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
--------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 94-3350291
------------------------------- ------------------------------
(State or Other Jurisdiction (IRS Employer Identification No)
Of Incorporation or Organization)
5000 Robert J. Mathews Parkway, El Dorado Hills, California 95672
-------------------------------------------------------------------------------
(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
------------------- ------------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
1
<PAGE>
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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
History:
Ocean Power Corporation (the "Company") was first incorporated in Idaho on
April 24, 1969 as Kaniksu American Mining Company, Inc.; name changed to Kaniksu
Ventures, Inc., on August 28 1995, and Intryst, Inc., on April 2, 1997.
On March 14, 1996, the Company acquired Tessier Resources Ltd.,
("Tessier"), from Venture Tech, Inc. ("Venture Tech") in exchange for a
$3,000,000 debenture convertible into 2,000,000 shares of the Company's common
stock. The debenture matures in four (4) years from the date of issuance,
carries no interest, and may be converted at the conversion price of $1.50 per
share to an aggregate of 2,000,000 shares of authorized but previously unissued
shares of the Company's common stock at any time prior to repayment of the
debenture. As additional consideration for the acquisition of Tessier, the
Company agreed to issue to eligible stockholders of Venture Tech, shares of the
Company's common stock and rights to purchase additional shares. Under the terms
of the agreement, each individual Venture Tech stockholder as of the date of
record April 5, 1996, is entitled to five (5) shares of authorized but
previously unissued common stock of the Company for each 100 shares of Venture
Tech common stock owned. Further, each five shares of the Company's common stock
issued to Venture Tech stockholders shall include ten (10) rights, each right
entitling the holder thereof to purchase one additional share of the Company's
2
<PAGE>
common stock for $2.25 per share for a period of sixty (60) days following
receipt of the Company's shares and rights. The Company intends to deliver these
shares and rights pursuant to a registration statement to be filed at a future
date. Tessier is in the business of developing and supplying snow and ice
removal technology to the commercial market.
In September, 1997, the Company initiated negotiations to acquire PTC
Holdings, Inc., a Delaware corporation with its principal offices in Fair Oaks,
California ("PTC Holdings"). In October, 1997, in connection with the proposed
acquisition of PTC Holdings, the Company assigned its interest in Tessier back
to the original shareholders of Tessier. On December 24, 1997, the Company
changed its name from Intryst, Inc. to PTC Group, Inc., an Idaho corporation
("PTC Group").
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, Ocean Power Corporation (Idaho) merged with Ocean Power
(Delaware) and Ocean Power Corporation (Delaware) was the surviving entity, and
is traded on the OTC Bulletin Board under the symbol PWRE.
A. BUSINESS OF THE COMPANY
The Company is engaged in water desalination and renewable power generation
systems that are modular and mass-produced.
The Company's business plan is to accomplish the sale of water and power
through regional joint ventures, 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.
The Company is currently in the early stages of development of its first
two joint ventures in: (1) Greece; and (2) Mexico.
Apollo Water and Power International has signed a Heads of Agreement which
will lead to a set of definitive agreements based on a mutually acceptable
business plan currently under development for their territory concerning Greece
and the Greek section of Cyprus.
CIMA Capital has signed a Heads of Agreement which will lead to the
formation of a Joint Venture Corporation to sell water and power from seawater
desalination systems and modular power systems in Mexico.
These two parties should be the first to develop 1 million gallons per day
(1mgd) pilot plants in their territories.
3
Additional preliminary discussions are underway with potential partners in
the Caribbean Central and South America, North Africa, Egypt, Spain, Taiwan,
India and the Arabian Gulf. These have not yet reached the stage of written
commitments.
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
high-rate manufacturing processes to the various components and subsystems
making up its H20kW System. This is proposed to be accomplished through the
application of ISO 9000 manufacturing standards to every facet of its systems.
From basic technology through site preparation and assembly, the final output of
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 in
keeping with its symbol (Power-Water-Renewable-Energy)renewables will be a
priority as long as they make economic sense
Wind Harvest Company has signed a Memorandum of Understanding to enter into
the development of an exclusive license agreement to provide Windstar(TM)
Turbines for use with Ocean Power's H20kW(TM) Seawater Desalination Systems.
The Company has initiated the development of an exclusive worldwide license
with Ecological Engineering and Monitoring, Inc., of San Diego, California, and
Moscow, Russia for their real-time monitoring technologies for use in the
seawater desalination market.
The Company has signed a Memorandum Of Understanding with Hydrogen
Performance Technologies (HyPerTec), a newly formed fuel cell company, for $10
million dollars development and manufacturing support over the next two years.
1. PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKET
a. THE MARKET
The Company recognizes that the world markets for seawater desalination and
cleaner power systems of any significance are driven by highly conservative
selection criteria.
The Company believes the path of least resistance to market entry is by
placing a priority upon privately owned water and power systems. 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
several specific and clear paths to favorable 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 multiyear 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.
