Annual Report
For The Year Ended April 30, 2010
Making Waves in Power
Hawaii Deployment
FINANCIAL(cid:2)HIGHLIGHTS(cid:2)
Key(cid:2)Financial(cid:2)Highlights(cid:2)
In(cid:2)millions(cid:2)of(cid:2)U.S.(cid:2)dollars(cid:2)for(cid:2)fiscal(cid:2)years(cid:2)ended(cid:2)April(cid:2)30(cid:2)
(cid:2)
Revenues
Total Operating Expenses
Net Loss
Cash, Cash Equivalents and Investments
Total Assets
Total Long-Term Debt
Total Liabilities
Stockholders’ Equity
Contract Order Backlog
FY(cid:2)2010
5.1
22.1
FY(cid:2)2009
4.0
17.9
(19.1) (18.3)
66.8
73.0
0.25
8.1
64.8
5.7
82.7
88.8
0.35
6.0
82.8
7.5
%Change
26%
23%
4%
-19%
-18%
-29%
35%
-22%
-24% (cid:2)
Comparison(cid:2)of(cid:2)Cumulative(cid:2)Total(cid:2)Return(cid:2)
Among(cid:2)Ocean(cid:2)Power(cid:2)Technologies,(cid:2)Inc.,(cid:2)the(cid:2)FTSE(cid:2)NASDAQ(cid:2)Small(cid:2)Cap(cid:2)Index(cid:2)and(cid:2)the(cid:2)Zacks(cid:2)Industry(cid:2)Group(cid:2)Index:(cid:2)Energy(cid:2)–(cid:2)Alternative(cid:2)Sources(cid:2)
120.00
120.00
100.00
100.00
80.00
80.00
60.00
60.00
40.00
40.00
20.00
20.00
0.00
0.00
Ocean Power Technologies
Ocean Power Technologies
FTSE NASDAQ Small Cap Index
FTSE NASDAQ Small Cap Index
Zacks Industry Group Index: Energy- Alternative Sources
Zacks Industry Group Index: Energy- Alternative Sources
4/25/2007
4/25/2007
10/31/2007
10/31/2007
4/30/2008
4/30/2008
10/31/2008
10/31/2008
4/30/2009
4/30/2009
10/31/2009
10/31/2009
4/30/2010
4/30/2010
Total(cid:2)Revenues(cid:2)
Millions(cid:2)of(cid:2)U.S.(cid:2)dollars(cid:2)
Percentage(cid:2)Revenue(cid:2)Breakdown
By(cid:2)geographical(cid:2)location(cid:2)of(cid:2)customers(cid:2)
(cid:2)
(cid:2)
5.1
5.1
41%
41%
59%
59%
4.8
4.8
4.0
4.0
2008
2008
2009
2009
2010
2010
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
2%
2%
25%
25%
2%
2%
9%
9%
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
2.5
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
4.8
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
4.0
2007
2008
2009
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
73%
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)73%
2.5
4.8
4.0
89%
89%
Australia
Australia
Europe
Europe
United(cid:2)States
United(cid:2)States
2008
2008
2009
2009
(cid:2)
2010
2010
2008
2008
2009
2009
2010
2010
(This page intentionally left blank)
Dear Shareholder,
We are pleased to report the progress Ocean Power Technologies has made in the fiscal year ended
April 30, 2010. Presented in this Annual Report are the Company’s consolidated financial statements
and additional detailed information about our business as reported in our Form 10-K filed with the US
Securities and Exchange Commission.
Fiscal 2010 has been a pivotal year as we continued to step up our commercial activities worldwide and
advance the construction of our first 150kW-rated PowerBuoy®, the PB150. We are pleased to share
with you some of the highlights:
(cid:2) Our revenues grew by 26% in fiscal 2010 to $5.1 million, compared to $4.0 million in fiscal 2009.
This growth reflected an increase in revenue related to our PB150 project off the coast of
Reedsport, Oregon and a significant increase in revenue from the US Navy related to
autonomous PowerBuoy projects. The increased revenue was partially offset by a decrease in
revenue from our construction project in Spain and our Hawaii project for the US Navy.
(cid:2) We finished the year with strong liquidity. At April 30, 2010, total cash, cash equivalents,
restricted cash and investments were $66.8 million, compared to $82.7 million at April 30, 2009.
Our cash equivalents, certificates of deposit, and marketable cash investments consist primarily
of US treasury bills and notes, term deposits at highly rated commercial banks and money
market funds with large commercial banks.
(cid:2) Net cash used in operating activities decreased to $15.8 million for fiscal year 2010, compared
to $16.7 million for the previous year. Our research and development efforts are currently
focused on product development, in particular increasing the output and reliability of our utility
PowerBuoy system. It is our intent to fund the majority of our research and development over
the next several years with sources of external funding.
(cid:2) During fiscal year 2010, we won a new $2.4 million contract from the US Navy to provide a
wave energy conversion system for the Navy’s Littoral Expeditionary Autonomous PowerBuoy
(“LEAP”) program. This contract, to be performed over a one-year period, is the initial award
under a proposed four-year, $10-$15 million project to establish a prototype system for near-
shore maritime surveillance for homeland security. Under the initial contract, we will provide our
PowerBuoy wave energy conversion technology for powering a sensor and communications
system. The ultimate aim under the four-year program is the development of a LEAP-based
vessel detection system testbed. The preliminary design phase work has been submitted and is
now under review. We expect to complete the initial $2.4 million contract in the second half of
calendar year 2010.
(cid:2) This fiscal year has seen a strengthening of our leadership team with several key senior
appointments. Effective January 15, 2010 Charles F. Dunleavy was appointed Chief Executive
Officer of OPT. Angus Norman joined the team in June 2009 as Chief Executive of our wholly-
owned European subsidiary, Ocean Power Technologies Limited. In June 2010, OPT
announced the appointments of Michael G. Kelly as Vice President of Operations and Brian M.
Posner as Chief Financial Officer.
(cid:2) Below is an update on some of our major projects and advancements in the core PowerBuoy
technology:
(cid:2)
In December 2009, we successfully deployed one of our PowerBuoys at the Marine Corps
Base in Hawaii. The 40kW peak-rated PowerBuoy is producing power in accordance with
expectations and testing protocols and has completed over 2.5 million cycles. In addition,
the device has successfully survived significant storm conditions. We have also been
awarded $380,000 in additional funding by the US Navy for the PowerBuoy's commissioning
and in-ocean operation. Building, deployment and operation of this PowerBuoy is part of an
on-going program with the US Navy to develop and test our PowerBuoy technology.
(cid:2)
In Scotland, the construction of our first PB150 PowerBuoy has been completed, and the
energy conversion and power take-off sub-assemblies are being integrated into the buoy
structure. We expect to conduct in-ocean trials off the coast of Scotland in the second half of
calendar year 2010.
(cid:2) Construction of the steel structure for the first PB150 PowerBuoy for a 1.5 MW commercial-
scale project at Reedsport, Oregon was begun during fiscal 2010 by Oregon Iron Works, a
prominent local company, and is advancing as planned. With support from Pacific Northwest
Generating Cooperative (“PNGC Power”) and funding from the US Department of Energy
(“DoE”), we have continued to work extensively with interested stakeholder groups at local,
county, state and federal agency levels to develop this project. Progress was made in the
overall permitting and licensing process, in particular the recent signing of a groundbreaking
Settlement Agreement with 11 federal and 3 non-governmental stakeholders in August
2010. This agreement represents a major step towards the grant of the first license ever
issued by the Federal Energy Regulatory Commission (“FERC”) for a commercial-scale
wave power project in the US. The project remains on schedule, with ocean testing
expected to commence in 2011. It is expected that this project will be expanded
subsequently in a second phase to become a 10 PowerBuoy array connected to the west
coast grid, subject to the receipt of additional third party funding for the project.
(cid:2) During the year, we signed a Memorandum of Understanding (“MOU”) with the State of
Oregon to set forth an approach for developing wave power projects within the State’s
coastal waters. This MOU outlines important principles for the potential development of
future wave power facilities in Oregon. These principles are expected to be applied to our
Reedsport project and to the development of our Coos Bay project, where we are studying
the feasibility of building an OPT wave power station in phases up to 100 MW. The project is
in the initial stages of public and agency review.
(cid:2) Under a contract with Iberdrola S.A., we designed, built and successfully completed in-
ocean trials of our Undersea Substation Pod (“USP”) product. The USP is expected to be
used in a utility-scale wave power station at a site approximately three miles off the coast of
Santoña, Spain. The USP also opens a prospective new revenue source for us.
(cid:2) Progress continued on our ongoing project to provide autonomous PowerBuoy technology
for the US Navy's Deep Water Active Detection System for ocean data gathering. The
current $3.0 million contract was awarded in November 2008 following our completion of the
initial test phase work. Deployment of the enhanced device is scheduled for the second half
of calendar year 2010.
(cid:2) Our technical achievements were recognized by the DoE in awarding us $1.5 million for the
development of the next generation PowerBuoy wave power system. The DoE grant will be
used to help fund the scale-up of the power output per device from the current level of
150kW to 500kW. In addition, the technology development effort will focus on increasing the
power extraction efficiency and reliability, and will utilize an enhanced "Design-for-
Manufacture" approach.
(cid:2) We signed an agreement in Japan for the development of the country’s first utility-scale
wave power station with a consortium of three Japanese companies: Idemitsu Kosan Co.,
Mitsui Engineering & Shipbuilding Co. Ltd., and Japan Wind Development Co. Subject to the
successful identification of a project site and completion of economic assessments, the
parties plan to enter into an agreement to build a demonstration plant with up to three
PowerBuoys. The trial plant would provide the basis for the expected building of a
commercial-scale OPT wave power station with an initial capacity of 10 MW or more –
enough power for up to 3,000 households in Japan.
(cid:2) We also received notable funding awards, including an A$66.5 million grant from the
Australian Federal Government to build, in partnership with Leighton Contractors Pty Ltd, a
19 MW wave power project off the coast of Victoria, Australia. In addition, we received an
award of €2.2 million from the European Commission to deliver a PowerBuoy wave energy
device with an innovative wave prediction capability and a "wave-by-wave" tuning system.
Both of these grants are conditional on the achievement of certain milestones, including the
receipt of significant additional funding for each project.
We will continue to focus primarily on selling turn-key wave power stations, and operations and
maintenance contracts for those facilities. We also intend to increase our revenue streams from the
utility and autonomous PowerBuoy markets by accelerating the commercialization of our PowerBuoy
systems.
We expect to continue to benefit from initiatives of governments, organizations and individuals, which
we believe are increasingly committed to tackle climate change on a global basis and to expand the
use of renewable energy.
Our engineering and product development efforts are focused on making improvements to the 150kW
PowerBuoy system and facilitating our transition to the 500kW PowerBuoy. This includes optimizing the
power output and maintainability of the 150kW PowerBuoy system, which we expect to be our
“workhorse” over the next few years. We are actively implementing design and construction techniques
that are expected to enable these systems to be built, deployed and maintained at reduced cost. We
also expect to improve our economics as a result of increasing production volumes and maximizing
customer funding of technology development.
We will continue to build on our existing commercial relationships and establish new ones as we seek
to collaborate with other organizations to build on their, as well as our own, expertise and experience.
We are at an exciting stage in our development when the need to reduce reliance on fossil fuels has
been brought into sharp focus by recent events in the Gulf of Mexico. More positively, we see a growing
consensus, as well as momentum, at many levels to accelerate the adoption of wave energy in the
years ahead. As a result, we look to the future with great confidence that with our technology, our
employees and our partners, we will make a profound difference in the stewardship of the world’s
energy resources.
Dr. George W. Taylor
Executive Chairman
Charles F. Dunleavy
Chief Executive Officer
¥
n
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2010
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission File Number 001-33417
Delaware
(State or other jurisdiction of
incorporation or organization)
22-2535818
(I.R.S. Employer
Identification No.)
1590 REED ROAD
PENNINGTON, NJ 08534
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (609) 730-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Exchange on Which Registered
Common Stock, par value $0.001
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes n
No ¥
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes n
No ¥
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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. Yes ¥
No n
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes n
No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer n
Smaller reporting company n
Accelerated filer ¥
Non-accelerated filer n
(Do not check if a smaller reporting company)
Indicate by check mark whether
No ¥
Act). Yes n
the registrant
is a shell company (as defined in Rule 12b-2 of
the Exchange
The aggregate market value of the common stock of the registrant held by non-affiliates as of October 31, 2009, the last business day
of the registrant’s most recently completed second fiscal quarter, was $57.8 million based on the closing sale price of the registrant’s
common stock on that date as reported on the Nasdaq Global Market.
The number of shares outstanding of the registrant’s common stock as of June 30, 2010 was 10,390,563.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Part of the Form 10-K into Which Incorporated
Proxy Statement for the registrant’s 2010 Annual Meeting of
Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III
OCEAN POWER TECHNOLOGIES, INC.
INDEX TO REPORT ON FORM 10-K
PART I
Item 1:
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A: Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B: Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2:
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3:
(Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4:
PART II
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6:
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Item 7A: Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8:
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . .
Item 9:
Item 9A: Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B: Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10: Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11: Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12:
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13: Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14:
PART IV
Item 15: Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EX-23.1: CONSENT OF KPMG LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION
Page
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PowerBuoy» is a registered trademark of Ocean Power Technologies, Inc. The Ocean Power Technologies
logo, CellBuoyTM, Talk on WaterTM and Making Waves in Power SM are trademarks or service marks of Ocean Power
Technologies, Inc. All other trademarks appearing in this annual report are the property of their respective holders.
2
Special Note Regarding Forward-Looking Statements
We have made statements in this Annual Report on Form 10-K (the “Annual Report”) in, among other sections,
Item 1 — “Business,” Item 1A — “Risk Factors,” Item 3 — “Legal Proceedings,” and Item 7 — “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” that are forward-looking statements.
Forward-looking statements convey our current expectations or forecasts of future events. Forward-looking
statements include statements regarding our future financial position, business strategy, budgets, projected costs,
plans and objectives of management for future operations. The words “may,” “continue,” “estimate,” “intend,”
“plan,” “will,” “believe,” “project,” “expect,” “anticipate” and similar expressions may identify forward-looking
statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.
Any or all of our forward-looking statements in this Annual Report may turn out to be inaccurate. We have
based these forward-looking statements on our current expectations and projections about future events and
financial trends that we believe may affect our financial condition, results of operations, business strategy and
financial needs. They may be affected by inaccurate assumptions we might make or unknown risks and uncer-
tainties, including the risks, uncertainties and assumptions described in Item 1A — “Risk Factors.” In light of these
risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not
occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-
looking statements.
You should not unduly rely on these forward-looking statements, which speak only as of the date of this filing.
Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to
reflect new information or future events or otherwise.
3
ITEM 1. BUSINESS
Overview
PART I
We develop and are commercializing proprietary systems that generate electricity by harnessing the renewable
energy of ocean waves. The energy in ocean waves is predictable, and electricity from wave energy can be produced
on a consistent basis at numerous sites located near major population centers worldwide. Wave energy is an
emerging segment of the renewable energy market. Based on our proprietary technology, considerable ocean
experience, existing products and expanding commercial relationships, we believe we are a leading wave energy
company.
We currently offer two products as part of our line of PowerBuoy» systems: a utility PowerBuoy system and an
autonomous PowerBuoy system. Our PowerBuoy system is based on modular, ocean-going buoys, which we have
been ocean testing for over a decade. The rising and falling of the waves moves the buoy-like structure creating
mechanical energy that our proprietary technologies convert into electricity. We have tested and developed wave
power generation and control technology using proven equipment and processes in novel applications and have
deployed and maintained our systems in the ocean. The PowerBuoy technology has the unique, patented capability
to electronically “tune” itself automatically as wave characteristics change. This enables the PowerBuoy to
optimize its efficiency and resulting power output in dynamic ocean wave conditions. Our two PowerBuoy products
are designed for the following applications:
• Our utility PowerBuoy system is capable of supplying electricity to a local or regional electric power grid.
Our wave power stations will be comprised of a single PowerBuoy system or an integrated array of
PowerBuoy systems, plus the remaining components required to deliver electricity to a power grid. We
intend to sell our utility PowerBuoy system to utilities and other electrical power producers seeking to add
electricity generated by wave energy to their existing electricity supply. In July 2007, our PowerBuoy
interface with the electrical utility power grid was certified as compliant with international standards. An
independent laboratory provided testing and evaluation services to certify that our systems comply with
designated national and international standards. The PowerBuoy grid interface bears the Electrical Testing
Laboratories (ETL) listing mark, and can be connected to the utility grid.
• Our autonomous PowerBuoy system is designed to generate power for use independent of the power grid in
remote locations. There are a variety of potential applications for this system, including sonar and radar
surveillance, tsunami warning, oceanographic data collection, offshore platforms and offshore aquaculture.
Our product development and engineering efforts currently are focused on increasing the reliability and peak-
rated output of our utility PowerBuoy system to 150 kilowatts (kW), and, to a lesser extent increasing the peak rated
output of the system to 500kW. In addition, we are researching and developing new products, product applications
and complementary technologies. We believe that, by increasing the maximum rated output of our utility
PowerBuoy system, we will be able to decrease the cost per kW of our PowerBuoy system and the cost per
kilowatt hour of the energy generated.
We expect to market our undersea substation pod and undersea power connection infrastructure services to
other companies in the marine energy sector. We completed the successful in-ocean trials of our undersea substation
pod (“USP”) in 2009. The USP, based on our proprietary design, has been developed to facilitate the collection,
networking and transforming of power and data generated by multiple offshore energy devices. The USP has been
built as an open platform, and can provide connectivity for the PowerBuoy as well as other offshore energy systems
developed by other companies. The required switching and protection circuits for the individual PowerBuoys are
also included in the USP.
In addition, we are focusing on expanding our key commercial opportunities for both the utility and the
autonomous PowerBuoy systems. We currently have commercial relationships with the following:
• The United States Navy
• To develop and build wave power systems at the US Marine Corps base in Hawaii.
4
• To provide PowerBuoy technology to a unique program for ocean data gathering. Under this program, the
Navy will conduct an ocean test of an advanced design of our autonomous PowerBuoy as the power source
for the Navy’s Deep Water Active Detection System.
• To provide our PowerBuoy wave conversion system to the Navy’s Littoral Expeditionary Autonomous
PowerBuoy (LEAP) Program.
• Pacific Northwest Generating Cooperative (PNGC Power) and the US Department of Energy, both of which
are providing funding toward the fabrication and ocean installation of a 150kW PowerBuoy near Reedsport,
Oregon.
• The Scottish Government, to develop a 150kW PowerBuoy for deployment in Scotland.
• Iberdrola S.A., or Iberdrola, which is a large electric utility company located in Spain and one of the largest
renewable energy producers in the world, Total S.A., or Total, which is one of the world’s largest oil and gas
companies, and two Spanish governmental agencies, for the first phase of the construction of a wave power
station off the coast of Santoña, Spain.
• The US Department of Energy (DOE) to help fund the scale-up of the power output per PowerBuoy from the
current level of 150kW to 500kW.
• Mitsui Engineering and Shipbuilding, with which we are working to develop a wave power project in Japan.
• Leighton Contractors, a major Australian construction and infrastructure company, for the development of a
wave power station in Victoria, Australia.
We were incorporated under the laws of the State of New Jersey in April 1984 and began commercial
operations in 1994. On April 23, 2007, we reincorporated in Delaware. Our principal executive offices are located at
1590 Reed Road, Pennington, New Jersey 08534, and our telephone number is (609) 730-0400. Our website address
is www.oceanpowertechnologies.com. We make available free of charge on our website our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as
soon as reasonably practicable after such material is filed electronically with the Securities and Exchange
Commission, or SEC. The information on our website is not a part of this Annual Report. Our common stock
has been listed on the AIM market of the London Stock Exchange plc since October 2003 and on the NASDAQ
Global Market since April 24, 2007, the date on which we commenced our initial public offering in the United
States.
Our Market
Global demand for electric power is expected to increase from 18.8 trillion kilowatt hours in 2007 to 35.2
trillion kilowatt hours by 2035, according to the Energy Information Administration, or the EIA. To meet this
demand, the International Energy Agency, or the IEA, estimates that investments in new generating capacity will be
$6.8 trillion in the period from 2007 to 2030, of which new renewable energy generation equipment is expected to
account for approximately half of the total projected investment in electricity generation.
According to the EIA, fossil fuels such as coal, oil and natural gas generated over 67% of the world’s electricity
in 2007. However, a variety of factors are contributing to the increasing development of renewable energy systems
that capture energy from replenishable natural resources, including ocean waves, flowing water, wind and sunlight,
and convert it into electricity.
• Rising cost of fossil fuels. Although subject to short-term fluctuations, the cost of fossil fuel used to
generate electricity has been generally rising and is likely to continue to rise in the future.
• Dependence on energy from foreign sources. Many countries, including the United States, Japan and much
of Europe, depend on foreign resources for a majority of their domestic energy needs. Concerns over
political and economic instability in some of the leading fossil fuel producing regions of the world are
encouraging consuming countries to diversify their sources of energy.
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• Environmental concerns. Environmental concerns regarding the contamination, pollution and by-products
from fossil fuels have led many countries and several US states to agree to reduce emissions of carbon
dioxide and other gases associated with the use of fossil fuels and to adopt policies promoting the
development of cleaner technologies.
• Government incentives. Many countries have adopted policies to provide incentives for the development
and use of renewable energy sources, such as subsidies to encourage the commercialization of renewable
energy power generation.
As a result of these and other factors, the EIA projects that grid-connected renewable generating capacity will
continue to grow over the next 25 years.
Wave Energy
The energy in ocean waves is a form of renewable energy that can be harnessed to generate electricity. Ocean
waves are created when wind moves across the ocean surface. The interaction between the wind and the ocean
surface causes energy to be exchanged. At first, small waves occur on the ocean surface. As this process continues,
the waves become larger and the distance between the tops of the waves becomes longer. The size of the waves, and
the amount of energy contained in the waves, depends on the wind speed, the time the wind blows over the waves
and the distance covered. The rising and falling of the waves move our PowerBuoy system creating mechanical
energy that our proprietary technologies convert into usable electricity.
There are a variety of benefits to using wave energy for electricity generation.
• Scalability within a small site area. Due to the tremendous energy in ocean waves, wave power stations
with high capacity — 50 MegaWatts (MW) and above — can be installed in a relatively small area. We
estimate that, upon completion of the development of our 500kW PowerBuoy system, we would be able to
construct a wave power station that would occupy approximately one-tenth of the ocean surface occupied by
an offshore wind power station of equivalent capacity.
• Predictability. The supply of electricity from wave energy can be forecasted in advance. The amount of
energy a wave hundreds of miles away will have when it arrives at a wave power station days later can be
calculated based on satellite images and meteorological data with a high degree of accuracy. Power
producers can use this information to develop sourcing plans to meet their short-term electricity needs.
• Constant source of energy. The annual flow of waves at specific sites can be relatively constant. Based on
our studies and analysis of our target sites, we believe our wave power stations will be able to produce usable
electricity for approximately 90% of all hours during a year.
• Close to population centers. The proximity of wave energy resources to large population areas means that
power transmission infrastructure is often already in place and may be utilized for wave energy generation
projects.
There are currently several approaches, in different stages of development, for capturing wave energy and
converting it into electricity. Methods for generating electricity from wave energy can be divided into two general
categories: onshore systems and offshore systems. Our PowerBuoy system is an offshore system. Offshore systems
are typically located one to five miles offshore and in water depths of between 100 and 200 feet. The system can be
above, on or below the ocean surface. Many offshore systems utilize a floatation device to harness wave energy. The
heaving or pitching of the floatation device due to the force of the waves creates mechanical energy, which is
converted into electricity by various technologies. Onshore systems are located at the edge of the shore, often on a
sea cliff or a breakwater, and typically must concentrate the wave energy first before using it to drive an electrical
generator. Although maintenance costs of onshore systems may be less than those associated with offshore systems,
there are a variety of disadvantages with these systems. As waves approach the shore, the energy in the waves
decreases; therefore, onshore wave power stations do not take full advantage of the amount of energy that waves in
deeper water produce. In addition, there are a limited number of suitable sites for onshore systems and there are
environmental and possible aesthetic issues with these wave power stations due to their size and location on the
seashore.
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Our Products
We offer two types of PowerBuoy systems: our utility PowerBuoy system, which is designed to supply
electricity to a local or regional electric power grid, and our autonomous PowerBuoy system, which is designed to
generate power for use independent of the power grid in remote locations. Both products use the same PowerBuoy
technology.
Pictured below is our 40kW-rated PowerBuoy system installed during fiscal year 2010 and in operation off
Oahu, Hawaii:
Our PowerBuoy system consists of a floating buoy-like device that is loosely moored to the seabed so that it
can freely move up and down in response to the rising and falling of the waves, as well as a power take-off device, an
electrical generator, a power electronics system and our control system, all of which are sealed in the unit.
The power take-off device converts the mechanical stroking created by the movement of the unit caused by
ocean waves into rotational mechanical energy, which, in turn, drives the electrical generator. The power electronics
system then conditions the output from the generator into usable electricity. The operation of the PowerBuoy system
is controlled by our customized control system.
The control system uses sophisticated sensors and an onboard computer to continuously monitor the
PowerBuoy subsystems as well as the height, frequency and shape of the waves interacting with the PowerBuoy
system. The control system collects data from the sensors and uses proprietary algorithms to electronically adjust
the performance of the PowerBuoy system in real-time and on a wave-by-wave basis. By making these electrical
adjustments automatically, the PowerBuoy system is able to maximize the amount of usable electricity generated
from each wave. We believe that this ability to optimize the performance of the PowerBuoy system in real-time is a
significant advantage of our product.
In the event of storm waves larger than 23 feet, the control system for the PowerBuoy automatically locks
down the PowerBuoy system and electricity generation is suspended. When the wave heights return to a normal
operating range of 23 feet or less, the control system automatically unlocks the PowerBuoy system and electricity
generation and transmission recommence. This safety feature prevents the PowerBuoy system from being damaged
by the increased amount of energy in storm waves.
Our 150kW PowerBuoy system has a maximum diameter of 36 feet near the surface, and is 135 feet long, with
approximately 30 feet of the PowerBuoy system protruding above the surface of the ocean.
Utility PowerBuoy System
The utility PowerBuoy system is designed to transmit electricity to shore by an underwater power cable, which
would then be connected to a power grid. Our current utility PowerBuoy systems presently being marketed to
customers have rated capacities of 40kW and 150kW. The utility PowerBuoy system is designed to be positioned in
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water with a depth of 100 to 200 feet, which can usually be found one to five miles offshore. This depth allows the
system to capture meaningful amounts of energy from the waves, since decreasing water depth depletes the energy
in the waves.
The mooring system for keeping a utility PowerBuoy system in position connects it by lines to three floats that,
in turn, are connected by lines to three anchors. This is a well-established mooring system, referred to as three-point
mooring, which we have improved upon with various techniques that reduce cost and deployment time.
We refer to the entire utility power generation system at one location as a wave power station, which can either
be comprised of a single PowerBuoy system or an integrated array of PowerBuoy systems connected by our USP to
an underwater cable to transmit the electricity to shore. Our system is designed to be scalable, as multiple
PowerBuoy units can be integrated to create a wave power station with a larger output capacity. An array of
PowerBuoy systems would likely be configured in three staggered rows parallel to the incoming wave front to form
a long rectangle. This staggered arrangement would maximize the level of wave energy that the wave power station
can capture.
We are also exploring the use of our utility PowerBuoy system for applications that include generating
electricity for desalination of water, hydrogen production, water treatment and natural resource processing. In these
instances, the power generated by the utility PowerBuoy system would bypass the grid and be delivered directly to
the point of electricity consumption for these special applications.
Status of Utility PowerBuoy System
We expect that our first 150kW PowerBuoy will be ready for deployment during the second half of calendar
year 2010. We have also initiated product development efforts in connection with our 500kW PowerBuoy.
We completed the successful in-ocean trials of our USP in October 2009. The USP, based on our proprietary
design, has been developed to facilitate the collection, networking and transforming of power and data generated by
multiple offshore energy devices. The USP has been built as an open platform, and can provide connectivity for the
PowerBuoy as well as other offshore energy systems developed by other companies.
The following is a picture of the USP being lowered into the water for ocean trials:
Our PowerBuoy interface with the electrical utility power grid has been certified as compliant with inter-
national standards. An independent laboratory provided testing and evaluation services to certify that our systems
comply with designated national and international standards. The PowerBuoy grid interface bears the ETL listing
mark, and can be connected to the utility grid.
