Transforming the World Through Innovative
Ocean Energy Solutions
Annual Report Year Ended April 30, 2015
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APB350 A3
TECHNOLOGY ROADMAP
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“science”
processor
A3 with up
to 20x
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size/weight
Advanced
hydro-
dynamics,
energy,
storage,
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controls
Larger-scale
PTO,
current ESS
Small-scale
new PTO
technology
Dear Fellow Shareholder:
Fiscal 2015 was a year of positive change and refocus for OPT. The company implemented a strategic pivot toward
autonomous offshore power generation for applications requiring persistent and reliable power, which we believe
represents a broader market opportunity and a faster path to commercialization and profitability. This strategic pivot
required actions to wind down or restructure several previous projects, while ensuring that the knowledge gained is
integrated into OPT’s internal business processes. It also demands that the entire organization focus all of our efforts on
the timely commercialization of our technology. Actions taken include the wind down of our large utility-scale projects
along with a number of other proactive initiatives and changes focused on building our future. Looking back at fiscal
2015, we accomplished several critical objectives.
Reedsport
The Reedsport project exit was announced at the end of fiscal 2014. As part of our closeout efforts, the floating gravity
based anchor (FGBA) was successfully recovered from the ocean floor and final reports are being prepared for review
and filing with various government agencies. Contract closeout is largely complete and equipment disposition and
disposal is expected to occur in fiscal 2016 and fiscal 2017.
Waveport
With the project officially ending with the European Union in July 2014, the PB40 PowerBuoy was transported to the U.S.
for deployment. Although the PB40 is a legacy product and we are focused on next generation solutions, we did deploy
the buoy off the coast of NJ in early fiscal 2016 to obtain critical performance data needed for validation of our next
generation solutions.
Victoria Wave Project
The Victoria Wave Project in Australia, which was intended to be a large scale array of buoys, was determined to be no
longer economically viable and was terminated. Grant funds were returned to the Australian Renewable Energy Agency
(ARENA). We have also right sized our teams in Australia and Europe to improve operating costs.
Our strategic pivot has resulted in a stronger and more focused business, including the appointment of a new CEO along
with the addition of Dean Glover and Robert Burger to the Board of Directors. All of the current management team and
board members have joined the company within the last three years and, bringing extensive operating and commercial
experience, are dedicated to accelerating the commercialization of our offshore power solution systems. The
management team has adopted new mission and vision statements, which serve as guideposts to our efforts and
decision-making (see front and back covers).
Looking ahead – Fiscal 2016
We have already made significant progress toward our goals. Fiscal 2016 is about final validation and launch of our first
commercial ready product focused on our new market opportunities. The redesigned APB350 provides a unique platform
to solve some of offshore industries’ toughest challenges. We provide an enabling technology solution that we believe will
provide our customers the flexibility to solve complex offshore power challenges. We believe that our PowerBuoys will
facilitate a variety of new applications which to date have only been conceptual at best.
Product Commercialization
The four key markets which we are targeting for commercial launch are ocean observing, offshore wind, defense and
security, and oil and gas (see inside back cover). For example, the ocean observing sector already provides a significant
opportunity with several thousand buoys currently deployed. These systems are collecting various meteorological and
ocean data to support weather monitoring and prediction, studies in climate change and maritime operations. This data is
also important to defense and security, as well as the oil and gas industries which design, build, and operate structures
that must endure the harsh ocean environment. The offshore wind industry also requires persistent and significant data to
support expected power output estimates which are critical for project financing and other purposes. Today, these
systems generally use diesel, battery or solar power, which last from three to twelve months before requiring service. In
the future, we will endeavor to target other markets with similar needs including communications and ocean aquaculture.
Our PowerBuoy system is intended to provide these industries with significantly more continuous power than is currently
commercially available for autonomous applications as well as substantially longer operational periods between
maintenance intervals. We believe that the combination of more power and an extended operational period presents a
compelling value proposition for new or enhanced data collection opportunities and significantly lower life cycle costs
compared to current solutions which are inadequate, costly, or simply don’t exist. The inside back cover highlights a few
of the applications and opportunities we see in these markets.
Further to the advancement of our product commercialization, we have established a Technical Advisory Panel with
participation by six companies in the oil and gas, ocean sensor and marine consulting industries, which will provide
valuable industry input into markets and application requirements, design details, and test protocols. We are also
accelerating our commercialization efforts for fiscal 2016 to include the establishment of new partnerships as well as joint
development and marketing agreements as we continue to seek opportunities to advance autonomous offshore wave
energy applications.
In addition to the sale or lease of PowerBuoys, we plan to offer additional services such as technology licensing,
maintenance, repairs and refurbishments, monitoring, diagnostics, data management, and consulting services for
deployment, installation, retrieval, permitting and engineering.
Innovation
We continue to develop solutions to improve our products’ durability, reliability and reduce costs. For example, the
original APB350 utilized a rack and pinion power takeoff (“PTO”) and successfully powered a US Navy radar and sonar
system off the coast of New Jersey for nearly three months. The redesigned APB350 leverages our knowledge base from
that design to incorporate significant reliability and efficiency improvements including an improved PTO and a higher
efficiency high voltage energy storage system. In addition, we are also designing the buoy to fit in a standard 40-foot
shipping container, thereby reducing fabrication, transportation and deployment costs.
We are also well into development of our newest PowerBuoy, the PB10. We expect that this buoy will be capable of
delivering up to twenty times more power than the APB350 with a relatively small weight increase and similar
transportability. This PowerBuoy is attractive in applications where more power is needed, such as with oil and gas,
defense and security, and micro-grid applications. We are targeting sea trials for the PB10 in fiscal 2017. Our technology
roadmap can be seen on the inside front cover.
Technical Excellence
As we continue to collect and process the “voice of the market”, we are implementing new methods to respond more
quickly with our product development and validation. Methods such as accelerated life testing that allow us to validate
components and subsystems prior to initiating more costly sea trials. We are implementing techniques such as Design
For Reliability and Design For Manufacturability, tailored design reviews and new testing protocols, which enhance our
responsiveness and speed to market while also being cost effective and maintaining our rigorous design requirements.
We also continue to augment our team with strategic hires and external support in engineering, supply chain
management, business development and marine operations. By improving our expertise and deepening our bench
strength, we believe that we can accelerate our products to market and address market demand.
Delivering Shareholder Value
We strongly believe in the value of our solutions for all of our stakeholders including customers, shareholders and society.
We appreciate your support and we are looking forward to sharing our near term successes with you this year.
George H. Kirby
Chief Executive Officer
Terence J. Cryan
Chairman of the Board
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, 2015
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
Common Stock, par value $0.001
Name of Exchange on Which Registered
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 ☐ 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 ☐ 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 ☐
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 (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☑
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the common stock of the registrant held by non-affiliates as of October 31, 2014, the last business day
of the registrant's most recently completed second fiscal quarter, was $17.5 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, 2015 was 18,349,111.
OCEAN POWER
TECHNOLOGIES, INC.
INDEX TO REPORT ON FORM 10-K
Page
Item 1:
Item 1A:
Item 1B:
Item 2:
Item 3:
Item 4:
Item 5:
Item 6:
Item 7:
Item 7A:
Item 8:
Item 9:
Item 9A:
Item 9B:
PART I
Business ...........................................................................................................................................................
Risk Factors .....................................................................................................................................................
Unresolved Staff Comments ............................................................................................................................
Properties .........................................................................................................................................................
Legal Proceedings ............................................................................................................................................
Mine Safety Disclosures ..................................................................................................................................
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ..........................................................................................................................................................
Selected Financial Data....................................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations ...........................
Quantitative and Qualitative Disclosures About Market Risk .........................................................................
Financial Statements and Supplementary Data ................................................................................................
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..........................
Controls and Procedures ..................................................................................................................................
Other Information ............................................................................................................................................
Item 10:
Item 11:
Item 12:
Item 13:
Item 14:
Directors, Executive Officers and Corporate Governance ...............................................................................
Executive Compensation .................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........
Certain Relationships and Related Transactions, and Director Independence .................................................
Principal Accountant Fees and Services ..........................................................................................................
PART III
1
13
27
28
28
29
30
31
31
44
44
44
44
44
45
50
59
60
61
Item 15:
Exhibits, Financial Statement Schedules .........................................................................................................
62
PART IV
PowerBuoy® is a registered trademark of Ocean Power Technologies, Inc. The Ocean Power Technologies logo, CellBuoy®,
Talk on Water®, Making Waves in Power® and Powertower® 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.
i
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 uncertainties, 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 Annual 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.
Our fiscal year ends on April 30. References to fiscal 2015 are to the fiscal year ended April 30, 2015.
ii
PART I
ITEM 1. BUSINESS
Overview
We are developing and are seeking to commercialize proprietary systems that generate electricity by harnessing the
renewable energy of ocean waves. Our PowerBuoy® systems use proprietary technologies that convert the mechanical energy
created by the rising and falling of ocean waves into electricity. We currently have and continue to develop our PowerBuoy
product line and since fiscal 2002, government agencies have accounted for a significant portion of our revenues. These revenues
were largely for the support of our product development efforts. Our goal is that an increased portion of our revenues be from
the sale of products and services, as compared to revenue from grants to support our product development efforts. As we continue
to advance our proprietary technologies, we expect to have a net use of cash from operating activities unless and until we achieve
positive cash flow from the planned commercialization of our products and services.
Our PowerBuoy is based on modular, ocean-going buoys, which we have been periodically ocean testing since 1997. 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 in novel applications and
have deployed and maintained our systems in the ocean for testing. Our PowerBuoy technology is being developed with the
unique, patented capability to electronically "tune" its performance as wave characteristics change. We expect this will enable
the PowerBuoy to optimize its efficiency and resulting power output in dynamic ocean wave conditions.
Our autonomous PowerBuoy is being designed to generate power for use independent of an existing power grid in remote
locations. In 2011, we deployed and operated off the coast of New Jersey an autonomous prototype PowerBuoy (the “APB-
350”), which we designed and manufactured for the US Navy’s Littoral Expeditionary Autonomous PowerBuoy (LEAP) contract
for coastal security and maritime surveillance. The APB-350 PowerBuoy structure, incorporating a unique power take-off
(“PTO”) and onboard system for energy storage and management, is significantly smaller than our original prototype utility scale
PowerBuoy. With the partial funding from the US Navy, we were able to continue to improve our PowerBuoys. The intent of
the APB-350 Autonomous PowerBuoy design is to potentially provide persistent, off-grid clean energy in remote ocean locations.
We believe there are a variety of potential applications for this system, including ocean observing, offshore wind, defense and
security, oil and gas, communications and ocean aquaculture. Within the Homeland Security market sector, in 2012, we executed
a Cooperative Research and Development Agreement, or CRADA, with the U.S. Department of Homeland Security, which
utilized the same prototype APB-350 Autonomous PowerBuoy. An additional 2013 deployment provided critical data to inform
the next design iteration, which will incorporate major modifications to address critical operations and reliability improvements.
We currently have and are continuing to develop PowerBuoys which can be utilized in autonomous as well as in other
applications. Our product development and engineering efforts are focused primarily on technologies that aim to increase energy
output, reliability and scalability of the design of our PowerBuoy. Our development efforts also remain focused on further
optimization of our modular and optimized PTO technology with the goal of generating electricity at a competitive levelized cost
of energy, initially focused on autonomous applications. Such applications require open ocean power sources that operate
independently of the utility grid by supplying electric power to payloads that are integrated directly in the PowerBuoy and/or
located in its vicinity. Based on market research and available public data, we believe considerable business opportunity exists
in six markets that would have a direct need for our autonomous PowerBuoys: ocean observing, offshore wind, defense and
security, oil and gas, communications, and ocean aquaculture. Based on power needs, sensor types and other considerations, we
believe our APB-350 could have the ability to satisfy several application requirements within these six markets.
An important element of our business strategy is to develop and expand our partnerships in the six key market areas. Based
on our product and technology roadmap, we expect the APB-350 to undergo significant in-ocean testing within the next year,
and a number of organizations have expressed interest in participating to ensure that the ocean trials accomplish what is relevant
to potential customers and market applications. If we are successful in our efforts to build these collaborative partnerships, we
expect that this would bring together a group of key stakeholders critical to gaining market entry and speeding adoption of our
technology.
During fiscal 2015, we continued work on projects with the US Department of Energy (“DOE”), our WavePort project in
Spain, our project with Mitsui Engineering & Shipbuilding (“MES”) and continued our efforts to increase the power output and
reliability of our PowerBuoys.
1
Our relationships during recent years include, but are not limited to, the following:
●
●
●
●
●
The US Department of Energy (“DOE”) (2008 to current) and the UK Government’s Technology Strategy Board
(2010 to 2014) to help fund technology improvements to increase the power output of our prototype PowerBuoys.
The European Union (“EU”) (2009 to 2014) awarded partial funding to deploy a PowerBuoy using our modular PTO
technology. While initially expected to be deployed off the cost of northern Spain, due to a variety of factors, we now
intend to deploy off the coast of New Jersey.
Lockheed Martin, with which we have had several project teaming agreements and license agreements dating back to
2004.
MES (2010 to current) with which we are working to develop a demonstration PowerBuoy in Japan
The United States Navy and Department of Homeland Security:
● From 2009 to 2011, we ocean-tested our PowerBuoy at the US Marine Corps Base Hawaii at Kaneohe Bay. The
Oahu PowerBuoy was launched under our program with the US Navy for ocean testing and demonstration of
PowerBuoys, including connection to the Oahu power grid.
● In 2011 and 2013, we operated an autonomous PowerBuoy off the coast of New Jersey, designed and manufactured
by us under the US Navy’s LEAP contract for coastal security and maritime security.
● From 2007 to 2013, we worked on two separate contracts to fabricate and deploy two autonomous PowerBuoys,
which were subsequently deemed obsolete, as an alternate power source for the Navy's Deep Water Active Detection
System (“DWADS”).
● In 2012, we entered into a Cooperative Research and Development Agreement (CRADA) with the US Department
of Homeland Security to further demonstrate the LEAP unit for its use in ocean surveillance using multiple sensor
technologies during the 2013 ocean test.
● The Scottish government, to develop a utility scale PowerBuoy, which was deployed for testing off the coast of
Invergordon, Scotland in 2011.
● We had been working with ARENA on a project to deploy a wave power station off the coast of Australia. In July
2014, the VWP Board of Directors determined that the project contemplated by the Funding Deed was no longer
commercially viable and subsequently terminated the Funding Deed and returned to ARENA the grant funds received.
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 NASDAQ Global Market since April 24, 2007, the date on which we
commenced our initial public offering in the United States.
Our Market
Approximately 70% of the earth’s surface is covered by water, with approximately 44% of the world’s population living
within 150 miles of a coast. Thousands of systems are deployed in the oceans today to increase our understanding of weather,
climate change, biological processes, mammal patterns and to support exploration and operations for the oil and gas industry.
Most of these systems are powered by battery, solar, wind, fuel cell, or fossil fuel generators that are very expensive to operate.
Most of these systems require significant tradeoffs in sensor accuracy, data processing and communications content/interval in
order to operate within the available power. More persistent power with reduced maintenance may have the ability to save 20%
to 50% over current operating costs. In addition, increases in available power may allow for better sensors, and shorter data
sampling and communication intervals which could as a result improve predictive modeling while improving scientific and
economic returns. Just as the wind industry has accomplished over the last 30 years, wave energy system economics and
2
scalability may increase with market penetration, allowing for improved system power output which could result in increased
end-user benefit.
Wave Energy
The energy contained 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 top of the waves becomes longer. Wave size, and the amount of kinetic wave energy depend on
wind speed, the duration the wind blows across the waves, and the distance covered. The vertical motion of the waves moves the
float portion of our PowerBuoy, creating mechanical energy which 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 dense energy in ocean waves, multiple PowerBuoys can be aggregated
in an array that would occupy a reasonably small area to supply electricity to larger payloads. We anticipate the
aggregation of a larger number of appropriately sized PowerBuoys will offer a variety of advantages in availability,
reliability and scalability and will provide for lower capital and operating expenses.
● Predictability. The supply of electricity from wave energy can be forecasted several days in advance. Wave energy can
be calculated with a high degree of accuracy based on satellite images and meteorological data, even when the wave is
hundreds of miles away and days from reaching a PowerBuoy. Hence, end-users would have the ability to plan their
logistics, payload scheduling and other operational activities accordingly.
● Constant source of energy. The annual flow of waves at specific sites can be relatively constant and defined with
relatively high accuracy. Based on our studies and analysis of various sites of interest, we anticipate that we will be able
to deploy our PowerBuoys in locations where they can produce usable electricity for the majority of all hours during a
year.
There are a variety of approaches, which are 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 PowerBuoys are the offshore type. 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 and near shore systems are often located on a shore cliff or
a breakwater, or a short distance at sea from the shore line, and typically must concentrate the wave energy 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 to the former. As waves approach the shore, their energy decreases; therefore
onshore and near shore wave power stations, are not capable of exploiting the full amount of energy produced by waves in deeper
water. In addition, suitable sites for onshore and near shore systems are limited and potential environmental and aesthetic issues
may exist due to wave power station size and proximity of communities.
Our Products
We offer our autonomous PowerBuoy, which is designed to generate power for use independent of the power grid in remote
offshore locations. It 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 PTO device, an electrical generator, a power electronics
system and our control system, all of which are sealed within the unit.
As ocean waves pass the PowerBuoy, the mechanical stroke action created by waves is converted into rotational mechanical
energy by the PTO, which in turn, drives the electrical generator. The power electronics system then conditions the electrical
output which is collected within an energy storage system. The operation of the PowerBuoy is controlled by our customized,
proprietary control system.
The control system uses sensors and an onboard computer to continuously monitor the PowerBuoy subsystems as well as
characteristics of the waves which interact with the PowerBuoy. The control system collects data from the sensors and uses
proprietary algorithms to electronically adjust the performance of the PowerBuoy. Through these adjustments, the PowerBuoy
is able to maximize the amount of usable electricity which can be generated from the waves. We believe that this ability to
optimize system performance of the PowerBuoy is a significant advantage of our technology.
3
In the event of large storm waves, the control system locks the PowerBuoy and electricity generation is suspended.
However, the load center (either the on-board payload or that in the vicinity of the PowerBuoy), continues to receive power from
the on-board energy storage system. When wave heights return to a normal operating conditions, the control system unlocks the
PowerBuoy and electricity generation and energy storage system replenishment recommence. This safety feature prevents the
PowerBuoy from being damaged by storm wave impacts.
Installations may be comprised of a single PowerBuoy or an array of integrated PowerBuoys, plus any remaining
components required to deliver electricity to the end user. In July 2007, our PowerBuoy interface was certified as compliant with
international standards. Intertek, an independent laboratory, provided testing and evaluation services to certify that our grid
connection 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. In September 2010, working in
conjunction with the US Navy and Hawaii Electric Company, our 40 kilowatt (kW)-rated PowerBuoy, located at Marine Corps
Base Hawaii, became the first-ever grid connected wave energy device in the United States. In January 2011, our larger scale
PowerBuoy design (the “150kW PowerBuoy” or “PB150”) structure and mooring system achieved independent certification
from Lloyd’s Register. This certification confirmed that the PB150B1 design complies with certain international standards
promulgated for floating offshore installations. The Lloyd’s Register certification process (1999 Rules and Regulations for the
classification of Floating Offshore Installation at Fixed Locations) included detailed design analysis and appraisals, addressing
the PB150B1 structure, hydrodynamics, mooring and anchoring. This PowerBuoy was deployed off the coast of Scotland from
April 2011 through October 2011. Best practices from the certification have been incorporated into our engineering design
processes and in ongoing design improvements.
Autonomous PowerBuoy
The intent of the APB-350 Autonomous PowerBuoy is to provide persistent, off-grid clean energy in remote ocean
locations. We believe there are a variety of potential applications for this system, including ocean-based communication and data
gathering such as for tsunami warnings and seismic surveys, homeland security and defense, offshore oil and gas platforms and
aquaculture. In 2012, we executed a Cooperative Research and Development Agreement, “CRADA,” with the U.S. Department
of Homeland Security, which utilized the same prototype APB-350 Autonomous PowerBuoy. An additional 2013 deployment
provided critical data to inform the next design iteration of the prototype APB-350, which will incorporate major modifications
to address critical operations and reliability improvements.
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 offshore and near shore autonomous power market.
Our PowerBuoy uses an ocean-tested technology to generate electricity.
● We have conducted a number of ocean tests since 1997 in order to demonstrate the viability of our technology. Several
ocean trials of our larger scale prototype PowerBuoys were conducted and the 2011 ocean test of the LEAP APB-350
further supported the use of our technology as a potential persistent power source for systems requiring remote power
at sea. Our PowerBuoys have endured hurricanes, winter storms and tsunami-driven waves while installed in the ocean.
Our PowerBuoy is designed to be efficient in harnessing wave energy.
● The intent behind our PowerBuoy is to efficiently convert wave energy into electricity by using sensors to detect actual
wave conditions and then to adjust, or "tune," the performance of the generator using our proprietary electrical and
electronics-based control systems.
● Our PowerBuoys are designed to maximize the power generated for a given location through efficient mechanical to
electrical wave energy conversion
● Our PowerBuoy onboard energy storage system is designed to provide several days of continuous rated power during
low or no wave periods
4
Numerous applications for our PowerBuoys exist within multiple, major market segments.
● Our systems are designed to work in multiple offshore applications around the world. In particular, we are targeting
potential applications in the ocean observing, offshore wind, defense and security, oil and gas, communications, and
ocean aquaculture.
We have significant commercial relationships.
● Our projects with the DOE, the US Navy, Mitsui Engineering and Shipbuilding, and the US Department of Homeland
Security provide us with an initial opportunity to market our PowerBuoys where autonomous power enables existing
and new applications. By collaborating with leaders in our chosen market segments, we believe we will be able to
accelerate our in-house knowledge of autonomous power applications and implement effective commercialization plans
of our PowerBuoy platform.
● Our relationships with the US Navy, DOE, and Department of Homeland Security have allowed us to develop
PowerBuoys, which enhance our market visibility and attractiveness.
Our systems are environmentally benign and aesthetically non-intrusive.
● We believe that our PowerBuoy does not present significant risks to marine life and does not emit significant levels of
pollutants. For example, in connection with our project at the US Marine Corps Base in Hawaii, the US Navy obtained
an independent environmental assessment of our PowerBuoy prior to installation, as required by the National
Environmental Policy Act. This assessment resulted in a “Finding of No Significant Impact,” the highest rating. We
believe that our PowerBuoys would have minimal environmental impact. In addition, we received a “Finding of No
Significant Impact” from the DOE after environmental assessment in connection with our Reedsport, Oregon project.
● Since our PowerBuoys are typically located far offshore, they are usually not visible from the shore. Our PowerBuoy
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.
Customers/Projects
The table below shows the percentage of our revenue we derived from significant customers for the periods indicated:
2015
2014
Mitsui Engineering & Shipbuilding ....................................................................
US Department of Energy ...................................................................................
EU (WavePort project)........................................................................................
UK Government's Technology Strategy Board ...................................................
40%
37%
23%
–
38%
34%
15%
12%
These revenues were largely for the support of our product development efforts. Our goal in the future is that an increased
portion of our revenues be from the sale of products and maintenance services, as compared to revenue to support our product
development efforts.
Our potential customer base for our PowerBuoys includes various public and private entities, and agencies that use
electricity in and near the ocean. To date, the majority of our efforts have been focused on improving our technology through
ocean and other testing. Beginning in fiscal 2015, we began to focus on commercial application customers and products while
also continuing to improve on our technology.
Australia
In 2008, we announced a Joint Development Agreement with Leighton Contractors Pty. Ltd. (Leighton) for the
development of wave power projects off the coast of Australia. In 2009, Leighton formed Victorian Wave Partners Pty Ltd
(“VWP”), a special purpose company for the development of a wave power project off the coast of Victoria, Australia. In 2010,
VWP and the Commonwealth of Australia entered into an Energy Demonstration Program Funding Deed (“Funding Deed”),
wherein VWP was awarded an A$66.5 million (approximately US$62 million) grant for the wave power project; however, receipt
of funds under the grant was subject to certain terms, including achievement of future significant external funding milestones.
5
The grant was expected to be used towards the A$232 million proposed cost of building and deploying a wave power station off
the coast of Australia (the “Project”). In March 2012, our Australian subsidiary Ocean Power Technologies (Australasia) Pty.
