UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended: March 31, 2000
Ocean Power Corporation
-----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 94-3350291
-------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5000 Robert J. Mathews Parkway, El Dorado Hills, CA 95762
---------------------------------------------------------
(Address of principal executive offices)
(916) 933-8100
--------------
(Registrant's telephone number including area code)
As of July 5, 2000, the issuer had 35,301,527 shares of common stock, $.01 par
value outstanding.
<PAGE>
INDEX
PAGE NO.
--------
PART I FINANCIAL INFORMATION 1
ITEM 1 FINANCIAL STATEMENTS; F-1 - F-20
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS 2
OR PLAN OF OPERATION
PART II OTHER INFORMATION 3
ITEMS 1 -6 3 - 4
SIGNATURES
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and December 31, 1999
1
<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
Overpayment receivable 74,700 --
Prepaid expenses (Note 4) 452,500 --
---------- ----------
Total Current Assets 4,205,178 368,276
---------- ----------
EQUIPMENT (Note 2) 754,863 52,555
---------- ----------
OTHER ASSETS
Equipment procurement costs (Note 3) -- 364,110
Deposits 20,402 20,402
---------- ----------
Total Other Assets 20,402 384,512
---------- ----------
TOTAL ASSETS $4,980,443 $ 805,343
========== ==========
F-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 7) 190,803 326,582
Notes payable - related parties (Note 5) 1,563,512 3,381,086
Convertible debentures payable (Note 6) 550,000 650,000
------------ ------------
Total Current Liabilities 3,145,384 5,811,576
------------ ------------
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 16,856,077 5,782,025
Deficit accumulated during the development stage (15,373,202) (11,116,617)
------------ ------------
Total Stockholders' Equity (Deficit) 1,835,059 (5,006,233)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 4,980,443 $ 805,343
============ ============
</TABLE>
F-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 4,365,868 577,690 14,314,127
Depreciation and amortization 14,863 4,663 65,557
------------ ------------ ------------
Total Expenses 4,380,731 582,353 14,379,684
------------ ------------ ------------
LOSS FROM OPERATIONS (4,380,731) (582,353) (14,379,684)
------------ ------------ ------------
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 $ (4,256,585) $ (668,978) $(15,373,202)
============ ============ ============
BASIC LOSS PER SHARE $ (0.13) $ (0.14)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 33,163,792 4,936,484
============ ============
</TABLE>
F-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)
Common stock issued for cash
at $0.003 per share 949,420 9,494 (6,923) --
Common stock issued for
conversion of debt at $0.003
per share 24,094,726 240,947 (157,066) --
Net loss for the year ended
December 31, 1998 -- -- -- (2,917,964)
----------- ----------- ----------- -----------
Balance, December 31, 1998 25,044,146 250,441 (163,989) (5,224,330)
Recapitalization (Note 1) 6,426,450 64,265 3,524,750 --
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 --
----------- ----------- ----------- -----------
Balance forward 31,088,096 $ 310,881 $ 4,310,386 $(5,224,330)
----------- ----------- ----------- -----------
</TABLE>
F-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 31,088,096 $ 310,881 $ 4,310,386 $ (5,224,330)
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 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 --
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 -- -- -- (5,892,287)
------------ ------------ ------------ ------------
Balance, December 31, 1999 32,835,925 $ 328,359 $ 5,782,025 $(11,116,617)
------------ ------------ ------------ ------------
</TABLE>
F-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, December 31, 1999 32,835,925 $ 328,359 $ 5,782,025 $(11,116,617)
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 --
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 1 - March 31, 2000,
57 stock issuances pursuant
to a private placement
memorandum at average
price of $5.10 per share (unaudited) 1,865,587 18,656 6,556,205 --
January 1 - March 31, 2000,
warrants issued below market
value (unaudited) -- -- 3,299,940 --
Net loss for the three months
ended March 31, 2000 (unaudited) -- -- -- (4,256,585)
------------ ------------ ------------ ------------
Balance, March 31, 2000 (unaudited) 35,218,370 $ 352,184 $ 16,856,077 $(15,373,202)
============ ============ ============ ============
</TABLE>
F-6
<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
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (4,256,585) $ (668,978) $(15,373,202)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 14,863 4,663 65,557
Common stock issued for services and
equity discounts 3,766,185 473,589 4,611,985
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) (684,367)
Increase (decrease) in accounts payable (404,829) 163,032 1,874,200
Increase (decrease) in accrued expenses (114,387) 106,175 212,195
------------ ------------ ------------
Net Cash Provided (Used) by Operating
Activities (1,162,843) 7,161 (9,433,183)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (714,761) -- (821,092)
------------ ------------ ------------
Net Cash (Used) by Investing Activities (714,761) -- (821,092)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable (1,761,222) -- (2,009,457)
Loans from related parties 48,648 -- 7,605,377
Issuance of convertible debentures -- -- 650,000
Common stock issued for cash 6,899,880 -- 7,686,333
------------ ------------ ------------
Net Cash Provided by Financing Activities 5,187,306 -- 13,932,253
------------ ------------ ------------
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>
F-7
<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 $3,766,185 $ -- $4,611,985
Common stock issued in acquisition of subsidiary $ -- $ -- $3,589,015
Common stock issued for conversion of
accounts payable $ 210,420 $ -- $ 210,420
Common stock issued for conversion of debt $ 100,000 $ -- $ 100,000
Common stock issued for conversion of accrued
interest $ 21,392 $ -- $ 21,392
</TABLE>
F-8
<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 6,426,450 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.