Autonomous PowerBuoy System
The autonomous PowerBuoy system is based on similar technology to the utility PowerBuoy system, but is
designed for electricity generation of relatively low amounts of power for use independent of the power grid in
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remote locations. The autonomous PowerBuoy system currently has a maximum rated output ranging from 300
Watts to 40kW, depending on the application. Our autonomous PowerBuoy system is designed to operate anywhere
in the ocean and in any depth of water.
We believe that the autonomous PowerBuoy system is suitable for use on a stand-alone basis for providing
power for a variety of applications in deep ocean conditions, such as sonar and radar surveillance, tsunami warning,
offshore data collection, offshore platforms and offshore aquaculture.
Status of Autonomous PowerBuoy System
We have received several contracts from the US Navy to provide our PowerBuoy technology to a unique
program for ocean data gathering. Under this program, the Navy has conducted an ocean test of our autonomous
PowerBuoy as the power source for the Navy’s Deep Water Active Detection System and we are performing work
under a new contract for the next phase of work under this program. This new contract is for ocean testing by the
Navy of an advanced version of the autonomous PowerBuoy for the Navy’s operational requirements.
We also received a contract from the US Navy to provide our PowerBuoy to the Navy’s Littoral Expeditionary
Autonomous PowerBuoy (LEAP) program. The LEAP program has been established to enhance the US Navy’s
anti-terrorism and force protection capability by providing persistent power at sea for port maritime surveillance in
the near coast, harbors, piers and offshore areas.
Our Competitive Advantages
We believe that our technology for generating electricity from wave energy and our commercial relationships
give us several potential competitive advantages in the renewable energy market.
Our PowerBuoy system uses an ocean-tested technology to generate electricity.
• We have been conducting ocean tests for over a decade in order to demonstrate the viability of our
technology. We initiated our first ocean installation in 1997 and have had several deployments of our systems
for testing and operation since then, the longest of which has had continuous operation of 12 months. Our
PowerBuoy systems have survived several hurricanes and winter storms while installed in the ocean. Since
its installation in Hawaii in December 2009, our 40kW-rated PowerBuoy has produced power consistent
with our predictive models.
Our PowerBuoy system’s grid connection has been certified.
• In July 2007, we announced that our PowerBuoy grid connection system had been certified as compliant
with designated national and international standards. This qualifies our technology for integration into utility
grid systems.
Our PowerBuoy system design is efficient in harnessing wave energy.
• Our PowerBuoy system is designed to efficiently convert wave energy into electricity by using onboard
sensors to detect actual wave conditions and then to automatically adjust, or “tune”, the performance of the
generator using our proprietary electrical and electronics-based control systems in response to that
information.
• One measure of the efficiency of an electric power generation system is capacity factor. The capacity factor
is the percent of kilowatt hours produced by a specific system in a given period as compared to the maximum
kilowatt hours that could be produced by the system in that period. A high capacity factor indicates a high
degree of utilization of the capacity of the system and provides a means to compare the effectiveness of
different energy sources. Since we have not yet operated a complete wave power station, we do not have a
measured capacity factor. However, based on our research and analysis, we believe the design capacity factor
for a PowerBuoy wave power station located at many of our targeted sites would be favorably positioned in
the range of 30% to 45%.
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Numerous potential sites for our wave power stations are located near major population centers worldwide.
• Our systems are designed to work in sites with average annual wave energy of at least 20kW per meter of
wave front, which can be found in many coastal locations around the world. In particular, we are currently
targeting the west coast of North America, the west coast of Europe, the coasts of Australia and the east coast
of Japan. These potential sites not only have appropriate natural resources for harnessing wave energy, but
they are also located near large population centers with significant and increasing electricity requirements
and access to existing power transmission infrastructure.
We have significant commercial relationships.
• Our current projects with PNGC Power, the US Department of Energy, the US Navy, the Scottish
Government, and Iberdrola provide us with an initial opportunity to sell our wave power stations for
utility applications. By collaborating with leaders in renewable energy development, we believe we are able
to accelerate both our in-house knowledge of the utility power generation market and our reputation as a
credible renewable energy equipment supplier. If these projects are successful, we intend to leverage our
experiences with our projects to add wave power stations, new customers and complementary revenue
streams from operations and maintenance contracts.
• With the funding from the US Navy, we have been able to refine our PowerBuoy system while simulta-
neously preparing for commercial deployment to address a particular customer need. We believe that the
successful deployment of our PowerBuoy system for the US Navy will significantly enhance market
visibility.
Our PowerBuoy system has the potential to offer a cost competitive renewable energy power generation
solution.
• Our product development and engineering efforts are focused on increasing the maximum rated output and
reliability of the design of our utility PowerBuoy system. Currently we are marketing PowerBuoys rated at
40kW and 150kW. Assuming we are able to reach manufacturing levels of at least 300 units of 500kW
PowerBuoy systems per year, we believe, based upon our research and analysis, that the economies of scale
we would have with our fabricators would allow us to offer a renewable electricity solution that competes
with other existing renewable energy systems and, in certain cases, with existing fossil fuel systems in key
markets.
• Prior to achieving full production levels of the 500kW PowerBuoy system, if we achieve economies of scale
for our 150kW PowerBuoy systems, we expect to be able to offer a renewable electricity solution that
competes with the price of electricity in certain local markets where the current retail price of electricity is
relatively high or where sufficient subsidies are available.
Our systems are environmentally benign and aesthetically non-intrusive.
• We believe that our PowerBuoy system does not present significant risks to marine life and does not emit
significant levels of pollutants. In connection with our project at the US Marine Corps Base in Hawaii, our
customer, the US Navy, obtained an independent environmental assessment of our PowerBuoy system prior
to installation, as required by the National Environmental Policy Act. This assessment resulted in a Finding
of No Significant Impact, the highest such level of approval. Although our project for the US Navy only
contemplates an array of up to six PowerBuoy systems in Hawaii, we believe that PowerBuoy systems
deployed in other geographic locations, including larger PowerBuoy systems under development and
multiple- buoy wave power stations, would have minimal environmental impact due to the physical
similarities with the tested system.
• Since our PowerBuoy systems are typically located one to five miles offshore, PowerBuoy wave power
stations are usually not visible from the shore. Visual impact is often cited as one of the reasons that many
communities have opposed plans to develop power stations, in particular wind power stations. Our
PowerBuoy system has the distinct advantage of having only a minimal visual profile. Only a small
portion of the unit is visible at close range, with the bulk of the unit hidden below the water.
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Customers/Projects
The table below shows the percentage of our revenue we derived from significant customers for the periods
indicated:
Customer
Fiscal
2010
Fiscal
2009
Fiscal
2008
US Navy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iberdrola and Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scottish Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80%
4%
5%
67%
18%
8%
58%
31%
10%
We expect an increasing proportion of our future revenues to be contributed by commercial customers.
Our potential customer base for our utility PowerBuoy systems consists of public utilities, independent power
producers and other governmental entities and agencies. Our potential customer base for our autonomous
PowerBuoy systems consists of different public and private entities who use electricity in and near the ocean.
Our efforts to identify new customers are concentrated on four geographic markets: the west coast of North
America, the west coast of Europe, the coasts of Australia and the east coast of Japan. Our efforts to identify new
customers are currently led and coordinated by our Executive Chairman and our Vice President of North America
Business Development and Marketing. We also use consultants and other personnel to assist us in locating potential
customers.
US Navy
Since September 2001, we have entered into a series of contracts with the United States Office of Naval
Research for the development and construction of wave power systems at the Marine Corps base in Oahu, Hawaii.
Under the contract for the current phase of the project, which was entered into in September 2005 and expires in
September 2010, we are reimbursed for costs and paid a fixed fee, and over this period have been awarded contracts
for total potential revenue of $5.9 million. The current PowerBuoy now in operation at the Marine Corps base was
deployed in December 2009 and has produced power consistent with our predictive models.
Pictured below are views of our 40kW-rated PowerBuoy system being lowered into the ocean in Oahu, and
after deployment.
In June 2007, we received a $1.7 million contract from the US Navy to provide our PowerBuoy technology to a
unique program for data gathering in the ocean. Under this 18-month program, the US Navy conducted an ocean test
in October 2008 of our autonomous PowerBuoy as the power source for the Navy’s Deep Water Active Detection
System. In October 2008, we received a $3.0 million contract from the US Navy to expand the program and ocean-
test an advanced version of our autonomous PowerBuoy.
In September 2009, we received a $2.4 million contract from the US Navy to provide our PowerBuoy to the
Navy’s LEAP program. The LEAP program is being developed to enhance the US Navy’s anti-terrorism and force
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protection capability by providing persistent power at sea for port maritime surveillance in the near coast, harbors,
piers and offshore areas.
Reedsport, Oregon Project
In February 2007, the US Federal Energy Regulatory Commission (FERC) granted us a preliminary permit to
evaluate the feasibility of a location off the coast of Reedsport, Oregon for the proposed construction and operation
of a wave power station with a total potential maximum rated output of up to 50MW, of which up to the first 2MW
would be a demonstration wave power station. In February 2007, we signed a cooperative agreement with PNGC
Power, an Oregon-based electric power cooperative, as our utility partner for the development of a wave power
station. In July 2007, we filed a Pre-Application Document and Notice of Intent with FERC for the Reedsport
project, which provides notice of our intent to seek a license for the Reedsport power station and information
regarding the project. We believe this was the first Pre-Application Document and Notice of Intent filed by a wave
power company, and is an important step in the full licensing process for the Reedsport project. We will need
additional authorization from FERC to sell electric power generated from the Reedsport wave power station into the
wholesale or retail markets. In February 2010, we filed with FERC a full application to build, deploy and connect to
the grid a 10-PowerBuoy array (1.5MW).
In August 2007, we announced the award of a $0.5 million contract from PNGC Power, providing funding
toward the fabrication and installation of a 150kW PowerBuoy system for the Reedsport project. In October 2008,
we received a $2.0 million award from the DOE in support of the project. The DOE grant will be used to help fund
the fabrication and factory testing of the first PowerBuoy to be installed at the Reedsport site. This is the first award
for the building of ocean wave energy systems by the DOE, and we believe it is indicative of the growing
recognition and support of wave energy in the US federal and state governments.
This project remains on schedule, with the PB150 construction expected to be completed by the end of 2010,
and ocean testing is expected to commence in 2011.
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The following photographs show manufacturing activity associated with our PB150 PowerBuoy being built in
Oregon:
We continue to make progress on the overall permitting and licensing process while working extensively with
interested stakeholder groups at local, county, state and federal agency levels.
Next Generation PowerBuoy
In April 2010, we won a $1.5 million award from the DOE for the development of our next generation
PowerBuoy wave power system. The DOE grant will be used to help fund the scale-up of the power output per
PowerBuoy from the current level of 150kW to 500kW. In addition, the technology development effort will focus on
increasing the power extraction efficiency and reliability.
Scotland Project
In 2007, we received a $1.8 million contract from the Scottish Executive for the construction of a 150kW grid-
connected PowerBuoy system at the European Marine Energy Centre (EMEC) in Orkney, Scotland. EMEC is a test
facility for marine energy technologies, for which the Scottish Government has built the infrastructure for grid
connection. In 2008, we signed a Berth Agreement with EMEC. This agreement provides for the deployment and
operation of PowerBuoys as well as their connection to the wave energy berth’s dedicated 2MW subsea cable
already installed and connected to the Scottish grid. The Berth Agreement also enables us to sell power to the grid
up to the 2MW capacity limit. The construction phase of the buoy has been completed and we expect the buoy to be
ready for deployment during the second half of calendar year 2010. This deployment will be for the conduct of in-
ocean trials of the PB150 PowerBuoy at a location in Scotland following which a decision will be made regarding
deployment at EMEC.
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The following pictures show manufacturing activity in Scotland associated with our PB150 PowerBuoy:
Spain
In July 2004, we entered into a development agreement, which we refer to as the Spain development
agreement, with Iberdrola Energias Renovables II, S.A. (Iberdrola Energias), an affiliate of Iberdrola, Sociedad para
el Desarrollo Regional de Cantabria, S.A., or SODERCAN, which is the industrial development agency of the
Spanish region of Cantabria, and Instituto para la Diversificacion y Ahorro de la Energia, S.A., or IDAE, a Spanish
government agency dedicated to energy conservation and diversification efforts, to jointly study the possibility of
developing a wave power station off the coast of Santoña located in the Cantabria region in northern Spain. Total
Eolica S.A., an affiliate of Total, joined the development agreement in June 2005. In January 2006, we completed
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the assessment phase of the project, which included an assessment of wave energy resources at the site, a feasibility
analysis for deployment at the site, a determination of capacity and design, and an estimation of investments needed
for the project as well as anticipated costs for operation, maintenance and repairs. Expenses associated with this
phase were shared among the parties to the agreement based on agreed upon percentages.
In July 2006, Iberdrola Energias Marinas de Cantabria, S.A., or Iberdrola Cantabria, was formed for the
purpose of constructing and operating a wave power station off the coast of Santoña, Spain. Iberdrola Energias is the
largest shareholder of Iberdrola Cantabria. Total Eolica, SODERCAN, IDAE and we each have minority ownership
positions. Funding is shared among the parties to the agreement based on agreed upon percentages that reflect the
parties’ anticipated ownership interest in the wave power station. We own 10% of Iberdrola Cantabria.
In July 2006, we entered into an agreement for the first phase of the construction of a wave power station off the
coast of Santoña, Spain, with our customer, Iberdrola Cantabria. We refer to this agreement as the Spain
construction agreement. Iberdrola Cantabria was formed by affiliates of Iberdrola and Total, two Spanish
governmental agencies and us for the purpose of constructing and operating a wave power station off the coast
of Spain. Under the Spain construction agreement, we agreed to manufacture and deploy one 40kW PowerBuoy
system and the ocean-based substation and infrastructure required to connect nine additional 150kW PowerBuoy
systems that together are contemplated to constitute a 1.39MW wave power station by no later than December 31,
2009. We are currently in discussions with Iberdrola Cantabria regarding the timing and completion of this project.
In February 2008, the Spain construction agreement was amended to provide for the current phase of the
construction of the PowerBuoy system plus the fabrication of the underwater power transmission cable and
underwater substation pod for all ten PowerBuoy systems. The terms of the installation of the underwater
transmission cable and underwater substation pod will be separately negotiated and, if so agreed, could provide
for additional funding for the installation work. Because the amended Spain construction agreement does not cover
the terms for deployment of the underwater transmission cable and substation pod and the manufacture and
deployment of the nine additional PowerBuoy units, we would need to enter into a subsequent contract with
Iberdrola Cantabria before we complete these elements of construction of the full wave power station.
The initial PB40 PowerBuoy system for this project was deployed in September 2008. After a short testing
period, the buoy was removed from the water for work on improvements to the power take-off and control systems.
We are currently in discussions with Iberdrola Cantabria regarding the nature and costs of these improvements and
their effects on plans for the redeployment of the buoy and the next phases of the project. If no modification is
agreed to by the parties, the customer may, subject to certain conditions in the agreement, terminate the agreement
and would not be obligated to make any more milestone payments. In addition, if we and Iberdrola Cantabria decide
not to redeploy the PB40 PowerBuoy, the total contract value for the current phase of the contract may be reduced. If
we are unable to successfully meet the terms of the Spain construction agreement, or if we are not able to
successfully negotiate a subsequent contract or contracts with Iberdrola Cantabria for the manufacture and
deployment of the nine additional PowerBuoy units, or if Iberdrola Cantabria were to terminate the Spain
construction agreement for any of these reasons, we may lose a component of our current and anticipated revenue
stream. If we are unable to agree to the necessary contract modifications, Iberdrola Cantabria will have the right to
terminate the agreement if the first phase of construction is not completed on time for reasons attributable to us, or if
we interrupt our services for more than 180 days and do not resume within a 30-day period, or for a serious and
repeated breach of a major obligation that is not cured within a 30-day period after we receive notice of the breach.
In addition, we have made guarantees to Iberdrola Cantabria associated with the current phase of construction in
respect of the quality, repair and replacement of the 40kW PowerBuoy system and ocean-based substation and the
level of power output of the 40kW PowerBuoy system. If we are found to be in default of our obligations under the
Spain construction agreement, Iberdrola Cantabria will have the right to seek reimbursement for direct damages
only, limited to amounts specified in the contract.
We are paid under the Spain construction agreement as we complete certain milestones for a total potential
payment for the current phase of construction of approximately A2.7 million. From inception to April 30, 2010, we
had recognized revenue of approximately $3.0 million and a recognized loss of $3.9 million under the Spain
construction agreement. The anticipated loss at completion of the contract also reflects our decision made in the
fourth quarter of fiscal year 2008 to absorb $1.9 million of additional costs of the project beyond our obligation for
the initial cost overruns and certain other costs as set forth in the agreement. This decision was based on the progress
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of the project up to that point, the benefits to be derived from a successful initial project and the prospect of
incremental contract value to be received in connection with additional work under this contract.
In March 2010, we announced the award of A2.2 million under the European Commission’s Seventh
Framework Programme (FP7) by the European Commission’s Directorate responsible for new and renewable
sources of energy, energy efficiency and innovation. This grant is part of a total award of A4.5 million to a
consortium of companies, including us, to deliver a PowerBuoy wave energy device under a project entitled
WavePort, with an innovative wave prediction capability and a “wave-by-wave” tuning system. It is anticipated that
the PowerBuoy will be deployed at the Santoña site in Spain. Our work under the award is conditional on our
obtaining significant additional funding to enable completion of the WavePort project.
Pictured below are views of our 40kW-rated PowerBuoy system during tow-out to the deployment site off
Santoña, Spain, and after deployment.
Other Projects
In February 2006, we received approval from the South West of England Regional Development Agency
(SWRDA) to install a 5MW demonstration wave power station off the coast of Cornwall, England as part of
SWRDA’s “Wave Hub” project, a planned offshore facility for demonstrating and testing wave energy generation
devices. SWRDA has obtained the necessary permits for this Wave Hub project, and the project has been approved
for over £40 million of funding for construction of the Wave Hub infrastructure by SWRDA. Construction contracts
have been awarded and SWRDA expects installation during 2010. We are in the planning and development stage for
our part of the project, and we are seeking funding for the 5MW power station.
In October 2008, we signed an exclusive agreement with a consortium of three Japanese companies to develop
a demonstration wave power station in Japan. The Japanese consortium comprises Idemitsu Kosan Co., Mitsui
Engineering & Shipbuilding Co. (MES), and Japan Wind Development Co. We are presently working with MES to
identify prospective sites for the wave power station.
In December 2008, we announced a Joint Development Agreement with Leighton Contractors Pty. Ltd.
(Leighton) for the development of wave power projects off the east and south coasts of Australia. Over the past
50 years, Leighton has played an active role in building Australia’s ports and marine facilities, transportation
infrastructure, and energy projects including projects within the wind and offshore oil and gas sectors. Under the
terms of the agreement, Ocean Power Technologies (Australasia) Pty. Ltd. (OPTA), our subsidiary based in
Australia, will identify potential project sites and assess their commercial prospects, under contract from Leighton.
Upon identification of projects to be developed, Leighton would obtain approvals, negotiate power purchase
agreements, structure project financing, and oversee project delivery and operation of the power stations. If these
projects are undertaken, OPTA would sell the PowerBuoy wave power stations to Victorian Wave Partners Pty. Ltd.,
a special purpose company formed by Leighton for the projects. In November 2009, we announced that OPTA was
awarded, in partnership with Leighton, an A$66.46 million grant from the Federal Government of Australia to build
a 19MW wave power project off the coast of Victoria, Australia. The grant is conditional on the signing of a Funding
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Deed which will set out the terms of the grant, including funding milestones. Victorian Wave Partners is currently
seeking the significant additional funding required to enable the completion of the 19MW wave power station.
Over the period October 2005 to December 2009, we operated, at intervals, a demonstration PowerBuoy
system off the coast of New Jersey, which allowed continuous monitoring of the system and evaluation of its
performance in actual wave conditions. Periodically, the buoy was removed from the ocean for maintenance, testing
and upgrades, and was redeployed. The buoy was deployed continuously for 12 months between October 2005 and
October 2006, and survived hurricane-generated storm waves during this period and in a later period of ocean
deployment. We have conducted extensive diagnostic tests on the system, providing us with information about the
effects of ocean deployments that will help us implement improvements in future PowerBuoy systems. This system
was not designed to supply electricity to the power grid, but rather to provide us with operational data and marketing
opportunities. We were partially funded, which funds we recognized as revenue, for the construction of this
PowerBuoy system by the New Jersey Board of Public Utilities. We do not anticipate any additional funding or
recognizing any additional revenue in connection with this project.
Backlog
Our contract backlog consists of the aggregate anticipated revenue remaining to be earned at a given time from
the uncompleted portions of our existing customer contracts. As of April 30, 2010, our contract backlog was
$5.7 million as compared to $7.5 million as of April 30, 2009. We anticipate that a majority of our backlog will be
recognized as revenue over the next 12 months.
The amount of contract backlog is not necessarily indicative of future revenue because modifications to or
terminations of present contracts and production delays can provide additional revenue or reduce anticipated
revenue. A substantial majority of our revenue is recognized using the percentage-of-completion method, and
changes in estimates from time to time may have a significant effect on revenue and backlog. Our backlog is also
typically subject to large variations from time to time due to the timing of new awards.
Our Business Strategy
Our goal is to strengthen our leadership in developing wave energy technologies and commercializing wave
power stations and related services. In order to achieve this goal, we are pursuing the following business strategies:
• Sell turn-key power stations and operating and maintenance contracts. Our fundamental business plan is
to sell turn-key power stations, rather than to take on the capital requirements of building and owning power
stations and selling the energy generated. In addition, in order to create recurring revenue streams, we seek to
sell operating and maintenance (O&M) contracts over the life-cycle of the plants.
• Outsource most of the plant construction and deployment. We outsource all metal fabrication, anchoring,
mooring, cabling supply and deployment in order to minimize our capital requirements as we scale up
production volumes. The high value-added “smart part” of the system is assembled and tested at our
facilities and shipped to project sites for integration into the PowerBuoys.
• Concentrate sales and marketing efforts on four geographic markets. We are currently focusing our sales
and marketing efforts on the west coast of North America, the west coast of Europe, the coasts of Australia
and the east coast of Japan. We believe that each of these areas represents a strong potential market for our
PowerBuoy wave power stations because they combine appropriate wave conditions, political and economic
stability, large population centers, high levels of industrialization and significant and increasing electricity
requirements.
• Continue to increase PowerBuoy system output. Our product development and engineering efforts are
focused on increasing the rated output of the design of our PowerBuoy systems from 40kW to 150kW, and
thereafter to 500kW. If we increase the size of a PowerBuoy system, we will be able to increase the amount
of wave energy the system can capture and, in turn, increase the output of the system. For example, if we
double the size of the unit’s float diameter, we will approximately quadruple its power capacity. We believe
that by increasing system output of the individual PowerBuoy, and also by increasing volume production of
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the PowerBuoys, we will be able to decrease the cost per kW of our PowerBuoy system and the cost per
kilowatt hour of the energy generated.
• Leverage customer relationships to enhance the commercial acceptance of our utility PowerBuoy system.
We believe that our projects at the US Marine Corps base in Oahu, Hawaii will serve as a prototype wave
power station for the installation of wave power stations at other US Navy bases. Our relationship with
PNGC Power regarding our Reedsport, Oregon project is the first such utility relationship on the west coast
of the United States. We intend to build on these existing commercial relationships both by expanding the
number and size of projects we have with our current customers and by entering into new alliances and
commercial relationships with other utilities and independent power producers.
• Expand revenue streams from our autonomous PowerBuoy system. The autonomous PowerBuoy system
addresses specific power generation needs of customers requiring off-grid electricity generation in remote
locations in the open ocean. Since our PowerBuoy systems are well suited for many of these uses, we do not
expect that they will require subsidies or other price incentives for commercial acceptance. This equipment
might be used for powering sonar and radar surveillance, tsunami warning, oceanographic data collection,
offshore platforms and offshore aquaculture. We have entered into contracts with the US Navy for the testing
of our autonomous PowerBuoy in connection with a unique program for ocean data gathering, as well as for
the LEAP program for homeland security. We believe that successful testing of our autonomous PowerBuoy
System under these contracts may result in additional revenues from the US Navy and other prospective
customers.
• Maximize customer funding of technology development. We actively seek to obtain external funding for
the development of our technology, including the scale-up of power capacity per PowerBuoy. In April 2010,
we were awarded $1.5 million from the US Department of Energy for the development of our PB500
product.
• Expand our partnerships in key market areas. We believe that an important element of our business
strategy is to collaborate with other organizations to leverage our combined expertise, market presence and
core competences. We have formed such partnerships more recently with Leighton Contractors in Australia,
Mitsui Engineering and Shipbuilding in Japan, and Lockheed Martin in the US.
Marketing and Sales
We are developing our sales capabilities and have begun commercial marketing and selling of our PowerBuoy
systems. Because our products use a new commercial technology, the decision process of a customer requires
substantial educational efforts, in which many of our employees may participate.
In addition to our own direct sales, we will continue to enter into development agreements and strategic
alliances with regional utility and energy companies committed to providing electricity from renewable energy
sources. We plan to leverage these relationships to sell and market our PowerBuoy wave power stations to these
companies and their affiliates and to other customers in the region. We plan to expand our relationships by entering
into long-term operations and maintenance contracts to support completed wave power stations. In order to
penetrate certain international markets, we plan to implement marketing strategies that respond to local market
demands. In particular markets, we may grant licenses to local businesses to sell, manufacture or operate
PowerBuoy wave power stations.
Utility PowerBuoy System Marketing
We plan to market our utility PowerBuoy systems to utilities and independent power producers interested in
adding electricity generated from renewable sources to their existing electricity supply. We are currently targeting
customers on the west coast of North America, the west coast of Europe, the coasts of Australia and the east coast of
Japan. In addition, we are exploring the use of our utility PowerBuoy systems for applications that include
desalination of water, hydrogen production, water treatment and natural resource processing. In these instances, the
power generated by the utility PowerBuoy system would bypass the grid and be delivered directly to the point of
electricity consumption for these special applications.
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We expect to be able to use the availability of subsidies and other incentives to market the electricity generated
by wave power stations as an alternative to fossil fuel generated electricity. We plan to educate potential customers
on the availability of these incentives and, where appropriate, work with them to prepare and file the necessary
applications, select sites to meet program requirements and take advantage of these incentives.
Autonomous PowerBuoy System Marketing
There are a variety of potential customers, such as companies within the offshore oil and gas industry, the US
Department of Homeland Security and US Department of Defense, that have specific needs for off-grid power
generation that can be supplied by our autonomous PowerBuoy system. Potential applications for off-grid power
supply include sonar and radar surveillance, tsunami warning, oceanographic data collection, offshore platforms
and offshore aquaculture.
Manufacturing and Deployment
Manufacturing and Raw Materials
We engage in two types of manufacturing activities: the manufacturing of the high value-added components, or
“smart part” modules, for systems control, power generation and power conversion for each PowerBuoy system,
and the contracting to outside companies for the fabrication of the buoy-like structure, anchoring and mooring, and
cabling.
Our core in-house manufacturing activity is the assembly and testing of the power generation and control
modules at our Pennington, New Jersey facility. The power generation and control modules include the critical
electrical and electronic systems that convert the mechanical energy into usable electrical energy. The sensors and
control systems use sophisticated technology to monitor ocean conditions and automatically optimize the perfor-
mance of the PowerBuoy system in response to those changing conditions. We have a portfolio of patents, including
those that cover our power generation, power conversion and control technologies. Due to the critical and
proprietary nature of these systems, we do not outsource their assembly and testing. After a generator and control
module passes our rigorous quality control procedures, it is transported as a ready-to-install subsystem to the project
site.
We purchase the remaining components of, and raw materials for, each PowerBuoy system from various
vendors. Currently, we contract for these components on a project-by-project basis. We conduct a bidding process to
select a supplier with the optimal combination of price, delivery terms and quality. Our goal is to develop ongoing
relationships with select vendors centrally located in different regions, which will allow us to reduce unit costs as
our volume increases. We provide specifications to each vendor, and they are responsible for performing quality
analysis and quality control over the course of construction, subject to our review of the quality test procedures and
results. After each vendor completes testing of the component, it is transported ready-to-install to the project site.
