OCEAN POWER CORP
Filing Type: 10QSB
Description: Quarterly Report
Filing Date: November 14, 2000
Period End: September 30, 2000
Primary Exchange: N/A
Ticker: N/A
1
<PAGE>
Table of Contents
10QSB OTHERDOC
Part I.........................................................................1
Item I.........................................................................2
Balance Sheet Assets............................................................
Balance Sheet Liabilities.......................................................
Income Statement................................................................
Table 4.........................................................................
Table 5.........................................................................
Table 6.........................................................................
Cash Flow Statement.............................................................
Table 8.........................................................................
Table 9.........................................................................
Table 10........................................................................
Table 11........................................................................
Table 12........................................................................
Table 13........................................................................
Item 2.........................................................................2
Item 3.........................................................................4
Item 4.........................................................................4
Item 5.........................................................................4
Item 6.........................................................................4
EX-2 OTHERDOC
Table 14........................................................................
2
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities act of 1934
For the quarterly period ended September 30, 2000
[X] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from June 30 to September 30, 2000
Commission File Number: 000-29371
--------------------------
Ocean Power Corporation
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 94-3350291
---------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5000 Robert J. Mathews Parkway, El Dorado Hills, CA 95762
--------------------------------------------------------------------------------
(Address of principal executive offices)
(916) 933-8100
--------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal
Year, of changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrants was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes: [X] No: [ ]
As of November 13, 2000, the issuer had 38,149,942 shares of common stock, $.01
par value outstanding.
Transitional Small Business Disclosure Format Yes: [ ] No: [X]
3
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and December 31, 1999
F-1
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
------
September 30, December 31,
2000 1999
---------------- -------------
(Unaudited)
CURRENT ASSETS
Cash 3,926,659 $ 368,276
Cash - restricted 26,816 --
Advances to employees (Note 3) 301,217 658,965
Prepaid expenses (Note 5) 480,835 --
---------------- -------------
Total Current Assets 4,735,527 1,027,241
---------------- -------------
EQUIPMENT, NET (Note 2) 655,840 52,555
---------------- -------------
PATENTS, NET (Note 6) 933,215 --
---------------- -------------
GOODWILL, NET (Note 7) 6,479,927 --
---------------- -------------
OTHER ASSETS
Equipment procurement costs (Note 4) -- 364,110
Deposits 35,619 20,402
Other receivables 171,838 --
---------------- -------------
Total Other Assets 207,457 384,512
---------------- -------------
TOTAL ASSETS $ 13,011,966 $ 1,464,308
================ =============
F-2
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1 999
---------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 776,495 $ 1,453,908
Accrued expenses (Note 11) 240,595 326,582
Notes payable - related parties (Note 8) 1,360,626 4,040,051
Convertible debentures payable (Note 10) 550,000 650,000
Patents payable - current portion (Note 6) 302,225 --
Notes payable - current portion (Note 9) 45,334 --
---------------- -------------
Total Current Liabilities 3,575,275 6,470,541
---------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 13) 421,665 --
---------------- -------------
LONG-TERM LIABILITIES
Patents payable (Note 6) 293,358 --
Notes payable (Note 9) 427,220 --
---------------- -------------
Total Long-Term Liabilities 720,578 --
---------------- -------------
Total Liabilities 4,717,518 6,470,541
---------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.001 par value; no shares outstanding -- --
Common stock: 500,000,000 shares authorized of
$0.01 par value; 38,149,942 and 32,835,925 shares
issued and outstanding, respectively 381,499 328,359
Additional paid-in capital 30,512,319 5,782,025
Other comprehensive income 198,927 --
Deficit accumulated during the development stage (22,798,297) (11,116,617)
---------------- -------------
Total Stockholders' Equity (Deficit) 8,294,448 (5,006,233)
---------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 13,011,966 $ 1,464,308
================ =============
</TABLE>
F-3
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the March 26,
Nine Months Ended Three Months Ended 1992 Through
September 30, September 30, September 30,
--------------------------------- ---------------------------------- ----------------
2000 1999 2000 1999 2000
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- $ --
EXPENSES
General and administrative 11,233,711 5,155,559 3,071,959 4,414,356 20,018,255
Research and development 223,156 -- 82,306 -- 1,473,156
Depreciation and amortization 228,719 7,224 144,574 1,280 255,128
---------------- --------------- --------------- ---------------- ---------------
Total Expenses 11,685,586 5,162,783 3,298,839 4,415,636 21,746,539
---------------- --------------- --------------- ---------------- ---------------
LOSS FROM OPERATIONS (11,685,586) (5,162,783) (3,298,839) (4,415,636) (21,746,539)
---------------- --------------- --------------- ---------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 115,861 1 36,283 1 115,861
Gain on settlement of debt 165,349 -- -- -- 165,349
Loss on sale of assets -- -- -- -- (387,649)
Interest expense (215,304) (250,797) (87,281) (88,343) (945,319)
---------------- --------------- --------------- ---------------- ---------------
Total Other Income (Expense) 65,906 (250,796) (50,998) (88,342) (1,051,758)
---------------- --------------- --------------- ---------------- ---------------
NET LOSS (11,619,680) (5,413,579) (3,349,837) (4,503,978) (22,798,297)
---------------- --------------- --------------- ---------------- ---------------
OTHER COMPREHENSIVE INCOME
Currency translation adjustment 198,927 -- 198,927 -- 198,927
---------------- --------------- --------------- ---------------- ---------------
Total Other Comprehensive
Income 198,927 -- 198,927 -- 198,927
---------------- --------------- --------------- ---------------- ---------------
NET COMPREHENSIVE LOSS $ (11,420,753) $ (5,413,579) $ (3,150,910) $ (4,503,978) $ (22,599,370)
================ =============== =============== ================ ===============
BASIC LOSS PER SHARE $ (0.33) $ (0.82) $ (0.09) $ (0.51) --
================ =============== =============== ================ ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 35,282,677 6,564,458 36,405,608 8,907,326 --
================ =============== =============== ================ ===============
</TABLE>
F-4
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Other During the
Common Stock Paid-In Comprehensive Development
Shares Amount Capital Income Stage
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Inception, March 26, 1992 -- $ -- $ -- $ -- $ --
Net loss from inception on
March 20, 1992 through
December 31, 1997 -- -- -- -- (2,306,366)
---------------- --------------- --------------- ---------------- ---------------
Balance, December 31, 1997 -- -- -- -- (2,306,366)
February 24, 1998, common
stock issued for cash at $0.003
per share 395,467 3,955 (2,817) -- --
March 6, 1998, common stock
issued for cash at $0.003 per share 121,904 1,219 (869) -- --
March 12, 1998, common stock
issued for cash at $0.003 per share 33,199 332 (237) -- --
March 18, 1998, common stock
issued for cash at $0.003 per share 2,575 26 (19) -- --
April 2, 1998, common stock
issued for cash at $0.003 per share 130,500 1,305 (930) -- --
May 14, 1998, common stock
issued for cash at $0.003 per share 14,755 147 (106) -- --
June 16, 1998, common stock
issued for cash at $0.003 per share 119,086 1,191 (849) -- --
June 16, 1998, common stock
issued for cash at $0.003 per share 42,456 424 (303) -- --
June 16, 1998, common stock
issued for debt at $0.079 per share 1,061,400 10,614 73,267 -- --
July 29, 1998, common stock
issued for cash at $0.003 per share 34,800 348 (248) -- --
Net loss for the year ended
December 31, 1998 -- -- - - -- (2,917,964)
---------------- --------------- --------------- ----------------- ---------------
Balance, December 31, 1998 1,956,142 $ 19,561 $ 66,889 $ -- $ (5,224,330)
================ =============== =============== ================ ===============
</TABLE>