4
<PAGE>
b. PRINCIPAL PRODUCTS AND SERVICES
The Company will focus on the strategic corporate goal of distributing
water and power produced from renewable energy sources. Key proprietary products
will be manufactured within the company or through subcontracts that accomplish
compartmentalization of know-how. The Company's initial products are:
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, distillation modules powered initially
with conventional power technologies, such as gas turbines and later with
external combustion 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.
Ocean Power has signed a Term Sheet with Keeran (now Aquamax International,
B.V.) that will lead to the development of an exclusive worldwide license for
all Aquamax International B.V.'s owned and controlled patents for use in
seawater desalination plants that are 1000 cubic meters and larger.
As external combustion 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 the H20kW systems. This will operate on the waste heat
from the STM engine. These TVC modules can be purchased from a variety of
commercial suppliers and although they may have a high initial cost, because the
power is waste heat, they can provide a significant improvement in overall
system economics.
SYSTEM DESIGN: The Company systems are designed 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. 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. Financial
engineering will be offered to regional joint venture partners.
HIGH PURITY WATER FROM THERMAL DISTILLATION: Highest quality product water
will be achieved through thermal distillation and multi-effect ultra-violet
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 and world-class manufacturing.
5
<PAGE>
WATER HARDWARE: The Company sought specific configurations of equipment
such that reliability and capital cost could be significantly improved by
insertion of certain contemporary technologies. Further the equipment sought was
to be susceptible to improvements that would greatly reduce manufactured cost.
The technology selected accomplishes separation of pure water from seawater
through a process known as 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 around the world. The current MVCD hardware, although
producing the best quality water, suffers from several deficiencies including
high production costs, low reliability of compressor seals, and less than
optimum power efficiency.
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 as fuel cell. The drive in
this direction is toward even-lower cost and cleaner power.
The basic building block of all of the Company's products will be a 30 kW
(net electrical output) module. The initial primary power source will be an
external combustion engine.
These modules will vary according to the local fuel requirements and AC or
DC output depending on whether or not they will interface with a local
electrical grid. In all cases, these subsystems will also 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
modular system based on the existing 25 kW generators using external combustion
engines. These units will be integrated in racks housed in standard, 20' ISO
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.
STM Corporation has signed a License Agreement dated April 10, 2000 with
The Company granting exclusive, worldwide rights for the modular, seawater
desalination and power market.
6
<PAGE>
The Company has also signed a Teaming Memorandum with STM Corporation and
Singapore Technologies Automotive, the purpose of this Memorandum is to develop
the programs to take the existing STM systems and develop a plan to bring them
to commercial production up to ISO 9000 standards. The first three projects will
address systems operating on Natural Gas, Diesel and Solar Thermal energy
sources.
This family of products will deliver power at efficiencies of 35-40%.
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 promise of even higher efficiencies and lower
costs. Since no currently available fuel cell technologies can match the cost
and performance of external combustion engines, 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 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 systems
with efficiencies 55% or above.
This approach allows for near-term commercial sales with the long-term
promise of extremely competitive power cost. The ability of both the external
combustion engines and the Company's AFC systems to operate a wide range of
conventional and renewable fuel cells will help create significant competitive
advantage.
Within the next two years, the 25 kW module will be replaced by a larger 50
kW unit. 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 common elements of these
modules are as follows:
1. 25 kW liquid fueled external combustion engine
2. 25 kW Gaseous fueled external combustion engine
3. 20 kW Solar Module
4. 200 kW to 2.0 mW external combustion engine Racks
5. 50 kW low temperature hydrogen generator
6. 50 kW Alkaline fuel cell subsystem
7. 10 kW Liquid fueled external combustion engine
8. 50 kW Liquid fueled AFC skid
As the installations grow in size, larger energy source modules will be
developed where sufficient cost benefits will be yielded.
7
<PAGE>
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.
2. DISTRIBUTION METHODS
Ocean Power intends to form Affiliate Regional Enterprises, Joint Ventures
(JVs), and Strategic Alliances (SA) to which H20kW Systems will be transferred
for a price. Engineering, training, and financial services may also be
transferred to the affiliates.
The Company intends to participate in, and is in negotiation with several
candidates for regional joint ventures (JVs) and Strategic Alliances (SAs) that
will build, own, and operate the water and power plants. 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.
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.
3 COMPETITION:
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. 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 green power
generation equipment. Among these are:
o Suez Lyonnaise des Eaux, France
o (a merger of Compagnie de Suez and Lyonnaise des Eaux)
o Compaigne 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 Veach 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)
8
<PAGE>
All of the above entities are likely direct competitors to the Company in
the area of integrated, modular seawater and power systems. Only Vivendi through
its acquisition of SIDEM now has its own seawater desalination technology. The
Company's competing technology is less costly to manufacture and power
efficient.