Upon arrival at the project site, the generator and control modules are integrated with the balance of the
components of the PowerBuoy system. We are highly dependent on our third-party suppliers; however, we actively
manage key steps in the supply chain. We act as the general contractor, and retain the ultimate responsibility for
building the PowerBuoy wave power station, and installing, testing and deploying the complete wave power station
at the project site. This process requires significant project and contract management by us. We currently employ
individuals who have experience with all aspects of both the manufacturing and engineering contracting processes,
and demonstrated organizational capabilities in these critical areas.
In January 2009, we announced that we signed a letter of intent with Lockheed Martin Corporation to
collaborate in the delivery of a utility-scale wave power generation project in North America. We intend to enter into
an agreement under which we would provide our project and site development expertise, build the power take-off
and control systems of the plant, and provide our proprietary PowerBuoy technology. Lockheed Martin would
undertake construction, systems integration and deployment of the plant, as well as operations and maintenance
services. This would be the first agreement between our two companies for a utility-scale renewable energy project
and would build on our previous work together on systems for US homeland security and maritime surveillance
consisting of our autonomous PowerBuoy integrated with Lockheed Martin’s advanced acoustic sensors, signal
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processing and communications systems. Our prospective wave power project with Lockheed Martin is expected to
be off the coast of North America.
Deployment
For our existing and currently planned deployments, we purchase from subcontractors the mooring system and
cables needed to install the PowerBuoy system and connect it to either the power grid or a remote power site. The
vendor usually transports these components to the project site.
Each step in the deployment process for our existing and currently planned deployments is outsourced to
subcontractors located near the project site. First the mooring system, consisting of floats, anchors and chains, is
brought to the wave power station’s ultimate ocean location by workboats or barges. At the same time, the cable to
transmit the generated electricity is laid by a subcontractor. Next, the PowerBuoy system is towed to the ocean
location and fixed to the mooring system. The PowerBuoy system would then be connected to the transmission
cable, which would then be connected to the grid or the distributed power site. At this point, we would have a fully
assembled PowerBuoy wave power station, which, subject to final testing, would be ready for operation. An array of
PowerBuoy systems would be installed using a similar approach.
We expect that the subcontractor services required for deployment of a wave power station will be readily
available in the locations where we currently plan to deploy our systems, although we are dependent on third parties
for the entire process. We actively manage each step with personnel who have significant project management and
deployment experience.
The following are pictures showing the PowerBuoy deployment process:
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Research and Development
Our research and development team consists of employees with a broad range of experience in mechanical
engineering, electrical engineering, hydrodynamics and systems engineering. We engage in extensive research and
development efforts to improve PowerBuoy efficiency, reliability and power output and to reduce manufacturing
cost and complexity. Our research and development efforts are currently focused on product development, in
particular increasing the output and reliability of our utility PowerBuoy system. We are also conducting research on
improvements to our current technology.
Research and development expenses are reflected on our consolidated statements of operations as product
development costs. Research and development expenses were $13.0 million for fiscal 2010, $8.4 million for fiscal
2009 and $8.3 million for fiscal 2008.
We are currently working on the design for our 500kW PowerBuoy. The key to increasing the rated output of
the PowerBuoy system is to increase the system’s efficiency as well as its diameter. If we increase the size and
efficiency of the wave capture portion of the PowerBuoy system, we will be able to increase the amount of wave
energy the system can capture and, in turn, increase the output of the system. For example, if we double the float’s
diameter, we will approximately quadruple its power capacity. We believe that we will be able to increase the output
capacity of the PowerBuoy system using technology that we have already developed, so our focus is on the design,
manufacture, testing and deployment of the higher capacity systems. We are exploring design and construction
techniques that will enable the larger PowerBuoy systems to be deployed cost effectively and safely without
damage. For example, our 40kW PowerBuoy systems are transported to the onshore deployment sites using
standard flatbed trucks. However, the assembled 150kW PowerBuoy systems are too large for these trucks and need
to be transported in modules and assembled on-site. In addition, we will need to adjust the mooring system to
account for the larger-sized PowerBuoy systems.
We completed the successful in-ocean trials of our USP in October 2009. The USP, based on our proprietary
design, has been developed to facilitate the collection, networking and transforming of power and data generated by
multiple offshore energy devices. The USP has been built as an open platform, and can provide connectivity for the
PowerBuoy as well as other offshore energy systems developed by other companies. The power conversion and
controls system is complete for the first 150kW PowerBuoy system, and we expect to conduct in-ocean trials in the
second half of calendar 2010 in Scotland.
We also plan to continue our technology development of specific applications for our PowerBuoy systems to
expand our growth opportunities. For example, we are exploring applications that include desalination of water,
hydrogen production, water treatment and natural resource processing.
It is our intent to fund the majority of our research and development expenses over the next several years with
sources of external funding. If we are unable to obtain external funding, we may curtail our research and
development expenses or we may decide to self-fund significant research and development expenses, in which case
our product development costs may continue to increase.
Intellectual Property
We believe that our technology differentiates us from other providers of wave and other renewable energy
technologies. As a result, our success depends in part on our ability to obtain and maintain proprietary protection for
our products, technology and know-how, to operate without infringing the proprietary rights of others and to prevent
others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among
other methods, filing United States and foreign patent applications related to our proprietary technology, inventions
and improvements that are important to the development of our business. We also rely on trade secrets, know-how,
and continuing technological innovation and may rely on licensing opportunities to develop and maintain our
proprietary position.
As of April 30, 2010, we owned a total of 42 issued United States patents and 14 United States patent
applications. We have pending foreign counterparts to 16 of our issued patents and nine of our pending non-
provisional patent applications.
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Our patent portfolio includes patents and patent applications with claims directed to:
• system design;
• control systems;
• power conversion;
• anchoring and mooring; and
• wave farm architecture.
The expiration dates for our issued United States patents range from 2015 to 2027. We do not consider any
single patent or patent application that we hold to be material to our business. The patent positions of companies like
ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify
our proprietary position for our technology will depend on our success in continuing to obtain effective patent
claims and enforcing those claims once granted. In addition, certain technologies that we developed with US federal
government funding are subject to certain government rights as described in “Risk Factors — Risks Relating to
Intellectual Property.”
We use trademarks on nearly all of our products and believe that having distinctive marks is an important factor
in marketing our products. We have registered our PowerBuoy », Talk on WaterTM and CellBuoyTM marks and our
Making Waves in PowerSM service mark, and we have filed applications to register our PowerTower mark in the
United States.
Competition
We compete and will compete with power generation equipment suppliers in all segments of the electric power
industry, including wave energy, other forms of renewable energy and traditional fossil fuel. The renewable energy
industry is both highly competitive and continually evolving as participants strive to differentiate themselves within
their markets and compete within the larger electric power industry. Many of our competitors in certain of these
segments have established a stronger market position than ours and have greater resources and name recognition
than we have. In addition, there are many companies, including some of the largest multinational energy companies,
that are developing or sponsoring innovative technologies for renewable energy production. Accordingly, our
success depends in part on developing and demonstrating the commercial viability of wave energy solutions and
identifying markets for and applications of our PowerBuoy systems and technology.
Although the market for equipment that generates electricity from wave energy is in its early stage of
commercial development, there are a number of private companies, some with institutional funding, developing
technologies to generate electricity from wave energy, and we compete or will compete with them. We believe there
are over 75 companies worldwide developing wave energy technologies. Most of these companies are located in the
United Kingdom, continental Europe, the United States and Australia, and almost all are focused on offshore
systems. Only a few of these companies, like ourselves, have conducted ocean testing of their systems, which is the
critical factor in proving the survivability and performance of any wave energy system.
Sixteen companies expressed an interest to SWRDA in participating in the development of a new Wave Hub
power station project off the coast of Cornwall, England. Two companies are currently participating in the project:
Fred Olsen Ltd. and us. Additional competitors may enter the market, and we are likely to compete with new
companies in the future.
To compete effectively, we have to demonstrate that our PowerBuoy systems are attractive, compared to other
wave energy systems and other renewable energy systems, by differentiating our systems on the basis of
performance, survivability in operation and storm wave conditions, cost effectiveness and the operations and
maintenance services that we provide. We believe that we compare favorably to our competition with respect to
each of these factors.
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Government Regulation
The electric power industry is subject to extensive regulation, which varies by jurisdiction. For example, the
electricity industry in the United States is governed by both federal and state laws and regulations, with the federal
government having jurisdiction over the sale and transmission of electricity at the wholesale level in interstate
commerce, and the states having jurisdiction over the sale and distribution of electricity at the retail level. The
electricity industry in the European Union, or the EU, is primarily governed by national law, but a number of
EU-level regulations impose obligations on member states, notably with respect to the liberalization of the
electricity markets.
The renewable energy industry has also been subject to increasing regulation, however none of the countries in
which we are currently marketing our PowerBuoy systems have comprehensive regulatory schemes tailored to
wave energy. As the renewable energy industry continues to evolve and as the wave energy industry in particular
develops, we anticipate that wave energy technology and our PowerBuoy systems and their deployment will be
subject to increased oversight and regulation in accordance with international, national and local regulations
relating to safety, sites, environmental protection, utility interconnection and metering and related matters.
Our PowerBuoy wave power stations currently face regulation in the US and in foreign jurisdictions
concerning, among other areas, the sale and transmission of electricity, site approval and environmental approval
and compliance. In order to encourage the adoption of renewable energy systems, many governments offer
subsidies and other financial incentives and have mandated renewable energy targets. These subsidies, incentives
and targets may not be applicable to our wave energy technology and therefore may not be available to us or our
customers.
Sale and Transmission of Electricity
The US government regulates the electricity wholesale and transmission business through FERC. FERC
regulates the rates and terms for sales of electricity at the wholesale level, and the organization, governance and
financing of the companies engaged in electricity sales. As a result, FERC regulates the rates charged for sales of
electric power from a wave power station into the wholesale market, although it is possible to obtain an exemption
from FERC that would allow those sales to occur at market-based rates. FERC also regulates the construction,
operation and maintenance of any dam, water conduit, reservoir or powerhouse along or in any of the navigable
waters of the United States for the purpose of generating electric power. As a result, the construction and operation
of a wave power station in the United States requires the issuance of a license by FERC. We have been granted a
preliminary permit by FERC to evaluate the feasibility of a 50MW wave power station off Reedsport, Oregon and a
100MW wave power station off Coos Bay, Oregon. Further, we have filed with FERC the required applications for
these two wave power station projects to provide our notice of intent to seek licenses for the projects and to provide
required information regarding the projects. An application to FERC was not required for our system that was
installed off New Jersey because the system was not grid-connected and was for demonstration purposes.
Under Spanish law, each of the Spanish Autonomous Regions, including the Cantabria region, has the power to
issue administrative authorizations for the construction and exploitation of installations for the production of
renewable energy, including installations that use the energy of waves. Iberdrola Energias has applied for and
received the necessary authorizations for installation of the first PowerBuoy at our Santoña, Spain wave power
project.
Site Approval
Generally, we expect that we will deploy our PowerBuoy systems in the range of one to five miles from the
shore, subject to water depth and overall wave heights. Although regulations regarding the use of ocean space vary
around the world, we generally do not expect significant delay in obtaining site approvals, as governments have to
date encouraged the use of renewable energy sources. Our customers for the Spain project and SWRDA for the
Cornwall, England project are responsible for obtaining the necessary siting permits for their projects.
In the United States, federal agencies regulate the siting of renewable energy and related-uses located on the
outer continental shelf, which is generally more than three miles offshore. For projects located within three miles of
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the US shore, the adjacent state would be responsible for issuing a lease and other required authorizations for the
location of the project. In either case, an assessment of the potential environmental impact of the project would be
conducted in addition to other requirements.
Environmental Approval and Compliance
We are subject to various foreign, federal, state and local environmental protection and health and safety laws
and regulations governing, among other things: the generation, storage, handling, use and transportation of
hazardous materials; the emission and discharge of hazardous materials into the ground, air or water; and the health
and safety of our employees. In addition, in the United States, the construction and operation of a power system
offshore would require permits and approvals from FERC, the Coast Guard, the Army Corps of Engineers and other
governmental authorities. These required permits and approvals evaluate, among other things, whether the proposed
project is in the public interest and ensure that the project would not create a hazard to navigation. Other foreign and
international laws may require similar approvals.
We believe that a significant advantage of our PowerBuoy systems is that they do not present significant
environmental risks when compared to traditional power generation technologies, as there is no significant visual or
audible impact and such systems have not been shown to have a significant negative effect on fish or sea mammals.
We are not aware of any liabilities in connection with compliance with such laws, regulations, permits and approvals
that would have a material adverse effect on our financial position, results of operations or cash flows.
Subsidies and Incentives
Several governments have enacted subsidies and incentives designed to encourage the development of
renewable energy resources. Because of the relative novelty of wave energy generation, these government
programs often do not apply specifically to wave energy generation, and so these programs may not be available
to our customers or us in all cases.
Under a tariff subsidy, the government sets price subsidies to be paid to electricity producers for renewable
electricity generated by them. The prices are set above market rates and may be differentiated based on system size
or application. Under a renewable portfolio standard, the government requires regulated utilities to supply a portion
of their total electricity in the form of renewable electricity. Some programs further specify that a portion of the
renewable energy quota must be from a particular renewable energy source, although none have specific quotas for
wave energy. Several governments also facilitate low interest loans for renewable energy systems, either through
direct lending, credit enhancement or other programs.
Countries in Europe and Asia and several states in the United States have adopted a variety of government
subsidies to allow renewable sources of electricity to compete with conventional sources of electricity, such as fossil
fuels. Government subsidies and incentives generally focus on grid-connected systems and take several forms,
including tariff subsidies, renewable portfolio standards, rebates, tax incentives and low interest loans. In addition,
the adoption by governments of limits on carbon dioxide emissions and targets for renewable energy production has
spurred a market for trading of surplus carbon credits and renewable energy certificates.
In 2008, the US enacted the Energy Improvement and Extension Act of 2008, which enables owners of wave
power projects in the US to receive federal tax credits, thereby improving the long-term economics of wave power
as a renewable energy source. The Act expands the definition of qualifying facilities for the Production Tax Credit
(PTC) to include those that generate power from marine renewables (including wave and tidal). As a result, the PTC
is now allowed for electricity produced and sold after October 3, 2008 from marine renewable energy facilities with
a “nameplate capacity” of at least 150kWs, and that are placed in service anytime between October 3, 2008 and
December 31, 2011. The credit rate for marine renewables is $0.01 per kilowatt hour, and the duration of the credit
will be ten years after the facility is placed in service.
Further, it is expected that the US federal and state governments will increase their investments in the
renewable energy sector under various economic stimulus measures. The American Recovery and Reinvestment
Act of 2009 provides significant grants, tax incentives and policy initiatives to stimulate investment and innovation
in the “cleantech” sector. The DOE has also issued requests for proposal to be funded under programs it has
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established to further investment in marine energy technologies. We have devoted additional resources to develop
proposals seeking government funding to support existing projects and technology enhancements. Consequently,
while our selling, general and administrative costs related to such efforts may increase over the next year, we believe
that these governmental initiatives may result in additional revenues for us over the next several years. Given the
recent announcement of the government programs and the uncertainties surrounding their scope and size, there can
be no assurances as to whether we will be successful in obtaining significant additional government funding or as to
the terms and conditions of any such funding.
Further, the State of Oregon has enacted the Business Energy Tax Credit program that allows companies that
invest in renewable energy capital projects an Oregon State income tax credit of up to 50% of the first $20.0 million
of capital costs.
Each of the member states of the EU has a country-specific target for the level of consumption of electricity
from renewable sources that it should attain by 2010. The United Kingdom Renewables Obligation of April 2002
included a target of 10% of electricity generation to come from renewable sources by 2010 and 15% by 2015, which
will continue until 2027. Electricity suppliers that are unable to otherwise meet their renewables obligation have to
pay a buy-out price (currently £0.033 per kilowatt hour) or purchase Renewables Obligation Certificates from
companies that generate electricity from renewable resources. The United Kingdom Department of Trade and
Industry has established a £50 million Marine Renewables Deployment Fund, of which £42 million is allocated to
provide a maximum seven-year benefit to any one marine power company of £9 million, in the form of a 25%
capital grant and a tariff supplement of £0.10 per kilowatt-hour generated.
Many countries and other local jurisdictions have established limits on carbon dioxide emissions. In particular,
a key component of the Kyoto Protocol is the commitments made by certain countries to reduce carbon dioxide
emissions. The country, locality or companies within the jurisdiction are given carbon emission allowances, or
carbon credits, which represent the right to emit a specific amount of carbon dioxide. A country, locality or
company having emissions that exceed its allocated carbon credits may purchase unused carbon credits from a
country, locality or company that has reduced its emissions beyond its requirements to do so. The carbon dioxide
emissions from a PowerBuoy wave power station are zero, and, therefore, a PowerBuoy wave power station may
generate carbon credits that could be used and sold.
Employees
As of April 30, 2010, we had 54 employees, including 19 employees in manufacturing, 19 in research,
development and engineering functions and 16 employees in selling, general and administrative functions. Of these
employees, 41 are located in Pennington, New Jersey and 13 are located in Warwick, UK. We believe that our future
success will depend in part on our continued ability to attract, hire and retain qualified personnel. None of our
employees is represented by a labor union, and we believe our employee relations are good.
By the end of fiscal 2012, we expect to increase our staff in order to meet our current manufacturing and
revenue growth goals. We expect that the majority of our new hires will be engineers, project managers and
manufacturing personnel with varying levels and areas of expertise.
Product Insurance
We currently have a property and liability insurance policy underwritten by Lloyd’s Underwriters that covers
our PowerBuoy systems currently deployed, and that can be expanded to cover our PowerBuoy systems to be
deployed in the future. We have not claimed any losses under this policy.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below with all of the other information included in this
Annual Report before deciding to invest in our common stock. If any of the following risks actually occur, they may
materially harm our business and our financial condition and results of operations. In this event, the market price of
our common stock could decline and your investment could be lost.
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Risks Relating to Our Business
We have a history of operating losses and may never achieve or maintain profitability.
We have incurred net losses since we began operations in 1994, including net losses attributable to Ocean
Power Technologies, Inc. of $19.2 million in fiscal 2010, $18.3 million in fiscal 2009 and $14.7 million in fiscal
2008. As of April 30, 2010, we had an accumulated deficit of $90.4 million. These losses have resulted primarily
from costs incurred in our research and development programs and from our selling, general and administrative
costs. We expect to increase certain of our operating expenses significantly as we continue to expand our
infrastructure and commercialization activities. As a result, we will need to generate significant revenues to cover
these costs and achieve profitability.
We do not know whether or when we will become profitable because of the significant uncertainties with
respect to our ability to successfully commercialize our PowerBuoy systems in the emerging renewable energy
market. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or
annual basis. If we are unable to achieve and then maintain profitability, the market value of our common stock may
decline.
Wave energy technology may not gain broad commercial acceptance, and therefore our revenues may not
increase, and we may be unable to achieve and then sustain profitability.
Wave energy technology is at an early stage of development, and the extent to which wave energy power
generation will be commercially viable is uncertain. Many factors may affect the commercial acceptance of wave
energy technology, including the following:
• performance, reliability and cost-effectiveness of wave energy technology compared to conventional and
other renewable energy sources and products;
• developments relating to other renewable energy generation technologies;
• fluctuations in economic and market conditions that affect the cost or viability of conventional and
renewable energy sources, such as increases or decreases in the prices of oil and other fossil fuels;
• overall growth in the renewable energy equipment market;
• availability and terms of government subsidies and incentives to support the development of renewable
energy sources, including wave energy;
• fluctuations in capital expenditures by utilities and independent power producers, which tend to decrease
when the economy slows and interest rates increase; and
• the development of new and profitable applications requiring the type of remote electric power provided by
our autonomous wave energy systems.
If wave energy technology does not gain broad commercial acceptance, our business will be materially harmed
and we may need to curtail or cease operations.
If sufficient demand for our PowerBuoy systems does not develop or takes longer to develop than we
anticipate, our revenues may decline, and we may be unable to achieve and then sustain profitability.
Even if wave energy technology achieves broad commercial acceptance, our PowerBuoy systems may not
prove to be a commercially viable technology for generating electricity from ocean waves. We have invested a
significant portion of our time and financial resources since our inception in the development of our PowerBuoy
systems. To date, we have not yet manufactured and deployed any PowerBuoy systems that have been grid-
connected. As we begin to manufacture, market, sell and deploy our PowerBuoy systems in greater quantities,
unforeseen hurdles may be encountered that would limit the commercial viability of our PowerBuoy systems,
including unanticipated manufacturing, deployment, operating, maintenance and other costs. Our target customers
and we may also encounter technical obstacles to deploying, operating and maintaining PowerBuoy systems in
quantities necessary to generate competitively-priced electricity.
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If demand for our PowerBuoy systems fails to develop sufficiently, we may be unable to grow our business or
generate sufficient revenues to achieve and then sustain profitability. In addition, demand for PowerBuoy systems in
our presently targeted markets, including coastal North America, the west coast of Europe, the coasts of Australia
and the east coast of Japan, may not develop or may develop to a lesser extent than we anticipate.
If we are not successful in commercializing our PowerBuoy system, or are significantly delayed in doing so,
our business, financial condition and results of operations could be adversely affected.
The reduction or elimination of government subsidies and economic incentives for renewable energy
sources could prevent demand for our PowerBuoy systems from developing, which in turn would
adversely affect our business, financial condition and results of operations.
Federal, state and local governmental bodies in many countries, most notably Spain, the United Kingdom,
Australia, Japan and the United States, have provided subsidies in the form of tariff subsidies, rebates, tax credits
and other incentives to utilities, power generators and distributors using renewable energy. However, these
incentives and subsidies generally decline over time, and many incentive and subsidy programs have specific
expiration dates. Moreover, because the market for electricity generated from wave energy is at an early stage of
development, some of the programs may not include wave energy as a renewable energy source eligible for the
incentives and subsidies.
Currently, the cost of electricity generated from wave energy, without the benefit of subsidies or other
economic incentives, substantially exceeds the price of electricity in most significant markets in the world. As a
result, the near-term growth of the market for our utility PowerBuoy systems, which are designed to feed electricity
into a local or regional power grid, depends significantly on the availability and size of government incentives and
subsidies for wave energy. As renewable energy becomes more of a competitive threat to conventional energy
providers, companies active in the conventional energy business may increase their lobbying efforts in order to
encourage governments to stop providing subsidies for renewable energy, including wave energy. We cannot predict
the level of any such efforts, or how governments may react to such efforts. The reduction, elimination or expiration
of government incentives and subsidies, or the exclusion of wave energy technology from those incentives and
subsidies, may result in the diminished competitiveness of wave energy relative to conventional and non-wave
energy renewable sources of energy. Such diminished competitiveness could materially and adversely affect the
growth of the wave energy industry, which could in turn adversely affect our business, financial condition and
results of operations.
Our product development costs have been steadily increasing and may continue to increase.
Our product development costs primarily relate to our efforts to increase the maximum rated output of our
utility PowerBuoy system to 150kW and to 500kW. Our product development costs were $13.0 million in fiscal
2010 as compared to $8.4 million in fiscal 2009 and $8.3 million in fiscal 2008. It is our intent to fund the majority
of our research and development expenses over the next several years with sources of external funding. If we are
unable to obtain external funding, we may curtail our research and development expenses or we may decide to self-
fund significant research and development expenses, in which case our product development costs may continue to
increase.
We have invested, and will continue to invest, funds to construct demonstration wave power stations that
may generate little or no direct revenue.
We have constructed, and plan to construct in the future, demonstration wave power stations to establish the
feasibility of wave energy technology and to encourage the market adoption of our wave power stations.
Demonstration wave power stations allow potential customers to see first-hand the viability of wave energy
technology as a source of electricity. We incur significant costs in constructing and maintaining these demonstration
wave power stations, and we may generate little or no direct revenue from them.
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Our PowerBuoy systems do not have a sufficient operating history to confirm how they will perform over
their estimated 30-year useful life.
We began developing and testing wave energy technology 13 years ago. However, to date we have only
manufactured 12 PowerBuoy systems for use in ocean testing and development. The longest continuous in-ocean
deployment of our PowerBuoy system has been for 12 months. As a result, our PowerBuoy systems do not have a
sufficient operating history to confirm how they will perform over their estimated 30-year useful life. Our
technology has not yet demonstrated that our engineering and test results can be duplicated in volume commercial
production. We have conducted and plan to continue to conduct practical testing of our PowerBuoy system. If our
PowerBuoy system ultimately proves ineffective or unfeasible, we may not be able to engage in commercialp-
roduction of our products or we may become liable to our customers for quantities we are obligated but are unable to
produce. If our PowerBuoy systems perform below expectations, we could lose customers and face substantial
repair and replacement expense which could in turn adversely affect our business, financial condition and results of
operations.
Our future success in the utility power markets depends on our ability to increase the maximum rated
power output of our utility PowerBuoy system. If we are unable to increase the maximum rated output of
our utility PowerBuoy system, the commercial prospects for our utility PowerBuoy system would be
adversely affected.
One of our goals is to increase the maximum rated output of our utility PowerBuoy system, which is currently
40kW, to 150kW and ultimately to 500kW. Our success in meeting this objective depends on our ability to
significantly increase the power output of our PowerBuoy system in a cost-effective and timely manner and our
ability to overcome the engineering and deployment hurdles that we face, including developing design and
construction techniques that will enable the larger PowerBuoy systems to be deployed cost effectively and without
damage, and developing adjustments to the mooring system to account for the larger-sized PowerBuoy systems. We
have experienced problems and delays in the development and deployment of our PowerBuoy system in the past,
and could experience similar delays or other difficulties in the future. If we cannot increase the power output of the
utility PowerBuoy system, or if it takes us longer to do so than we anticipate, we may be unable to expand our utility
business, maintain our competitive position, satisfy our contractual obligations or become profitable. In addition, if
the cost associated with these development efforts exceeds our projections, our results of operations will be
adversely affected.
If we do not reach full commercial scale, we may not be able to offer a cost competitive power station
and the commercial prospects of our utility PowerBuoy system would be adversely affected.
Unless we reach full commercial scale, which we estimate to be manufacturing levels of at least 300 units of
500kW PowerBuoy systems per year, we may not be able to offer an electricity solution that competes on a non-
subsidized basis with today’s price of wholesale electricity in key markets in certain parts in the world. If we do not
reach full commercial scale, the commercial prospects for our utility PowerBuoy system would be adversely
affected.
We have not yet deployed a wave power station consisting of an array of two or more PowerBuoy systems.
If we are unable to deploy a multiple-system wave power station, our revenues may not increase, and we
may be unable to achieve and then maintain profitability.
We have not yet deployed a wave power station consisting of an array of two or more PowerBuoy systems. Our
success in developing and deploying a wave power station consisting of an array of two or more PowerBuoy systems
is contingent upon, among other things, receipt of required governmental permits, obtaining adequate financing,
successful array design implementation and finally, successful deployment and connection of the PowerBuoy
systems.
We have not conducted ocean testing or otherwise installed in the ocean a multiple-system wave power station.
In particular, unlike single-system wave power stations, multiple-system wave power stations require use of an
underwater substation to connect the power transmission cables from, and collect the electricity generated by, each
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PowerBuoy system in the array. If our underwater substation does not work as we anticipate, we will need to design
an alternative system, which could delay our business plans. In addition, unanticipated issues may arise with the
logistics and mechanics of deploying and maintaining multiple PowerBuoy systems at a single site and the
additional equipment associated with these multiple-system wave power stations.
We may be unsuccessful in accomplishing any of these tasks or doing so on a timely basis. The development
and deployment of an array of PowerBuoy systems may require us to incur significant expenses for preliminary
engineering, permitting and legal and other expenses before we can determine whether a project is feasible,
economically attractive or capable of being financed.
If we are unable to deploy larger PowerBuoy systems cost effectively and without damage to the systems,
we may be unable to compete effectively.
We will need to build larger buoys in order to increase the output of our current PowerBuoy systems. The larger
buoys will be more difficult than our current buoys to deploy cost effectively and without damage. Our current
deployment methodologies, including transportation to the installation site and the mooring of the PowerBuoy
systems, will need to be revised for PowerBuoy systems with greater output. If we cannot develop cost effective
methodologies for deployment of the larger PowerBuoy systems, or if it takes us longer to do so than we anticipate,
we may not be able to deploy such systems in the time we anticipate or at all. Therefore, even if we succeed in
increasing the output of our PowerBuoy systems to 150kW or greater, if we are unable to deploy these larger
PowerBuoy systems or encounter problems in doing so, we may be unable to expand our business, maintain our
competitive position, satisfy our contractual obligations or become profitable.
If we are not successful in completing the development of wave power stations in Spain, it could adversely
affect our business, financial condition and results of operations.