F-5
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Other During the
Common Stock Paid-In Comprehensive Development
Shares Amount Capital Income Stage
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 1,956,142 $ 19,561 $ 66,889 $ -- $ (5,224,330)
March 5, 1999, common stock
issued for cash at $0.003 per
share 334,080 3,341 (2,381) -- --
March 22, 1999, common stock
issued for cash at $0.003 per
share 286,682 2,867 (2,043) -- --
March 22, 1999, common stock
issued for debt at $0.005 per
share 19,011,220 190,112 (85,582) -- --
April 22, 1999, common stock
issued for cash at $0.003 per
share 129,734 1,297 (924) -- --
April 27, 1999, common stock
issued for cash at $0.003 per
share 5,951 59 (43) -- --
April 27, 1999, common stock
issued for debt at $0.003 per
share 95,700 957 (682) -- --
April 28, 1999, common stock
issued for cash at $0.003 per
share 12,180 122 (87) -- --
April 30, 1999, common stock
issued for cash at $0.003 per
share 2,888 29 (21) -- --
April 30, 1999, common stock
issued for debt at $0.003 per
share 22,968 230 (164) -- --
May 3, 1999, common stock
issued for debt at $0.003 per
share 25,717 257 (183) -- --
May 5, 1999, common stock
issued for cash at $0.003 per
share 32,016 320 (228) -- --
---------------- --------------- --------------- ---------------- ---------------
Balance Forward 21,915,278 $ 219,152 $ (25,449) $ -- $ (5,224,330)
================ =============== =============== ================ ===============
</TABLE>
F-6
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Other During the
Common Stock Paid-In Comprehensive Development
Shares Amount Capital Income Stage
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance Forward 21,915,278 $ 219,152 $ (25,449) $ -- $ (5,224,330)
May 7, 1999, common stock
issued for cash at $0.003 per
share 348 3 (2) -- --
May 7, 1999, common stock
issued for debt at $0.003 per
share 2,610,000 26,100 (18,600) -- --
May 13, 1999, common stock
issued for cash at $0.003 per
share 139,200 1,392 (992) -- --
May 19, 1999, common stock
issued for cash at $0.003 per
share 372,360 3,724 (2,654) -- --
June 17, 1999, common stock
issued for cash at $0.003 per
share 6,960 70 (50) -- --
Recapitalization (Note 1) 6,291,450 62,915 2,698,858 -- --
June 23, 1999, options issued
below market value -- -- 6,000 -- --
July 12, 1999, options issued
below market value -- -- 280,000 -- --
July 15, 1999, common stock
issued for cash at $5.00 per
share 10,000 100 49,900 -- --
July 15, 1999, common stock
issued for services at $7.80
per share 15,000 150 116,850 -- --
July 26, 1999, common stock
issued for cash at $5.00 per
share 10,000 100 49,900 -- --
August 12, 1999, common stock
issued for interest at $2.50 per
share 100,000 1,000 249,000 -- --
---------------- --------------- --------------- ---------------- ---------------
Balance Forward 31,470,596 $ 314,706 $ 3,402,761 $ -- $ (5,224,330)
================ =============== =============== ================ ===============
</TABLE>
F-7
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Other During the
Common Stock Paid-In Comprehensive Development
Shares Amount Capital Income Stage
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance Forward 31,470,596 $ 314,706 $ 3,402,761 $ -- $ (5,224,330)
September 2, 1999, common
stock issued for services valued
at $0.29 per share 20,000 200 5,600 -- --
September 9, 1999, options
issued below market value -- -- 190,000 -- --
September 9, 1999, common
stock issued for cash at $1.00
per share 100,000 1,000 99,000 -- --
October 1, 1999, cancellation of
common stock valued at zero. (502,500) (5,025) 5,025 -- --
November 16, 1999, warrants
issued below market value -- -- 650,000 -- --
November 29, 1999, common
stock issued for finders fee
valued at $1.34 per share 400,000 4,000 533,200 -- --
Stock offering costs -- -- (537,200) -- --
December 7, 1999, options
issued below market value -- -- 20,000 -- --
December 10, 1999, common
stock issued for cash at $0.70
per share 71,839 718 49,282 -- --
December 10, 1999, common
stock issued for cash at $0.71
per share 175,070 1,751 123,249 -- --
December 13, 1999, common
stock issued for cash at $0.84
per share 160,131 1,601 133,399 -- --
December 15, 1999, common
stock issued for cash at $0.90
per share 33,333 333 29,667 -- --
December 20, 1999, common
stock issued for cash at $0.83
per share 193,939 1,939 158,061 -- --
---------------- --------------- --------------- ---------------- ---------------
Balance Forward 32,122,408 $ 321,223 $ 4,862,044 $ -- $ (5,224,330)
================ ================ =============== ================ ===============
</TABLE>
F-8
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Other During the
Common Stock Paid-In Comprehensive Development
Shares Amount Capital Income Stage
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance Forward 32,122,408 $ 321,223 $ 4,862,044 $ -- $ (5,224,330)
December 23, 1999, common
stock issued for cash at $0.83
per share 120,773 1,208 98,792 -- --
December 31, 1999, common
stock issued for conversion of
related party debt at $1.50 per
share 592,744 5,928 883,189 -- --
Net loss for the year ended
December 31, 1999 -- -- -- -- (5,954,287)
---------------- --------------- --------------- ---------------- ---------------
Balance, December 31, 1999 32,835,925 328,359 5,844,025 -- (11,178,617)
January 4, 2000, common stock
issued for debt and services
at $2.75 per share (unaudited) 147,580 1,476 404,369 -- --
January 5, 2000 common stock
issued for services at $4.34
per share (unaudited) 60,000 600 259,800 -- --
January 26, 2000, common stock
issued pursuant to a private
placement memorandum at
$2.10 per share (unaudited) 47,619 476 99,524 -- --
February 1, 2000, warrants
issued below market value
(unaudited) -- -- 54,000 -- --
February 18, 2000, options
issued below market value
(unaudited) -- -- 25,000 -- --
February 22, 2000, options
issued below market value
(unaudited) -- -- 475,000 -- --
March 9, 2000, common stock
issued for cash purchase of
warrants at $1.99 per share
(unaudited) 62,792 628 124,391 -- --
---------------- --------------- --------------- ---------------- ---------------
Balance Forward 33,153,916 $ 331,539 $ 7,286,109 $ -- $ (11,178,617)
================ =============== =============== ================ ===============
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional Other During the
Common Stock Paid-In Comprehensive Development
Shares Amount Capital Income Stage
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance Forward 33,153,916 $ 331,539 $ 7,286,109 $ -- $ (11,178,617)
March 16, 2000, common stock
issued for convertible debenture
at $1.50 per share (unaudited) 66,667 667 99,333 -- --
March 16, 2000, common stock
issued for cash purchase of
warrants at $0.75 per share
(unaudited) 133,333 1,333 98,667 -- --
March 27, 2000, 3 stock issuances for
payment of debt at average price of $4.95
per share
(unaudited) 46,486 465 231,347 -- --
April 19, 2000, options issued
below market value
(unaudited) -- -- 34,100 -- --
May 26, 2000, issuance of options
below market value to purchase
598,680 shares at $1.50 (unaudited) -- -- 1,272,195 -- --
July 25, 2000, common stock
issued for services at $3.00
per share (unaudited) 100,000 1,000 299,000 -- --
July 25, 2000, common stock
issued for purchase of SIGMA at
$3.20 per share 1,718,748 17,187 5,482,813 -- --
January 25 - August 30, 2000, 62 stock
issuances pursuant to a private placement
memorandum at average
price of $3.58 per share (unaudited) 1,930,792 19,308 6,896,423 -- --
January 25 - August 30, 2000,
warrants issued below market
value (unaudited) -- -- 4,322,332 -- --
September 15, 2000, 23 stock
issuances pursuant to a private
placement memorandum at $3.00
per share (unaudited) 1,000,000 10,000 2,990,000 -- --
---------------- --------------- --------------- ---------------- ---------------
Balance Forward 38,149,942 $ 381,499 $ 29,012,319 $ -- $ (11,178,617)
================ =============== =============== ================ ===============
</TABLE>
F-10
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Other During the
Common Stock Paid-In Comprehensive Development
Shares Amount Capital Income Stage
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance forward 38,149,942 $ 381,499 $ 29,012,319 $ -- $ (11,178,617)
September 15, 2000, warrants
issued below market value
(unaudited) -- -- 1,500,000 -- --
Currency translation adjustment -- -- -- 198,127 --
Net loss for the nine months
ended September 30, 2000
(unaudited) -- -- -- -- (11,619,680)
---------------- --------------- --------------- ---------------- ---------------
Balance, September 30, 2000
(unaudited) 38,149,942 $ 381,499 $ 30,512,319 $ 198,127 $ (22,798,297)
================ =============== =============== ================ ===============
</TABLE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the March 26,
Nine Months Ended Three Months Ended 1992 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
---------------- --------------- --------------- ---------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net loss $ (11,619,680) $ (5,413,579) $ (3,349,837) $ (4,503,978) $ (22,798,297)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Depreciation and amortization 228,719 7,224 168,859 1,280 279,413
Common stock issued for services
and equity discounts 8,548,872 857,150 1,856,794 104,993 9,817,672
