997 -- -- -- (2,306,366)
February 24, 1998, common
stock issued for cash at
$0.003 per share 395,467 3,955 (2,817) --
March 6,1998, common stock
issued for cash at $0.003 per
share 121,904 1,219 (869) --
March 12, 1998, common stock
issued for cash at $0.003 per
share 33,199 332 (237) --
March 18, 1998, common stock
issued for cash at $0.003 per
share 2,575 26 (19) --
April 2, 1998, common stock
issued for cash at $0.003 per
share 130,500 1,305 (930) --
May 14, 1998, common stock
issued for cash at $0.003 per
share 14,755 147 (106) --
-------- ---------- ---------- --------------
Balance Forward 698,400 $ 6,984 $ (4,978) $ (2,306,366)
======== ========== =========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F1-7
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
Balance Forward 698,400 $ 6,984 $ (4,978) $ (2,306,366)
June 16, 1998, common stock
issued for cash at $0.003 per
share 119,086 1,191 (849) --
June 16, 1998, common stock
issued for cash at $0.003 per
share 42,456 424 (303) --
June 16, 1998, common stock
issued for debt at $0.079 per
share 1,061,400 10,614 73,267 --
July 29, 1998, common stock
issued for cash at $0.003 per
share 34,800 348 (248) --
Net loss for the year ended
December 31, 1998 -- -- -- (2,917,964)
---------- ---------- ----------- ---------------
Balance, December 31, 1998 1,956,142 19,561 66,889 (5,224,330)
March 5, 1999, common stock
issued for cash at $0.003 per
share 334,080 3,341 (2,381) --
March 22, 1999 common stock
issued for cash at $0.003 per
share 286,682 2,867 (2,043) --
March 22, 1999, common stock
issued for debt at $0.005 per
share 19,011,220 190,112 (85,582) --
April 22, 1999, common stock
issued for cash at $0.003 per
share 129,734 1,297 (924) --
---------- ---------- ----------- ---------------
Balance forward 21,717,858 $ 217,178 $ (24,041) $ (5,224,330)
========== ========== =========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F1-8
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
Balance Forward 21,717,858 $ 217,178 $ (24,041) $ (5,224,330)
April 27, 1999, common stock
issued for cash at $0.003 per
share 5,951 59 (43) --
April 27, 1999, common stock
issued for debt at $0.003 per
share 95,700 957 (682) --
April 28, 1999, common stock
issued for cash at $0.003 per
share 12,180 122 (87) --
April 30, 1999, common stock
issued for cash at $0.003 per
share 2,888 29 (21) --
April 30, 1999, common stock
issued for debt at $0.003 per
share 22,968 230 (164) --
May 3, 1999, common stock
issued for debt at $0.003 per
share 25,717 257 (183) --
May 5, 1999, common stock
issued for cash at $0.003 per
share 32,016 320 (228) --
May 7, 1999, common stock
issued for cash at $0.003 per
share 348 3 (2) --
May 7, 1999, common stock
issued for debt at $0.003 per
share 2,610,000 26,100 (18,600) --
---------- ---------- ----------- ---------------
Balance Forward 24,525,626 $ 245,255 $ (44,051) $ (5,224,330)
========== ========== =========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F1-9
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
Balance Forward 24,525,626 $ 245,255 $ (44,051) $ (5,224,330)
May 13, 1999, common stock
issued for cash at $0.003 per
share 139,200 1,392 (992) --
May 19, 1999, common stock
issued for cash at $0.003 per
share 372,360 3,724 (2,654) --
June 17, 1999, common stock
issued for cash at $0.003 per
share 6,960 70 (50) --
Recapitalization (Note 1) 6,291,450 62,915 2,698,858 --
June 23, 1999, options issued
below market value -- -- 6,000 --
July 12, 1999, options issued
below market value -- -- 280,000 --
July 15, 1999, common stock
issued for cash at $5.00 per
share 10,000 100 49,900 --
July 15, 1999, common stock
issued for services at $7.80
per share 15,000 150 116,850 --
July 26, 1999, common stock
issued for cash at $5.00 per
share 10,000 100 49,900 --
August 12, 1999, common stock
issued for interest at $2.50
per share 100,000 1,000 249,000 --
---------- ---------- ----------- ---------------
Balance Forward 31,470,596 $ 314,706 $ 3,402,761 $ (5,224,330)
========== ========== =========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F1-10
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
Balance Forward 31,470,596 $ 314,706 $ 3,402,761 $ (5,224,330)
September 2, 1999, common
stock issued for services
valued at $0.29 per share 20,000 200 5,600 --
September 9, 1999, options
issued below market value -- -- 190,000 --
September 9, 1999, common
stock issued for cash at $1.00
per share 100,000 1,000 99,000 --
October 1, 1999, cancellation
of common stock valued at zero. (502,500) (5,025) 5,025 --
November 16, 1999, warrants
issued below market value -- -- 650,000 --
November 29, 1999, common
stock issued for finders fee
valued at $1.34 per share 400,000 4,000 533,200 --
Stock offering costs -- -- (537,200) --
December 7, 1999, options
issued below market value -- -- 20,000 --
December 10, 1999, common stock
issued for cash at $0.70
per share 71,839 718 49,282 --
December 10, 1999, common stock
issued for cash at $0.71
per share 175,070 1,751 123,249 --
December 13, 1999, common stock
issued for cash at $0.84
per share 160,131 1,601 133,399 --
---------- ---------- ----------- ---------------
Balance Forward 31,895,136 $ 318,951 $ 4,674,316 $ (5,224,330)
========== ========== =========== ===============
</TABLE>
OCEAN POWER CORPORATION
The accompanying notes are an integral part of these consolidated financial
statements.
F1-11
<PAGE>
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
Balance Forward 31,895,136 $ 318,951 $ 4,674,316 $ (5,224,330)
December 15, 1999, common stock
issued for cash at $0.90
per share 33,333 333 29,667 --
December 20, 1999, common stock
issued for cash at $0.83
per share 193,939 1,939 158,061 --
December 23, 1999, common stock
issued for cash at $0.83
per share 120,773 1,208 98,792 --
December 31, 1999, common stock
issued for conversion of related
party debt at $1.50 per share 592,744 5,928 883,189 --
Net loss for the year ended
December 31, 1999 -- -- -- (5,954,287)
---------- ---------- --------------- ---------------
Balance, December 31, 1999 32,835,925 $ 328,359 $ 5,844,025 $ (11,178,617)
========== ========== =========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F1-12
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
March 26,
For the Years Ended 1992 Through
December 31, December 31,
1999 1998 1999
----------------- ---------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (5,954,287) $ (2,917,964) $ (11,178,617)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 18,742 17,136 50,694
Common stock issued for services and
equity discounts 1,268,800 -- 1,268,800
Loss on sale of assets 387,649 -- 387,649
Change in operating asset and liability accounts:
(Increase) decrease in other assets (116,978) (417,957) (679,367)
Increase (decrease) in accounts payable 476,255 523,741 1,453,903
Increase (decrease) in cash overdraft -- (33,229) --
Increase (decrease) in accrued expenses 524,064 126,600 772,499
----------------- ---------------- ------------------
Net Cash Used by Operating Activities (3,395,755) (2,701,673) (7,924,439)
----------------- ---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 1 -- 1
Purchase of fixed assets (1,738) (17,151) (108,069)
Equipment procurement costs (364,110) -- (364,110)
----------------- ---------------- ------------------
Net Cash (Used) Provided by Investing Activities (365,847) (17,151) (472,178)
----------------- ---------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable (246,933) (1,302) (248,235)
Loans from related parties 2,919,798 2,636,857 7,556,730
Issuance of convertible debentures 650,000 -- 650,000
Common stock issued for cash 803,829 86,453 806,398
----------------- ----------------- ------------------
Net Cash Provided by Financing Activities 4,126,694 2,722,008 8,764,893
----------------- ---------------- ------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 365,092 3,184 368,276
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,184 -- --
----------------- ---------------- ------------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 368,276 $ 3,184 $ 368,276
================= ================ ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F1-13
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
From
Inception on
March 26,
For the Years Ended 1992 Through
December 31, December 31,
1999 1998 1999
----------------- ---------------- ------------------
CASH PAID FOR:
<S> <C> <C> <C>
Interest $ -- $ -- $ --
Income taxes $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for services and
equity discounts $ 1,268,800 $ -- $ 1,268,800
Common stock issued in acquisition of subsidiary $ 2,761,773 $ -- $ 2,761,773
Common stock issued for conversion of debt $ 1,335,413 $ -- $ 1,335,413
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F1-14
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of Ocean
Power Corporation and its wholly-owned Subsidiaries (the Company).
The Company has had limited activities since inception and is
considered a development stage company because no significant
revenues have been realized and planned principal operations have
not yet commenced. The Company is planning to engage in the
business of developing and marketing water desalination and
renewable power generation systems that will be modular and mass
produced. The Company plans to pursue regional joint ventures in
water and power challenged markets to build, own, operate and
transfer modular seawater desalination and power plants.
PTC Holdings, Inc. (Holdings) (formerly H Power Technologies,
Inc.) was incorporated on March 26, 1992 under the laws of the
State of Delaware to engage in any lawful act or activity for
which corporations may be organized under the General Corporation
Laws of Delaware.
PTC Group, Inc., (Group) (formerly Intryst, Inc.) was incorporated
under the laws of the State of Idaho on April 24, 1969.
On June 22, 1999, Group and Holdings completed an Agreement and
Plan of Merger whereby Group issued 25,044,146 shares of its
common stock in exchange for all of the outstanding common stock
of Holdings. Immediately prior to the Agreement and Plan of
Merger, Group had 6,291,450 shares of common stock issued and
outstanding. The acquisition was accounted for as a
recapitalization of Holdings because the shareholders of Holdings
controlled Group after the acquisition. Therefore, Holdings was
treated as the acquiring entity for accounting purposes and Group
was the surviving entity for legal purposes. There was no
adjustment to the carrying value of the assets or liabilities of
Holdings. On August 19, 1999, the shareholders of the Company
authorized a 1 for 10 reverse stock split. All references to
shares of common stock have been retroactively restated.
On July 12, 1999, Group changed its name to Ocean Power
Corporation (Idaho).
On July 21, 1999, Ocean Power Corporation (Delaware) was formed
for the purpose of changing the domicile of Ocean Power
Corporation (Idaho).
On July 28, 1999, Delaware and Idaho merged to change the domicile
from Idaho to Delaware with Delaware being the surviving entity.
F1-15
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Subsidiaries:
Integrated Water and Power Corporation (IWP) (formerly Clean Air
Power Technologies Corporation) (formerly Advanced Technologies
Manufacturing Corporation) was incorporated on December 11, 1996
under the laws of the State of Delaware to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Laws of Delaware. IWP is currently inactive.
Advanced Power Sources Corporation (APS) (formerly ZE-Power
Technologies Corporation) (formerly P.T.C. Corporation) was
incorporated on March 26, 1992 under the laws of the State of
Delaware to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Laws
of Delaware. APS is currently inactive.
Manufacturing Technologies Corporation (MTC) was incorporated on
January 7, 1997 under the laws of the State of Delaware to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Laws of Delaware. MTC is
currently inactive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using
the accrual method of accounting. The Company has elected a
December 31 year end.
F1-16
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements. Fully diluted loss per share
is not presented because of the antidilutive nature of the stock
equivalents.
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
Loss Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net loss $ (5,954,287) 26,465,941 $ (0.22)
================= ================== =================
For the Year Ended
December 31, 1998
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (2,917,964) 12,501,630 $ (0.23)
================= ================== =================
</TABLE>
c. Provision for Taxes
At December 31, 1999, the Company has net operating loss
carryforwards of approximately $11,000,000 that may be offset
against future taxable income through 2019. No tax benefit has
been reported in the financial statements, because the Company
believes there is a 50% or greater change the carryforwards will
expire unused. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same
amount.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Principles of Consolidation
The December 31, 1999 financial statements are consolidated with
Ocean Power Corporation, Integrated Water and Power Corporation,
Advanced Power Sources Corporation and Manufacturing Technologies
Corporation. All significant intercompany accounts and
transactions have been eliminated.
F1-17
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Equipment
Office equipment and software are recorded at cost. Major
additions and renewals are capitalized and depreciated over their
estimated useful lives of 3 to 7 years using the straight-line
method. Depreciation expense for continuing operations for the
years ended December 31, 1999 and 1998 was $18,742 and $17,136,
respectively.
Equipment consists of the following:
December 31,
1999
Office equipment and furniture $ 36,748
Computers and software 46,834
Phone system 19,667
Accumulated depreciation (50,694)
--------------
Net Equipment $ 52,555
==============
g. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ form those estimates.
h. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of this statement had no material
impact on the Company's financial statements.
i. Revenue Recognition Policy
The Company currently has no source of revenues. Revenue
recognition policies will be determined when principal operations
begin.
OCEAN POWER CORPORATION
F1-18
<PAGE>
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
k. Long-lived Assets
All long-lived assets are evaluated yearly for impairment per SFAS
121. Any impairment in value is recognized as an expense in the
period when the impairment occurs.
l. Research and Development
All amounts expended for research and development are charged to
expense as incurred. The Company expensed $258,000 and $360,000 as
research and development for the years ending December 31, 1999
and 1998, respectively.
NOTE 3 - ADVANCES
During 1997, 1998 and 1999, the Company made cash advances to
employees. The advances were formalized through the signing of
notes receivable bearing interest at 7% per annum with each
employee at the end of each year. Per the terms of the notes,
interest is added to the balance of the notes at the end of each
year.
Advances to employees for the years ending December 31,:
1997 123,826
1998 114,805
1999 420,334
---------
Total advances 658,965
---------
NOTE 4 - EQUIPMENT PROCUREMENT COSTS
During July and August 1999, the Company made deposits on a vapor
compression distillation unit to be used in the development of its
water desalination system in the amount of $300,000. The $300,000
will be applied to the $500,000 purchase price of the equipment.
The title of the equipment will be transferred to the Company when
the remaining $200,000 is received.
During September 1999, the Company paid moving, storage and set up
costs on the above mentioned equipment of $64,110 which will have
been capitalized, and will be part of the cost of the equipment
once the title to the equipment is transferred to the Company.
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
F1-19
<PAGE>
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 5 - NOTES PAYABLE - RELATED PARTIES
Notes payable at December 31, 1999 consist of the following:
Note payable to a related party bearing
interest at 10% per annum, due upon demand,
secured by personal guarantee of officer. $ 500,000
Unsecured note payable to a related party
bearing interest at 10%per annum, all unpaid
interest and principle due on demand. 215,704
Unsecured note payable to a related party bearing
interest at 10% per annum, all unpaid interest and
principle due on demand. 350,557
Unsecured note payable to a related party bearing
interest at 10% per annum, all unpaid interest and
principle due on demand. 174,223
Unsecured note payable to a related party bearing
interest at 10% per annum, all unpaid interest and
principle due upon demand. 633,059
Unsecured note payable to a related party bearing
interest at 10% per annum, due upon demand. 609,818
Unsecured note payable to a related party bearing
interest at 10% per annum, due upon demand. 121,718
Unsecured note payable to a related party bearing
interest at 10% per annum, due on demand. 121,647
Unsecured note payable to a related party bearing
interest at 10% per annum, due upon demand. 31,209
Unsecured note payable to a related party bearing
interest at 10% per annum, due upon demand. 402,186
Unsecured note payable to a related party bearing
interest at 10% per annum, due upon demand. 61,884
Unsecured note payable to a related party bearing
interest at 10% per annum, due upon demand. 229,968
-----------
Balance Forward $ 3,451,973
-----------
F1-20
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 5 - NOTES PAYABLE - RELATED PARTIES (Continued)
<TABLE>
<CAPTION>
<S> <C>
Balance Forward $ 3,451,973
Unsecured note payable to a related party
bearing interest at 10% per annum, due upon demand. 43,347
Unsecured note payable to a related party
bearing interest at 10% per annum due upon demand. 143,644
Unsecured note payable to a related party
bearing interest at 10% per annum, due upon demand. 51,087
Note payable bearing interest at 10% per annum,
due upon demand, secured by technology, life insurance
and proceeds from operations. 100,000
Unsecured note payable to a related party
bearing interest at 10% per annum, due upon demand. 250,000
-----------------
Total Notes Payable - Related Parties $ 4,040,051
=================
Annual maturities of notes payable - related parties are as
follows:
Years Ending
December 31,
2000 $ 4,040,051
=================
</TABLE>
Total interest expense to related parties was $332,545 and
$228,842 for the years ended December 31, 1999 and 1998,
respectively.