The initial PB40 PowerBuoy system for our Spain project was deployed in September 2008. After a short
testing period, the buoy was removed from the water for work on improvements to the power take-off and control
systems. We are currently in discussions with Iberdrola Cantabria regarding the nature and costs of these
improvements and their effects on plans for the redeployment of the buoy and the next phases of the project.
If no modification to the Spain construction agreement is agreed to by the parties, the customer may, subject to
certain conditions in the agreement, terminate the agreement and would not be obligated to make any more
milestone payments. In addition, if we and Iberdrola Cantabria decide not to redeploy the PB40 PowerBuoy, the
total contract value for the current phase of the contract may be reduced. If we are unable to successfully meet the
terms of the Spain construction agreement, or if we are not able to successfully negotiate a subsequent contract or
contracts with Iberdrola Cantabria for the manufacture and deployment of the nine additional PowerBuoy units, or
if Iberdrola Cantabria were to terminate the Spain construction agreement for any of these reasons, we may lose a
component of our current and anticipated revenue stream. If we are unable to agree to the necessary contract
modifications, Iberdrola Cantabria will have the right to terminate the agreement if the first phase of construction is
not completed on time for reasons attributable to us, or if we interrupt our services for more than 180 days and do not
resume within a 30-day period, or for a serious and repeated breach of a major obligation that is not cured within a
30-day period after we receive notice of the breach. In addition, we have made guarantees to Iberdrola Cantabria
associated with the current phase of construction in respect of the quality, repair and replacement of the 40kW
PowerBuoy system and ocean-based substation and the level of power output of the 40kW PowerBuoy system. If we
are found to be in default of our obligations under the Spain construction agreement, Iberdrola Cantabria will have
the right to seek reimbursement for direct damages only, limited to amounts specified in the contract.
We are paid under the Spain construction agreement as we complete certain milestones for a total potential
payment for the current phase of construction of approximately A2.7 million. As of April 30, 2010, we had
recognized revenue of approximately $3.0 million and a recognized loss of $3.9 million under the Spain
construction agreement. The anticipated loss at completion of the contract also reflects our decision made in
the fourth quarter of fiscal year 2008 to absorb $1.9 million of additional costs of the project beyond our obligation
for the initial cost overruns and certain other costs as set forth in the agreement. This decision was based on the
progress of the project up to that time, the benefits to be derived from a successful initial project and the prospect of
incremental contract value to be received in connection with additional work under this contract.
29
If the Spain project were cancelled or otherwise interrupted, it could adversely affect our business, financial
condition and results of operations.
If we are unable to successfully negotiate and enter into operations and maintenance contracts with our
customers on terms that are acceptable to us, our ability to diversify our revenue stream will be impaired.
An important element of our business strategy is to maximize our revenue opportunities with our existing and
future customers by seeking to enter into operations and maintenance contracts with them under which we would be
paid fees for operating and maintaining wave power stations that they have purchased from us. Even if customers
purchase our PowerBuoy systems, they may not enter into operations and maintenance contracts with us. We may
not be able to negotiate operations and maintenance contracts that provide us with any profit opportunities. Even if
we successfully negotiate and enter into such operations and maintenance contracts, our customers may terminate
them prematurely or they may not be profitable for a variety of reasons, including the presence of unforeseen
hurdles or costs. In addition, our inability to perform adequately under such operations and maintenance contracts
could impair our efforts to successfully market the PowerBuoy systems. Any one of these outcomes could have a
material adverse effect on our business, financial condition and results of operations.
If we are unable to fulfill our obligations under our current operations and maintenance contract in a
cost effective manner, our financial condition and results of operations could be adversely affected.
In January 2007, we entered into an agreement with Iberdrola Cantabria for the monitoring, operation and
maintenance of the 40kW PowerBuoy system and the ocean-based substation and infrastructure to be manufactured
and deployed under the original Spain construction agreement. Under this operations and maintenance agreement,
we would be required to provide services for two years following provisional acceptance of the PowerBuoy system
and substation and infrastructure. We would be paid a fixed fee for scheduled maintenance, ongoing operations and
other routine services. In connection with any unscheduled repairs we perform under the operations and main-
tenance agreement, Iberdrola Cantabria and we will agree on the fees, if any, and timing, for those services. To the
extent we would otherwise have profits from the fixed fee at the end of the two-year initial term of the agreement, we
would be obligated to reimburse Iberdrola Cantabria for any fees paid to us for unscheduled repairs. If the costs we
actually incur in connection with providing services under the operations and maintenance agreement exceed the
fees we receive, we would incur a loss in connection with these services, which could adversely affect our financial
condition and results of operations. The operations and maintenance agreement is subject to the redeployment of the
buoy and an agreement of the parties regarding the deployment of the pod and cable.
Our inability to effectively manage our growth could adversely affect our business and operations.
The scope of our operations to date has been limited, and we do not have experience operating on the scale that
we believe will be necessary to achieve profitable operations. Our current personnel, facilities, systems and internal
procedures and controls are not adequate to support our projected future growth. We plan to add sales, marketing
and engineering offices in additional locations, including Australia, Japan, continental Europe and the west coast of
the United States.
To manage the expansion of our operations, we will be required to improve our operational and financial
systems, procedures and controls, increase our manufacturing capacity and throughput and expand, train and
manage our employee base, which must increase significantly if we are to be able to fulfill our current manu-
facturing and growth plans. Our management will also be required to maintain and expand our relationships with
customers, suppliers and other third parties, as well as attract new customers and suppliers. If we do not meet these
challenges, we may be unable to take advantage of market opportunities, execute our business strategies or respond
to competitive pressures.
Problems with the quality or performance of our PowerBuoy systems could adversely affect our business,
financial condition and results of operations.
Our agreements with customers will generally include guarantees with respect to the quality and performance
of our PowerBuoy systems. Because of the limited operating history of our PowerBuoy systems, we have been
30
required to make assumptions regarding the durability, reliability and performance of the systems, and we cannot
predict whether and to what extent we may be required to perform under the guarantees that we expect to give our
customers. Our assumptions could prove to be materially different from the actual performance of our PowerBuoy
systems, causing us to incur substantial expense to repair or replace defective systems in the future. We will bear the
risk of claims long after we have sold our PowerBuoy systems and recognized revenue. Moreover, any widespread
product failures could adversely affect our business, financial condition and results of operations.
We currently depend on a limited number of customers for substantially all of our revenues. The loss of,
or a significant reduction in revenues from, any of these customers could significantly reduce our
revenues and harm our operating results.
The US Navy, our largest customer, accounted for 80% of our revenues during fiscal 2010. In fiscal 2009,
revenues from the US Navy accounted for 67% of our total revenues while Iberdrola and Total accounted for 18% of
our revenues. Our current contract for our project in Hawaii with the US Navy expires in September 2010. We will
be required to enter into additional contracts with the US Navy for this project, which will require appropriation by
the US Congress and the US Navy in order to receive additional funding. Additional funding for our project with the
US Navy may not be approved or we may not be able to negotiate future agreements with the US Navy on
acceptable terms, if at all.
Generally, we recognize revenue using the percentage-of-completion method based on the ratio of costs
incurred to total estimated costs at completion. In certain circumstances, revenue under contracts that have specified
milestones or other performance criteria may be recognized only when our customer acknowledges that such
criteria have been satisfied. In addition, recognition of revenue (and the related costs) may be deferred for fixed-
price contracts until contract completion if we are unable to reasonably estimate the total costs of the project prior to
completion. Because we currently have a small number of customers and contracts, problems with a single contract
can adversely affect our business, financial condition and results of operations.
Historically, we have relied on a small group of customers for substantially all of our revenue, and such
concentration will continue for the foreseeable future. The loss of any of our customers or their default in payment
could adversely affect our business, financial condition and results of operations.
Our relationships with our alliance partners may not be successful and we may not be successful in
establishing additional relationships, which could adversely affect our ability to commercialize our
products and services.
An important element of our business strategy is to enter into development agreements and strategic alliances
with regional utilities, and energy and other companies committed to providing electricity from renewable energy
sources. If we are unable to reach agreements with suitable alliance partners, we may fail to meet our business
objectives for the commercialization of our PowerBuoy system. We may face significant competition in seeking
appropriate alliance partners. Moreover, these development agreements and strategic alliances are complex to
negotiate and time consuming to document. We may not be successful in our efforts to establish additional strategic
relationships or other alternative arrangements. The terms of any additional strategic relationships or other
arrangements that we establish may not be favorable to us. Furthermore, even if we are able to find, negotiate
and enter into these relationships, such arrangements may be conditional upon our receipt of additional funding. For
example, our projects with Leighton and the European Commission are conditional upon our receipt of significant
additional funds. There can be no assurance that we will receive such additional funding. In addition, these
relationships may not be successful, and we may be unable to sell and market our PowerBuoy systems to these
companies and their affiliates and customers in the future, or growth opportunities may not materialize, any of
which could adversely affect our business, financial condition and results of operations.
31
Our investments in joint ventures could be adversely affected by our lack of sole decision-making
authority, our reliance on a co-venturer’s financial condition and disputes between us and our
co-venturers.
It is part of our strategy to co-invest in some of our wave power projects with third parties through joint
ventures by acquiring non-controlling interests in special purpose entities. In these situations, we will not be in a
position to exercise sole decision-making authority regarding the joint venture. Investments in joint ventures
involve risks that would not be present were a third party not involved, including the possibility that our co-
venturers might become bankrupt or fail to fund their share of required capital contributions. Our co-venturers may
have economic or other business interests or goals that are inconsistent with our business interests or goals, and may
be in a position to take actions that are contrary to our policies or objectives. Disputes between us and our co-
venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or
directors from focusing their time and effort on our business. Consequently, actions by, or disputes with, partners or
co-venturers might result in additional risk to wave power projects undertaken by the joint venture.
Our targeted markets are highly competitive. We compete with other renewable energy companies and
may have to compete with larger companies that enter into the renewable energy business. If we are
unable to compete effectively, we may be unable to increase our revenues and achieve or maintain
profitability.
The renewable energy industry, particularly in our targeted markets of the west coast of North America, the
west coast of Europe, the coasts of Australia and the east coast of Japan, is highly competitive and continually
evolving as participants strive to distinguish themselves and compete with the larger electric power industry.
Competition in the renewable energy industry is likely to continue to increase with the advent of several renewable
energy technologies, including tidal and ocean current technologies. If we are not successful in manufacturing
systems that generate competitively priced electricity, we will not be able to respond effectively to competitive
pressures from other renewable energy technologies.
Moreover, the success of renewable energy generation technologies may cause larger electric utility and other
energy companies with substantial financial resources to enter into the renewable energy industry. These com-
panies, due to their greater capital resources and substantial technical expertise, may be better positioned to develop
new technologies.
Our inability to respond effectively to such competition could adversely affect our business, financial
condition and results of operations.
We have limited manufacturing experience. If we are unable to increase our manufacturing capacity in a
cost-effective manner, our business will be materially harmed.
We plan to manufacture key components of our PowerBuoy systems, including the advanced control and
generation systems. However, we have only manufactured our PowerBuoy systems in limited quantities for use in
development and testing and have little commercial manufacturing experience. Our future success depends on our
ability to significantly increase both our manufacturing capacity and production throughput in a cost-effective and
efficient manner. In order to meet our growth objectives, we will need to increase our engineering and manu-
facturing staff by the end of fiscal 2012. There is intense competition for hiring qualified technical and engineering
personnel, and we may not be able to hire a sufficient number of qualified personnel to allow us to meet our growth
objectives.
We may be unable to develop efficient, low-cost manufacturing capabilities and processes that will enable us to
meet the quality, price, engineering, design and production standards or production volumes necessary to
successfully commercialize our PowerBuoy systems. If we cannot do so, we may be unable to expand our
business, satisfy our contractual obligations or become profitable. Even if we are successful in developing our
manufacturing capabilities and processes, we may not be able to do so in time to meet our commercialization
schedule or satisfy the requirements of our customers.
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Failure by third parties to supply or manufacture components of our products or to deploy our systems
timely or properly could adversely affect our business, financial condition and results of operations.
We are highly dependent on third parties to supply or manufacture components of our PowerBuoy systems. If,
for any reason, our third-party manufacturers or vendors are not willing or able to provide us with components or
supplies in a timely fashion, or at all, our ability to manufacture and sell many of our products could be impaired.
We do not have long-term contracts with our third-party manufacturers or vendors. If we do not develop
ongoing relationships with vendors located in different regions, we may not be successful at controlling unit costs as
our manufacturing volume increases. We may not be able to negotiate new arrangements with these third parties on
acceptable terms, or at all.
In addition, we rely on third parties, under our oversight, for the deployment and mooring of our PowerBuoy
systems. We have utilized several different deployment methods, including towing the PowerBuoy system to the
deployment location, and transporting the PowerBuoy system to the deployment location by barge or ocean
workboat. If these third parties do not properly deploy our systems, cannot effectively deploy the PowerBuoy
system on a large, commercial scale or otherwise do not perform adequately, or if we fail to recruit and retain third
parties to deploy our systems in particular geographic areas, our business, financial condition and results of
operations could be adversely affected.
Business activities conducted by our third-party contractors and us involve the use of hazardous
materials, which require compliance with environmental and occupational safety laws regulating the use
of such materials. If we violate these laws, we could be subject to significant fines, liabilities or other
adverse consequences.
Our manufacturing operations, in particular some of the activities undertaken by our third-party suppliers and
manufacturers, involve the controlled use of hazardous materials. Accordingly, our third-party contractors and we
are subject to foreign, federal, state and local laws governing the protection of the environment and human health
and safety, including those relating to the use, handling and disposal of these materials. We cannot completely
eliminate the risk of accidental contamination or injury from these hazardous materials. In the event of an accident
or failure to comply with environmental or health and safety laws and regulations, we could be held liable for
resulting damages, including damages to natural resources, fines and penalties, and any such liability could
adversely affect our business, financial condition and results of operations.
Environmental laws and regulations are complex, change frequently and have tended to become more stringent
over time. While we have budgeted for future capital and operating expenditures to maintain compliance, we cannot
assure you that environmental laws and regulations will not change or become more stringent in the future.
Therefore, we cannot assure you that our costs of complying with current and future environmental and health and
safety laws, and any liabilities arising from past or future releases of, or exposure to, hazardous substances will not
adversely affect our business, financial condition or results of operations.
If we become ineligible for or are otherwise unable to replace any contract with the US federal
government that is not extended or is terminated, our business, financial condition and results of
operations will be adversely affected.
We derive a significant portion of our revenue from US federal government contracts, which are subject to
special funding restrictions, regulatory requirements and eligibility standards and which the government may
terminate at any time or determine not to extend after their scheduled expiration. During fiscal 2010 and fiscal 2009,
we derived 80% and 67%, respectively, of our total revenue from contracts with the US Navy.
US federal government contracts are also subject to contractual and regulatory requirements that may increase
our costs of doing business and could expose us to substantial contractual damages, civil fines and criminal
penalties for noncompliance. These requirements include business ethics, equal employment opportunity, envi-
ronmental, foreign purchasing, most-favored pricing and accounting provisions, among others. Payments that we
receive under US federal government contracts are subject to audit and potential refunds for at least three years after
the final contract payment is received.
33
We market and plan to market our products in numerous international markets. If we are unable to
manage our international operations effectively, our business, financial condition and results of
operations could be adversely affected.
We market and plan to market our products in a number of foreign countries, including the United Kingdom,
Spain, Australia and Japan, and we are therefore subject to risks associated with having international operations.
International customers accounted for 11% of our revenues in fiscal 2010, 27% of our revenues in fiscal 2009 and
41% of our revenues in fiscal 2008. Risks inherent in international operations include, but are not limited to, the
following:
• changes in general economic and political conditions in the countries in which we operate;
• unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to
renewable energy, environmental protection, permitting, export duties and quotas;
• trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could
increase the prices of our PowerBuoy systems and make us less competitive in some countries;
• fluctuations in exchange rates may affect demand for our PowerBuoy systems and may adversely affect our
profitability in US dollars to the extent the price of our PowerBuoy systems and cost of raw materials and
labor are denominated in a foreign currency;
• difficulty with staffing and managing widespread operations;
• complexity of, and costs relating to compliance with, the different commercial and legal requirements of the
overseas markets in which we offer and sell our PowerBuoy systems;
• inability to obtain, maintain or enforce intellectual property rights; and
• difficulty in enforcing agreements in foreign legal systems.
Our business in foreign markets requires us to respond to rapid changes in market conditions in these countries.
Our overall success as a global business depends, in part, on our ability to succeed in differing legal, regulatory,
economic, social and political conditions. We may not be able to develop and implement policies and strategies that
will be effective in each location where we do business, which in turn could adversely affect our business, financial
condition and results of operations.
We may not be able to raise sufficient capital to grow our business.
We have in the past needed to raise funds to operate our business, and we may need to raise additional funds to
support development of our products or to manufacture our PowerBuoy systems in commercial quantities. If we are
unable to raise additional funds when needed, our ability to operate and grow our business could be impaired. We do
not know whether we will be able to secure additional funding or funding on terms favorable to us. Our ability to
obtain additional funding will be subject to a number of factors, including market conditions, our operating
performance and investor sentiment. These factors may make the timing, amount, terms and conditions of
additional funding unattractive. If we issue additional equity securities, our existing stockholders would experience
dilution or may be subordinated to any rights, preferences or privileges granted to the new equity holders.
Our financial results may fluctuate from quarter to quarter, which may make it difficult to predict our
future performance.
Our financial results may fluctuate as a result of a number of factors, many of which are outside of our control.
For these reasons, comparing our financial results on a period-to-period basis may not be meaningful, and our past
results should not be relied on as an indication of our future performance. Our future quarterly and annual expenses
as a percentage of our revenues may be significantly different from those we have recorded in the past or which we
expect for the future. Our financial results in some quarters may fall below expectations. Any of these events could
34
cause our stock price to fall. Each of the risk factors listed in this “Risk Factors” section, including the following
factors, may adversely affect our business, financial condition and results of operations:
• delays in permitting or acquiring necessary regulatory consents;
• delays in the timing of contract awards and determinations of work scope;
• delays in funding for or deployment of wave energy projects;
• changes in cost estimates relating to wave energy project completion, which under percentage of completion
accounting principles could lead to significant fluctuations in revenue or to changes in the timing of our
recognition of revenue from those projects;
• delays in meeting specified contractual milestones or other performance criteria under project contracts or in
completing project contracts that could delay the recognition of revenue that would otherwise be earned;
• reductions in the availability or level of subsidies and incentives for renewable energy sources;
• decisions made by parties with whom we have commercial relationships not to proceed with anticipated
projects;
• increases in the length of our sales cycle; and
• reductions in the efficiency of our manufacturing processes.
Currency translation and transaction risk may adversely affect our business, financial condition and
results of operations.
Our reporting currency is the US dollar, and we conduct our business and incur costs in the local currency of
most countries in which we operate. As a result, we are subject to currency translation risk. In fiscal 2010, 3% of our
revenues were generated from customers outside the United States and denominated in Euros, 5% of our revenues
were generated from customers outside the United States and denominated in British pounds sterling and 2% of our
revenues were generated from customers outside the United States and denominated in Australian dollars. In fiscal
2009, 17% of our revenues were generated from customers outside the United States and denominated in Euros, 8%
of our revenues were generated from outside the United States and denominated in British pounds sterling and 2%
of our revenues were generated from customers outside the United States and denominated in Australian dollars. We
expect a large percentage of our revenues to be generated outside the United States and denominated in foreign
currencies in the future. Changes in exchange rates between foreign currencies and the US dollar could affect our
revenues and cost of revenues, and could result in exchange losses. In addition, we incur currency transaction risk
whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different
currency from our reporting currency. We cannot accurately predict the impact of future exchange rate fluctuations
on our results of operations. Currently, we do not engage in any exchange rate hedging activities and, as a result, any
volatility in currency exchange rates may have an immediate adverse effect on our business, results of operations
and financial condition.
Existing regulations and policies and changes to these or new regulations and policies may present
technical, regulatory and economic barriers to the use of wave energy technology, which may
significantly reduce demand for our PowerBuoy systems.
The market for electricity generation equipment is heavily influenced by foreign, federal, state and local
government regulations and policies concerning the electric utility industry, as well as policies promulgated by
electric utilities. These regulations and policies often relate to electricity pricing and connection to the power grid.
In the United States and in a number of other countries, these regulations and policies currently are being modified
and may be modified again in the future. Utility company and independent power producer purchases of, or further
investment in the research and development of, alternative energy sources, including wave energy technology, could
be deterred by these regulations and policies, which could result in a significant reduction in the potential demand
for our PowerBuoy systems.
As the renewable energy industry continues to develop and as the generation of power from wave energy in
particular achieves commercial acceptance, we anticipate that wave energy technology and our PowerBuoy systems
35
and their deployment will be subject to increased oversight and regulation. We are unable to predict the nature or
extent of regulations that may be imposed or adopted. Any new government regulations or utility policies pertaining
to wave energy or our PowerBuoy systems may result in significant additional expenses to us and our customers
and, as a result, could adversely affect our business, financial condition and results of operations.
If we are unable to obtain all necessary regulatory permits and approvals, we will not be able to
implement our planned projects.
Offshore development of electric power generating facilities is heavily regulated. Each of our planned projects
is subject to multiple permitting and approval requirements. With respect to our projects in Spain, we are dependent
upon our customer to obtain any necessary permits and approvals, and with respect to our projects in Oregon and
Cornwall, England, we are dependent on state, federal and regional government agencies for such permits and
approvals. Due to the unique nature of large scale commercial wave power stations, we would expect our projects to
receive close scrutiny by permitting agencies, approval authorities and the public, which could result in substantial
delay in the permitting process. Successful challenges by any parties opposed to our planned projects could result in
conditions limiting the project size or in the denial of necessary permits and approvals.
If we are unable to obtain necessary permits and approvals in connection with any or all of our projects, those
projects would not be implemented and our business, financial condition and results of operations would be
adversely affected. Further, we cannot assure you that we have been or will be at all times in complete compliance
with all such permits and approvals. If we violate or fail to comply with these permits and approvals, we could be
fined or otherwise sanctioned by regulators.
We face hurricane- and storm-related risks and other risks typical of a marine environment which could
adversely affect our business, financial condition and results of operations.
Our PowerBuoy systems are deployed in the ocean where they are subject to many hazards including severe
storms and hurricanes, which could damage them and result in service interruptions. Our systems are also subject to
more frequent lock-downs caused by higher waves during winter storm and hurricane seasons, which will reduce
annual energy output. We cannot predict whether we will be able to recover from our insurance providers the
additional costs that we may incur due to damage caused to our PowerBuoy systems, or whether we will continue to
be able to obtain insurance for hurricane- and storm-related damages or, if obtainable and carried, whether this
insurance will be adequate to cover our liabilities. Any future hurricane- or storm-related costs could adversely
affect our business, financial condition and results of operations.
Since our PowerBuoy systems can only be deployed in certain geographic locations, our ability to grow
our business could be adversely affected.
Our systems are designed to work in sites with average annual wave energy of at least 20kW per meter of wave
front. Not all coastal areas worldwide have appropriate natural resources for our PowerBuoy systems to harness
wave energy. Seasonal and local variations, water depth and the effect of particular locations of islands and other
geographical features may limit our ability to deploy our PowerBuoy systems in coastal areas. If we are unable to
identify and deploy PowerBuoy systems at sufficient sites near major population centers, our ability to grow our
business could be adversely affected.
We face numerous accident and safety risks and hazards that are inherent in offshore energy operations.
Portions of our operations are subject to many hazards and risks inherent in the building, testing, deploying and
maintenance of our PowerBuoy systems. These hazards and risks could result in personal injuries, loss of life, and
other damages, which may include damage to our properties and the properties of others and other consequential
damages, and could lead to the suspension of certain of our operations, large damage claims, damage to our safety
reputation and a loss of business. Some of these risks may be uninsurable and some claims may exceed our
insurance coverage. Therefore, the occurrence of a significant accident or other risk event or hazard that is not fully
covered by insurance could materially and adversely affect our business and financial results and, even if fully
covered by insurance, could materially and adversely affect our business due to the impact on our reputation for
36
safety. In addition, the risks inherent in our business are such that we cannot assure you that we will be able to
maintain adequate insurance in the future at reasonable rates.
If we are unable to attract and retain management and other qualified personnel, we may not be able to
achieve our business objectives.
Our success depends on the skills, experience and efforts of our senior management and other key product
development, manufacturing, and sales and marketing employees. We cannot be certain that we will be able to
attract, retain and motivate such employees. The loss of the services of one or more of these employees could have a
material adverse effect on our business. There is a risk that we will not be able to retain or replace these key
employees. We have entered into employment agreements with Dr. George Taylor, our executive chairman, and
Charles Dunleavy, our chief executive officer; however, the agreements permit the employees to terminate their
employment with little notice. Implementation of our expansion plans will be highly dependent upon our ability to
hire and retain senior executives as well as talented staff in various fields of expertise.
In addition, our anticipated growth will require us to hire a significant number of qualified technical,
commercial and administrative personnel. By the end of fiscal 2012, we expect to increase our staff in order to meet
our current manufacturing and revenue goals. The majority of our new hires will be engineers with varying levels
and areas of expertise, project managers and manufacturing personnel. There is intense competition from other
companies and research and academic institutions for qualified personnel in the areas of our activities. If we cannot
continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development
of our business, we may not be able to sustain our operations or grow at a competitive pace.
Any acquisitions that we make or joint venture agreements that we enter into, or any failure to identify
appropriate acquisition or joint venture candidates, could adversely affect our business, financial
condition and results of operations.
From time to time, we evaluate potential strategic acquisitions of complementary businesses, products or
technologies, as well as consider joint ventures and other collaborative projects. We may not be able to identify
appropriate acquisition candidates or strategic partners, or successfully negotiate, finance or integrate any
businesses, products or technologies that we acquire. We do not have any experience with acquiring companies
or products. Any acquisition we pursue could diminish the capital resources otherwise available to us for other uses
or be dilutive to our stockholders, and could divert management’s time and resources from our core operations.
Strategic acquisitions, investments and alliances with third parties could subject us to a number of risks,
including risks associated with sharing proprietary information and loss of control of operations that are material to
our business. In addition, strategic acquisitions, investments and alliances may be expensive to implement.
Moreover, strategic acquisitions, investments and alliances subject us to the risk of non-performance by a
counterparty, which may in turn lead to monetary losses that materially and adversely affect our business, financial
condition and results of operations.
In the event we are unable to satisfy regulatory requirements relating to internal control over financial
reporting, or if our internal controls are not effective, our business and financial results may suffer.
Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial
reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial
reports and effectively prevent fraud, our business and operating results could be harmed. Pursuant to the Sarbanes-
Oxley Act of 2002, we are required to furnish a report by management on internal control over financial reporting,
including management’s assessment of the effectiveness of such control. Internal control over financial reporting
may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error,
the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only
reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition,
projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are
subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal
37
controls, including any failure to implement new or improved controls, or if we experience difficulties in their
implementation, our business and operating results could be harmed, we could fail to meet our reporting
obligations, and there could also be a material adverse effect on our stock price.
Risks Related to Intellectual Property
If we are unable to obtain or maintain intellectual property rights relating to our technology and
products, the commercial value of our technology and products may be adversely affected, which could in
turn adversely affect our business, financial condition and results of operations.
Our success and ability to compete depends in part upon our ability to obtain protection in the United States
and other countries for our products by establishing and maintaining intellectual property rights relating to or
incorporated into our technology and products. We own a variety of patents and patent applications in the United
States and corresponding patents and patent applications in several foreign jurisdictions. However, we have not
obtained patent protection in each market in which we plan to compete. In addition, we do not know how successful
we would be should we choose to assert our patents against suspected infringers. Our pending and future patent
applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Even if
issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop
competitors from marketing similar products or limit the length of term of patent protection we may have for our
products. Changes in either patent laws or in interpretations of patent laws in the United States and other countries
may diminish the value of our intellectual property or narrow the scope of our patent protection, which could in turn
adversely affect our business, financial condition and results of operations.
Our contracts with the government could negatively affect our intellectual property rights, and our ability
to commercialize our products could be impaired.
Our agreements with the US Navy help fund research and development of our PowerBuoy system. When new
technologies are developed with US federal government funding, the government obtains certain rights in any
resulting patents, technical data and software, generally including, at a minimum, a nonexclusive license autho-
rizing the government to use the invention, technical data or software for non-commercial purposes. These rights
may permit the government to disclose our confidential information to third parties and to exercise “march-in”
rights. March-in rights refer to the right of the US government to require us to grant a license to the technology to a
responsible applicant or, if we refuse, the government may grant the license itself. US government-funded
inventions must be reported to the government. US government funding must be disclosed in any resulting patent
applications, and our rights in such inventions will normally be subject to government license rights, periodic post-
contract utilization reporting, foreign manufacturing restrictions and march-in rights.