Ltd acquired 100% ownership of VWP from Leighton. In January 2014, VWP signed a Deed of Variation with the Australian
Renewable Energy Agency (“ARENA”) that amended the Funding Deed, and, in March 2014, received the initial portion of the
grant from ARENA in the amount of approximately A$5.6 million (approximately US$5.2 million) (the “Initial Funding”). The
Initial Funding was subject to claw-back provisions if certain contractual requirements, including performance criteria, were not
satisfied. In light of the claw-back provisions, the Company determined to classify the Initial Funding as an advance payment,
hold the funds as restricted cash and defer recognition of the funds as revenue. In July 2014, the VWP Board of Directors
determined that the project contemplated by the Funding Deed was no longer commercially viable and terminated the Funding
Deed and returned the Initial Funding to ARENA.
Japan
In fiscal 2014 and 2015, we worked with MES under a contract worth approximately US$2.8 million. This contract funded
additional work to enhance our PowerBuoy technology for Japanese sea conditions. Under this contract and prior work with
MES, we analyzed methods to maximize buoy power capture, performed modeling and wave tank testing, evaluated novel
mooring strategies and conducted design reviews with MES. Currently our contract with MES is undergoing a stage-gate review
process and activity has been suspended until we receive further notification from MES. Stage-gate reviews are used in product
development to gather key information needed to advance the project to the next gate or decision point. This process has been
utilized by other customers such as the Department of Energy. MES has indicated that work under this contract could resume
upon passing the stage-gate review. In addition, depending on the outcome of the stage-gate review, the scope of the project may
be decreased or increased and other terms, including schedule of the project may change. A significant reduction in the scope of
the project could have a material adverse effect on our future revenue and backlog.
Reedsport, Oregon Project
We had obtained a permit from the Federal Regulatory Commission (“FERC”) for a multi-stage wave power project off
the coast of Reedsport, Oregon. In addition, we received two cost-sharing contracts with the (DOE) for approximately $4.4
million to construct and deploy a single PowerBuoy off the coast of Reedsport. We subsequently obtained a license from FERC
in August 2012 that authorized installation and operation of a 10-buoy grid connected wave energy array (the “License”). Due
to the complexity of the FERC regulations for the single buoy, higher than anticipated project costs, unanticipated technical risks,
and uncertainty surrounding permitting, we made the decision not to proceed with the project. Accordingly, we announced in
March 2014 our surrender of the permit for one phase of the project and announced in April 2014 that we were taking the steps
necessary to close out this project with DOE. In May 2014, we filed an application to surrender the FERC permit for the remaining
phases. In August 2014, in cooperation with the State of Oregon Department of State Lands, we removed anchoring and mooring
equipment from the seabed off the coast of Oregon and are taking steps to dispose of or repurpose equipment acquired for the
project.
US Navy
In 2009 and 2010, we were awarded $2.4 million and $2.75 million, respectively, from the US Navy to develop a Littoral
Expeditionary Autonomous PowerBuoy (LEAP) prototype. The LEAP contract was developed to enhance the US Navy's
territorial protection capability by providing potential persistent power at sea for port maritime surveillance in the near coast,
harbor, piers and offshore areas. During the LEAP contract, we designed, built and deployed in 2011 a PowerBuoy structure,
incorporating a new PTO system. The system was deployed by a US Coast Guard vessel and was ocean-tested approximately 20
miles off the coast of New Jersey. It was integrated with the Rutgers University-operated land-based radar network that provides
ocean current mapping data for the National Oceanographic and Atmospheric Administration (NOAA) and US Coast Guard
Search and Rescue (SAR) operations. The ocean test of the LEAP vessel detection system demonstrated dual-use capability of
the radar network and helped to verify our technology as a potential persistent power source for systems requiring remote power
at sea while withstanding the high storm waves of Hurricane Irene. In 2012, we executed a CRADA with the U.S. Department
of Homeland Security to collaborate and demonstrate persistent maritime vessel detection. The vessel detection ocean
demonstration in 2013 utilized the same APB-350 Autonomous PowerBuoy that was deployed off the coast of New Jersey during
2011 under the LEAP contract with additional sensors.
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Scotland Project
In 2007, we received a $1.8 million contract from the Scottish Executive toward the construction and testing of a
PB150B1PowerBuoy. Ocean trials of that PowerBuoy were conducted in 2011. These ocean trials were conducted at a site
approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. The PB150B1 structure and mooring system
achieved independent certification from Lloyd’s Register. This certification from Lloyd’s Register confirms that the PB150B1
design complies with the requirements of Lloyd’s 1999 Rules and Regulations for the Classification of Floating Offshore
Installations at Fixed Locations.
Spain
2006 Spain Project
In July 2006, Iberdrola Energias Marinas de Cantabria, S.A., or Ibermar, was formed to construct and operate a wave power
station off the coast of Santoña, Spain. Iberdrola Energias Renovables II, S.A. (Iberdrola Energias), an affiliate of Iberdrola, was
the largest shareholder of Ibermar. Minority shareholders include OPT, Sociedad para el Desarrollo Regional de Cantabria, S.A.,
or SODERCAN, an industrial development agency of the Spanish region of Cantabria, Total Eolica, an affiliate of Total S.A.,
and Instituto para la Diversificacion y Ahorro de la Energia, S.A. (IDAE), a Spanish government agency dedicated to energy
conservation and diversification efforts. Funding was shared among the shareholders based on agreed-upon percentages that
reflect the parties' anticipated ownership interest in the wave power station. OPT owned 10% of Iberdrola Cantabria through our
UK subsidiary, Ocean Power Technologies Limited (“OPT LTD”).
In July 2006, we entered into an agreement for the first phase of the construction of a wave power station with our customer
Ibermar (“2006 Spain Construction Agreement”). In January 2007, the parties entered into a corresponding Operations and
Maintenance Agreement. Under the 2006 Spain Construction Agreement, we agreed to manufacture and deploy one 40kW rated
PowerBuoy and the ocean-based substation and infrastructure required to connect nine additional PowerBuoys by December 31,
2009. The terms of the construction of the nine additional PowerBuoy units and the installation of the underwater transmission
cable and underwater substation pod were not covered by the 2006 Spain Construction Agreement and were to be separately
agreed upon.
The PB40 PowerBuoy for this project was deployed in September 2008. After a short testing period, the buoy was removed
from the water for remedial work to the PTO and control systems and was not subsequently re-installed. In November 2010, we
commenced negotiations with Ibermar with the goal of cancelling the remaining obligations between the parties under the
Construction and Operations and Maintenance agreements, transferring ownership of the equipment manufactured or purchased
by OPT under the construction agreement to Ibermar, and having Ibermar pay certain amounts due to OPT. During fiscal 2014,
the dissolution of Ibermar was unanimously approved by the shareholders of Ibermar. In connection with the dissolution of this
entity, OPT LTD signed an agreement with Ibermar to cancel all obligations under both the 2006 Spain Construction Agreement
and the Operations and Maintenance Agreement between Ibermar and OPT LTD. In addition, we paid the final 5% stake in the
entity that had been accrued in a prior period and received partial payment of an account receivable under the 2006 Spain
Construction Agreement that had been fully reserved in a prior period.
WavePort Project
In March 2010, we announced the award of €2.2 million under the European Commission's Seventh Framework Programme
(“FP7”) by the European Commission's Directorate (“EC”) responsible for new and renewable sources of energy, energy
efficiency and innovation. This grant was part of a total award of €4.5 million to a consortium of companies, including OPT, to
deliver a PowerBuoy wave energy device, PB40, under a project entitled WavePort. OPT commenced work under this grant in
fiscal 2012, and this cost-sharing contract expired on July 31, 2014. Due to a variety of factors, in October 2014, OPT shipped
the PB40 back to New Jersey in order to undertake its deployment off the coast of New Jersey using our own funding. In June
2015, we received final permit approval from the New York District Army Corps of Engineers for our pending deployment. We
have begun the process of deploying mooring lines for the buoy and are currently monitoring for a suitable weather window for
buoy deployment.
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United Kingdom
The WaveHub site in South West England is operated by a company wholly owned by the UK government and consists of
a pre-consented area of ocean with a fully constructed shore connection and sub-sea export cable with a capacity up to 20MW,
with the express purpose of enabling ocean trials of offshore energy devices. In 2009, we had negotiated and maintained in force
a Commitment Agreement with WaveHub that gave us first refusal rights to negotiate a full Berthing Agreement. During fiscal
2014, the Commitment Agreement expired and was not renewed or extended. We are no longer actively planning the
development of a project at WaveHub, but because it remains a promising deployment location, we are keeping under review
opportunities that may lead to the development of a future project at this location.
PowerBuoy Development Projects
In April 2010, we received a $1.5 million award from the DOE for a feasibility study of a PowerBuoy with the ability to
produce up to 500kW of power (PB500). In fiscal 2011, we received additional awards totaling $4.7 million for the PB500
structure and PTO optimization study; $2.3 million from the UK Government’s Technology Strategy Board and $2.4 million
from the DOE. In fiscal 2014, upon completion of the concept design and associated trade studies that included detailed
mechanical analyses, manufacturability and overall projected performance, the study concluded that a PB500 would not be
technically feasible or economically viable. Our development efforts since that time have focused on further optimization of our
modular and optimized PTO technology. In March 2015, we successfully completed a stage gate review and a review of project
deliverables with the Department of Energy where advancements related to Power Take Off design aspects such as reliability,
cost take out, manufacturability and scalability were reviewed. Additionally, we received an all “green” project status assessment
from DOE reflecting their satisifaction with our overall project deliverables. Considering OPT met expectations as defined for
said stage-gate review, we are currently executing the next stage of the contract and anticipate the Critical Design Review stage
gate review of the contract which we currently expect to be held by end of summer 2015.
Backlog
At April 30, 2015, our total negotiated backlog was $0.9 million compared with $4.9 million at April 30, 2014. Some of
our backlog at April 30, 2015 and 2014 consisted of cost-sharing contracts as described in the Financial Operations Overview
section of Management’s Discussion and Analysis in this Annual Report on Form 10-K. Our backlog can include both funded
amounts, which are unfilled firm orders for our products and services for which funding has been both authorized and
appropriated by the customer (Congress, in the case of US Government agencies), and unfunded amounts, which are unfilled
firm orders from the DOE for which funding has not been appropriated. If any of our contracts were to be terminated, our backlog
would be reduced by the expected value of the remaining terms of such contracts. Currently we expect that our backlog will
continue to decline; however, we continue to focus on obtaining new contracts and customers to further our technology and are
exploring potential partnerships and strategic alliances. Our backlog was fully funded at April 30, 2015 and 2014. Further, in
September 2013, we were selected for a $1.0 million award from the DOE to enhance the commercial viability of our PowerBuoy
through mechanical component design changes. On September 26, 2014, the DOE notified the Company of DOE’s decision to
terminate negotiations with respect to the financial assistance award under the funding opportunity, and the Company accepted
DOE’s decision without protest. As previously disclosed, we had not received any funds from DOE with respect to this award
and had not included the award in our backlog.
We also reduced our backlog by $1.0 million for the grant that we received from Ente Vasco de la Energia (“EVE”) a
Basque regional energy agency that would have provided partial funding for the deployment of the PB40 PowerBuoy off the
coast of Spain. This grant expires on December 31, 2015 and will likely not be utilized as we have no planned deployments in
Spain at this time. It is our intent to deploy the PB40 PowerBuoy off the coast of New Jersey as discussed above.
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 portion 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.
Currently our contract with MES is undergoing a stage-gate review process and activity has been suspended until we receive
further notification from MES. Stage-gate reviews are used in product development to gather key information needed to advance
the project to the next gate or decision point. This process has been utilized by other customers such as the Department of Energy.
MES has indicated that work under this contract could resume upon passing the stage-gate review. As of April 30, 2015, we
billed and have been paid for all eligible costs incurred to date under the contract. Our revenues recorded reflect the total amount
8
paid on the contract. In addition, depending on the outcome of the stage-gate review, the scope of the project may be decreased
or increased and other terms, including schedule, of the project may change. A significant reduction in the remaining scope of
the project could have a material adverse effect on our future revenue and backlog.
For fiscal 2015, we generated revenues of $4.1 million and incurred a net loss attributable to Ocean Power Technologies,
Inc. of $13.1 million, and for fiscal 2014, we generated revenues of $1.5 million and incurred a net loss attributable to Ocean
Power Technologies, Inc. of $11.0 million. As of April 30, 2015, our accumulated deficit was $164.8 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 PowerBuoys in the emerging renewable energy market.
In fiscal 2015, our strategic pivot resulted in the near term focus on autonomous applications where our PowerBuoys will
supply power to payloads that are independent of the grid. We anticipate our product offerings to be cost competitive and viable
due to the unique advantages we anticipate that they will provide as related to persistence of power supply, lower operating cost
and capital expenditures increased reliability and availability, flexibility to accommodate a variety of on-board or off-board
sensors and equipment, and overall a competitive value proposition in our markets of interest.
The timing, scope and size of new government programs for renewable energy are uncertain, and there can be no assurances
that we or our customers will be successful in obtaining any additional government funding or that projects will be profitable
even with available funding. However, we anticipate our products and solutions to be cost competitive and viable for select grid-
independent applications due to the unique advantages they provide as related to persistence of power supply, lower capital and
operating costs, increased reliability and availability, flexibility to accommodate a variety of on/off-board sensors and equipment,
and the overall proposition in our markets of interest.
Our Business Strategy
● Our business goals are to strengthen our leadership in developing wave energy technologies and to achieve commercial
status for our autonomous systems. In order to achieve these goals, we are pursuing the following business strategies:
● Continue to increase PowerBuoy output. Our product development and engineering efforts are focused on increasing the
energy output, the reliability and expected operating life, as well as optimizing manufacturability of the design of our
PowerBuoys, with the goal of generating electricity from our technology at a competitive levelized cost of energy for our
selected markets. We believe that by optimizing PowerBuoy output and by increasing volume production of the
PowerBuoys, we will be able to decrease the cost per Watt of our PowerBuoy and the cost per Watt-hour (Wh) of the energy
generated.
● Sell and/or Lease PowerBuoys. The PowerBuoy addresses specific power generation needs of customers requiring grid-
independent electricity generation in remote locations in the open ocean. Since our autonomous PowerBuoy concept is well
suited for many of these uses, we do not expect the need for significant subsidies or other price incentives for commercial
acceptance. We believe there are a variety of potential applications for this system, including security and defense, offshore
oil and gas, offshore wind monitoring, and ocean-based communication and data gathering such as for tsunami warnings
and seismic surveys. Our fundamental long-term business plan for our selected markets is to sell, and/or lease PowerBuoys,
or sell data gathered by sensors on our PowerBuoys to customers. In addition, we seek to provide PowerBuoy maintenance,
or to support the planning and training required for PowerBuoy life-cycle maintenance.
● Outsource most of the plant construction and deployment. We outsource all fabrication, anchoring, mooring, cabling supply
and often time deployment in order to minimize our capital requirements as we scale our business. The high value-added
PTO is assembled and tested at our facility and the buoy hull may be shipped to our facility for integration into the
PowerBuoys or assembled and integrated close to the expected deployment site.
● Concentrate sales and marketing efforts on four geographic markets. We are currently focusing our sales and marketing
efforts in North America, Europe, Australia and Japan and other portions of Asia. We believe that each of these areas
represent a strong potential market for our autonomous PowerBuoys because they combine appropriate wave conditions,
political and economic stability, selected market applications, and high levels of industrialization.
● Maximize customer funding of technology development. We actively seek to obtain external funding for the development
of our technology, including cost-sharing obligations under some of our customer contracts. In April 2010, we were awarded
$1.5 million from the DOE for the development of our utility scale product line. In fiscal year 2011, we were awarded an
additional $2.4 million from the DOE and $2.3 million from the UK Government’s Technology Strategy Board for utility
9
scale product development. In fiscal 2014, the DOE amended the $2.4 million contract for the development of an optimized
power take-off system.
● 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
a partnership with MES in Japan, and we continue to seek other opportunities to partner with application experts from within
our selected markets.
Marketing and Sales
We are enhancing our marketing capabilities and have begun pre-commercial marketing of our PowerBuoys. Because our
PowerBuoys use a new technology, we expect that the decision process of a potential customer will require us to make substantial
educational efforts.
Additionally, we intend to continue to enter into development agreements with strategic partners such as DOE, DOD, MES
and commercial and military sensor manufacturers, in particular markets, where we may grant licenses to local businesses to sell,
manufacture or operate PowerBuoy hardware components.
PowerBuoy Marketing
There are a variety of potential customers, such as companies providing metocean data collection, and remote monitoring;
offshore wind industry performing wind and environmental assessments; and government agencies that currently deploy remote
systems using battery and solar power such as the National Oceanographic and Atmospheric Administration, the US Department
of Homeland Security and US Department of Defense. Other potential applications for grid-independent power supply include
homeland security, offshore oil and gas, aquaculture and ocean-based communication and data gathering such as for tsunami
warnings and seismic surveys.
We also market our PowerBuoys to companies and entities requiring higher power applications. These include oil and gas
companies for remote communications and sensing, trace heating and wellhead monitoring. We also see an opportunity for
defense applications using active sensors and/or significant processing and communications requirements and entities requiring
a persistent power source for remote applications such as radar/sonar, seabed mounted systems, communications relays, and
docking stations for Autonomous Unmanned Vehicles.
Manufacturing and Deployment
Manufacturing and Raw Materials
We engage in two types of manufacturing activities: the manufacturing of the high value-added PTO components, for
systems control, power generation and power conversion for each PowerBuoy, and contracting with outside companies for the
fabrication of the buoy structure, anchoring, 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 optimize the performance of the PowerBuoy in response to those changing conditions. We
maintain a portfolio of patents, including those that cover our power generation, power conversion and control technologies.
We purchase the remaining components of, and raw materials for, each PowerBuoy from various vendors. 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.
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 improve manufacturability while reducing cost and
complexity. Our research and development efforts are currently focused on optimizing the size of our PowerBuoys in order to
10
achieve the most competitive overall cost (both operating and capital expenditures) in our markets of interest. Such optimization
includes reducing overall product size and weight by considering the use of materials other than steel for the external structure
of our PowerBuoys. Other optimizations include the development of scalable, higher efficiency, lower cost, higher reliability and
less customized PTO systems, and the use of higher energy density and lower weight energy storage technologies. We continue
to increase the multi-use capability of our systems by designing flexible interfaces and rendering them sensor and payload
agnostic to the maximum extent possible.
Other areas of focus include the development and implementation of accelerated testing regimens and techniques known as
Accelerated Life Testing. Such methods accelerate failures in a laboratory environment as compared to more lengthy and
expensive full scale ocean deployments during normal use conditions. This testing allows OPT to quantify the life characteristics
of critical components and subsystems which would normally require several years of operation to achieve similar levels of wear
and tear. Accelerated Life Testing is used successfully in other in other industries, and is a critical enabler for rapid product and
technology maturation. We anticipate the combination of said test regimens coupled with carefully planned PowerBuoy ocean
tests will increase our effectiveness in commercializing our products.
Research and development expenses are reflected on our consolidated statements of operations as product development
costs. Research and development expenses were $4.1 million for fiscal 2015 and $4.6 million for fiscal 2014.
It is our intent to fund the majority of our research and development expenses, including cost sharing obligations under
some of our customer contracts, 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 reduce the scope of our activities as necessary.
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, 2015, we owned a total of 60 issued United States patents and have 4 United States patent applications. We
have issued foreign counterparts of 15, pending foreign counterparts to 7 of our issued patents and 5 of our pending non-
provisional patent applications.
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 2028. 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 Related 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 Water®, CellBuoy® and PowerTower® marks and our Making Waves
11
in Power® service mark in the United States. Trademark ownership is generally of indefinite duration when marks are properly
maintained in commercial use.
Competition
As of April 2015, there were more than 150 companies, some with institutional funding, listed in the OpenEI Marine and
Hydrokinetic (MHK) Technology Database. Many of these companies are located in the United Kingdom, continental Europe,
Japan, Israel, the United States and Australia. The MHK industry is both highly competitive and continually evolving as
participants strive to differentiate themselves within their markets and promote their specific technology. The companies are
subdivided by implementation: Wave power, current power and ocean thermal energy conversion. Within wave power, the
technologies are classified as point absorber, oscillating wave column, overtopping device, attenuator and oscillating wave surge
converter. The PowerBuoy is a wave energy converter using point absorber technology which represents about 35% of the
companies in the database. The vast majority of these companies are small companies (less than 6 employees) in early stage
development who do not have the in-ocean experience of OPT. Only a few of these companies have conducted long-term ocean
testing of their systems, which we believe is a critical factor in proving the survivability and performance of any wave energy
system. We believe our experience in many of the technologies gained through full scale in-ocean deployments and other types
of testing and our understanding of risks separates us from many of our competitors. We believe our PTO will ultimately be
proven as the most efficient and reliable means for wave energy conversion. However, a few of our competitors in certain of
these segments have established a stronger market position than ours and have greater resources and name recognition than OPT.
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 PowerBuoys and technology.
To compete effectively, we have to demonstrate that our PowerBuoys are commercially attractive compared to other
alternatives, by differentiating our solutions on the basis of performance, survivability and cost effectiveness. Furthermore, we
have to demonstrate the enabling capabilities of our technology in many of our markets of interest where incumbent solutions
are severely limited and/or non-existent to respond to real and growing needs.
Government Regulation
Our PowerBuoys currently face regulation in the US and in foreign jurisdictions concerning, among other areas, 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.
The renewable energy industry has also been subject to increasing regulation. 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 PowerBuoys
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.
Sale and Transmission of Electricity
The US government regulates the electricity wholesale and transmission business through FERC. OPT’s autonomous
systems are not currently subject to FERC jurisdiction since they are not currently transmitting power to shore.
Site Approval
In the United States, federal agencies regulate the siting of long-term renewable energy projects and related-uses located
on the outer continental shelf (OCS), which is generally more than three miles offshore. OCS projects longer than one-year in
duration are regulated by the Bureau of Ocean Energy management (BOEM). For projects located within three miles of the US
shore regardless of duration, 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. Generally, the same process applies to foreign sites where site approval is contingent on meeting
both federal and local regulatory and environmental requirements.
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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 Buoys offshore would require permits and approvals from the
Coast Guard, the Army Corps of Engineers and other governmental authorities. These required permits and approvals evaluate,
among other things, whether a 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 potential advantage of our PowerBuoys 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.
Subsidies and Incentives
Renewable energy subsidies and incentives are generally applicable to electric generation and supply to the utility grid.
However, our autonomous applications may provide carbon footprint reduction and therefore may be eligible for recognition in
a company’s environmental stewardship report. The reporting company may be able to monetize this reduction which would be
reflected in our business model.
Employees
As of April 30, 2015, we had 33 full-time employees. Of these employees, 31 are located in Pennington, New Jersey and 2
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.
Product Insurance
We currently have a property and liability insurance policy underwritten by Lloyd's Underwriters that covers the
deployment and storage of our PowerBuoys.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors together with the other information contained in this Annual Report
on Form 10-K, and in prior reports pursuant to the Securities Exchange Act of 1934, as amended and the Securities Act of 1933,
as amended. 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.
Risks Relating to Our Business
We may not be able to raise sufficient capital to continue to operate our business.
We have incurred negative operating cash flows since our inception. As of April 30, 2015, our cash and cash equivalents
and marketable securities balance was approximately $17.4 million. For the fiscal year ended April 30, 2015, we incurred a net
loss of approximately $13.1 million. We will require additional equity and/or debt financing. If we are unable to raise additional
funds when needed, we may not be able to continue to operate and our ability to 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 additional funding unavailable, or 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.
In January 2013, we filed a shelf registration statement on Form S-3 with the SEC registering the sale of up to $40,000,000
of debt, equity and other securities (the “S-3 Shelf”). The S-3 Shelf was declared effective in February 2013.
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Form S-3 limits the aggregate market value of securities that we are permitted to offer in any 12-month period under Form
S-3, to one third of our public float. Given the fiscal 2014 share sales, we reached the applicable limit under Form S-3. However,
we regained the ability to utilize Form S-3 as we entered fiscal 2016. Approximately $18.2 million remains available for issuance
under the S-3 Shelf.