NOTE 6 - CONVERTIBLE DEBENTURES
During November 1999, the Company issued three convertible
debentures for $100,000 each. Two of the debentures are due August
1, 2004 and the third is due November 1, 2004. The debentures
accrue interest at 12% per annum. The holders of the debentures
retain the option to convert for a period of five years any
portion of the debt into the Company's restricted common stock at
a price of $1.50 per share. Any shares issued under the conversion
privileges of these debentures carry two purchase warrants
allowing the holder to purchase one additional restricted share
for each share purchase warrant held at a price of $0.75 per
share. The share purchase warrants are valid for five years after
the date of purchase. Interest expense associated with these
debentures amounted to $6,000 at December 31, 1999.
F1-21
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 6 - CONVERTIBLE DEBENTURES (Continued)
During November 1999, the Company issued a convertible debenture
for $350,000. The debenture is due August 1, 2004 and accrues
interest at 12% per annum. The holder of the debenture retains the
option to convert for a period of five years any portion of the
debt into the Company's restricted common stock at a price of
$1.50 per share. Any shares issued under the conversion privileges
of this debenture also carry two purchase warrants allowing the
holder to purchase one additional restricted share for each share
purchase warrant held at a price of $0.75 per share. The share
purchase warrants are valid for five years after the date of
purchase. Interest expense associated with this debenture amounted
to $7,000 at December 31, 1999.
The Company recognized additional compensation expense of $650,000
to reflect the discount on the warrants.
NOTE 7 - ACCRUED EXPENSES
The company's accrued expenses is comprised of the following
items:
December 31,
1999
Accrued payroll taxes payable $ 50,411
Accrued interest payable - payroll 52,717
Accrued payroll tax penalty 98,845
Accrued interest payable - notes 124,609
-----------------
Total $ 326,582
=================
During 1997, 1998 and 1999, the Company made cash advances of
$658,965 to employees. Due to the advances resembling payroll
activities, the Company has accrued payroll taxes for the
employer's portion at 7.65%, interest at 8% and penalties at 15%
for each year.
NOTE 8 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has had
limited activities since inception and is considered a development
stage company because it has no significant revenues, planned
principal operations have not yet commenced, and the Company has
incurred losses from its inception through December 31, 1999. The
Company does not have an established source of revenues sufficient
to cover its operating costs and to allow it to continue as a
going concern.
F1-22
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 8 - GOING CONCERN (Continued)
In order to continue as a going concern, develop a reliable source
of revenues, and achieve a profitable level of operations, the
Company will need, among other things, additional capital
resources. Management's plans to continue as a going concern
include raising additional capital through the sale of common
stock, the proceeds of which will be used to develop the Company's
products and pay operating expenses. The Company expects that it
will need $4,000,000 to $6,000,000 of additional funds for
operations and expansion in 2000. However, management cannot
provide any assurances that the Company will be successful in
accomplishing any of its plans.
The ability of the Company to continue as a going concern is
dependent upon its ability to successfully accomplish the plan
described in the preceding paragraph and eventually attain
profitable operations. The accompanying financial statements do
not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
a. Employment Agreements
During June 1998, the Company entered into a five year employment
agreement with its President. The agreement calls for a base
salary of $182,000 per year allowing for increases each year based
on the Consumer Price Index, merit increases and increases in
salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
During June 1998, the Company entered into a five year employment
agreement with its Secretary/Treasurer. The agreement calls for a
base salary of $130,000 per year allowing for increases each year
based on the Consumer Price Index, merit increases and increases
in salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
During June 1998, the Company entered into a four year employment
agreement with an employee. The agreement calls for a base salary
of $55,000 per year allowing for increases each year based on the
Consumer Price Index, merit increases and increases in salary or
bonus as deemed appropriate to reflect the value of services
provided. The agreement also calls for the extension of certain
executive benefits.
During June 1998, the Company entered into a five year employment
agreement with its Vice President. The agreement calls for a base
salary of $182,000 per year allowing for increases each year based
on the Consumer Price Index, merit increases and increases in
salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
F1-23
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
b. Consulting Agreements
During July 1997, the Company entered into a consulting agreement
with Richard Morris Associates for services in connection with the
development of the Company's desalination project on an as needed
basis . The agreement is for one year and calls for the payment of
$1,000 per month plus expenses. During June 1998, the Company
extended this agreement through December 1998. During January
1999, the Company extended this agreement through December 1999.
During January 2000, the Company extended this agreement through
December 2000.
During June 1999, the Company entered into a consulting agreement
with D. Weckstein & Co., Inc. (Weckstein) as financial consultants
and investment bankers for a period of two years. The agreement
calls for the Company to issue options to purchase 30,000 shares
of the Company's common stock at a price of $5.00 per share for a
period of three years from the date of the agreement. The
agreement also calls for cash payments in connection with certain
financial transactions consummated as a result of introduction by
Weckstein such as mergers, acquisitions, joint ventures, debt or
lease placements and similar or other, on-balance or off-balance
sheet corporate finance transactions as follows:
a. 7% of the first $1,000,000 of the consideration paid in such
transaction;
b. 6% of the consideration in excess of $1,000,000 and up to
$3,000,000;
c. 5% of the consideration in excess of $3,000,000 and up to
$5,000,000;
d. 4% of the consideration in excess of $5,000,000 and up to
$7,000,000;
e. 3% of the consideration in excess of $7,000,000 and up to
$9,000,000; and
f. 2% of the consideration in excess of $9,000,000.
During December 1999, the agreement was amended whereby Weckstein
will receive options to purchase up to 125,000 shares of common
stock at a price of $1.00 per share until December 31, 2003.
During 1999, the Company paid $10,000 in commissions to Weckstein.
No options were exercised as of December 31, 1999 (see Note 11).
During March 1999, the Company entered into a consulting agreement
with Richard Brown for services in connection with obtaining
equity financing for the Company. The agreement calls for the
payment of a 10% commission for any and all funds delivered to the
Company during 1999. No funds were delivered to the Company and no
commission payments were made during 1999.
F1-24
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
During July 1999, the Company entered into a six month business
consulting agreement with Xcel Associates, Inc. to perform
business, management and marketing services which may be renewed
for a provisional three month period upon mutual agreement of the
parties. The agreement calls for the Company to issue 50,000
shares of the Company's common stock as follows: 1) 15,000 shares
within one week of signing the agreement; 2) 15,000 shares within
30 days based on mutually agreed upon performance; and 3) 20,000
within the following 60 days based on mutually agreed upon
performance as well as the right to purchase up to 100,000 shares
of common stock at $5.00 per share and the payment of expenses
incurred.
During November 1999, the Company entered into a 30 day consulting
agreement with Intercontinental Capital Corp. to assist the
Company obtain financing. The agreement calls for the Company to
pay $42,000 for services, $6,000 for expenses and issue 60,000
shares of the Company's common stock. The Company paid all fees
and expenses and issued 60,000 shares of common stock in
conjunction with this agreement and allowed the agreement to
expire.
c. Office Lease
The Company leases its office space under a non-cancellable
operating lease which expires on April 30, 2002. The monthly rent
amount is $17,000 with yearly increases of approximately 2% per
year. Rent expense for the years ended December 31, 1999 and 1998
was $220,565 and $217,619, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
During November 1999, related parties advanced the Company
$650,000 in the form of convertible debentures (see Note 6).
During 1999, 1998 and 1997, the Company advanced employees
$420,334, $114,805 and $123,826, respectively (see Note 3).
During 1999 and 1998, related parties advanced the Company
$1,024,357 and $2,274,878 in the form of notes payable and wages
payable, respectively.
On December 31, 1999, a shareholder of the Company exercised
519,831 warrants at an exercise price of $1.50 per share and
converted additional $109,370 into 72,913 shares of common stock
at $1.50 per share. The warrants which were exercised were granted
on November 4, 1998 in conjunction with the issuance of a
convertible debenture. The original debenture was for $800,000 and
convertible into common stock at $1.50 per share for a total
number of shares of 533,333 with one (1) warrant attached per
share which was converted. At December 31, 1998, the entire
debenture had been converted as well as 13,502 warrants which had
been exercised leaving a balance of 519,744 warrants to be
exercised. At December 31, 1999, all warrants attached to this
debenture have been converted.
F1-25
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS
a. Stock Options
The Company applied Accounting Principles Board ("APB") Option 25,
"Accounting for Stock Issued to Employees," and related
interpretations in accounting for all stock option plans. Under
APB Option 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the market
price of the underlying common stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No.123"), requires the Company to provide proforma
information regarding net income and net income per share as if
compensation costs for the Company's stock option plans and other
stock awards had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. The Company estimates the
fair value of each stock award at the grant date by using the
Black-Scholes option pricing model with the following weighted
average assumptions used for grants, respectively; dividend yield
of zero percent for all years; expected volatility of 32 percent
for all years; risk-free interest rates of 10.0 percent and
expected lives of 4.5 years.
Under the accounting provisions of SFAS No. 123, the Company's net
loss would have been increased by the pro forma amounts indicated
below:
1999 1998
----------------- -----------------
Net loss:
As reported $ (5,954,287) $ (2,917,964)
Pro Forma (5,954,287) (2,917,964)
Net loss per share:
As reported $ (0.22) $ (0.23)
Pro Forma (0.22) (0.23)
During the initial phase-in period of SFAS No. 123, the effect of
pro forma results are not likely to be representative of the
effects on pro forma results in future years since options vest
over several years and additional options could be granted each
year.
A summary of the Company's outstanding stock options as of
December 31, 1999 is presented below:
<TABLE>
<CAPTION>
Date of Exercise Exercise Trading Amount Expiration
Description Grant Number Price Price Exercised Date
-------------------- -------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
D. Weckstein 6-23-99 30,000 $ 5.00 $ 5.20 - Canceled
Xcel Associates 7-12-99 100,000 $ 5.00 $ 7.80 20,000 7-12-00
Xcel Associates 9-9-99 100,000 $ 1.00 $ 2.90 100,000 3-9-00
D. Weckstein 12-7-99 125,000 $ 1.00 $ 1.16 - 12-31-03
------------- -------------
Total 355,000 120,000
============= =============
</TABLE>
F1-26
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
On June 23, 1999, the Company issued options to Weckstein in
conjunction with a consulting agreement to purchase 30,000 shares
of the Company's common stock at a price of $5.00 per share. The
Company recognized additional compensation expense of $6,000 as
part of the recapitalization due to the options being granted
below market, or $5.20 on the date of issuance.
On July 12, 1999, the Company issued options to Xcel Associates,
Inc. in conjunction with a consulting agreement to purchase
100,000 shares of the Company's common stock at a price of $5.00
per share. The company recognized additional compensation expense
of $280,000 as part of the recapitalization due to the options
being granted below market, or $7.80 on the date of issuance.
On July 15, 1999, Xcel exercised 10,000 of the options granted
July 12, 1999 for cash of $50,000, or $5.00 per share.
On July 26, 1999, Xcel exercised 10,000 of the options granted
July 12, 1999 for cash of $50,000, or $5.00 per share.
On September 9, 1999, the Board of Directors authorized the
issuance of options to Xcel Associates, Inc. for the purchase of
100,000 shares of the Company's common stock at a price of $1.00
per share. The Company recognized additional compensation expense
of $190,000 due to the options being granted below market, or
$2.90 on the date of issuance.
On September 9, 1999, Xcel exercised the 100,000 options granted
September 9, 1999 for cash of $100,000, or $1.00 per share.
On December 7, 1999, the Company amended its consulting agreement
with Weckstein dated June 23, 1999 resulting in a cancellation of
the 30,000 options and issuance of 125,000 new options with a
exercise price of $1.00 per share. The Company recognized
additional compensation expense of $20,000 due to the options
being granted below market, or $1.16 on the date of issuance.
F1-27
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
b. Warrants
A summary of the Company's outstanding warrants as of December
31, 1999 is presented below:
<TABLE>
<CAPTION>
Warrant Exercise Exercise Trading Amount Expiration
Description Date Number Price Price Exercised Date
-------------------------- -------------- ------------- -------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Freedom Funding 3-30-99 70,000 $ 1.50 $ 1.50 70,000 3-30-04
Freedom Funding,
Paradon Limited,
Enterprise Capital 5-7-99 720,738 $ 1.50 $ 1.50 720,738 5-7-04
Regis Investment 11-16-99 133,333 $ 0.75 $ 1.50 133,333 11-16-04
Venture Investment 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 466,667 $ 0.75 $ 1.50 - 11-16-04
1,657,404 924,071
============= =============
</TABLE>
During March 1999, the Company issued warrants allowing the holder
to purchase one restricted share of the Company's common stock for
each share purchase warrant held in conjunction with convertible
debentures issued in November 1998. The total warrants granted
amounted to 70,000 shares at an exercise price of $1.50 per share
for five years. The Company did not recognize any additional
compensation expense due to the grant price equaling the market
price on the date of issuance.
During May 1999, the Company issued warrants allowing the holder
to purchase one restricted share of the Company's common stock for
each share purchase warrant held in conjunction with convertible
debentures issued in November 1998. The total warrants granted
amounted to 720,738 shares at an exercise price of $1.50 per share
for five years. The Company did not recognize any additional
compensation expense due to the grant price equaling the market
price on the date of issuance.
During November 1999, the Company issued warrants allowing the
holder to purchase one additional restricted share of the
Company's common stock for each share purchase warrant held in
conjunction with four convertible debentures. The total warrants
granted amounted to 866,666 shares at an exercise price of $1.50
per share for five years. The Company recognized additional
compensation expense of $650,000 due to the warrants being granted
below market, or $1.50 on the date of issuance.
F1-28
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - STOCK ISSUANCES
On December 31, 1999, the Company issued 592,744 shares of its
common stock to shareholders for the conversion of $889,117 of
debt. The shares were valued at $1.50 per share which was the
conversion price on a convertible debenture issued on November 16,
1999. The debt was for funds advanced to the Company to pay
general operating expenses paid by shareholders.
On December 23, 1999, the Company issued 120,773 shares of common
stock valued at $0.83 per share for $100,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 20, 1999, the Company issued 193,939 shares of common
stock valued at $0.83 per share for $160,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 15, 1999, the Company issued 33,333 shares of common
stock valued at $0.90 per share for $30,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 13, 1999, the Company issued 160,131 shares of common
stock valued at $0.84 per share for $135,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 10, 1999, the Company issued 175,070 shares of common
stock valued at $0.71 per share for $125,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 10, 1999, the Company issued 71,839 shares of common
stock valued at $0.70 per share for $50,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On November 29, 1999, the Company issued 400,000 shares of common
stock valued at the trading price of $1.34 per share for finders
fees relating to the reverse merger acquisition and cash raised by
shareholders of the Company. The total valuation of $537,000 has
been presented as an offset to additional paid-in capital as stock
offering costs.
F1-29
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On October 1, 1999, the Company canceled 502,500 shares of common
stock which had been issued prior to the reverse merger.
Accordingly, the Company canceled the shares at a zero valuation
because the expense recorded as part of the retained deficit of
Group was eliminated as part of the reverse merger.
On September 9, 1999, the Company issued 100,000 shares of common
stock valued at $1.00 per share for cash pursuant to Rule 144.
On September 2, 1999, the Company issued 20,000 shares of common
stock valued at $2.90 per share for consulting services rendered.
The shares were issued at the trading price on the date of issue.
On August 12, 1999, the Company issued 100,000 shares of its
common stock at $2.50 per share for interest of $250,000.
On July 26, 1999, the Company issued 10,000 shares of its common
stock valued at 5.00 per share for $50,000 for options granted
July 12, 1999.
On July 15, 1999, the Company issued 15,000 shares of its common
stock valued at $7.80 per share for services of $117,000.
On July 15, 1999, the Company issued 10,000 shares of its common
stock valued at $5.00 per share for $50,000 for options granted
July 12, 1999.
On June 22, 1999, the Company completed a recapitalization between
Group (acquired entity) and Holdings, (acquiring entity). The
presentation of the recapitalization is as follows: The equity of
the acquiring entity (Holdings) is presented as the equity of the
combined enterprise; however, the capital stock account of the
acquiring entity (Holdings) is adjusted to reflect the par value
of the outstanding stock of the legal acquirer (Group) after
giving effect to the number of shares issued in the reverse
merger. Accordingly, at the date of the reverse merger, the
Company had 6,291,450 shares of common stock outstanding; and
25,044,146 shares as detailed below have been retroactively
restated for the equivalent number of shares received in the
merger by Holdings.
On June 17, 1999, the Company issued 6,960 shares of its common
stock valued at $0.003 per share for cash of $20.
On May 19, 1999, the Company issued 372,360 shares of its common
stock valued at $0.003 per share for cash of $1,070.
On May 13, 1999, the Company issued 139,200 shares of its common
stock valued at $0.003 per share for cash of $400.
F1-30
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On May 7, 1999, the Company issued 2,610,000 shares of its common
stock valued at $0.003 per share for conversion of debt of $7,500.
On May 7, 1999, the Company issued 348 shares of its common stock
valued at $0.003 per share for cash of $1.
On May 5, 1999, the Company issued 32,016 shares of its common
stock valued at $0.003 per share for cash of $92.
On May 3, 1999, the Company issued 25,717 shares of its common
stock valued at $0.003 per share for conversion of debt of $74.
