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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-QSB
|X| Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2001
OR
|_| Transition report under Section 13 OR 15(d) of the Securities Exchange
Act of 1934
For The Transition Period From To
--------------- ------------------
Commission File Number 1-5742
OCEAN POWER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-3350291
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Robert J. Mathews Parkway
El Dorado Hills, California 95672
(Address of principal executive offices and Zip Code)
(916) 933-8100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if 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 of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. |X|
Yes |_| No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: The registrant had
38,199,942 shares of its $.01 par value common stock outstanding as of May 15,
2001.
Transitional Small Business Disclosure Format (check one): Yes[ ] No:X
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1
OCEAN POWER CORPORATION
TABLE OF CONTENTS
Page
Cautionary Statement Regarding Forward Looking Statements...............................................3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:..............................................................F1 - F-15
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......4
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..........................................................................7
ITEM 2. Changes in Securities and Use of Proceeds..................................................7
ITEM 3. Defaults Upon Senior Securities............................................................7
ITEM 4. Submission of Matters to a Vote of Security Holders........................................7
ITEM 5. Other Information..........................................................................7
ITEM 6. Exhibits and Reports on Form 8-K...........................................................8
2
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-QSB CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION," INCLUDING STATEMENTS CONCERNING (I) THE
COMPANY'S STRATEGY; (II) THE COMPANY'S EXPANSION PLANS, (III) THE MARKET FOR THE
COMPANY'S PRODUCTS; AND (IV) THE EFFECTS OF GOVERNMENT REGULATION OF THE
COMPANY'S PRODUCTS. BECAUSE SUCH STATEMENTS INVOLVE RISKS OF UNCERTAINTIES,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT
MAY ARISE AFTER THE DATE HEREOF, EXCEPT AS REQUIRED BY ITS REPORTING
OBLIGATIONS.
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and December 31, 2000
F-1
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
March 31, December 31,
2001 2000
------------------ -----------------
(Unaudited)
CURRENT ASSETS
Cash $ 2,637,083 $ 2,152,593
Cash - restricted 46,690 23,706
Advances to employees 321,957 320,567
Prepaid expenses 133,929 222,235
------------------ -----------------
Total Current Assets 3,139,659 2,719,101
------------------ -----------------
EQUIPMENT, NET 900,039 922,980
------------------ -----------------
OTHER ASSETS
Deposits 54,948 55,348
Patents, and licensing agreements, net 6,357,721 6,694,779
Goodwill, net 6,150,439 6,315,183
------------------ -----------------
Total Other Assets 12,563,108 13,065,310
------------------ -----------------
TOTAL ASSETS $ 16,602,806 $ 16,707,391
================== =================
The accompanying notes are an integral part of these financial statements.
F-2
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2001 2000
------------------ -----------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 793,242 $ 1,127,414
Accrued expenses 6,012,055 6,214,282
Notes payable - related parties 1,315,527 1,317,618
Notes payable - current portion 3,475,960 488,457
Research advances 419,324 473,145
------------------ -----------------
Total Current Liabilities 12,016,108 9,620,916
------------------ -----------------
LONG-TERM LIABILITIES
Convertible debentures payable 550,000 550,000
Notes payable 629,984 744,588
------------------ -----------------
Total Long-Term Liabilities 1,179,984 1,294,588
------------------ -----------------
Total Liabilities 13,196,092 10,915,504
------------------ -----------------
STOCKHOLDERS' EQUITY
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 38,149,942 shares
issued and outstanding, respectively 381,499 381,499
Additional paid-in capital 29,296,500 25,611,288
Deferred consulting expense (405,416) (410,667)
Other comprehensive income 213,414 195,258
Deficit accumulated during the development stage (26,079,283) (19,985,491)
------------------ -----------------
Total Stockholders' Equity 3,406,714 5,791,887
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,602,806 $ 16,707,391
================== =================
The accompanying notes are an integral part of these financial statements.