Sales of equity or convertible securities would be dilutive to our stockholders. If additional funds are raised through the
issuance of preferred stock or 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 commercialization efforts, which could adversely affect our financial condition, operating results and the market value of
our common stock.
If we are unable to obtain financing to meet the requirements of government or other grants, we may be unable to continue
the development of our business.
Certain of our current projects depend on government grants to fund research and development, testing and deployment of
our PowerBuoys. Our receipt of funds under these government grants is frequently conditioned on our obtaining other financing
as a prerequisite to receiving all or portions of funds under the grant. If we are unable to secure sufficient external funding on a
timely basis or meet performance milestones, a granting agency could determine to withdraw the grant, change the terms of the
grant in ways that make the project less attractive for us, or require us to self-fund the project. We may be unable or unwilling to
self-fund a project now or in the future, so our projects are subject to the risk of substantial delay or abandonment based on the
availability of external funding. Our inability to obtain grants, or to meet funding or performance milestones related to grants we
obtain, could jeopardize the particular project and could damage our reputation and our relations with our commercial partners,
any of which could adversely affect our financial condition and results of operations.
We have a history of operating losses and may not achieve or maintain profitability and positive cash flow.
We have incurred net losses since we began operations in 1994, including net losses attributable to Ocean Power
Technologies, Inc. of $13.1 million in fiscal 2015 and $11.0 million in fiscal 2014. As of April 30, 2015, we had an accumulated
deficit of $164.8 million. These losses have resulted primarily from costs incurred in our research and development programs
and from our selling, general and administrative costs. As we continue to develop our proprietary technologies, we expect to
have a net use in cash from operating activities unless or until we achieve positive cash flow from the planned commercialization
of our products and services.
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 PowerBuoys 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.
Our future success in our selected markets depends in part on our ability to increase the energy output of our PowerBuoy.
If we are unable to increase the energy output of our PowerBuoy, the commercial prospects for our PowerBuoy may be
adversely affected.
One of our goals is to increase the energy output of our PowerBuoy. Our success in meeting this objective depends on our
ability to significantly increase the energy output of our PowerBuoy 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 PowerBuoys to be deployed cost effectively and without damage, and designing the mooring system to account
for the PowerBuoys. We have experienced problems and delays in the development and deployment of our PowerBuoy in the
past, and could experience similar delays or other difficulties in the future. If we cannot increase the energy output of the
PowerBuoy, or if it takes us longer to do so than we anticipate, we may be unable to expand our 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.
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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 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 PowerBuoys does not develop or takes longer to develop than we anticipate, our revenue
generation may be limited, and we may be unable to achieve and then sustain profitability.
Even if wave energy technology achieves broad commercial acceptance, our PowerBuoys 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 PowerBuoys but have not yet achieved successful
commercialization of our PowerBuoys. As we begin to manufacture, market, sell and deploy our PowerBuoys in greater
quantities, we may encounter unforeseen hurdles that would limit the commercial viability of our PowerBuoys, including
unanticipated manufacturing, deployment, operating, maintenance and other costs. Our target customers and we may also
encounter technical obstacles to deploying, operating and maintaining PowerBuoys.
If demand for our PowerBuoys 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 PowerBuoys in our presently targeted markets,
including coastal North America, Europe, Australia and Japan, may not develop or may develop to a lesser extent than we
anticipate.
If we are not successful in commercializing our PowerBuoy, or are significantly delayed in doing so, our business, financial
condition and results of operations could be adversely affected.
We face numerous accident and safety risks and hazards that are inherent in offshore operations.
Portions of our operations are subject to hazards and risks inherent in the building, testing, deploying and maintenance of
our PowerBuoys. 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
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for safety. In addition, the risks inherent in our business are such that we cannot assure that we will be able to maintain adequate
insurance in the future at reasonable rates.
The reduction or elimination of government subsidies and economic incentives for renewable energy sources could prevent
demand for our PowerBuoys from developing, which in turn would adversely affect our business, financial condition and
results of operations.
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 are substantial and may increase in the future.
Our product development costs primarily relate to our efforts to increase the output, durability and commercial scalability
of our PowerBuoy. Our product development costs were $4.1 million in fiscal 2015 and $4.6 million in fiscal 2014. It is our
intent to fund the majority of our research and development expenses, including cost sharing obligations under some of our
customer contracts, 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.
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 may 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.
Our PowerBuoys do not have a sufficient operating history to confirm how they will perform over their estimated useful
life.
We began developing and testing wave energy technology over 15 years ago. However, to date we have only manufactured
15 PowerBuoys for use in ocean testing and development. The longest continuous in-ocean deployment of our PowerBuoy had
been from December 2009 to January 2012. As a result, our PowerBuoys do not have a sufficient operating history to confirm
how they will perform over their estimated useful life. Our technology has not yet demonstrated that our engineering and test
results can be duplicated in volume or in commercial production. We have conducted and plan to continue to conduct practical
testing of our PowerBuoy. If our PowerBuoy ultimately proves ineffective or unfeasible, we may not be able to engage in
commercial production of our products or we may become liable to our customers for quantities we are obligated but are unable
to produce. If our PowerBuoys 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.
We have not yet deployed a wave power array of two or more PowerBuoys in a single geographic location. If we are unable
to successfully deploy a multiple-system wave power array, our capability to generate revenues may be limited and not
increase, and we may be unable to achieve and then maintain profitability.
We have not yet deployed a wave power array of two or more PowerBuoys. Whether we are able to do so 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 PowerBuoys.
We have not yet conducted ocean testing or otherwise installed in the ocean a multiple-system wave power array. In
particular, unlike single-system wave power arrays, multiple-system wave power arrays may require the use of an underwater
substation to connect the power transmission cables from, and collect the electricity generated by, each PowerBuoy in the array.
We have not yet deployed an underwater substation connected to multiple PowerBuoys. In addition, unanticipated issues may
arise with the logistics and mechanics of deploying and maintaining multiple PowerBuoys at a single site and the additional
equipment associated with these multiple-system wave power arrays.
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The development and deployment of an array of PowerBuoys may require us to incur significant expenses for preliminary
engineering, permitting and other expenses before we can determine whether a project is feasible, economically attractive or
capable of being financed. We may be unsuccessful in accomplishing any of these tasks or doing so on a timely basis.
We will need to build larger arrays in order to increase the output of our current PowerBuoys. The larger arrays may be
more difficult to deploy cost effectively. Our current deployment methodologies, including transportation to the installation site
and the mooring of the PowerBuoys, will need to be revised as PowerBuoys achieve greater output. If we cannot develop cost
effective methodologies for deployment of the larger PowerBuoys, 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 power
output of our PowerBuoy arrays, if we are unable to deploy these larger PowerBuoy arrays 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 unable to successfully negotiate and enter into service 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 service contracts with them under which we would be paid fees for services related to
PowerBuoys that they have purchased from us. In addition, we may offer to lease PowerBuoys, sell power generated by
PowerBuoys or sell data gathered by sensors on our Powerbuoys. Even if customers purchase or lease our PowerBuoys, they
may not enter into service contracts with us. We may not be able to negotiate service, power sale or other contracts that provide
us with any profit opportunities. Even if we successfully negotiate and enter into such service 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, if we were unable to perform adequately under such service contracts our efforts to successfully market the
PowerBuoys could be impaired. 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 effectively manage our growth, our business and operations could be adversely affected.
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
may not be adequate to support our projected future growth. As such growth is realized, we may add sales, marketing and
engineering offices in additional locations, which may include Australia, Japan, and continental Europe.
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 manufacturing 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 PowerBuoys 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
PowerBuoys. Because of the limited operating history of our PowerBuoys, we have been 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 PowerBuoys, 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 PowerBuoys and recognized revenue. Moreover, any
widespread product failures could adversely affect our business, financial condition and results of operations.
Our prototype PowerBuoys have been subject to limited in-ocean testing and are reliant in part on the results of computer
modeling and simulation.
Our Powerbuoy prototype systems have been subject to periodic ocean testing since 1997. However, not all Powerbuoy
prototypes have been subject to extensive ocean testing and may rely on computer modeling and simulation that attempt to predict
performance under various ocean wave conditions and other parameters in a deployment environment. Use of computer
simulation models has inherent risks and prototype performance could be substantially different than predicted. We have
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conducted limited operational testing and may later discover one or more significant defects requiring redesign and retrofit into
existing systems, which may have a material impact on our operations and revenues.
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 DOE accounted for 37% of our revenues and MES accounted for 40% of our revenues during fiscal 2015. In fiscal
2014, revenues from the DOE accounted for 34% of our total revenues and MES accounted for 38% of our revenues. After
existing contracts expire, in order to receive future funding from the DOE, we would be required to enter into additional contracts
with the DOE, which would require appropriation by the US Congress. Additional funding for projects may not be approved or
we may not be able to negotiate future agreements 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. A customer’s payment default, or the loss of a customer as a result of competition,
creditworthiness, our failure to perform, our inability to negotiate extensions or replacements of contracts or otherwise 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, either of which could adversely affect our ability to commercialize our products and services.
An important element of our business strategy is to enter into application development agreements and strategic alliances
with companies committed to providing products and services which require renewable wave 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. 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. There
can be no assurance that we will receive such additional funding. In addition, strategic relationships may not be successful, and
we may be unable to sell and market our PowerBuoys 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.
Our investments in joint ventures could be adversely affected by our lack of sole decision-making authority, our reliance
on a co-venture’s financial condition and disputes between us and our co-ventures.
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-ventures might become bankrupt or fail to fund their share of
required capital contributions. Our co-ventures 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-ventures 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-
ventures might result in additional risk to wave power projects undertaken by the joint venture.
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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 is highly competitive and continually evolving as participants strive to distinguish
themselves and compete with the other sources of offshore autonomous power. 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. Competition may arise from other companies manufacturing similar products, developing different products that
produce energy more efficiently than our products, or making improvements to traditional energy-producing methods or
technologies, any of which could make our products less attractive or render them obsolete. If we are not successful in
manufacturing systems that generate competitively priced electricity, we may not be able to respond effectively to competitive
pressures from other renewable energy technologies or improvements to existing technologies.
Moreover, the success of renewable energy generation technologies may cause larger energy companies with substantial
financial resources to enter into the renewable energy industry. These companies, due to their greater capital resources and
substantial technical expertise, may be better positioned than we are to develop new or improve existing technologies.
If we are unable to respond effectively to such competition that 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 PowerBuoys, including the advanced control and generation systems.
However, we have only manufactured our PowerBuoys in limited quantities for use in development and testing and have limited
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 manufacturing staff. 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
PowerBuoys. 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.
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 PowerBuoys. 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 PowerBuoys. We have
utilized several different deployment methods, including towing the PowerBuoy to the deployment location, and transporting the
PowerBuoy to the deployment location by barge or ocean workboat. If these third parties do not properly deploy our systems,
cannot effectively deploy the PowerBuoy 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.
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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 US or foreign governments that is not
extended or is terminated, our business, financial condition and results of operations could be adversely affected.
We derive a significant portion of our revenue from U.S. 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 2015 and fiscal 2014, we derived 37% and 34%, respectively, of our
total revenue from contracts with the US government and 63% and 66%, respectively, from contracts with foreign entities.
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, environmental, foreign purchasing, most-favored pricing
and accounting provisions, among others. Payments that we receive under government contracts are subject to audit and potential
refunds after the final contract payment is received.
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 global regions, including Europe, Australia, North America and
parts of Asia and we are therefore subject to risks associated with having international operations. Revenues from customers who
are based outside of the United States accounted for 63% of our revenues in fiscal 2015 and 66% of our revenues in fiscal 2014.
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 PowerBuoys and make us less competitive in some countries;
● fluctuations in exchange rates may affect demand for our PowerBuoys and may adversely affect our profitability in US
dollars to the extent the price of our PowerBuoys 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 PowerBuoys;
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● 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. The current economic
environment, particularly the macroeconomic pressures in certain European countries, may increase these risks.
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 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, or the failure to meet, specified contractual milestones or other performance criteria under project
contracts or in completing project contracts that could delay or prevent 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 U.S. 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. A large percentage of our revenues may be generated
outside the United States and denominated in foreign currencies in the future. Changes in exchange rates between foreign
currencies and the U.S. 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.
21
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 PowerBuoys.
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 PowerBuoys.
If the renewable energy industry continues to develop and if the generation of power from wave energy in particular
achieves commercial acceptance, we anticipate that wave energy technology and our PowerBuoys 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 PowerBuoys 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 or business plan.
Offshore development of electric power generating facilities is heavily regulated. Each of our planned projects is subject to
multiple permitting and approval requirements. 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 that could adversely affect our
business, financial condition and results of operations.
Our PowerBuoys 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
PowerBuoys, 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 PowerBuoys can only be deployed in certain geographic locations, our ability to grow our business could be
adversely affected.
Not all coastal areas worldwide have appropriate natural resources for our PowerBuoys 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 PowerBuoys in coastal areas. If we are unable to identify and deploy PowerBuoys at sufficient sites near
major population centers, our ability to grow our business could be adversely affected.
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.
22
There is a risk that we will not be able to retain or replace these key employees. Implementation of our business plans will be
highly dependent upon our ability to hire and retain senior executives as well as talented staff in various fields of expertise.
Since March 2014, two of our executive officers have resigned or been removed, including our Executive Vice Chairman
and our Chief Executive Officer. In January 2015, we hired a new President and Chief Executive Officer. In May 2015, we
increased the size of the Board by one new Director to a total of six Directors.
Changes in senior management are inherently disruptive, and efforts to implement any new strategic or operating goals may
not succeed in the absence of a long-term management team. Changes to strategic or operating goals with the appointment of
new executives may themselves prove to be disruptive. Periods of transition in senior management leadership are often difficult
as the new executives gain detailed knowledge of our operations and due to cultural differences that may result from changes in
strategy and style. Without consistent and experienced leadership, customers, employees, creditors, stockholders, and others may
lose confidence in us.
It remains important that we retain key personnel. Qualified individuals, including engineers and project managers, are in
high demand, and we may incur significant costs to attract and retain them. With the exception of our President and Chief
Executive Officer, all of our officers and other employees are at-will employees, which mean they can terminate their
employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to
replace. If we lose the services of key personnel, especially during this period of leadership transition, or do not hire or retain
other personnel for key positions, our business, results of operations and stock price could be adversely affected.
If we are unable to effectively manage our growth this 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
may be necessary to achieve profitable operations. Our current personnel, facilities, systems and internal procedures and controls
may not be adequate to support future growth. This factor, when combined with the technical complexity of some of our
development efforts, may result in our inability to meet certain customer expectations or deadlines and could result in the
amendment to, or termination of, customer contracts or relationships. To realize our growth, we may add sales, marketing and
engineering offices in our existing and/or additional locations, which may include Australia, Japan, and continental Europe and
which may result in additional organizational complexity.
To manage the expansion of our operations, we may 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 may need to increase significantly if we are to be able to fulfill our current manufacturing and growth plans. Our
management may 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.
We may not be able to maintain compliance with The NASDAQ Global Market's continued listing requirements.
Our common stock is listed on The NASDAQ Global Market. There are a number of continued listing requirements that
we must satisfy in order to maintain our listing on The NASDAQ Global Market. If we fail to maintain compliance with all
applicable continued listing requirements for The NASDAQ Capital Market and NASDAQ determines to delist our common
stock, the delisting could adversely affect the market liquidity of our common stock, our ability to obtain financing and our ability
to fund our operations.
On January 14, 2015, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The
NASDAQ Stock Market notifying us that, for the last 30 consecutive business days, the bid price of our common stock had
closed below the minimum $1.00 per share requirement for continued inclusion on The NASDAQ Global Market pursuant to
NASDAQ Listing Rule 5450(a)(1) (the “Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been
provided an initial period of 180 calendar days, or until July 13, 2015, to regain compliance with the Rule. If, at any time before
July 13, 2015, the bid price of our common stock closes at $1.00 or more for a minimum of 10 consecutive business days as
required under Listing Rule 5810(c)(3)(A), the Staff will provide written notification to us that it complies with the Rule, unless
the Staff exercises its discretion to extend this 10 day period pursuant to Listing Rule 5810(c)(3)(F).
We have requested an additional 180 day compliance period and, as required, to transfer the listing of our common stock
from The NASDAQ Global Market to The NASDAQ Capital Market
23
If our common stock is delisted, trading of the stock would most likely take place on an over-the-counter market established
for unlisted securities. An investor is likely to find it less convenient to sell, or to obtain accurate quotations in seeking to buy,
our common stock on an over-the-counter market, and many investors may not buy or sell our common stock due to difficulty
in accessing over-the-counter markets, or due to policies preventing them from trading in securities not listed on a national
exchange or other reasons. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price
of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial
condition and results of operations by limiting our ability to attract and retain qualified executives and employees and limiting
our ability to raise capital.
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 may 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 may 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 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
24
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 government agencies help fund research and development of our PowerBuoy. 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 authorizing 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 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 upon 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. In addition, if we
were to license our intellectual property to others, we may be required to indemnify our licensee if the licensed intellectual
25
property is found to be infringing on a third party’s rights. 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 an 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.
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 year ended April 30, 2015, the 52-week high and low prices for our common stock were $3.05 and $0.39, respectively. The
stock market in general has recently experienced volatility that has often been unrelated or disproportionate to the operating
performance of particular companies. These broad market fluctuations 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:
● developments in our business or with respect to our projects;
●
the success of competitive products or technologies;
●
regulatory developments in the United States and foreign countries;
26
● 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.
We are and may become the target of additional securities litigation, which is costly and time-consuming to defend.
In the past, companies that experience significant volatility in the market price of their publicly-traded securities have
become subject to class action securities litigation. Our stock price has been volatile, and we have a class-action securities
proceeding and a derivatives proceeding filed against us (as discussed below) and it is possible that additional lawsuits could be
brought against us in the future. The results of complex legal proceedings are difficult to predict. These lawsuits assert types of
claims that, if resolved against us, could give rise to substantial damages, and an unfavorable outcome or settlement of these
lawsuits, or any future lawsuits, could have a material adverse effect on our business, financial condition, results of operations
and/or stock price. Even if these lawsuits, or any future lawsuits, are not resolved against us, the costs of defending such lawsuits
may be costly. Moreover, these lawsuits may divert our management’s attention from the operation of our business. For more
information on our legal proceedings, see Item 3 “Legal Proceedings” of this Annual Report on Form 10-K and Note 13
“Commitments and Contingencies – Litigation” in the accompanying consolidated financial statements for the year ended April
30, 2015.
If securities or industry analysts fail to cover us, or do not publish research or publish unfavorable or inaccurate research
about our business, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts may
publish about us, our business or our industry from time to time. If one or more of these analysts cease coverage of our company
or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the price or
trading volume of our common stock to decline. Moreover, if one or more of the analysts who cover our company downgrade
our common stock or release a negative report, or if our operating results do not meet analyst expectations, the price of our
common stock could decline.
We may be subject to litigation and other regulatory proceedings that may negatively impact our results of operations.
From time to time, we are subject to litigation and regulatory actions relating to our business. The initiation or defense of
litigation or regulatory actions would require us to make certain expenditures and can divert the attention of our management
away from operating our business. In addition, an unfavorable decision or outcome could result in further, potentially significant,
expenditures. Where disclosure is required, we discuss current legal proceedings in which we are involved in our periodic reports
filed with the SEC.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
27
ITEM 2.
PROPERTIES
Our corporate headquarters are located in Pennington, New Jersey, where we lease approximately 22,000 square feet.
During fiscal year 2015, we extended this lease from May 1, 2015 to December 31, 2017. We use these facilities for
administration, research and development, as well as assembly and testing of the generators and control models for our
PowerBuoys.
During fiscal 2015, we also had an office in Warwick, United Kingdom, where we occupied 860 square feet under a lease
expiring on July 31, 2015. We vacated this office in February 2015 and as of April 30, 2015 we had two business development
employees working out of their home offices.
In the future, we may add sales, marketing and engineering offices in additional locations, which may include Australia,
Japan and continental Europe and the west coast of North America.
ITEM 3.
LEGAL PROCEEDINGS
Shareholder Litigation and Demands:
The Company and its former Chief Executive Officer Charles Dunleavy are defendants in consolidated securities class
action lawsuits pending in the United States District Court for the District of New Jersey captioned In Re: Ocean Power
Technologies, Inc. Securities Litigation, Civil Action No. 14-3799 (FLW) (LHG). The consolidated actions are Roby v. Ocean
Power Technologies, Inc., et al., Case No. 3:14-cv-03799-FLW-LHG; Chew, et al. v. Ocean Power Technologies, Inc. et. al.,
Case No 3:14-cv-03815; Konstantinidis v. Ocean Power Technologies, Inc., et al., Case No. 3:14-cv-04015; and Turner v. Ocean
Power Technologies, Inc., et al., Case No. 3:14-cv-04592. On March 17, 2015, the court entered an order appointing Five More
Special Situation Fund Ltd. as the lead plaintiff. On May 18, 2015 lead plaintiff filed an amended class action complaint. The
amended class action complaint alleges claims for violations of sections 12(a) (2) and 15 of the Securities Act of 1933 and for
violations of §10(b) and §20(a) of the Securities Exchange Act of 1934 arising out of public statements relating to a now
terminated agreement between Victorian Wave Partners Pty. Ltd. (VWP) and the Australian Renewable Energy Agency
(ARENA) for the development of a wave power station (the "VWP Project"). The amended complaint seeks unspecified
monetary damages and other relief. The case is still in its preliminary stage and defendants have not yet responded to the amended
complaint.
On July 10, 2014, the Company received a demand letter ("Demand Letter") from an attorney claiming to represent a
shareholder demanding that the Company's Board of Directors establish an independent committee to investigate and remedy
alleged breaches of fiduciary duties by the Board of Directors and management relating to the VWP Project. The Company is
continuing to evaluate the Demand Letter but also invited the attorney to participate in the Section 220 Demand process discussed
below. On February 6, 2015, the Company produced documents to the attorney pursuant to a confidentiality agreement in
connection with the Section 220 Demand process.
The Company has received two additional Section 220 Demands relating to the same subject matter from attorneys claiming
to represent two different shareholders. The Company has responded in writing to the three Section 220 Demands and on
February 6, 2015 produced documents to each of the attorneys pursuant to confidentiality agreements.
The Company and certain of its current and former directors and officers are defendants in a derivative lawsuit filed on
March 18, 2015 in the United States District Court for the District of New Jersey captioned Labare v. Dunleavy, et. al., Case No.
3:15-cv-01980-FLW-LHG. The derivate complaint alleges claims for breach of fiduciary duty, abuse of control, gross
mismanagement and unjust enrichment relating to the now terminated agreement between VWP and ARENA referred to above.
The derivate complaint seeks unspecified monetary damages and other relief. On May 18, 2015, the plaintiff and all the
defendants agreed to stay the derivative lawsuit pending action in the consolidated class action securities litigation discussed
above (namely, a court order denying any motions to dismiss the commencement of discovery, a joint request to lift the stay, or
further order of the court.)
Employment Litigation:
On June 10, 2014, the Company announced that it had terminated Charles Dunleavy as Chief Executive Officer and as an
employee of the Company for cause, effective June 9, 2014, and that Mr. Dunleavy had also been removed from his position as
Chairman of the Board of Directors. On June 17, 2014, Mr. Dunleavy wrote to the Company stating that he had retained counsel
to represent him in connection with an alleged wrongful termination of his employment. On July 28, 2014, Mr. Dunleavy resigned
28
from the Board and the boards of directors of the Company's subsidiaries. The Company and Mr. Dunleavy have agreed to toll
his alleged employment claims pending resolution of the shareholder litigation.
Regulatory Matters:
On February 4, 2015, the Company received a subpoena from the Securities and Exchange Commission “SEC” requesting
information related to the VWP Project. The Company has provided information to the SEC in response to that subpoena, and
continues to cooperate with the SEC.
Item 4. MINE SAFETY DISCLOSURES
None.
29
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." As of
June 30, 2015, there were 222 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.
Year Ended April 30, 2015
First quarter .......................................................................................................................... $
Second quarter ......................................................................................................................
Third quarter ........................................................................................................................
Fourth quarter .......................................................................................................................
Year Ended April 30, 2014
First quarter .......................................................................................................................... $
Second quarter ......................................................................................................................
Third quarter ........................................................................................................................
Fourth quarter .......................................................................................................................