Loss on sale of assets -- 387,649 -- 387,649 387,649
Change in operating asset and liability
accounts:
(Increase) decrease in overpayment
receivable (162,350) -- (162,350) -- (162,350)
(Increase) decrease in prepaid
assets (449,841) -- 85,576 -- (449,841)
(Increase) decrease in other assets 775,872 (17,240) 49,892 169,035 96,505
Increase (decrease) in accounts
payable (1,016,712) 959,770 (70,254) 729,547 136,335
Increase (decrease) in cash
overdraft -- 2,095 -- 2,095 --
Increase (decrease) in accrued
expenses (150,428) 133,635 (39,800) 23,901 922,927
---------------- --------------- --------------- ---------------- ---------------
Net Cash Provided (Used) by
Operating Activities (3,845,548) (3,083,296) (1,461,120) (3,085,478) (11,769,987)
---------------- --------------- --------------- ---------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of assets -- 1 -- 1 1
Purchase of fixed assets (640,148) (1,738) (34,774) (1,738) (748,217)
Equipment procurement costs -- (364,110) -- (364,110) (364,110)
---------------- --------------- --------------- ---------------- ---------------
Net Cash (Used) by Investing
Activities (640,148) (365,847) (34,774) (365,847) (1,112,326)
---------------- --------------- --------------- ---------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of note payable - related
parties (2,394,287) (199,875) (171,752) (199,875) (2,642,522)
Loans from related parties 82,178 2,795,834 -- 2,795,834 7,638,908
Issuance of convertible debentures - 650,000 - 650,000 650,000
Common stock issued for cash 10,240,750 200,000 3,090,870 200,000 11,047,148
Cash acquired from purchase of
subsidiary 142,254 -- 142,254 -- 142,254
---------------- --------------- --------------- ---------------- ---------------
Net Cash Provided (Used) by
Financing Activities $ 8,070,895 $ 3,445,959 $ 3,061,372 $ 3,445,959 $ 16,835,788
================ =============== =============== ================ ===============
</TABLE>
F-11
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the March 26,
Nine Months Ended Three Months Ended 1992 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 3,585,199 $ (3,184) $ 1,565,478 $ (5,366) $ 3,953,475
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 368,276 3,184 2,387,999 5,366 --
---------------- --------------- --------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 3,953,475 $ -- $ 3,953,475 $ -- $ 3,953,475
================ =============== =============== ================ ===============
CASH PAID FOR:
Interest $ 12,946 $ -- $ -- $ -- $ 12,946
Income taxes $ -- $ -- $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for services
and equity discounts $ 8,548,872 $ 857,150 $ 1,856,794 $ 104,993 $ 9,817,672
Common stock issued in acquisition
of subsidiary $ 5,500,000 $ -- $ 5,500,000 $ -- $ 8,261,773
Common stock issued for conversion
of debt $ 100,000 $ -- $ -- $ -- $ 1,435,413
</TABLE>
F-12
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of Ocean
Power Corporation and its wholly-owned Subsidiaries (the Company).
The Company has had limited activities since inception and is
considered a development stage company because no significant
revenues have been realized and planned principal operations have
not yet commenced. The Company is planning to engage in the
business of developing and marketing water desalination and
renewable power generation systems that will be modular and mass
produced. The Company plans to pursue regional joint ventures in
water and power challenged markets to build, own, operate and
transfer modular seawater desalination and power plants.
PTC Holdings, Inc. (Holdings) (formerly H Power Technologies,
Inc.) was incorporated on March 26, 1992 under the laws of the
State of Delaware to engage in any lawful act or activity for
which corporations may be organized under the General Corporation
Laws of Delaware.
PTC Group, Inc., (Group) (formerly Intryst, Inc.) was incorporated
under the laws of the State of Idaho on April 24, 1969.
On June 22, 1999, Group and Holdings completed an Agreement and
Plan of Merger whereby Group issued 25,044,146 shares of its
common stock in exchange for all of the outstanding common stock
of Holdings. Immediately prior to the Agreement and Plan of
Merger, Group had 6,291,450 shares of common stock issued and
outstanding. The acquisition was accounted for as a
recapitalization of Holdings because the shareholders of Holdings
controlled Group after the acquisition. Therefore, Holdings was
treated as the acquiring entity for accounting purposes and Group
was the surviving entity for legal purposes. There was no
adjustment to the carrying value of the assets or liabilities of
Holdings. On August 19, 1999, the shareholders of the Company
authorized a 1 for 10 reverse stock split. All references to
shares of common stock have been retroactively restated.
On July 12, 1999, Group changed its name to Ocean Power
Corporation (Idaho).
On July 21, 1999, Ocean Power Corporation (Delaware) was formed
for the purpose of changing the domicile of Ocean Power
Corporation (Idaho).
On July 28, 1999, Delaware and Idaho merged to change the domicile
from Idaho to Delaware with Delaware being the surviving entity.
F-13
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Subsidiaries:
Integrated Water and Power Corporation (IWP) (formerly Clean Air
Power Technologies Corporation) (formerly Advanced Technologies
Manufacturing Corporation) was incorporated on December 11, 1996
under the laws of the State of Delaware to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Laws of Delaware. IWP is currently inactive.
Advanced Power Sources Corporation (APS) (formerly ZE-Power
Technologies Corporation) (formerly P.T.C. Corporation) was
incorporated on March 26, 1992 under the laws of the State of
Delaware to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Laws
of Delaware. APS is currently inactive.
Manufacturing Technologies Corporation (MTC) was incorporated on
January 7, 1997 under the laws of the State of Delaware to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Laws of Delaware. MTC is
currently inactive.
SIGMA Elektroteknisk, AS (SIGMA) was incorporated on January 6,
1994 under the laws of the Country of Norway to engage in the
business of developing and producing personal combustion power
plants (PCP's), an energy converter utilizing a Stirling engine
that runs on natural gas or propane and produces heat and
electricity for use in micro CHP (combined heat and power)
systems, an appliance to produce heat and power in households.
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-14
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements. Fully diluted loss per share
is not presented because of the antidilutive nature of the stock
equivalents.
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------- ------------------ ------------------ ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net (loss)
(numerator) $ (11,619,680) $ (5,413,579) $ (3,349,837) $ (4,503,978)
Weighted average
shares outstanding
(denominator) 35,282,677 6,564,458 36,405,608 8,907,326
----------------- ------------------ ------------------ ------------------
Basic (loss) per
share $ (0.33) $ (0.82) $ (0.09) $ (0.51)
================= ================== ================== ==================
</TABLE>
c. Provision for Taxes
At September 30, 2000, the Company has net operating loss
carryforwards of approximately $22,800,000 that may be offset
against future taxable income through 2020. No tax benefit has
been reported in the financial statements because the Company
believes there is a 50% or greater chance the carryforwards will
expire unused. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same
amount.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Principles of Consolidation
The September 30, 2000 unaudited financial statements are
consolidated with Ocean Power Corporation, Integrated Water and
Power Corporation, Advanced Power Sources Corporation,
Manufacturing Technologies Corporation and SIGMA Elektroteknisk,
AS. All significant intercompany accounts and transactions have
been eliminated.
F-15
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Equipment
Office equipment and software are recorded at cost. Major
additions and renewals are capitalized and depreciated over their
estimated useful lives of 3 to 7 years using the straight-line
method. Leasehold improvements are depreciated over the shorter of
their useful lives or the lease term. Depreciation expense for the
nine months ended September 30, 2000 and 1999 was $96,507 and
$7,244, respectively.
<TABLE>
<CAPTION>
Equipment consists of the following:
September 30, December 31,
2000 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
Equipment $ 591,232 $ --
Office equipment and furniture 199,372 36,748
Computers and software 89,733 46,834
Phone system 19,667 19,667
Leasehold improvements 9,590 --
Artwork 1,374 --
Accumulated depreciation (255,128) (50,694)
------------------ ------------------
Net Equipment $ 655,840 $ 52,555
================== ==================
</TABLE>
g. Goodwill
The cost of investment in subsidiaries in excess of the fair value
of net assets at the date of purchase is being amortized by the
straight-line method over a period of ten years.
h. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
i. 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.