On April 30, 1999, the Company issued 22,968 shares of its common
stock valued at $0.003 per share for conversion of debt of $66.
On April 30, 1999, the Company issued 2,888 shares of its common
stock valued at $0.003 per share for cash of $8.
On April 28, 1999, the Company issued 12,180 shares of its common
stock valued at $0.003 per share for cash of $35.
On April 27, 1999, the Company issued 95,700 shares of its common
stock valued at $0.003 per share for conversion of debt of $275.
On April 27, 1999, the Company issued 5,951 shares of its common
stock valued at $0.003 per share for cash of $16.
On April 22, 1999, the Company issued 129,734 shares of its common
stock valued at $0.003 per share for cash of $373.
On March 22, 1999, the Company issued 19,011,220 shares of its
common stock valued at $0.005 per share for conversion of debt of
$104,530.
On March 22, 1999, the Company issued 286,682 shares of its common
stock valued at $0.003 per share for cash of $824.
On March 5, 1999, the Company issued 334,080 shares of its common
stock valued at $0.003 per share for cash of $960.
On July 29, 1998, the Company issued 34,800 shares of its common
stock valued at $0.003 per share for cash of $100.
On June 16, 1998, the Company issued 1,061,400 shares of its
common stock valued at $0.079 per share for conversion of debt of
$83,881.
F1-31
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On June 16, 1998, the Company issued 42,456 shares of its common
stock valued at $0.003 per share for cash of $121.
On June 16, 1998, the Company issued 119,086 shares of its common
stock valued at $0.003 per share for cash of $341.
On May 14, 1998, the Company issued 14,755 shares of common stock
valued at $0.003 per share for cash of $42.
On April 8, 1998, the Company issued 130,500 shares of common
stock valued at $0.003 per share for cash of $375.
On March 18, 1998, the Company issued 2,575 shares of common stock
valued at $0.003 per share for cash of $7.
On March 12, 1998, the Company issued 33,199 shares of common
stock valued at $0.003 per share for cash of $95.
On March 6, 1998, the Company issued 121,904 shares of common
stock valued at $0.003 per share for cash of $350.
On February 24, 1998, the Company issued 395,467 shares of its
common stock valued at $0.003 per share for cash of $1,138.
NOTE 13 - REGULATION 504D STOCK OFFERING
During December 1999, the Company issued 755,085 shares of common
stock pursuant to a Regulation 504D stock offering for cash of
$600,000. The shares were issued at 60% of the closing bid price
one day prior to issuance.
NOTE 14 - SUBSEQUENT EVENTS
a. Private Placements
On January 7, 2000, the Company authorized a private placement of
$100,000 of its common stock. The price of the shares is
calculated at 60% of the closing bid price one day prior to
issuance. The Company issued 47,619 shares pursuant to this
private placement for $100,000, or $2.10 per share.
On January 24, 2000, the Company authorized a private placement of
$5,000,000 of its common stock. The price of the shares is
calculated at 80% of the market value based on the 5-day average
price prior to closing and have one (1) warrant per share attached
to purchase at a price of 50% of the 5-day average price of the
original issuance with a life of 3 years.
F1-32
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 14 - SUBSEQUENT EVENTS (Continued)
On January 31, 2000, the Company extended this offering to
$6,000,000, expiring March 31, 2000.
On March 26, 2000, the Company removed the time and amounts to be
raised limits on the offering.
From January 7 to April 30, 2000, the Company issued 1,881,872
shares pursuant to the private placement for $6,824,672, or an
average price of $3.63 per share. The Company issued 1,881,872
warrants associated with these issuances which resulted in
additional compensation expense of approximately $4,231,788, or
$2.29 average price per share, as of April 30, 2000.
During March 2000, the Company issued 62,792 shares of common
stock for $125,019 pursuant to the exercise of outstanding
warrants.
b. Consulting Agreements
During January 2000, the Company entered into a three year
consulting agreement with Clement J. Wohlreich to provide
financial, marketing and management services. The agreement calls
for the Company to issue 100,000 units at $3.00 per unit,
consisting of one share of the Company's common stock and one
warrant. The warrants will have a life of three years and a
purchase price of $1.50 per warrant.
During January 2000, the Company entered into a three year
consulting agreement with EBM, Inc. to disseminate investor
information on the Company to the market place and develop buyers
who purchase the Company's stock. The agreement calls for the
Company to pay $4,000 per month until the Company secures a total
of $5,000,000 in financing, then the Company will pay $6,000 per
month for 12 months and grant 100,000 options to purchase the
Company's common stock. The options will have a four year life and
will be priced at $1.50 per share.
During January 2000, the Company entered into a consulting
agreement with Donner Corp. International to provide initial
marketing and promotion services. The agreement calls for the
Company to pay a retainer of $2,500, $10,000 for services in
connection with assisting the Company to implement its business
objectives and issue 10,000 warrants to purchase the Company's
common stock at a strike price equal to 80% of the lowest five-day
average stock closing price from January 2-31, 2000. The warrants
are exercisable for three years beginning February 1, 2000.
During February 2000, the Company signed an amendment to its
agreement for consulting services with Weckstein dated December 7,
1999. The amendment cancels the 125,000 options previously issued
and calls for the Company to issue 100,000 options to purchase the
Company's common stock exercisable at $6.00 per share until
February 18, 2000.
F1-33
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 14 - SUBSEQUENT EVENTS (Continued)
During April 2000, the Company signed an amendment to its
agreement for consulting services with Weckstein dated February
18, 2000. The amendment cancels the 100,000 options previously
issued and calls for the Company to issue 110,000 options to
purchase the Company's common stock exercisable at $3.00 per share
until February 18, 2003.
F1-34
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and December 31, 1999
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
------
March 31, December 31,
2000 1999
---------- ----------
(Unaudited)
CURRENT ASSETS
Cash $3,677,978 $ 368,276
Advances to employees (Note 3) 663,965 658,965
Overpayment receivable 74,700 --
Prepaid expenses (Note 5) 452,500 --
---------- ----------
Total Current Assets 4,869,143 1,027,241
---------- ----------
EQUIPMENT (Note 2) 754,884 52,555
---------- ----------
OTHER ASSETS
Equipment procurement costs (Note 4) -- 364,110
Deposits 20,402 20,402
---------- ----------
Total Other Assets 20,402 384,512
---------- ----------
TOTAL ASSETS $5,644,429 $1,464,308
========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
F2-1
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 841,069 $ 1,453,908
Accrued expenses (Note 8) 190,803 326,582
Notes payable - related parties (Note 6) 2,227,477 4,040,051
Convertible debentures payable (Note 7) 550,000 650,000
------------ ------------
Total Current Liabilities 3,809,349 6,470,541
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.001 par value; no shares outstanding -- --
Common stock: 500,000,000 shares authorized of
$0.01 par value; 35,218,370 and 32,835,925 shares
issued and outstanding, respectively 352,184 328,359
Additional paid-in capital 18,381,426 5,844,025
Deficit accumulated during the development stage (16,898,530) (11,178,617)
------------ ------------
Total Stockholders' Equity (Deficit) 1,835,080 (5,006,233)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 5,644,429 $ 1,464,308
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-2
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
March 26,
For the Three Months Ended 1992 Through
March 31, March 31,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
EXPENSES
General and administrative 5,769,668 577,690 14,529,927
Research and development 59,549 -- 1,309,549
Depreciation and amortization 14,842 4,663 65,536
------------ ------------ ------------
Total Expenses 5,844,059 582,353 15,905,012
------------ ------------ ------------
LOSS FROM OPERATIONS (5,844,059) (582,353) (15,905,012)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 36,173 -- 36,173
Gain on settlement of debt 165,349 -- 165,349
Loss on sale of assets -- -- (387,649)
Interest expense (77,376) (86,625) (807,391)
------------ ------------ ------------
Total Other Income (Expense) 124,146 (86,625) (993,518)
------------ ------------ ------------
NET LOSS $ (5,719,913) $ (668,978) $(16,898,530)
============ ============ ============
BASIC LOSS PER SHARE $ (0.17) $ (0.14) --
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 33,163,792 4,936,484 --
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-3
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Inception, March 26, 1992 -- $ -- $ -- $ --
Net loss from inception on
March 20, 1992 through
December 31, 1997 -- -- -- (2,306,366)
----------- ----------- ----------- -----------
Balance, December 31, 1997 -- -- -- (2,306,366)
February 24, 1998, common
stock issued for cash at
$0.003 per share 395,467 3,955 (2,817) --
March 6, 1998, common stock
issued for cash at $0.003 per
share 121,904 1,219 (869) --
March 12, 1998, common stock
issued for cash at $0.003 per
share 33,199 332 (237) --
March 18, 1998, common stock
issued for cash at $0.003 per
share 2,575 26 (19) --
April 2, 1998, common stock
issued for cash at $0.003 per
share 130,500 1,305 (930) --
May 14, 1998, common stock
issued for cash at $0.003 per
share 14,755 147 (106) --
June 16, 1998, common stock
issued for cash at $0.003 per
share 119,086 1,191 (849) --
June 16, 1998, common stock
issued for cash at $0.003 per
share 42,456 424 (303) --
June 16, 1998, common stock
issued for debt at $0.079 per
share 1,061,400 10,614 73,267 --
----------- ----------- ----------- -----------
Balance forward 1,921,342 $ 19,213 $ 67,137 $(2,306,366)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-4
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance forward 1,921,342 $ 19,213 $ 67,137 $(2,306,366)
July 29, 1998, common stock
issued for cash at $0.003 per
share 34,800 348 (248) --
Net loss for the year ended
December 31, 1998 -- -- -- (2,917,964)
----------- ----------- ----------- ------------
Balance, December 31, 1998 1,956,142 19,561 66,889 (5,224,330)
March 5, 1999, common stock
issued for cash at $0.003 per
share 334,080 3,341 (2,381) --
March 22, 1999 common stock
issued for cash at $0.003 per
share 286,682 2,867 (2,043) --
March 22, 1999, common stock
issued for debt at $0.005 per
share 19,011,220 190,112 (85,582) --
April 22, 1999, common stock
issued for cash at $0.003 per
share 129,734 1,297 (924) --
April 27, 1999, common stock
issued for cash at $0.003 per
share 5,951 59 (43) --
April 27, 1999, common stock
issued for debt at $0.003 per
share 95,700 957 (682) --
April 28, 1999, common stock
issued for cash at $0.003 per
share 12,180 122 (87) --
April 30, 1999, common stock
issued for cash at $0.003 per
share 2,888 29 (21) --
----------- ----------- ----------- ------------
Balance forward 21,834,577 $ 218,345 $ (24,874) $(5,224,330)
----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-5
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance forward 21,834,577 $ 218,345 $ (24,874) $(5,224,330)
April 30, 1999, common stock
issued for debt at $0.003 per
share 22,968 230 (164) --
May 3, 1999, common stock
issued for debt at $0.003 per
share 25,717 257 (183) --
May 5, 1999, common stock
issued for cash at $0.003 per
share 32,016 320 (228) --
May 7, 1999, common stock
issued for cash at $0.003 per
share 348 3 (2) --
May 7, 1999, common stock
issued for debt at $0.003 per
share 2,610,000 26,100 (18,600) --
May 13, 1999, common stock
issued for cash at $0.003 per
share 139,200 1,392 (992) --
May 19, 1999, common stock
issued for cash at $0.003 per
share 372,360 3,724 (2,654) --
June 17, 1999, common stock
issued for cash at $0.003 per
share 6,960 70 (50) --
Recapitalization (Note 1) 6,291,450 62,915 2,698,858 --
June 23, 1999, options issued
below market value -- -- 6,000 --
July 12, 1999, options issued
below market value -- -- 280,000 --
July 15, 1999, common stock
issued for services at $7.80
per share 15,000 150 116,850 --
----------- ----------- ----------- -----------
Balance Forward 31,350,596 $ 313,506 $ 3,053,961 $(5,224,330)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-6
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Forward 31,350,596 $ 313,506 $ 3,053,961 $(5,224,330)
July 15, 1999, common stock
issued for cash at $5.00 per
share 10,000 100 49,900 --
July 26, 1999, common stock
issued for cash at $5.00 per
share 10,000 100 49,900 --
August 12, 1999, common stock
issued for interest at $2.50 per
share 100,000 1,000 249,000 --
September 2, 1999, common
stock issued for services valued
at $0.29 per share 20,000 200 5,600 --
September 9, 1999, options
issued below market value -- -- 190,000 --
September 9, 1999, common
stock issued for cash at $1.00
per share 100,000 1,000 99,000 --
October 1, 1999, cancellation of
common stock valued at zero (502,500) (5,025) 5,025 --
November 16, 1999, warrants
issued below market value -- -- 650,000 --
November 29, 1999, common
stock issued for finders fee
valued at $1.34 per share 400,000 4,000 533,200 --
Stock offering costs -- -- (537,200) --
December 7, 1999, options
issued below market value -- -- 20,000 --
December 10, 1999, common
stock issued for cash at $0.70
per share 71,839 718 49,282 --
----------- ----------- ----------- -----------
Balance Forward 31,559,935 $ 315,599 $ 4,417,668 $(5,224,330)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-7
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance Forward 31,559,935 $ 315,599 $ 4,417,668 $ (5,224,330)
December 10, 1999, common
stock issued for cash at $0.71
per share 175,070 1,751 123,249 --
December 13, 1999, common
stock issued for cash at $0.84
per share 160,131 1,601 133,399 --
December 15, 1999, common
stock issued for cash at $0.90
per share 33,333 333 29,667 --
December 20, 1999, common
stock issued for cash at $0.83
per share 193,939 1,939 158,061 --
December 23, 1999, common
stock issued for cash at $0.83
per share 120,773 1,208 98,792 --
December 31, 1999, common
stock issued for conversion of
related party debt at $1.50 per
share 592,744 5,928 883,189 --
Net loss for the year ended
December 31, 1999 -- -- -- (5,954,287)
------------ ------------ ------------ ------------
Balance, December 31, 1999 32,835,925 328,359 5,844,025 (11,178,617)
January 4, 2000, common stock
issued for debt and services
at $2.75 per share (unaudited) 147,580 1,476 404,369 --
January 5, 2000 common stock
issued for services at $4.34
per share (unaudited) 60,000 600 259,800 --
January 26, 2000, common stock
issued pursuant to a private
placement memorandum at
$2.10 per share (unaudited) 47,619 476 99,524 --
------------ ------------ ------------ ------------
Balance Forward 33,091,124 330,911 6,607,718 (11,178,617)
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-8
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance Forward 33,091,124 330,911 6,607,718 (11,178,617)
February 1, 2000, warrants issued
below market value (unaudited) -- -- 54,000 --
February 18, 2000 options issued
below market value (unaudited) -- -- 25,000 --
February 22, 2000, options issued
below market value (unaudited) -- -- 475,000 --
March 9, 2000, common stock
issued for cash purchase of
warrants at $1.99 per share
(unaudited) 62,792 628 124,391 --
March 16, 2000, common stock
issued for convertible debenture
at $1.50 per share (unaudited) 66,667 667 99,333 --
March 16, 2000, common stock
issued for cash purchase of
warrants at $0.75 per share
(unaudited) 133,333 1,333 98,667 --
March 27, 2000, 3 stock
issuances for payment of debt at
average price of $4.95 per share
(unaudited) 46,486 465 231,347 --
January 25 - March 27, 2000,
56 stock issuances pursuant
to a private placement
memorandum at average
price of $5.12 per share (unaudited) 1,817,968 18,180 6,556,681 --
January 25 - March 27, 2000,
warrants issued below market
value (unaudited) -- -- 4,109,289 --
Net loss for the three months
ended March 31, 2000 (unaudited) -- -- -- (5,719,913)
------------ ------------ ------------ ------------
Balance, March 31, 2000 (unaudited) 35,218,370 $ 352,184 $ 18,381,426 $(16,898,530)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-9
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
March 26,
For the Three Months 1992 Through
March 31, March 31,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,719,913) $ (668,978) $(16,898,530)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 14,842 4,663 65,536
Common stock issued for services and
equity discounts 5,229,534 473,589 6,498,334
Loss on sale of assets -- -- 387,649
Change in operating asset and liability accounts:
(Increase) decrease in overpayment receivable (74,700) -- (74,700)
(Increase) decrease in prepaid assets (452,500) -- (452,500)
(Increase) decrease in other assets 359,110 (71,320) (320,257)
Increase (decrease) in accounts payable (404,829) 163,032 1,049,074
Increase (decrease) in accrued expenses (114,387) 106,175 658,112
------------ ------------ ------------
Net Cash Provided (Used) by Operating
Activities (1,162,843) 7,161 (9,087,282)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets -- -- 1
Purchase of fixed assets (714,761) -- (822,830)
Equipment procurement costs -- -- (364,110)
------------ ------------ ------------
Net Cash (Used) by Investing Activities (714,761) -- (1,186,939)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable (1,761,222) -- (2,009,457)
Loans from related parties 48,648 -- 7,605,378
Issuance of convertible debentures -- -- 650,000
Common stock issued for cash 6,899,880 -- 7,706,278
------------ ------------ ------------
Net Cash Provided by Financing Activities 5,187,306 -- 13,952,199
------------ ------------ ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 3,309,702 7,161 3,677,978
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 368,276 3,184 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 3,677,978 $ 10,345 $ 3,677,978
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-10
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
March 26,
For the Three Months 1992 Through
March 31, March 31,
2000 1999 2000
---------- ------------ ----------
<S> <C> <C> <C>
CASH PAID FOR:
Interest $ -- $ -- $ --
Income taxes $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for services and
equity discounts $5,229,534 $ -- $6,498,334
Common stock issued in acquisition of
subsidiary $ -- $ -- $2,761,773
Common stock issued for conversion of debt $ 100,000 $ -- $1,435,413
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F2-11
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of Ocean
Power Corporation and its wholly-owned Subsidiaries (the Company).