The government can exercise its march-in rights if it determines that action is necessary because we fail to
achieve practical application of the technology or because action is necessary to alleviate health or safety needs, to
meet requirements of federal regulations or to give preference to US industry. Our government-sponsored research
contracts are subject to audit and require that we provide regular written technical updates on a monthly, quarterly or
annual basis, and, at the conclusion of the research contract, a final report on the results of our technical research.
Because these reports are generally available to the public, third parties may obtain some aspects of our sensitive
confidential information. Moreover, if we fail to provide these reports or to provide accurate or complete reports, the
government may obtain rights to any intellectual property arising from the related research. Funding from
government contracts also may limit when and how we can deploy our technology developed under those contracts.
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of
our technology and products could be adversely affected, which could in turn adversely affect our
business, financial condition and results of operations.
In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how,
particularly with respect to our PowerBuoy control and electricity generating systems. We generally seek to protect
this information in part by confidentiality agreements with our employees, consultants and third parties. These
38
agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade
secrets may otherwise become known or be independently developed by competitors.
If we infringe or are alleged to infringe intellectual property rights of third parties, our business,
financial condition and results of operations could be adversely affected.
Our products may infringe, or be claimed to infringe, patents or patent applications under which we do not hold
licenses or other rights. Third parties may own or control these patents and patent applications in the United States
and abroad. From time to time, we receive correspondence from third parties offering to license patents to us.
Correspondence of this nature might be used to establish that we received notice of certain patents in the event of
subsequent patent infringement litigation. Third parties could bring claims against us that would cause us to incur
substantial expenses and, if successfully asserted against us, could cause us to pay substantial damages. Further, if a
patent infringement suit were brought against us, we could be forced to stop or delay manufacturing or sales of the
product or component that is the subject of the suit.
As a result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to
seek a license from the third party and be required to pay license fees, royalties or both. These licenses may not be
available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be nonexclusive,
which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be
forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement
claims, we are unable to enter into licenses on acceptable terms. This could significantly and adversely affect our
business, financial condition and results of operations.
In addition to infringement claims against us, we may become a party to other types of patent litigation and
other proceedings, including interference proceedings declared by the United States Patent and Trademark Office
and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our
products and technology. The cost to us of any patent litigation or other proceeding, even if resolved in our favor,
could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more
effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete
in the marketplace. Patent litigation and other proceedings may also absorb significant management time.
Risks Related to our Common Stock
Provisions in our corporate charter documents and under Delaware law may delay or prevent attempts by
our stockholders to change our management and hinder efforts to acquire a controlling interest in us.
As a result of our reincorporation in Delaware in April 2007, provisions of our certificate of incorporation and
bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may
consider favorable, including transactions in which our stockholders might otherwise receive a premium for their
shares. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our
management. These provisions include:
• advance notice requirements for stockholder proposals and nominations;
• the inability of stockholders to act by written consent or to call special meetings; and
• the ability of our board of directors to designate the terms of and issue new series of preferred stock without
stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock
ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by
our board of directors.
The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote is necessary to
amend or repeal the above provisions of our certificate of incorporation. In addition, absent approval of our board of
directors, our bylaws may only be amended or repealed by the affirmative vote of the holders of at least 75% of our
shares of capital stock entitled to vote.
39
In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested stockholder, which is generally a person
who together with its affiliates owns or within the last three years has owned 15% of our voting stock, for a period of
three years after the date of the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Accordingly, Section 203 may discourage, delay or
prevent a change in control of our company.
We have never paid cash dividends on our common stock, and we do not anticipate paying any cash
dividends in the foreseeable future.
We have not paid any cash dividends on our common stock to date. We currently intend to retain our future
earnings, if any, to fund the development and growth of our business. In addition, the terms of any future debt
agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock
will be the sole source of gain for our stockholders for the foreseeable future.
Our stock price is likely to be volatile, and purchasers of our common stock could incur substantial
losses.
The market price of our common stock may fluctuate significantly in response to factors that are beyond our
control. For the period ended April 30, 2010, the 52-week high and low prices for our common stock were $11.22
and $3.81, respectively. The stock market in general has recently experienced extreme volatility that has often been
unrelated or disproportionate to the operating performance of particular companies. These broad market fluctu-
ations could result in fluctuations in the price of our common stock, which could cause purchasers of our common
stock to incur substantial losses. The market price for our common stock may be influenced by many factors,
including:
• the success of competitive products or technologies;
• regulatory developments in the United States and foreign countries;
• developments or disputes concerning patents or other proprietary rights;
• the recruitment or departure of key personnel;
• quarterly or annual variations in our financial results or those of companies that are perceived to be similar to
us;
• market conditions in the conventional and renewable energy industries and issuance of new or changed
securities analysts’ reports or recommendations;
• the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
• the inability to meet the financial estimates of analysts who follow our common stock;
• investor perception of our company and of the renewable energy industry; and
• general economic, political and market conditions.
Provisions in our bylaws will require disclosure of information by shareholders that would not otherwise
be required to be disclosed under applicable US state or US federal laws.
In accordance with the rules of the AIM market of the London Stock Exchange, we are required to disclose
information regarding beneficial owners of three percent or more of our outstanding common stock to the AIM
market. In order to allow us to comply with the AIM rules, our bylaws contain a provision requiring any beneficial
owner of three percent or more of our outstanding common stock to notify us of his or her shareholdings, as well as
of any change in his or her beneficial ownership of one percent or more of our outstanding common stock.
Comparatively, none of the US state or US federal laws that are applicable to us or the rules of the SEC or the
Nasdaq Global Market require stockholders to report this beneficial ownership information to us or us to disclose
40
this information to the public or a regulatory body. We do not intend to make any such information public, unless
required by law or the rules of the AIM market, the SEC or the Nasdaq Global Market.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Pennington, New Jersey, where we occupy approximately
22,000 square feet under a lease expiring on April 30, 2013. We use these facilities for administration, research
and development, as well as assembly and testing of the generators and control models for our PowerBuoy systems.
We also have an office and warehouse facilities in Warwick, United Kingdom, where we occupy 4,685 square
feet under leases expiring on January 1, 2011 and December 18, 2011, respectively. Thirteen employees, all
members of the executive, engineering, administration and business development teams, operate out of this office,
which serves as a hub for our European presence.
We may add sales, marketing and engineering offices in additional locations, including Australia, Japan,
continental Europe and the west coast of the United States.
ITEM 3. LEGAL PROCEEDINGS
We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the
outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these
matters will have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 4.
(REMOVED AND RESERVED)
41
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Price Information and Stockholders
Our common stock has been listed on the Nasdaq Global Market since April 24, 2007 under the symbol
“OPTT” and on the AIM market of the London Stock Exchange since October 2003 under the symbol “OPT.” As of
June 30, 2010, there were 252 holders of record for shares of our common stock. Since a portion of our common
stock is held in “street” or nominee name, we are unable to determine the exact number of beneficial holders.
The following table sets forth the high and the low sale prices of our common stock as quoted by the Nasdaq
Global Market for the period indicated.
Nasdaq Global
Market
High
Low
Year Ended April 30, 2010
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.72
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.50
11.22
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.69
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended April 30, 2009
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.44
9.34
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.84
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.20
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.73
3.81
6.00
6.00
$7.82
4.61
4.60
3.78
Dividend Policy
We have never declared or paid any cash dividends on our common stock, and we do not currently anticipate
declaring or paying cash dividends on our common stock in the foreseeable future. We currently intend to retain all
of our future earnings, if any, to finance the growth and development of our business. Any future determination
relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number
of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual
restrictions and covenants and other factors that our board of directors may deem relevant.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Use of Proceeds
On April 30, 2007, we sold 5,000,000 shares of our common stock in our initial public offering in the United
States at a price of $20.00 per share, pursuant to a registration statement on Form S-1 (File No. 333-138595), which
was declared effective by the SEC on April 24, 2007. The managing underwriters in the offering were UBS
Securities LLC, Banc of America Securities LLC, and Bear, Stearns & Co., Inc. The underwriting discounts and
commissions and offering expenses payable by us aggregated $10.1 million, resulting in net proceeds to us of
$89.9 million. None of the underwriting discounts and commissions or offering costs were incurred or paid to
directors or officers of ours or their associates or to persons owning ten percent or more of our common stock or to
any affiliates of ours.
From the effective date of the registration statement through April 30, 2010, we used $3.2 million to construct
demonstration wave power stations, $18.6 million to fund the continued development and commercialization of our
PowerBuoy system, $4.1 million to expand our sales and marketing capabilities and $0.7 million to fund the
expansion of assembly, test and field service facilities. We have invested the balance of the net proceeds from the
offering in short- and long-term, investment grade, interest-bearing instruments, in accordance with our investment
42
policy. We have not used any of the net proceeds from the offering to make payments, directly or indirectly, to any
director or officer of ours, except in connection with normal annual officer and director compensation, or any of
their associates, to any person owning ten percent or more of our common stock or to any affiliate of ours. There has
been no material change in our planned use of the balance of the net proceeds from the offering as described in our
final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
You should read the following selected consolidated financial data in conjunction with our consolidated
financial statements and the related notes appearing at the end of this Annual Report and the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” section of this Annual Report. The
selected consolidated financial data have been derived from our audited consolidated financial statements which are
included elsewhere in this Annual Report, or from audited consolidated financial statements not included in this
Annual Report.
2010
Fiscal Years Ended April 30,
2008
2009
2007
2006
Consolidated Statement of Operations
Data:
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 5,101,311
4,298,955
Cost of revenues . . . . . . . . . . . . . . . . . .
$ 4,049,445
4,840,403
$ 4,772,017
7,960,042
$ 2,531,315
3,983,742
$ 1,747,715
2,059,318
Gross profit (loss) . . . . . . . . . . . . . . . . .
802,356
(790,958)
(3,188,025)
(1,452,427)
(311,603)
Operating expenses:
Product development costs . . . . . . . . . .
Selling, general and administrative
costs . . . . . . . . . . . . . . . . . . . . . . . .
13,001,550
8,372,244
8,255,123
6,219,893
4,224,997
9,063,482
9,529,071
7,732,577
4,893,580
3,190,687
Total operating expenses . . . . . . . . . .
22,065,032
17,901,315
15,987,700
11,113,473
7,415,684
Operating loss . . . . . . . . . . . . . . . . . . .
Interest income, net
. . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain (loss) . . . . . . . . .
(21,262,676)
1,032,484
557,540
540,644
(18,692,273)
1,672,350
—
(1,295,227)
(19,175,725)
4,434,844
—
84,158
(12,565,900)
1,389,702
13,906
1,523,527
(7,727,287)
1,408,361
74,294
(978,242)
Loss before income taxes . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . .
(19,132,008)
—
(18,315,150)
—
(14,656,723)
—
(9,638,765)
—
(7,222,874)
143,963
Net loss . . . . . . . . . . . . . . . . . . . . . . . .
(19,132,008)
(18,315,150)
(14,656,723)
(9,638,765)
(7,078,911)
Less: Net income attributable to the
noncontrolling interest in Ocean
Power Technologies (Australasia) Pty
Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to Ocean Power
(38,299)
—
—
—
—
Technologies, Inc.
. . . . . . . . . . . . . . $(19,170,307) $(18,315,150) $(14,656,723) $ (9,638,765) $(7,078,911)
Basic and diluted net loss per share . . . . $
(1.88) $
(1.79) $
(1.44) $
(1.83) $
(1.37)
Basic and diluted weighted average
shares outstanding . . . . . . . . . . . . . . .
10,217,003
10,210,354
10,200,729
5,260,794
5,162,340
43
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current
portion . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . .
Total Ocean Power Technologies,
2010
2009(2)
As of April 30,
2008
2007
2006
$ 36,772,598 $ 53,117,566
51,129,985
28,619,528
88,793,906
32,569,351
28,865,046
72,978,193
$ 88,836,304
85,870,307
12,233,437
107,550,965
$115,895,619(1) $ 32,439,365
30,886,029
—
33,996,138
111,187,195
—
119,711,546
250,000
(90,413,098)
345,386
(71,242,791)
188,784
(52,927,641)
231,585
(38,270,918)
233,959
(28,632,153)
Inc. stockholders’ equity . . . . . . . .
64,814,200
82,783,027
100,098,609
112,541,209
31,066,704
(1) On April 30, 2007, we completed our initial public offering in the United States resulting in net proceeds to us
of $89.9 million.
(2) The April 30, 2009 balance of marketable securities was changed to increase the current portion and decrease
the non-current portion by $12,009,337 to reflect the maturities of the securities as of such date.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations
together with our consolidated financial statements and the related notes and other financial information included
elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and
related financing, includes forward-looking statements that involve risks and uncertainties. You should review the
“Risk Factors” section of this Annual Report for a discussion of important factors that could cause actual results to
differ materially from the results described in or implied by the forward-looking statements contained in the
following discussion and analysis.
Overview
We develop and are commercializing proprietary systems that generate electricity by harnessing the renewable
energy of ocean waves. Our PowerBuoy » systems use proprietary technologies to convert the mechanical energy
created by the rising and falling of ocean waves into electricity. We currently market two PowerBuoy products,
which consist of our utility PowerBuoy system and our autonomous PowerBuoy system. We also market operations
and maintenance services for our PowerBuoy systems to our customers, which are expected to provide a source of
recurring revenues. In addition, we expect to market our undersea substation pod and undersea power connection
infrastructure services to other companies in the marine energy sector.
We market our utility PowerBuoy system, which is designed to supply electricity to a local or regional power
grid, to utilities and other electrical power producers seeking to add electricity generated by wave energy to their
existing electricity supply. We market our autonomous PowerBuoy system, which is designed to generate power for
use independent of the power grid, to customers that require electricity in remote locations. We believe there are a
variety of potential applications for our autonomous PowerBuoy system, including sonar and radar surveillance,
tsunami warning, oceanographic data collection, offshore platforms and offshore aquaculture.
We were incorporated in New Jersey in April 1984, began commercial operations in 1994, and were re-
incorporated in Delaware in 2007. We currently have three wholly-owned subsidiaries, which include Ocean Power
Technologies Ltd., Reedsport OPT Wave Park LLC, and Oregon Wave Energy Partners I, LLC, and we own
approximately 88% of the ordinary shares of Ocean Power Technologies (Australasia) Pty Ltd.
The development of our technology has been funded by capital we raised and by development engineering
contracts we received starting in fiscal 1995. In fiscal 1996, we received the first of several research contracts with
44
the US Navy to study the feasibility of wave energy. As a result of those research contracts, we entered into our first
development and construction contract with the US Navy in fiscal 2002 under a still on-going project for the
development and testing of our wave power systems at the US Marine Corps base in Oahu, Hawaii. We generated
our first revenue relating to our autonomous PowerBuoy system from contracts with Lockheed Martin Corporation
in fiscal 2003, and we entered into our first development and construction contract with Lockheed Martin in fiscal
2004 for the development and construction of a prototype demonstration autonomous PowerBuoy system.
As of April 30, 2010, our backlog was $5.7 million, a decrease of $1.8 million from April 30, 2009.
Our fiscal year ends on April 30. For fiscal 2010, we generated revenues of $5.1 million and incurred a net loss
attributable to Ocean Power Technologies, Inc. of $19.2 million, and for fiscal 2009, we generated revenues of
$4.0 million and incurred a net loss attributable to Ocean Power Technologies, Inc. of $18.3 million. As of April 30,
2010, our accumulated deficit was $90.4 million. We have not been profitable since inception, and we do not know
whether or when we will become profitable because of the significant uncertainties with respect to our ability to
successfully commercialize our PowerBuoy systems in the emerging renewable energy market. Since fiscal 2002,
the US Navy has accounted for a significant portion of our revenues. We expect that over time, revenues derived
from utilities and other non-government commercial customers will increase more rapidly than sales to government
customers and may, over time, represent the majority of our revenues.
The marine energy industry, including wave, tidal and ocean current energy technologies, is expected to
benefit from various legislative initiatives that have been undertaken or are planned by state and federal agencies.
For example, the production tax credit was expanded to include marine energy, as part of the Energy Improvement
and Extension Act of 2008, signed into law in October 2008. Production tax credit provisions that were previously
in place served only to benefit other renewable energy sources such as wind and solar. This new legislation will, for
the first time, enable owners of wave power projects in the US to receive federal production tax credits, which, by
their prospective effect of lowering income taxes for our customers based on energy produced, should improve the
comparative economics of wave power as a renewable energy source.
Further, it is expected that the US federal and state governments will increase their investments in the
renewable energy sector under various economic stimulus measures. The American Recovery and Reinvestment
Act of 2009 provides significant grants, tax incentives and policy initiatives to stimulate investment and innovation
in the “cleantech” sector. The DOE has also issued requests for proposal to be funded under programs it has
established to further investment in marine energy technologies. We have devoted additional resources to develop
proposals seeking government funding to support existing projects and technology enhancements. Consequently,
while our selling, general and administrative costs related to such efforts may increase over the next year, we believe
that these governmental initiatives may result in additional revenues for us over the next several years. Given the
recent announcement of the government programs and the uncertainties surrounding their scope and size, there can
be no assurances as to whether we will be successful in obtaining significant additional government funding or as to
the terms and conditions of any such funding.
The recent global economic downturn may have a negative effect on our business, financial condition and
results of operations because the utility companies with which we contract or propose to contract may decrease their
investment in new power generation equipment in response to the downturn. However, the various legislative
initiatives described above may diminish the effect of any decrease in such capital expenditures by these utility
companies insofar as they may relate to renewable energy generation equipment. As discussed above, the timing,
scope and size of these new government programs for renewable energy is uncertain, and there can be no assurances
that we or our customers will be successful in obtaining any additional government funding. In addition, we do not
believe the recent global economic downturn will have a material negative impact on our sources of supply, as our
products incorporate what are substantially non-custom, standard parts found in many regions of the world.
According to the International Energy Agency, $3.4 trillion is expected to be spent for new renewable energy
generation equipment in the period from 2007 to 2030. This equates to annual global expenditures of approximately
$150 billion. We plan to take advantage of these global drivers of demand for renewable energy, as we continue to
refine and expand our proprietary technology.
45
Financial Operations Overview
The following describes certain line items in our statement of operations and some of the factors that affect our
operating results.
Revenues
Generally, we recognize revenue using the percentage-of-completion method based on the ratio of costs
incurred to total estimated costs at completion. In certain circumstances, revenue under contracts that have specified
milestones or other performance criteria may be recognized only when our customer acknowledges that such
criteria have been satisfied. In addition, recognition of revenue (and the related costs) may be deferred for fixed-
price contracts until contract completion if we are unable to reasonably estimate the total costs of the project prior to
completion. Because we have a small number of contracts, revisions to the percentage of completion determination
or delays in meeting performance criteria or in completing projects may have a significant effect on our revenue for
the periods involved. Upon anticipating a loss on a contract, we recognize the full amount of the anticipated loss in
the current period.
Generally our contracts are either cost plus or fixed price contracts. Under cost plus contracts we bill the
customer for actual expenses incurred plus an agreed upon fee. Revenue is typically recorded using percenta-
ge-of-completion based on the maximum awarded contract amount. In certain cases we may choose to incur costs in
excess of the maximum awarded contract amount resulting in a loss on the contract. Currently, we have two types of
fixed price contracts, firm fixed price and cost sharing. Under firm fixed price contracts we receive an agreed upon
amount for providing products and services which are specified in the contract. Revenue is typically recorded using
percentage-of-completion based on the contract amount. Depending on whether actual costs are more or less than
the agreed upon amount, there is a profit or loss on the project. Under cost sharing contracts the fixed amount agreed
upon with the customer is only intended to fund a portion of the costs on a specific project. We fund the remainder of
the costs as part of our product development efforts. Revenue is typically recorded using percentage-of-completion
based on the amount agreed upon with the customer. An amount corresponding to the revenue is recorded in cost of
revenues resulting in gross profit on these contracts of zero. Our share of the costs is recorded as product
development expense.
The following table provides information regarding the breakdown of our revenues by customer for fiscal years
2010, 2009 and 2008:
US Navy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iberdrola and Total (Spain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scottish Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended April 30,
2010
2008
2009
($ millions)
$2.7
0.7
0.3
0.3
$4.1
0.2
0.3
0.5
$2.8
1.4
0.5
0.1
$5.1
$4.0
$4.8
The revenue increase for fiscal 2010 reflected a significant increase in revenue from the US Navy related to
autonomous PowerBuoy projects and also an increase in revenue related to our project off the coast of Reedsport,
Oregon (included in “Other” in the above table). The increased revenue was partially offset by a decrease in revenue
from our construction project in Spain and our Hawaii project for the US Navy. The revenue decrease for fiscal 2009
primarily reflected a lower level of billable activity in connection with our construction contracts in Spain and at the
European Marine Energy Centre (EMEC) at Orkney, Scotland. In 2009, we also reduced the total expected contract
value related to the Spain contract by approximately $0.5 million, reflecting an expected reduction in scope of the
then-current phase of this project. These decreases in revenue during fiscal 2009 were partially offset by an increase in
revenue from the Department of Energy (DOE) related to our project off the coast of Reedsport, Oregon.
The US Navy has been our largest customer since fiscal 2002. The US Navy accounted for 80% of our revenues
in fiscal 2010, 67% of our revenues in fiscal 2009 and 58% of our revenues in fiscal 2008. We anticipate that, if our
46
commercialization efforts are successful, the relative contribution of the US Navy to our revenue may decline in the
future.
We currently focus our sales and marketing efforts on North America, the west coast of Europe, Australia and
the east coast of Japan. The following table provides information regarding the breakdown of our revenues by
geographical location of our customers for fiscal years 2010, 2009 and 2008:
Customer Location
Year Ended
April 30,
2010
Percentage of Revenues
Year Ended
April 30,
2009
Year Ended
April 30,
2008
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89%
9
2
73%
25
2
59%
41
—
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
Cost of revenues
Our cost of revenues consists primarily of incurred material, labor and manufacturing overhead expenses, such
as engineering expense, equipment depreciation and maintenance and facility related expenses, and includes the
cost of PowerBuoy parts and services supplied by third-party suppliers. Cost of revenues also includes PowerBuoy
system delivery and deployment expenses and anticipated losses at completion on some contracts.
We operated at a gross profit of $0.8 million in fiscal 2010 and a gross loss of $0.8 million in fiscal 2009 and
$3.2 million in fiscal 2008. Our ability to generate a gross profit will depend on the nature of future contracts, our
success at increasing sales of our PowerBuoy systems and on our ability to manage costs incurred on fixed price
commercial contracts. Additionally, approximately $0.4 million of costs related to revenue activity during fiscal
2009 had been previously anticipated and accrued as contract loss reserves as of April 30, 2009. These loss reserves
were no longer necessary and, accordingly, reversed in fiscal year 2010, contributing to the increase in gross profit.
Product development costs
Our product development costs consist of salaries and other personnel-related costs and the costs of products,
materials and outside services used in our product development and unfunded research activities. Our product
development costs primarily relate to our efforts to increase the output and reliability of our utility PowerBuoy
system, including the 150kW PowerBuoy system and to our research and development of new products, product
applications and complementary technologies. We expense all of our product development costs as incurred, except
for external patent costs, which we capitalize and amortize over a 17-year period commencing with the issuance
date of each patent. Patents are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of the patent may not be recoverable.
From October 2005 to December 2009, we operated, at intervals, a 40kW system off the coast of New Jersey.
The system was periodically removed from the ocean for maintenance during that time. Other 40kW systems were
deployed and tested in Hawaii for the US Navy project during the months of June 2007 and October 2008, and in
late 2009. Work is currently in progress on the design, construction and installation of two 150kW PowerBuoy
systems in connection with projects off the coasts of Scotland and Oregon. We completed the successful in-ocean
trials of our USP in October 2009.
Selling, general and administrative costs
Our selling, general and administrative costs consist primarily of professional fees, salaries and other
personnel-related costs for employees and consultants engaged in sales and marketing and support of our
PowerBuoy systems and costs for executive, accounting and administrative personnel, professional fees and other
general corporate expenses.
47
Interest income, net
Interest income consists of interest received on cash and cash equivalents, investments in commercial bank-
issued certificates of deposit and US Treasury bills and notes. Total cash, cash equivalents, restricted cash, and
marketable securities were $66.8 million as of April 30, 2010, $82.7 million as of April 30, 2009 and $102.2 million
as of April 30, 2008. Interest income decreased due to a decline in interest rates and a decline in cash, cash
equivalents and marketable securities.
Foreign exchange gain (loss)
We transact business in various countries and have exposure to fluctuations in foreign currency exchange rates.
Foreign exchange gains and losses arise in the translation of foreign-denominated assets and liabilities, which may
result in realized and unrealized gains or losses from exchange rate fluctuations. Since we conduct our business in
US dollars and our functional currency is the US dollar, our main foreign exchange exposure, if any, results from
changes in the exchange rate between the US dollar and the British pounds sterling, the Euro and the Australian
dollar.
We invest in certificates of deposit and maintain cash accounts that are denominated in British pounds sterling,
Euros and Australian dollars. These foreign denominated certificates of deposit and cash accounts had a balance of
$4.1 million as of April 30, 2010 and $8.5 million as of April 30, 2009, compared to our total cash, cash equivalents,
restricted cash, and marketable securities balances of $66.8 million as of April 30, 2010 and $82.7 million as of
April 30, 2009.
In addition, a portion of our operations is conducted through our subsidiaries in countries other than the United
States, specifically Ocean Power Technologies Ltd. in the United Kingdom, the functional currency of which is the
British pounds sterling, and Ocean Power Technologies (Australasia) Pty Ltd. in Australia, the functional currency
of which is the Australian dollar. Both of these subsidiaries have foreign exchange exposure that results from
changes in the exchange rate between their functional currency and other foreign currencies in which they conduct
business. All of our international revenues for the years ended April 30, 2010, 2009, and 2008 were recorded in
Euros, British pounds sterling or Australian dollars.
We currently do not hedge our exchange rate exposure. However, we assess the anticipated foreign currency
working capital requirements and capital asset acquisitions of our foreign operations and attempt to maintain a
portion of our cash and cash equivalents denominated in foreign currencies sufficient to satisfy these anticipated
requirements. We also assess the need and cost to utilize financial instruments to hedge currency exposures on an
ongoing basis and may hedge against exchange rate exposure in the future.
Income taxes
As of April 30, 2010, we had federal and foreign net operating loss carryforwards of $74.6 million and federal
and foreign research and development tax credits of $2.2 million to offset future taxable income. As of April 30,
2010, we had state net operating loss carryforwards of $49.1 million. If not utilized, the net operating loss
carryforwards and credit carryforwards will expire at various dates through 2030. We may not achieve profitability
in time to utilize the tax credit and net operating loss carryforwards in full or at all. In addition, we have determined
that the future utilization of our net operating loss carryforwards is subject to limitations based upon changes in
ownership including changes resulting from our initial public offering in April 2007, pursuant to regulations
promulgated under the Internal Revenue Code. We do not expect these limitations to have a significant impact on
our ability to utilize net operating loss and credit carryforwards. As discussed in Note 12 to our consolidated
financial statements included in this Annual Report, we have established a valuation allowance for our net deferred
tax assets, which were $33.1 million as of April 30, 2010 and $25.5 million as of April 30, 2009.
Outlook
We have incurred net losses since we began operations in 1994, including net losses attributable to Ocean
Power Technologies, Inc. of $19.2 million in fiscal 2010, $18.3 million in fiscal 2009 and $14.7 million in fiscal
2008. As of April 30, 2010, we had an accumulated deficit of $90.4 million. These losses have resulted primarily
48
from costs incurred in our research and development programs and from our selling, general and administrative
costs. We expect to increase our operating expenses as we continue to expand our infrastructure, research and
development programs and commercialization activities. As a result, we will need to generate significant revenues
to cover these costs and achieve profitability.
We do not know whether or when we will become profitable because of the significant uncertainties with
respect to our ability to successfully commercialize our PowerBuoy systems in the emerging renewable energy
market. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or
annual basis.
Results of Operations
Fiscal Years Ended April 30, 2010 and 2009
The following table contains statement of operations information, which serves as the basis of the discussion of
our results of operations for the years ended April 30, 2010 and 2009:
Fiscal Year Ended
April 30, 2010
Fiscal Year Ended
April 30, 2009
Amount
As a % of
Revenues
Amount
As a % of
Revenues(1)
% Change
2010 Period to
2009 Period
Revenues . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . .
$ 5,101,311
4,298,955
100% $ 4,049,445
4,840,403
84
Gross profit (loss) . . . . . . . . . . . . . . . . . .
802,356
16
(790,958)
Operating expenses:
Product development costs. . . . . . . . . .
Selling, general and administrative
13,001,550
255
8,372,244
costs . . . . . . . . . . . . . . . . . . . . . . . .
9,063,482
Total operating expenses . . . . . . . . . . . . .
22,065,032
Operating loss. . . . . . . . . . . . . . . . . . . . .
Interest income, net. . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain (loss) . . . . . . . . . .
(21,262,676)
1,032,484
557,540
540,644
178
433
(417)
20
11
11
9,529,071
17,901,315
(18,692,273)
1,672,350
—
(1,295,227)
(19,132,008)
(375)
(18,315,150)
100%
120
(20)
207
235
442
(462)
41
—
(32)
(452)
26%
(11)
201
55
(5)
23
14
(38)
—
142
4
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to the
noncontrolling interest in Ocean
Power Technologies (Australasia)
Pty Ltd . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to Ocean Power
(38,299)
(1)
—
—
—
Technologies, Inc.
. . . . . . . . . . . . . . .
$(19,170,307)
(376)% $(18,315,150)
(452)%
5%
(1) Certain subtotals may not add due to rounding.
Revenues
Revenues increased by $1.1 million in fiscal 2010, or 26%, to $5.1 million as compared to $4.0 million in fiscal
2009. The change in revenues was primarily attributable to the following factors:
• Revenues relating to our autonomous PowerBuoy system increased by $1.8 million as a result of work on
projects with the US Navy to provide our PowerBuoy technology to the US Navy’s Deep Water Active
Detection System and Littoral Expeditionary Autonomous PowerBuoy program.
• Revenues relating to our utility PowerBuoy system decreased by $0.7 million due primarily to a decrease in
billable work on our wave power station off the coast of Spain, as work under this phase of the project neared
49
completion, coupled with a reduction in the expected contract value of this project in late fiscal 2009. Also, a
decrease in revenue related to our Hawaii project for the US Navy, partially offset by an increase in revenue
related to our project off the coast of Reedsport, Oregon.
Cost of revenues
Cost of revenues decreased by $0.5 million, or 11%, to $4.3 million in fiscal 2010, as compared to $4.8 million
in fiscal 2009. This decrease in cost of revenues reflected the lower level of activity on our project off the coast of
Spain, offset by increased activity related to our autonomous PowerBuoy projects for the US Navy.
We operated at a gross profit of $0.8 million in fiscal 2010 and a gross loss of $0.8 million in fiscal 2009.
Certain of our projects in fiscal 2010 and 2009 were under cost sharing contracts. Under cost sharing contracts we
receive a fixed amount agreed upon with the customer that is only intended to fund a portion of the costs on a
specific project. We fund the remainder of the costs as part of our product development efforts. Revenue is typically
recorded using percentage-of-completion based on the amount agreed upon with the customer. An equal amount
corresponding to the revenue is recorded in cost of revenues resulting in gross profit on these contracts of zero. Our
share of the costs is considered to be product development expense. Approximately $0.4 million of costs related to
revenue activity during fiscal 2009 had been previously anticipated and accrued as contract loss reserves as of
April 30, 2009. These loss reserves were no longer necessary and, accordingly, reversed in fiscal year 2010
contributing to the increase in a gross profit. Our ability to generate a gross profit will depend on the nature of future
contracts, our success at increasing sales of our PowerBuoy systems and on our ability to manage costs incurred on
fixed price commercial contracts.
Product development costs
Product development costs increased by $4.6 million, or 55% to $13.0 million in fiscal 2010, as compared to
$8.4 million in fiscal 2009. Product development costs were primarily attributable to our efforts to increase the
power output and reliability of our utility PowerBuoy system, especially the 150kW PowerBuoy system. It is our
intent to fund the majority of our research and development expenses over the next several years with sources of
external funding. If we are unable to obtain external funding, we may curtail our research and development
expenses or we may decide to self-fund significant research and development expenses, in which case our product
development costs may continue to increase.
Selling, general and administrative costs
Selling, general and administrative costs decreased $0.4 million, or 5%, to $9.1 million in fiscal 2010, as
compared to $9.5 million in fiscal 2009. The decrease was primarily attributable to a decrease in consulting, legal,
accounting and investor relations expenses partially offset by increased personnel-related expenses.
Interest income
Interest income decreased by $0.7 million, or 38%, to $1.0 million in fiscal 2010, compared to $1.7 million in
fiscal 2009, due to a decrease in cash, cash equivalents and marketable securities. In addition, the average yield
decreased to approximately 1.40% during fiscal 2010 from approximately 1.86% during fiscal 2009.
Other income
Other income was $0.6 million in fiscal 2010, compared to none for fiscal 2009. During the first quarter of
fiscal 2010, we settled a claim which we had against a supplier of engineering services, which resulted in a
settlement in our favor.
Foreign exchange gain (loss)
Foreign exchange gain was $0.5 million in fiscal 2010, compared to a foreign exchange loss of $1.3 million in
fiscal 2009. The difference was primarily attributable to the relative change in value of the British pound sterling,
Euro and Australian dollar compared to the US dollar during the two periods.
50
Fiscal Years Ended April 30, 2009 and 2008
The following table contains statement of operations information, which serves as the basis of the discussion of
our results of operations for the years ended April 30, 2009 and 2008:
Fiscal Year Ended
April 30, 2009
Fiscal Year Ended
April 30, 2008
Amount
As a % of
Revenues(1)
Amount
As a % of
Revenues(1)
% Change
2009 Period to
2008 Period
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 4,049,445
4,840,403
Cost of revenues . . . . . . . . . . . . . . . . . .
100% $ 4,772,017
7,960,042
120
Gross loss . . . . . . . . . . . . . . . . . . . . . .
(790,958)
(20)
(3,188,025)
Operating expenses:
Product development costs . . . . . . . .
Selling, general and administrative
8,372,244
costs . . . . . . . . . . . . . . . . . . . . . . .
9,529,071
Total operating expenses . . . . . . . . . . . .
17,901,315
Operating loss . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . .
Foreign exchange gain (loss) . . . . . . . . .
(18,692,273)
1,672,350
(1,295,227)
207
235
442
(462)
41
(32)
8,255,123
7,732,577
15,987,700
(19,175,725)
4,434,844
84,158
100%
167
(67)
173
162
335
(402)
93
2
(15)%
(39)
(75)
1
23
12
(3)
(62)
1639
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(18,315,150)
(452)% $(14,656,723)
(307)%
25%
(1) Certain subtotals may not add due to rounding.
Revenues
Revenues decreased by $0.8 million in fiscal 2009, or 15%, to $4.0 million as compared to $4.8 million in
fiscal 2008. The change in revenues was primarily attributable to the following factors:
• Revenues relating to our utility PowerBuoy system decreased by $0.8 million due primarily to a decrease in
billable work on our wave power station off the coast of Spain, as this phase of the project neared completion,
and also a reduction in the expected contract value related to the project. Also, decreases in revenue related to
our Hawaii project for the US Navy and our EMEC project in Orkney, Scotland were offset by an increase in
revenue related to our project off the coast of Reedsport, Oregon.
• Revenues relating to our autonomous PowerBuoy system increased by $0.1 million as a result of work on
projects with the US Navy to provide our PowerBuoy technology to a program for data gathering in the
ocean.
Cost of revenues
Cost of revenues decreased by $3.2 million, or 39%, to $4.8 million in fiscal 2009, as compared to $8.0 million
in fiscal 2008. This decrease in cost of revenues reflected the lower level of activity on revenue-bearing contracts,
and the recognition, in fiscal 2008, of an additional $2.4 million of anticipated loss at completion on our contract for
a wave power station off the coast of Spain. The additional anticipated loss was recognized based on a change in
estimated costs associated with this contract and our decision in the fourth quarter of fiscal 2008 to absorb an
additional $1.9 million in costs beyond our contractual obligation for initial cost overruns and certain other costs as
set forth in the agreement for the Spain project.
Product development costs
Product development costs increased $0.1 million, or 1%, to $8.4 million in fiscal 2009, as compared to
$8.3 million in fiscal 2008. Product development costs were primarily attributable to our efforts to increase the
power output of our utility PowerBuoy system, including the 150kW PowerBuoy system.
51
Selling, general and administrative costs
Selling, general and administrative costs increased $1.8 million, or 23%, to $9.5 million in fiscal 2009, as
compared to $7.7 million in fiscal 2008. The increase was primarily attributable to an increase of $1.8 million in
additional payroll and incentive-based costs related to company growth.
Interest income
Interest income decreased by $2.7 million, or 62%, to $1.7 million in fiscal 2009, compared to $4.4 million in
fiscal 2008, due to a decrease in cash, cash equivalents and investments. In addition, the average yield decreased
from approximately 4.05% in fiscal 2008 to approximately 1.86% in fiscal 2009.
Foreign exchange gain (loss)
Foreign exchange loss was $1.3 million in fiscal 2009, compared to a foreign exchange gain of $0.1 million in
fiscal 2008. The difference was primarily attributable to the relative change in value of the British pounds sterling
compared to the US dollar during the two periods.
Liquidity and Capital Resources
Since our inception, the cash flows from customer revenues have not been sufficient to fund our operations and
provide the capital resources for the planned growth of our business. For the three years ended April 30, 2010, our
revenues were $13.9 million, our net losses were $52.1 million and our net cash used in operating activities was
$46.1 million.
Year Ended April 30,
2010
2009
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for noncash operating items . . . . . . . . . . . . . . . . . . . . .
$(19,132,008)
1,181,318
$(18,315,150)
3,669,017
Net cash operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
(17,950,690)
2,180,006
(14,646,133)
(2,061,794)
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
$(15,770,684)
$(16,707,927)
Net cash provided by (used in ) investing activities . . . . . . . . . . . . . .
$ 7,309,086
$(58,579,591)
Net cash (used in) provided by financing activities . . . . . . . . . . . . . .
Effect of exchange rates on cash and cash equivalents. . . . . . . . . . . .
$
$
(99,841)
$
207,199
530,206
$ (1,488,155)
Net cash used in operating activities
Net cash used in operating activities was $15.8 million for fiscal 2010 and $16.7 million for fiscal 2009. The
change was the result of an increase in cash provided by operating assets and liabilities of $4.2 million, offset by an
increase in net loss of $0.8 million, and a decrease in non-cash charges of $2.5 million.
The change in non-cash charges was primarily due to a change in foreign exchange gains (losses) of
$1.8 million due to the relative change in the value of the British pound against the US dollar, a decrease in stock
compensation expense of $0.4 million, a decrease in loss on disposal of equipment of $0.2 million and a decrease in
Treasury note amortization of $0.1 million.
The increase in cash provided by operating assets and liabilities was primarily the result of an increase in cash
provided by accounts payable of $1.3 million, an increase in cash provided by unearned revenues of $1.2 million, an
increase in cash provided by unbilled receivables of $1.2 million and an increase in cash provided by other assets
and liabilities of $1.4 million, partially offset by a decrease in cash provided by accounts receivable of $0.9 million.
The change in accounts payable reflects a net increase in payables to the steel fabricator for our Reedsport, Oregon
project due to timing of receipt of vendor invoices. The changes in unearned revenue and receivables were primarily
due to the timing of billings to customers.
52
Net cash provided by (used in) investing activities
Net cash provided by investing activities was $7.3 million for fiscal 2010 and net cash used in investing
activities was $58.6 million for fiscal 2009. The change was primarily the result of a net decrease in purchases of
securities during fiscal 2010. Also, there was a $0.6 million decrease in purchases of equipment and a $0.3 million
increase in restricted cash for fiscal 2010.
Net cash (used in) provided by financing activities
Net cash used in financing activities was $0.1 million in fiscal 2010 and net cash provided by financing
activities was $0.2 million in fiscal 2009, reflecting a net change in our loans from the State of New Jersey. During
fiscal 2009, we received a $0.25 million loan under the New Jersey Board of Public Utilities Renewable Energy
Business Venture Assistance Program.
Effect of exchange rates on cash and cash equivalents
Effect of exchange rates on cash and cash equivalents was a gain of $0.5 million in fiscal 2010 and a loss of
$1.5 million in fiscal 2009. The change was primarily the result of gains on consolidation of foreign subsidiaries and
foreign denominated cash and cash equivalents.
Liquidity Outlook
We expect to devote substantial resources to continue our development efforts for our PowerBuoy systems and
to expand our sales, marketing and manufacturing programs associated with the commercialization of the
PowerBuoy system. Our future capital requirements will depend on a number of factors, including:
• the cost of development efforts for our PowerBuoy systems;
• the success of our commercial relationships with major customers;
• the cost of manufacturing activities;
• the cost of commercialization activities, including demonstration projects, product marketing and sales;
• our ability to establish and maintain additional commercial relationships;
• the implementation of our expansion plans, including the hiring of new employees;
• potential acquisitions of other products or technologies; and
• the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other
patent-related costs.
We believe that our current cash, cash equivalents and investments will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures at least through fiscal 2012. If existing resources are
insufficient to satisfy our liquidity requirements or if we acquire or license rights to additional product technologies,
we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or
convertible securities could result in dilution to our stockholders. If additional funds are raised through the issuance
of debt securities, these securities could have rights senior to those associated with our common stock and could
contain covenants that would restrict our operations. Financing may not be available in amounts or on terms
acceptable to us. If we are unable to obtain required financing, we may be required to reduce the scope of our
planned product development and marketing efforts, which could harm our financial condition and operating
results.
53
Contractual Obligations
Our major outstanding contractual obligations primarily relate to our facilities leases. We have summarized in
the table below our fixed contractual cash obligations as of April 30, 2010.
Payments Due by Period
Total
Less than
One Year
One to
Three Years
Three to
Five Years
More than
Five Years
Long-term debt . . . . . . . . . . . . . . . $ 345,000
842,000
Operating leases . . . . . . . . . . . . . .
$ 95,000
331,000
$100,000
511,000
$150,000
—
Total . . . . . . . . . . . . . . . . . . . . . . . $1,187,000
$426,000
$611,000
$150,000
$—
—
$—
Our long-term debt consists of an interest-free loan from the New Jersey Economic Development Authority
and a recoverable grant award from the New Jersey Board of Public Utilities. Under the interest-free loan, the
amounts to be repaid each year are determined as a percentage of revenues we receive in that year from our customer
contracts that meet criteria specified in the loan agreement, with any remaining amount due on January 15, 2012.
Under the recoverable grant award, the amount to be repaid is a fixed monthly amount of principal only, repayable
over a five-year period beginning in May 2012.
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet financing activities.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations set forth above are based on our
consolidated financial statements, which have been prepared in accordance with US generally accepted accounting
principles. The preparation of these consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our
estimates and judgments, including those described below. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances. These estimates and
assumptions form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions.
We believe the following accounting policies require significant judgment and estimates by us in the
preparation of our consolidated financial statements.
Revenue recognition and unearned revenues
Generally, we recognize revenue using the percentage-of-completion method based on the ratio of costs
incurred to total estimated costs at completion. In certain circumstances, revenue under contracts that have specified
milestones or other performance criteria may be recognized only when our customer acknowledges that such
criteria have been satisfied. In addition, recognition of revenue (and the related costs) may be deferred for fixed-
price contracts until contract completion if we are unable to reasonably estimate the total costs of the project prior to
completion. Because we have a small number of contracts, revisions to the percentage of completion estimate or
delays in meeting performance criteria or in completing projects may have a significant effect on our revenue for the
periods involved.
Upon anticipating a loss on a contract, we recognize the full amount of the anticipated loss in the current
period. We had loss reserves of $0.8 million as of April 30, 2010 related to one contract and $1.2 million as of
April 30, 2009 related to two contracts. In fiscal 2009, we recognized a loss of $0.8 million on our contract for a
wave power station off the coast of Spain. The additional anticipated loss in 2009 was recognized based on changes
in estimated costs associated with this contract, a reduction in the expected contract value, and our decision in the
fourth quarter of fiscal 2008 to absorb an additional $1.9 million in costs beyond our obligation for initial cost
overruns and certain other costs as set forth in the agreement. Approximately $0.4 million of loss reserves related to
54
the Spanish contract were no longer necessary and, accordingly, were reversed in fiscal 2010, contributing to the
increase in gross profit. Modifications to contract provisions, such as those in connection with the Company’s Spain
construction agreement, as well as modifications in contract loss estimates, may require changes in reserves
established for anticipated contract losses.
Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed.
Unbilled receivables are normally billed and collected within one year. Billings made on contracts are recorded
as a reduction in unbilled receivables, and to the extent that those billings exceed costs incurred plus applicable
profit margin, they are recorded as unearned revenues.
Stock-based compensation
Costs resulting from all share-based payment transactions are recognized in the consolidated financial
statements at their fair values. Compensation cost for the portion of the awards for which the requisite service
had not been rendered that were outstanding as of May 1, 2006 is being recognized in the consolidated statements of
operations over the remaining service period after such date based on the award’s original estimated fair value.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the date
of grant using any valuation model requires judgment. We use the Black-Scholes option pricing model to estimate
the fair value of employee stock options. Option pricing models, including the Black-Scholes model, require the use
of input assumptions, including expected volatility, expected term and the expected dividend rate. Because our
stock has been publicly traded in the United States only since April 2007, we do not have a significant observable
share-price volatility for the United States capital markets; therefore, we estimate our expected volatility based on
that of what we consider to be similar publicly-traded companies and expect to continue to do so until such time as
we have adequate historical data from our traded share price in the United States. We did not estimate our expected
volatility based on the price of our common stock on the AIM market of the London Stock Exchange on which our
shares have traded since October 2003, because we do not believe, based on the historically low trading volume of
our shares on that market, that the volatility of our common stock on the AIM market is an appropriate indicator of
the expected volatility of our common stock. Prior to fiscal 2007, we estimated the expected term of our options
using our best estimate of the period of time from the grant date that we expect the options to remain outstanding.
Beginning in fiscal 2007, we estimate the expected term using the average midpoint between the vesting terms and
the contractual terms of our options as permitted by the Securities and Exchange Commission’s Staff Accounting
Bulletin No. 107, Share-Based Payment. If we determine another method to estimate expected volatility or expected
term is more reasonable than our current methods, or if another method for calculating these input assumptions is
prescribed by authoritative guidance, the fair value calculated for future stock-based awards could change
significantly. Higher volatility and longer expected terms have a significant impact on the value of stock-based
compensation determined at the date of grant. The expected dividend rate is not as significant to the calculation of
the fair value of our stock-based awards.
In addition, we are required to develop an estimate of the number of stock-based awards that will be forfeited
due to employee turnover. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported
stock-based compensation. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an
adjustment is made to increase the estimated forfeiture rate, which will result in a decrease to the expense
recognized in the consolidated financial statements during the quarter of the change. If the actual forfeiture rate is
lower than the estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate, which
will result in an increase to the expense recognized in the consolidated financial statements. These adjustments
affect our cost of revenues, product development costs and selling, general and administrative costs. To date, the
effect of forfeiture adjustments on our consolidated financial statements has been insignificant. The expense we
recognize in future periods could differ significantly from the current period and/or our forecasts due to adjustments
in the assumed forfeiture rates.
The aggregate share-based compensation expense, related to all share-based transactions related to employees
was approximately $1.1 million, $1.5 million and $1.8 million in fiscal 2010, 2009 and 2008, respectively.
55
Income taxes
We account for income taxes under the asset and liability method. Under this method, we determine deferred
tax assets and liabilities based upon the differences between the financial statement carrying amounts and the tax
bases of assets and liabilities, as well as net operating loss and tax credit carryforwards, using enacted tax rates in
effect for the year in which such items are expected to affect taxable income. The tax consequences of most events
recognized in the current year’s financial statements are included in determining income taxes currently payable.
However, because tax laws and financial accounting standards differ in their recognition and measurement of assets,
liabilities, equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income and
pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in the
financial statements. Because we assume that the reported amounts of assets and liabilities will be recovered and
settled, respectively, a difference between the tax basis of an asset or a liability and its reported amount in the
balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are
settled or the reported amounts of the assets are recovered, giving rise to a deferred tax asset or deferred tax liability.
We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the
extent we believe that recovery is not likely, we establish a valuation allowance. As discussed in Note 12 to our
consolidated financial statements included in this Annual Report, we have established a valuation allowance for our
net deferred tax assets, which was $33.1 million as of April 30, 2010 and $25.5 million as of April 30, 2009.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued guidance on business
combinations, which establishes the principles and requirements for how an acquirer recognizes the assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquirer at the acquisition date, measured
at their fair values as of that date, with limited exceptions. This new guidance applies to business combinations for
which the acquisition date is after the beginning of the first annual reporting period beginning after December 15,
2008. Accordingly, the Company applied the new guidance to business combinations occurring on or after May 1,
2009. As of April 30, 2010, the Company has not had any such transactions.
In December 2007, the FASB issued guidance which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity that should be recorded as a component of
equity in the consolidated financial statements. This statement also requires that consolidated net income shall be
adjusted to include the net income attributed to the noncontrolling interest. It also requires that net losses be
attributed to the noncontrolling interest even if they exceed the noncontrolling interest’s equity balance. Disclosure
on the face of the statement of operations of the amounts of consolidated net income attributable to the parent and to
the noncontrolling interest is required. The provisions of the new guidance are effective for the Company for interim
periods and the fiscal year beginning May 1, 2009. Adoption of the new guidance did not have a material impact on
the Company’s consolidated financial statements other than the presentation of a noncontrolling interest in Ocean
Power Technologies (Australasia) Pty Ltd. in the Company’s consolidated financial statements. Net income
attributable to the noncontrolling interest in OPTA was $38,299 for the year ended April 30, 2010. For the years
ended April 30, 2009 and 2008, the Company recorded 100% of the losses associated with OPTA. Had this current
guidance been in place for fiscal 2009 and 2008, the Company would have recorded a net loss that was lower by
$42,049 and $25,971, respectively.
In April 2009, the FASB issued additional guidance for fair value measurement, which provides guidance on
how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability
has significantly decreased. This guidance also identifies circumstances that indicate a transaction is not orderly. In
addition, this guidance requires disclosure in interim and annual periods of the inputs and valuation techniques used
to measure fair value and a discussion of changes in valuation techniques. The new guidance is effective for interim
and annual reporting periods ending after June 15, 2009. Adoption of the new guidance did not have any impact on
the Company’s financial position or results of operations.
In April 2009, the FASB issued new guidance which changes existing guidance for determining whether debt
securities are other-than-temporarily impaired and replaces the existing requirement that the entity’s management
56
assert it has both the intent and ability to hold an impaired security until recovery with a requirement that
management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have
to sell the security before recovery of its cost basis. The new guidance requires entities to separate an
other-than-temporary impairment of a debt security into two components when there are credit related losses
associated with the impaired debt security for which management asserts that it does not have the intent to sell the
security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.
The amount of the other-than-temporary impairment related to a credit loss is recognized in earnings, and the
amount of the other-than-temporary impairment related to other factors is recorded in other comprehensive income
(loss). The new guidance is effective for interim and annual reporting periods ended after June 15, 2009. Adoption
of the new guidance did not have any impact on the Company’s financial position or results of operations.
In April 2009, the FASB issued guidance revising disclosures about fair values of financial instruments in
interim and annual financial statements. Prior to this guidance, disclosures about fair values of financial instruments
were only required to be disclosed annually. The new guidance requires disclosures about fair value of financial
instruments in interim and annual financial statements. Adoption of the new guidance did not affect the Company’s
financial position or results of operations.
In May 2009 (amended February 2010), the FASB issued guidance which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date but before financial statements are
issued or available to be issued. It sets forth the period after the balance sheet date during which management shall
evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in
its financial statements and the disclosures that an entity shall make about events or transactions that occurred after
the balance sheet date. The new guidance is effective for interim and annual periods ended after June 15, 2009.
In June 2009, the FASB issued additional guidance that amended the existing accounting and disclosure guidance
for the consolidation of variable interest entities. The amended guidance requires enhanced disclosures intended to
provide users of financial statements with more transparent information about an enterprise’s involvement in a variable
interest entity. This guidance became effective for the Company beginning on January 1, 2010. Adoption of the new
guidance did not have any impact on the Company’s financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We generally place our investments in money market funds, Treasury notes, Treasury bills and certificates of
deposit with maturities of less than one year. We actively manage our portfolio of cash equivalents and investments,
but in order to ensure liquidity, we will only invest in instruments with high credit quality where a secondary market
exists. We have not held and do not hold any derivatives related to our interest rate exposure. Due to the average
maturity and conservative nature of our investment portfolio, a change in interest rates would not have a material
effect on the value of the portfolio. We do not have market risk exposure on our long-term debt because it consists of
an interest-free loan from the New Jersey Economic Development Authority and a recoverable grant award from the
New Jersey Board of Public Utilities.
Management estimates that had the average yield on our cash, cash equivalents, and investments decreased by
100 basis points, our interest income for the year ended April 30, 2010 would have decreased by $0.7 million. This
estimate assumes that the decrease occurred on the first day of fiscal 2009 and reduced the yield of each investment
by 100 basis points. The impact on our future interest income of future changes in investment yields will depend
largely on the gross amount of our cash, cash equivalents, and investments.
We transact business in various countries and have exposure to fluctuations in foreign currency exchange rates.
Foreign exchange gains and losses arise in the translation of foreign-denominated assets and liabilities, which may
result in realized and unrealized gains or losses from exchange rate fluctuations. Since we conduct our business in US
dollars and our functional currency is the US dollar, our main foreign exchange exposure, if any, results from changes
in the exchange rate between the US dollar and the British pounds sterling, the Euro and the Australian dollar.
We invest in certificates of deposit and maintain cash accounts that are denominated in British pounds sterling,
Euros and Australian dollars. These foreign denominated certificates of deposit and cash accounts had a balance of
57
$4.1 million as of April 30, 2010 and $8.5 million as of April 30, 2009, compared to our short-term and long-term
investments and cash account balances of $66.8 million as of April 30, 2010 and $81.7 million as of April 30, 2009.
These foreign currency balances are translated at each month end to our functional currency, the US dollar, and any
resulting gain or loss is recognized in our results of operations. If the foreign currency exchange rates had fluctuated
by 10% as of April 30, 2010, the impact on our foreign exchange gains and losses would have been $0.4 million.
In addition, a portion of our operations is conducted through our subsidiaries in countries other than the United
States, specifically Ocean Power Technologies Ltd. in the United Kingdom, the functional currency of which is the
British pounds sterling, and Ocean Power Technologies (Australasia) Pty Ltd. in Australia, the functional currency
of which is the Australian dollar. Both of these subsidiaries have foreign exchange exposure that results from
changes in the exchange rate between their functional currency and other foreign currencies in which they conduct
business. All of our international revenues for the year ended April 30, 2010 were recorded in Euros, British pounds
sterling or Australian dollars.
We currently do not hedge exchange rate exposure. However, we assess the anticipated foreign currency
working capital requirements and capital asset acquisitions of our foreign operations and attempt to maintain a
portion of our cash and cash equivalents denominated in foreign currencies sufficient to satisfy these anticipated
requirements. We also assess the need and cost to utilize financial instruments to hedge currency exposures on an
ongoing basis and may hedge against exchange rate exposure in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are listed in Item 15 — “Exhibits and
Financial Statement Schedules” of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was
performed as of the end of the period covered by this report. This evaluation was performed under the supervision
and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures are effective in providing reasonable assurance that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective in providing
reasonable assurance that such information is recorded, processed, summarized and reported within the time
periods specified by the SEC’s rules and forms.
The annual report of management on the Company’s internal control over financial reporting is provided under
“Reports of Management” on page F-2.
The attestation report of KPMG LLP, the Company’s independent registered public accounting firm, regarding
the Company’s internal control over financial reporting is provided under “Report of Independent Registered Public
Accounting Firm” on page F-3.