F-16
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Revenue Recognition Policy
The Company currently has no source of revenues. Revenue
recognition policies will be determined when principal operations
begin.
k. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
l. Long-lived Assets
All long-lived assets are evaluated yearly for impairment per SFAS
121, "Accounting for the Impairment of Loing-Lived Assets and for
Long-Lived Assets to Be Disposed Of". Any impairment in value is
recognized as an expense in the period when the impairment occurs.
m. Research and Development
All amounts expended for research and development are charged to
expense as incurred. The Company expensed $223,156 and $-0- as
research and development for the nine months ending September 30,
2000 and 1999, respectively.
n. Unaudited Financial Statements
The accompanying unaudited consolidated financial statements
include all of the adjustments which, in the opinion of
management, are necessary for a fair presentation. Such
adjustments are of a normal recurring nature.
NOTE 3 - ADVANCES
During 1997, 1998, 1999 and 2000, the Company made cash advances
of $663,965 to employees. The advances were formalized through the
signing of notes receivable bearing interest at 10% per annum with
each employee at the end of each year. Per the terms of the notes,
interest is added to the balance of the notes at the end of each
year.
During the nine months ended September 30, 2000, employees have
repaid $366,870 of the total advances.
Advances to employees for the periods ending:
December 31, 1999 $ 292,095
September 30, 2000 9,122
------------------
Total Advances $ 301,217
==================
F-17
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 4 - EQUIPMENT PROCUREMENT COSTS
During July and August 1999, the Company made deposits on a vapor
compression distillation unit to be used in the development of its
water desalination system in the amount of $300,000.
During September 1999, the Company paid moving, storage and set up
costs on the above mentioned equipment of $64,110.
During March 2000, the Company paid the remaining $200,000 on this
equipment and capitalized a total of $564,110.
NOTE 5 - PREPAID EXPENSES
The Company's prepaid expense is comprised of the following items:
September 30, December 31,
2000 1999
------------------ -----------
(Unaudited)
Prepaid services $ 225,000 $ -
Prepaid maintenance 464 -
Prepaid insurance 5,371 -
Prepaid license agreement 250,000 -
------------------ -------------
Total $ 480,835 $ -
================== =============
During March 2000, the Company purchased a motor from STM
Corporation (STM) for the development of its desalination
equipment for $132,200. As part of this purchase, the Company
entered into a thirty year license agreement to obtain certain
exclusive rights to STM patented and unpatented technology related
to Stirling cycle heat engines, which began in April 2000, for a
minimum payment of $500,000 per year. At September 30, 2000, the
Company prepaid $250,000 towards this license agreement.
The Company also entered into a service agreement for the motor
beginning May 2000. The agreement called for the payment of
$192,500 for one year. During July, the Company canceled this
agreement and returned the motor.
During July 2000, the Company prepaid consulting services in the
amount of $225,000.
F-18
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 6 - PATENTS
During November 1998, the Company's wholly-owned subsidiary,
SIGMA, entered into an agreement with Silent Clean Power, AB
(SCP), (a Swedish company) to purchase licenses and patents to
certain technology associated with the Company's PCP development
for $1,518,935, payable in stock and a note payable. The licenses
and patents are being amortized over their estimated useful lives
of 111 to 134 months using the straight-line method. Amortization
expense for the nine months ended September 30, 2000 and 1999 was
$22,383 and $-0-, respectively.
At September 30, 2000, the Company owed SCP $595,583 on the
remainder of its license and patent obligation.
Annual maturities of licenses and patents payable are as follows:
2000 $ 302,225
2001 164,850
2002 128,508
------------------
$ 595,583
==================
NOTE 7 - BUSINESS COMBINATION
On August 12, 2000, the Company acquired SIGMA Elektroteknisk, AS
(SIGMA) by exchanging 1,718,748 shares of its common stock for all
of the common stock of SIGMA. The purchase was accounted for as a
purchase in accordance with APB 16, "Business Combinations." The
excess of the total acquisition cost over the fair value of the
net assets acquired of $6,589,756 is being amortized over 10 years
by the straight-line method. Amortization expense amounted to
$109,829 at September 30, 2000.
The results of operations of SIGMA since the date of acquisition
are included in the consolidated financial statements.
Unaudited proforma consolidated results of operations for the year
ended December 31, 1999 as though SIGMA had been acquired as of
January 1, 1999 follows:
December 31,
1999
Sales $ -
Net loss (7,917,634)
==================
Earnings per share $ (0.29)
==================
F-19
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
NOTE 8 - NOTES PAYABLE - RELATED PARTIES
<S> <C>
Notes payable - related party at September 30, 2000 consist of the
following:
Unsecured note payable to a related party bearing interest at 10%
per annum, all unpaid interest and principle due
on demand. $ 87,152
Unsecured note payable to a related party bearing interest at 10%
per annum, all unpaid interest and principle due
upon demand. 286,380
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 419,649
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 55,131
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 248,987
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 66,564
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 118,345
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 5,429
Unsecured note payable to a related party bearing interest at
10% per annum due upon demand. 71,494
Unsecured note payable to a related party bearing interest at
10% per annum, due upon demand. 1,495
-----------------
Total Notes Payable - Related Parties $ 1,360,626
=================
Annual maturities of notes payable - related parties are as
follows:
Year
----
2000 $ 1,360,626
=================
</TABLE>
Total interest expense to related parties was $142,270 and
$247,307 for the nine months ended September 30, 2000 and 1999,
respectively.
F-20
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
NOTE 9 - NOTES PAYABLE
Notes payable at September 30, 2000 consist of the following:
Note payable to a bank bearing a variable interest rate, (10.9%
at September 30, 2000) due in equal semi-annual
<S> <C>
payments which began May 1, 2000, unsecured. $ 146,545
Note payable to a bank bearing a variable interest rate, (10.9%
at September 30, 2000) due in equal semi-annual
payments which began May 10, 2000, unsecured. 573,195
Note payable to a bank bearing a variable interest rate, (10.9%
at September 30, 2000) due in equal semi-annual
payments which began April 3, 2000, unsecured. 52,814
-----------------
Total Notes Payable $ 772,554
=================
Annual maturities of notes payable are as follows:
Years Ending
December 31,
2000 $ 345,334
2001 230,223
2002 196,997
-----------------
$ 772,554
</TABLE>
Total interest expense was $20,594 and $-0- for the nine months
ended September 30, 2000 and 1999, respectively.
NOTE 10 - 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 $17,500 at September
30, 2000.
During March 2000, 66,667 shares of common stock were issued to
convert one of the three debentures and 133,333 shares were
issued in conjunction with the warrants.
F-21
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 10 - 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 $26,250 at September 30, 2000.
The Company recognized additional compensation expense of
$650,000 during 1999 to reflect the discount on the warrants.
NOTE 11 - ACCRUED EXPENSES
The company's accrued expenses are comprised of the following
items:
September 30 December 31,
2000 1999
----------------- --------------------
(Unaudited)
Accrued payroll taxes payable $ 11,119 $ 50,411
Accrued interest payable - payroll 52,717 52,717
Accrued payroll tax penalty 98,845 98,845
Accrued interest payable - notes 56,750 124,609
Accrued other taxes 3,890 -
Accrued vacation wages payable 17,274 -
----------------- -----------------
Total $ 240,595 $ 326,582
================= =================
During 1997, 1998, 1999 and 2000, the Company made cash advances
of $678,965 to employees. Due to the advances resembling payroll
activities, the Company has accrued payroll taxes for the
employer's portion at 7.65%, interest at 8% and penalties at 15%
for each year. During the nine months ended September 30, 2000,
the Company repaid $889,389 of the accrued payroll amounts for
1997, 1998 and 1999 through payroll in 2000, resulting in a
reduction in accrued payroll taxes of $50,411.
NOTE 12 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has had
limited activities since inception and is considered a
development stage company because it has no significant revenues,
planned principal operations have not yet commenced and the
Company has incurred losses from its inception through September
30, 2000. The Company does not have an established source of
revenues sufficient to cover its operating costs and to allow it
to continue as a going concern.