The Company has had limited activities since inception and is
considered a development stage company because no significant
revenues have been realized and planned principal operations have
not yet commenced. The Company is planning to engage in the
business of developing and marketing water desalination and
renewable power generation systems that will be modular and mass
produced. The Company plans to pursue regional joint ventures in
water and power challenged markets to build, own, operate and
transfer modular seawater desalination and power plants.
PTC Holdings, Inc. (Holdings) (formerly H Power Technologies,
Inc.) was incorporated on March 26, 1992 under the laws of the
State of Delaware to engage in any lawful act or activity for
which corporations may be organized under the General Corporation
Laws of Delaware.
PTC Group, Inc., (Group) (formerly Intryst, Inc.) was incorporated
under the laws of the State of Idaho on April 24, 1969.
On June 22, 1999, Group and Holdings completed an Agreement and
Plan of Merger whereby Group issued 25,044,146 shares of its
common stock in exchange for all of the outstanding common stock
of Holdings. Immediately prior to the Agreement and Plan of
Merger, Group had 6,291,450 shares of common stock issued and
outstanding. The acquisition was accounted for as a
recapitalization of Holdings because the shareholders of Holdings
controlled Group after the acquisition. Therefore, Holdings was
treated as the acquiring entity for accounting purposes and Group
was the surviving entity for legal purposes. There was no
adjustment to the carrying value of the assets or liabilities of
Holdings. On August 19, 1999, the shareholders of the Company
authorized a 1 for 10 reverse stock split. All references to
shares of common stock have been retroactively restated.
On July 12, 1999, Group changed its name to Ocean Power
Corporation (Idaho).
On July 21, 1999, Ocean Power Corporation (Delaware) was formed
for the purpose of changing the domicile of Ocean Power
Corporation (Idaho).
On July 28, 1999, Delaware and Idaho merged to change the domicile
from Idaho to Delaware with Delaware being the surviving entity.
F2-12
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Subsidiaries:
Integrated Water and Power Corporation (IWP) (formerly Clean Air
Power Technologies Corporation) (formerly Advanced Technologies
Manufacturing Corporation) was incorporated on December 11, 1996
under the laws of the State of Delaware to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Laws of Delaware. IWP is currently inactive.
Advanced Power Sources Corporation (APS) (formerly ZE-Power
Technologies Corporation) (formerly P.T.C. Corporation) was
incorporated on March 26, 1992 under the laws of the State of
Delaware to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Laws
of Delaware. APS is currently inactive.
Manufacturing Technologies Corporation (MTC) was incorporated on
January 7, 1997 under the laws of the State of Delaware to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Laws of Delaware. MTC is
currently inactive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using
the accrual method of accounting. The Company has elected a
December 31 year end.
F2-13
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements. Fully diluted loss per share
is not presented because of the antidilutive nature of the stock
equivalents.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net loss
(numerator) $ (5,719,913) $ (668,978)
Weighted average shares outstanding
(denominator) 33,163,792 4,936,484
------------- ------------
Basic loss per share $ (0.17) $ (0.14)
============= ============
</TABLE>
c. Provision for Taxes
At March 31, 2000, the Company has net operating loss
carryforwards of approximately $16,900,000 that may be offset
against future taxable income through 2020. No tax benefit has
been reported in the financial statements, because the Company
believes there is a 50% or greater change the carryforwards will
expire unused. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same
amount.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Principles of Consolidation
The March 31, 2000 unaudited financial statements are consolidated
with Ocean Power Corporation, Integrated Water and Power
Corporation, Advanced Power Sources Corporation and Manufacturing
Technologies Corporation. All significant intercompany accounts
and transactions have been eliminated.
F2-14
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Equipment
Office equipment and software are recorded at cost. Major
additions and renewals are capitalized and depreciated over their
estimated useful lives of 3 to 7 years using the straight-line
method. Leasehold improvements are depreciated over the shorter of
their useful lives or the lease term. Depreciation expense for
continuing operations for the three months ended March 31, 2000
and 1999 was $14,842 and $4,663, respectively.
Equipment consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Equipment $ 696,310 $ -
Office equipment and furniture 45,105 36,748
Computers and software 47,338 46,834
Phone system 19,667 19,667
Leasehold improvements 9,590 -
Accumulated depreciation (63,126) (50,694)
------------ -----------
Net Equipment $ 754,884 $ 52,555
============ ===========
</TABLE>
g. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
h. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of this statement had no material
impact on the Company's financial statements.
i. Revenue Recognition Policy
The Company currently has no source of revenues. Revenue
recognition policies will be determined when principal operations
begin.
F2-15
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
k. Long-lived Assets
All long-lived assets are evaluated yearly for impairment per SFAS
121. Any impairment in value is recognized as an expense in the
period when the impairment occurs.
l. Research and Development
All amounts expended for research and development are charged to
expense as incurred. The Company expensed $59,549 and $-0- as
research and development for the three months ending March 31,
2000 and 1999, respectively.
m. Unaudited Financial Statements
The accompanying unaudited consolidated financial statements
include all of the adjustments which, in the opinion of
management, are necessary for a fair presentation. Such
adjustments are of a normal recurring nature.
NOTE 3 - ADVANCES
During 1997, 1998, 1999 and 2000, the Company made cash advances
of $663,965 to employees. The advances were formalized through the
signing of notes receivable bearing interest at 7% per annum with
each employee at the end of each year. Per the terms of the notes,
interest is added to the balance of the notes at the end of each
year.
Advances to employees for the periods ending:
December 31, 1997 $ 123,826
December 31, 1998 114,805
December 31, 1999 420,334
March 31, 2000 5,000
-----------------
Total advances $ 663,965
-----------------
NOTE 4 - EQUIPMENT PROCUREMENT COSTS
During July and August 1999, the Company made deposits on a vapor
compression distillation unit to be used in the development of its
water desalination system in the amount of $300,000.
During September 1999, the Company paid moving, storage and set up
costs on the above mentioned equipment of $64,110.
During March 2000, the Company paid the remaining $200,000 on this
equipment and capitalized a total of $564,110.
F2-16
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 5 - PREPAID EXPENSES
The Company's prepaid expense is comprised of the following items:
March 31, December 31,
2000 1999
----------- ------
(Unaudited)
Prepaid services $ 192,500 $ -
Prepaid license agreement 250,000 -
Prepaid legal 10,000 -
----------- ------
Total $ 452,500 $ -
=========== ======
During March 2000, the Company purchased a motor from STM
Corporation (STM) for the development of its desalination
equipment for $132,200. As part of this purchase, the Company
entered into a thirty year license agreement to obtain certain
exclusive rights to STM patented and unpatented technology related
to Stirling cycle heat engines. The agreement begins in April
2000, for a minimum payment of $500,000 per year. At March 31,
2000, the Company prepaid $250,000 towards this license agreement.
The Company also entered into a service agreement for the motor
beginning April 2000. The agreement calls for the payment of
$192,500 for one year. At March 31, 2000, the Company prepaid the
full amount of this agreement.
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
<TABLE>
<CAPTION>
<S> <C>
Notes payable at March 31, 2000 consist of the following:
Note payable to a related party bearing interest at 10% per annum,
due upon demand, secured by personal
guarantee of officer. $ 102,199
Unsecured note payable to a related party bearing interest at 10%
per annum, all unpaid interest and principle due
on demand. 256,021
Unsecured note payable to a related party bearing interest at 10%
per annum, all unpaid interest and principle due
upon demand. 556,835
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 591,709
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 69,371
-------------
Balance forward $ 1,576,135
-------------
</TABLE>
F2-17
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 6 - NOTES PAYABLE - RELATED PARTIES (Continued)
<TABLE>
<CAPTION>
<S> <C>
Balance forward $ 1,576,135
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 321,857
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 63,431
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 142,994
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 19,200
Unsecured note payable to a related party bearing interest at
10% per annum due upon demand. 89,283
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 14,577
-------------
Total Notes Payable - Related Parties $ 2,227,477
=============
Annual maturities of notes payable - related parties are as
follows:
Years Ending
December 31,
2000 $ 2,227,477
=============
</TABLE>
Total interest expense to related parties was $61,126 and $83,136
for the three months ended March 31, 2000 and 1999, respectively.
F2-18
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 7 - CONVERTIBLE DEBENTURES
During November 1999, the Company issued three convertible
debentures for $100,000 each. Two of the debentures are due August
1, 2004 and the third is due November 1, 2004. The debentures
accrue interest at 12% per annum. The holders of the debentures
retain the option to convert for a period of five years any
portion of the debt into the Company's restricted common stock at
a price of $1.50 per share. Any shares issued under the conversion
privileges of these debentures carry two purchase warrants
allowing the holder to purchase one additional restricted share
for each share purchase warrant held at a price of $0.75 per
share. The share purchase warrants are valid for five years after
the date of purchase. Interest expense associated with these
debentures amounted to $7,500 at March 31, 2000.
During March 2000, 66,667 shares of common stock were issued to
convert one of the three debentures and 133,333 shares were issued
in conjunction with the warrants.
During November 1999, the Company issued a convertible debenture
for $350,000. The debenture is due August 1, 2004 and accrues
interest at 12% per annum. The holder of the debenture retains the
option to convert for a period of five years any portion of the
debt into the Company's restricted common stock at a price of
$1.50 per share. Any shares issued under the conversion privileges
of this debenture also carry two purchase warrants allowing the
holder to purchase one additional restricted share for each share
purchase warrant held at a price of $0.75 per share. The share
purchase warrants are valid for five years after the date of
purchase. Interest expense associated with this debenture amounted
to $8,750 at March 31, 2000.
The Company recognized additional compensation expense of $650,000
during 1999 to reflect the discount on the warrants.
NOTE 8 - ACCRUED EXPENSES
The company's accrued expenses is comprised of the following
items:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
(Unaudited)
<S> <C> <C>
Accrued payroll taxes payable $ 9,291 $ 50,411
Accrued interest payable - payroll 52,717 52,717
Accrued payroll tax penalty 98,845 98,845
Accrued interest payable - notes 29,950 124,609
---------- -----------
Total $ 190,803 $ 326,582
========== ===========
</TABLE>
During 1997, 1998, 1999 and 2000, the Company made cash advances
of $663,965 to employees. Due to the advances resembling payroll
activities, the Company has accrued payroll taxes for the
employer's portion at 7.65%, interest at 8% and penalties at 15%
for each year. During the three months ended March 31, 2000, the
Company repaid $537,519 of the accrued payroll amounts for 1997,
1998 and 1999 through payroll in 2000, resulting in a reduction in
accrued payroll taxes of $41,120.
F2-19
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 9 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has had
limited activities since inception and is considered a development
stage company because it has no significant revenues, planned
principal operations have not yet commenced and the Company has
incurred losses from its inception through March 31, 2000. The
Company does not have an established source of revenues sufficient
to cover its operating costs and to allow it to continue as a
going concern.
In order to continue as a going concern, develop a reliable source
of revenues, and achieve a profitable level of operations, the
Company will need, among other things, additional capital
resources. Management's plans to continue as a going concern
include raising additional capital through the sale of common
stock, the proceeds of which will be used to develop the Company's
products, pay operating expenses and pursue acquisitions and
strategic alliances. The Company expects that it will need
$4,000,000 to $10,000,000 of additional funds for operations and
expansion in 2000 and 2001. However, management cannot provide any
assurances that the Company will be successful in accomplishing
any of its plans.
The ability of the Company to continue as a going concern is
dependent upon its ability to successfully accomplish the plan
described in the preceding paragraph and eventually attain
profitable operations. The accompanying financial statements do
not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
a. Employment Agreements
During June 1998, the Company entered into a five year employment
agreement with its President. The agreement calls for a base
salary of $182,000 per year allowing for increases each year based
on the Consumer Price Index, merit increases and increases in
salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
During June 1998, the Company entered into a five year employment
agreement with its Secretary/Treasurer. The agreement calls for a
base salary of $130,000 per year allowing for increases each year
based on the Consumer Price Index, merit increases and increases
in salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
During June 1998, the Company entered into a four year employment
agreement with an employee. The agreement calls for a base salary
of $55,000 per year allowing for increases each year based on the
Consumer Price Index, merit increases and increases in salary or
bonus as deemed appropriate to reflect the value of services
provided. The agreement also calls for the extension of certain
executive benefits.
F2-20
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
a. Employment Agreements (Continued)
During June 1998, the Company entered into a five year employment
agreement with its Vice President. The agreement calls for a base
salary of $182,000 per year allowing for increases each year based
on the Consumer Price Index, merit increases and increases in
salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
b. Consulting Agreements
During July 1997, the Company entered into a consulting agreement
with Richard Morris Associates for services in connection with the
development of the Company's desalination project on an as needed
basis. The agreement is for one year and calls for the payment of
$1,000 per month plus expenses. During June 1998, the Company
extended this agreement through December 1998. During January
1999, the Company extended this agreement through December 1999.
During January 2000, the Company extended this agreement through
December 2000.
During June 1999, the Company entered into a consulting agreement
with D. Weckstein & Co., Inc. (Weckstein) as financial consultants
and investment bankers for a period of two years. The agreement
calls for the Company to issue options to purchase 30,000 shares
of the Company's common stock at a price of $5.00 per share for a
period of three years from the date of the agreement. The
agreement also calls for cash payments in connection with certain
financial transactions consummated as a result of introduction by
Weckstein such as mergers, acquisitions, joint ventures, debt or
lease placements and similar or other, on-balance or off-balance
sheet corporate finance transactions as follows:
a. 7% of the first $1,000,000 of the consideration paid in such
transaction;
b. 6% of the consideration in excess of $1,000,000 and up to
$3,000,000;
c. 5% of the consideration in excess of $3,000,000 and up to
$5,000,000;
d. 4% of the consideration in excess of $5,000,000 and up to
$7,000,000;
e. 3% of the consideration in excess of $7,000,000 and up to
$9,000,000; and
f. 2% of the consideration in excess of $9,000,000.
During December 1999, the agreement was amended whereby Weckstein
will receive options to purchase up to 125,000 shares of common
stock at a price of $1.00 per share until December 31, 2003.
During 1999, the Company paid $10,000 in commissions to Weckstein.
No options were exercised as of December 31, 1999 (see Note 11).
During March 1999, the Company entered into a consulting agreement
with Richard Brown for services in connection with obtaining
equity financing for the Company. The agreement calls for the
payment of a 10% commission for any and all funds delivered to the
Company during 1999. No funds were delivered to the Company and no
commission payments were made during 1999.
F2-21
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
During July 1999, the Company entered into a six month business
consulting agreement with Xcel Associates, Inc. to perform
business management and marketing services, which may be renewed
for a provisional three month period upon mutual agreement of the
parties. The agreement calls for the Company to issue 500,000
shares of the Company's common stock as follows: 1) 150,000 shares
within one week of signing the agreement; 2) 150,000 shares within
30 days based on mutually agreed upon performance; and 3) 200,000
within the following 60 days based on mutually agreed upon
performance as well as the right to purchase up to 100,000 shares
of common stock at $5.00 per share and the payment of expenses
incurred.
During November 1999, the Company entered into a 30 day consulting
agreement with Intercontinental Capital Corp. to assist the
Company obtain financing. The agreement calls for the Company to
pay $42,000 for services, $6,000 for expenses and issue 60,000
shares of the Company's common stock. The Company paid all fees
and expenses and issued 60,000 shares of common stock in
conjunction with this agreement and allowed the agreement to
expire.
During January 2000, the Company entered into a three year
consulting agreement with Clement J. Wohlreich to provide
financial, marketing and management services. The agreement calls
for the Company to issue 100,000 units at $3.00 per unit,
consisting of one share of the Company's common stock and one
warrant. The warrants will have a life of three years and a
purchase price of $1.50 per warrant.