Nasdaq Global
Market
High
Low
3.05 $
1.54
1.31
0.70
2.32 $
3.82
3.55
7.01
1.03
0.91
0.39
0.39
1.47
1.55
1.75
2.15
On January 14, 2015, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The
NASDAQ Stock Market notifying us that, for the last 30 consecutive business days, the bid price of our common stock had
closed below the minimum $1.00 per share requirement for continued inclusion on The NASDAQ Global Market pursuant to
NASDAQ Listing Rule 5450(a)(1) (the “Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been
provided an initial period of 180 calendar days, or until July 13, 2015, to regain compliance with the Rule. If, at any time before
July 13, 2015, the bid price of our common stock closes at $1.00 or more for a minimum of 10 consecutive business days as
required under Listing Rule 5810(c)(3)(A), the Staff will provide written notification to us that it complies with the Rule, unless
the Staff exercises its discretion to extend this 10 day period pursuant to Listing Rule 5810(c)(3)(F).
We have requested an additional 180 day compliance period and, as required, to transfer the listing of our common stock
from The NASDAQ Global Market to The NASDAQ Capital Market.
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
There have been no unregistered sales of equity securities or purchases of equity securities by the Company that are required
to be disclosed.
30
ITEM 6.
SELECTED FINANCIAL DATA
Not Applicable.
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 on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual
Report on Form 10-K, 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. Our fiscal year ends on April
30. References to fiscal 2015 are to the fiscal year ended April 30, 2015.
Overview
We are developing and are seeking to commercialize 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 have and continue to develop our autonomous
PowerBuoy. Since fiscal 2002, government agencies have accounted for a significant portion of our revenues, which were largely
for the support of our product development efforts. Our goal is that an increased portion of our revenues will be from the sale of
products and maintenance services, as compared to revenue from grants to support our product development efforts. As we
continue to advance our proprietary technologies, we expect to have a net use of cash in operating activities unless or until we
achieve positive cash flow from the planned commercialization of our products and services.
We plan to market our autonomous PowerBuoy, 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, including ocean observing, offshore wind, defense and security, oil and gas, communications and ocean
aquaculture.
We were incorporated in New Jersey in 1984, began business operations in 1994, and were re-incorporated in Delaware in
2007. We currently have three wholly-owned subsidiaries: Ocean Power Technologies Ltd., organized under the laws of the
United Kingdom, Reedsport OPT Wave Park LLC, organized under the laws of Oregon, and Oregon Wave Energy Partners I,
LLC, organized under the laws of Delaware. We also own approximately 88% of the ordinary shares of Ocean Power
Technologies (Australasia) Pty Ltd (“OPTA”), organized under the laws of Australia. OPTA owns 100% of Victorian Wave
Partners Pty. Ltd. (“VWP”), which is also organized under the laws of Australia.
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 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 project for the development and testing of our wave power systems at the US Marine
Corps Base in Oahu, Hawaii. This project included the grid-connection of one of our utility-grade PowerBuoys at the Marine
Corps Base. We generated our first revenue relating to our autonomous PowerBuoy from contracts with Lockheed Martin
Corporation (“Lockheed Martin”), in fiscal 2003, and in fiscal 2004 we entered into our first development and construction
contract with Lockheed Martin for the development and construction of a prototype autonomous PowerBuoy. Subsequently, we
received a contract from the US Navy to test our autonomous PowerBuoy as an alternate power source for the Navy’s Deep
Water Active Detection System (“DWADS”). In fiscal 2012, an autonomous PowerBuoy was deployed for ocean trials off the
coast of New Jersey under a contract from the US Navy under its Littoral Expeditionary Autonomous PowerBuoy (“LEAP”)
contract. The LEAP PowerBuoy, or APB-350, incorporates a unique power take-off and on-board storage system, and is
significantly smaller and more compact than those of our previous PowerBuoy designs. It is designed to provide persistent, grid-
independent clean energy in remote ocean locations for a wide variety of maritime security, monitoring and other commercial
applications. Also, in fiscal 2012, ocean trials of our PB150B1 PowerBuoy were conducted off the northeast coast of Scotland.
Our larger-scale PB150B1 PowerBuoy structure and mooring system achieved independent certification from Lloyd’s Register
in December 2010. This certification confirms that the PB150B1 PowerBuoy design complies with the requirements of Lloyd’s
1999 Rules and Regulations for the Classification of Floating Offshore Installations at Fixed Locations.
31
During fiscal 2012 through fiscal 2015, we worked on projects with partners including Mitsui Engineering & Shipbuilding
(“MES”) and the US Department of Homeland Security, as well as on our WavePort project in Spain and a project in Oregon.
We also continued development of our PowerBuoy technology as well as our next generation PowerBuoy technology.
In January 2013, we filed a shelf registration statement on Form S-3 (the “S-3” or the “S-3 Shelf”). The S-3 Shelf was
declared effective in February 2013. Under the S-3 Shelf in June 2013, we established an ATM Facility with Ascendiant Capital
Markets, LLC via an ATM Agreement in June 2013. Under the ATM Agreement, we offered and sold shares of our common
stock from time to time through the Manager, acting as sales agent, in ordinary brokerage transactions at prevailing market prices.
Under the ATM Facility, during fiscal 2014, we issued 3,306,334 shares of our common stock at an average price to the public
of $3.02 per share, receiving net proceeds from the ATM Facility of approximately $9,698,000.
Also in fiscal 2014, we entered into an Underwriting Agreement with Roth Capital Partners, LLC on April 4, 2014, with
respect to the issuance and sale in an underwritten public offering of an aggregate of 3,800,000 shares of our common stock at a
price of $3.10 per share (the “public offering”) The Underwriting Agreement contained customary representations, warranties
and agreements by us, customary conditions to closing, indemnification obligations, and a 90 day lock-up period that limited
transactions in our common stock by us. Net proceeds from the Public Offering, which was completed in early April 2014, were
approximately $10,828,000.
Form S-3 limits the aggregate market value of securities that we are permitted to offer in any 12-month period under Form
S-3, whether under the ATM Agreement, the Underwriting Agreement or otherwise, to one third of our public float. After the
2014 share sales, we fully utilized the ATM Agreement. However, we regained the ability to utilize Form S-3 as we entered
fiscal 2016. Of the $40 million authorized under the S-3 Shelf, approximately $18.2 million remains available for issuance.
During fiscal 2015, there were no proceeds from the sale of stock under the S-3 Shelf.
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, or at all. If we are unable to obtain required financing, we may be required to reduce the scope of our current projects,
planned product development and marketing efforts, which could harm our financial condition and operating results.
During fiscal 2014, our subsidiary VWP received approximately A$5.6 million ($5.2 million) in initial grant funding from
ARENA. The Company recorded this payment as an advance payment within the consolidated balance sheet. We classified the
initial grant funding received from ARENA, of A$5,595,723 ($5,179,960), which includes GST, as restricted cash. In July 2014,
the VWP Board of Directors determined that the project contemplated by the grant was no longer commercially viable and
subsequently terminated the Funding Deed and returned to ARENA the grant funds received.
During fiscal 2015, the Company remitted the GST in the amount of A$508,702 ($470,905) to the Australian Tax Office
(ATO) in accordance with local tax laws and reclaimed this amount from the ATO during such fiscal period. In August 2014,
the Company returned the initial grant funding received of A$5,595,723 ($5,179,960) and interest of A$109,051 ($102,061) to
ARENA in accordance with the Deed of Variation and Termination of Funding Deed executed between the parties in August
2014.
At April 30, 2015, our total negotiated backlog was $0.9 million compared with $4.9 million at April 30, 2014. Some of
our backlog at April 30, 2015 and 2014 consisted of cost-sharing contracts as described in the Financial Operations Overview
section of Management’s Discussion and Analysis in this Annual Report on Form 10-K. Our backlog can include both funded
amounts, which are unfilled firm orders for our products and services for which funding has been both authorized and
appropriated by the customer (Congress, in the case of US Government agencies), and unfunded amounts, which are unfilled
firm orders from the DOE for which funding has not been appropriated. If any of our contracts were to be terminated, our backlog
would be reduced by the expected value of the remaining terms of such contracts. Currently we expect that our backlog will
continue to decline in the near term; however, we continue to focus on obtaining new contracts and customers to further our
technology and are exploring potential partnerships and strategic alliances. Our backlog was fully funded at April 30, 2015 and
2014. Further, in September 2013, we were selected for a $1.0 million award from the DOE to enhance the commercial viability
of our PowerBuoy through mechanical component design changes. On September 26, 2014, the DOE notified the Company of
DOE’s decision to terminate negotiations with respect to the financial assistance award under the funding opportunity, and the
Company accepted DOE’s decision without protest. As previously disclosed, we had not received any funds from DOE with
respect to this award and had not included the award in our backlog.
32
We also reduced our backlog by $1.0 million for the grant that we received from Ente Vasco de la Energia (“EVE”) a
Basque regional energy agency that would have provided partial funding for the deployment of the PB40 PowerBuoy off the
coast of Spain. This grant expires on December 31, 2015 and will likely not be utilized as we have no planned deployment in
Spain at this time. It is our intent to deploy the PB40 PowerBuoy off the coast of New Jersey as discussed above.
Currently our contract with Mitsui Engineering & Shipbuilding (MES) is undergoing a stage-gate review process and
activity has been suspended until we receive further notification from MES. Stage-gate reviews are used in product development
to gather key information needed to advance the project to the next gate or decision point. This process has been utilized by other
customers such as the Department of Energy. MES has indicated that work under this contract could resume upon passing the
stage-gate review. During the quarter ended April 30, 2015, we billed and have been paid for all eligible costs incurred under the
contract. Our revenues recorded reflect the total amount paid on the contract. In addition, depending on the outcome of the stage-
gate review, the scope of the project may be decreased or increased and other terms, including schedule, of the project may
change. A significant reduction in the remaining scope of the project could have a material adverse effect on our future revenue
and backlog.
For fiscal 2015, we generated revenues of $4.1 million and incurred a net loss attributable to Ocean Power Technologies,
Inc. of $13.1 million, and for fiscal 2014, we generated revenues of $1.5 million and incurred a net loss attributable to Ocean
Power Technologies, Inc. of $11.0 million. As of April 30, 2015, our accumulated deficit was $164.8 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 PowerBuoys in the emerging renewable energy market.
The timing, scope and size of new government programs for renewable energy are uncertain, and there can be no assurances
that we or our customers will be successful in obtaining any additional government funding or that projects will be profitable
even with available funding.
Included in our strategic pivot is the use of PowerBuoy technology for the autonomous applications markets. Such
applications require open ocean power sources that operate independently of the utility grid by supplying electric power to
payloads that are integrated directly in the PowerBuoy and/or located in its vicinity. Based on market research and available
public data, we believe considerable business opportunity exists in six markets that would have a direct need for our autonomous
PowerBuoys: ocean observing, offshore wind, defense and security, oil and gas, communications, and ocean aquaculture. Based
on power needs, sensor types and other considerations, we believe our APB-350 could have the ability to satisfy several
application requirements within these six markets. It is designed to offer a substantial amount of persistent power while also
providing a simple and stable integration platform that is deployable using readily available vessels and skills. The APB-350 is
currently undergoing a design iteration focusing on improving its commercial viability, its reliability and endurance. Based on
our product and technology roadmap, we expect the APB-350 will undergo a significant in-ocean testing and by summer of 2016,
we believe that it will achieve a maturity level that allows us to proceed with our commercial launch. Our intention is to perform
first product demonstrations with early adopters and launch customers near the same timeframe. We anticipate that the APB-350
will have sufficient power to address application needs in all six markets such as metrological data collection, wind and
environmental data collection for offshore wind, and sensors and communications for homeland defense. With additional power
available, we believe new applications will be enabled through the development of new sensors and hardware that were not
feasible or financially viable with incumbent power sources such as generators, solar, wind and battery based sources.
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 portion 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.
33
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. Some revenue contracts may contain complex criteria or
uncertainty surrounding the terms of performance and customer acceptance. These contracts are subject to interpretation, and
management may make a judgment as to the amount of revenue earned and recorded. Because we have a small number of
contracts, revisions to the percentage-of-completion determination, management interpretation or delays in meeting performance
and contractual 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 the percentage-of-completion method
based on the maximum awarded contract amount. In certain cases, we may choose to incur costs in excess of the maximum
awarded contract amounts 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 product development
and services that are specified in the contract. Revenue is typically recorded using the percentage-of-completion method 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 the percentage-of-completion method 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. Some of our revenue for fiscal 2015 and 2014 was from cost-sharing contracts.
The following table provides information regarding the breakdown of our revenues by customer for fiscal years 2015 and
2014:
Years Ended April 30,
($ millions)
2015
2014
Mitsui Engineering & Shipbuilding .................................................................... $
US Department of Energy ...................................................................................
European Union (WavePort project) ...................................................................
UK Government's Technology Strategy Board ...................................................
$
1.6 $
1.5
1.0
―
4.1 $
0.6
0.5
0.2
0.2
1.5
The revenue increase for fiscal 2015 reflected significant increases in revenue from our project with MES that is currently
undergoing a stage-gate review, revenue from the DOE primarily related to costs for the removal of the anchoring and mooring
equipment from the seabed off the coast of Oregon and revenue under our contract with the EU related to the completion of our
WavePort contract.
MES was our largest customer in fiscal 2015 and 2014, and accounted for 40% of our revenues in fiscal 2015 and 38% of
our revenues in fiscal 2014.
34
We currently focus our sales and marketing efforts on North America, Europe, Australia and Japan. The following table
shows the percentage of our revenues by geographical location of our customers for fiscal years 2015 and 2014:
Asia and Australia ...............................................................................................
United States .......................................................................................................
Europe .................................................................................................................
Cost of revenues
Years Ended April 30,
2015
2014
40%
37%
23%
100%
38%
34%
28%
100%
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 delivery and deployment expenses
and may include anticipated losses at completion on certain contracts.
Some of our revenue recorded for fiscal 2015 was generated from cost-sharing contracts, which result in zero gross profit;
however, in fiscal 2015 our firm fixed price contract with MES recorded under the percentage-of-completion method had an
increase in estimated total costs of the project. This increase in estimated project costs resulted in a gross loss and we recorded
an accrual for the future anticipated loss on the contract.
Our ability to generate a gross profit will depend on the nature of future contracts, our success at increasing sales of our
PowerBuoys and our ability to manage costs incurred on fixed price commercial contracts.
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 relate
primarily to our efforts to increase the power output and reliability of our PowerBuoy, and to our research and development of
new products, product applications and complementary technologies. We expense all of our product development costs as
incurred. Over the next several years, it is our intent to fund the majority of our research and development expenses, including
cost-sharing arrangements, with sources of external funding. If we are unable to obtain external funding, we may curtail our
research and development expenses and scope as necessary.
Change in contract loss reserve
Change in contract loss reserve represents a reversal of a previous project-specific reserve where the underlying project had
encountered technical issues during deployment. While the Company had no specific legal obligation to continue work on the
project, management’s intention had been to complete certain elements of the project. Effective as of April 30, 2014, management
made a determination not to pursue its efforts to complete the project and reversed the contract loss reserve.
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 PowerBuoys, as well as costs for
executive, accounting and administrative personnel and other general corporate expenses.
Interest (expense) 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 and interest expense paid on certain obligations to third parties. Total cash,
cash equivalents, restricted cash, and marketable securities were $17.9 million as of April 30, 2015, compared to $35.7 million
as of April 30, 2014.
Interest income reported in future years may decrease from fiscal 2015 as a result of a decrease in cash, cash equivalents
and marketable securities.
35
Foreign exchange 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 may invest our foreign cash reserves in certificates of deposit, and we 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 $1.4 million as of April 30, 2015 and $7.4 million as of April 30, 2014, compared to our total cash, cash equivalents,
restricted cash, and marketable securities balances of $17.9 million as of April 30, 2015 and $35.7 million as of April 30, 2014.
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. Our international revenues for the years ended
April 30, 2015 and 2014 were recorded in Euros or British pounds sterling.
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, 2015, we had federal and foreign net operating loss carryforwards of $109.2 million and $25.4 million,
respectively, and federal research and development tax credits of $2.3 million, which may be used to offset future taxable income.
As of April 30, 2015, we had state net operating loss carryforwards of $37.5 million. If not utilized, the net operating loss
carryforwards and credit carryforwards will expire at various dates through 2034. 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. 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 $50.8 million as of April 30, 2015 and $46.8 million as of April 30, 2014.
During the years ended April 30, 2015 and 2014, we sold New Jersey State net operating losses in the amount of $14.0
million and $15.3 million, respectively, resulting in the recognition of income tax benefits of $1.1 million and $1.7 million,
respectively.
36
Results of Operations
This section should be read in conjunction with the discussion below under “Liquidity and Capital Resources.”
Fiscal Years Ended April 30, 2015 and 2014
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, 2015 and 2014:
Revenues .......................................................... $
Cost of revenues ...............................................
Gross (loss) profit......................................
Operating expenses:
Fiscal Year Ended
April 30, 2015
Fiscal Year Ended
April 30, 2014
Amount
As a % of
Revenues (1) Amount
100% $
114
(14)
1,498,892
1,510,336
(11,444)
4,105,424
4,671,403
(565,979)
% Change
2015 Period
to
As a % of
Revenues (1) 2014 Period
100%
101
(1)
174%
209
4,846
Product development costs ...........................
Change in contract loss reserve ...................
Selling, general and administrative costs ......
4,149,388
-
9,571,193
Total operating expenses ........................... 13,720,581
Operating loss .................................................. (14,286,560)
(31,634)
Interest (expense) income, net ..........................
419,432
Other income ....................................................
Foreign exchange (loss) gain ............................
(462,777)
Loss before income taxes ................................. (14,361,539)
Income tax benefit ............................................
1,137,872
Net loss ............................................................. (13,223,667)
101
-
233
334
(348)
(1)
10
(11)
(350)
28
(322)
4,564,898
(785,000)
9,358,967
13,138,865
(13,150,309)
29,656
183,704
(12,936,949)
1,745,895
(11,191,054)
305
-
624
877
(877)
2
12
(863)
116
(747)
(9)
2
4
(9)
(207)
352
(11)
(35)
(18)
Less: Net loss attributable to the
noncontrolling interest in Ocean Power
Technologies (Australasia) Pty Ltd ...........
Net loss attributable to Ocean Power
109,115
—
221,862
—
(51)
Technologies, Inc.......................................... $ (13,114,552)
(319)% $ (10,969,192)
(732)%
(20)%
(1) Certain subtotals may not add due to rounding.
Revenues
Revenues increased by $2.6 million, or 174%, to $4.1 million in fiscal 2015, as compared to $1.5 million in fiscal 2014.
The increase in revenue is primarily related to increased billable work for the removal of the anchoring and mooring equipment
from the seabed off the coast of Oregon, increased billable work under the current phase of our project with MES and revenue
related to the completion of our WavePort contract with the EU. These increases were partially offset by decreased revenue on
other billable development projects.
Cost of revenues
Cost of revenues increased by $3.2 million, or 209%, to $4.7 million in fiscal 2015, as compared to $1.5 million in fiscal
2014. The increase in cost of revenues is primarily related to costs for increased billable work for the removal of the anchoring
and mooring equipment from the seabed off the coast of Oregon, increased billable work under the current phase of our project
with MES and cost of revenue related to the completion of our WavePort contract with the EU. Our firm fixed price contract
with MES recorded under the percentage-of-completion method had an increase in estimated total costs of the project. This
increase in estimated project costs resulted in a gross loss and we recorded an accrual for the future anticipated loss on the
contract. These increases were partially offset by decreased cost of revenues on other billable development projects.
Some of our projects in fiscal 2015 and 2014 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 primarily as part of our product development efforts. Revenue is typically recorded using the
37
percentage-of-completion method applied to the contractual 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. Our ability to generate a gross profit will depend on the nature of future
contracts, our success at achieving commercialization of our PowerBuoys and on our ability to manage costs incurred on our
fixed price contracts.
Product Development Cost
Product development costs decreased by $0.4 million, or 9%, to $4.1 million in fiscal 2015 as compared to $4.6 million in
fiscal 2014. The decrease in product development costs was related primarily to the substantial completion of our cost-sharing
contract with the DOE for our Reedsport project in Oregon, offset by increased costs associated with other internally funded
development projects. Over the next several years, it is our intent to fund the majority of our research and development expenses,
including cost-sharing arrangements, with sources of external funding. If we are unable to obtain external funding, we may curtail
product development expenses and/or scope as necessary.
Change in contract loss reserve
Change in contract loss reserve was $0 and $0.8 million in fiscal 2015 and 2014, respectively. This amount represents a
reversal of a previous project-specific reserve where the underlying project had encountered technical issues during deployment.
While the Company had no specific legal obligation to continue work on the project, management’s intention had been to
complete certain elements of the project. Effective as of April 30, 2014, management made a determination not to pursue its
efforts to complete the project and reversed the contract loss reserve.
Selling, general and administrative costs
Selling, general and administrative costs increased by approximately $0.2 million, or 2%, to $9.6 million for fiscal 2015 as
compared to $9.4 million for fiscal 2014. The increase was related primarily to legal fees to address the shareholder litigation
and related matters. In addition, costs increased related to third party consultant fees and patent costs due to shortening the
estimated useful lives for recording amortization expense. These increases were offset by decreased employee related costs and
decreased site development expenses related to our terminated project in Australia. In addition, during fiscal 2014, we had a
favorable adjustment for a doubtful allowance on a customer receivable. We believe that we have met our retention limit under
our D&O insurance policy during fiscal 2015 for shareholder litigation and future related legal costs will be paid by our insurance
carrier.
Interest (expense) income, net
Interest expense was $32,000 for fiscal 2015, as compared to interest income of $30,000 in fiscal 2014. This change was
related primarily to interest expense recorded for the repayment of funds received in March 2014 from ARENA of $5.2 million.
Foreign exchange (loss) gain
Foreign exchange loss was $463,000 for fiscal 2015, compared to a foreign exchange gain of $184,000 for fiscal 2014. The
difference was attributable primarily to the relative change in value of the British pound sterling, Euro and Australian dollar
compared to the US dollar during the two periods.
Other income
During fiscal 2015, we reached a favorable settlement with a vendor regarding a disputed transaction, which comprises the
amount of $185,000 recorded within other income. In fiscal 2015, we also received a refund of $234,000 related to research and
development expenditures in Australia.
Income tax benefit
During the years ended April 30, 2015 and 2014, we sold New Jersey state net operating losses in the amount of $14.0
million and $15.3 million, respectively, resulting in the recognition of income tax benefits of $1.1 million and $1.7 million,
respectively.
38
Net Loss Outlook
We have incurred net losses since we began operations in 1994. To achieve profitability, we believe we will need to increase
revenue and gross profit, control our fixed costs and possibly reduce our unfunded research and development expenditures.
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 PowerBuoys in the emerging renewable energy market. Even if we do achieve
profitability at some point in the future, we may not be able to sustain or increase profitability on a quarterly or annual basis.
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 two years ended April 30, 2015, our aggregate revenues were
$5.6 million, our aggregate net losses were $24.4 million and our aggregate net cash used in operating activities was $23.7
million.
Years Ended April 30,
2015
2014
Net loss ...............................................................................................................
(13,223,667) $
(11,191,054)
Adjustments for noncash operating items ...........................................................
1,764,229
913,846
Net cash operating loss .......................................................................................
(11,459,438)
(10,277,208)
Net change in operating assets and liabilities ......................................................
(5,714,790)
3,780,130
Net cash used in operating activities ...................................................................
(17,174,228) $
(6,497,078)
Net cash provided by (used in) investing activities .............................................
21,171,387 $
(6,445,638)
Net cash (used in) provided by financing activities ............................................
(100,659) $
20,427,707
Effect of exchange rates on cash and cash equivalents .......................................
419,425 $
880
Net cash used in operating activities
Net cash used in operating activities was $17.2 million and $6.5 million for fiscal 2015 and 2014, respectively. The change
was the result of an increase in net loss of $2.0 million and an increase in cash used by the net change in operating assets and
liabilities of $9.5 million primarily due to the return of the advance payment of $4.7 million related to the former ARENA
contract, offset by an increase in noncash operating items of $0.8 million.
The increase in net loss for fiscal 2015 compared to fiscal 2014 reflects a gross loss of $0.6 million relating primarily to
our project with MES, an increase in selling, general and administrative costs of $0.2 million, offset by a decrease in product
development costs of $0.4 million relating primarily to our project in Reedsport, Oregon, a change in contract loss reserve of
$0.8 million, a decrease in the net change of $0.2 million in other income and foreign exchange differences and a decrease in
income tax benefits of $0.6 million.