F-22
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 12 - GOING CONCERN (Continued)
In order to continue as a going concern, develop a reliable
source of revenues, and achieve a profitable level of operations,
the Company will need, among other things, additional capital
resources. Management's plans to continue as a going concern
include raising additional capital through the sale of common
stock, the proceeds of which will be used to develop the
Company's products, pay operating expenses and pursue
acquisitions and strategic alliances. The Company expects that it
will need $10,000,000 to $15,000,000 of additional funds for
operations and expansion in 2000 and 2001. However, management
cannot provide any assurances that the Company will be successful
in accomplishing any of its plans.
The ability of the Company to continue as a going concern is
dependent upon its ability to successfully accomplish the plan
described in the preceding paragraph and eventually attain
profitable operations. The accompanying financial statements do
not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
a. Contributions Payable
During 2000, 1999, 1998 and 1997, the Company's wholly-owned
subsidiary, SIGMA, received a total of $421,665 as contributions
for its PCP project, a project to develop an energy converter
utilizing a Stirling engine that runs on natural gas or propane
and produces electricity and heat for use in the micro CHP
(combined heat and power), an appliance to produce heat and power
in households. This amount is payable upon demand or may be
converted into the Company's common stock at a rate of $1.87 per
share at any time.
b. 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.
F-23
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
During June 1998, the Company entered into a five year employment
agreement with its Vice President. The agreement calls for a base
salary of $182,000 per year allowing for increases each year
based on the Consumer Price Index, merit increases and increases
in salary or bonus as deemed appropriate to reflect the value of
services provided. The agreement also calls for the extension of
certain executive benefits.
c. Consulting Agreements
During July 1997, the Company entered into a consulting agreement
with Richard Morris Associates for services in connection with
the development of the Company's desalination project on an as
needed basis. The agreement is for one year and calls for the
payment of $1,000 per month plus expenses. During June 1998, the
Company extended this agreement through December 1998. During
January 1999, the Company extended this agreement through
December 1999. During January 2000, the Company extended this
agreement through December 2000.
During June 1999, the Company entered into a consulting agreement
with D. Weckstein & Co., Inc. (Weckstein) as financial
consultants and investment bankers for a period of two years. The
agreement calls for the Company to issue options to purchase
300,000 shares of the Company's common stock at a price of $5.00
per share for a period of three years from the date of the
agreement. The agreement also calls for cash payments in
connection with certain financial transactions consummated as a
result of introduction by Weckstein such as mergers,
acquisitions, joint ventures, debt or lease placements and
similar or other, on-balance or off-balance sheet corporate
finance transactions as follows:
a. 7% of the first $1,000,000 of the consideration paid in such
transaction;
b. 6% of the consideration in excess of $1,000,000 and up to
$3,000,000;
c. 5% of the consideration in excess of $3,000,000 and up to
$5,000,000;
d. 4% of the consideration in excess of $5,000,000 and up to
$7,000,000;
e. 3% of the consideration in excess of $7,000,000 and up to
$9,000,000; and
f. 2% of the consideration in excess of $9,000,000.
During December 1999, the agreement was amended whereby Weckstein
will receive options to purchase up to 125,000 shares of common
stock at a price of $1.00 per share until December 31, 2003.
During 1999, the Company paid $10,000 in commissions to
Weckstein. No options were exercised as of December 31, 1999 (see
Note 14).
During March 1999, the Company entered into a consulting
agreement with Richard Brown for services in connection with
obtaining equity financing for the Company. The agreement calls
for the payment of a 10% commission for any and all funds
delivered to the Company during 1999. No funds were delivered to
the Company and no commission payments were made during 1999.
F-24
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
During July 1999, the Company entered into a six month business
consulting agreement with Xcel Associates, Inc. to perform
business management and marketing services, which may be renewed
for a provisional three month period upon mutual agreement of the
parties. The agreement calls for the Company to issue 500,000
shares of the Company's common stock as follows: 1) 150,000
shares within one week of signing the agreement; b) 150,000
shares within 30 days based on mutually agreed upon performance;
and 3) 200,000 within the following 60 days based on mutually
agreed upon performance as well as the right to purchase up to
1,000,000 shares of common stock at $0.50 per share and the
payment of expenses incurred.
During November 1999, the Company entered into a 30 day
consulting agreement with Intercontinental Capital Corp. to
assist the Company obtain financing. The agreement calls for the
Company to pay $42,000 for services, $6,000 for expenses and
issue 60,000 shares of the Company's common stock. The Company
paid all fees and expenses and issued 60,000 shares of common
stock in conjunction with this agreement and allowed the
agreement to expire.
During January 2000, the Company entered into a three year
consulting agreement with Clement J. Wohlreich to provide
financial, marketing and management services. The agreement calls
for the Company to issue 100,000 units at $3.00 per unit,
consisting of one share of the Company's common stock and one
warrant. The warrants will have a life of three years and a
purchase price of $1.50 per warrant.
During January 2000, the Company entered into a three year
consulting agreement with EBM, Inc. to disseminate investor
information on the Company to the market place and develop buyers
who purchase the Company's stock. The agreement calls for the
Company to pay $4,000 per month until the Company secures a total
of $5,000,000 in financing, then the Company will pay $6,000 per
month for 12 months and grant 100,000 options to purchase the
Company's common stock. The options will have a four year life
and will be priced at $1.50 per share.
During January 2000, the Company entered into a consulting
agreement with Donner Corp. International to provide initial
marketing and promotion services. The agreement calls for the
Company to pay a retainer of $2,500, $100,000 for services in
connection with assisting the Company to implement its business
objectives and issue 10,000 warrants to purchase the Company's
common stock at a strike price equal to 80% of the lowest
five-day average stock closing price from January 2-31, 2000. The
warrants are exercisable for three years beginning February 1,
2000.
During February 2000, the Company signed an amendment to its
agreement for consulting services with Weckstein. The amendment
calls for the Company to issue 75,000 options to purchase the
Company's common stock exercisable at $6.00 per share for three
years.
During April 2000, the Company signed an amendment to its
agreement for consulting services with Weckstein dated February
18, 2000. The amendment cancels the 100,000 options previously
issued and calls for the Company to issue 110,000 options to
purchase the Company's common stock exercisable at $3.00 per
share until February 18, 2003.
F-25
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
d. Office and Building Lease
The Company leases its office space under a non-cancellable
operating lease which expires on April 30, 2002. The monthly rent
amount is $15,312 with yearly increases of approximately 2% per
year. Rent expense for the nine months ended September 30, 2000
and 1999 was $127,666 and $97,742, respectively.
During July 2000, the Company's wholly-owned subsidiary, SIGMA,
signed a one year lease for building and warehouse space with its
Chief Executive Officer. The lease calls for payments of $6,220
per month and is renewable for 2 years at the discretion of the
Company.
e. License Agreements
During April 2000, the Company entered into a licensing agreement
with STM to obtain exclusive rights to STM patented and
unpatented technology related to Stirling cycle heat engines. The
agreement is for thirty years and calls for payments of $500,000
per year.
During September 2000, the Company entered into a licensing
agreement with Aquamax (International) Holding, B.V. (Aquamax), a
Dutch Corporation and Keeran Corporation, N.V. (Keeran), a
Netherlands Antillies Corporation, to obtain exclusive rights to
make, have made, use, distribute, install, offer to sell, sell
and sub-license licensed products and purchase parts to certain
technology.
The agreement is for 10 years and calls for payments as follows:
a) $100,000 non-refundable advance upon acceptance;
b) $300,000 upon full execution and delivery of the agreement;
c) 200,000 shares of the Company's common stock within 10 days of
delivery of the agreement;
d) $1,600,000 upon completion of a private placement of the
Company's common stock no later than December 31, 2000;
e) 200,000 shares of the Company's common stock upon payment of
the $1,600,000 payment referred to above;
f) $2,000,000 no later than December 31, 2000; and
g) 200,000 shares of the Company's common stock upon payment
of the $2,000,000 payment referred to above.
The Company also granted Aquamax and Keeran certain exclusive
rights in its technology for certain applications. In exchange,
the Company will receive 50% of any license royalty or amounts of
a similar nature they receive from third parties.