F-3
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
March 26,
For the Three Months Ended 1992 Through
March 31, March 31,
--------------------------------------
2001 2000 2001
------------------ ------------------ -----------------
REVENUES $ - $ - $ -
------------------ ------------------ -----------------
EXPENSES
General and administrative 2,020,799 2,500,051 18,364,087
Research and development 61,496 59,549 1,606,952
Depreciation and amortization 223,691 39,842 663,950
------------------ ------------------ -----------------
Total Expenses 2,305,986 2,599,442 20,634,989
------------------ ------------------ -----------------
LOSS FROM OPERATIONS (2,305,986) (2,599,442) (20,634,989)
------------------ ------------------ -----------------
OTHER INCOME (EXPENSE)
Currency gain - - 522
Interest income 17,107 36,173 232,651
Loss on sale of assets - - (387,649)
Interest expense (3,804,913) (77,376) (5,455,159)
------------------ ------------------ -----------------
Total Other Income (Expense) (3,787,806) (41,203) (5,609,635)
------------------ ------------------ -----------------
LOSS BEFORE EXTRAORDINARY ITEM (6,093,792) (2,640,645) (26,244,624)
EXTRAORDINARY ITEM
Gain on settlement of debt - 165,349 165,341
------------------ ------------------ -----------------
NET LOSS (6,093,792) (2,475,296) (26,079,283)
------------------ ------------------ -----------------
OTHER COMPREHENSIVE INCOME
Currency translation adjustment 18,156 - 213,414
------------------ ------------------ -----------------
TOTAL COMPREHENSIVE LOSS $ (6,075,636) $ (2,475,296) $ (25,865,869)
================== ================== =================
The accompanying notes are an integral part of these financial statements.
F-4
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations (Continued)
(Unaudited)
For the Three Months Ended
March 31,
--------------------------------------
2001 2000
------------------ ------------------
BASIC AND DILUTED LOSS PER SHARE
Operating loss $ (0.16) $ (0.07)
Extraordinary item - 0.00
------------------ ------------------
Total $ (0.16) $ (0.07)
================== ==================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 38,149,942 34,165,608
================== ==================
The accompanying notes are an integral part of these financial statements.
F-5
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
Deficit
Accumulated
Additional Other Deferred During the
Common Stock Paid-In Comprehensive Consulting Development
----------------------------
Shares Amount Capital Income Expense Stage
------------- ------------- -------------- --------------- ----------- --------------
Balance, December 31, 1999 32,835,925 $ 328,359 $ 5,589,224 $ - $ - $ (10,923,816)
January 4, 2000, common stock
issued for debt and consideration
for loan default at $2.75 per share 147,580 1,476 236,024 - - -
January 5, 2000, common stock
issued for services at $4.34 per
share 60,000 600 259,800 - - -
January 26, 2000, common stock
issued pursuant to a private
placement at $2.10 per share 47,619 476 99,524 - - -
February 1, 2000, warrants
granted below market value - - 41,242 - - -
February 18, 2000, options
granted below market value - - 494,596 - - -
February 22, 2000, options
granted below market value - - 624,998 - - -
March 9, 2000, common stock
issued for exercise of warrants
at $1.99 per share 62,792 628 124,391 - - -
March 16, 2000, common stock
issued for conversion of convertible
debenture at $1.50 per share 66,667 667 99,333 - - -
March 16, 2000, common stock
issued for exercise of warrants
at $0.75 per share 133,333 1,333 98,667 - - -
------------- ------------- -------------- --------------- ----------- --------------
Balance Forward 33,353,916 $ 333,539 $ 7,667,799 $ - $ - $ (10,923,816)
------------- ------------- -------------- --------------- =========== --------------
The accompanying notes are an integral part of these financial statements.