The increase in noncash operating items reflects an increase in amortization expense for patents of $0.5 million and foreign
exchange loss of $0.6 million and the prior period reversal of an allowance for doubtful accounts receivable of $0.3 million offset
by a decrease in equity compensation of $0.4 million and loss on disposals of $0.2 million.
The decrease in operating assets and liabilities reflects the change in advanced payment received from customers of $9.4
million, a net decrease of $0.6 million in unearned revenues, a net decrease in other assets of $0.8 million and other net changes
in operating assets and liabilities of $0.4 million. These decreases are offset by the collection of $0.6 million in accounts
receivable.
39
Net cash provided by (used in) investing activities
Net cash provided by investing activities was $21.2 million for fiscal 2015 and net cash used in investing activities was
$6.4 million for fiscal 2014. The change was primarily the result of a net increase of $14.9 million in maturities of marketable
securities during fiscal 2015 and an increase in restricted cash of $12.7 million.
Net cash (used in) provided by financing activities
Net cash used in financing activities was $101,000 and net cash provided by was $20,428,000 for fiscal 2015 and 2014,
respectively. The net cash used was primarily for repayment of long-term debt in fiscal 2015 and net cash provided in fiscal 2014
was primarily from the sale of common stock, net of issuance costs.
Effect of exchange rates on cash and cash equivalents
The effect of exchange rates on cash and cash equivalents was a decrease of $419,000 and an increase of $880 in fiscal
2015 and 2014, respectively. The effect of exchange rates on cash and cash equivalents results primarily from gains or losses 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 PowerBuoys and to expand our sales,
marketing and manufacturing programs associated with the planned commercialization of the PowerBuoys. Our future capital
requirements will depend on a number of factors, including:
•
•
•
•
•
•
•
•
•
•
the cost of development efforts for our PowerBuoys;
our success in developing commercial relationships with major customers;
the ability to obtain project-specific financing, grants, subsidies and other sources of funding for some of our projects;
the cost of manufacturing activities;
the cost and success rate of commercialization activities, including demonstration projects, product marketing and
sales;
our ability to establish and maintain additional customer relationships;
the implementation of our expansion plans, including the hiring of new employees as our business increases;
the cost of potential acquisitions of other products or technologies;
the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related
costs; and
the cost of shareholder and other litigation and regulatory inquiries.
We have incurred negative operating cash flows since our inception. As of April 30, 2015, our cash and cash equivalents
and marketable securities balance was approximately $17.4 million. Based upon our cash and cash equivalents and marketable
securities balance as of April 30, 2015, we believe that we will be able to finance our capital requirements and operations through
at least July 31, 2016. In addition, as of April 30, 2015, our restricted cash balance was approximately $0.5 million, which reflects
a significant decrease from our restricted cash balance of approximately $7.3 million as of April 30, 2014.
On January 14, 2015, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The
NASDAQ Stock Market notifying us that, for the last 30 consecutive business days, the bid price of our common stock had
closed below the minimum $1.00 per share requirement for continued inclusion on The NASDAQ Global Market pursuant to
NASDAQ Listing Rule 5450(a) (1) (the “Rule”). In accordance with Nasdaq Listing Rule 5810(c) (3) (A), the Company has
been provided an initial period of 180 calendar days, or until July 13, 2015, to regain compliance with the Rule. If, at any time
before July 13, 2015, the bid price of our common stock closes at $1.00 or more for a minimum of 10 consecutive business days
40
as required under Listing Rule 5810(c) (3) (A), the Staff will provide written notification to us that it complies with the Rule,
unless the Staff exercises its discretion to extend this 10 day period pursuant to Listing Rule 5810(c) (3) (F).
We have requested an additional 180 day compliance period and, as required, to transfer the listing of our common stock
from The NASDAQ Global Market to The NASDAQ Capital Market
During fiscal 2015 and 2014, we have continued to make investments in ongoing product development efforts in
anticipation of future growth. Our future results of operations involve significant risks and uncertainties. Factors that could affect
the Company’s future operating results and cause actual results to vary materially from ecpectations include, but are not limited
to, risks from insufficiencies of capital, technology development, scalability of technology and production, dependence on skills
of key personel, concentration of customers and suppliers, performance of PowerBuoy, deployment risks and laws, regulations
and permitting. In order to complete our future growth strategy, we will require additional equity and/or debt financing. There is
no assurance that additional equity and/or debt financing will be available to us as needed. Historically, we have raised proceeds
through public capital markets. If our common stock is delisted from NASDAQ, our ability to raise capital through such markets
ccould be adversely affected. If sufficient financing is not obtained, we may be required to further curtail or limit certain product
development costs, and/or selling, general and administrative activities in order to reduce our cash expenditures.
In January 2013, we filed a shelf registration statement on Form S-3 (the “S-3” or the “S-3 Shelf”). The S-3 Shelf was
declared effective in February 2013. Under the S-3 Shelf in June 2013, we established the ATM Facility with Ascendiant Capital
Markets, LLC via the ATM Agreement in June 2013. Under the ATM Agreement, we offered and sold shares of our common
stock from time to time through the Manager, acting as sales agent, in ordinary brokerage transactions at prevailing market prices.
Under the ATM Facility, during fiscal 2014, we issued 3,306,334 shares of our common stock at an average price to the public
of $3.02 per share, receiving net proceeds from the ATM Facility of approximately $9,698,000.
Also in fiscal 2014, we entered into an Underwriting Agreement with Roth Capital Partners, LLC on April 4, 2014, with
respect to the issuance and sale in an underwritten Public Offering of an aggregate of 3,800,000 shares of our common stock at
a price of $3.10 per share. The Underwriting Agreement contained customary representations, warranties and agreements by us,
customary conditions to closing, indemnification obligations, and a 90 day lock-up period that limited transactions in our
common stock by us. Net proceeds from the Public Offering, which was completed in early April 2014, were approximately
$10,828,000.
Form S-3 limits the aggregate market value of securities that we are permitted to offer in any 12-month period under Form
S-3, to one third of our public float. After the 2014 share sales, we reached the applicable limit under form S-3. However, we
regained the ability to utilize Form S-3 as we entered fiscal 2016. Of the $40 million authorized under the S-3 Shelf,
approximately $18.2 million remains available for issuance. During fiscal 2015, there were no proceeds from the sale of stock
under the S-3 Shelf.
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, or at all. If we are unable to obtain required financing, we may be required to reduce the scope of our current projects,
planned product development and marketing efforts, which could harm our financial condition and operating results.
During the three months ended April 30, 2014, our subsidiary VWP received approximately A$5.6 million ($5.2 million)
in initial grant funding from ARENA. The Company recorded this payment as an advance payment within the consolidated
balance sheet. We classified the initial grant funding received from ARENA, of A$5,595,723 ($5,179,960), which includes GST,
as restricted cash. In July 2014, the VWP Board of Directors determined that the project contemplated by the grant was no longer
commercially viable and tendered a notice of its intent to terminate the Funding Deed and return to ARENA the grant funds
received.
During fiscal 2015, the Company remitted the GST in the amount of A$508,702 ($470,905) to the Australian Tax Office
(ATO) in accordance with local tax laws and reclaimed this amount from the ATO during such fiscal period. In August 2014,
the Company returned the initial grant funding received of A$5,595,723 ($5,179,960) and interest of A$109,051 ($102,061) to
ARENA in accordance with the Deed of Variation and Termination of Funding Deed executed between the parties in August
2014.
41
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 (US GAAP).
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
Our contracts are either cost plus or fixed price contracts. Under cost plus contracts, customers are billed for actual expenses
incurred plus an agreed-upon fee. 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 product development and services specified in the
contract. 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.
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 the 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. Some revenue contracts may contain complex criteria or
uncertainty surrounding the terms of performance and customer acceptance. These contracts are subject to interpretation and
management may make a judgment as to the amount of revenue earned and recorded. Because we have a small number of
contracts, revisions to the percentage-of-completion determination, management interpretation or delays in meeting performance
and contractual criteria or in completing projects may have a significant effect on revenue for the periods involved.
Under cost plus and firm fixed price contracts there is a profit or loss on the project depending on whether actual costs are
more or less than the agreed upon amount. Under cost-sharing contracts, 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.
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.
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 may use a Monte Carlo simulation model for performance-based stock awards, if
applicable, and 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. Expected volatility for fiscal 2015 and 2014 was based on the Company’s historical volatility. In
prior years, we estimated our expected volatility based on that of what we considered to be similar publicly-traded companies
because our stock had been publicly traded in the United States only since April 2007, so we did not have significant observable
share-price volatility for the United States capital markets. We did not estimate our expected volatility based on the price of our
42
common stock on the AIM market of the London Stock Exchange, on which our shares traded from October 2003 until we
voluntarily delisted in January 2011, because we did 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 was an appropriate indicator of the expected volatility of
our common stock. 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 term is more reasonable than our current method, or if another
method for calculating this input assumption is prescribed by authoritative guidance, the fair value calculated for future stock-
based awards could change significantly. 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 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 $0.1 million and $0.6 million in fiscal 2015 and 2014, respectively.
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 carry forwards, 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 $50.8 million and $46.8
million as of April 30, 2015 and April 30, 2014, respectively. During the years ended April 30, 2015 and 2014, we sold New
Jersey State net operating losses in the amount of $14.0 million and $15.3 million, respectively, resulting in the recognition of
income tax benefits of $1.1 million and $1.7 million, respectively, recorded in our Statement of Operations.
Recent Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity
to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard
is effective for us on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective
or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial
statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard
on our ongoing financial reporting.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern, which describes how an entity should assess its ability to meet obligations and sets rules for how this information
should be disclosed in the financial statements. The standard provides accounting guidance that will be used along with existing
43
auditing standards. The new standard applies to all entities for the first annual period ending after December 15, 2016, and interim
periods thereafter. Early application is permitted. We are evaluating the effect ASU 2014-15 will have on our consolidated
financial statements and disclosures and have not yet determined the effect of the standard on our ongoing financial reporting at
this time.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (the Exchange Act)
is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
As of the end of the period covered by this Annual Report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that
evaluation, as of April 30, 2015, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were effective.
Internal Control over Financial Reporting
The annual report of management on the Company’s internal control over financial reporting is provided under “Reports
of Management” on page F-2, which is incorporated herein by reference as if fully set forth herein. As described therein,
management concluded that the Company’s internal control over financial reporting was effective as of April 30, 2015.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) occurred during the quarter ended April 30, 2015 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
44
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS
PART III
All of our directors bring to our Board of Directors executive leadership experience from their service as executives
and/or directors of our Company and/or other entities. The biography of each of the directors below contains information
regarding the person’s service as a director, business experience, director positions held currently or at any time during the last
five years, and the experiences, qualifications, attributes and skills that caused the Nominating and Corporate Governance
Committee and our Board of Directors to determine that the person should serve as a director, given our business and structure.
Name
Age
Position(s) with Ocean Power Technologies, Inc.
Terence J. Cryan .................................... 52
Chairman of the Board
David L. Keller...................................... 61
Former Interim Chief Executive Officer and Director
Eileen M. Competti ............................... 51
Independent Director
Dean J. Glover ....................................... 49
Independent Director
George H. Kirby .................................... 45
Chief Executive Officer and Director
Robert J. Burger .................................... 51
Independent Director
Served as
Director
From
2012
2013
2014
2014
2015
2015
Terence J. Cryan has been a member of the OPT Board of Directors since October 2012. Mr. Cryan was our lead
independent director from October 2013 to June 2014 when he became Chairman of the Board. Since September 2001, Mr. Cryan
has been Co-founder and Managing Director of Concert Energy Partners, LLC, an investment and private equity firm with a
focus on the traditional and alternative energy, power and natural resources industries. In addition to his responsibilities at
Concert Energy Partners, Mr. Cryan has served on the boards of directors of a number of publically traded companies including,
Uranium Resources, Inc., since 2006; Global Power Equipment Group Inc., since 2008; Superior Drilling Products, since May
2014; Gryphon Gold Corporation from 2009 to 2012; and The Providence Service Corporation from 2009 to 2011. From
September 2012 until April 2013, Mr. Cryan also served as interim President and CEO of Uranium Resources, Inc., and was
elected as Chairman of the Board of Directors of Uranium Resources, Inc. in June 2014. Mr. Cryan has been President and CEO
of Global Power Equipment Group Inc., since March 2015. Prior to joining our Board of Directors, Mr. Cryan was a member of
our Board of Advisors. Mr. Cryan earned his Bachelor of Arts degree from Tufts University in 1983 and a Master’s of Science
degree in Economics from The London School of Economics in 1984. In December 2014, Terence Cryan was named a Board
Leadership Fellow by the National Association of Corporate Directors. We believe Mr. Cryan's qualifications to sit on our Board
of Directors include his significant experience in financial matters, his prior board and executive experience at other companies,
his broad energy industry background and his extensive expertise in financings, mergers and acquisitions.
David L. Keller has been a member of the OPT Board of Directors since October 2013 and served as the Interim Chief
Executive Officer from June 2014 to January 2015. Mr. Keller has also been serving as an independent director of Global Power
Equipment Group Inc., a comprehensive provider of power generation equipment and modification and maintenance services for
customers in the domestic and international energy, power infrastructure and service industries, since May 8, 2015. He previously
served as President, Chief Executive Officer and Director of Global Power Equipment Group Inc., from September 2009 until
his retirement in June 2012 and, following his retirement, continued to serve Global Power Equipment Group Inc. as a consultant
until March 2013. Mr. Keller previously served as an independent director of Thermo Energy, Inc., a company engaged in the
worldwide development, sales and commercialization of patented and/or proprietary municipal and industrial wastewater
treatment and power generation technologies from April 2013 to May 2014. Mr. Keller holds a Bachelor of Science degree in
Mathematics from the University of Akron. He brings to the Board of Directors a comprehensive knowledge of the power
generation industry. In addition to his experience and understanding in the industry, Mr. Keller also has significant executive
management experience, having directly overseen sales, manufacturing, accounting, legal, supply chain and personnel functions
of a business whose revenues reached approximately $2 billion under his management.
45
Eileen M. Competti became a member of the Board of Directors on April 24, 2014, replacing the retired George W.
Taylor. Ms. Competti will retire from the Babcock & Wilcox Company (B&W) in July, 2015 as Vice President, Global
Competitiveness. B&W is a leader in clean energy technology and services, primarily for the nuclear, fossil and renewable power
markets, as well as a premier advanced technology and mission critical defense contractor. From 2001 to 2012, Ms. Competti
served as President of Diamond Power International, Inc., a subsidiary of the power generation group of B&W. Ms. Competti
has 30 years of experience in global energy businesses, having served in various technical, operational, managerial and strategic
growth-focused roles. During her tenure at B&W, Ms. Competti served as Board Chairman or Lead Director of subsidiaries and
joint ventures in Australia, China, Thailand, Scotland, Finland and Sweden. Ms. Competti also served on the board of directors
of the Community Bank Division of United Bancorp from 2005-2007. Ms. Competti earned a Bachelor of Science degree in
Industrial Engineering from the University of Cincinnati, a Masters of Business Administration degree from Ohio University,
and is also an alumnus of the Stanford Executive Program at Stanford University. We believe Ms. Competti’s qualifications to
serve on OPT’s Board of Directors include her significant experience in the clean energy technology industry and executive
management, technical and operational experience.
Dean J. Glover became a member of the Board of Directors in October 2014, replacing the retired Mr. Preston. Mr.
Glover has been the President & CEO of MIRATECH Group since 2008. Prior to this, he was Senior Vice President and President
of the Products Division of Global Power Equipment Group Inc. Mr. Glover joined Global Power in December 2005 as Chief
Operating Officer of Braden Manufacturing. Prior to joining Global Power, Mr. Glover led the global supply chain and
manufacturing for Diebold Inc. Prior to this Mr. Glover spent 13 years with General Electric in various managerial and technical
roles and is a certified Six Sigma Master Black belt. Mr. Glover holds a Bachelors Degree in Mechanical Engineering from the
University of Nebraska and an M.B.A. from the Kellogg Graduate School of Management, Northwestern University. Mr. Glover
has extensive international experience having lived in various international locations for most of his career. Mr. Glover has over
25 years of commercial and technical experience in industry. We believe Mr. Glover’s qualifications to sit on our Board of
Directors include his significant managerial, commercial and technical experience in the energy technology industry.
George H. Kirby has served as our President, Chief Executive Office and a member of the Board of Directors since
January 20, 2015, replacing Interim Chief Executive Officer David L. Keller. Prior to this, he joined AECOM Technology
Corporation (NYSE: ACM) a leading provider of engineering, procurement and construction (“EPC”) services in September
2013 as Senior Vice President. In this role, he led their Energy Business Line for the north U.S. region providing services for
utilities, power transmission and generation developers, and large industrial energy efficiency end-users. Prior to AECOM, he
joined SAIC Energy, Environment, & Infrastructure (NYSE: SAIC) in January 2012 a global leader in solutions for national
security, healthcare and engineering, as Managing Director for their Asset Transactions group providing power generation
investors and developers with technical and market consulting and advisory services, and was promoted to Vice President in
2013 providing EPC services to Investor Owned Utilities. In 2009, he joined American Superconductor (NASDAQ: AMSC) as
Director of Global Sales and was promoted to Managing Director of the Americas and Australia in 2011. From 2000 to 2009,
Mr. Kirby held significant leadership roles at General Electric in both GE Energy and GE Capital (NYSE: GE) in product
development, global sales, quality and project finance. We believe Mr. Kirby’s significant leadership experience in energy
industries qualifies him to serve on our Board of Directors.
Robert J. Burger became a member of the Board of Directors on May 8, 2015. Mr. Burger has a broad range of
international executive experience in both the alternative and traditional energy industries, and is currently on the Board of
Directors for Victory Energy Operations, LLC, a Saw Mill Capital Company. Victory Energy designs and manufactures industrial
boilers for the power and chemical industries. From 2012 through 2015, Mr. Burger served as President and CEO of MAN Diesel
& Turbo North America Inc., based in Houston, TX, a subsidiary of the German multi-national corporation, MAN SE. MAN is
the world’s leading provider of large-bore diesel engines for use in ships and power stations, and a top provider of turbo-
machinery for oil & gas, chemical, and industrial applications. From 2007 to 2012, Mr. Burger was with LM Wind Power, a
Danish company and the world’s largest independent provider of wind turbine blades and service. He served as President of
LM’s Service Americas business, based in Portland, OR, and prior to that as Director of Global Service, based at LM’s corporate
headquarters in Amsterdam, The Netherlands. From 2005 to 2007, Mr. Burger led Aerisyn, LLC, a start-up fabricator of wind
turbine towers based in Chattanooga, TN. Mr. Burger’s corporate career began in the energy division of General Electric, where
he rose through the ranks to lead their Gas Turbine Product Service business worldwide, serving in various engineering,
production, quality, and customer service roles along the way. Prior to GE, Mr. Burger was an officer in the U.S. Navy, driving
ships and managing the ship’s power plant for several years, including a three-year tour in Japan, and then specializing in large-
scale shipyard engineering, repair, and modification projects, to include underwater salvage. He was a fully-qualified U.S. Navy
Diving Officer. Mr. Burger holds two graduate degrees in Mechanical Engineering, both an M.S. and a D.Mech. Eng., from the
Naval Postgraduate School in Monterey, CA, where he did extensive postgraduate work in total ship systems design. He is a
graduate of the U.S. Naval Academy, where he earned a B.S. in Ocean Engineering. We believe Mr. Burger’s qualifications to
serve on our Board of Directors include his broad range of executive experience in both alternative and traditional energy
industries.
46
Executive Officers
We have two executive officers who are not directors:
Name
Age
Position with Ocean Power Technologies, Inc.
Mark A. Featherstone .............................................
David R. Heinz .......................................................
53
59
Chief Financial Officer and Treasurer
Chief Operating Officer
Mark A. Featherstone has served as our Chief Financial Officer since December 2013. Prior to joining OPT, Mr.
Featherstone worked for a number of publicly-held and privately-owned industrial and consumer manufacturing and distribution
companies. From May 2013 to December 2013, Mr. Featherstone served as Chief Financial Officer of Heat Transfer Products
LLC, a private equity owned commercial refrigeration components manufacturer. From June 2012 to May 2013, Mr. Featherstone
was an independent consultant specializing in interim CFO services, financial statement restatements and debt
restructuring. From 2001 to June 2012, Mr. Featherstone was employed by Quaker Chemical Corporation, a NYSE-listed
specialty chemical manufacturer, serving as CFO from 2007 until June 2012. Mr. Featherstone began his career at the
international accounting firm of Arthur Andersen & Company. Over his career, Mr. Featherstone has raised both debt and equity,
has overseen mergers, acquisitions, and divestitures as well as been responsible for financial reporting and other matters. Mr.
Featherstone holds a Master of Business Administration degree from Drexel University and a Bachelors degree in Accounting
from Pennsylvania State University.
David R. Heinz was appointed Vice President, Autonomous Power in January 2014 and has served as our Chief
Operating Officer since June 2014. Prior to joining OPT, Mr. Heinz was Vice President and General Manager of Maritime
Systems for iRobot, Inc. from Sept 2010 to Oct 2012, developing and building autonomous underwater robots serving both
academic and military customers. During his military career, Mr. Heinz was a highly decorated U.S. Marine Corps officer retiring
in Sept 2010 at the rank of Major General. His recent assignments included the Deputy Program Executive Officer (DPEO)
from June 2006 to April 2009 and Program Executive Officer (PEO) from April 2009 to Feb 2010 for the F-35 Lightning II
Program in Arlington, VA. Mr. Heinz is also a Registered Investment Advisor Associate. Mr. Heinz holds a Bachelor of Science
Degree in Systems Engineering from the U.S. Naval Academy, a Master of Science degree in Computer Science with a
subspecialty in Artificial Intelligence from the Florida Institute of Technology and a Master of Arts degree in National Security
and Strategic Studies from the Naval Warfare College.
Corporate Governance
Our Board of Directors believes that good corporate governance is important to ensure that the Company is managed
for the long-term benefit of our stockholders. This section describes key corporate governance guidelines and practices that our
Board has adopted. Complete copies of our corporate governance guidelines, committee charters and code of business conduct
and ethics are available on the corporate governance section of our website, www.oceanpowertechnologies.com. Alternatively,
you can request a copy of any of these documents by writing to our Secretary at 1590 Reed Road, Pennington, NJ 08534.
Corporate Governance Guidelines
Our Board has adopted corporate governance guidelines to assist in the exercise of its duties and responsibilities and
to serve the best interests of the Company and our stockholders. These guidelines, which provide a framework for the conduct
of the Board’s business, provide that:
●
the Board’s principal responsibility is to oversee the management of Ocean Power Technologies, Inc.;
●
a majority of the members of the Board shall be independent directors;
●
the non-employee directors shall meet regularly in executive session;
● directors have full and free access to management and, as necessary and appropriate, independent advisors; and
●
at least annually, the Board and its committees will conduct a self-evaluation to determine whether they are functioning
effectively.
47
Meetings of the Board of Directors
The Board of Directors held eleven meetings during fiscal 2015. During fiscal 2015, each director attended at least
75% of the aggregate of the total number of meetings of (a) the Board of Directors and (b) the committees on which such director
served.
Our corporate governance guidelines provide that directors are expected to attend the Annual Meeting of Stockholders.
All directors attended the 2014 Annual Meeting of Stockholders.
Board Leadership Structure
The Board of Directors is led by the chairman, and currently Mr. Cryan is serving as the Chairman. The Board of
Directors has also established the position of Chief Executive Officer (CEO), and currently Mr. Kirby is serving as CEO. The
Board of Directors recognizes that, depending on the circumstances, other leadership structures might be appropriate.
Accordingly, the Board of Directors periodically reviews its leadership structure.
Board Committees
Our Board of Directors has established three standing committees: an Audit Committee, a Compensation Committee
and a Nominating and Corporate Governance Committee. Each committee operates under a charter that has been approved by
the Board. The charters of all Board committees are available on our website at www.oceanpowertechnologies.com.