F-26
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 14 - DILUTIVE INSTRUMENTS
a. Stock Options
The Company applied Accounting Principles Board ("APB") Option
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for all stock option plans. Under
APB Option 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the
market price of the underlying common stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), requires the Company to provide proforma
information regarding net income and net income per share as if
compensation costs for the Company's stock option plans and other
stock awards had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company
estimates the fair value of each stock award at the grant date by
using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants, respectively;
dividend yield of zero percent for all years; expected volatility
of 32 percent for all years; risk-free interest rates of 10.0
percent and expected lives of 4.5 years.
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- -----------------
Net loss:
<S> <C> <C> <C> <C>
As reported $ (11,619,680) $ (5,413,579) $ (3,349,837) $ (4,503,978)
Pro Forma (11,619,680) (5,413,579) (3,349,837) (4,503,978)
Net loss per share:
As reported $ (0.33) $ (0.82) $ (0.09) $ (0.51)
Pro Forma (0.33) (0.82) (0.09) (0.51)
</TABLE>
During the initial phase-in period of SFAS No. 123, the effect of
pro forma results are not likely to be representative of the
effects on pro forma results in future years since options vest
over several years and additional options could be granted each
year.
The company has granted the following warrants and options as of
September 30, 2000:
<TABLE>
<CAPTION>
Date of Exercise Exercise Trading Amount Expiration
Description Grant Number Price Price Exercised Date
-------------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
D. Weckstein 6-23-99 300,000 $ 5.00 $ 5.20 - Canceled
Xcel Associates 7-12-99 100,000 $ 5.00 $ 7.80 20,000 7-12-00
Xcel Associates 9-9-99 100,000 $ 1.00 $ 2.90 100,000 3-9-00
D. Weckstein 12-7-99 125,000 $ 1.00 $ 1.16 - Canceled
D. Weckstein 2-18-00 100,000 $ 6.00 $ 6.25 - Canceled
EBM, Inc. 2-22-00 100,000 $ 1.50 $ 6.25 - 2-22-04
D. Weckstein 4-19-00 110,000 $ 3.00 $ 3.31 - 2-18-03
------------- -------------
Total 935,000 120,000
============= =============
</TABLE>
F-27
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 14 - DILUTIVE INSTRUMENTS (Continued)
On June 23, 1999, the Company issued options to Weckstein in
conjunction with a consulting agreement to purchase 300,000
shares of the Company's common stock at a price of $5.00 per
share. The Company recognized additional compensation expense of
$6,000 as part of the recapitalization due to the options being
granted below market, or $5.20 on the date of issuance.
On July 12, 1999, the Company issued options to Xcel Associates,
Inc. in conjunction with a consulting agreement to purchase
100,000 shares of the Company's common stock at a price of $5.00
per share. The company recognized additional compensation expense
of $28,000 as part of the recapitalization due to the options
being granted below market, or $7.80 on the date of issuance.
On July 15, 1999, Xcel exercised 10,000 of the options granted
July 12, 1999 for cash of $50,000, or $5.00 per share.
On July 26, 1999, Xcel exercised 10,000 of the options granted
July 12, 1999 for cash of $50,000, or $5.00 per share.
On September 9, 1999, the Board of Directors authorized the
issuance of options to Xcel Associates, Inc. for the purchase of
100,000 shares of the Company's common stock at a price of $1.00
per share. The Company recognized additional compensation expense
of $190,000 due to the options being granted below market, or
$2.90 on the date of issuance.
On December 7, 1999, the Company amended its consulting agreement
with Weckstein dated June 23, 1999 resulting in a cancellation of
the 300,000 options and issuance of 125,000 new options with a
exercise price of $1.00 per share. The Company recognized
additional compensation expense of $20,000 due to the options
being granted below market, or $1.16 on the date of issuance.
On February 18, 2000, the Company amended its consulting
agreement with Weckstein dated December 7, 1999 resulting in a
cancellation of the 125,000 options and issuance of 100,000 new
options with an exercise price of $6.00 per share. The Company
recognized additional compensation expense of $25,000 due to the
options being granted below market, or $6.25 on the date of
issuance.
On February 22, 2000, the Company issued options to EBM, Inc. in
conjunction with a consulting agreement for the purchase of
100,000 shares of the Company's common stock at a price of $1.50
per share. The Company recognized additional compensation expense
of $475,000 due to the options being granted below market, or
$6.25 on the date of issuance.
On April 14, 2000, the Company amended its consulting agreement
with Weckstein dated February 18, 2000, resulting in a
cancellation of the 100,000 options and issuance of 110,000 new
options with an exercise price of $3.00 per share. The Company
recognized additional compensation expense of $34,100 due to the
options being granted below market, or $3.31 per share on the
date of issuance.
F-28
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 14 - DILUTIVE INSTRUMENTS (Continued)
b. Warrants
A summary of the Company's outstanding warrants as of September
30, 2000 is presented below:
<TABLE>
<CAPTION>
Warrant Exercise Exercise Trading Amount Expiration
Description Date Number Price Price Exercised Date
-------------------- -------------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Freedom Funding 3-30-99 70,000 $ 1.50 $ 1.50 70,000 3-30-04
Freedom Funding,
Paradon Limited,
Enterprise Capital 5-7-99 720,738 $ 1.50 $ 1.50 720,738 5-7-04
Regis Investment 11-16-99 133,333 $ 0.75 $ 1.50 133,333 11-16-04
Venture Investment 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 133,333 $ 0.75 $ 1.50 - 11-16-04
Freedom Funding 11-16-99 466,667 $ 0.75 $ 1.50 - 11-16-04
Clement J. Wohlreich 1-1-00 100,000 $ 1.50 $ 1.38 - 1-1-03
Donner Corp, Int'l 1-20-00 100,000 $ 2.17 $ 2.71 - 2-1-03
Private Placement 1-25-00 to 1-25-00 to
Investors 8-30-00 1,930,792 $ 2.24 $ 3.58 62,792 8-30-03
Private Placement 9-15-00 1,000,000 $ 1.50 $ 3.00 - 9-15-03
------------- -------------
4,788,196 986,863
============= =============
</TABLE>
During March 1999, the Company issued warrants allowing the
holder to purchase one restricted share of the Company's common
stock for each share purchase warrant held in conjunction with
convertible debentures issued in November 1998. The total
warrants granted amounted to 70,000 shares at an exercise price
of $1.50 per share for five years. The Company did not recognize
any additional compensation expense due to the grant price
equaling the market price on the date of issuance.
During May 1999, the Company issued warrants allowing the holder
to purchase one restricted share of the Company's common stock
for each share purchase warrant held in conjunction with
convertible debentures issued in November 1998. The total
warrants granted amounted to 720,738 shares at an exercise price
of $1.50 per share for five years. The Company did not recognize
any additional compensation expense due to the grant price
equaling the market price on the date of issuance.
During November 1999, the Company issued warrants allowing the
holder to purchase one additional restricted share of the
Company's common stock for each share purchase warrant held in
conjunction with four convertible debentures. The total warrants
granted amounted to 866,666 shares at an exercise price of $1.50
per share for five years. The Company recognized additional
compensation expense of $650,000 due to the warrants being
granted below market, or $1.50 on the date of issuance.
F-29
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 14 - DILUTIVE INSTRUMENTS (Continued)
During January 2000, the Company issued warrants allowing the
holder to purchase 100,000 shares of the Company's common stock
in conjunction with a consulting agreement. The warrants are
exercisable at a price of $1.50 per share for three years. The
Company did not recognize any additional compensation due to the
grant price being below the market price on the date of issuance.
During January 2000, the Company issued warrants allowing the
holder to purchase 100,000 shares of the Company's common stock
in conjunction with a consulting agreement. The warrants are
exercisable at a price of $2.17 per share for three years. The
Company recognized additional compensation expense of $54,000 due
to the warrants being granted below market, or $2.71 on the date
of issuance.
January 25, - August 30, 2000, the Company issued warrants
allowing the holder to purchase one share of the Company's common
stock for each share purchase warrant held in conjunction with a
private placement memorandum. The total warrants granted amounted
to 1,930,792 shares at a weighted average exercise price of $2.24
per share for three years. The Company recognized additional
compensation expense of $4,322,332 due to the warrants being
issued below the weighted average market price of $3.58 between
January 25, 2000 and August 30, 2000.
During September 2000, the Company issued warrants allowing the
holder to purchase one share of the Company's common stock for
each share purchase warrant held in conjunction with a private
placement memorandum. The total warrants granted amounted to
1,000,000 shares at a price of $1.50 per share for three years.