F-6
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
Deficit
Accumulated
Additional Other Deferred During the
Common Stock Paid-In Comprehensive Consulting Development
----------------------------
Shares Amount Capital Income Expense Stage
------------- ------------- -------------- --------------- ----------- --------------
Balance Forward 33,353,916 $ 333,539 $ 7,667,799 $ - $ - $ (10,923,816)
March 27, 2000, 3 stock issuances
for payment of debt at an average
price of $4.95 per share 46,486 465 231,347 - - -
May 26, 2000, options granted below
market value - - 1,272,195 - - -
July 25, 2000, common stock issued
for conversion of accounts payable
at $4.00 per share 100,000 1,000 399,000 - (237,000) -
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 14, 2000, 62
stock issuances pursuant to a private
placement memorandum at average
price of $3.58 per share 1,930,792 19,308 6,896,423 - - -
August 8, 2000, options granted
below market value - - 358,000 - - -
September 15, 2000, 23 stock
issuances pursuant to a private
placement memorandum at $3.00
per share 1,000,000 10,000 2,990,000 - - -
Currency translation adjustment - - - 195,258 - -
Warrants granted for consulting
contract - - 340,000 - (173,667) -
Stock offering costs paid - - (26,289) - - -
Net loss for the year ended
December 31, 2000 - - - - - (9,061,675)
------------- ------------- -------------- --------------- ----------- --------------
Balance, December 31, 2000 38,149,942 $ 381,499 $ 25,611,288 $ 195,258 $ (410,667) $ (19,985,491)
------------- ------------- -------------- --------------- ----------- --------------
The accompanying notes are an integral part of these financial statements.
F-7
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
Deficit
Accumulated
Additional Other Deferred During the
Common Stock Paid-In Comprehensive Consulting Development
----------------------------
Shares Amount Capital Income Expense Stage
------------- ------------- -------------- --------------- ----------- --------------
Balance, December 31, 2000 38,149,942 $ 381,499 $ 25,611,288 $ 195,258 $ (410,667) $ (19,985,491)
Valuation adjustment to warrants
granted for consulting services
(unaudited) - - (45,000) - 5,251 -
Warrants granted for loan
consideration (unaudited) - - 3,730,212 - - -
Currency translation adjustment
(unaudited) - - - 18,156 - -
Net loss for the three months ended
March 31, 2001 (unaudited) - - - - - (6,093,792)
------------- ------------- -------------- --------------- ----------- --------------
Balance, March 31, 2001 (unaudited) 38,149,942 $ 381,499 $ 29,296,500 $ 213,414 $ (405,416) $ (26,079,283)
============= ============= ============== =============== =========== ==============
The accompanying notes are an integral part of these financial statements.
F-8
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception on
March 26,
For the Three Months Ended 1992 Through
March 31, March 31,
-------------------------------------
2001 2000 2001
----------------- ----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,093,792) $ (2,475,296) $ (26,079,283)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 223,691 139,842 663,950
Deferred consulting expense 5,251 - 334,584
Value of common stock, warrants, options
and discounts on equity instruments issued
for services 3,730,212 1,558,736 7,533,142
Loss on sale of assets - - 387,649
Amortization of debenture discount - - 650,000
Gain on disposition of debt - - (165,340)
Change in operating asset and liability accounts,
net of amounts acquired in business combination:
(Increase) decrease in overpayment receivable - (74,700) -
(Increase) decrease in advances to employees,
prepaid expenses, and deposits 113,709 (752,500) (5,772,868)
(Increase) decrease in other assets - 359,110 -
Increase (decrease) in accounts payable (334,172) (4,829) 699,289
Increase (decrease) in accrued expenses 52,060 (114,387) 6,669,209
----------------- ----------------- ------------------
Net Cash Used by Operating Activities (2,303,041) (1,364,024) (15,079,668)
----------------- ----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets - - 1
Purchase of fixed assets (6,472) (714,761) (750,447)
Equipment procurement costs - - (564,110)
----------------- ----------------- ------------------
Net Cash (Used) by Investing Activities (6,472) (714,761) (1,314,556)
----------------- ----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 3,000,000 - 3,000,000
Cash acquired in Sigma acquisition - - 142,254
Repayment of related party notes payable (2,091) - (1,523,291)
Repayment of note payable (180,922) (1,861,222) (1,519,996)
Loans from related parties - 48,648 7,224,287
Issuance of convertible debentures - - 650,000
Common stock issued for cash - 7,201,061 11,131,032
Stock offering costs - - (26,289)
----------------- ----------------- ------------------
Net Cash Provided by Financing Activities $ 2,816,987 $ 5,388,487 $ 19,077,997
----------------- ----------------- ------------------
The accompanying notes are an integral part of these financial statements.