Our Board has determined that all of the members of the Compensation Committee and the Nominating and Corporate
Governance Committee are independent as defined under Rules 5605(a)(2) and 5605(d)(2) of the NASDAQ Stock Market, as
applicable. Our Board has also determined that all Audit Committee members meet the independence requirements contemplated
by Rule 5605(c) of the NASDAQ Stock Market and Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
Audit Committee. The current members of our Audit Committee are Terence J. Cryan, Eileen M. Competti, and Dean
Glover. Mr. Cryan was the chair of the committee during fiscal 2015. Effective July 1, 2015, Mr. Glover assumed this position.
They are both audit committee financial experts. The Audit Committee met six times in fiscal 2015.
Our Audit Committee assists our Board of Directors in its oversight of the integrity of our consolidated financial
statements, our independent registered public accounting firm’s qualifications, independence and performance.
Our Audit Committee’s responsibilities include: appointing, approving the compensation of, and assessing the
independence of, our independent registered public accounting firm; overseeing the work of our independent registered public
accounting firm, including through the receipt and consideration of reports from our independent registered public accounting
firm; reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly
consolidated financial statements and related disclosures; monitoring our internal control over financial reporting, disclosure
controls and procedures and code of business conduct and ethics; establishing procedures for the receipt and retention of
accounting related complaints and concerns; meeting independently with our independent registered public accounting firm and
management; and preparing the Audit Committee report required by Securities and Exchange Commission (“SEC”) rules.
Compensation Committee. The current members of our Compensation Committee are Terence J. Cryan, Eileen M.
Competti, David Keller and Dean Glover. Ms. Competti is the chair of the committee. Our Compensation Committee assists our
Board of Directors in the discharge of its responsibilities relating to the compensation of our executive officers.
Our Compensation Committee’s responsibilities include: reviewing and approving, or making recommendations to the
Board of Directors with respect to, our chief executive officer and other executive officers’ compensation; evaluating the
performance of our executive officers and reviewing and approving, or making recommendations to the Board of Directors with
respect to, overseeing and administering, and making recommendations to the Board of Directors with respect to, our cash and
equity incentive plans. The Compensation Committee met four times in fiscal 2015.
The Compensation Committee has the authority to retain compensation consultants and other outside advisors to assist
in the evaluation of executive officer compensation. To date, the Compensation Committee has utilized independent salary
surveys and consultants to evaluate executive officer compensation.
48
Nominating and Corporate Governance Committee. The members of our Nominating and Corporate Governance
Committee are Terence J. Cryan, David Keller, Dean Glover, and Eileen M. Competti. Mr. Cryan is the chair of the committee.
Our Nominating and Corporate Governance Committee’s responsibilities include: recommending to the Board of
Directors the persons to be nominated for election as directors or to fill vacancies on the Board of Directors and to be appointed
to each of the Board’s committees; overseeing an annual review by the Board of Directors with respect to management succession
planning; developing and recommending to the Board of Directors corporate governance principles and guidelines; overseeing
periodic evaluations of the Board of Directors; and reviewing and making recommendations to the Board of Directors with
respect to director compensation. The Nominating and Corporate Governance Committee met six times in fiscal 2015.
Special Committee. On June 10, 2014, the Company announced that the Board of Directors had appointed a Special
Committee composed of outside directors and the Interim Chief Executive Officer. The Special Committee consisted of Eileen
M. Competti as the chair, Terence J. Cryan and David L. Keller. The Special Committee was charged with the responsibility to
conduct an internal investigation into the agreement between Victorian Wave Partners Pty Ltd, a project-specific operating entity
wholly-owned by the Company's subsidiary Ocean Power Technologies (Australia) Pty Ltd, and the Australian Renewable
Energy Agency, and related public statements concerning that project. The Special Committee retained outside counsel the law
firm of Reed Smith to assist in this investigation. In October 2014, the Special Committee disbanded
Risk Oversight
The Board of Directors has an active role, as a whole and also at the committee level, in overseeing management of
the Company’s risks. The Board of Directors regularly reviews information regarding the Company’s financial position and
operations, as well as the risks associated with each. While the Board of Directors is ultimately responsible for risk oversight at
the Company, our Board committees assist the Board of Directors in fulfilling its oversight responsibilities in certain areas of
risk. The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities with respect to risk
management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements. The
Compensation Committee assists the Board of Directors in fulfilling its oversight responsibilities with respect to the management
of risks arising from our compensation policies and programs. The Nominating and Corporate Governance Committee assists
the Board of Directors in fulfilling its oversight responsibilities with respect to the management of risks associated with the Board
organization, membership and structure of the Board of Directors, succession planning for our directors and executive officers,
and corporate governance.
Director Nomination Process
The process followed by our Nominating and Corporate Governance Committee to identify and evaluate director
candidates includes requests to Board members and others for recommendations, meetings from time to time to evaluate
biographical information and background material relating to potential candidates and interviews of selected candidates by
members of the Nominating and Corporate Governance Committee and the Board.
In considering whether to recommend any particular candidate for inclusion in the Board’s slate of recommended
director nominees, our Nominating and Corporate Governance Committee applies the criteria set forth in our corporate
governance guidelines. These criteria include the candidate’s integrity, business acumen, knowledge of our business and industry
or of other industries with comparable risks and issues, experience, diligence, potential conflicts of interest and the ability to act
in the interests of all stockholders. The Nominating and Corporate Governance Committee considers the value of diversity when
recommending candidates. The committee views diversity broadly to include diversity of experience, skills and viewpoint. The
Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular
criterion is a prerequisite for each prospective nominee. Our Board believes that the backgrounds and qualifications of its
directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow it to
fulfill its responsibilities.
Stockholders may recommend individuals to our Nominating and Corporate Governance Committee for consideration
as potential director candidates. The Nominating and Corporate Governance Committee will evaluate stockholder-recommended
candidates by following the same process and applying the same criteria as it follows for candidates submitted by others.
Stockholders may directly nominate a person for election to our Board by complying with the procedures set forth in
Article I, Section 1.10 of our by-laws, and with the rules and regulations of the SEC. Under our by-laws, only persons nominated
in accordance with the procedures set forth in the by-laws will be eligible to serve as directors. In order to nominate a candidate
for service as a director, you must be a stockholder at the time you give the Board notice of your nomination, and you must be
entitled to vote for the election of directors at the meeting at which your nominee will be considered. In accordance with our by-
49
laws, director nominations generally must be made pursuant to notice to our Secretary delivered to or mailed and received at our
principal executive offices at 1590 Reed Road, Pennington, NJ 08534, not later than the 90th day, nor earlier than the 120th day,
prior to the first anniversary of the prior year’s annual meeting of stockholders. Your notice must set forth (i) the name, age,
business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class
and number of shares of capital stock of Ocean Power Technologies, Inc. owned beneficially or of record by the nominee and
(iv) all other information relating to the nominee that is required to be disclosed in solicitations of proxies for the election of
directors in an election contest, or is otherwise required, in each case, pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated there under. The stockholder making the nomination must include his or her name and address, a
statement as to the class and amount of shares beneficially owned by the stockholder, a description of any arrangements or
understandings between the stockholder and the nominee, a representation that the stockholder intends to appear in person or by
proxy at the annual meeting and a representation as to whether such stockholder intends, or is part of a group that intends, to
deliver a proxy statement/and or solicit proxies.
Communicating with the Independent Directors
Our Board will give appropriate attention to written communications that are submitted by stockholders, and will
respond if and as appropriate. The chairman (if an independent director), or the lead independent director (if one is appointed),
or otherwise the chairman of the Nominating and Corporate Governance Committee, is primarily responsible for monitoring
communications from stockholders and for providing copies or summaries to the other directors as he or she considers
appropriate.
Communications are forwarded to all directors if they relate to important substantive matters and include suggestions
or comments considered to be important for the directors to know. In general, communications relating to corporate governance
and corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal
grievances and matters as to which we receive repetitive or duplicative communications.
Stockholders who wish to send communications on any topic to our Board should address such communications to
Board of Directors c/o Secretary, Ocean Power Technologies, Inc., 1590 Reed Road, Pennington, NJ 08534.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our employees, officers (including our principal
executive officer and principal financial officer) and directors. The Code of Business Conduct and Ethics is posted on our website
at www.oceanpowertechnologies.com and can also be obtained free of charge by sending a request to our Secretary at 1590 Reed
Road, Pennington, NJ 08534. Any changes to or waivers under the Code of Business Conduct and Ethics as it relates to our chief
executive officer, chief financial officer, controller or persons performing similar functions must be approved by our Board of
Directors and will be disclosed in a Current Report on Form 8-K within four business days of the change or waiver.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act and the rules issued there under, our executive officers and directors
are required to file with the SEC reports of ownership and changes in ownership of Common Stock. Copies of such reports are
required to be furnished to us. Based solely on a review of the copies of such reports furnished to us, or written representations
that no other reports were required, we believe that all required reports were filed in fiscal 2015 in a timely manner.
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation
Each non-employee director annually receives $45,000 and a choice of either (a) an option worth $50,000, based on
the Black-Scholes formula, to purchase shares of Common Stock that vests 100% on the first anniversary of the grant, or (b)
Common Stock worth $50,000, which vests in equal installments over three years. Each non-employee director also receives a
per annum supplement ranging from $2,000 to $8,000 for each committee that they chair. In addition the Chairman of the Board
annually receives an additional $38,000.
We reimburse each non-employee director for out-of-pocket expenses incurred in connection with attending our Board
and Board committee meetings. Compensation for our directors, including cash and equity compensation, is determined, and
remains subject to adjustment, by our Board of Directors.
50
The following table summarizes compensation paid to our non-employee directors in fiscal 2015.
Name
Terence J. Cryan ...................................................
Fees
Earned or
Paid in Cash
($)
143,463
Restricted
Stock and
Option
Awards ($)(7)
50,000 (1)
David L. Keller ....................................................
17,500
50,000 (1)
Eileen M. Competti ..............................................
85,125
75,000 (2) (3)
Dean J. Glover ......................................................
24,500
50,000 (1)
Seymour S. Preston III(4).....................................
23,500
—
All Other
Compensation
($)
—
—
—
—
—
Total ($)
193,463
67,500
160,125
74,500
23,500
(1) The amount of $50,000 represents the fair value of shares on October 2, 2014, the date of the grant, in accordance with
Accounting Standards Codification (ASC) No. 718, Compensation – Stock Compensation (ASC) 718. The restricted
stock awards were granted to our non-employee directors for service on the Board of Directors for fiscal 2015.
(2) The amount of $50,000 represents the fair value of options on October 22, 2014, the date of the grant, in accordance
with Accounting Standards Codification (ASC) No. 718, Compensation – Stock Compensation (ASC) 718. The option
award was granted to our non-employee director for service on the Board of Directors for fiscal 2015.
(3) The amount of $25,000 represents the fair value of options on October 22, 2014, the date of the grant, in accordance
with Accounting Standards Codification (ASC) No. 718, Compensation – Stock Compensation (ASC) 718. The option
award was granted to our non-employee director for service on the Board of Directors from April 24, 2014 to October
2, 2014 for fiscal 2014.
(4) Mr. Preston retired as a non-employee director effective at the 2014 Annual Meeting of Stockholders on October 2,
2014.
The breakdown of restricted stock and option awards to each of the non-employee directors during fiscal 2015 was as follows:
Restricted Stock
Awards
Option Awards
Total
Mr. Cryan ..........................................................................
49,504
Mr. Keller ..........................................................................
153,504
Ms. Competti .....................................................................
—
Mr. Glover .........................................................................
49,504
—
—
106,613
—
49,504
153,504
106,613
49,504
51
Executive Compensation
Overview of Executive Compensation
Our Compensation Committee is responsible for overseeing the compensation of all of our executive officers. In this
capacity, the Compensation Committee designs, implements, reviews and approves all compensation for our named executive
officers. The goal of the Compensation Committee is to ensure that our compensation programs are aligned with our business
goals and objectives and that the total compensation paid to each of our named executive officers is fair, reasonable and
competitive.
Compensation Objectives and Philosophy
Our compensation programs are designed to attract and retain qualified and talented executives, motivating them to
achieve our business goals and rewarding them for superior short- and long-term performance. In particular, our compensation
programs are intended to reward the achievement of specified predetermined quantitative and qualitative goals and to align our
executives’ interests with those of our stockholders in order to attain the ultimate objective of increasing stockholder value.
Elements of Total Compensation and Relationship to Performance
Key elements of these programs include:
● base salary compensation designed to reward annual achievements, with consideration given to the executive’s
qualifications, scope of responsibility, leadership abilities and management experience and effectiveness;
●
cash bonus awards designed to align executive compensation with business objectives and performance; and
●
equity-based incentive compensation, primarily in the form of stock options and restricted stock, the value of which is
dependent upon the performance of our Common Stock, and which is subject to multi-year vesting that requires
continued service and/or the attainment of certain performance goals.
Determining and Setting Executive Compensation
Our management develops our compensation plans by utilizing publicly available compensation and on-line survey
data for a broad selection of national and regional companies, which we believe are generally comparable to the Company in
terms of public ownership, organization structure, size and stage of development, and against which we believe we may compete
for executive talent. The results of these analyses are reviewed with and approved by the Compensation Committee annually.
We believe that these compensation practices provide us with appropriate compensation guidelines. The Compensation
Committee generally targets compensation for our executives near the median range of compensation paid to similarly situated
executives in comparable companies covered by the on-line survey data. Other considerations, including market factors, the
unique nature of our business and the experience level of an executive, may dictate variations to this general target.
Our business is characterized by a long product development cycle, including a lengthy engineering and product-testing
period. Because of this, many of the traditional benchmarking metrics, such as product sales, revenues and profits are
inappropriate for our company at this time. Instead, the specific factors the Compensation Committee considers when determining
our named executive officers’ compensation include:
● key product development initiatives;
●
technology advancements;
●
achievement of regulatory and other commercial milestones;
●
establishment and maintenance of key strategic relationships;
●
implementation of appropriate financing strategies; and
●
financial and operating performance.
52
Summary Compensation Table
The following table sets forth the compensation paid or accrued during the two fiscal years ended April 30, 2015 and
2014 to our former executive vice chairman, former chief executive officer and former and current chief financial officer. We
refer to these officers collectively as our named executive officers.
Name and Principal
Position
Year
Salary
($)
(a)
Bonus
($)
(b)
Option
Awards
($)
(c)
Restricted Stock
Awards
($)
All Other
Compensation
($)
Total
($)
George H. Kirby ........ 2015 102,414
Chief Executive
—
Officer
2014
—
—
—
—
85,800(d)
—
58,315(g)(h)
—
246,529
—
David L. Keller.......... 2015 204,188(i)
—
Interim Chief
Executive Officer
2014
50,000(j)
—
—
—
48,880(k)
—
17,567(l)
—
320,635
—
Charles F. Dunleavy .. 2015 76,643
Former Chief
2014 375,000
Executive Officer
Mark A. Featherstone 2015 274,388
2014 103,327
Chief Financial
Officer
David R. Heinz .......... 2015 304,553
2014 88,389
Chief Operating
Officer
—
—
—
79,986
—
—
1,439(e)
11,511(e)
78,082
466,497
—
20,140
—
86,325
57,300(d)
62,250(d)
3,430(e)
—
335,118
272,042
—
17,416
—
101,540
57,300(d)
87,150(d)
28,028(e)(f)
15,036(f)
389,881
309,531
(a)
(b)
(c)
(d)
Salary represents actual salary earned during each fiscal year. The amounts in this column may be different from the
amounts listed below under description of employment agreements, due to increases in salary levels and payments
for unused vacation during each fiscal year.
The amounts in this column reflect cash bonuses earned by the named executive officers for performance during the
applicable fiscal year. All bonuses for named executive officers are entirely discretionary and have not been
determined as of the date of this filing for fiscal 2015.
The entries in the option awards column reflect the grant date fair value of the awards for fiscal 2015 and 2014, as
applicable, for financial statement reporting purposes in accordance with Accounting Standards Codification (ASC)
No. 718, Compensation — Stock Compensation, excluding forfeiture assumptions, and utilizing the Black-Scholes
method. See Note 2(m) of the Notes to Consolidated Financial Statements for a discussion of the relevant assumptions
used to determine the valuation of our stock options for accounting purposes.
The amounts in this column reflect grant date fair value of the awards for fiscal 2015 and 2014, as applicable, for
financial statement reporting purposes in accordance with Accounting Standards Codification (ASC) No. 718,
Compensation — Stock Compensation. See Notes 2(m) and 11 of the Notes to Consolidated Financial Statements, for
a discussion regarding the valuation of our restricted stock for accounting purposes.
(e)
In each case, reflects Company 401(k) plan matching contributions.
(f)
This amount includes $24,964 and $15,036 for 2015 and 2014, respectively, for eligible relocation expenses in
accordance with Mr. Heinz’s Employment Agreement.
(g)
This amount of $8,315 is for eligible relocation expenses in accordance with Mr. Kirby’s Employment Agreement.
53
(h)
This amount includes a one-time starting bonus of $50,000
(i)
During fiscal 2015, the Company entered into an agreement with David L. Keller, who has served as a non-executive
director of the Company since October 2013. Under this agreement, Mr. Keller served as Interim Chief Executive
Officer effective with the June 9, 2014 termination of the Company’s former Chief Executive Officer, Charles F.
Dunleavy. Mr. Keller continued in this position until Mr. Kirby was hired as Chief Executive Officer effective January
20, 2015. Mr. Keller received a consulting fee of $1,500 per day for services provided.
(j)
Mr. Keller was awarded a $50,000 cash bonus for his service as Interim Chief Executive Officer during fiscal 2015.
(k)
The amount of $48,880 represents the fair value of shares on January 28, 2015, the date of the grant, in accordance
with Accounting Standards Codification (ASC) No. 718, Compensation – Stock Compensation (ASC) 718. The
restricted stock award was granted for Mr. Keller’s service as the Interim Chief Executive Officer effective with the
June 9, 2014 termination of the Company’s former Chief Executive Officer, Charles F. Dunleavy. Mr. Keller
continued in this position until George H. Kirby was appointed President, Chief Executive Officer and Director of the
Company effective January 20, 2015. Mr. Keller continues to serve as a non-executive director of the Company.
(l)
This amount is for eligible travel expenses in accordance with Mr. Keller’s Interim Chief Executive Officer
Agreement.
Employment Agreements
George H. Kirby — Chief Executive Officer and Director
Under an agreement entered into on December 29, 2014, Mr. Kirby is entitled to an annual base salary of $360,000
subject to adjustment upon annual review by our Board of Directors. Mr. Kirby’s is also eligible to earn discretionary incentive
bonuses and incentive compensation. The Company also reimbursed Mr. Kirby for his eligible relocation costs.
Upon the termination of his employment other than for cause, or if he terminates his employment for good reason, Mr.
Kirby has the right to receive severance payments. If such termination occurs before the first year of employment, Mr. Kirby will
receive six months of his base salary. If such termination occurs after the first year of employment, Mr. Kirby will receive twelve
months of his base salary then in effect. Pursuant to this agreement, Mr. Kirby is prohibited from competing with us and soliciting
our customers, prospective customers or employees during the term of his employment and for a period of one year after the
termination or expiration of his employment.
Mark A. Featherstone — Chief Financial Officer and Treasurer
Under an agreement entered into in November 26, 2013, Mr. Featherstone is entitled to an annual base salary of
$270,000 subject to adjustment upon annual review by our Board of Directors. Mr. Featherstone’s base salary has been adjusted
by our Board of Directors and was increased to $274,388 effective May 1, 2014. Mr. Featherstone is also eligible to earn
discretionary incentive bonuses and incentive compensation.
Upon the termination of his employment other than for cause, or if he terminates his employment for good reason, Mr.
Featherstone has the right to receive severance payments equal to twelve months of his base salary then in effect. Pursuant to
this agreement, Mr. Featherstone is prohibited from competing with us and soliciting our customers, prospective customers or
employees during the term of his employment and for a period of one year after the termination or expiration of his employment.
David R. Heinz — Chief Operating Officer
Under an agreement entered into in January 13, 2014, Mr. Heinz is entitled to an annual base salary of $290,000 subject
to adjustment upon annual review by our Board of Directors. Mr. Heinz’s base salary has been adjusted by our Board of Directors
and was increased to $306,432 effective June 17, 2014 in connection with his promotion to Chief Operating Officer. Mr. Heinz
is also eligible to earn discretionary incentive bonuses and incentive compensation.
Upon the termination of his employment other than for cause, or if he terminates his employment for good reason, Mr.
Heinz has the right to receive severance payments. If such termination occurs after 180 days of employment Mr. Heinz will
receive three months of Base Salary. If such termination occurs after 360 days of employment Mr. Heinz will receive six months
of Base Salary. If such termination occurs after 720 days of employment Mr. Heinz will receive 12 months of Base Salary. The
54
Company will also reimburse Mr. Heinz for up to $40,000 of his eligible relocation costs. In the event Mr. Heinz terminates his
employment with the Company other than for Good Reason, or if the Company terminates his employment for Cause prior to
his one year anniversary, he would be required to repay 100% of the relocation reimbursement. After Mr. Heinz’s one year
anniversary, but before his two year anniversary, he would be required repay 50% of the relocation reimbursement. Pursuant to
this agreement, Mr. Heinz is prohibited from competing with us and soliciting our customers, prospective customers or employees
during the term of his employment and for a period of one year after the termination or expiration of his employment.
Charles F. Dunleavy — Former Chief Executive Officer
On June 9, 2014, Mr. Dunleavy was terminated for cause as an employee of the Company. Mr. Dunleavy did not
receive any severance payments under his employment agreement with the Company. Mr. Dunleavy forfeited all vested and
unvested stock options upon termination.
Stock Option and Other Compensation Plans
2001 Stock Plan
Our 2001 Stock Plan was adopted by our Board of Directors and approved by our stockholders on August 24, 2001.
The 2001 Stock Plan provides for the grant of incentive stock options, non-statutory options, restricted stock awards and stock
awards. A maximum of 1,000,000 shares of Common Stock are authorized for issuance under our 2001 Stock Plan. Our
employees, officers, directors, consultants and advisors are eligible to receive awards under our 2001 Stock Plan; however,
incentive stock options may only be granted to our employees.
Our Board of Directors administers our 2001 Stock Plan. Pursuant to the terms of our 2001 Stock Plan, and to the
extent permitted by law, our Board may delegate administrative authority to a committee composed of two or more of our non-
executive directors. Our Board of Directors, or a committee to whom the Board of Directors delegates authority, selects the
recipients of awards and determines:
●
the number of shares of Common Stock covered by options and the dates upon which the options become exercisable;
●
the exercise price of options;
●
the duration of the options; and
●
the terms and conditions of awards, including transfer restrictions, conditions for repurchase and rights of first refusal.
The 2001 Stock Plan provides that outstanding options shall become fully exercisable if we undergo a fundamental
transaction, as defined in the 2001 Stock Plan, and the successor entity does not assume the options under the 2001 Stock Plan
or substitute equivalent options.
As of April 30, 2015, options to purchase 40,200 shares of our Common Stock at a weighted average exercise price of
$12.39 were outstanding under our 2001 Stock Plan, options to purchase 43,100 shares of Common Stock had been exercised
and options to purchase 764,890 shares of Common Stock had been forfeited. No further stock options or other awards have been
granted under the 2001 Stock Plan since the effective date of our 2006 Stock Incentive Plan described below.
2006 Stock Incentive Plan
Our 2006 Stock Incentive Plan was adopted by our Board of Directors on December 7, 2006, was approved by our
stockholders on January 12, 2007 and became effective on April 24, 2007. The 2006 Stock Incentive Plan provides for the grant
of incentive stock options, non-statutory stock options, restricted stock awards and other stock-unit awards. 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 shares. In 2010, our Board of Directors approved amending and restating the 2006 Stock Incentive
Plan to make certain adjustments, including imposing minimum performance periods for performance awards and minimum
vesting periods for time-based awards, a requirement that we obtain stockholder approval prior to certain option and stock
appreciation right repricing actions, and limiting the situations in which vesting periods may be waived or accelerated. This
amendment and restatement did not require the approval of our stockholders. On October 2, 2013, a further amendment to the
2006 Stock Incentive Plan was approved by the Company’s Stockholders, increasing the aggregate number of shares authorized
for issuance by an additional 800,000 shares to 2,453,215.
55
Our employees, officers, directors, consultants and advisors are eligible to receive awards under our 2006 Stock
Incentive Plan; however, incentive stock options may only be granted to our employees. The maximum number of shares of
Common Stock with respect to which awards may be granted to any participant under our 2006 Stock Incentive Plan is 200,000
per calendar year.