Other entities currently very active in the privatization of water systems
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
DESALINATION:
General competition will be intense from a wide variety of suppliers of
reverse osmosis technologies (RO). The barrier to entry to this system
technology is very low, with key component technology available from three key
suppliers throughout the world. However, this 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 advertised. The Company believes that seawater
desalination through distillation offers a future of superior water quality,
vastly superior reliability, and much reduced maintenance. Distillation offers
far superior product water quality than other desalination technologies and
Vacuum Vapor Compression Distillation, the cycle being employed by Ocean Power's
H20KW(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 Israel Desalination Technologies is the world's leading manufacturer
of low-temperature distillation systems. Over 300 desalination plants
fielded in 26 countries. Wholly owned by Israel Chemical LTD. 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.
9
<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. Recently, they attempted to license
the technology of Advanced Distillation Technology.
o MECCO: The only US manufacturer of Vapor Compression Distillation
equipment. The company has a reputation of equipment failure. 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 MSE or MED type. Known for pursuit
of very large plants awarded under conventional tenders.
POWER
The current status of competitors is fragmented. Although the worldwide
trend is moving inexorably 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 enormous overhead, an inflexible
corporate culture 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-derivitive gas
turbines 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
10
<PAGE>
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
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
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.
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
Wagnick, Principle, Wagnick Consulting, GMBH, of Gnarrenburg, Germany. Since
1983, Mr. Wagnick has produced an annual analysis of the industry. His overall
view of the industry was delivered to the World Congress of the International
Desalination Association in 1997 and included the following important
observations:
11
<PAGE>
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 overall drivers of growth for this industry are population growth,
improved standard of living, reduced energy costs, industrialization, and
diminishing water quality. All of these drivers 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 vastly 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 massive plans for the Mediterranean are
examples of such political influence 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.
4. 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.
12
<PAGE>
5. DEPENDENCE ON ONE OR MORE MAJOR CUSTOMERS
Not applicable
6. 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 registered certain of its trademarks in the
United States and is in the process of filing U.S. applications for patents.
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.
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
7. 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, this certification will be adequate.
13
<PAGE>
8. 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.
<TABLE>
<CAPTION>
Water Quality
(Values in milligrams per litre)
Constituents WHO EC EPA 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
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
9. RESEARCH AND DEVELOPMENT COSTS
During fiscal years 1997, 1998 and 1999, the Company has expended
approximately $632,000.00, $360,000.00, and $258,000.00 respectively, on
research and development of its products. The costs were expenses as 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 H20kW 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.
14
<PAGE>
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.
10. COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
The Company is not involved in a business which involves the use of
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.
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.
11. EMPLOYEES
As of the date hereof, the Company employed 10 full-time employees. The
President, Vice President, Secretary Treasurer, 2 Executive Assistants to the
President and Vice President, 2 Chemists, Manufacturing Manager, Design Engineer
and 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 OPERATION
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.
15
<PAGE>
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.
a. 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
16
<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
c) Keeran
(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.
ITEM 3. DESCRIPTION OF PROPERTY
(a) The main office of the Company is located at 5000 Robert J. Mathews
Parkway, El Dorado Hills, California 95762. It leases a 30,000 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. The
company also has an option to purchase the subject property during the period
January 1, 1999 and until September 1, 2000, and only between these dates,
Lessee shall have the option to purchase. As adequate financing becomes
available to the Company, laboratory and test facilities, and system integration
facilities will be installed.
(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. 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.
17
<PAGE>
Name and Address Percentage
Of Beneficial Number of Beneficially
Title of Class Owner Shares Owned (1)
-------------- ----- ------ ---------
Common Joseph P.Maceda* 10,641,579 30.14%
5019 Susan Oaks Drive
Fair Oaks, CA 95628
Common Robert L. Campbell* 6,980,341 19.77%
15009 Rio Circle
Rancho Murieta,
CA 95683
Common Gloria Rose Ott* 2,620,000 7.42%
20250 Edgewood Farm Lane
Purcellville, VA 20132
Common J. Michael Hopper* 901,320 2.55%
135 Alder Avenue
Davis, CA 95616
* Indicates directors and/or executive officers.
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.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a) DIRECTORS AND EXECUTIVE OFFICERS:
NAME AGE OFFICE
---- --- ------
Gloria Rose Ott 45 Chairman of the Board and
Director
Joseph P. Maceda 47 President and Director
Robert L. Campbell 55 Vice President and Director
J. Michael Hopper 52 Secretary/Treasurer
1. Based upon 35,301,527 shares of common stock outstanding on July 5, 2000.
2. 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.
18
<PAGE>
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 into 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.
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 overwhelming 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 19998 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
19
<PAGE>
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.
In 1983, Mr. Campbell founded, operated and grew 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.
1967 to 1970 whilst in military service ((U.S. Army Security Agency and
Strategic Communications Command) he designed and deployed extensive test
network used to explore Electromagnetic Pulse effects in support of the
Safeguard Anti-Ballistic Missile System development.
Mr. Campbell is a graduate of St. Mary's College of 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.
20
<PAGE>
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.
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 covers 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
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
Long Term Compensation i.e. Awards and Payouts not applicable
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.
21
<PAGE>
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 within the next 180 days.