During January 2000, the Company entered into a three year
consulting agreement with EBM, Inc. to disseminate investor
information on the Company to the market place and develop buyers
who purchase the Company's stock. The agreement calls for the
Company to pay $4,000 per month until the Company secures a total
of $5,000,000 in financing, then the Company will pay $6,000 per
month for 12 months and grant 100,000 options to purchase the
Company's common stock. The options will have a four year life and
will be priced at $1.50 per share.
During January 2000, the Company entered into a consulting
agreement with Donner Corp. International to provide initial
marketing and promotion services. The agreement calls for the
Company to pay a retainer of $2,500, $100,000 for services in
connection with assisting the Company to implement its business
objectives and issue 10,000 warrants to purchase the Company's
common stock at a strike price equal to 80% of the lowest five-day
average stock closing price from January 2-31, 2000. The warrants
are exercisable for three years beginning February 1, 2000.
During February 2000, the Company signed an amendment to its
agreement for consulting services with Weckstein dated December 7,
1999. The amendment cancels the 125,000 options previously issued
and calls for the Company to issue 100,000 options to purchase the
Company's common stock exercisable at $6.00 per share until
February 18, 2000.
F2-22
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
c. Office Lease
The Company leases its office space under a non-cancellable
operating lease which expires on April 30, 2002. The monthly rent
amount is $17,000 with yearly increases of approximately 2% per
year. Rent expense for the three months ended March 31, 2000 and
1999 was $48,294 and $55,141, respectively.
NOTE 11 - DILUTIVE INSTRUMENTS
a. Stock Options
The Company applied Accounting Principles Board ("APB") Option 25,
"Accounting for Stock Issued to Employees," and related
interpretations in accounting for all stock option plans. Under
APB Option 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the market
price of the underlying common stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), requires the Company to provide proforma
information regarding net income and net income per share as if
compensation costs for the Company's stock option plans and other
stock awards had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. The Company estimates the
fair value of each stock award at the grant date by using the
Black-Scholes option pricing model with the following weighted
average assumptions used for grants, respectively; dividend yield
of zero percent for all years; expected volatility of 32 percent
for all years; risk-free interest rates of 10.0 percent and
expected lives of 4.5 years.
Under the accounting provisions of SFAS No. 123, the Company's net
loss would have been increased by the pro forma amounts indicated
below:
For the Three Months Ended
March 31,
2000 1999
------------- -----------
Net loss:
As reported $ (5,719,913) $ (668,978)
------------- -----------
Pro Forma (5,719,913) (668,978)
Net loss per share:
As reported $ (0.17) $ (0.14)
Pro Forma (0.17) (0.14)
During the initial phase-in period of SFAS No. 123, the effect of
pro forma results are not likely to be representative of the
effects on pro forma results in future years since options vest
over several years and additional options could be granted each
year.
F2-23
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
A summary of the Company's outstanding stock options as of March
31, 2000 is presented below:
<TABLE>
<CAPTION>
Date of Exercise Exercise Trading Amount Expiration
Description Grant Number Price Price Exercised Date
-------------------- -------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
D. Weckstein 6-23-99 300,000 $ 5.00 $ 5.20 - Canceled
Xcel Associates 7-12-99 100,000 $ 5.00 $ 7.80 20,000 7-12-00
Xcel Associates 9-9-99 100,000 $ 1.00 $ 2.90 100,000 3-9-00
D. Weckstein 12-7-99 125,000 $ 1.00 $ 1.16 - Canceled
D. Weckstein 2-18-00 100,000 $ 6.00 $ 6.25 - 2-18-03
EBM, Inc. 2-22-00 100,000 $ 1.50 $ 6.25 - 2-22-04
------------- -------------
Total 825,000 120,000
============= =============
</TABLE>
On June 23, 1999, the Company issued options to Weckstein in
conjunction with a consulting agreement to purchase 300,000 shares
of the Company's common stock at a price of $5.00 per share. The
Company recognized additional compensation expense of $6,000 as
part of the recapitalization due to the options being granted
below market, or $5.20 on the date of issuance.
On July 12, 1999, the Company issued options to Xcel Associates,
Inc. in conjunction with a consulting agreement to purchase
100,000 shares of the Company's common stock at a price of $5.00
per share. The company recognized additional compensation expense
of $28,000 as part of the recapitalization due to the options
being granted below market, or $7.80 on the date of issuance.
On July 15, 1999, Xcel exercised 10,000 of the options granted
July 12, 1999 for cash of $50,000, or $5.00 per share.
On July 26, 1999, Xcel exercised 10,000 of the options granted
July 12, 1999 for cash of $50,000, or $5.00 per share.
On September 9, 1999, the Board of Directors authorized the
issuance of options to Xcel Associates, Inc. for the purchase of
100,000 shares of the Company's common stock at a price of $1.00
per share. The Company recognized additional compensation expense
of $190,000 due to the options being granted below market, or
$2.90 on the date of issuance.
On December 7, 1999, the Company amended its consulting agreement
with Weckstein dated June 23, 1999 resulting in a cancellation of
the 300,000 options and issuance of 125,000 new options with a
exercise price of $1.00 per share. The Company recognized
additional compensation expense of $20,000 due to the options
being granted below market, or $1.16 on the date of issuance.
On February 18, 2000, the Company amended its consulting agreement
with Weckstein dated December 7, 1999 resulting in a cancellation
of the 125,000 options and issuance of 100,000 new options with an
exercise price of $6.00 per share. The Company recognized
additional compensation expense of $25,000 due to the options
being granted below market, or $6.25 on the date of issuance.
F2-24
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
a. Stock Options (Continued)
On February 22, 2000, the Company issued options to EBM, Inc. in
conjunction with a consulting agreement for the purchase of
100,000 shares of the Company's common stock at a price of $1.50
per share. The Company recognized additional compensation expense
of $475,000 due to the options being granted below market, or
$6.25 on the date of issuance.
b. Warrants
A summary of the Company's outstanding warrants as of March 31,
2000 is presented below:
<TABLE>
<CAPTION>
Warrant Exercise Exercise Trading Amount Expiration
Description Date Number Price Price Exercised Date
-------------------- -------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Freedom Funding 3-30-99 70,000 $ 1.50 $ 1.50 70,000 3-30-04
Freedom Funding,
Paradon Limited,
Enterprise Capital 5-7-99 720,738 $ 1.50 $ 1.50 720,738 5-7-04
Regis Investment 11-16-99 133,333 $ 0.75 $ 1.50 133,333 11-16-04
Venture Investment 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 466,667 $ 0.75 $ 1.50 - 11-16-04
Clement J. Wohlreich 1-1-00 100,000 $ 1.50 $ 1.38 - 1-1-03
Donner Corp, Int'l 1-20-00 100,000 $ 2.17 $ 2.71 - 2-1-03
Private Placement 1-25-00 to 1-25-00 to
Investors 3-27-00 1,817,968 $ 1.81 $ 3.62 62,792 3-27-03
------------- -------------
3,675,372 986,863
============= =============
</TABLE>
During March 1999, the Company issued warrants allowing the holder
to purchase one restricted share of the Company's common stock for
each share purchase warrant held in conjunction with convertible
debentures issued in November 1998. The total warrants granted
amounted to 70,000 shares at an exercise price of $1.50 per share
for five years. The Company did not recognize any additional
compensation expense due to the grant price equaling the market
price on the date of issuance.
During May 1999, the Company issued warrants allowing the holder
to purchase one restricted share of the Company's common stock for
each share purchase warrant held in conjunction with convertible
debentures issued in November 1998. The total warrants granted
amounted to 720,738 shares at an exercise price of $1.50 per share
for five years. The Company did not recognize any additional
compensation expense due to the grant price equaling the market
price on the date of issuance.
During November 1999, the Company issued warrants allowing the
holder to purchase one additional restricted share of the
Company's common stock for each share purchase warrant held in
conjunction with four convertible debentures. The total warrants
granted amounted to 866,666 shares at an exercise price of $1.50
per share for five years. The Company recognized additional
compensation expense of $650,000 due to the warrants being granted
below market, or $1.50 on the date of issuance.
F2-25
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
During January 2000, the Company issued warrants allowing the
holder to purchase 100,000 shares of the Company's common stock in
conjunction with a consulting agreement. The warrants are
exercisable at a price of $1.50 per share for three years. The
Company did not recognize any additional compensation due to the
grant price being below the market price on the date of issuance.
During January 2000, the Company issued warrants allowing the
holder to purchase 100,000 shares of the Company's common stock in
conjunction with a consulting agreement. The warrants are
exercisable at a price of $2.17 per share for three years. The
Company recognized additional compensation expense of $54,000 due
to the warrants being granted below market, or $2.71 on the date
of issuance.
January 25, - March 27, 2000, the Company issued warrants allowing
the holder to purchase one share of the Company's common stock for
each share purchase warrant held in conjunction with a private
placement memorandum. The total warrants granted amounted to
1,817,968 shares at a weighted average exercise price of $2.26 per
share for three years. The Company recognized additional
compensation expense of $4,109,288 due to the warrants being
issued below the weighted average market price of $3.62 between
January 25, 2000 and March 27, 2000.
NOTE 12 - STOCK ISSUANCES
From January 25 to March 27, 2000, the Company issued 1,817,968
shares of its common stock valued at a weighted average price of
$3.62 per share pursuant to a private placement memorandum for
$6,574,861 of cash.
On March 27, 2000, the Company issued 46,486 shares of its common
stock in three issuances at a weighted average price of $4.95 per
share for debt of $231,812.
On March 16, 2000, the Company issued 133,333 shares of its common
stock for warrants held at $0.75 per share, or $100,000 of cash.
On March 16, 2000, the Company issued 66,667 shares of its common
stock for a convertible debenture at $1.50 per share, or $100,000.
On March 9, 2000, the Company issued 62,792 shares of its common
stock for warrants held at $1.99, or $125,019 of cash.
On January 26, 2000, the Company issued 47,619 shares of its
common stock valued at $2.10 per share pursuant to a private
placement memorandum for $100,000 of cash.
On January 5, 2000, the Company issued 60,000 shares of its common
stock valued at $4.34 per share for $260,400 of services.
On January 4, 2000, the Company issued 147,580 shares of its
common stock valued at $2.75 per share for $100,000 of debt and
$305,845 of services.
F2-26
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On December 31, 1999, the Company issued 592,744 shares of its
common stock to shareholders for the conversion of $889,117 of
debt. The shares were valued at $1.50 per share which was the
conversion price on a convertible debenture issued on November 16,
1999. The debt was for funds advanced to the Company to pay
general operating expenses paid by shareholders.
On December 23, 1999, the Company issued 120,773 shares of common
stock valued at $0.83 per share for $100,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 20, 1999, the Company issued 193,939 shares of common
stock valued at $0.83 per share for $160,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 15, 1999, the Company issued 33,333 shares of common
stock valued at $0.90 per share for $30,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 13, 1999, the Company issued 160,131 shares of common
stock valued at $0.84 per share for $135,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 10, 1999, the Company issued 175,070 shares of common
stock valued at $0.71 per share for $125,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 10, 1999, the Company issued 71,839 shares of common
stock valued at $0.70 per share for $50,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On November 29, 1999, the Company issued 400,000 shares of common
stock valued at the trading price of $1.34 per share for finders
fees relating to the reverse merger acquisition and cash raised by
shareholders of the Company. The total valuation of $537,000 has
been presented as an offset to additional paid-in capital as stock
offering costs.
On October 1, 1999, the Company canceled 502,500 shares of common
stock which had been issued prior to the reverse merger.
Accordingly, the Company canceled the shares at a zero valuation
because the expense recorded as part of the retained deficit of
Group was eliminated as part of the reverse merger.
On September 9, 1999, the Company issued 100,000 shares of common
stock valued at $1.00 per share for cash pursuant to Rule 144.
On September 2, 1999, the Company issued 20,000 shares of common
stock valued at $2.90 per share for consulting services rendered.
The shares were issued at the trading price on the date of issue.
F2-27
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On August 12, 1999, the Company issued 100,000 shares of its
common stock valued at $2.50 per share for interest of $250,000.
On July, 26, 1999, the Company issued 10,000 shares of its common
stock valued at $5.00 per share for cash of $50,000.
On July, 15, 1999, the Company issued 10,000 shares of its common
stock valued at $5.00 per share for cash of $50,000.
On July, 15, 1999, the Company issued 15,000 shares of its common
stock valued at $7.80 per share for services of $117,000.
On June 22, 1999, the Company completed a recapitalization between
Group (acquired entity) and Holdings, (acquiring entity). The
presentation of the recapitalization is as follows: The equity of
the acquiring entity (Holdings) is presented as the equity of the
combined enterprise; however, the capital stock account of the
acquiring entity (Holdings) is adjusted to reflect the par value
of the outstanding stock of the legal acquirer (Group) after
giving effect to the number of shares issued in the reverse
merger. Accordingly, at the date of the reverse merger, the
Company had 6,291,450 shares of common stock outstanding; and
25,044,146 shares as detailed below have been retroactively
restated for the equivalent number of shares received in the
merger by Holdings.
On June 17, 1999, the Company issued 6,960 shares of its common
stock valued at $0.003 per share for cash of $20.
On May 19, 1999, the Company issued 372,360 shares of its common
stock valued at $0.003 per share for cash of $1,070.
On May 13, 1999, the Company issued 139,200 shares of its common
stock valued at $0.003 per share for cash of $400.
On May 7, 1999, the Company issued 2,610,000 shares of its common
stock valued at $0.003 per share for conversion of debt of $7,500.
On May 7, 1999, the Company issued 348 shares of its common stock
valued at $0.003 per share for cash of $1.
On May 5, 1999, the Company issued 32,016 shares of its common
stock valued at $0.003 per share for cash of $92.
On May 3, 1999, the Company issued 25,717 shares of its common
stock valued at $0.003 per share for conversion of debt of $74.
On April 30, 1999, the Company issued 22,968 shares of its common
stock valued at $0.003 per share for conversion of debt of $66.
F2-28
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On April 30, 1999, the Company issued 2,888 shares of its common
stock valued at $0.003 per share for cash of $8.
On April 28, 1999, the Company issued 12,180 shares of its common
stock valued at $0.003 per share for cash of $35.
On April 27, 1999, the Company issued 95,700 shares of its common
stock valued at $0.003 per share for conversion of debt of $275.
On April 27, 1999, the Company issued 5,951 shares of its common
stock valued at $0.003 per share for cash of $17.
On April 22, 1999, the Company issued 129,734 shares of its common
stock valued at $0.003 per share for cash of $373.
On March 22, 1999, the Company issued 19,011,220 shares of its
common stock valued at $0.005 per share for conversion of debt of
$104,530.
On March 22, 1999, the Company issued 286,682 shares of its common
stock valued at $0.003 per share for cash of $824.
On March 5, 1999, the Company issued 334,080 shares of its common
stock valued at $0.003 per share for cash of $960.
On July 29, 1998, the Company issued 34,800 shares of its common
stock valued at $0.003 per share for cash of $100.
On June 16, 1998, the Company issued 1,061,400 shares of its
common stock valued at $0.079 per share for conversion of debt of
$83,881.
On June 16, 1998, the Company issued 42,456 shares of its common
stock valued at $0.003 per share for cash of $121.
On June 16, 1998, the Company issued 119,086 shares of its common
stock valued at $0.003 per share for cash of $342.
On May 14, 1998, the Company issued 14,755 shares of common stock
valued at $0.003 per share for cash of $41.
On April 8, 1998, the Company issued 130,500 shares of common
stock valued at $0.003 per share for cash of $375.
On March 18, 1998, the Company issued 2,575 shares of common stock
valued at $0.003 per share for cash of $7.
On March 12, 1998, the Company issued 33,199 shares of common
stock valued at $0.003 per share for cash of $95.
F2-29
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On March 6, 1998, the Company issued 121,904 shares of common
stock valued at $0.003 per share for cash of $350.
On February 24, 1998, the Company issued 395,467 shares of its
common stock valued at $0.003 per share for cash of $1,138.
NOTE 13 - REGULATION 504D STOCK OFFERING
During December 1999, the Company issued 755,085 shares of common
stock pursuant to a Regulation 504D stock offering for cash of
$600,000. The shares were issued at 60% of the closing bid price
one day prior to issuance.
NOTE 14 - PRIVATE PLACEMENT MEMORANDUMS
On January 7, 2000, the Company authorized a private placement of
$100,000 of its common stock. The price of the shares is
calculated at 60% of the closing bid price on the day prior to
issuance. The Company issued 47,619 shares pursuant to this
private placement for $100,000, or $2.10 per share.
On January 24, 2000, the Company authorized a private placement of
$5,000,000 of its common stock. The price of the shares is
calculated at 80% of the market value based on the 5-day average
price prior to closing and have one (1) warrant per share attached
to purchase at a price of 50% of the 5-day average price of the
original issuance with a life of three years.
On January 31, 2000, the Company extended this offering to
$6,000,000, expiring March 31, 2000.
On March 26, 2000, the Company removed the time and amount to be
raised limits on the offering.