F-9
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
March 26,
For the Three Months Ended 1992 Through
March 31, March 31,
-------------------------------------
2001 2000 2001
----------------- ----------------- ------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 507,474 $ 3,309,702 $ 2,683,773
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,176,299 368,276 -
----------------- ----------------- ------------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 2,683,773 $ 3,677,978 $ 2,683,773
================= ================= ==================
CASH PAID FOR:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Value of common stock, warrants, options and
discounts on equity instruments issued for
services $ 3,730,212 $ 1,558,736 $ 7,533,142
Equity instruments issued for deferred
consulting expense $ - $ - $ 740,000
Common stock issued for recapitalization $ - $ - $ 2,761,773
Common stock issued for conversion of debt $ - $ 531,812 $ 2,507,225
The accompanying notes are an integral part of these financial statements.
F-10
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in
accordance with such rules and regulations. The information
furnished in the interim condensed consolidated financial
statements include normal recurring adjustments and reflects all
adjustments, which, in the opinion of management, are necessary
for a fair presentation of such financial statements. Although
management believes the disclosures and information presented are
adequate to make the information not misleading, it is suggested
that these interim condensed consolidated financial statements be
read in conjunction with the Company's most recent audited
financial statements and notes thereto included in its December
31, 2000 Annual Report on Form 10-KSB. Operating results for the
three months ended March 31, 2001 are not necessarily indicative
of the results that may be expected for the year ending December
31, 2001.
NOTE 2 - PATENTS AND LICENSING AGREEMENTS
The Company's patents and license agreements consisted of the
following at March 31, 2001 and December 31, 2000:
March 31, December 31,
2001 2000
----------------- ------------------
(Unaudited)
Patents $ 1,334,440 $ 1,387,677
Licensing Agreement - Aquamax and Keeran 5,492,250 5,762,250
Accumulated amortization - patents (468,969) (455,148)
----------------- ------------------
$ 6,357,721 $ 6,694,779
================= ==================
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 $1,387,677, paid 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 three months ended March 31, 2001 was $12,914.
Accumulated amortization at March 31, 2001 was $468,965.
NOTE 3 - BUSINESS COMBINATION
In August 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
$164,744 and $-0- at March 31, 2001 and 2000, respectively.
F-11
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000
NOTE 4 - NOTES PAYABLE
Notes payable at March 31, 2001 and December 31, 2000 consist of
the following:
March 31, December 31,
2001 2000
----------------- ------------------
(Unaudited)
Notes payable to two parties bearing interest at 10.5%,
collateralized by guarantees of the president of the
Company, due in full by March 5, 2002. $ 3,000,000 $ -
Note payable to SND bearing a variable interest rate,
(10.9% at December 31, 2000) due in equal semi-annual
payments which began May 1, 2000, uncollateralized. 116,405 121,049
Note payable to SND bearing a variable interest rate,
(10.9% at December 31, 2000) due in equal semi-annual
payments which began May 10, 2000, uncollateralized. 476,635 569,964
Note payable to Silent Clean Power bearing interest at
10.9%, due in equal semi-annual payments, collateralized
by patents and licenses 479,565 498,696
Note payable to SND bearing a variable interest rate,
(10.9% at December 31, 2000) due in equal semi-annual
payments which began April 3, 2000, uncollateralized. 33,339 43,336
----------------- ------------------
Total Notes Payable $ 4,105,944 $ 1,233,045
================= ==================
Annual maturities of notes payable are as follows:
Years Ending
December 31,
2002 $ 3,475,960
2003 629,984
-----------------
$ 4,105,944
The Company granted 1,200,000 warrants valued at $3,730,212
pursuant to the Black Scholes pricing model using a risk-free
interest rate of 6.43% expected volatility of 228% and an expected
life of 3 years as additional consideration for the $3,000,000
loans. The warrants were expensed immediately as interest expense
because they were immediately exercisable.