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 1998, the Company issued 1,149,774 shares of its common stock in
consideration of money owed to a related party. During 1998, $2,026,132 was owed
and converted into common stock.
During 1998, the Company granted 55,000 warrants to certain officers,
directors and other shareholders of the Company. The warrants were issued with
an exercise price of $0.30 ($3.00 post-split) which represented the fair market
value of the stock at the time of grant, and the warrants expire on November 15,
2002.
22
<PAGE>
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
35,301,527 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
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.
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, 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 May 2003.
DEBENTURES
The Company has issued four convertible debentures, 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, 20004). 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
23
<PAGE>
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
The Company's common stock is traded on the over-the-counter bulletin
board (OTC/BB) 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 19.20 11.875 17.50
June, 1998 39.30 29.30 30.00
September, 1998 35.00 23.70 24.00
December, 1998 5.30 4.60 4.80
March, 1999 8.10 6.20 6.80
June, 1999 5.40 5.10 5.30
All prices, above and below, reflect reverse 1-10 Stock
Split on August 20, 1999.
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
Source: Commodity Systems, Inc. Historical Data
As of July 3, 2000, the bid price of the Company's Common Shares was
$4.05 per share.
B. HOLDERS
As of July 5, 2000, there were approximately 182 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.
24
<PAGE>
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
On June 23, 1999 the company entered into an Agreement with D.
Weckstein & Co., as financial consultants and investment bankers. As
compensation for its services under this agreement, D. Weckstein & Co., shall
receive 300,000 options to purchase shares of the Company's common stock,
exercisable at $5.00 per share for aperiod of three years from the date of the
Agreement.
On July 12, 1999, the Company entered into a Business Agreement with
Xcel Associates, Inc. for Xcel Associates to perform business consulting for the
Company in exchange for 500,000 shares of the Company's Common Stock.
On December 7, 1999 the Agreement with D. Weckstein & Co., Inc. was
amended whereby D. Weckstein & Co. Inc., will receive 125,000 options to
purchase 125,000 shares of common stock exercisable at $1.00 per share until
December 31, 2003.
In December, 1999, the Company offered a total of 755,085 shares of its
common stock to accredited U.S. residents of Colorado only. This offering was
made in reliance on the exemption available from registration provided by Rule
504 of Regulation D of the Securities Act of 1933. The Company raised a total of
$600,000.00 in this offering, which funds were used for Transfer Fees, Legal
Fees, Finder's Fees, Selling Expenses, Salaries & Fees, Rental/Leasing,
Repayment of Indebtedness, Working Capital, Research and Development and
Marketing.
In January 2000, pursuant to a private placement financing, the Company
offered units comprised of one common share and one warrant, with the right to
purchase one additional share of common stock. The offering was made in reliance
upon the exemption from registration under Section 4(6) of the Securities Act of
1933, as amended, and comparable provisions of state law. Each of the investors
that participated in the offering was an accredited investor as that term is
defined in Regulation D of the Securities Act. Pursuant to the offering, the
Company issued a total of 1,963,674 units to 50 investors and raised a total of
$6,828,461. The proceeds of the offering are being used for Transfer Fees, Legal
Fees, Finders Fees, Selling Expenses, Acquisition of other Businesses, Repayment
of Indebtedness, Installation of Machinery and Equipment, Working Capital,
Research and Development and Marketing.
During January 2000, the Company entered into a three year consulting
contract 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 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
contract 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, $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 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.
25
<PAGE>
<TABLE>
<CAPTION>
NO. OF
NAME SHARES DATE: CONSIDERATION
---- ------ ----- -------------
<S> <C> <C> <C>
11 persons 441,000 1997 Conversion of Debentures valued at $.30 per share
16 persons 1,379,000 1998 Conversion of Debentures valued at $.30 per share
3 shareholders of 371,000 6/19/98 Acquisition of Tessier Resources valued at $40 per share
Tessier Resources
Barry Worshoufsky 21,734 7/28/98 Conversion of debt valued at $1.50 per share
Jacques DeGroote 10,000 5/14/98 Services rendered valued at $1.59 per share
Gloria Rose Ott 10,000 5/18/98 Services rendered valued at $1.59 per share
Liberty Capital Ltd. 10,000 5/21/98 Services rendered valued at $1.59 per share
Bensonal Limited 226,661 6/19/98 Conversion of debt valued at $1.80 per share
Brighton Financial Ltd 250,000 6/29/98 Conversion of debt valued at $1.80 per share
Paradon Limited 250,000 6/29/98 Conversion of debt valued at $1.80 per share
Freedom Financial 533,333 11/4/98 Conversion of debt valued at $1.80 per share
Bensonal Limited 13,502 11/4/98 Conversion of debt valued at $1.80 per share
Texco Investments Ltd. 182,750 12/31/98 Conversion of debt valued at $1.80 per share
Bensonal Limited 182,750 12/31/98 Conversion of debt valued at $1.80 per share
7 persons 260,000 1998 Conversion of Debentures valued at $3.00 per share
Venture Tech, Inc. 50,000 1/27/99 Conversion of debenture at $15.00 per share
Keeran Corp. NV 400,000 6/8/99 Purchase of equipment valued at $.74 per share
Venture Tech, Inc. 150,000 6/8/99 Conversion of debenture at $15.00 per share
Freedom Financial 300,000 5/17/99 Conversion of debt valued at $1.50 per share
Paradon Limited 200,000 5/17/99 Conversion of debt valued at $1.50 per share
Enterprise Capital 220,738 5/17/99 Conversion of debt valued at $1.50 per share
International, Inc.