NOTE 15 - SUBSEQUENT EVENTS
a. Private Placements
From April 1 to June 22, 2000, the Company issued 82,824 shares
pursuant to the private placement for $250,000, or an average
price of $3.02 per share. The Company issued 82,824 warrants
associated with these issuances which resulted in additional
compensation expense of approximately $156,250, or $1.89 average
price per share.
b. License Agreement
During April 2000, the Company entered into a license agreement
with STM to obtain certain exclusive rights to STM patented and
unpatented technology related to Stirling cycle heat engines. The
agreement is for thirty years and calls for payments of $500,000
per year.
F2-30
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 15 - SUBSEQUENT EVENTS (Continued)
c. Service Agreement
During April 2000, the Company entered into a one-year service
agreement with STM for a motor purchased for the development of
its desalination equipment for $192,500.
d. Consulting Agreements
During April 2000, the Company signed an amendment to its
agreement for consulting services with Weckstein dated February
18, 2000. The amendment cancels the 100,000 options previously
issued and calls for the Company to issue 110,000 options to
purchase the Company's common stock exercisable at $3.00 per share
until February 18, 2003.
F2-31
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and December 31, 1999
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
June 30, December 31,
2000 1999
---------- ------------
(Unaudited)
CURRENT ASSETS
Cash 2,387,997 $ 368,276
Advances to employees (Note 3) 297,095 658,965
Prepaid expenses (Note 5) 535,417 --
---------- ----------
Total Current Assets 3,220,509 1,027,241
---------- ----------
EQUIPMENT (Note 2) 738,310 52,555
---------- ----------
OTHER ASSETS
Equipment procurement costs (Note 4) -- 364,110
Deposits 20,402 20,402
---------- ----------
Total Other Assets 20,402 384,512
---------- ----------
TOTAL ASSETS $3,979,221 $1,464,308
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F3-1
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 780,775 $ 1,453,908
Accrued expenses (Note 8) 194,562 326,582
Notes payable - related parties (Note 6) 1,456,190 4,040,051
Convertible debentures payable (Note 7) 550,000 650,000
------------ ------------
Total Current Liabilities 2,981,527 6,470,541
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.001 par value; no shares outstanding -- --
Common stock: 500,000,000 shares authorized of
$0.01 par value; 35,301,194 and 32,835,925 shares
issued and outstanding, respectively 353,012 328,359
Additional paid-in capital 20,093,142 5,782,025
Deficit accumulated during the development stage (19,448,460) (11,116,617)
------------ ------------
Total Stockholders' Equity (Deficit) 997,694 (5,006,233)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 3,979,221 $ 1,464,308
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-2
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
For the For the March 26,
Six Months Ended Three Months Ended 1992 Through
June 30, June 30, June 30,
------------------------------------------------------------------------------------
2000 1999 2000 1999 2000
---------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- $ --
EXPENSES
General and administrative 8,186,037 741,203 2,416,369 163,513 16,946,296
Research and development 140,850 - 81,301 -- 1,390,850
Depreciation and amortization 59,860 5,944 45,018 1,281 110,554
------------ ------------ ------------ ------------ ------------
Total Expenses 8,386,747 747,147 2,542,688 164,794 18,447,700
------------ ------------ ------------- ------------- --------------
LOSS FROM OPERATIONS (8,386,747) (747,147) (2,542,688) (164,794) (18,447,700)
------------ ------------ ------------- ------------- --------------
OTHER INCOME (EXPENSE)
Interest income 79,578 -- 43,405 -- 79,578
Gain on settlement of debt 165,349 -- -- -- 165,349
Loss on sale of assets -- -- -- -- (387,649)
Interest expense (128,023) (162,454) (50,647) (75,829) (858,038)
------------ ------------ ------------- ------------- --------------
Total Other Income (Expense) 116,904 (162,454) (7,242) (75,829) (1,000,760)
------------ ------------ ------------- ------------- --------------
NET LOSS $ (8,269,843) $ (909,601) $ (2,549,930) $ (240,623) $ (19,448,460)
============ ============ ============= ============= ==============
BASIC LOSS PER SHARE $ (0.24) $ (0.17) $ (0.07) $ (0.04) --
============ ============ ============= ============= ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 34,725,423 5,373,608 35,240,478 5,805,928 --
============ ============ ============= ============= ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-3
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Inception, March 26, 1992 -- $ -- $ -- $ --
Net loss from inception on
March 20, 1992 through
December 31, 1997 -- -- -- (2,306,366)
----------- ----------- ----------- -----------
Balance, December 31, 1997 -- -- -- (2,306,366)
February 24, 1998, common
stock issued for cash at $0.003
per share 395,467 3,955 (2,817) --
March 6, 1998, common stock
issued for cash at $0.003 per share 121,904 1,219 (869) --
March 12, 1998, common stock
issued for cash at $0.003 per share 33,199 332 (237) --
March 18, 1998, common stock
issued for cash at $0.003 per share 2,575 26 (19) --
April 2, 1998, common stock
issued for cash at $0.003 per share 130,500 1,305 (930) --
May 14, 1998, common stock
issued for cash at $0.003 per share 14,755 147 (106) --
June 16, 1998, common stock
issued for cash at $0.003 per share 119,086 1,191 (849) --
June 16, 1998, common stock
issued for cash at $0.003 per share 42,456 424 (303) --
June 16, 1998, common stock
issued for debt at $0.079 per share 1,061,400 10,614 73,267 --
July 29, 1998, common stock
issued for cash at $0.003 per share 34,800 348 (248) --
Net loss for the year ended
December 31, 1998 -- -- -- (2,917,964)
----------- ----------- ----------- -----------
Balance, December 31, 1998 1,956,142 $ 19,561 $ 66,889 $(5,224,330)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-4
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 1,956,142 $ 19,561 $ 66,889 $ (5,224,330)
March 5, 1999, common stock
issued for cash at $0.003 per
share 334,080 3,341 (2,381) --
March 22, 1999, common stock
issued for cash at $0.003 per
share 286,682 2,867 (2,043) --
March 22, 1999, common stock
issued for debt at $0.005 per
share 19,011,220 190,112 (85,582) --
April 22, 1999, common stock
issued for cash at $0.003 per
share 129,734 1,297 (924) --
April 27, 1999, common stock
issued for cash at $0.003 per
share 5,951 59 (43) --
April 27, 1999, common stock
issued for debt at $0.003 per
share 95,700 957 (682) --
April 28, 1999, common stock
issued for cash at $0.003 per
share 12,180 122 (87) --
April 30, 1999, common stock
issued for cash at $0.003 per
share 2,888 29 (21) --
April 30, 1999, common stock
issued for debt at $0.003 per
share 22,968 230 (164) --
May 3, 1999, common stock
issued for debt at $0.003 per
share 25,717 257 (183) --
May 5, 1999, common stock
issued for cash at $0.003 per
share 32,016 320 (228) --
----------- ----------- ----------- -----------
Balance Forward 21,915,278 $ 219,152 $ (25,449) $(5,224,330)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-5
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Forward 21,915,278 $ 219,152 $ (25,449) $(5,224,330)
May 7, 1999, common stock
issued for cash at $0.003 per
share 348 3 (2) --
May 7, 1999, common stock
issued for debt at $0.003 per
share 2,610,000 26,100 (18,600) --
May 13, 1999, common stock
issued for cash at $0.003 per
share 139,200 1,392 (992) --
May 19, 1999, common stock
issued for cash at $0.003 per
share 372,360 3,724 (2,654) --
June 17, 1999, common stock
issued for cash at $0.003 per
share 6,960 70 (50) --
Recapitalization (Note 1) 6,291,450 62,915 2,698,858 --
June 23, 1999, options issued
below market value -- -- 6,000 --
July 12, 1999, options issued
below market value -- -- 280,000 --
July 15, 1999, common stock
issued for cash at $5.00 per
share 10,000 100 49,900 --
July 15, 1999, common stock
issued for services at $7.80
per share 15,000 150 116,850 --
July 26, 1999, common stock
issued for cash at $5.00 per
share 10,000 100 49,900 --
August 12, 1999, common stock
issued for interest at $2.50 per
share 100,000 1,000 249,000 --
----------- ----------- ----------- -----------
Balance Forward 31,470,596 $ 314,706 $ 3,402,761 $(5,224,330)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-6
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Forward 31,470,596 $ 314,706 $ 3,402,761 $(5,224,330)
September 2, 1999, common
stock issued for services valued
at $0.29 per share 20,000 200 5,600 --
September 9, 1999, options
issued below market value -- -- 190,000 --
September 9, 1999, common
stock issued for cash at $1.00
per share 100,000 1,000 99,000 --
October 1, 1999, cancellation of
common stock valued at zero (502,500) (5,025) 5,025 --
November 16, 1999, warrants
issued below market value -- -- 650,000 --
November 29, 1999, common
stock issued for finders fee
valued at $1.34 per share 400,000 4,000 533,200 --
Stock offering costs -- -- (537,200) --
December 7, 1999, options
issued below market value -- -- 20,000 --
December 10, 1999, common
stock issued for cash at $0.70
per share 71,839 718 49,282 --
December 10, 1999, common
stock issued for cash at $0.71
per share 175,070 1,751 123,249 --
December 13, 1999, common
stock issued for cash at $0.84
per share 160,131 1,601 133,399 --
December 15, 1999, common
stock issued for cash at $0.90
per share 33,333 333 29,667 --
December 20, 1999, common
stock issued for cash at $0.83
per share 193,939 1,939 158,061 --
---------- ----------- ----------- -----------
Balance Forward 32,122,408 $ 321,223 $ 4,862,044 $(5,224,330)
---------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-7
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Forward 32,122,408 $ 321,223 $ 4,862,044 $ (5,224,330)
December 23, 1999, common
stock issued for cash at $0.83
per share 120,773 1,208 98,792 --
December 31, 1999, common
stock issued for conversion of
related party debt at $1.50 per
share 592,744 5,928 883,189 --
Net loss for the year ended
December 31, 1999 -- -- -- (5,954,287)
------------ ------------ ------------ ------------
Balance, December 31, 1999 32,835,925 328,359 5,844,025 (11,178,617)
January 4, 2000, common stock
issued for debt and services
at $2.75 per share (unaudited) 147,580 1,476 404,369 --
January 5, 2000 common stock
issued for services at $4.34
per share (unaudited) 60,000 600 259,800 --
January 26, 2000, common stock
issued pursuant to a private
placement memorandum at
$2.10 per share (unaudited) 47,619 476 99,524 --
February 1, 2000, warrants
issued below market value
(unaudited) -- -- 54,000 --
February 18, 2000, options
issued below market value
(unaudited) -- -- 25,000 --
February 22, 2000, options
issued below market value
(unaudited) -- -- 475,000 --
March 9, 2000, common stock
issued for cash purchase of
warrants at $1.99 per share
(unaudited) 62,792 628 124,391 --
------------ ------------ ------------ ------------
Balance Forward 33,153,916 $ 331,539 $ 7,286,109 $(11,178,617)
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-8
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Forward 33,153,916 $ 331,539 $ 7,286,109 $(11,178,617)
March 16, 2000, common stock
issued for convertible debenture
at $1.50 per share (unaudited) 66,667 667 99,333 --
March 16, 2000, common stock
issued for cash purchase of
warrants at $0.75 per share
(unaudited) 133,333 1,333 98,667 --
March 27, 2000, 3 stock issuances for payment
of debt at average price of $4.95 per share
(unaudited) 46,486 465 231,347 --
April 19, 2000, options issued
below market value
(unaudited) -- -- 34,100 --
January 7 - May 22, 2000, 62 stock
issuances pursuant to a private placement
memorandum at average
price of $3.59 per share (unaudited) 1,900,792 19,008 6,805,853 --
January 7 - May 22, 2000,
warrants issued below market
value (unaudited) -- -- 4,265,538 --
May 26, 2000, issuance of options
below market value to purchase
598,680 shares at $1.50 (unaudited) -- -- 1,272,195 --
Net loss for the six months
ended June 30, 2000 (unaudited) -- -- -- (8,269,843)
------------ ------------ ------------ ------------
Balance, June 30, 2000 (unaudited) 35,301,194 $ 353,012 $ 20,093,142 $(19,448,460)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-9
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception on
For the For the March 26,
Six Months Ended Three Months Ended 1992 Through
June 30, June 30, June 30,
--------------------------------------------------------------------------------------
2000 1999 2000 1999 2000
---------------- --------------- --------------- ---------------- ---------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net loss $ (8,269,843) $ (909,601) $ (2,549,930) $ (240,623) $ (19,448,460)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Depreciation 59,860 5,944 45,018 1,281 110,554
Common stock issued for services
and equity discounts 6,692,079 752,157 1,462,545 278,568 7,960,879
Loss on sale of assets -- -- -- -- 387,649
Change in operating asset and liability accounts:
(Increase) decrease in overpayment
receivable -- -- 74,700 -- --
(Increase) decrease in prepaid
assets (535,417) -- (82,917) -- (535,417)
(Increase) decrease in other assets 725,980 (177,275) 366,870 (105,955) 46,613
Increase (decrease) in accounts
payable (462,714) 221,223 (57,885) 58,191 991,189
Increase (decrease) in accrued
expenses (110,628) 109,734 3,759 3,559 661,871
---------------- --------------- --------------- ---------------- ---------------
Net Cash Provided (Used) by
Operating Activities (1,900,683) 2,182 (737,840) (4,979) (9,825,122)
---------------- --------------- --------------- ---------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of assets -- -- -- -- 1
Purchase of fixed assets (745,615) -- (30,854) -- (853,684)
Equipment procurement costs -- -- -- -- (364,110)
---------------- --------------- --------------- ---------------- ---------------
Net Cash (Used) by Investing
Activities (745,615) -- (30,854) -- (1,217,793)
---------------- --------------- --------------- ---------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of note payable (2,566,039) -- (804,817) -- (2,814,274)
Loans from related parties 82,178 -- 33,530 -- 7,638,908
Issuance of convertible debentures -- -- - -- 650,000
Common stock issued for cash 7,149,880 -- 250,000 -- 7,956,278
---------------- --------------- --------------- ---------------- ---------------
Net Cash Provided (Used) by
Financing Activities $ 4,666,019 $ -- $ (521,287) $ -- $ 13,430,912
---------------- --------------- --------------- ---------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-10
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
For the For the March 26,
Six Months Ended Three Months Ended 1992 Through
June 30, June 30, June 30,
--------------------------------------------------------------------------------------
2000 1999 2000 1999 2000
---------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $2,019,721 $ 2,182 $(1,289,981) $ (4,979) $ 2,387,997
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 368,276 3,184 3,677,978 10,345 --
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,387,997 $ 5,366 $ 2,387,997 $ 5,366 $ 2,387,997
========== ========== ========== ========== ==========
CASH PAID FOR:
Interest $ 12,946 $ -- $ -- $ -- $ 12,946
Income taxes $ -- $ -- $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for services
and equity discounts $6,692,079 $ -- $ 1,462,545 $ -- $ 7,960,879
Common stock issued in acquisition
of subsidiary $ -- $ -- $ -- $ -- $ 2,761,773
Common stock issued for conversion
of debt $ 100,000 $ -- $ -- $ -- $ 1,435,413
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F3-11
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of Ocean
Power Corporation and its wholly-owned Subsidiaries (the Company).
The Company has had limited activities since inception and is
considered a development stage company because no significant
revenues have been realized and planned principal operations have
not yet commenced. The Company is planning to engage in the
business of developing and marketing water desalination and
renewable power generation systems that will be modular and mass
produced. The Company plans to pursue regional joint ventures in
water and power challenged markets to build, own, operate and
transfer modular seawater desalination and power plants.
PTC Holdings, Inc. (Holdings) (formerly H Power Technologies,
Inc.) was incorporated on March 26, 1992 under the laws of the
State of Delaware to engage in any lawful act or activity for
which corporations may be organized under the General Corporation
Laws of Delaware.
PTC Group, Inc., (Group) (formerly Intryst, Inc.) was incorporated
under the laws of the State of Idaho on April 24, 1969.
On June 22, 1999, Group and Holdings completed an Agreement and
Plan of Merger whereby Group issued 25,044,146 shares of its
common stock in exchange for all of the outstanding common stock
of Holdings. Immediately prior to the Agreement and Plan of
Merger, Group had 6,291,450 shares of common stock issued and
outstanding. The acquisition was accounted for as a
recapitalization of Holdings because the shareholders of Holdings
controlled Group after the acquisition. Therefore, Holdings was
treated as the acquiring entity for accounting purposes and Group
was the surviving entity for legal purposes. There was no
adjustment to the carrying value of the assets or liabilities of
Holdings. On August 19, 1999, the shareholders of the Company
authorized a 1 for 10 reverse stock split. All references to
shares of common stock have been retroactively restated.
On July 12, 1999, Group changed its name to Ocean Power
Corporation (Idaho).
On July 21, 1999, Ocean Power Corporation (Delaware) was formed
for the purpose of changing the domicile of Ocean Power
Corporation (Idaho).