During the quarter ended April 30, 2010, there were no changes in the Company’s internal control over
financial reporting that materially affected, or are reasonably likely to materially affect, such internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
58
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to this item is set forth in the Proxy Statement for the 2010 Annual Meeting of
Stockholders (the “Proxy Statement”) under the headings “Election of Directors,” “Executive Officers,” “Sec-
tion 16(a) Beneficial Ownership Reporting Compliance,” “Code of Ethics and Business Conduct” and “Corporate
Governance and Board Matters,” and is incorporated herein by reference. The Proxy Statement will be filed with the
SEC within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is set forth in the Proxy Statement under the headings “Executive
Compensation” and “Director Compensation,” and is incorporated herein by reference. The Proxy Statement will be
filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information with respect to this item is set forth in the Proxy Statement under the headings “Security
Ownership of Certain Beneficial Owners and Management” and “Executive Compensation,” and is incorporated
herein by reference. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year
covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information with respect to this item is set forth in the Proxy Statement under the headings “Certain
Relationships and Related Party Transactions” and “Corporate Governance and Board Matters,” and is incorporated
herein by reference. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year
covered by this Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to this item is set forth in the Proxy Statement under the heading “Ratification of the
Selection of Independent Registered Public Accounting Firm,” and is incorporated herein by reference. The Proxy
Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements: See Index to Consolidated Financial Statements on page F-1.
(3) Exhibits: See Exhibits Index on pages 61 to 62.
59
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: July 14, 2010
OCEAN POWER TECHNOLOGIES, INC.
By: /s/ CHARLES F. DUNLEAVY
Charles F. Dunleavy
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/
/s/
/s/
/s/
/s/
/s/
/s/
CHARLES F. DUNLEAVY
Charles F. Dunleavy
GEORGE W. TAYLOR
George W. Taylor
BRIAN M. POSNER
Brian M. Posner
SEYMOUR S. PRESTON III
Seymour S. Preston III
THOMAS J. MEANEY
Thomas J. Meaney
PAUL F. LOZIER
Paul F. Lozier
J. VICTOR CHATIGNY
J. Victor Chatigny
Director, Chief Executive Officer
(Principal Executive Officer)
July 14, 2010
Executive Chairman of the Board of Directors
July 14, 2010
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Director
Director
Director
Director
July 14, 2010
July 14, 2010
July 14, 2010
July 14, 2010
July 14, 2010
60
Exhibit
Number
3.1
3.2
4.1
10.1+
Exhibits Index
Description
Restated Certificate of Incorporation of the registrant (incorporated by reference from Exhibit 3.1 to
Form 10-Q filed September 14, 2007)
Amended and Restated Bylaws of the registrant (incorporated by reference from Exhibit 3.2 to Form 10-Q
filed September 14, 2007)
Specimen certificate of common stock (incorporated by reference from Exhibit 4.1 to Form S-1/A filed
March 19, 2007)
Engineering, Procurement and Construction of a Wave Energy Power Plant at “Punta del Pescador”
(Santoña, Spain), dated July 27, 2006, between Iberdrola Energias Marinas de Cantabria, S.A. and Ocean
Power Technologies Limited (incorporated by reference from Exhibit 10.1 to Form S-1 filed
November 13, 2006)
10.2+ Contract Number N00014-05-C-0384, dated September 20, 2005, between the Office of Naval Research,
U.S. Navy and Ocean Power Technologies,
amended by the Amendment of
Solicitation/Modification of Contract dated March 22, 2007 (incorporated by reference from
Exhibit 10.2 to Form S-1 filed November 13, 2006)
Inc.,
as
10.5
10.4
10.3+ Contract Number N00014-02-C-0053, dated February 8, 2002, between the Office of Naval Research,
U.S. Navy and Ocean Power Technologies Inc., as modified (incorporated by reference from Exhibit 10.3
to Form S-1 filed November 13, 2006)
Option Agreement for Purchase of Emissions Credits, dated November 24, 2000 between Ocean Power
Technologies, Inc. and its affiliates and Woodside Sustainable Energy Solutions Pty. Ltd. (incorporated by
reference from Exhibit 10.4 to Form S-1 filed November 13, 2006)
1994 Stock Option Plan (incorporated by reference from Exhibit 10.5 to Form S-1 filed November 13,
2006)*
Incentive Stock Option Plan (incorporated by reference from Exhibit 10.6 to Form S-1 filed November 13,
2006)*
2001 Stock Plan (incorporated by reference from Exhibit 10.7 to Form S-1 filed November 13, 2006)*
2006 Stock Incentive Plan (incorporated by reference from Exhibit 10.8 to Form S-1/A filed March 19,
2007)*
Amended and Restated Voting and Right of First Refusal Agreement, dated April 18, 2005, between
Ocean Power Technologies, Inc., George W. Taylor and JoAnne E. Burns (incorporated by reference from
Exhibit 10.9 to Form S-1 filed November 13, 2006)
10.7
10.8
10.9
10.6
10.10 Agreement to Refinance, dated November 14, 1993 between Joseph R. Burns, Michael Y. Epstein, George
W. Taylor and Ocean Power Technologies, Inc. (incorporated by reference from Exhibit 10.10 to Form S-1
filed November 13, 2006)
10.11 Amended and Restated Employment Agreement, dated April 8, 2009, between Charles F. Dunleavy and
Ocean Power Technologies, Inc. (incorporated by reference from Exhibit 10.2 to Form 8-K filed April 13,
2009)*
10.12 Amended and Restated Employment Agreement, dated April 8, 2009, between George W. Taylor and
Ocean Power Technologies, Inc. (incorporated by reference from Exhibit 10.1 to Form 8-K filed April 13,
2009)*
10.15
10.14
10.13 Consultant Agreement, dated August 1, 1999, between Thomas J. Meaney and Ocean Power
Technologies, Inc. (incorporated by reference from Exhibit 10.13 to Form S-1 filed November 13, 2006)
Employment Agreement, dated September 9, 2004, between Mark R. Draper and Ocean Power
Technologies Ltd. (incorporated by reference from Exhibit 10.14 to Form S-1 filed November 13, 2006)*
Lease Agreement, dated August 30, 2005 between Ocean Power Technologies, Inc. and Reed Road
Industrial Park LLC #1, as amended on January 27, 2006 (incorporated by reference from Exhibit 10.16 to
Form S-1 filed November 13, 2006)
Lease, dated January 15, 2007, between University of Warwick Science Park Innovation Centre Limited
and Ocean Power Technologies Ltd. (incorporated by reference from Exhibit 10.17 to Form S-1/A filed
March 19, 2007)
10.16
61
Exhibit
Number
Description
10.17 Agreement for Renewable Energy Economic Development Grants, dated November 3, 2003, between
State of New Jersey Board of Public Utilities and Ocean Power Technologies, Inc. (incorporated by
reference from Exhibit 10.18 to Form S-1/A filed March 19, 2007)
10.18 Contract Number DM259735, dated September 17, 2005 between Lockheed Martin Corporation
Inc., as modified
Maritime Systems and Sensors
(incorporated by reference from Exhibit 10.20 to Form S-1/A filed March 19, 2007)
(MS2) and Ocean Power Technologies,
10.19 Marketing Cooperation Agreement, dated September 9, 2006, between Ocean Power Technologies, Inc.
and Lockheed Martin Corporation through its Maritime Systems and Sensors business unit (incorporated
by reference from Exhibit 10.21 to Form S-1/A filed April 10, 2007)
10.20 Contract Number N00014-07-C-0617, dated May 24, 2007, between the Office of Naval Research, U.S.
Navy and Ocean Power Technologies, Inc. (incorporated by reference from Exhibit 99.1 to Form 8-K filed
June 8, 2007)
10.21 Modification of Contract, dated September 13, 2007, modifying Contract Number N00014-02-C-0053,
between the Office of Naval Research, U.S. Navy and Ocean Power Technologies, Inc., as modified
(incorporated by reference from Exhibit 10.1 to Form 10-Q filed December 17, 2007)
10.22 Modification of Contract, dated September 26, 2007, modifying Contract Number N00014-05-C-0384,
between the Office of Naval Research, U.S. Navy and Ocean Power Technologies, Inc., as modified.
(incorporated by reference from Exhibit 10.2 to Form 10-Q filed December 17, 2007
10.23 Addendum to the Agreement for the Engineering, Procurement and Construction of a Wave Energy Power
Plant at “Punta del Pescador” (Santoña, Spain), between Iberdrola Energias Marinas de Cantabria, S.A.
and Ocean Power Technologies Limited, dated February 18, 2008 (incorporated by reference from
Exhibit 10.27 to Form 10-K filed July 14, 2008)
Lease, dated February 1, 2008, between KUC Properties Limited and Ocean Power Technologies Ltd.
(incorporated by reference from Exhibit 10.28 to Form 10-K filed July 14, 2008)
Financial Assistance Award agreement between Ocean Power Technologies, Inc. and US Department of
Energy date September 23, 2008 (incorporated by reference from Exhibit 10.1 to Form 10-Q filed
December 10, 2008)
10.25
10.24
10.26 Modification of Financial Assistance Award agreement between Ocean Power Technologies, Inc. and US
Department of Energy dated October 16, 2008 (incorporated by reference from Exhibit 10.2 to Form 10-Q
filed December 10, 2008)
10.28
10.27 Agreement between Ocean Power Technologies, Inc. and the Office of Naval Research of the US Navy
dated October 31, 2008 (incorporated by reference from Exhibit 10.3 to Form 10-Q filed December 10,
2008)
Employment Agreement, dated May 19, 2010, between Brian M. Posner and Ocean Power Technologies,
Inc.
Subsidiaries of the registrant
Consent of KPMG LLP
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
21.1
23.1
31.1
31.2
32.1
32.2
+ Confidential treatment requested as to certain portions, which portions have been omitted and filed separately
with the SEC.
* Management contract or compensatory plan or arrangement
62
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Reports of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets, April 30, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations, Years ended April 30, 2010, 2009 and 2008. . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss, Years ended April 30, 2010,
2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows, Years ended April 30, 2010, 2009 and 2008 . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-1
Reports of Management
Management’s Report on Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared by the Ocean Power Technologies,
Inc.’s (the Company) management in conformity with generally accepted accounting principles to reflect the
financial position of the Company and its operating results. The financial information appearing throughout this
Annual Report is consistent with the consolidated financial statements. Management is responsible for the
information and representations in such consolidated financial statements, including the estimates and judgments
required for their preparation. The consolidated financial statements have been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report, which appears herein.
The Audit Committee of the Board of Directors, which is composed entirely of directors who are not officers or
employees of the Company, meets regularly with management and the independent registered public accounting
firm. The independent registered public accounting firm has had, and continues to have, direct access to the Audit
Committee without the presence of other management personnel, and have been directed to discuss the results of
their audit work and any matters they believe should be brought to the Committee’s attention. The independent
registered public accounting firm reports directly to the Audit Committee.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the United States. The Company’s internal control
over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the
Company; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial
reporting as of April 30, 2010. In making this assessment, management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.
Based on this assessment using those criteria, management concluded that the Company’s internal control over
financial reporting was effective as of April 30, 2010.
The effectiveness of the Company’s internal control over financial reporting as of April 30, 2010 has been
audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which appears
herein.
/s/ CHARLES F. DUNLEAVY
Charles F. Dunleavy
Chief Executive Officer
/s/ BRIAN M. POSNER
Brian M. Posner
Chief Financial Officer
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ocean Power Technologies, Inc.:
We have audited Ocean Power Technologies, Inc.’s internal control over financial reporting as of April 30,
2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Ocean Power Technologies, Inc.’s management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Ocean Power Technologies, Inc. maintained, in all material respects, effective internal control
over financial reporting as of April 30, 2010, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Ocean Power Technologies, Inc. and subsidiaries as of April 30,
2010 and 2009, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss,
and cash flows for each of the years in the three-year period ended April 30, 2010, and our report dated July 14, 2010
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Philadelphia, Pennsylvania
July 14, 2010
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ocean Power Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Ocean Power Technologies, Inc. and
subsidiaries as of April 30, 2010 and 2009, and the related consolidated statements of operations, stockholders’
equity and comprehensive loss, and cash flows for each of the years in the three-year period ended April 30, 2010.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Ocean Power Technologies, Inc. and subsidiaries as of April 30, 2010 and 2009, and the
results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2010, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Ocean Power Technologies, Inc.’s internal control over financial reporting as of April 30, 2010,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated July 14, 2010 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Philadelphia, Pennsylvania
July 14, 2010
F-4
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
April 30,
2010
2009
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,236,597
32,536,001
1,474,600
448,686
1,005,885
39,701,769
710,563
1,036,881
1,205,288
28,865,046
1,458,646
$ 72,978,193
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,843,378
4,092,113
1,101,541
95,386
7,132,418
250,000
—
600,000
140,685
8,123,103
Commitments and contingencies (note 13)
Ocean Power Technologies, Inc. Stockholders’ equity:
12,267,830
40,849,736
985,149
988,418
1,082,696
56,173,829
897,718
909,727
951,552
28,619,528
1,241,552
88,793,906
908,837
3,760,039
281,570
93,398
5,043,844
345,386
21,649
600,000
—
6,010,879
Preferred stock, $0.001 par value; authorized 5,000,000 shares, none issued
or outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.001 par value; authorized 105,000,000 shares, issued and
outstanding 10,390,563 and 10,210,354 shares, respectively . . . . . . . . . . .
Treasury stock, 1,072 and 0 shares at cost, respectively . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
10,391
(6,443)
155,726,672
(90,413,098)
(503,322)
10,210
—
154,568,931
(71,242,791)
(553,323)
Total Ocean Power Technologies, Inc. stockholders’ equity . . . . . . . . . . . .
64,814,200
82,783,027
Noncontrolling interest in Ocean Power Technologies (Australasia) Pty Ltd.
. .
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,890
64,855,090
—
82,783,027
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 72,978,193
88,793,906
See accompanying notes to consolidated financial statements.
F-5
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
2010
Year Ended April 30,
2009
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,101,311
4,298,955
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,049,445
4,840,403
2008
4,772,017
7,960,042
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
802,356
(790,958)
(3,188,025)
Operating expenses:
Product development costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative costs . . . . . . . . . . . . . . . .
13,001,550
9,063,482
8,372,244
9,529,071
8,255,123
7,732,577
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
22,065,032
17,901,315
15,987,700
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,262,676)
1,032,484
557,540
540,644
(18,692,273)
1,672,350
—
(1,295,227)
(19,175,725)
4,434,844
—
84,158
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to the noncontrolling interest in
Ocean Power Technologies (Australasia) Pty Ltd . . . . . . . .
(19,132,008)
(18,315,150)
(14,656,723)
(38,299)
—
—
Net loss attributable to Ocean Power Technologies, Inc . . . . . . . $(19,170,307)
(18,315,150)
(14,656,723)
Basic and diluted net loss per share . . . . . . . . . . . . . . . . . . . . . . $
(1.88)
(1.79)
(1.44)
Weighted average shares used to compute basic and diluted net
loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,217,003
10,210,354
10,200,729
See accompanying notes to consolidated financial statements.
F-6
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
Common Shares
Shares
Treasury Shares
Amount Shares Amount
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total Ocean
Power
Technologies, Inc,
Stockholders
Equity
Noncontrolling
Interest
Total
Equity
112,541,209
(14,656,723)
(495)
(14,657,218)
1,788,841
137,982
287,795
100,098,609
(18,315,150)
(512,098)
(18,827,248)
1,475,215
36,451
Balance, May 1, 2007 . . .
. . .
Net loss . .
. . .
. .
. . .
. . .
. .
. .
. . .
. . .
. 10,186,254 $10,186
—
—
.
Foreign currency translation adjustment .
Total comprehensive loss . . .
. .
Compensation related to stock option
. .
grants issued to employees . .
. . .
. . .
Compensation related to stock option
. .
grants issued for services . . .
. . .
Proceeds from exercise of stock options .
.
.
.
.
.
—
—
—
—
24,100
—
—
24
Balance, April 30, 2008. .
. . .
Net loss . .
. . .
. .
. . .
. . .
. .
. .
. . .
. . .
. 10,210,354
—
.
10,210
—
—
—
—
—
—
—
—
—
—
—
—
— 150,842,671
—
(38,270,918)
— (14,656,723)
—
—
—
—
—
1,788,841
137,982
287,771
—
—
—
—
(40,730)
—
(495)
—
—
—
— 153,057,265
—
(52,927,641)
— (18,315,150)
(41,225)
—
—
—
—
(512,098)
Foreign currency translation adjustment .
Total comprehensive loss . . .
. .
Compensation related to stock option
grants and restricted stock issued to
. .
employees . . .
. . .
. . .
. .
. . .
. . .
Compensation related to stock option
grants and restricted stock issued for
. .
services .
. . .
. . .
. . .
. .
. . .
. .
Balance, April 30, 2009. .
Net loss attributable to Ocean Power
. .
Technologies, Inc.
. . .
. . .
. . .
. . .
Foreign currency translation adjustment .
Total comprehensive loss . . .
. .
. . .
Compensation related to stock option
grants and restricted stock issued to
. .
. .
employees . . .
Compensation related to stock option
grants and restricted stock issued to
non-employees . .
. . .
. . .
. . .
. . .
. .
. . .
. . .
Issuance of vested and unvested restricted
. . .
stock to employees . . .
. . .
. .
stock to non-employees
Issuance of vested and unvested restricted
. . .
. . .
. . .
Acquisition of treasury stock . .
. .
. .
.
.
.
.
.
.
.
.
.
.
.
.
. . .
. 10,210,354
10,210
— 154,568,931
(71,242,791)
(553,323)
82,783,027
—
—
—
1,475,215
—
36,451
—
—
—
—
—
—
— (19,170,307)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,072,935
—
—
—
—
168,000
168
12,209
—
—
13
— (1,072)
—
(6,443)
45,000
(168)
39,974
—
—
50,001
—
—
—
—
—
(19,170,307)
50,001
(19,120,306)
1,072,935
45,000
—
39,987
(6,443)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38,299
2,591
40,890
—
—
—
—
—
112,541,209
(14,656,723)
(495)
(14,657,218)
1,788,841
137,982
287,795
100,098,609
(18,315,150)
(512,098)
(18,827,248)
1,475,215
36,451
82,783,027
(19,132,008)
52,592
(19,079,416)
1,072,935
45,000
—
39,987
(6,443)
Balance, April 30, 2010. .
. . .
. .
. . .
. 10,390,563 $10,391
(1,072)
(6,443) 155,726,672
(90,413,098)
(503,322)
64,814,200
40,890
64,855,090
See accompanying notes to consolidated financial statements.
F-7
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended April 30,
2009
2010
2008
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(19,132,008) (18,315,150) (14,656,723)
Adjustments to reconcile net loss to net cash used in operating activities:
Foreign exchange (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury note premium amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock option grants and restricted stock . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
(540,644)
365,755
113,087
146,834
1,117,935
(21,649)
1,295,227
299,405
268,976
288,331
1,511,666
5,412
(84,158)
241,721
—
—
1,926,823
5,412
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
(474,407)
603,765
77,278
(202,731)
953,815
246,816
827,786
—
147,684
(15,770,684)
472,422
(589,970)
140,418
(857,060)
(354,740)
(454,682)
(418,182)
—
—
(878,643)
(270,136)
(918,380)
(76,571)
(122,323)
496,838
699,752
(26,106)
—
(16,707,927) (13,662,494)
Cash flows from investing activities:
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of patent costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in joint ventures and other noncurrent assets . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . .
(33,884,604) (124,675,859) (21,201,607)
67,151,702 17,358,316
41,838,886
(252,080)
—
(419,835)
(239,449)
(112,705)
(153,667)
(27,714)
—
(4,403,545)
7,309,086
—
(811,493)
(243,941)
—
(58,579,591)
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(93,398)
Sale of common stock, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . .
—
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,443)
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . .
(99,841)
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . .
530,206
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
(8,031,233)
12,267,830
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,236,597
250,000
(42,801)
—
—
— (870,116)
287,795
—
—
—
(582,321)
207,199
(1,488,155)
(20,809)
(76,568,474) (18,669,169)
88,836,304 107,505,473
12,267,830 88,836,304
Supplemental disclosure of noncash investing and financing activities:
Capitalized patent costs financed through accounts payable and accrued
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Capitalized purchases of equipment financed through accounts payable . . . . . .
Capitalized investment in joint ventures financed through accrued expenses . . .
66,513
6,360
—
23,255
96,304
175,803
35,048
36,964
—
See accompanying notes to consolidated financial statements.
F-8
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Background
Ocean Power Technologies, Inc. (the Company) was incorporated on April 19, 1984 in the State of New Jersey,
commenced active operations in 1994 and re-incorporated in the State of Delaware in April 2007. The Company
develops and is commercializing proprietary systems that generate electricity by harnessing the renewable energy
of ocean waves. The Company markets and sells its products in the United States and internationally.
During the second quarter of fiscal 2010, the Company adopted The Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC or Codification) and the Hierarchy of Generally Accepted
Accounting Principles (GAAP), which establishes the Codification as the sole source for authoritative US GAAP
and has superseded all accounting standards in US GAAP, aside from those issued by the Securities and Exchange
Commission (SEC). The adoption of the Codification did not have an impact on the Company’s results of
operations, cash flows or financial position. As a result of the adoption of the Accounting Standards Codification
(ASC), the Company’s notes to the consolidated financial statements will no longer make reference to Statement of
Financial Accounting Standards (SFAS) or other US GAAP pronouncements.
(2) Summary of Significant Accounting Policies
(a) Consolidation and Cost Method Investment
The accompanying consolidated financial statements include the accounts of the Company and its majority-
owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Participation of stockholders other than the Company in the net assets and in the earnings or losses of a consolidated
subsidiary is reflected in the caption “Noncontrolling interest” in the Company’s Consolidated Balance Sheets and
Statements of Operations. Noncontrolling interest adjusts the Company’s consolidated results of operations to
reflect only the Company’s share of the earnings or losses of the consolidated subsidiary. As of April 30, 2010, there
was one noncontrolling interest, consisting of 11.8% of the Company’s Australian subsidiary.
In addition, the Company evaluates its relationships with other entities to identify whether they are variable
interest entities, and to assess whether it is the primary beneficiary of such entities. If the determination is made that
the Company is the primary beneficiary, then that entity is included in the consolidated financial statements. As of
April 30, 2010, there are no such entities.
The Company has a 10% investment in Iberdrola Energias Renovables II, S.A. (Iberdrola Energias). Revenues
to Iberdrola Energias for the years ended April 30, 2010, 2009 and 2008 were $178,215, $601,736, and $1,431,983,
respectively. Additionally, aggregate accounts receivable and unbilled receivables from Iberdrola Energias were
$556,491 and $288,203 as of April 30, 2010 and 2009, respectively. See Note 13(c).
(b) Use of Estimates
The preparation of the consolidated financial statements requires management of the Company to make a
number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the period. Significant items subject to such estimates and assumptions include the
recoverability of the carrying amount of property and equipment and patents; valuation allowances for receivables
and deferred income tax assets; and percentage of completion of customer contracts for purposes of revenue
recognition. Actual results could differ from those estimates. The current economic environment has increased the
degree of uncertainty inherent in those estimates and assumptions.
(c) Revenue Recognition
The Company primarily recognizes revenue under the percentage-of-completion method. The percentage of
completion is determined by relating the costs incurred to date to the estimated total costs. The cumulative effects
F-9
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
resulting from revisions of estimated total contract costs and revenues are recorded in the period in which the facts
requiring revision become known. Upon anticipating a loss on a contract, the Company recognizes the full amount
of the anticipated loss in the current period. During the years ended April 30, 2009 and 2008, the Company recorded
provisions of approximately $810,000 and $2,370,000, respectively, related to anticipated losses on contracts.
During the year ended April 30, 2010, the Company reversed approximately $400,000 of the loss reserves
established in fiscal year 2009 as these loss reserves were no longer necessary as of April 30, 2010. During the years
ended April 30, 2009 and 2008 the Company recorded reductions in the contract loss reserves of $1,728,000 and
$2,080,000, respectively. Reserves related to loss contracts in the amounts of approximately $785,000 and
$1,152,000 are included in accrued expenses in the accompanying consolidated balance sheets as of April 30,
2010 and 2009, respectively. Modifications to contract provisions, such as those currently being discussed in
connection with the Company’s Spain construction agreement (see Note 13), as well as modifications in contract
loss estimates, may require changes in reserves established for anticipated contract losses.
Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed.
Unbilled receivables are normally billed and collected within one year. Billings made on contracts are recorded
as a reduction of unbilled receivables, and to the extent that such billings exceed costs incurred plus applicable profit
margin, they are recorded as unearned revenues.
(d) Cash and Cash Equivalents
Cash equivalents consist of investments in short-term financial instruments with initial maturities of three
months or less from the date of purchase. Cash and cash equivalents include $1,590,000 and $4,337,000 of
certificates of deposit with initial maturities of less than three months at April 30, 2010 and 2009, respectively, and
$192,000 and $6,530,000 invested in a money market fund as of April 30, 2010 and 2009, respectively.
(e) Marketable Securities
Marketable securities with original maturities longer than three months but that mature in less than one year
from the balance sheet date are classified as current assets. Marketable securities that mature more than one year
from the balance sheet date are classified as noncurrent assets. Marketable securities that the Company has the
intent and ability to hold to maturity are classified as investments held-to-maturity and are reported at amortized
cost. The difference between the acquisition cost and face values of held-to-maturity investments is amortized over
the remaining term of the investments and added to or subtracted from the acquisition cost and interest income. As
of April 30, 2010 and 2009, all of the Company’s investments were classified as held-to-maturity.
(f) Restricted Cash and Credit Facility
The Company had $1,205,288 and $951,552 of restricted cash as of April 30, 2010 and April 30, 2009,
respectively. The cash is restricted under the terms of two security agreements.
One agreement is between Ocean Power Technologies, Inc. and Barclays Bank. Under this agreement, the cash
is on deposit at Barclays Bank and serves as security for letters of credit that are expected to be issued by Barclays
Bank on behalf of Ocean Power Technologies Ltd., one of the Company’s subsidiaries, under a A800,000 credit
facility established by Barclays Bank for Ocean Power Technologies Ltd. The credit facility is for the issuance of
letters of credit and bank guarantees, and carries a fee of 1% per annum of the amount of any such obligations issued
by Barclays Bank. The credit facility does not have an expiration date, but is cancelable at the discretion of the bank.
As of April 30, 2010, approximately A720,000 is included in restricted cash.
The other agreement is between Ocean Power Technologies, Inc. and the New Jersey Board of Public Utilities
(NJBPU). During the year ended April 30, 2009, the Company received a recoverable grant award from the NJBPU.
Under this agreement, the Company was required to assign to the NJBPU a certificate of deposit in an amount equal
F-10
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
to the outstanding grant balance. In July 2009, the Company assigned a certificate of deposit in the amount of
$250,000 to the NJBPU, which is outstanding as of April 30, 2010.
(g) Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation and
amortization is calculated using the straight-line method over the estimated useful lives (three to seven years) of the
assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated
useful life of the asset or the remaining lease term. Expenses for maintenance and repairs are charged to operations
as incurred. Depreciation was $324,596, $259,696 and $213,977 for the years ended April 30, 2010, 2009 and 2008,
respectively.
(h) Other Income
Other income consists of transactions that the Company considers to be outside the normal scope of its
operations and operating activities. The Company recognized other income of $557,540 during the year ended
April 30, 2010, primarily in connection with the settlement of a claim that it had against a supplier that provided
engineering services to the Company.
(i) Foreign Exchange Gains and Losses
The Company has invested in certain certificates of deposit and has maintained cash accounts that are
denominated in British pounds sterling, Euros and Australian dollars. Such certificates of deposit and cash accounts
had a balance of approximately $4,131,000 and $8,541,000 as of April 30, 2010 and 2009, respectively. These
amounts are included in cash, cash equivalents, restricted cash and marketable securities on the accompanying
balance sheets. Such positions may result in realized and unrealized foreign exchange gains or losses from exchange
rate fluctuations, which are included in foreign exchange gain (loss) in the accompanying consolidated statements
of operations. Foreign exchange gain (loss) was $540,644, ($1,295,227) and $84,158 for the years ended April 30,
2010, 2009 and 2008, respectively.
(j) Patents
External costs related to the filing of patents, including legal and filing fees, are capitalized. Amortization is
calculated using the straight-line method over the life of the patents (17 years). Expenses for the development of
technology are charged to operations as incurred. Amortization expense was $41,064, $39,613 and $27,744 for the
years ended April 30, 2010, 2009 and 2008, respectively. Amortization expense for the next five fiscal years related
to amounts capitalized for patents as of April 30, 2010 is estimated to be approximately $60,000 per year.
(k) Long-Lived Assets
Long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of the asset exceeds its estimated future cash flows, then an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company reviewed its
long-lived assets for impairment and determined there was no impairment for the years ended April 30, 2010, and
2009.