Shareholders of 25,044,146 6/22/99 Merger Agreement with PTC Holdings, Inc.
PTC Holdings, Inc.
XCEL Associates 15,000 7/15/99 Terms of Business Consulting Agreement Valued at
$8.40
XCEL Associates 10,000 7/15/99 Exercise partial option per contract - 10,000
options at $5.00, or $50,000
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NO. OF
NAME SHARES DATE: CONSIDERATION
---- ------ ----- -------------
<S> <C> <C> <C>
XCEL Associates 10,000 7/26/99 Second option - 10,000 options at $5.00, or $50,000
Edward Meyer 50,000 8/12/99 Loan Agreement 8/9/99 Between Xcel & Ocean Power
Edward T. Whelan 50,000 8/12/99 Loan Agreement 8/9/99 Between Xcel & Ocean Power
XCEL Associates 20,000 9/2/99 Terms of Business Consulting Agreement valued at
$8.40
XCEL Associates 50,000 9/10/99 Stock Options at $1.00 per share, or $50,000
Carl Tortora 50,000 9/10/99 Stock Options at $1.00 per share, or $50,000
Frankie Fu 20,000 11/29/99 Finder's Fee in connection with Merger valued at
$1.34
Freedom Funding, Inc. 100,000 11/29/99 Finder's Fee in connection with Merger valued at
$1.34
Venture Investment 80,000 11/29/99 Finder's Fee in connection with PTC
Group, Inc. Holings, Inc. Merger valued at $1.34
Sandra Marshman 71,839 12/10/99 Rule 504 offering valued at $0.696 per share
Mark J. Sodden 49,020 12/13/99 Rule 504 offering valued at $0.714 per share
Sandra Marshman 111,111 12/13/99 Rule 504 offering valued at $0.900 per share
Orienstar Finance Ltd 175,070 12/14/99 Rule 504 offering valued at $0.714 per share
Waterford Enterprises 33,333 12/15/99 Rule 504 offering valued at $0.900 per
LLC. share
Orienstar Finance Ltd 93,939 12/20/99 Rule 504 offering valued at $0.825 per share
Sandra Marshman 20,773 12/23/99 Rule 504 offering valued at $0.828 per share
Edward Meyer 25,000 1/4/2000 Loan Agreement dated 8/9/99 valued at $2.75
Edward T. Whelan 25,000 1/4/2000 Loan Agreement dated 8/9/99 valued at $2.75
Robert Bylin 97,580 1/4/2000 Conversion of $100,000 debt per agreement 12/29/99
valued at $1.025 per share
CJB Consulting Inc. 30,000 1/18/2000 Consulting Agreement valued at $3.8125
Gold Capital Group 30,000 1/18/2000 Consulting Agreement valued at $3.8125
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NAME NO. OF UNITS DATE CONSIDERATION
---- ------------ ---- -------------
<S> <C> <C> <C>
A.J.B.de Jong Luneau 47,619 1/7/00 Private Placement Subscription
Agreement valued at $2.10 per unit
Carl A.P.Fricke Trust 62,792 1/20/00 Private Placement Subscription
Agreement valued at $3.185 per unit
David Weissberg 40,390 1/24/00 Private Placement Subscription
Agreement valued at $3.169 per unit
Steven & Sharon Weinberg 10,000 1/25/00 Private Placement Subscription
Agreement valued at $3.209 per unit
Bill J. Tomasik 15,625 1/26/00 Private Placement Subscription
Agreement valued at $3.20 per unit
Charles Weiner 7,813 1/26/00 Private Placement Subscription
Agreement valued at $3.20 per unit
John P. Cole 20,000 1/27/00 Private Placement Subscription
Agreement valued at $3.25 per unit
Michael D. Lockwood 1,000,000 1/27/00 Private Placement Subscription
Agreement valued at $3.00 per unit
Howard Lockwood 30,677 1/27/00 Private Placement Subscription
Agreement valued at $3.259 per unit
John V. Doyle/Trustee 15,338 1/28/00 Private Placement Subscription
Agreement valued at $3.259 per unit
John V. Doyle 30,677 1/28/00 Private Placement Subscription
Agreement valued at $3.259 per unit
Bill J. Tomasik 7,576 1/31/00 Private Placement Subscription
Agreement valued at $3.299 per unit
Jeffrey Freedman 50,000 2/1/00 Private Placement Subscription
Agreement valued at $3.00 per unit
Darryl Cohen 28,011 2/4/00 Private Placement Subscription
Agreement valued at $3.570 per unit
Murray Investment Club 13,588 2/7/00 Private Placement Subscription
George A. Murray TTEE Agreement valued at $3.679 per unit
George A. Davala 26,525 2/8/00 Private Placement Subscription
Agreement valued at $3.770 per unit
CounterPoint Master LLC 66,313 2/8/00 Private Placement Subscription
Agreement valued at $3.770 per unit
Dennis & Leslie Berquist 20,000 2/9/00 Private Placement Subscription
Agreement valued at $3.854 per unit
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NAME NO. OF UNITS DATE CONSIDERATION
---- ------------ ---- -------------
<S> <C> <C> <C>
Robert & Amy Banov 6,487 2/9/00 Private Placement Subscription
Agreement valued at $3.854 per unit
Lisa Brown 12,973 2/9/00 Private Placement Subscription
Agreement valued at $3.854 per unit
Ambion Properties Ltd. 48,019 2/11/00 Private Placement Subscription
Agreement valued at $4.165 per unit
Alan Smith 24,010 2/11/00 Private Placement Subscription
Agreement valued at $4.165 per unit
Steven Kamhi 12,005 2/11/00 Private Placement Subscription
Agreement valued at $4.165 per unit
Arnold Kamhi 12,005 2/11/00 Private Placement Subscription
Agreement valued at $4.165 per unit
Frederic Seamon III 24,010 2/11/00 Conversion of $100,000 debt valued at
$4.165 per share.