F-12
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000
NOTE 5 - ACCRUED EXPENSES
The Company's accrued expenses are comprised of the following
items:
March 31, December 31,
2001 2000
----------------- -----------------
(Unaudited)
Accrued payroll taxes payable $ 24,481 $ 26,657
Accrued interest payable - payroll 52,717 52,717
Accrued payroll tax penalty 98,845 98,845
Accrued interest payable - notes 136,229 118,155
Other accrued items 59,783 7,908
Accrued license agreement (Note 7) 5,640,000 5,910,000
----------------- -----------------
Total $ 6,012,055 $ 6,214,282
================= =================
NOTE 6 - 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 operating
revenues and, planned principal operations have not yet
commenced. The Company has incurred losses from its inception
through March 31, 2001 of approximately $26,079,000. The Company
does not have an established source of funds sufficient to cover
its operating costs and, accordingly, there is substantial doubt
about its ability to continue as a going concern.
In order to 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
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 $20,000,000 to $30,000,000 of additional funds for
operations and expansion in 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.
F-13
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Wohlreich
During January 2000, the Company entered into a three-year
consulting agreement with Clement J. Wohlreich to receive
financial, marketing and management services. The agreement
called for the Company to issue 100,000 units, each consisting of
one share of the Company's common stock and one attached warrant
granting the right for three years to purchase one share of
common stock for an exercise price of $1.50. As the agreement
provided for issuance of the units upon commencement of services,
the Company accrued a liability and deferred consulting expense
as a reduction of shareholders' equity in an amount equal to the
value of the common stock and warrant at the inception of the
agreement. The liability was converted to equity upon issuance of
the units and the value of the stock and warrants will be
expensed over the term of the agreement upon completion of
services each quarter. Pursuant to EITF 96-18, "Accounting For
Equity Instruments That Are Issued To Other Than Employees For
Acquiring Or In Conjunction With Selling, Goods Or Services", the
Company will continue to revalue the warrants until earned upon
completion of services. As of March 31, 2000, the consulting
contract was valued at $740,000, representing the 100,000 shares
of common stock issued on July 25, 2000 at the then trading price
of $4.00 per share and the value of the warrants of $295,000, as
determined by the Black Scholes pricing model. For the period
ended March 31, 2001, the Company had amortized $289,584 of the
contract , leaving a remaining balance of $405,416 at March 31,
2001 which is included as a reduction of stockholders' equity.
Aquamax and Keeran
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 Antilles 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;
F-14
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2001 and December 31, 2000
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Aquamax and Keeran (Continued)
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.
The Company has demanded arbitration pursuant to its licensing
agreement with Aquamax and Keeran (Licensors) over the pricing of
the licensing agreement because the Licensors have not been able
to provide all of the licenses stipulated in the agreement. As a
result, the Company suspended payments on the licensing agreement
after paying the initial two installments aggregating $400,000.
The balance due under the existing terms of the licensing
agreement was $5,910,000, payable in cash and 600,000 shares of
the Company's common stock. Such amount was accrued as a
liability at December 31, 2000. At March 31, 2001, the liability
and prepaid asset decreased by $270,000 because the value of the
600,000 shares decreased. The shares will continue to be revalued
until such time as they are issued and, along with the amounts
paid prior to suspension of payments, reflected as prepaid
license fees. The prepaid license fees will be amortized over the
ten-year term of the licensing agreement using the straight-line
method. Management believes it will prevail in the arbitration
proceedings and will receive an equitable reduction in amounts
due under the contract. Management expects no loss to result from
the dispute over the pricing of the licensing agreement.
NOTE 8 - SUBSEQUENT EVENT
On April 2, 2001, the Company received $600,000 in exchange for
convertible promissory notes payable of $240,000 and $360,000.
Each note bears interest at 10% per annum and are due by April 2,
2003. Each note is convertible at any time by the note holder
into the Company's common stock at $4.00 per share. On April 2,
2001, the Company's common stock closed at $2.73 per share.