F-11
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(l) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of
cash balances, bank certificates of deposit and trade receivables. The Company invests its excess cash in highly
liquid investments (principally short-term bank deposits, Treasury bills, Treasury notes and a money market fund)
and does not believe that it is exposed to any significant risks related to its cash accounts, money market fund or
certificates of deposit.
The table below shows the percentage of the Company’s revenues derived from customers whose revenues
accounted for at least 10% of the Company’s consolidated revenues for at least one of the periods indicated:
Customer
Years Ended April 30,
2010
2008
2009
US Navy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iberdrola and Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scottish Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80% 67% 58%
4% 18% 31%
8% 10%
5%
The loss of, or a significant reduction in revenues from, any of the current customers could significantly impact
the Company’s financial position or results of operations. The Company does not require collateral from its
customers.
(m) Net Loss per Common Share
Basic and diluted net loss per share for all periods presented is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period. Due to the Company’s net losses,
potentially dilutive securities, consisting of outstanding stock options and non-vested performance-based shares,
were excluded from the diluted loss per share calculation due to their anti-dilutive effect.
In computing diluted net loss per share, 1,528,453, 1,672,263 and 1,445,302 options to purchase shares of
common stock, non-vested restricted stock and shares to be issued to non-employee directors were excluded from
the computations for the years ended April 30, 2010, 2009 and 2008, respectively.
(n) Stock-Based Compensation
Costs resulting from all share-based payment transactions are recognized in the consolidated financial
statements at their fair values. Compensation cost for the portion of the awards for which the requisite service
had not been rendered that were outstanding as of May 1, 2006 is being recognized in the consolidated statements of
operations over the remaining service period after such date based on the award’s original estimated fair value. The
aggregate share-based compensation expense recorded in the consolidated statements of operations for the years
ended April 30, 2010, 2009 and 2008 under SFAS No. 123R was approximately $1,073,000, $1,475,000 and
$1,789,000 respectively.
Valuation Assumptions for Options Granted During the Years Ended April 30, 2010, 2009 and 2008
The fair value of each stock option granted during the years ended April 30, 2010, 2009 and 2008 were
estimated at the date of grant using the Black-Scholes option pricing model, assuming no dividends and using the
weighted average valuation assumptions noted in the following table. The risk-free rate is based on the US Treasury
yield curve in effect at the time of grant. The expected life (estimated period of time outstanding) of the stock
options granted was estimated using the “simplified” method as permitted by the Securities and Exchange
Commission’s Staff Accounting Bulletin No. 107, Share-Based Payment. Expected volatility was based on
F-12
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
historical volatility for a peer group of companies for a period equal to the stock option’s expected life, calculated on
a daily basis.
Years Ended April 30,
2009
2008
2010
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.42 years
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.98%
0.0%
81.8%
3.36%
0.0%
4.69%
0.0%
6.29 years
5.99 years
79.3%
77.9%
The above assumptions were used to determine the weighted average per share fair value of $4.42, $6.33 and
$10.87 for stock options granted during the years ended April 30, 2010, 2009 and 2008, respectively.
(o)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences and operating loss and tax credit carryforwards are
expected to be recovered, settled or utilized. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(p) Accumulated Other Comprehensive Loss
The functional currency for the Company’s foreign operations is the applicable local currency. The translation
from the applicable foreign currencies to US dollars is performed for balance sheet accounts using the exchange
rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during
the period. The unrealized gains or losses resulting from such translation are included in accumulated other
comprehensive loss within stockholders’ equity.
(q) Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued guidance on business
combinations, which establishes the principles and requirements for how an acquirer recognizes the assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquirer at the acquisition date, measured
at their fair values as of that date, with limited exceptions. This new guidance applies to business combinations for
which the acquisition date is after the beginning of the first annual reporting period beginning after December 15,
2008. Accordingly, the Company applied the new guidance to business combinations occurring on or after May 1,
2009. As of April 30, 2010, the Company has not had any such transactions.
In December 2007, the FASB issued guidance which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity that should be recorded as a component of
equity in the consolidated financial statements. This statement also requires that consolidated net income shall be
adjusted to include the net income attributed to the noncontrolling interest. It also requires that net losses be
attributed to the noncontrolling interest even if they exceed the noncontrolling interest’s equity balance. Disclosure
on the face of the statement of operations of the amounts of consolidated net income attributable to the parent and to
the noncontrolling interest is required. The provisions of the new guidance became effective for the Company for
interim periods and fiscal years beginning May 1, 2009. Adoption of the new guidance did not have a material
impact on the Company’s consolidated financial statements other than the presentation of a noncontrolling interest
in Ocean Power Technologies (Australasia) Pty Ltd. in the Company’s consolidated financial statements. Net
F-13
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
income attributable to the noncontrolling interest in Ocean Power Technologies (Australasia) Pty Ltd. was $38,299
for the year ended April 30, 2010. For the years ended April 30, 2009 and 2008, the Company recorded 100% of the
losses associated with Ocean Power Technologies (Australasia) Pty Ltd. Had this current guidance been in place for
fiscal 2009 and 2008, the Company would have recorded a net loss which was lower by $42,049 and $25,971,
respectively.
In April 2009, the FASB issued additional guidance for fair value measurement, which provides guidance on
how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability
has significantly decreased. This guidance also identifies circumstances that indicate a transaction is not orderly. In
addition, this guidance requires disclosure in interim and annual periods of the inputs and valuation techniques used
to measure fair value and a discussion of changes in valuation techniques. The new guidance became effective for
interim and annual reporting periods ending after June 15, 2009. Adoption of the new guidance did not have any
impact on the Company’s financial position or results of operations.
In April 2009, the FASB issued new guidance which changes existing guidance for determining whether debt
securities are other-than-temporarily impaired and replaces the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired security until recovery with a requirement that
management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have
to sell the security before recovery of its cost basis. The new guidance requires entities to separate an
other-than-temporary impairment of a debt security into two components when there are credit related losses
associated with the impaired debt security for which management asserts that it does not have the intent to sell the
security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.
The amount of the other-than-temporary impairment related to a credit loss is recognized in earnings, and the
amount of the other-than-temporary impairment related to other factors is recorded in other comprehensive income
(loss). The new guidance became effective for interim and annual reporting periods ended after June 15, 2009.
Adoption of the new guidance did not have any impact on the Company’s financial position or results of operations.
In April 2009, the FASB issued guidance revising disclosures about fair values of financial instruments in
interim and annual financial statements. Prior to this guidance, disclosures about fair values of financial instruments
were only required to be disclosed annually. The new guidance requires disclosures about fair value of financial
instruments in interim and annual financial statements. Adoption of the new guidance did not affect the Company’s
financial position or results of operations.
In May 2009 (amended February 2010), the FASB issued guidance which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date but before financial statements are
issued or available to be issued. It sets forth the period after the balance sheet date during which management shall
evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in
its financial statements and the disclosures that an entity shall make about events or transactions that occurred after
the balance sheet date. The new guidance is effective for interim and annual periods ended after June 15, 2009.
In June 2009, the FASB issued additional guidance that amended the existing accounting and disclosure
guidance for the consolidation of variable interest entities. The amended guidance requires enhanced disclosures
intended to provide users of financial statements with more transparent information about an enterprise’s
involvement in a variable interest entity. This guidance became effective for the Company beginning on January 1,
2010. Adoption of the new guidance did not have any impact on the Company’s financial position or results of
operations.
F-14
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(3) Marketable Securities
Marketable securities with initial maturities longer than three months but that mature in less than one year from
the balance sheet date are classified as current assets and are summarized as follows:
April 30,
2010
2009
Certificates of deposit denominated in USD . . . . . . . . . . . . . . . . . . . . . $
Certificates of deposit denominated in GBP . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit denominated in AUD . . . . . . . . . . . . . . . . . . . . .
US Treasury obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— 3,685,370
— 3,217,152
—
33,947,214
519,232
32,016,769
$32,536,001
40,849,736
The Company’s marketable securities that mature more than one year from the balance sheet date are classified
as noncurrent assets and are all classified as held-to-maturity, carried at amortized cost and are summarized as
follows. All non-current marketable securities mature within three years from April 30, 2010.
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Market
Value
April 30, 2010
US Treasury obligations . . . . . . . . . . . . . . . . . $25,058,238
3,806,808
Certificate of deposit . . . . . . . . . . . . . . . . . . .
158,672
—
— 25,216,910
3,806,808
—
$28,865,046
158,672
— 29,023,718
April 30, 2009
US Treasury obligations . . . . . . . . . . . . . . . . . $28,619,528
423,095
(20,963)
29,021,660
The April 30, 2009 balance of marketable securities was changed to increase the current portion and decrease
the noncurrent portion by $12,009,000 to reflect the maturities of the securities as of such date.
(4) Property and Equipment
The components of property and equipment are as follows:
Computers and software . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office furniture and equipment . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . .
3 years
3 to 7 years
3 to 7 years
3 to 8 years
$
654,400
661,120
303,918
147,640
581,790
699,838
290,812
141,129
Life
2010
2009
April 30,
Less accumulated depreciation and amortization . . . . . . . .
1,767,078
(1,056,515)
1,713,569
(815,851)
$
710,563
897,718
F-15
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(5) Accrued Expenses
The components of accrued expenses are as follows:
April 30,
2010
2009
Project costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee incentive payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll tax withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and accounting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value-added tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,072,635
785,000
682,400
308,514
491,621
374,208
176,121
154,567
47,047
262,166
1,152,216
672,286
227,739
150,786
306,228
175,803
484,459
328,356
$4,092,113
3,760,039
(6) Related Party Transactions
In August 1999, the Company entered into a consulting agreement with an individual for marketing services.
Currently, this agreement is at a rate of $950 per day of services provided. The individual became a member of the
board of directors in June 2006. Under this consulting agreement, the Company expensed approximately $72,000,
$61,000 and $62,000 during the years ended April 30, 2010, 2009 and 2008, respectively. In addition, this individual
is also the chief executive officer of a company that provided engineering and technical services to the Company.
For the year ended April 30, 2010, the Company incurred expense of approximately $213,000 for such services.
There was no such expense incurred for the years ended April 30, 2009 and 2008.
(7) Debt
During the year ended April 30, 2000, the Company received an award of $250,000 from the State of New
Jersey Commission on Science and Technology for the development of a wave power system that was deployed off
the coast of New Jersey. The award contract was assigned to the New Jersey Economic Development Authority in
fiscal 2008. Under the terms of this award, the Company must repay the amount funded, without interest, by
January 15, 2012. The amounts to be repaid each year are determined as a percentage of revenues (as defined in the
loan agreement) the Company receives that year from its customer contracts that meet criteria specified in the loan
agreement, with any remaining amount due on January 15, 2012. Based upon the terms of the award, the Company
has repaid approximately $154,614, and the remaining $95,386 due has been classified as current portion of long-
term debt on the accompanying balance sheet as of April 30, 2010.
During the year ended April 30, 2009, the Company received $250,000 representing the first half of a
recoverable grant award from the NJBPU under the Renewable Energy Business Venture Assistance Program.
Under the terms of this agreement, the amount to be repaid is a fixed monthly amount of principal only, repayable
over a five-year period beginning in May 2012. The terms also required the Company to assign to the NJBPU a
certificate of deposit in an amount equal to the outstanding grant balance. The Company received the remaining
$250,000 under the grant award in June 2010.
(8) Deferred Credits
During the year ended April 30, 2001, in connection with the sale of common stock to an investor, the
Company received $600,000 from the investor in exchange for an option to purchase up to 500,000 metric tons of
F-16
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
carbon emissions credits generated by the Company during the years 2008 through 2012, at a 30% discount from the
then-prevailing market rate. This amount has been recorded as deferred credits in the accompanying consolidated
balance sheets as of April 30, 2010 and 2009. If the Company does not become entitled under applicable laws to the
full amount of emission credits covered by the option by December 31, 2012, the Company is obligated to return the
option fee of $600,000, less the aggregate discount on any emission credits sold to the investor prior to such date. If
the Company receives emission credits under applicable laws and fails to sell to the investor the credits up to the full
amount of emission credits covered by the option, the investor is entitled to liquidated damages equal to 30% of the
aggregate market value of the shortfall in emission credits (subject to a limit on the market price of emission
credits).
(9) Common Stock
On April 30, 2007, the Company completed an initial public offering in the United States on the NASDAQ
Global Market by issuing 5,000,000 shares of its common stock for a purchase price of $20.00 per share, resulting in
net proceeds to the Company of approximately $89,900,000.
(10) Preferred Stock
The Company has authorized 5,000,000 shares of undesignated preferred stock with a par value of $0.001 per
share. At April 30, 2010 and 2009, no shares of preferred stock had been issued.
(11) Share-Based Compensation
Prior to August 2001, the Company maintained qualified and nonqualified stock option plans. As of April 30,
2010, the Company had 264,000 shares remaining of common stock for issuance under these plans. There are no
options available for future grant under these plans as of April 30, 2010.
In August 2001, the Company approved the 2001 Stock Plan, which provides for the grant of incentive stock
options and nonqualified stock options. A total of 1,000,000 shares were authorized for issuance under the 2001
Stock Plan. As of April 30, 2010, the Company had issued or reserved 468,878 shares for issuance under the 2001
Stock Plan. After the effectiveness of the 2006 Stock Incentive Plan, no further options or other awards have been or
will be granted under the 2001 Stock Plan.
On April 24, 2007, the Company’s 2006 Stock Incentive Plan became effective. A total of 803,215 shares were
authorized for issuance under the 2006 Stock Incentive Plan. On October 2, 2009, an amendment to the 2006 Stock
Incentive Plan was approved, increasing the aggregate number of shares authorized for issuance by 850,000 shares
to 1,653,215. As of April 30, 2010, the Company had issued share-based awards for 822,784 shares of common
stock and had reserved an additional 830,431 shares of common stock for future issuance under the 2006 Stock
Incentive Plan. The Company’s employees, officers, directors, consultants and advisors are eligible to receive
awards under the 2006 Stock Incentive Plan; however, incentive stock options may only be granted to employees.
The maximum number of shares of common stock with respect to which awards may be granted to any participant
under the 2006 Stock Incentive Plan is 200,000 per calendar year. Members of the board of directors who are not
full-time employees receive, as part of their annual compensation, a choice of either (a) an option to purchase
2,000 shares of common stock that is fully vested at the time of grant, or (b) shares of common stock worth $10,000,
which vest 50% at the time of grant and 50% one year later. Vesting provisions of stock options are determined by
the board of directors. The contractual term of these stock options is up to ten years. The 2006 Stock Incentive Plan
is administered by the Company’s board of directors who may delegate authority to one or more committees or
subcommittees of the board of directors or to the Company’s officers. If the board of directors delegates authority to
an officer, the officer has the power to make awards to all of the Company’s employees, except to executive officers.
The board of directors will fix the terms of the awards to be granted by such officer. No award may be granted under
the 2006 Stock Incentive Plan after December 7, 2016, but the vesting and effectiveness of awards granted before
that date may extend beyond that date.
F-17
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(a) Stock Options
A summary of stock options under the plans is as follows:
Shares Under
Option
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term
(In Years)
Outstanding May 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,303,574
(154,214)
(24,100)
320,042
Outstanding April 30, 2008 . . . . . . . . . . . . . . . . . . . . . . .
1,445,302
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(130,510)
317,471
Outstanding April 30, 2009 . . . . . . . . . . . . . . . . . . . . . . .
1,632,263
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(588,018)
331,208
Outstanding April 30, 2010 . . . . . . . . . . . . . . . . . . . . . . .
1,375,453
Exercisable April 30, 2010 . . . . . . . . . . . . . . . . . . . . . . .
892,115
$14.49
16.01
11.94
15.59
14.61
15.40
8.88
13.43
13.21
6.10
11.87
13.64
5.2
5.1
5.2
3.4
The total intrinsic value of outstanding and exercisable options as of April 30, 2010 was $202,000. As of
April 30, 2010, approximately 483,000 additional options were expected to vest, which had $173,000 of intrinsic
value and a weighted average remaining contractual term of 8.5 years. There was approximately $913,000,
$1,417,000 and $1,709,000 of total recognized compensation cost during the years ended April 30, 2010, 2009 and
2008, respectively. As of April 30, 2010, there was approximately $2,040,000 of total unrecognized compensation
cost related to non-vested stock options granted under the plans. This cost is expected to be recognized over a
weighted-average period of 3.3 years. The Company normally issues new shares to satisfy option exercises under
these plans.
Certain options were granted to consultants during the years ended April 30, 2010, 2009 and 2008. The
Company has charged compensation expense of $45,000, $36,451 and $137,982 related to these option grants,
which has been included in selling, general and administrative costs in the accompanying consolidated statements
of operations for the years ended April 30, 2010, 2009 and 2008, respectively.
(b) Restricted Stock
Compensation expense for restricted stock was historically recorded based on its market value on the date of
grant and recognized ratably over the associated service and performance period. There were 150,000 and
40,000 shares of restricted stock granted to employees with service and/or performance-based vesting requirements
during the years ended April 30, 2010 and 2009, respectively.
F-18
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
A summary of restricted stock under the plans is as follows:
Weighted
Average
Price per
Share
Number
of Shares
Issued and unvested at May 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $ —
6.48
—
—
40,000
—
—
Issued and unvested at April 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,000
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
(22,000)
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,000)
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued and unvested at April 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,000
6.48
6.36
6.27
6.48
6.39
There was approximately $160,000 and $58,000 of total recognized compensation cost during the year ended
April 30, 2010 and 2009, respectively. As of April 30, 2010, there was approximately $825,000 of total
unrecognized compensation cost related to non-vested restricted stock granted under the plans. This cost is
expected to be recognized under a weighted average period of 2.6 years.
(c) Common Stock
During the year ended April 30, 2009, 4,992 shares of common stock were awarded to non-employee directors
pursuant to annual retainer arrangements. The aggregate share-based compensation expense recorded in the
consolidated statement of operations for the year ended April 30, 2009 related to the shares was approximately
$40,000, which represents the fair value on the date of grant. The shares were not issued as of April 30, 2009 but
were issued during the year ended April 30, 2010.
During the year ended April 30, 2010, 7,217 shares of common stock were awarded to non-employee directors
pursuant to annual retainer arrangements. The aggregate share-based compensation expense recorded in the
consolidated statement of operations for the year ended April 30, 2010 related to the shares was approximately
$40,000, which represents the fair value on the date of grant.
(d) Treasury Stock
During the year ended April 30, 2010, 1,072 shares of common stock were purchased by the Company.
F-19
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(12)
Income Taxes
The tax effects of temporary differences and carryforwards that give rise to the Company’s deferred tax assets
and deferred tax liabilities are presented below.
April 30,
2010
2009
Deferred tax assets:
Federal net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . .
Foreign net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . .
New Jersey state operating loss carryforwards . . . . . . . . . . . . . . . . . .
Federal research and development tax credits . . . . . . . . . . . . . . . . . . .
Foreign research and development tax credits . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 20,818,000
3,777,000
3,035,000
1,562,000
670,000
2,307,000
231,000
428,000
271,000
15,519,000
3,380,000
1,792,000
1,089,000
646,000
2,151,000
224,000
515,000
233,000
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,099,000
25,549,000
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,099,000)
(25,549,000)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
—
The effective income tax rate differed from the percentages computed by applying the US Federal income tax
rate of 34% to loss before income taxes as a result of the following:
Years Ended April 30,
2010
2008
2009
(34)% (34)% (34)%
Computed “expected” tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (reduction) in income taxes resulting from:
(5)
State income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Stock-based compensation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal research and development tax credits . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)
Foreign research and development tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . —
Foreign rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
2
Other non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
Increase in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5)
1
(1)
—
1
1
4
33
(6)
5
(1)
(6)
—
—
—
42
—% —% —%
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in which those temporary differences
and carryforwards become deductible or utilized. As of April 30, 2010 and 2009, based upon the level of historical
taxable losses, valuation allowances of $33,099,000 and $25,549,000, respectively, were recorded. The valuation
allowance increased $7,550,000, $6,097,000 and $6,249,000 during the years ended April 30, 2010, 2009 and 2008,
respectively.
F-20
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
As of April 30, 2010, the Company had net operating loss carryforwards for Federal income tax purposes of
approximately $61,200,000, which begin to expire in 2011. The Company also had Federal research and
development tax credit carryforwards of approximately $1,562,000 as of April 30, 2010, which begin to expire
in 2012. The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax
credit carryforwards if there has been an ownership change, as defined. The Company has determined that such an
ownership change, as described in Section 382 of the Internal Revenue Code, occurred in conjunction with the
Company’s US initial public offering in April 2007. The Company’s annual Section 382 limitation is approximately
$3,300,000. The Section 382 limitation is cumulative from year to year, and thus, to the extent net operating loss or
other credit carryforwards are not utilized up to the amount of the available annual limitation, the limitation is
carried forward and added to the following year’s available limitation. As of April 30, 2010, the Company had state
net operating loss carryforwards of approximately $49,100,000, which begin to expire in 2026. As of April 30,
2010, the Company had foreign net operating loss carryforwards of approximately $13,400,000, which begin to
expire in 2024. The ability to utilize these carryforwards may be limited in the event of an ownership change.
On May 1, 2007, the Company adopted new authoritative guidance issued by the FASB, for the accounting
and reporting of uncertain tax positions. The guidance requires the Company to recognize in its consolidated
financial statements the impact of a tax position if that position is more likely than not to be sustained upon
examination, based on the technical merits of the position. At April 30, 2010, 2009 and 2008, the Company had
no unrecognized tax positions requiring recognition. The Company does not expect any material increase or
decrease in its income tax expense, in the next twelve months, related to examinations or changes in uncertain
tax positions. The Company files federal and state income tax returns. US federal and state income tax returns
were audited through fiscal 2007. Years subsequent to fiscal 2007 remain open to tax examinations.
The Company does not have any interest or penalties accrued related to uncertain tax positions as it does not
have any unrecognized tax benefits. In the event the Company determines that accrual of interest or penalties is
necessary in the future, the amount will be presented as a component of income taxes.
(13) Commitments and Contingencies
(a) Operating Lease Commitments
The Company leases office, laboratory, manufacturing and other space in New Jersey, Warwick, United
Kingdom and Santander, Spain under operating leases that expire on various dates through April 30, 2013. Rent
expense under operating leases was approximately $579,000, $606,000 and $438,000 for the years ended April 30,
2010, 2009 and 2008, respectively. Future minimum lease payments under operating leases as of April 30, 2010 are
as follows:
Year ending April 30:
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $331,000
263,000
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
248,000
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$842,000
(b) Litigation
The Company is involved from time to time in certain legal actions arising in the ordinary course of business.
Management believes that the outcome of such actions will not have a material adverse effect on the Company’s
financial position or results of operations.
F-21
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(c) Spain Construction Agreement
The Company is currently engaged in discussions with Iberdrola Energias (see Note 2(a)) regarding mod-
ifications to its agreement for the first phase of the construction of a wave power station off the coast of Spain. This
first phase was due to be completed by December 31, 2009. If no modification is agreed to by the parties, the
customer may, subject to certain conditions in the agreement, terminate the agreement and would not be obligated to
make any more milestone payments. The agreement also provides that the customer may seek reimbursement for
direct damages only, limited to amounts specified in the agreement, if the Company is in default of its obligations
under the agreement. As of April 30, 2010, the Company does not believe that the outcome of this matter will have a
material adverse effect on the Company’s financial position or results of operations.
(14) Quarterly Financial Data (Unaudited)
Fiscal Year 2010
Jul 31
Three Months Ended
Oct 31
Jan 31
Apr 30
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,310,937
286,710
Gross profit . . . . . . . . . . . . . . . . . . . . . . . .
(3,240,961)
Operating loss . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to Ocean Power
Technologies, Inc . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share . . . . . . . $
(2,098,477)
(0.21)
581,875
53,727
(5,562,854)
856,482
165,392
(6,073,657)
2,352,017
296,527
(6,385,204)
(5,191,771)
(0.51)
(5,649,496)
(0.55)
(6,230,563)
(0.61)
Fiscal Year 2009
Jul 31
Three Months Ended
Oct 31
Jan 31
Apr 30
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,786,628
(161,518)
Gross (loss) profit . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . .
(4,416,283)
Net loss attributable to Ocean Power
Technologies, Inc . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share . . . . . . . $
(3,893,164)
(0.38)
667,124
(702,454)
(5,426,265)
964,803
326,211
(3,882,472)
630,890
(253,197)
(4,967,253)
(6,115,701)
(0.60)
(3,597,665)
(0.35)
(4,708,620)
(0.46)
(15) Operating Segments and Geographic Information
The Company’s business consists of one segment as this represents management’s view of the Company’s
operations. The Company operates on a worldwide basis with one operating company in the US, one subsidiary in
the UK and one subsidiary in Australia, which are categorized below as North America, Europe and Australia,
respectively. Revenues are generally attributed to the operating unit which bills the customers.
Geographic information is as follows:
Revenues from external customers . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . .
Long-lived assets . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
North America
$ 4,580,872
(20,068,920)
448,022
$ 67,424,387
Year Ended April 30, 2010
Australia
Europe
Total
431,801
(934,638)
262,541
4,684,104
88,638
(259,118)
—
869,702
5,101,311
(21,262,676)
710,563
72,978,193
F-22
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
North America
Year Ended April 30, 2009
Australia
Europe
Total
Revenues from external customers . . . . . . . $ 2,944,361
(15,870,696)
Operating loss . . . . . . . . . . . . . . . . . . . . . .
524,231
Long-lived assets . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 81,006,430
1,016,223
(2,475,659)
373,429
7,677,316
88,861
(345,918)
58
110,160
4,049,445
(18,692,273)
897,718
88,793,906
North America
Year Ended April 30, 2008
Australia
Europe
Total
2,831,122
Revenues from external customers. . . . . . . $
(15,695,543)
Operating loss . . . . . . . . . . . . . . . . . . . . .
Long-lived assets . . . . . . . . . . . . . . . . . . .
392,980
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $103,873,654
1,940,895
(3,221,882)
234,497
3,624,686
—
(258,300)
977
52,625
4,772,017
(19,175,725)
628,454
107,550,965
F-23
OCEAN POWER TECHNOLOGIES, INC.(cid:2)
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Directors
J. Victor Chatigny
Non-Executive Director
Senior Management Team
Charles F. Dunleavy*
Chief Executive Officer
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Charles F. Dunleavy
Chief Executive Officer
Paul F. Lozier
Non-Executive Director
Thomas J. Meaney
Non-Executive Director
Seymour S. Preston III
Vice-Chairman and Non-Executive Director
Dr. George W. Taylor
Executive Chairman
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Independent Registered Public
Accounting Firm
KPMG LLP
1601 Market Street
Philadelphia, PA 19103-2499
USA
Legal Advisors
Wilmer Cutler Pickering Hale and
Dorr LLP
399 Park Avenue
New York, New York 10022
USA
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Wilmer Cutler Pickering Hale and
Dorr LLP
Alder Castle
10 Noble Street
London EC2V 7QJ
UK
Share Price Information
Philip R. Hart
Chief Technology Officer
Michael G. Kelly
Vice President of Operations
Angus T. Norman
Chief Executive
Ocean Power Technologies Ltd.
Brian M. Posner*
Chief Financial Officer,
Treasurer and Secretary
Dr. George W. Taylor*
Executive Chairman
* Denotes Executive Officers
Bankers
Barclays Bank Plc
1 Churchill Place
London E14 5HP
UK
PNC Bank
76 Nassau Street
Princeton, New Jersey 08540
USA
Company Secretary
Brian M. Posner
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Registrar
Computershare Trust
Company N.A.
250 Royal Street
Canton, MA 02021-1011
US & Canada: 800-662-7232
International: 781-575-4238
www.computershare.com
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Nominated Advisors and
Nominated Broker
Nomura Code Securities Ltd
1 Carey Lane
London EC2V 8AE
UK
The company’s share price is quoted on the NASDAQ Global Market under the symbol OPTT and on the London Stock
Exchange, AIM market, under the symbol OPT. Go to www.nasdaq.com or to www.londonstockexchange.com to access the
Company’s share price information. In addition, the share price and other publicly released information are available at OPT’s
website under the Investor Relations tab.
(cid:2)
Offices
Ocean Power Technologies, Inc.
1590 Reed Road
Pennington, New Jersey 08534
USA
Ocean Power Technologies Limited
Warwick Innovation Centre
Gallows Hill
Warwick CV34 6UW
UK(cid:2)
Website Address: www.oceanpowertechnologies.com
OPT Wave Power Station
( Artist's View )
Ocean Power Technologies, Inc.