Kevin Brown 15,000 2/14/00 Private Placement Subscription
Agreement valued at $4.334 per unit
Brad Hall 5,326 2/15/00 Private Placement Subscription
Agreement valued at $4.694 per unit
Murray Investment Club 4,260 2/15/00 Private Placement Subscription
George A. Murray TTEE Agreement valued at $4.694 per unit
Thomas E. Hamlin 9,000 2/17/00 Private Placement Subscription
Agreement valued at $5.381 per unit
R. Weatherford 9,124 2/22/00 Private Placement Subscription
Agreement valued at $5.480 per unit
R. Hoffman 9,124 2/22/00 Private Placement Subscription
Agreement valued at $5.480 per unit
S. Hastings 2,000 2/22/00 Private Placement Subscription
Agreement valued at $5.480 per unit
Bill J. Tomasik 14,018 2/23/00 Private Placement Subscription
Agreement valued at $5.350 per unit
William N. Walling, Jr. 4,000 2/24/00 Private Placement Subscription
Agreement valued at $5.430 per unit
Jeffrey Freedman 9,208 2/24/00 Private Placement Subscription
Agreement valued at $5.430 per unit
Kevin Smokowski 21,352 2/25/00 Private Placement Subscription
Agreement valued at $5.620 per unit
Bio Ventures 12,495 2/28/00 Private Placement Subscription
Agreement valued at $5.990 per unit
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NAME NO. OF UNITS DATE CONSIDERATION
---- ------------ ---- -------------
<S> <C> <C> <C>
Pearlmay S. Schoensee 2,500 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Alan Smith 7,610 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
AlanRoss Keen 1,522 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Lisa Brown 7,610 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Darryl Cohen 15,220 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Robert & Amy Banov 7,610 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Michael H. Blank 3,805 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Jay R. Stone 3,805 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Kendall Stone 3,805 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Ruth & Ted Bauer Family Foundation 7,610 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Ben Reppond 10,000 2/29/0 Private Placement Subscription
Agreement valued at $6.570 per unit
Kevin Comcowich 8,554 2/29/00 Private Placement Subscription
Agreement valued at $6.570 per unit
Kenneth G. Puttick 26,882 3/1/00 Private Placement Subscription
Agreement valued at $7.44 per unit
Siri Berg 3,360 3/1/00 Private Placement Subscription
Agreement valued at $7.44 per unit
Andrew D. Hart 3,360 3/1/00 Private Placement Subscription
Agreement valued at $7.44 per unit
William C. Adams 1,342 3/1/00 Private Placement Subscription
Agreement valued at $7.450 per unit
Edward J. Tirello, Jr. 6,711 3/1/00 Private Placement Subscription
Agreement valued at $7.450 per unit
Charles T. Bauer 6,075 3/2/00 Private Placement Subscription
Agreement valued at $8.230 per unit
Cameron Holdings, Inc. 20,266 3/3/00 Conversion of $121,392 of debt per
agreement dated March 3, 2000. value
per share is $5.99.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME NO. OF UNITS DATE CONSIDERATION
---- ------------ ---- -------------
<S> <C> <C> <C>
Carl A.P.Fricke Trustee 62,792 3/9/00 Exercise of Warrants re Private
Placement Subscription Agreement dated
1/20/00 valued at $1.991 per warrant
Crane Kirkbride 6,165 3/14/00 Private Placement Subscription
Agreement valued at $8.110 per unit
Regis Investment Company 66,667 3/16/00 Conversion of a $100,000 Debenture
dated November 16, 1999. Certificate is
to be dated 11/16/99
Regis Investment Company 133,333 3/16/00 Conversion of a $100,000 Debenture
dated November 16, 1999.