The Company recognized additional compensation expense of
$1,500,000 due to the warrants being issued below the selling
price of $3.00 per share.
NOTE 15 - STOCK ISSUANCES
On September 15, 2000, the Company issued 1,000,000 shares of its
common stock in conjunction with a private placement memorandum
for cash of $3,000,000, or $3.00 per share.
From January 25 to August 30, 2000, the Company issued 1,930,792
shares of its common stock valued at a weighted average price of
$3.58 per share pursuant to a private placement memorandum for
$6,912,731 of cash.
On July 25, 2000, the Company issued 1,718,748 shares of its
common stock for the purchase of SIGMA in the amount of
$5,500,000, or $3.20 per share.
On July 25, 2000, the Company issued 100,000 shares of its common
stock valued at $3.00 per share for services of $300,000.
On March 27, 2000, the Company issued 46,486 shares of its common
stock in three issuances at a weighted average price of $4.95 per
share for debt of $231,812.
F-30
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 15 - STOCK ISSUANCES (Continued)
On March 16, 2000, the Company issued 133,333 shares of its
common stock for warrants held at $0.75 per share, or $100,000 of
cash.
On March 16, 2000, the Company issued 66,667 shares of its common
stock for a convertible debenture at $1.50 per share, or
$100,000.
On March 9, 2000, the Company issued 62,792 shares of its common
stock for warrants held at $1.99, or $125,019 of cash.
On January 26, 2000, the Company issued 47,619 shares of its
common stock valued at $2.10 per share pursuant to a private
placement memorandum for $100,000 of cash.
On January 5, 2000, the Company issued 60,000 shares of its
common stock valued at $4.34 per share for $260,400 of services.
On January 4, 2000, the Company issued 147,580 shares of its
common stock valued at $2.75 per share for $100,000 of debt and
$305,845 of services.
On December 31, 1999, the Company issued 592,744 shares of its
common stock to shareholders for the conversion of $889,117 of
debt. The shares were valued at $1.50 per share which was the
conversion price on a convertible debenture issued on November
16, 1999. The debt was for funds advanced to the Company to pay
general operating expenses paid by shareholders.
On December 23, 1999, the Company issued 120,773 shares of common
stock valued at $0.83 per share for $100,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 20, 1999, the Company issued 193,939 shares of common
stock valued at $0.83 per share for $160,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 15, 1999, the Company issued 33,333 shares of common
stock valued at $0.90 per share for $30,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 13, 1999, the Company issued 160,131 shares of common
stock valued at $0.84 per share for $135,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 10, 1999, the Company issued 175,070 shares of common
stock valued at $0.71 per share for $125,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
On December 10, 1999, the Company issued 71,839 shares of common
stock valued at $0.70 per share for $50,000 of cash. The share
issuance was a part of a $600,000 private placement. (Note 13)
F-31
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 15 - STOCK ISSUANCES (Continued)
On November 29, 1999, the Company issued 400,000 shares of common
stock valued at the trading price of $1.34 per share for finders
fees relating to the reverse merger acquisition and cash raised
by shareholders of the Company. The total valuation of $537,000
has been presented as an offset to additional paid-in capital as
stock offering costs.
On October 1, 1999, the Company canceled 502,500 shares of common
stock which had been issued prior to the reverse merger.
Accordingly, the Company canceled the shares at a zero valuation
because the expense recorded as part of the retained deficit of
Group was eliminated as part of the reverse merger.
On September 9, 1999, the Company issued 100,000 shares of common
stock valued at $1.00 per share for cash pursuant to Rule 144.
On September 2, 1999, the Company issued 20,000 shares of common
stock valued at $2.90 per share for consulting services rendered.
The shares were issued at the trading price on the date of issue.
On August 12, 1999, the Company issued 100,000 shares of its
common stock valued at $2.50 per share for interest of $250,000.
On July, 26, 1999, the Company issued 10,000 shares of its common
stock valued at $5.00 per share for cash of $50,000.
On July, 15, 1999, the Company issued 10,000 shares of its common
stock valued at $5.00 per share for cash of $50,000.
On July, 15, 1999, the Company issued 15,000 shares of its common
stock valued at $7.80 per share for services of $117,000.
On June 22, 1999, the Company completed a recapitalization
between Group (acquired entity) and Holdings, (acquiring entity).
The presentation of the recapitalization is as follows: The
equity of the acquiring entity (Holdings) is presented as the
equity of the combined enterprise; however, the capital stock
account of the acquiring entity (Holdings) is adjusted to reflect
the par value of the outstanding stock of the legal acquirer
(Group) after giving effect to the number of shares issued in the
reverse merger. Accordingly, at the date of the reverse merger,
the Company had 6,291,450 shares of common stock outstanding; and
25,044,146 shares as detailed below have been retroactively
restated for the equivalent number of shares received in the
merger by Holdings.
On June 17, 1999, the Company issued 6,960 shares of its common
stock valued at $0.003 per share for cash of $20.
On May 19, 1999, the Company issued 372,360 shares of its common
stock valued at $0.003 per share for cash of $1,070.
On May 13, 1999, the Company issued 139,200 shares of its common
stock valued at $0.003 per share for cash of $400.
F-32
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 15 - STOCK ISSUANCES (Continued)
On May 7, 1999, the Company issued 2,610,000 shares of its common
stock valued at $0.003 per share for conversion of debt of
$7,500.
On May 7, 1999, the Company issued 348 shares of its common stock
valued at $0.003 per share for cash of $1.
On May 5, 1999, the Company issued 32,016 shares of its common
stock valued at $0.003 per share for cash of $92.
On May 3, 1999, the Company issued 25,717 shares of its common
stock valued at $0.003 per share for conversion of debt of $74.
On April 30, 1999, the Company issued 22,968 shares of its common
stock valued at $0.003 per share for conversion of debt of $66.
On April 30, 1999, the Company issued 2,888 shares of its common
stock valued at $0.003 per share for cash of $8.
On April 28, 1999, the Company issued 12,180 shares of its common
stock valued at $0.003 per share for cash of $35.
On April 27, 1999, the Company issued 95,700 shares of its common
stock valued at $0.003 per share for conversion of debt of $275.
On April 27, 1999, the Company issued 5,951 shares of its common
stock valued at $0.003 per share for cash of $17.
On April 22, 1999, the Company issued 129,734 shares of its
common stock valued at $0.003 per share for cash of $373.
On March 22, 1999, the Company issued 19,011,220 shares of its
common stock valued at $0.005 per share for conversion of debt of
$104,530.
On March 22, 1999, the Company issued 286,682 shares of its
common stock valued at $0.003 per share for cash of $824.
On March 5, 1999, the Company issued 334,080 shares of its common
stock valued at $0.003 per share for cash of $960.
On July 29, 1998, the Company issued 34,800 shares of its common
stock valued at $0.003 per share for cash of $100.
On June 16, 1998, the Company issued 1,061,400 shares of its
common stock valued at $0.079 per share for conversion of debt of
$83,881.
On June 16, 1998, the Company issued 42,456 shares of its common
stock valued at $0.003 per share for cash of $121.
F-33
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 15 - STOCK ISSUANCES (Continued)
On June 16, 1998, the Company issued 119,086 shares of its common
stock valued at $0.003 per share for cash of $342.
On May 14, 1998, the Company issued 14,755 shares of common stock
valued at $0.003 per share for cash of $41.
On April 8, 1998, the Company issued 130,500 shares of common
stock valued at $0.003 per share for cash of $375.
On March 18, 1998, the Company issued 2,575 shares of common
stock valued at $0.003 per share for cash of $7.
On March 12, 1998, the Company issued 33,199 shares of common
stock valued at $0.003 per share for cash of $95.
On March 6, 1998, the Company issued 121,904 shares of common
stock valued at $0.003 per share for cash of $350.
On February 24, 1998, the Company issued 395,467 shares of its
common stock valued at $0.003 per share for cash of $1,138.
NOTE 16 - REGULATION 504D STOCK OFFERING
During December 1999, the Company issued 755,085 shares of common
stock pursuant to a Regulation 504D stock offering for cash of
$600,000. The shares were issued at 60% of the closing bid price
one day prior to issuance.