Concurrent with the promissory notes, the Company granted 200,000
warrants with an exercise price of $1.50 per share and an
expiration date of April 1, 2003. The warrants were granted for
services relating to the funding of the promissory notes and will
be valued at $2.73 per share pursuant to the Black Scholes
pricing model. The Company will record additional interest
expense of $546,000 associated with the warrants.
F-15
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-QSB contains forward-looking statements. These statements
relate to future events or the Company's future financial performance. The
Company's 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", "believe", "can", "continue", "could", "may",
"plans", "potential", "predicts", "should", or "will" or the negative of these
terms or other similar expressions are intended to identify forward-looking
statements.
These statements are only predictions and involve known and unknown risks and
uncertainties. 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 publicly update or revise these
forward-looking statements for any reason, or to update the reasons actual
results could differ materially from those anticipated in these forward-looking
statements, even if new information becomes available in the future except as
otherwise required by law or its reporting obligations.
Plan Of Operation
The Company's current operations began in January 1997 by Manufacturing
Technologies Corporation (MTC). MTC was 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 $1.4 million of its debt which represented 100% of
MTC's outstanding debt. PTC Holdings subsequently merged with the Company, then
named PTC Group, in June 1999. PTC Group continued as the surviving corporate
entity conducting the business of PTC Holdings.
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 joint ventures that will ideally take 15-25 year contracts to
4
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. Entry into regional joint ventures may involve certain risks such as
exposure to liabilities incurred by the other joint venturer and the need to
share certain intellectual property with such regional joint venturers. However,
the Company plans to limit these risks by forming such regional joint ventures
with entities which limit liability of their owners, such as corporations and
limited liability companies. The Company does not currently plan to license its
intellectual property to these regional joint ventures. All such intellectual
property will remain the property of Ocean Power. Furthermore, any enhancements
to Company's intellectual property arising out of the regional joint ventures
will be licensed back to the Company for its use.
The Company has had no profit to date. It experienced a total of $9,061,675 in
losses for the year ended December 31, 2000. For the three months ended March
31, 2001, the Company experienced a total of $6,093,792 in losses. Of this
amount, $3,730,212 in losses resulted from a one-time charge of interest expense
representing the value of warrants granted which were associated with the loans
for $3,000,000. The balance of the Company's losses have resulted from the fact
that its products are still in development and no sales have been generated. The
operating loss without the warrant expense was $2,363,580 as compared to the
loss for the three months ended March 31, 2000 of $2,475,296.
The Company currently has enough cash to continue its present level of
operations for about 3 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 does not have an established source of revenues sufficient to cover
its operating costs and, accordingly, there is substantial doubt about the
ability of the Company to continue as a going concern.
In order to continue as a going concern, develop a reliable source of revenues,
and achieve a profitable level of operations, the Company will need, among other
things, additional capital resources. Management's plans to continue as a going
concern include raising additional capital through private placement sales of
the Company's common stock and/or loans from third parties, 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 $20,000,000 to $30,000,000 of additional funds for operations and expansion
in 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.
The Company currently has outstanding debt with an aggregate principal amount of
$13,196,092 as of March 31, 2001. Of this amount, $2,280,588 was incurred during
the three months ended March 31, 2001.
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.
5
The Company's plan of operation for the next twelve months is as follows:
(i) Since completion of its water quality certification on 9
December 1999, the Company has raised approximately $13
million pursuant to private placement sales of its Common
Stock and loans which has allowed the Company to implement its
Product Development Program, as well as to further business
development, strategic partnering and acquisition activities.
Based on an analysis of its sales and development costs, the
Company intends to raise an additional $20-30 million pursuant
to private placement sales of its common stock and/or loans
from third parties during 2001. In addition, depending on the
pace of actual sales and the acquisition activities of the
Company, the Company may seek to raise an additional round of
financing (for a minimum of $100 million dollars) in the
second 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. However, there are potential
disadvantages to our reliance on joint ventures, such as, a
reliance on third parties to properly implement our business
plan. Similarly, the choice to subcontract manufacturing and
engineering wherever possible is done for the same reason. The
only in-house manufacturing will be of extremely proprietary
components using processes protected by trade secrets that
cannot be otherwise protected.