Hoi XuanNgo 1,034 3/20/00 Private Placement Subscription
Agreement valued at $6.770 per unit
Bradley B. Crawford 7,657 3/21/00 Private Placement Subscription
Agreement valued at $6.770 per unit
Terence Foley 2,210 3/27/00 Conversion of $10,420 debt per signed
agreement dated 20 March, value per
share is $4.714.
Hoi XuanNgo 832 3/31/00 Private Placement Subscription
Agreement valued at $6.010 per unit
Steven W. Martineau 47,393 4/17/00 Private Placement Subscription
Agreement valued at $3.165 per unit
Bill J. Tomasik 5,679 4/24/00 Private Placement Subscription
Agreement valued at $2.600 per unit
Steven Weinberg 10,000 4/24/00 Private Placement Subscription
Agreement valued at $2.600 per unit
David Weissberg 15,000 4/24/00 Private Placement Subscription
Agreement valued at $2.600 per unit
Bensonal Limited 296,372 5/17/00 Conversion of $444,558 of debt per agreement
dated December 31, 1999
Venture Investment Group 296,372 5/17/00 Conversion of $444,558 of debt per agreement
dated December 31, 1999
Patricia M. Diana 3,920 5/19/00 Private Placement Subscription Agreement
valued at $3.827 per unit.
</TABLE>
31
<PAGE>
None of the issuances of shares listed above were registered with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"). Sales of shares made in reliance on the exemption provided by
Regulation D, Rule 504, were made in the State of Colorado pursuant to
applicable Colorado law. Sales of shares pursuant to the private placement
financing were made in reliance on the exemption provided by Section 4(6) of the
Securities Act. Issuances of shares pursuant to the conversion of debentures
were made in reliance upon the exemption provided by Section 3(a)(9) of the Act.
All other issuances including the exchange of shares for the merger with PTC
Holdings, Inc., the acquisition of Tessier Resources, Inc., conversion of debt,
and pursuant to various contracts were made in reliance on the exemption
provided by Section 4(2) of the Act. The Company believes that the Section 4(2)
exemption was available and appropriate because the issuances were made in
private and isolated transactions with informed investors.
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 successful 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.
32
<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.
33
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
<PAGE>
C O N T E N T S
Independent Auditors' Report................................................. 3
Consolidated Balance Sheet................................................... 4
Consolidated Statements of Operations........................................ 6
Consolidated Statements of Stockholders' Equity (Deficit).................... 7
Consolidated Statements of Cash Flows........................................ 9
Notes to the Consolidated Financial Statements...............................11
<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 7 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 7. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
By:/s/Jones, Jensen & Company
-----------------------------
Jones, Jensen & Company
Salt Lake City, Utah
April 30, 2000
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
--------
Total Current Assets 368,276
--------
EQUIPMENT (Note 2) 52,555
--------
OTHER ASSETS
Equipment procurement costs (Note 3) 364,110
Deposits 20,402
--------
Total Other Assets 384,512
--------
TOTAL ASSETS $805,343
========
The accompanying notes are an integral part of these
consolidated financial statements.
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 6) 326,582
Notes payable - related parties (Note 4) 3,381,086
Convertible debentures payable (Note 5) 650,000
------------
Total Current Liabilities 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; 32,835,925 shares issued and outstanding 328,359
Additional paid-in capital 5,782,025
Deficit accumulated during the development stage (11,116,617)
------------
Total Stockholders' Equity (Deficit) (5,006,233)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 805,343
============
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception on
For the Years Ended March 26,
December 31, 1992 Through
-------------------------- December 31,
1999 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
EXPENSES
General and administrative 5,053,844 2,652,181 9,948,259
Depreciation and amortization 18,742 17,136 50,694
----------- ----------- -----------
Total Expenses 5,072,586 2,669,317 9,998,953
----------- ----------- -----------
LOSS FROM OPERATIONS (5,072,586) (2,669,317) (9,998,953)
----------- ----------- -----------
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 $(5,892,287) $(2,917,964) $(11,116,617)
=========== =========== ===========
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.
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
Common Stock Additional During the
-------------------------- 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>
The accompanying notes are an integral part of these
consolidated financial statements.
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
Common Stock Additional During the
-------------------------- 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>
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
For the Years Ended March 26,
December 31, 1992 Through
---------------------------- December 31,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,892,287) $ (2,917,964) $(11,116,617)
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 845,800 -- 845,800
Loss on sale of assets 387,649 -- 387,649
Change in operating asset and liability accounts:
(Increase) decrease in other assets (481,088) (417,957) (1,043,477)
Increase (decrease) in accounts payable 1,301,381 523,741 2,279,029
Increase (decrease) in cash overdraft -- (33,229) --
Increase (decrease) in accrued expenses 162,030 126,600 326,582
------------ ------------ ------------
Net Cash Used by Operating Activities (3,657,773) (2,701,673) (8,270,340)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 1 -- --
Purchase of fixed assets -- (17,151) (106,331)
------------ ------------ ------------
Net Cash (Used) Provided by Investing Activities 1 (17,151) (106,331)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable (246,933) (1,302) (248,235)
Loans from related parties 2,919,797 2,636,857 7,556,729
Issuance of convertible debentures 650,000 -- 650,000
Common stock issued for cash 700,000 86,453 786,453
------------ ------------ ------------
Net Cash Provided by Financing Activities 4,022,864 2,722,008 8,744,947
------------ ------------ ------------
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.