Our 2006 Stock Incentive Plan is administered by our Board of Directors. Pursuant to the terms of our 2006 Stock
Incentive Plan, and to the extent permitted by law, our Board of Directors may delegate authority to one or more committees or
subcommittees of the Board of Directors or to our officers. Our Board of Directors or any committee to whom the Board of
Directors delegates authority selects the recipients of awards and determines:
●
the number of shares of Common Stock covered by options and the dates upon which the options become exercisable;
●
the exercise price of options; provided, however, that the exercise price shall not be less than 100% of the fair market
value of the underlying Common Stock on the date the option is granted;
●
the duration of the options; and
●
the number of shares of Common Stock subject to any restricted stock or other stock-unit awards and the terms and
conditions of such awards, including conditions for repurchase, issue price and repurchase price.
If our Board of Directors delegates authority to an officer, the officer has the power to make awards to all of our
employees, except to executive officers. Our Board of Directors will fix the terms of the awards to be granted by such officer,
including the exercise price of such awards, and the maximum number of shares subject to awards that such officer may make.
If a merger or other reorganization event occurs, our Board of Directors may provide that all of our outstanding options
are to be assumed or substituted by the successor corporation. Our Board of Directors may also provide that, in the event the
succeeding corporation does not agree to assume, or substitute for, outstanding options, then all unexercised options will become
exercisable in full prior to the completion of the event and that these options will terminate immediately prior to the completion
of the merger or other reorganization event if not previously exercised. Our Board of Directors may also provide for cash out of
the value of any outstanding options.
No awards may be granted under our 2006 Stock Incentive Plan after December 6, 2016, but the vesting and
effectiveness of awards granted before that date may extend beyond that date. Our Board of Directors may amend, suspend or
terminate our 2006 Stock Incentive Plan at any time, except that stockholder approval will be required for any revision that would
materially increase the number of shares reserved for issuance, expand the types of awards available under the plan, materially
modify plan eligibility requirements, extend the term of the plan or materially modify the method of determining the exercise
price of options granted under the plan, or otherwise as required to comply with applicable law or stock market requirements.
As of April 30, 2015, options to purchase 1,043,752 shares of our Common Stock at a weighted average exercise price
of $4.01 were outstanding under our 2006 Stock Incentive Plan, 4,266 options to purchase shares of Common Stock had been
exercised and options to purchase 1,392,862 shares of Common Stock had been forfeited.
As of April 30, 2015, we had granted 1,175,249 shares of restricted Common Stock under our 2006 Stock Incentive
Plan, of which 840,841 remain outstanding.
56
2015 Outstanding Equity Awards at Fiscal Year End Table
The following table contains certain information regarding equity awards held by the named executive officers as of
April 30, 2015:
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price ($)
Option
Expiration
Date
Name
Featherstone .............
9,250 (a)
33,333 (a)
2.49
1/20/2024
Heinz ........................
15,000 (e)
8,325 (a)
30,000 (a)
2.49
2.49
1/20/2024
1/21/2024
Kirby ........................
Total .........................
32,575
63,333
Number of
Shares or
Units of
Stock That
Have Not
Vested #
Market
Value of
Shares or
Units of
Stock That
Have
Not Vested
($)
16,666 (b)
30,000 (c)
60,000 (d)
9,333 (b)
16,800 (c)
33,600 (d)
13,333 (b)
30,000 (c)
60,000 (d)
7,466 (b)
16,800 (c)
33,600 (d)
60,000 (f)
120,000 (g)
389,999
33,600 (f)
67,200 (g)
218,399
(a) These options were granted on January 20, 2014 and vest over a three year period based on performance criteria determined
by the Compensation Committee.
(b) These shares were granted on January 20, 2014 and vest over a three year period based on performance criteria determined
by the Compensation Committee.
(c) These shares were granted on October 22, 2014 and vest over a three year period based on service requirements.
(d) These shares were granted on December 19, 2014 and vest over a three year performance-based period tied to the
Company's total shareholder return (TSR) relative to the shareholder return of three alternative energy Exchange Traded
Funds as measured over a specific performance period.
(e) These options were fully vested on the grant date.
(f) These shares were granted on January 20, 2015 and vest over a three year period based on service requirements.
(g) These shares were granted on January 20, 2015 and vest over a three year performance-based period tied to the Company's
total shareholder return (TSR) relative to the shareholder return of three alternative energy Exchange Traded Funds as
measured over a specific performance period.
57
Potential Payments upon Termination of Employment or Change in Control
The following information sets forth the terms of potential payments to each of our named executive officers in the
event of a termination of employment.
Termination by Company without Cause; Termination by Executive for Good Reason. Our employment agreement
with Mr. Kirby provides for severance pay equal to one-half (1/2) of a year of base salary in a lump sum within 30 days in the
event that employment is terminated by the Company, other than for cause, upon Mr. Kirby’s disability or by the executive with
good reason, each occurring during the first year of employment (i.e., prior to January 20, 2016). After the first year of
employment, the amount of severance pay increases to one (1) year of base salary. In both instances, Mr. Kirby would also be
entitled to receive any other payments owed such as a short-term bonus, long-term compensation, benefits and expenses
reimbursements to the degree such payments are owed for service provided up to the date of termination. Finally, the expiration
date of any other options held by Mr. Kirby would be extended to a date 90 days after the date of termination.
Our employment contract with Mr. Heinz provides for severance pay equal to three months if termination occurs after
180 days, six months if termination occurs after 360 days and twelve months if termination occurs after 720 days of employment.
Our employment contract with Mr. Featherstone provides for severance pay equal to one year of base salary payable
as salary continuation in accordance with regular payroll practices and the continuation of health care benefits for 12 months in
the event that employment is terminated by the Company other than for cause or by the executive with good reason.
Termination by Company for Cause; Termination by Executive without Good Reason. Under our employment
contracts with Mr. Kirby, Mr. Featherstone and Mr. Heinz upon termination for cause or at the executive’s election without good
reason, the executive is entitled to the base salary and benefits due and owing to the executive as of the date of termination.
Change in Control. Our employment agreement with Mr. Kirby provides for severance pay equal to one (1) year of
base salary if a change of control occurs and Mr. Kirby is terminated by the Company or Mr. Kirby terminates the agreement,
each occurring within 90 days of the change of control. Mr. Kirby would also be entitled to receive any other payments owed
such as a short-term bonus, long-term compensation, benefits and expenses reimbursements to the degree such payments are
owed for service provided up to the date of termination. Finally, the expiration date of any other options held by Mr. Kirby would
be extended to a date 90 days after the date of termination. In addition, to the extent that Mr. Kirby has not previously vested in
rights and interests held by, Mr. Kirby under the Company’s stock and other equity plans (including stock options, restricted
stock, RSU’s, performance units or performance shares) such rights and interest will become 100% vested.
The employment agreements for Mr. Featherstone and Mr. Heinz do not contain change of control provisions;
therefore, payments for cash severance and continued healthcare benefits are the same as for termination without cause. The
restricted stock agreement provides for accelerated stock vesting upon a change in control.
Termination upon Failure to Renew by the Company. In the event that our employment agreement with Mr. Kirby
terminates the end of the term and is not renewed as a result of a decision by the Company not to renew, prior to a decision by
Executive not to renew, the Company will pay Mr. Kirby a severance payment in the amount of one (1) year base salary in a
lump sum within 30 days after the termination date.
The employment agreements for Mr. Featherstone and Mr. Heinz do not contain similar provisions.
Qualifying retirement. Under our restricted stock agreements with the named executive officers, upon a Qualifying
Retirement 50% of unvested restricted shares will vest immediately. A “Qualifying Retirement” means retirement by the recipient
after satisfaction of the conditions in either clause (A) or clause (B): (A) the recipient has both (1) attained the age of 55 and (2)
completed at least ten years of employment with the Company; or (B) the sum of the recipient’s age plus the number of years he
or she has been employed by the Company equals or exceeds 75 years.
58
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of Common Stock as of May 31,
2015 by (a) each person known by us to be the beneficial owner of more than 5% of the outstanding shares of Common Stock,
(b) each named executive officer identified in the Summary Compensation Table below, (c) each director and nominee for
director, and (d) all executive officers and directors as a group.
The Percentage of Common Stock outstanding is based on 18,349,111 shares of our Common Stock outstanding as of
May 31, 2015. For purposes of the table below, and in accordance with the rules of the SEC, we deem shares of Common Stock
subject to options that are currently exercisable or exercisable within sixty days of May 31, 2015 and restricted stock that is
currently vested or that will vest within sixty days of May 31, 2015, to be outstanding and to be beneficially owned by the person
holding the options or restricted stock for the purpose of computing the percentage ownership of that person, but we do not treat
them as outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise noted, each
of the persons or entities in this table has sole voting and investing power with respect to all of the shares of Common Stock
beneficially owned by them, subject to community property laws, where applicable. The street address of each beneficial owner
is c/o Ocean Power Technologies, Inc., 1590 Reed Road, Pennington, NJ 08534.
Name
Executive Officers and Directors
Amount
Percentage
George H. Kirby ................................................................................................................
—
Mark A. Featherstone(1) ...................................................................................................
27,208
David R. Heinz(2) .............................................................................................................
73,691
Robert J. Burger ................................................................................................................
—
Eileen M. Competti(3) ......................................................................................................
35,538
Terence J. Cryan(4) ...........................................................................................................
66,000
Dean J. Glover ...................................................................................................................
—
David L. Keller(5) .............................................................................................................
46,092
Seymour S. Preston III(6)..................................................................................................
66,768
Charles F. Dunleavy ..........................................................................................................
107,902
—
*
*
—
*
*
—
*
*
*
All current and former executive officers and directors as a group 10 individuals (7)(8) .
423,199
2.3%
Owners of more than 5%
Five More Special Situations Fund Ltd. (9) ......................................................................
1,180,000
6.4%
* Represents a beneficial ownership of less than one percent of our outstanding Common Stock.
(1)
(2)
(3)
Includes 9,250 shares of Common Stock issuable upon the exercise of options that are currently exercisable or
exercisable within sixty days of May 31, 2015.
Includes 23,325 shares of Common Stock issuable upon the exercise of options that are currently exercisable or
exercisable within sixty days of May 31, 2015.
Includes 35,538 shares of Common Stock issuable upon the exercise of options that are currently exercisable or
exercisable within sixty days of May 31, 2015.
59
(4)
(5)
(6)
Includes 65,000 shares of Common Stock issuable upon the exercise of options that are currently exercisable or
exercisable within sixty days of May 31, 2015. Mr. Cryan received 9,000 of these options for his service as a member
of the Company’s Board of Advisors.
Includes 46,092 shares of Common Stock issuable upon the exercise of options that are currently exercisable or
exercisable within sixty days of May 31, 2015.
Includes 5,000 shares of Common Stock issuable upon the exercise of options that are currently exercisable or
exercisable within sixty days of May 31, 2015.
(7)
Includes former Chief Executive Officer Charles F. Dunleavy.
(8)
Excludes vesting performance based stock awards for fiscal 2015. These are awards that have not been determined as
of the date of this filing.
(9) Based on a Schedule 13D filed with the SEC on April 29, 2014. FiveT Capital AG acts as the investment advisor of
the beneficial owner.
Equity Compensation Plan Information
The following table summarizes the total number of outstanding options and shares available for other future issuances
of options under all of our equity compensation plans as of April 30, 2015.
Number of
Shares
Remaining
Available
for Future
Issuance
Under the
Equity
Compensation
Plan
(Excluding
Shares in
First Column)
Number of
Shares to
be Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
Weighted-
Average
Exercise Price
of
Outstanding
Options,
Warrants and
Rights
Plan Category
Equity compensation plans approved by stockholders(1) .....................
Equity compensation plans not approved by stockholders ....................
1,083,952 $
—
4.32
—
338,382
—
(1) Consists of our 2001 Stock Plan and our 2006 Stock Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Board Determination of Independence
Under applicable NASDAQ rules, a director will only qualify as an “independent director” if they are not an executive
officer or employee of the Company, and, in the opinion of our Board of Directors, that person does not have a relationship which
would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our Board has determined that none of Mr. Cryan, Mr. Keller, Ms. Competti, Mr. Glover or Mr. Burger has a
relationship that would interfere, or has interfered, with the exercise of independent judgment in carrying out the responsibilities
of a director, and that each of these directors is an “independent director” as defined under Rule 5605(a) (2) of the NASDAQ
Marketplace Rules.
60
Certain Relationships and Related Person Transactions
Review and Approval of Related Person Transactions
The Audit Committee is charged with the responsibility of reviewing and approving all related person transactions (as
defined in SEC regulations), and periodically reassessing any related person transaction entered into by the Company to ensure
continued appropriateness. This responsibility is set forth in our Audit Committee charter. A related party transaction will only
be approved if the members of the Audit Committee determine that the transaction is in the best interests of the Company. If a
director is involved in the transaction, he or she will recue himself or herself from all decisions regarding the transaction.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees of Independent Registered Public Accounting Firm
The following table summarizes the fees of KPMG LLP, our independent registered public accounting firm, billed to
us for each of the last two fiscal years.
Fee Category
Fiscal 2015
Fiscal 2014
Audit Fees(1) ...................................................................................................... $
249,320 $
Audit-Related Fees(2) .........................................................................................
Tax Fees(3) .........................................................................................................
All Other Fees(4) ................................................................................................
15,000
24,294
—
284,831
163,564
47,698
—
Total Fees ............................................................................................................ $
288,614 $
496,093
(1) Audit fees consist of fees for the audit and quarterly reviews of our consolidated financial statements and other
professional services provided in connection with statutory and regulatory filings or engagements.
(2) Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of
the audit and the review of our consolidated financial statements and which are not reported under “Audit Fees.”
Audit related fees in 2015 consisted of fees for consent in connection with Form S-8 filing. Audit related fees in 2014
consisted of fees for comfort letters in connection with the At the Market (ATM) offering agreement with Ascendiant
Capital Markets and an Underwriting Agreement with Roth Capital Partners, LLC, in addition to audit related fees
for reviews of grant milestones in the UK and US.
(3)
Tax fees for fiscal 2015 and fiscal 2014 include fees for tax return preparation assistance and review. In addition,
fiscal year 2015 included consulting services related to our subsidiary, Ocean Power Technologies, Ltd. in the United
Kingdom and fiscal year 2014 included tax services related to our Victorian Wave Partner Pty Ltd project in Australia.
(4) We were not billed any “Other Fees” in fiscal 2015 or fiscal 2014.
Pre-Approval Policies and Procedures
The Audit Committee’s policy is that all audit services and all non-audit services to be provided to us by our
independent registered public accounting firm must be approved in advance by our Audit Committee. The Audit Committee’s
approval procedures include the review and approval of engagement letters from our independent registered public accounting
firm that document the fees for all audit services and non-audit services, primarily tax advice and tax return preparation and
review.
All audit services and all non-audit services in fiscal 2015 and 2014 were pre-approved by the Audit Committee. The
Audit Committee has determined that the provision of the non-audit services for which these fees were rendered is compatible
with maintaining the independent auditor’s independence.
61
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 64 to 65.
62
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 6, 2015
OCEAN POWER TECHNOLOGIES, INC.
/s/ George H. Kirby
By: George H. Kirby
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/
GEORGE H. KIRBY
George H. Kirby
MARK A. FEATHERSTONE
Mark A. Featherstone
TERENCE J. CRYAN
Terence J. Cryan
DAVID L. KELLER
David L. Keller
EILEEN M. COMPETTI
Eileen M. Competti
DEAN J. GLOVER
Dean J. Glover
ROBERT J. BURGER
Robert J. Burger
Chief Executive Officer
(Principal Executive Officer)
Director
Chief Financial Officer and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Director
Director
Director
Director
July 6, 2015
July 6, 2015
July 6, 2015
July 6, 2015
July 6, 2015
July 6, 2015
Director
July 6, 2015
63
Exhibit
Number
Exhibits Index
Description
3.1 Restated Certificate of Incorporation of the registrant (incorporated by reference from Exhibit 3.1 to Form 10-Q filed
September 14, 2007)
3.2 Amended and Restated Bylaws of the registrant (incorporated by reference from Exhibit 3.2 to Form 10-Q filed
September 14, 2007)
4.1 Specimen certificate of common stock (incorporated by reference from Exhibit 4.1 to Form S-1/A filed March 19,
2007)
10.1 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)
2001 Stock Plan (incorporated by reference from Exhibit 10.7 to Form S-1 filed November 13, 2006)*
10.2
10.3 Amended and Restated 2006 Stock Incentive Plan (incorporated by reference from Exhibit A to Proxy Statement
filed August 28, 2013)*
10.4 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)*
10.5 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)
10.6 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)
10.7 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)
10.8 Financial Assistance Award agreement between Ocean Power Technologies, Inc. and US Department of Energy dated
September 23, 2008 (incorporated by reference from Exhibit 10.1 to Form 10-Q filed December 10, 2008)+
10.9 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)+
10.10 Form of Restricted Stock Agreement (incorporated by reference from Exhibit 10.1 to Form 10-Q filed March 14,
2011)*
10.11 Amended Option Agreement for Purchase of Emissions Credits, dated December 4, 2012, between Ocean Power
Technologies, Inc. and its affiliates and Metasource Pty Ltd (formerly known as Woodside Sustainable Energy
Solutions Pty Ltd) (incorporated by reference from Exhibit 10.23 to Form 10-K filed July 12, 2013)
10.12 Second Addendum to Lease Agreement, dated June 1, 2008, between Ocean Power Technologies, Inc. and Reed Road
Industrial Park LLC #1 (incorporated by reference from Exhibit 10.24 to Form 10-K filed July 12, 2013)
10.13 Third Addendum to Lease Agreement, dated March 11, 2013, between Ocean Power Technologies, Inc. and Reed
Road Industrial Park LLC #1 (incorporated by reference from Exhibit 10.25 to Form 10-K filed July 12, 2013)
10.14 Amendment Letter to Employment Agreement, dated December 12, 2012, between Charles F. Dunleavy and Ocean
Power Technologies, Inc. (incorporated by reference from Exhibit 10.2 to Form 10-Q filed December 14, 2012)*
10.15 At the Market Offering Agreement, dated as of June 6, 2013, by and between Ocean Power Technologies, Inc. and
Ascendiant Capital Markets, LLC (incorporated by reference from Exhibit 10.1 to Form 8-K filed June 7, 2013)
10.16 Amendment Letter to Employment Agreement, dated July 11, 2013, between George W. Taylor and Ocean Power
Technologies, Inc. (incorporated by reference from Exhibit 10.29 to Form 10-K filed July 12, 2013)*
10.17 Amendment Letter to Employment Agreement, dated July 11, 2013, between Charles F. Dunleavy and Ocean Power
Technologies, Inc. (incorporated by reference from Exhibit 10.30 to Form 10-K filed July 12, 2013)*
10.18 Commercialization Agreement, dated October 23, 2013, by and between Ocean Power Technologies, Inc. and Mitsui
Engineering & Shipbuilding Co. Ltd. (incorporated by reference from Exhibit 10.1 to Form 10-Q filed December 13,
2013) +
10.19 Employment Agreement, dated December 2, 2013, between Mark A. Featherstone and Ocean Power Technologies,
Inc. (incorporated by reference from Exhibit 10.1 to Form 10-Q filed March 14, 2014)*
64
Exhibit
Number
Description
10.20 Amendment letter to Employment Agreement, dated December 11, 2013, between George W. Taylor and Ocean Power
Technologies, Inc. (incorporated by reference from Exhibit 10.2 to Form 10-Q filed March 14, 2014)*
10.21 Amendment letter to Employment Agreement, dated December 11, 2013, between Charles F. Dunleavy and Ocean
Power Technologies, Inc. (incorporated by reference from Exhibit 10.3 to Form 10-Q filed March 14, 2014)*
10.22 Executive Transition Agreement between Ocean Power Technologies, Inc. and George W. Taylor, dated April 11,
2014 (incorporated by reference from Exhibit 10.1 to Form 8-K filed April 17, 2014)*
10.23 Renewable Energy Demonstration Program-Funding Deed, dated as of September 9, 2010, by and between Victorian
Wave Partners Pty Ltd. and Commonwealth of Australia represented by the Department of Resources, Energy and
Tourism (incorporated by reference from Exhibit 10.1 to Form 8-K filed July 14, 2014)+
10.24 Deed of Variation to Funding Deed (and Notice of Waiver) dated as of January 9, 2014, by and between Victorian
Wave Partners Pty Ltd. and Australian Renewable Energy Agency (incorporated by reference from Exhibit 10.2 to
Form 8-K filed July 14, 2014)+
10.25 Employment Agreement, dated December 30, 2013, between David R. Heinz and Ocean Power Technologies,
Inc.*(incorporated by reference from Exhibit 10.37 to Form 10-K filed July 29, 2014)
10.26 Employment Agreement, dated June 9, 2014, between David L. Keller and Ocean Power Technologies, Inc.*
(incorporated by reference from Exhibit 10.38 to Form 10-K filed July 29, 2014)
10.27 Employment Agreement, dated December 29, 2014, between George H. Kirby and Ocean Power Technologies, Inc.
(incorporated by reference from Exhibit 10.1 to Form 10-Q filed March 11, 2015)*
10.28 Fourth Addendum to Lease Agreement, dated January 13, 2015, between Ocean Power Technologies, Inc. and Reed
Road Industrial Part LLC #1
21.1 Subsidiaries of the registrant
23.1 Consent of KPMG LLP
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101
The following materials formatted in eXtensible Business Reporting Language (XBRL) from Ocean Power
Technologies, Inc Annual Report on Form 10-K for the fiscal years ended April 30, 2015 and 2014: (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Cash Flows, (iv)
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss and (v) Notes to Consolidated Financial
Statements.
* Management contract or compensatory plan or arrangement.
+ Indicates that confidential treatment has been requested for this exhibit.
65
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Reports of Management ...................................................................................................................................................... F-2
Report of Independent Registered Public Accounting Firm................................................................................................ F-3
Consolidated Balance Sheets, April 30, 2015 and 2014 ...................................................................................................... F-4
Consolidated Statements of Operations, Years ended April 30, 2015 and 2014 ................................................................. F-5
Consolidated Statements of Comprehensive Loss, Years ended April 30, 2015 and 2014 ................................................. F-6
Consolidated Statements of Stockholders' Equity, Years ended April 30, 2015 and 2014 ................................................. F-7
Consolidated Statements of Cash Flows, Years ended April 30, 2015 and 2014 ................................................................ F-8
Notes to Consolidated Financial Statements ....................................................................................................................... F-9
Page
F-1
Management's Report on Consolidated Financial Statements
Reports of Management
The accompanying consolidated financial statements have been prepared by the management of Ocean Power
Technologies, Inc. (the Company) 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 Annual 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, 2015. 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 (1992). Based on this assessment using
those criteria, management concluded that the Company's internal control over financial reporting was effective as of April 30,
2015.
/s/ GEORGE H. KIRBY
George H. Kirby
Chief Executive Officer
/s/ MARK A. FEATHERSTONE
Mark A. Featherstone
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 the accompanying consolidated balance sheets of Ocean Power Technologies, Inc. and subsidiaries as of
April 30, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and
cash flows for each of the years in the two-year period ended April 30, 2015. 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, 2015 and 2014, and the results of their operations
and their cash flows for each of the years in the two-year period ended April 30, 2015, in conformity with U.S. generally accepted
accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
July 6, 2015
F-3
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
April 30,
2015
2014
Current assets:
ASSETS
Cash and cash equivalents ............................................................................................ $
Marketable securities ....................................................................................................
Restricted cash ..............................................................................................................
Accounts receivable ......................................................................................................
Unbilled receivables .....................................................................................................
Other current assets ......................................................................................................
Total current assets .........................................................................................
Property and equipment, net .............................................................................................
Patents, net .......................................................................................................................
Restricted cash .................................................................................................................
Other noncurrent assets ....................................................................................................
Total assets ..................................................................................................... $
17,335,734 $
75,000
438,561
103,470
81,658
186,641
18,221,064
263,898
—
50,000
335,924
18,870,886 $
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................................................................... $
Accrued expenses .........................................................................................................
Advance payment received from customer...................................................................
Unearned revenues .......................................................................................................
Current portion of long-term debt .................................................................................
Total current liabilities ...................................................................................