On July 28, 1999, Delaware and Idaho merged to change the domicile
from Idaho to Delaware with Delaware being the surviving entity.
F3-12
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Subsidiaries:
Integrated Water and Power Corporation (IWP) (formerly Clean Air
Power Technologies Corporation) (formerly Advanced Technologies
Manufacturing Corporation) was incorporated on December 11, 1996
under the laws of the State of Delaware to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Laws of Delaware. IWP is currently inactive.
Advanced Power Sources Corporation (APS) (formerly ZE-Power
Technologies Corporation) (formerly P.T.C. Corporation) was
incorporated on March 26, 1992 under the laws of the State of
Delaware to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Laws
of Delaware. APS is currently inactive.
Manufacturing Technologies Corporation (MTC) was incorporated on
January 7, 1997 under the laws of the State of Delaware to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Laws of Delaware. MTC is
currently inactive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using
the accrual method of accounting. The Company has elected a
December 31 year end.
F3-13
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements. Fully diluted loss per share
is not presented because of the antidilutive nature of the stock
equivalents.
<TABLE>
<CAPTION>
For the For the
Six Months Ended Three Months Ended
June 30, June 30,
-----------------------------------------------------------------------------
2000 1999 2000 1999
----------------- ------------------ ------------------ ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net (loss)
(numerator) $ (8,269,843) $ (909,601) $ (2,549,930) $ (240,623)
Weighted average
shares outstanding
(denominator) 34,725,423 5,373,608 35,240,478 5,805,928
----------------- ------------------ ------------------ ------------------
Basic (loss) per
share $ (0.24) $ (0.17) $ (0.07) $ (0.04)
================= ================== ================== ==================
</TABLE>
c. Provision for Taxes
At June 30, 2000, the Company has net operating loss carryforwards
of approximately $18,600,000 that may be offset against future
taxable income through 2020. No tax benefit has been reported in
the financial statements because the Company believes there is a
50% or greater chance the carryforwards will expire unused.
Accordingly, the potential tax benefits of the loss carryforwards
are offset by a valuation allowance of the same amount.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Principles of Consolidation
The June 30, 2000 unaudited financial statements are consolidated
with Ocean Power Corporation, Integrated Water and Power
Corporation, Advanced Power Sources Corporation and Manufacturing
Technologies Corporation. All significant intercompany accounts
and transactions have been eliminated.
F3-14
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Equipment
Office equipment and software are recorded at cost. Major
additions and renewals are capitalized and depreciated over their
estimated useful lives of 3 to 7 years using the straight-line
method. Leasehold improvements are depreciated over the shorter of
their useful lives of the lease term. Depreciation expense for the
six months ended June 30, 2000 and 1999 was $59,860 and $5,944,
respectively.
<TABLE>
<CAPTION>
Equipment consists of the following:
June 30, December 31,
2000 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
Equipment $ 709,310 $ --
Office equipment and furniture 45,105 36,748
Computers and software 65,192 46,834
Phone system 19,667 19,667
Leasehold improvements 9,590 --
Accumulated depreciation (110,554) (50,694)
------------------ ------------------
Net Equipment $ 738,310 $ 52,555
================== ==================
</TABLE>
g. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
h. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of this statement had no material
impact on the Company's financial statements.
i. Revenue Recognition Policy
The Company currently has no source of revenues. Revenue
recognition policies will be determined when principal operations
begin.
F3-15
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
k. Long-lived Assets
All long-lived assets are evaluated yearly for impairment per SFAS
121, "Accounting for the Impairment of Loing-Lived Assets and for
Long-Lived Assets to Be Disposed Of". Any impairment in value is
recognized as an expense in the period when the impairment occurs.
l. Research and Development
All amounts expended for research and development are charged to
expense as incurred. The Company expensed $140,850 and $-0- as
research and development for the six months ending June 30, 2000
and 1999, respectively.
m. Unaudited Financial Statements
The accompanying unaudited consolidated financial statements
include all of the adjustments which, in the opinion of
management, are necessary for a fair presentation. Such
adjustments are of a normal recurring nature.
NOTE 3 - ADVANCES
During 1997, 1998, 1999 and 2000, the Company made cash advances
of $663,965 to employees. The advances were formalized through the
signing of notes receivable bearing interest at 10% per annum with
each employee at the end of each year. Per the terms of the notes,
interest is added to the balance of the notes at the end of each
year.
During the six months ended June 30, 2000, employees have repaid
$366,870 of the total advances.
Advances to employees for the periods ending:
December 31, 1999 $ 292,095
June 30, 2000 5,000
------------------
Total Advances $ 297,095
==================
F3-16
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 4 - EQUIPMENT PROCUREMENT COSTS
During July and August 1999, the Company made deposits on a vapor
compression distillation unit to be used in the development of its
water desalination system in the amount of $300,000.
During September 1999, the Company paid moving, storage and set up
costs on the above mentioned equipment of $64,110.
During March 2000, the Company paid the remaining $200,000 on this
equipment and capitalized a total of $564,110.
NOTE 5 - PREPAID EXPENSES
The Company's prepaid expense is comprised of the following items:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
Prepaid services $ 160,417 $ --
Prepaid license agreement 375,000 --
------------------ ------------------
Total $ 535,417 $ --
================== ==================
</TABLE>
During March 2000, the Company purchased a motor from STM
Corporation (STM) for the development of its desalination
equipment for $132,200. As part of this purchase, the Company
entered into a thirty year license agreement to obtain certain
exclusive rights to STM patented and unpatented technology related
to Stirling cycle heat engines, which began in April 2000, for a
minimum payment of $500,000 per year. At June 30, 2000, the
Company prepaid $375,000 towards this license agreement.
The Company also entered into a service agreement for the motor
beginning May 2000. The agreement called for the payment of
$192,500 for one year. At June 30, 2000, the Company prepaid
$160,417 of this agreement.
F3-17
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
<S> <C>
Notes payable at June 30, 2000 consist of the following:
Unsecured note payable to a related party bearing interest at 10%
per annum, all unpaid interest and principle due
on demand. $ 85,159
Unsecured note payable to a related party bearing interest at 10%
per annum, all unpaid interest and principle due
upon demand. 281,975
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 535,827
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 53,827
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 243,768
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 64,979
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 115,544
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 5,308
Unsecured note payable to a related party bearing interest at
10% per annum due upon demand. 69,803
-----------------
Total Notes Payable - Related Parties $ 1,456,190
=================
Annual maturities of notes payable - related parties are as
follows:
Year
-------------------
2000 $ 1,456,190
=================
</TABLE>
Total interest expense to related parties was $111,773 and
$158,965 for the six months ended June 30, 2000 and 1999,
respectively.
F3-18
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 7 - CONVERTIBLE DEBENTURES
During November 1999, the Company issued three convertible
debentures for $100,000 each. Two of the debentures are due August
1, 2004 and the third is due November 1, 2004. The debentures
accrue interest at 12% per annum. The holders of the debentures
retain the option to convert for a period of five years any
portion of the debt into the Company's restricted common stock at
a price of $1.50 per share. Any shares issued under the conversion
privileges of these debentures carry two purchase warrants
allowing the holder to purchase one additional restricted share
for each share purchase warrant held at a price of $0.75 per
share. The share purchase warrants are valid for five years after
the date of purchase. Interest expense associated with these
debentures amounted to $12,500 at June 30, 2000.
During March 2000, 66,667 shares of common stock were issued to
convert one of the three debentures and 133,333 shares were issued
in conjunction with the warrants.
During November 1999, the Company issued a convertible debenture
for $350,000. The debenture is due August 1, 2004 and accrues
interest at 12% per annum. The holder of the debenture retains the
option to convert for a period of five years any portion of the
debt into the Company's restricted common stock at a price of
$1.50 per share. Any shares issued under the conversion privileges
of this debenture also carry two purchase warrants allowing the
holder to purchase one additional restricted share for each share
purchase warrant held at a price of $0.75 per share. The share
purchase warrants are valid for five years after the date of
purchase. Interest expense associated with this debenture amounted
to $17,500 at June 30, 2000.
The Company recognized additional compensation expense of $650,000
during 1999 to reflect the discount on the warrants.
NOTE 8 - ACCRUED EXPENSES
<TABLE>
<CAPTION>
The company's accrued expenses are comprised of the following
items:
June 30, December 31,
2000 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
Accrued payroll taxes payable $ - $ 50,411
Accrued interest payable - payroll 52,717 52,717
Accrued payroll tax penalty 98,845 98,845
Accrued interest payable - notes 43,000 124,609
-------------- -----------------
Total $ 194,562 $ 326,582
============== =================
</TABLE>
During 1997, 1998, 1999 and 2000, the Company made cash advances
of $678,965 to employees. Due to the advances resembling payroll
activities, the Company has accrued payroll taxes for the
employer's portion at 7.65%, interest at 8% and penalties at 15%
for each year. During the six months ended June 30, 2000, the
Company repaid $889,389 of the accrued payroll amounts for 1997,
1998 and 1999 through payroll in 2000, resulting in a reduction in
accrued payroll taxes of $50,411.
F3-19
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 9 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has had
limited activities since inception and is considered a
development stage company because it has no significant revenues,
planned principal operations have not yet commenced and the
Company has incurred losses from its inception through June 30,
2000. The Company does not have an established source of revenues
sufficient to cover its operating costs and to allow it to
continue as a going concern.
In order to continue as a going concern, develop a reliable
source of revenues, and achieve a profitable level of operations,
the Company will need, among other things, additional capital
resources. Management's plans to continue as a going concern
include raising additional capital through the sale of common
stock, the proceeds of which will be used to develop the
Company's products, pay operating expenses and pursue
acquisitions and strategic alliances. The Company expects that it
will need $4,000,000 to $10,000,000 of additional funds for
operations and expansion in 2000 and 2001. However, management
cannot provide any assurances that the Company will be successful
in accomplishing any of its plans.
The ability of the Company to continue as a going concern is
dependent upon its ability to successfully accomplish the plan
described in the preceding paragraph and eventually attain
profitable operations. The accompanying financial statements do
not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
a. Employment Agreements
During June 1998, the Company entered into a five year employment
agreement with its President. The agreement calls for a base
salary of $182,000 per year allowing for increases each year
based on the Consumer Price Index, merit increases and increases
in salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
During June 1998, the Company entered into a five year employment
agreement with its Secretary/Treasurer. The agreement calls for a
base salary of $130,000 per year allowing for increases each year
based on the Consumer Price Index, merit increases and increases
in salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
During June 1998, the Company entered into a four year employment
agreement with an employee. The agreement calls for a base salary
of $55,000 per year allowing for increases each year based on the
Consumer Price Index, merit increases and increases in salary or
bonus as deemed appropriate to reflect the value of services
provided. The agreement also calls for the extension of certain
executive benefits.
F3-20
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
During June 1998, the Company entered into a five year employment
agreement with its Vice President. The agreement calls for a base
salary of $182,000 per year allowing for increases each year
based on the Consumer Price Index, merit increases and increases
in salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
During May 2000, the Company granted a bonus to its
Secretary/Treasurer in the amount of $37,500, which has been
accrued at June 30, 2000.
b. Consulting Agreements
During July 1997, the Company entered into a consulting agreement
with Richard Morris Associates for services in connection with
the development of the Company's desalination project on an as
needed basis. The agreement is for one year and calls for the
payment of $1,000 per month plus expenses. During June 1998, the
Company extended this agreement through December 1998. During
January 1999, the Company extended this agreement through
December 1999. During January 2000, the Company extended this
agreement through December 2000.
During June 1999, the Company entered into a consulting agreement
with D. Weckstein & Co., Inc. (Weckstein) as financial
consultants and investment bankers for a period of two years. The
agreement calls for the Company to issue options to purchase
300,000 shares of the Company's common stock at a price of $5.00
per share for a period of three years from the date of the
agreement. The agreement also calls for cash payments in
connection with certain financial transactions consummated as a
result of introduction by Weckstein such as mergers,
acquisitions, joint ventures, debt or lease placements and
similar or other, on-balance or off-balance sheet corporate
finance transactions as follows:
a. 7% of the first $1,000,000 of the consideration paid in such
transaction;
b. 6% of the consideration in excess of $1,000,000 and up to
$3,000,000;
c. 5% of the consideration in excess of $3,000,000 and up to
$5,000,000;
d. 4% of the consideration in excess of $5,000,000 and up to
$7,000,000;
e. 3% of the consideration in excess of $7,000,000 and up to
$9,000,000; and
f. 2% of the consideration in excess of $9,000,000.
During December 1999, the agreement was amended whereby Weckstein
will receive options to purchase up to 125,000 shares of common
stock at a price of $1.00 per share until December 31, 2003.
During 1999, the Company paid $10,000 in commissions to
Weckstein. No options were exercised as of December 31, 1999 (see
Note 11).
During March 1999, the Company entered into a consulting
agreement with Richard Brown for services in connection with
obtaining equity financing for the Company. The agreement calls
for the payment of a 10% commission for any and all funds
delivered to the Company during 1999. No funds were delivered to
the Company and no commission payments were made during 1999.
F3-21
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
During July 1999, the Company entered into a six month business
consulting agreement with Xcel Associates, Inc. to perform
business management and marketing services, which may be renewed
for a provisional three month period upon mutual agreement of the
parties. The agreement calls for the Company to issue 500,000
shares of the Company's common stock as follows: 1) 150,000
shares within one week of signing the agreement; b) 150,000
shares within 30 days based on mutually agreed upon performance;
and 3) 200,000 within the following 60 days based on mutually
agreed upon performance as well as the right to purchase up to
1,000,000 shares of common stock at $0.50 per share and the
payment of expenses incurred.
During November 1999, the Company entered into a 30 day
consulting agreement with Intercontinental Capital Corp. to
assist the Company obtain financing. The agreement calls for the
Company to pay $42,000 for services, $6,000 for expenses and
issue 60,000 shares of the Company's common stock. The Company
paid all fees and expenses and issued 60,000 shares of common
stock in conjunction with this agreement and allowed the
agreement to expire.
During January 2000, the Company entered into a three year
consulting agreement with Clement J. Wohlreich to provide
financial, marketing and management services. The agreement calls
for the Company to issue 100,000 units at $3.00 per unit,
consisting of one share of the Company's common stock and one
warrant. The warrants will have a life of three years and a
purchase price of $1.50 per warrant.
During January 2000, the Company entered into a three year
consulting agreement with EBM, Inc. to disseminate investor
information on the Company to the market place and develop buyers
who purchase the Company's stock. The agreement calls for the
Company to pay $4,000 per month until the Company secures a total
of $5,000,000 in financing, then the Company will pay $6,000 per
month for 12 months and grant 100,000 options to purchase the
Company's common stock. The options will have a four year life
and will be priced at $1.50 per share.
During January 2000, the Company entered into a consulting
agreement with Donner Corp. International to provide initial
marketing and promotion services. The agreement calls for the
Company to pay a retainer of $2,500, $100,000 for services in
connection with assisting the Company to implement its business
objectives and issue 10,000 warrants to purchase the Company's
common stock at a strike price equal to 80% of the lowest
five-day average stock closing price from January 2-31, 2000. The
warrants are exercisable for three years beginning February 1,
2000.
During February 2000, the Company signed an amendment to its
agreement for consulting services with Weckstein. The amendment
calls for the Company to issue 75,000 options to purchase the
Company's common stock exercisable at $6.00 per share for three
years.
During April 2000, the Company signed an amendment to its
agreement for consulting services with Weckstein dated February
18, 2000. The amendment cancels the 100,000 options previously
issued and calls for the Company to issue 110,000 options to
purchase the Company's common stock exercisable at $3.00 per
share until February 18, 2003.
F3-22
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
c. Office Lease
The Company leases its office space under a non-cancellable
operating lease which expires on April 30, 2002. The monthly rent
amount is $15,312 with yearly increases of approximately 2% per
year. Rent expense for the six months ended June 30, 2000 and
1999 was $86,730 and $85,742, respectively.
d. License Agreement
During April 2000, the Company entered into a licensing agreement
with STM to obtain exclusive rights to STM patented and
unpatented technology related to Stirling cycle heat engines. The
agreement is for thirty years and calls for payments of $500,000
per year.
e. Service Agreement
During April 2000, the Company entered into a one-year service
agreement for a motor purchased for the development of its
desalination equipment for $192,500.
NOTE 11 - DILUTIVE INSTRUMENTS
a. Stock Options
The Company applied Accounting Principles Board ("APB") Option
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for all stock option plans. Under
APB Option 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the
market price of the underlying common stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), requires the Company to provide proforma
information regarding net income and net income per share as if
compensation costs for the Company's stock option plans and other
stock awards had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company
estimates the fair value of each stock award at the grant date by
using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants, respectively;
dividend yield of zero percent for all years; expected volatility
of 32 percent for all years; risk-free interest rates of 10.0
percent and expected lives of 4.5 years.