F-9
<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.
F-10
<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.
For the Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Net (loss)
(numerator) $ (4,256,585) $ (668,978)
Weighted average
shares outstanding
(denominator) 33,163,792 4,936,484
------------ ------------
Basic loss per share $ (0.13) $ (0.14)
============ ============
c. Provision for Taxes
At March 31, 2000, the Company has net operating loss
carryforwards of approximately $15,400,000 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.
F-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 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Equipment
Office equipment is recorded at cost. Major additions and renewals
are expensed in the year incurred. Major additions and renewals
are capitalized and depreciated over their estimated useful lives
of 5 to 39 years using the straight-line method. Depreciation
expense for continuing operations for the three months ended March
31, 2000 and 1999 was $14,863 and $4,663, respectively.
Equipment consists of the following:
March 31, December 31,
2000 1999
--------- ---------
(Unaudited)
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 (63,147) (50,694)
--------- ---------
Net Equipment $ 754,863 $ 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.
F-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 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. 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 - 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 4 - 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 $ --
======== =============
F-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 4 - PREPAID EXPENSES (Continued)
During March 2000, the Company purchased a motor for the
development of its desalination equipment for $132,200. As part of
this purchase, the Company entered into a thirty year license
agreement, which 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 5 - 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
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
-----------------
Balance forward $ 2,123,617
-----------------
</TABLE>
F-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 5 - NOTES PAYABLE - RELATED PARTIES (Continued)
<TABLE>
<CAPTION>
<S> <C>
Balance Forward $ 2,123,617
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
Less advances to employees:
1997 123,826
1998 114,805
1999 420,334
2000 5,000
-----------------
Total advances 663,965
-----------------
Total Notes Payable - Related Parties, Net $ 1,563,512
=================
Annual maturities of notes payable - related parties are as
follows:
Years Ending
December 31,
------------
2000 $ 1,563,512
=================
</TABLE>
Total interest expense to related parties was $61,126 and $83,136
for the three months ended March 31, 2000 and 1999, respectively.
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. This amount is netted
against the notes payable - related parties balance at March 31,
2000 due to management's intent to net these receivables with the
respective related party notes when settled in 2000.
F-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 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 $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 7 - 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.
F-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 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
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. It is the intent of the Company to seek additional
financing through private placements of its common stock. The
Company expects that it will need $4,000,000 to $6,000,000 of
additional funds for operations and expansion in 2000.
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.
b. Consulting Agreements
During July 1997, the Company entered into a consulting agreement
with Richard Morris Associates. 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.
F-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 9 - COMMITMENTS AND CONTINGENCIES (Continued)
During June 1999, the Company entered into a consulting agreement
with D. Weckstein & Co., Inc. 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 10).
During March 1999, the Company entered into a consulting agreement
with Richard Brown. 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.
During July 1999, the Company entered into a six month business
consulting agreement with Xcel Associates, Inc., 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 International Capital Corp. 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.
F-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 9 - COMMITMENTS AND CONTINGENCIES (Continued)
During January 2000, the Company entered into a three year
consulting agreement with Clement J. Wohlreich. 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. 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. 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 D. Weckstein & Co. 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.
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 10 - DILUTIVE INSTRUMENTS
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.
F-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 10 - DILUTIVE INSTRUMENTS (Continued)
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No.1 23"), 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.