NOTE 17 - PRIVATE PLACEMENT MEMORANDUMS
On January 7, 2000, the Company authorized a private placement of
$100,000 of its common stock. The price of the shares is
calculated at 60% of the closing bid price on the day prior to
issuance. The Company issued 47,619 shares pursuant to this
private placement for $100,000, or $2.10 per share.
On January 24, 2000, the Company authorized a private placement
of $5,000,000 of its common stock. The price of the shares is
calculated at 80% of the market value based on the 5-day average
price prior to closing and have one (1) warrant per share
attached to purchase at a price of 50% of the 5-day average price
of the original issuance with a life of three years.
On January 31, 2000, the Company extended this offering to
$6,000,000, expiring March 31, 2000.
On March 26, 2000, the Company removed the time and amount to be
raised limits on the offering.
F-34
<PAGE>
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 17 - PRIVATE PLACEMENT MEMORANDUMS (Continued)
On September 15, 2000, the Company authorized a private placement
of $3,000,000 of its common stock. The price of the shares was
fixed at $3.00 per share. The Company issued 1,000,000 shares
pursuant to this private placement for $3,000,000.
NOTE 18 - RESCINDED STOCK
During June 2000, the Board of Directors resolved to void and
cancel a certificate of the Company's outstanding common stock
representing 354,400 shares and issue a new certificate
reflecting 34,800 shares due to the original issue being granted
for inappropriate consideration. This transaction has not yet
been reflected in the Company's outstanding stock due to the
original certificate not yet being returned.
NOTE 19 - SUBSEQUENT EVENT
During November 2000, the Company formed a wholly-owned
subsidiary, Ocean Power (UK) Limited, to serve as a sales office
in Europe. The Company signed a lease for office space in the
United Kingdom for $4,700 per month. The lease is for a minimum
of three months, then is on a month-to-month basis.
F-35
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and notes thereto included in Item 1 of this
quarterly report.
Special Note Regarding Forward-Looking Statements
These financial projections contain figures relating to plans,
expectations, future results, performance, events or other matters. When used in
the Plan of Operations, or elsewhere in this Form, words such as "estimate",
project, "intend" "expect", "anticipate" and similar expressions are intended to
identify forward-looking statements.
Such forward looking statements involve numerous risks and
uncertainties, pertaining to technology, development of the Company's products
and markets for such products, timing and level of customers orders, competitive
products and pricing, changes in economic conditions and markets for the
Company's products and other risks and uncertainties.
Actual results, performance and events are likely to differ and may
differ materially and adversely. Investors are cautioned not to place undue
reliance on these forward-looking statements which speak only as to the date of
the Plan of Operations.
The Company undertakes no obligation to release or deliver to investors
revisions to these forward-looking statements to reflect events or circumstances
after the date of the Plan of Operations, the occurrence of unanticipated events
or other matters.
PLAN OF OPERATION:
The Company began its current operations in January, 1997 as
Manufacturing Technologies Corporation (MTC). This is a Delaware Corporation and
was originally set up to develop a business manufacturing modular seawater
desalination and power plants. In March of 1998, MTC became a wholly owned
subsidiary of PTC Holdings, Inc., when PTC Holdings acquired 100% of the stock
of MTC in return for assuming 100% of its debt. PTC Holdings which subsequently
merged with PTC Group in June 1999, PTC Holdings business was the survivor;
although Group continued as the corporate entity. The Company is developing
modular seawater desalination systems integrated with environmentally friendly
power sources. It is also developing stand alone modular Stirling based power
systems. These systems are intended to be sold to a series of regional join
ventures that will ideally take 15-25 year contracts to sell water and power. If
successful, this will provide the Company dual income streams from both
equipment sales and royalties from the sale of water and power.
The Company has no profit to date. It has experienced a total of
$19,448,460 in losses from inception of current operations on March 26, 1992
through to June 30, 2000. The Company's losses have resulted from the fact that
its products are still in development and no sales have been generated.
4
<PAGE>
The Company currently has enough cash to continue its present level of
operations for about 6 months. Due to the increased level of activity projected
during the next three years, additional funding will be needed and is being
sought. The Company believes that such current funding is available from private
issuances of its equity securities.
The Company has a limited operating history on which to evaluate its
prospects. The risks, expenses and difficulties encountered by start-up
companies must be considered when evaluating the Company's prospects. All
development efforts share the risks that the technology being pursued may not
perform to expectations. Also the cost to manufacture may exceed the product's
value in the market. Changing market conditions and new technological
breakthroughs by competitors also pose risks.
Due to these uncertainties, the exact cost of the development program
described below cannot be guaranteed. Difficulties and setbacks occur and can
adversely affect the Company. All plans contain contingencies but they may prove
insufficient.
If market conditions change, financial performance projections may
prove unreachable. All of these factors must be weighed when evaluating the
future prospects (value) of a development stage company.
The Company does not have an established source of revenue sufficient
to cover its operating costs and to allow it to continue as a going concern.
Also, management cannot provide any assurances that the Company will be
successful in accomplishing any of its plans. The ability of the Company to
continue as a going concern is dependent upon its ability to successfully
accomplish the plan described in the following paragraphs and eventually attain
profitable operations.
The Company's plan of operation for the next twelve months is as
follows:
(i) Since completion of its water quality certification on 9December
1999, the Company has raised approximately $10 million pursuant to
private placement financing which has allowed the Company to implement
its Product Development Program, as well as to further business
development, strategic partnering and acquisition activities. Based on
an analysis of its sales and development costs, the Company intends to
raise an additional $10-15 million pursuant to private placement and
financing by the end of 2000, depending on the pace of actual sales and
the acquisition activities of the Company, an additional round of
financing (for a minimum of $100 million dollars) in the first half of
2001. The exact method by which this additional round of financing will
be raised will be based on the maximization of shareholder value. The
additional equity, if raised by the Company, will allow the Company to
execute its business plan.
Maximization of shareholder value is the basic lens through which all
investment and other business decisions are made. One of the major
reasons that the Company prefers to enter into joint ventures to
finance its endeavors is to off-load the bulk of the expense of market
development onto the joint venture partners. This brings market share
without dilution of Ocean Power shareholders. Similarly, the choice to
subcontract manufacturing and engineering wherever possible is done for
the same reason. The only in-house manufacturing will be of extremely
proprietary components using processes protected by trade secrets that
cannot be otherwise protected.
(ii The Company will be doing technology and product development
in a number of areas. They are:
a) low-temperature hydrogen generation
b) ejectors
c) chemical-free water pretreatment
d) enhanced heat transfer in plastic heat exchangers
e) high-performance alkaline fuel cells
f) Stirling engines
5
<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 build and install additional facilities
in the next year. They are:
a) laboratory and test facilities
b) system integration facilities, and
c) a manufacturing facility for proprietary components
(iv) Although the Company plans to subcontract out as much work as
possible, it still anticipates increasing the number of employees from
the current eighteen (18) full time to approximately 40 full time.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is not involved in any material legal proceedings or litigation and
the officers and directors are aware of no other pending litigation which would
have a material, adverse effect on the Company.
ITEM 2. Changes in Securities:
(i) On August 29, 2000, the Company authorized a Private Placement for
$3,000,000. Each participant was required to submit a Subscription Agreement and
Representations of Investor documents. Each investor agreed to purchase unit(s)
consisting of one share of common stock and one warrant. The purchase price of
the unit(s) was $3.00 per unit. The warrant(s) will have a life of three (3)
years and a purchase price of $1.50. 1,000,000 units were issued to 22
accredited investors. The company claims exemption from regulation per
Regulation D and the private offering exemption of Section 4(2) of the
Securities Act of 1933, among others. The offering was made only to a limited
number of persons, all of whom were accredited investors. Twenty-two (22)
persons purchased these shares. Each investor had adequate information with
which to make informed investment decision and was given the opportunity to
obtain what additional information he or she required. Each investor
acknowledged in writing that its investment was in restricted securities. No
public means of presenting the offer were used.
ITEM 3. Defaults Upon Senior Securities.
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 5. Other Information
None
ITEM 6. Exhibit List and Report on Form 8-K
(a) On October 19, 2000 the company filed a report on Form 8K/A as
attached hereto.
6
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SIGNATURE:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
OCEAN POWER CORPORATION
By: /s/ Joseph P. Maceda,
------------------------------------
Joseph P. Maceda, President
November 14, 2000