9
<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
For the Years Ended March 26,
December 31, 1992 Through
------------------------- December 31,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH PAID FOR:
Interest $ -- $ -- $ --
Income taxes $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for services and
equity discounts $ 845,800 $ -- $ 845,800
Common stock issued in acquisition of subsidiary $ 3,589,015 $ -- $ 3,589,015
Common stock issued for conversion of related
party debt $ 889,117 $ -- $ 889,117
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
10
<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 6,426,450 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.
11
<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.
12
<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 $ (5,892,287) 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.
13
<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 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 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.
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 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.
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. 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.
NOTE 4 - NOTES PAYABLE - RELATED PARTIES
<TABLE>
<CAPTION>
Notes payable at December 31, 1999 consist of the following:
<S> <C>
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
-----------------
Balance Forward $ 790,484
-----------------
</TABLE>
15
<PAGE>
OCEAN POWER CORPORATION
(Formerly PTC Group, Inc. and Subsidiary)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
NOTE 4 - NOTES PAYABLE - RELATED PARTIES (Continued)
<S> <C>
Balance Forward $ 790,484
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
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
-----------------
Balance Forward $ 4,040,051
-----------------
</TABLE>
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 4 - NOTES PAYABLE - RELATED PARTIES (Continued)
Balance Forward $ 4,040,051
Less advances to employees:
1997 123,826
1998 114,805
1999 420,334
-----------------
Total advances 658,965
-----------------
Total Notes Payable - Related Parties, Net $ 3,381,086
=================
Annual maturities of notes payable - related parties are as
follows:
Years Ending
December 31,
------------
2000 $ 3,381,086
=================
Total interest expense to related parties was $332,545 and
$228,842 for the years ended December 31, 1999 and 1998,
respectively.
During 1997, 1998 and 1999, the Company made cash advances of
$658,965 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 December
31, 1999 due to management's intent to net these receivables with
the respective related party notes when settled in 2000.
NOTE 5 - 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.
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 5 - 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 6 - 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 7 - 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 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. It is the intent of the Company to seek additional
financing through private placements of its common stock (see Note
11). The Company expects that it will need $4,000,000 to
$6,000,000 of additional funds for operations and expansion in
2000.
18
<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 - 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.
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:
19
<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 - COMMITMENTS AND CONTINGENCIES (Continued)
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.
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.
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 9 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 1999 and 1998, related
parties advanced $2,919,797 and $2,636,857, respectively, to the
Company in the form of deferred wages, expenses paid for the
Company and cash advances.
On December 31, 1999, the Company issued 592,744 shares of common
stock for the conversion of $889,117 of debt.
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.
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
December 31, 1999:
<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 720,728 $ 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
</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.
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 10 - DILUTIVE INSTRUMENTS (Continued)
The Company has recognized additional compensation expense of
$650,000 for the warrants granted on November 16, 1999.
The compensation expenses recorded reflect the discounts from the
trading value of the stock on the date of grant.
NOTE 11 - SUBSEQUENT EVENTS
Subsequent to the year end, the Company has sold 1,865,849 shares
for $6,733,461 pursuant to a private placement offering.
Subsequent to the year end, the Company has issued 62,792 shares
for $125,019 pursuant to the exercise of outstanding warrants.
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, $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 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.
22
<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>
PART III
ITEM 1 AND
----------
ITEM 2 INDEX TO EXHIBITS AND DESCRIPTION OF EXHIBITS
------
Consent of Independent Auditors' Dated July 5, 2000
Articles of Incorporation
of Kaniksu American Mining Dated April 5, 1969
Company (Idaho)
Certificate of Amendment
Kaniksu American Mining Dated August 28, 1995
name change to Kaniksu
Ventures, Inc.
Certificate of Amendment
Kaniksu Ventures, Inc., Dated April 2, 1997
name change to Intryst, Inc
Articles of Amendment of
Intryst, Inc., name change Dated December 24, 1997
to PTC Group, Inc.
Articles of Amendment of
PTC Group, Inc., name change Dated July 14, 1999
to Ocean Power Corporation
Certificate of Incorporation
of Ocean Power Corporation Dated July 21, 1999
a Delaware Corporation
Articles of Merger of Ocean
Power Corporation Idaho With Dated July 28, 1999
Ocean Power Corporation Delaware
Bylaws Dated July 22, 1999
Certificate of Merger of
Foreign and Domestic Corporation Dated July 28, 1999
Employment Contracts
<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