(ii) The Company will be doing technology and product development
in a number of areas. They are:
(a) low-temperature hydrogen generation
(b) ejectors
(c) chemical-free water pretreatment
(d) enhanced heat transfer in plastic heat exchangers
(e) high-performance alkaline fuel cells
(f) Stirling engines.
This work is all aimed at improving the performance and
reducing the capital cost of the Company's products.
(iii) The Company intends to build and install additional facilities
in the next year. They are
(a) further 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, during the next year it still anticipates increasing
the number of employees from the current 37 full time to
approximately 50 full time.
6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities and Use of Proceeds
Previously reported on the Company's Form 10-SB as filed with the SEC
on April 12, 2001.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders during the
thirteen-week period ended March 31, 2001.
ITEM 5. Other Information
Not applicable.
7
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ----------------------- -----------------------------------------------------------------------------------------
2.01 Sigma Share Purchase Agreement dated July 25, 2000***
- ----------------------- -----------------------------------------------------------------------------------------
3.01 Certificate of Incorporation of Ocean Power Corporation, a Delaware Corporation, Dated
July 21, 1999 *
- ----------------------- -----------------------------------------------------------------------------------------
3.02 Bylaws of the Registrant*
- ----------------------- -----------------------------------------------------------------------------------------
3.03 Articles of Incorporation of Kaniksu American Mining Company (Idaho), predecessor of
registrant*
- ----------------------- -----------------------------------------------------------------------------------------
3.04 Company (Idaho) Certificate of Amendment Kaniksu American Mining Dated August 28, 1995
name change to Kaniksu Ventures, Inc.*
- ----------------------- -----------------------------------------------------------------------------------------
3.05 Certificate of Amendment Kaniksu Ventures, Inc., Dated April 2, 1997 name change to
Intryst, Inc.*
- ----------------------- -----------------------------------------------------------------------------------------
3.06 Articles of Amendment of Intryst, Inc., name change Dated December 24, 1997 to PTC
Group, Inc.*
- ----------------------- -----------------------------------------------------------------------------------------
3.07 Articles of Amendment of PTC Group, Inc., name change Dated July 14, 1999 to Ocean
Power Corporation*
- ----------------------- -----------------------------------------------------------------------------------------
3.08 Articles of Merger of Ocean Power Corporation Idaho With Ocean Power Corporation
Delaware Dated July 28, 1999*
- ----------------------- -----------------------------------------------------------------------------------------
3.09 Certificate of Merger of Foreign and Domestic Corporation Dated July 28, 1999*
- ----------------------- -----------------------------------------------------------------------------------------
10.01 STM/GSI-Ocean Power Licensing Agreement**
- ----------------------- -----------------------------------------------------------------------------------------
10.02 Employment Agreement (Joseph P. Maceda)*
- ----------------------- -----------------------------------------------------------------------------------------
10.03 Employment Agreement (J. Michael Hopper)*
- ----------------------- -----------------------------------------------------------------------------------------
10.04 Employment Agreement (Lori L. O'Brien)*
- ----------------------- -----------------------------------------------------------------------------------------
10.05 Employment Agreement (Robert Campbell)*
- ----------------------- -----------------------------------------------------------------------------------------
10.06 Memorandum of Understanding with HyPerTech dated 15 June, 2000**
- ----------------------- -----------------------------------------------------------------------------------------
10.07 Purchase Order Memorandum of Understanding with Ecological Engineering & Monitoring,
Inc. dated 16 January, 2000.**
* Incorporated by reference to the Company's Form 10-SB as filed February
8, 2000.
** Incorporated by reference to the Company's Form 10-SB as amended and
filed February 6, 2001.
*** Incorporated by reference to the Company's Form 8-K as amended and
filed October 19, 2000.
(b) Reports on Form 8-K.
Not applicable.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OCEAN POWER CORPORATION
Date: May 15, 2001 By: /S/ JOSEPH P. MACEDA
--------------------
Joseph P. Maceda
President
Date: May 15, 2001 By: /S/ J. MICHAEL HOPPER
---------------------
J. Michael Hopper
Secretary/Treasurer
(chief accounting officer)
9