The company has granted the following warrants and options as of
March 31, 2000:
<TABLE>
<CAPTION>
Date of Exercise Exercise
Type Grant Number Price Date
-------- -------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Options Mar.16, 1999 30,000 $ 5.00 Mar. 16, 2002
Warrants May 17, 1999 654,061 $ 1.50 May 17, 2004
Option July 12, 1999 100,000 $ 5.00 July 12, 2000
Warrants Nov. 16, 1999 1,733,333 $ 0.75 Nov. 16, 2004
Warrants Jan.-Mar. 2000 1,865,587 $ 5.10 Jan.-Mar. 2003
</TABLE>
The Company has recognized additional compensation expense of
$6,000 for the options issued on March 16, 1999 which is recorded
as part of the recapitalization.
The Company has recognized additional compensation expense of
$250,000 for the options granted on July 12, 1999 which is
recorded as part of the recapitalization.
The Company has recognized additional compensation expense of
$650,000 for the warrants granted on November 16, 1999.
the Company has recognized additional compensation expense of
$3,299,940 for the warrants granted January - March 2000 in
conjunction with a private placement memorandum.
The compensation expenses recorded reflect the discounts from the
trading value of the stock on the date of grant.
F-20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and notes thereto included in Item 1 of this
quarterly report.
Special Note Regarding Forward-Looking Statements
-------------------------------------------------
These financial projections contain figures relating to plans, expectations,
future results, performance, events or other matters that are" forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, When used in the Plan of Operations, 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.
PLAN OF OPERATION
The Company began its current operations in January, 1997 as Manufacturing
Technologies Corporation (MTC). This was a Delaware Corporation 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.,
which subsequently merged with the Company in June 1999. The Company is
developing modular seawater desalination systems integrated with environmentally
friendly power sources and ultimately fueled with renewable energy sources.
These systems will be sold to a series of regional joint ventures that will
ideally take 15-25 year contracts to sell water and power. This will provide the
Company dual income streams from both equipment sales and royalties from the
sale of water and power.
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.
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 over $6.5 million pursuant to a private
placement financing which has allowed the Company to implement its
Product Development Program, as well as 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 $5-10 million pursuant to a private placement financing in
the second quarter of 2000, and, depending on the pace of actual sales
and the acquisition activities of the Company, an additional round of
financing (for a minimum of $40 million dollars) in the third quarter
of 2000. 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 raised by the Company will allow the Company to
execute its business plan and should provide the Company with
sufficient capital to bring the Company to profitability in 2001.
(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
1
<PAGE>
This work is all aimed at improving the performance and reducing the
capital cost of the Company's products.
(iii) The Company intends to make a number of acquisitions and purchases in
the next year. They are:
a) laboratory and test facilities
b) system integration facilities
(iv) Although the Company plans to subcontract out as much work as possible,
it still anticipates increasing the number of employees from the current
ten full time and four consultants to approximately 24 full time and
eight to ten consultants.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is not involved in any material legal proceedings or litigation and
the officers and directors are aware of no other pending litigation which would
have a material, adverse effect on the Company.
ITEM 2. Changes in Securities:
On 19 May, 2000, pursuant to the Private Placement Offering, Ocean Power
Corporation sold 3,920 units of its Common Stock.
ITEM 3. Defaults Upon Senior Securities.
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 5. Other Information
NONE
2
<PAGE>
ITEM 6. Exhibit List
The following exhibits are filed herewith or incorporated herein by reference.
Exhibit Number
--------------
3.1 Certificate of Incorporation of the Company *
3.2 Bylaws of the Company *
10.1 Employment Agreement dated June 1, 1998 by and between the
Company and Joseph P. Maceda. *
10.2 Employment Agreement dated June 1, 1998 by and between the
Company and J. Michael Hopper. *
10.3 Employment Agreement dated June 1, 1998 by and between the
Company and Lori L. O"Brien. *
10.4 Employment Agreement dated June 1, 1998 by and between the
Company and Robert L. Campbell. *
27.1 Financial Data Schedule.
--------------------------
* *Previously filed as an Exhibit to the Company's Registration
Statement of Form 10-SB12G/A filed on July 5, 2000, and the
same is incorporated herein by reference.
3
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
OCEAN POWER CORPORATION
Date: July 5, 2000 By: /s/ Joseph P. Maceda
------------------ ------------------------
Joseph P. Maceda, President
4