F3-23
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
For the For the
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------------------------------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net loss:
As reported $ (8,269,843) $ (909,601) $ (2,549,930) $ (240,623)
Pro Forma (8,269,843) (909,601) (2,549,930) (240,623)
Net loss per share:
As reported $ (0.24) $ (0.17) $ (0.07) $ (0.04)
Pro Forma (0.24) (0.17) (0.07) (0.04)
</TABLE>
During the initial phase-in period of SFAS No. 123, the effect of
pro forma results are not likely to be representative of the
effects on pro forma results in future years since options vest
over several years and additional options could be granted each
year.
The company has granted the following warrants and options as of
June 30, 2000:
<TABLE>
<CAPTION>
Date of Exercise Exercise Trading Amount Expiration
Description Grant Number Price Price Exercised Date
-------------------- -------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. Weckstein 6-23-99 300,000 $ 5.00 $ 5.20 - Canceled
Xcel Associates 7-12-99 100,000 $ 5.00 $ 7.80 20,000 7-12-00
Xcel Associates 9-9-99 100,000 $ 1.00 $ 2.90 100,000 3-9-00
D. Weckstein 12-7-99 125,000 $ 1.00 $ 1.16 - Canceled
D. Weckstein 2-18-00 100,000 $ 6.00 $ 6.25 - Canceled
EBM, Inc. 2-22-00 100,000 $ 1.50 $ 6.25 - 2-22-04
D. Weckstein 4-19-00 110,000 $ 3.00 $ 3.31 - 2-18-03
------------- -------------
Total 935,000 120,000
============= =============
</TABLE>
On June 23, 1999, the Company issued options to Weckstein in
conjunction with a consulting agreement to purchase 300,000
shares of the Company's common stock at a price of $5.00 per
share. The Company recognized additional compensation expense of
$6,000 as part of the recapitalization due to the options being
granted below market, or $5.20 on the date of issuance.
On July 12, 1999, the Company issued options to Xcel Associates,
Inc. in conjunction with a consulting agreement to purchase
100,000 shares of the Company's common stock at a price of $5.00
per share. The company recognized additional compensation expense
of $28,000 as part of the recapitalization due to the options
being granted below market, or $7.80 on the date of issuance.
On July 15, 1999, Xcel exercised 10,000 of the options granted
July 12, 1999 for cash of $50,000, or $5.00 per share.
On July 26, 1999, Xcel exercised 10,000 of the options granted
July 12, 1999 for cash of $50,000, or $5.00 per share.
F3-24
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
On September 9, 1999, the Board of Directors authorized the
issuance of options to Xcel Associates, Inc. for the purchase of
100,000 shares of the Company's common stock at a price of $1.00
per share. The Company recognized additional compensation expense
of $190,000 due to the options being granted below market, or
$2.90 on the date of issuance.
On December 7, 1999, the Company amended its consulting agreement
with Weckstein dated June 23, 1999 resulting in a cancellation of
the 300,000 options and issuance of 125,000 new options with a
exercise price of $1.00 per share. The Company recognized
additional compensation expense of $20,000 due to the options
being granted below market, or $1.16 on the date of issuance.
On February 18, 2000, the Company amended its consulting
agreement with Weckstein dated December 7, 1999 resulting in a
cancellation of the 125,000 options and issuance of 100,000 new
options with an exercise price of $6.00 per share. The Company
recognized additional compensation expense of $25,000 due to the
options being granted below market, or $6.25 on the date of
issuance.
On February 22, 2000, the Company issued options to EBM, Inc. in
conjunction with a consulting agreement for the purchase of
100,000 shares of the Company's common stock at a price of $1.50
per share. The Company recognized additional compensation expense
of $475,000 due to the options being granted below market, or
$6.25 on the date of issuance.
On April 14, 2000, the Company amended its consulting agreement
with Weckstein dated February 18, 2000, resulting in a
cancellation of the 100,000 options and issuance of 110,000 new
options with an exercise price of $3.00 per share. The Company
recognized additional compensation expense of $34,100 due to the
options being granted below market, or $3.31 per share on the
date of issuance.
b. Warrants
A summary of the Company's outstanding warrants as of June 30,
2000 is presented below:
<TABLE>
<CAPTION>
Warrant Exercise Exercise Trading Amount Expiration
Description Date Number Price Price Exercised Date
-------------------- -------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Freedom Funding 3-30-99 70,000 $ 1.50 $ 1.50 70,000 3-30-04
Freedom Funding,
Paradon Limited,
Enterprise Capital 5-7-99 720,738 $ 1.50 $ 1.50 720,738 5-7-04
Regis Investment 11-16-99 133,333 $ 0.75 $ 1.50 133,333 11-16-04
Venture Investment 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 466,667 $ 0.75 $ 1.50 - 11-16-04
Clement J. Wohlreich 1-1-00 100,000 $ 1.50 $ 1.38 - 1-1-03
Donner Corp, Int'l 1-20-00 100,000 $ 2.17 $ 2.71 - 2-1-03
Private Placement 1-25-00 to 1-25-00 to
Investors 5-22-00 1,948,411 $ 1.75 $ 3.50 62,792 5-22-03
------------- -------------
3,805,815 986,863
============= =============
</TABLE>
F3-25
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
During March 1999, the Company issued warrants allowing the
holder to purchase one restricted share of the Company's common
stock for each share purchase warrant held in conjunction with
convertible debentures issued in November 1998. The total
warrants granted amounted to 70,000 shares at an exercise price
of $1.50 per share for five years. The Company did not recognize
any additional compensation expense due to the grant price
equaling the market price on the date of issuance.
During May 1999, the Company issued warrants allowing the holder
to purchase one restricted share of the Company's common stock
for each share purchase warrant held in conjunction with
convertible debentures issued in November 1998. The total
warrants granted amounted to 720,738 shares at an exercise price
of $1.50 per share for five years. The Company did not recognize
any additional compensation expense due to the grant price
equaling the market price on the date of issuance.
During November 1999, the Company issued warrants allowing the
holder to purchase one additional restricted share of the
Company's common stock for each share purchase warrant held in
conjunction with four convertible debentures. The total warrants
granted amounted to 866,666 shares at an exercise price of $1.50
per share for five years. The Company recognized additional
compensation expense of $650,000 due to the warrants being
granted below market, or $1.50 on the date of issuance.
During January 2000, the Company issued warrants allowing the
holder to purchase 100,000 shares of the Company's common stock
in conjunction with a consulting agreement. The warrants are
exercisable at a price of $1.50 per share for three years. The
Company did not recognize any additional compensation due to the
grant price being below the market price on the date of issuance.
During January 2000, the Company issued warrants allowing the
holder to purchase 100,000 shares of the Company's common stock
in conjunction with a consulting agreement. The warrants are
exercisable at a price of $2.17 per share for three years. The
Company recognized additional compensation expense of $54,000 due
to the warrants being granted below market, or $2.71 on the date
of issuance.
January 25, - May 22, 2000, the Company issued warrants allowing
the holder to purchase one share of the Company's common stock
for each share purchase warrant held in conjunction with a
private placement memorandum. The total warrants granted amounted
to 1,948,411 shares at a weighted average exercise price of $2.19
per share for three years. The Company recognized additional
compensation expense of $4,265,538 due to the warrants being
issued below the weighted average market price of $3.50 between
January 25, 2000 and May 22, 2000.
NOTE 12 - STOCK ISSUANCES
From January 25 to May 22, 2000, the Company issued 1,900,792
shares of its common stock valued at a weighted average price of
$3.59 per share pursuant to a private placement memorandum for
$6,821,861 of cash.
On March 27, 2000, the Company issued 46,486 shares of its common
stock in three issuances at a weighted average price of $4.95 per
share for debt of $231,812.
F3-26
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On March 16, 2000, the Company issued 133,333 shares of its
common stock for warrants held at $0.75 per share, or $100,000 of
cash.
On March 16, 2000, the Company issued 66,667 shares of its common
stock for a convertible debenture at $1.50 per share, or
$100,000.
On March 9, 2000, the Company issued 62,792 shares of its common
stock for warrants held at $1.99, or $125,019 of cash.
On January 26, 2000, the Company issued 47,619 shares of its
common stock valued at $2.10 per share pursuant to a private
placement memorandum for $100,000 of cash.
On January 5, 2000, the Company issued 60,000 shares of its
common stock valued at $4.34 per share for $260,400 of services.
On January 4, 2000, the Company issued 147,580 shares of its
common stock valued at $2.75 per share for $100,000 of debt and
$305,845 of services.
On December 31, 1999, the Company issued 592,744 shares of its
common stock to shareholders for the conversion of $889,117 of
debt. The shares were valued at $1.50 per share which was the
conversion price on a convertible debenture issued on November
16, 1999. The debt was for funds advanced to the Company to pay
general operating expenses paid by shareholders.
On December 23, 1999, the Company issued 120,773 shares of common
stock valued at $0.83 per share for $100,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 20, 1999, the Company issued 193,939 shares of common
stock valued at $0.83 per share for $160,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 15, 1999, the Company issued 33,333 shares of common
stock valued at $0.90 per share for $30,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 13, 1999, the Company issued 160,131 shares of common
stock valued at $0.84 per share for $135,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 10, 1999, the Company issued 175,070 shares of common
stock valued at $0.71 per share for $125,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 10, 1999, the Company issued 71,839 shares of common
stock valued at $0.70 per share for $50,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
F3-27
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On November 29, 1999, the Company issued 400,000 shares of common
stock valued at the trading price of $1.34 per share for finders
fees relating to the reverse merger acquisition and cash raised
by shareholders of the Company. The total valuation of $537,000
has been presented as an offset to additional paid-in capital as
stock offering costs.
On October 1, 1999, the Company canceled 502,500 shares of common
stock which had been issued prior to the reverse merger.
Accordingly, the Company canceled the shares at a zero valuation
because the expense recorded as part of the retained deficit of
Group was eliminated as part of the reverse merger.
On September 9, 1999, the Company issued 100,000 shares of common
stock valued at $1.00 per share for cash pursuant to Rule 144.
On September 2, 1999, the Company issued 20,000 shares of common
stock valued at $2.90 per share for consulting services rendered.
The shares were issued at the trading price on the date of issue.
On August 12, 1999, the Company issued 100,000 shares of its
common stock valued at $2.50 per share for interest of $250,000.
On July, 26, 1999, the Company issued 10,000 shares of its common
stock valued at $5.00 per share for cash of $50,000.
On July, 15, 1999, the Company issued 10,000 shares of its common
stock valued at $5.00 per share for cash of $50,000.
On July, 15, 1999, the Company issued 15,000 shares of its common
stock valued at $7.80 per share for services of $117,000.
On June 22, 1999, the Company completed a recapitalization
between Group (acquired entity) and Holdings, (acquiring entity).
The presentation of the recapitalization is as follows: The
equity of the acquiring entity (Holdings) is presented as the
equity of the combined enterprise; however, the capital stock
account of the acquiring entity (Holdings) is adjusted to reflect
the par value of the outstanding stock of the legal acquirer
(Group) after giving effect to the number of shares issued in the
reverse merger. Accordingly, at the date of the reverse merger,
the Company had 6,291,450 shares of common stock outstanding; and
25,044,146 shares as detailed below have been retroactively
restated for the equivalent number of shares received in the
merger by Holdings.
On June 17, 1999, the Company issued 6,960 shares of its common
stock valued at $0.003 per share for cash of $20.
On May 19, 1999, the Company issued 372,360 shares of its common
stock valued at $0.003 per share for cash of $1,070.
On May 13, 1999, the Company issued 139,200 shares of its common
stock valued at $0.003 per share for cash of $400.
F3-28
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On May 7, 1999, the Company issued 2,610,000 shares of its common
stock valued at $0.003 per share for conversion of debt of
$7,500.
On May 7, 1999, the Company issued 348 shares of its common stock
valued at $0.003 per share for cash of $1.
On May 5, 1999, the Company issued 32,016 shares of its common
stock valued at $0.003 per share for cash of $92.
On May 3, 1999, the Company issued 25,717 shares of its common
stock valued at $0.003 per share for conversion of debt of $74.
On April 30, 1999, the Company issued 22,968 shares of its common
stock valued at $0.003 per share for conversion of debt of $66.
On April 30, 1999, the Company issued 2,888 shares of its common
stock valued at $0.003 per share for cash of $8.
On April 28, 1999, the Company issued 12,180 shares of its common
stock valued at $0.003 per share for cash of $35.
On April 27, 1999, the Company issued 95,700 shares of its common
stock valued at $0.003 per share for conversion of debt of $275.
On April 27, 1999, the Company issued 5,951 shares of its common
stock valued at $0.003 per share for cash of $17.
On April 22, 1999, the Company issued 129,734 shares of its
common stock valued at $0.003 per share for cash of $373.
On March 22, 1999, the Company issued 19,011,220 shares of its
common stock valued at $0.005 per share for conversion of debt of
$104,530.
On March 22, 1999, the Company issued 286,682 shares of its
common stock valued at $0.003 per share for cash of $824.
On March 5, 1999, the Company issued 334,080 shares of its common
stock valued at $0.003 per share for cash of $960.
On July 29, 1998, the Company issued 34,800 shares of its common
stock valued at $0.003 per share for cash of $100.
On June 16, 1998, the Company issued 1,061,400 shares of its
common stock valued at $0.079 per share for conversion of debt of
$83,881.
On June 16, 1998, the Company issued 42,456 shares of its common
stock valued at $0.003 per share for cash of $121.
F3-29
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (Continued)
On June 16, 1998, the Company issued 119,086 shares of its common
stock valued at $0.003 per share for cash of $342.
On May 14, 1998, the Company issued 14,755 shares of common stock
valued at $0.003 per share for cash of $41.
On April 8, 1998, the Company issued 130,500 shares of common
stock valued at $0.003 per share for cash of $375.
On March 18, 1998, the Company issued 2,575 shares of common
stock valued at $0.003 per share for cash of $7.
On March 12, 1998, the Company issued 33,199 shares of common
stock valued at $0.003 per share for cash of $95.
On March 6, 1998, the Company issued 121,904 shares of common
stock valued at $0.003 per share for cash of $350.
On February 24, 1998, the Company issued 395,467 shares of its
common stock valued at $0.003 per share for cash of $1,138.
NOTE 13 - REGULATION 504D STOCK OFFERING
During December 1999, the Company issued 755,085 shares of common
stock pursuant to a Regulation 504D stock offering for cash of
$600,000. The shares were issued at 60% of the closing bid price
one day prior to issuance.
NOTE 14 - PRIVATE PLACEMENT MEMORANDUMS
On January 7, 2000, the Company authorized a private placement of
$100,000 of its common stock. The price of the shares is
calculated at 60% of the closing bid price on the day prior to
issuance. The Company issued 47,619 shares pursuant to this
private placement for $100,000, or $2.10 per share.
On January 24, 2000, the Company authorized a private placement
of $5,000,000 of its common stock. The price of the shares is
calculated at 80% of the market value based on the 5-day average
price prior to closing and have one (1) warrant per share
attached to purchase at a price of 50% of the 5-day average price
of the original issuance with a life of three years.
On January 31, 2000, the Company extended this offering to
$6,000,000, expiring March 31, 2000.
On March 26, 2000, the Company removed the time and amount to be
raised limits on the offering.
F3-30
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 15 - RESCINDED STOCK
During June 2000, the Board of Directors resolved to void and
cancel a certificate of the Company's outstanding common stock
representing 354,400 shares and issue a new certificate
reflecting 34,800 shares due to the original issue being granted
for inappropriate consideration. This transaction has not yet
been reflected in the Company's outstanding stock due to the
original certificate not yet being returned.
NOTE 16 - SUBSEQUENT EVENT
During July 2000, the Company entered into an agreement to
acquire 100% of the outstanding common stock of Sigma
Elektroteknisk, AS, a Norway corporation, for 1,718,748 shares of
common stock valued at $3.20 per share, or $5,500,000. The
Company will account for the acquisition as a purchase per APB
No. 16.
F3-31
<PAGE>
PART III
EXHIBITS INDEX
EXHIBIT 2.2 Sigma Share Purchase Agreement
EXHIBIT 3.1 Articles of Incorporation of Kanikau American Mining Company
(Idaho)
EXHIBIT 3.2 By-Laws
EXHIBIT 23 Consent of Independet Auditors
EXHIBIT 99.1 Articles of Merger of Ocean Power Corporation Idaho with Ocean
Power Corporation Delaware
EXHIBIT 99.2 Employment Agreement (Joseph P. Maceda)
EXHIBIT 99.3 Employment Agreement (J. Michael Hopper)
EXHIBIT 99.4 Employment Agreement (Lori L. O'Brien)
EXHIBIT 99.5 Employment Agreement (Robert L. Campbell)
<PAGE>
PART IV
SIGNATURES:
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
OCEAN POWER CORPORATION
Date: By: /s/ Joseph P. Maceda
------------------ ------------------------
Joseph P. Maceda, President