Long-term debt .................................................................................................................
Deferred credits payable-noncurrent ................................................................................
Total liabilities................................................................................................
352,827 $
2,507,119
—
—
100,000
2,959,946
50,000
600,000
3,609,946
13,858,659
14,493,881
6,124,960
308,731
37,410
568,377
35,392,018
317,513
828,298
1,221,696
325,310
38,084,835
501,397
2,931,239
4,709,055
992,447
100,000
9,234,138
150,000
600,000
9,984,138
Commitments and contingencies (note 13)
Ocean Power Technologies, Inc. Stockholders’ equity:
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 18,387,769
and 17,593,637 shares, respectively ..........................................................................
Treasury stock, at cost; 38,658 and 37,852 shares, respectively ...................................
Additional paid-in capital .............................................................................................
Accumulated deficit ......................................................................................................
Accumulated other comprehensive loss .......................................................................
Total Ocean Power Technologies, Inc. stockholders’ equity .........................
Noncontrolling interest in Ocean Power Technologies (Australasia) Pty Ltd
Total equity ...................................................................................................................
Total liabilities and stockholders’ equity........................................................ $
18,388
(132,016 )
17,594
(130,707)
180,786,790 180,454,341
(164,755,055 ) (151,640,503)
(225,733)
28,474,992
(374,295)
28,100,697
38,084,835
(229,915 )
15,688,192
(427,252 )
15,260,940
18,870,886 $
See accompanying notes to consolidated financial statements.
F-4
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Revenues .............................................................................................................................. $
Cost of revenues ...................................................................................................................
Gross (loss) profit..........................................................................................................
Operating expenses:
Product development costs ..............................................................................................
Change in contract loss reserve .......................................................................................
Selling, general and administrative costs .........................................................................
Total operating expenses ...............................................................................................
Operating loss ......................................................................................................................
Interest (expense) income, net ..............................................................................................
Other income ........................................................................................................................
Foreign exchange (loss) gain ................................................................................................
Loss before income taxes .....................................................................................................
Income tax benefit ................................................................................................................
Net loss .................................................................................................................................
Less: Net loss attributable to the noncontrolling interest in Ocean Power Technologies
(Australasia) Pty Ltd. ....................................................................................................
Net loss attributable to Ocean Power Technologies, Inc. ..................................................... $
Basic and diluted net loss per share...................................................................................... $
Weighted average shares used to compute basic and diluted net loss per share ..................
Year Ended April 30,
2014
2015
1,498,892
4,105,424 $
1,510,336
4,671,403
(11,444)
(565,979)
4,149,388
—
9,571,193
13,720,581
(14,286,560)
(31,634)
419,432
(462,777)
(14,361,539)
1,137,872
(13,223,667)
4,564,898
(785,000)
9,358,967
13,138,865
(13,150,309)
29,656
—
183,704
(12,936,949)
1,745,895
(11,191,054)
109,115
(13,114,552) $
(0.75) $
17,490,552
221,862
(10,969,192)
(0.91)
12,041,824
See accompanying notes to consolidated financial statements.
F-5
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
Year Ended April 30,
2014
2015
Net loss ................................................................................................................................. $
(13,223,667) $
(11,191,054)
Foreign currency translation adjustment ..............................................................................
51,976
(128,859)
Total comprehensive loss .....................................................................................................
(13,171,691)
(11,319,913)
Comprehensive loss attributable to the noncontrolling interest in Ocean Power
Technologies (Australasia) Pty Ltd. ...................................................................................
52,957
204,774
Comprehensive loss attributable to Ocean Power Technologies, Inc. .................................. $
(13,118,734) $
(11,115,139)
See accompanying notes to consolidated financial statements.
F-6
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Additional
Accumulated
Other
Total Ocean
Power
Technologies,
Inc,
Common Shares
Shares
Paid-In
Amount Shares Amount Capital
Treasury Shares
Accumulated Comprehensive Stockholders' Noncontrolling
Deficit
Loss
Equity
Interest
Total
Equity
Balance, April
30, 2013 ......... 10,403,215 $ 10,403 $ (33,771) $ (123,893) $ 159,155,365 $ (140,671,311) $
(79,786) $
18,290,778 $
(169,521) $ 18,121,257
Net loss ...........
—
—
—
—
—
(10,969,192)
—
(10,969,192 )
(221,862) (11,191,054)
Stock based
compensation .
—
—
—
—
702,091
—
—
702,091
—
702,091
Issuance of
restricted
stock, net ........
Stock issued
upon exercise
of stock
options ...........
Acquisition of
treasury stock
Sale of stock,
79,822
80
—
—
69,475
—
—
69,555
—
69,555
4,266
5
—
—
8,528
—
—
8,533
—
8,533
—
—
(4,081)
(6,814)
—
—
—
(6,814 )
—
(6,814)
net .................. 7,106,334 7,106
—
—
20,518,882
—
—
20,525,988
— 20,525,988
Other
comphrehesive
loss .................
Balance, April
—
—
—
—
—
—
(145,947)
(145,947 )
17,088
(128,859)
30, 2014 ......... 17,593,637 $ 17,594 (37,852) $ (130,707) 180,454,341 (151,640,503)
(225,733)
28,474,992
(374,295) 28,100,697
Net loss ...........
—
—
—
—
—
(13,114,552)
—
(13,114,552 )
(109,115) (13,223,667)
Stock based
compensation .
—
—
—
—
179,468
—
—
179,468
—
179,468
Issuance of
restricted
stock, net ........
Acquisition of
treasury stock
Sale of stock,
net ..................
Other
comphrehesive
loss .................
Balance, April
794,132
794
—
—
152,331
—
—
153,125
—
153,125
—
—
(806)
(1,309)
—
—
—
(1,309 )
—
(1,309)
—
—
—
—
650
—
—
650
—
650
—
—
—
—
—
—
(4,182)
(4,182 )
56,158
51,976
30, 2015 ......... 18,387,769 $ 18,388 $ (38,658) $ (132,016) $ 180,786,790 $ (164,755,055) $
(229,915) $
15,688,192 $
(427,252) $ 15,260,940
See accompanying notes to consolidated financial statements.
F-7
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended April 30,
2014
2015
Cash flows from operating activities:
Net loss ............................................................................................................................. $
Adjustments to reconcile net loss to net cash used in operating activities:
(13,223,667) $
(11,191,054)
Foreign exchange loss (gain) ....................................................................................
Depreciation and amortization ...................................................................................
Loss on disposals of property, plant and equipment ..................................................
Impairment of long-lived assets ................................................................................
Provision for doubtful accounts .................................................................................
Treasury note discount amortization .........................................................................
Compensation expense related to stock option grants and restricted stock ...............
Changes in operating assets and liabilities:
Accounts receivable ...............................................................................................
Unbilled receivables ..............................................................................................
Other assets ............................................................................................................
Accounts payable ...................................................................................................
Accrued expenses ..................................................................................................
Advance payment received from customer ............................................................
Unearned revenues .................................................................................................
Net cash used in operating activities ..................................................................
Cash flows from investing activities:
Purchases of marketable securities ...................................................................................
Maturities of marketable securities ...................................................................................
Restricted cash ..................................................................................................................
Purchases of equipment ...................................................................................................
Net cash provided by (used in) investing activities ............................................
Cash flows from financing activities:
Repayment of debt ............................................................................................................
Proceeds from the exercise of stock options .....................................................................
Proceeds from the sale of common stock, net of costs .....................................................
Acquisition of treasury stock ............................................................................................
Net cash (used in) provided by financing activities ............................................
Effect of exchange rate changes on cash and cash equivalents ............................................
Net increase in cash and cash equivalents ..........................................................
Cash and cash equivalents, beginning of period ..................................................................
Cash and cash equivalents, end of period ............................................................................. $
Supplemental disclosure of noncash investing and financing activities:
Capitalized purchases of equipment financed through accounts payable and accrued
expenses .......................................................................................................................... $
462,777
965,156
3,703
—
—
—
332,593
205,261
(44,248)
339,460
(144,791)
(368,970)
(4,709,055)
(992,447)
(17,174,228)
(13,821,959)
28,240,840
6,828,896
(76,390)
21,171,387
(100,000)
—
650
(1,309)
(100,659)
(419,425)
3,477,075
13,858,659
17,335,734 $
(183,704)
421,836
195,977
2,658
(299,958)
5,391
771,646
787,601
90,188
(448,115)
(12,363)
(983,835)
4,709,055
(362,401)
(6,497,078)
(23,982,431)
23,489,021
(5,924,960)
(27,268)
(6,445,638)
(100,000)
8,533
20,525,988
(6,814)
20,427,707
880
7,485,871
6,372,788
13,858,659
11,200
—
See accompanying notes to the consolidated financial statements
F-8
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Background and Liquidity
(a) Background
Ocean Power Technologies, Inc. (the “Company”) was incorporated in 1984 in New Jersey, commenced business
operations in 1994 and re-incorporated in Delaware in 2007. The Company is developing and is seeking to commercialize
proprietary systems that generate electricity by harnessing the renewable energy of ocean waves. The Company markets its
PowerBuoys in the United States and internationally. Since fiscal 2002, government agencies have accounted for a significant
portion of the Company’s revenues. These revenues were largely for the support of product development efforts. The Company’s
goal is that an increased portion of its revenues be from the sale of products and maintenance services, as compared to revenue
to support its product development efforts. As the Company continues to advance its proprietary technologies, it expects to
continue to have a net decrease in cash from operating activities unless and until it achieves positive cash flow from the planned
commercialization of its products and services.
(b) Liquidity
The Company has incurred net losses and negative operating cash flows since inception. As of April 30, 2015, the Company
had an accumulated deficit of $164.8 million. As of April 30, 2015, the Company’s cash and cash equivalents and marketable
securities balance was approximately $17.4 million. Based upon the Company’s cash and cash equivalents and marketable
securities balance as of April 30, 2015, the Company believes that it will be able to finance its capital requirements and operations
through at least July 31, 2016. In addition, as of April 30, 2015, the Company’s restricted cash balance was approximately $0.5
million.
During fiscal 2015 and 2014, the Company has continued to make investments in ongoing product development efforts in
anticipation of future growth. The Company’s future results of operations involve significant risks and uncertainties. Factors that
could affect the Company’s futer operating results and cause actual results to vary materially from expectations include, but are
not limited to, risks from insufficiencies of capital, technology development, scalability of technology and production,
dependence on skills of key personnel, concentration of customers and suppliers, performance of PowerBuoys, deployment risks
and laws, regulations and permitting. In order to complete our future growth strategy, the Company requires additional equity
and/or debt financing. There is no assurance that additional equity and/or debt financing will be available to the Company as
needed. Historically, the Company has raised proceeds through public capital markets. If our common stock is delisted from
NASDAQ, our ability to raise capital through such markets could be adversely affected. If sufficient financing is not obtained,
the Company may be required to further curtail or limit certain product development costs, and/or selling, general and
administrative activities in order to reduce our cash expenditures.
In January 2013, the Company filed a shelf registration statement on Form S-3 (the “S-3” or the “S-3 Shelf”). The S-3 Shelf
was declared effective in February 2013. Under the S-3 Shelf in June 2013, the Company established an at the market offering
facility (the “ATM” Facility) with Ascendiant Capital Markets, LLC via an at the market offering agreement (the “ATM”
Agreement) Under the ATM Agreement, the Company offered and sold shares of our common stock from time to time through
the Manager, acting as sales agent, in ordinary brokerage transactions at prevailing market prices. Under the ATM Facility,
during fiscal 2014, the Company issued 3,306,334 shares of our common stock at an average price to the public of $3.02 per
share, receiving net proceeds from the ATM Facility of approximately $9,698,000.
Also in fiscal 2014, the Company entered into an Underwriting Agreement with Roth Capital Partners, LLC on April 4,
2014, with respect to the issuance and sale in an underwritten Public Offering of an aggregate of 3,800,000 shares of our common
stock at a price of $3.10 per share. The Underwriting Agreement contained customary representations, warranties and agreements
by the Company, customary conditions to closing, indemnification obligations, and a 90 day lock-up period that limited
transactions in our common stock by the Company. Net proceeds from the Public Offering, which was completed in early April
2014, were approximately $10,828,000.
F-9
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
Form S-3 limits the aggregate market value of securities that we are permitted to offer in any 12-month period under Form
S-3, whether under the ATM Agreement, the Underwriting Agreement or otherwise, to one third of the Company public float.
After the 2014 share sales, we fully utilized the ATM Agreement. However, we regained the ability to utilize Form S-3 as we
entered fiscal 2016. Of the $40 million authorized under the S-3 Shelf, approximately $18.2 million remains available for
issuance. During fiscal 2015, there were no proceeds from the sale of stock under the S-3 Shelf.
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, or at all. If we are unable to obtain required financing, we may be required to reduce the scope of our current projects,
planned product development and marketing efforts, which could harm our financial condition and operating results.
(2) Summary of Significant Accounting Policies
(a) Consolidation
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 as a
non-controlling interest in the Company's Consolidated Balance Sheets and Statements of Operations, which 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, 2015, there was one noncontrolling interest, consisting of 11.8% of the Company's Australian
subsidiary, Ocean Power Technologies (Australasia) Pty. Ltd. (“OPTA”). OPTA owns 100% of Victorian Wave Partners Pty.
Ltd. (“VWP”), which is also organized under the laws of Australia.
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, 2015, there were no such entities.
(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; 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, particularly the macroeconomic pressures in certain European countries, has increased the degree of uncertainty
inherent in those estimates and assumptions.
(c) Revenue Recognition
The Company’s contracts are either cost plus or fixed price contracts. Under cost plus contracts, customers are billed for
actual expenses incurred plus an agreed-upon fee. Currently, the Company has two types of fixed price contracts, firm fixed price
and cost-sharing. Under firm \fixed price contracts, the Company receives an agreed-upon amount for providing product
development and services specified in the contract. 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.
Generally, the Company recognizes 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 the 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 the Company
is unable to reasonably estimate the total costs of the project prior to completion. Some revenue contracts may contain complex
criteria or uncertainty surrounding the terms of performance and customer acceptance. These contracts are subject to
interpretation and management may make a judgment as to the amount of revenue earned and recorded. Because the Company
F-10
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
has a small number of contracts, revisions to the percentage-of-completion determination, management interpretation or delays
in meeting performance and contractual criteria or in completing projects may have a significant effect on revenue for the periods
involved. Upon anticipating a loss on a contract, the Company recognizes the full amount of the anticipated loss in the current
period.
Under cost plus and firm fixed price contracts, there is a profit or loss on the project depending on whether actual costs are
more or less than the agreed upon amount. Under cost-sharing contracts, an amount corresponding to the revenue is recorded in
cost of revenues, resulting in gross profit on these contracts of zero. The Company’s share of the costs is recorded as product
development expense.
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.
Some of the Company’s projects in fiscal year 2015 were under cost-sharing contracts.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash
equivalents. The Company invests excess cash in an overnight U.S. government securities repurchase bank account and a money
market account. In accordance with the terms of the repurchase agreement, the Company does not take possession of the related
securities. The agreement contains provisions to ensure that the market value of the underlying assets remain sufficient to protect
the Company in the event of default by the bank by requiring that the underlying securities have a total market value of at least
100% of the bank’s total obligations under the agreement.
Checking and savings accounts ........................................................................... $
Overnight repurchase account .............................................................................
Certificates of deposits and US Treasury obligations .........................................
$
(e) Marketable Securities
April 30, 2015
April 30, 2014
4,614,400 $
12,721,334
―
17,335,734 $
2,358,891
―
11,499,768
13,858,659
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 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, 2015 and April 30, 2014, all of the Company’s
investments were classified as held-to-maturity.
(f) Restricted Cash and Credit Facility
A portion of the Company’s cash is restricted under the terms of three 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 and bank guarantees that are expected to be issued by Barclays Bank
on behalf of OPT LTD, one of the Company's subsidiaries, under a credit facility established by Barclays Bank for OPT LTD.
The credit facility 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. During fiscal 2015, the Company reduced
the credit facility from €800,000 ($964,656) to approximately €307,000 ($338,561). As of April 30, 2015, there was €278,828
($307,492) in letters of credit outstanding under this agreement.
F-11
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
The second agreement is between Ocean Power Technologies, Inc. and the New Jersey Board of Public Utilities (NJBPU).
The Company received a $500,000 recoverable grant award from the NJBPU of which $150,000 is outstanding at April 30, 2015.
Under this arrangement, the Company annually assigns to the NJBPU a certificate of deposit in an amount equal to the
outstanding grant balance. See Note 7.
In addition, the Company previously had a letter of credit outstanding for the benefit of the Oregon Department of State
Lands for the removal of certain of the Company’s anchoring and mooring equipment from the seabed off the coast of Oregon.
During fiscal 2015, the Company completed the removal activity and reduced the letters of credit from $1,200,000 to $0.
The Company had classified the initial grant funding received from the Australian Renewable Energy Agency (“ARENA”)
of A$5,595,723 ($5,179,960), which includes an amount required to be submitted as goods and services tax (GST), as restricted
cash as of April 30, 2014.
During fiscal 2015, the Company remitted the GST in the amount of A$508,702 ($470,905) to the Australian Tax Office
(ATO) in accordance with local tax laws and also reclaimed this amount from the ATO during the fiscal period. The Company
also returned the initial grant funding received of A$5,595,723 ($5,179,960) and interest of A$109,051 ($102,061) to ARENA
in accordance with the Deed of Variation and Termination of Funding Deed executed between the parties in August 2014. The
Company had accrued this amount in accrued expenses and recorded this amount as restricted cash at April 30, 2014.
Restricted cash includes the following:
April 30, 2015
April 30, 2014
Australian Renewable Energy Agency (ARENA) ..............................................
NJBPU agreement ...............................................................................................
Oregon Department of State Lands .....................................................................
Barclay's Bank Agreement ..................................................................................
$
― $
100,000
―
338,561
438,561 $
5,179,960
100,000
845,000
―
6,124,960
Long Term:
Barclay's Bank Agreement ..................................................................................
NJBPU agreement ...............................................................................................
$
― $
50,000
50,000 $
996,696
225,000
1,221,696
April 30, 2015
April 30, 2014
(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. Property and equipment is
also 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 in the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
F-12
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
(h) 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. These amounts are included in cash, cash equivalents, restricted cash and
marketable securities on the accompanying consolidated balance sheets. Such positions may result in realized and unrealized
foreign exchange gains or losses from exchange rate fluctuations, which gains and losses are included in foreign exchange loss in
the accompanying consolidated statements of operations.
Foreign exchange (loss) gain ....................................................................................... $
(462,777) $
183,704
Year Ended April 30,
2014
2015
Foreign currency denominated certificates of deposit and cash accounts:
Restricted ............................................................................................................ $
Unrestricted .........................................................................................................
$
338,561 $
1,100,371
1,438,932 $
6,176,656
1,232,111
7,408,767
April 30,
2015
2014
(i) Patents
External costs related to the filing of patents, including legal and filing fees, are capitalized if expenses related to the filing
of a patent are significant. The Company continually re-assesses the remaining useful lives of its long-lived assets and costs are
expensed when it is no longer probable that such technology will be utilized. Patents are also reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the patent may not be recoverable. Amortization expense
was approximately $828,000 and $215,000 for the years ended April 30, 2015 and 2014, respectively. The increase in
amortization during fiscal 2015 is reflective of the company’s decision to reduce the estimated remaining useful lives, for the
purpose of amortizing capitalized external patent costs, from approximately five years to one year, effective for fiscal 2015.
(j) 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 money market funds) and does not believe that it is
exposed to any significant risks related to its cash accounts, money market funds 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:
Years Ended April 30,
2015
2014
Mitsui Shipbuilding & Engineering ....................................................................
US Department of Energy ...................................................................................
European Union .................................................................................................
UK Government's Technology Strategy Board ...................................................
40%
37%
23%
―
38%
34%
15%
12%
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 its customers to post collateral.
F-13
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
(k) 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 because of their anti-dilutive effect.
In computing diluted net loss per share, options to purchase shares of common stock and non-vested restricted stock issued
to employees and non-employee directors, totaling 1,924,793 and 1,569,902 for the years ended April 30, 2015 and 2014,
respectively, were excluded from the computations as the effect would be anti-dilutive due to the Company's losses.
(l) Stock-Based Compensation
Costs resulting from all share-based payment transactions are recognized in the consolidated financial statements at their
fair values. The aggregate share-based compensation expense recorded in the consolidated statements of operations for the years
ended April 30, 2015 and 2014 was approximately $333,000 and $772,000, respectively.
Valuation Assumptions for Restricted Stock and Options Granted During the Years Ended April 30, 2015 and 2014
Restricted Stock
Compensation expense for non-vested restricted stock can be recorded based on its market value on the date of grant and
recognized over the associated service and performance period. If the vesting requirement of performance-based grants is tied to
the Company's total shareholder return (TSR) relative to the total shareholder return of alternative energy Exchange Traded
Funds as measured over a specific performance period then the compensation expense for these awards with market-based vesting
is calculated based on the estimated fair value as of the grant date utilizing a Monte Carlo simulation model and is recognized
over the service period on a straight-line basis.
Options
The fair value of each stock option granted during the years ended April 30, 2015 and 2014 was 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 the Company’s historical volatility for fiscal 2015 and for fiscal 2014.
Risk-free interest rate ..........................................................................................
Expected dividend yield ......................................................................................
Expected life (in years) .......................................................................................
Expected volatility ..............................................................................................
Years Ended April 30,
2015
2014
1.6%
0.0%
5.5
85.49%
1.66%
0.0%
5.91
76.40%
The above assumptions were used to determine the weighted average per share fair value of $0.72 and $1.27 for stock
options granted during the years ended April 30, 2015 and 2014, respectively.
F-14
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
(m) 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.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being
sustained upon examination. Recognized income tax positions are measured at the largest amount that is greater than 50% likely
of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general, and
administrative expenses, to the extent incurred.
(n) 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.
(o) Recent Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity
to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard
is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the
retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its
consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it
determined the effect of the standard on its ongoing financial reporting.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern, which describes how an entity should assess its ability to meet obligations and sets rules for how this information
should be disclosed in the financial statements. The standard provides accounting guidance that will be used along with existing
auditing standards. The new standard applies to all entities for the first annual period ending after December 15, 2016, and interim
periods thereafter. Early application is permitted. The Company is evaluating the effect ASU 2014-15 will have on its
consolidated financial statements and disclosures and have not yet determined the effect of the standard on its ongoing financial
reporting at this time.
(3) Marketable Securities
Certificates of Deposit and US Treasury obligations ........................................... $
75,000 $
14,493,881
April 30, 2015
April 30, 2014
F-15
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
(4) Property and Equipment
The components of property and equipment are as follows:
Life (in years)
2015
2014
April 30,
Computers and software .......................................................................
Equipment ............................................................................................
Office furniture and equipment ............................................................
Leasehold improvements .....................................................................
3 $
3 to 7
3 to 7
2
Less accumulated depreciation and amortization .................................
527,070 $
725,555
249,960
182,285
1,684,870
(1,420,972 )
527,244
845,424
283,346
182,285
1,838,299
(1,520,786)
$
263,898 $
317,513
Depreciation expense was $136,858 and $206,945 for the years ended April 30, 2015 and 2014, respectively.
(5) Balance Sheet Detail
Patents
Patents ............................................................................................................................. $
Accumulated amortization ...............................................................................................
April 30,
2015
2014
1,536,029
(1,536,029)
― $
1,536,029
(707,731)
828,298
Accrued expenses
Project costs ..................................................................................................................... $
Contract loss reserve ........................................................................................................
Employee incentive payments .........................................................................................
Accrued salary and benefits .............................................................................................
Legal and accounting fees ...............................................................................................
Goods and services tax (GST) due to Australian Tax Office...........................................
Other ................................................................................................................................
$
867,771
198,819
529,274
468,366
274,656
―
168,233
2,507,119
1,263,293
―
310,370
455,909
168,402
470,905
262,360
2,931,239
(6) Related Party Transactions
Year Ended April 30,
2014
2015
Related party consulting expense ........................................................................................ $
494,188 $
―
In April 2014, the Company entered into an Executive Transition Agreement with George W. Taylor, who was formerly
employed by the Company as Executive Vice Chairman and served on the Company’s Board of Directors prior to that date.
Under this agreement, Dr. Taylor will receive up to fifteen months of consulting fees at a monthly rate of $20,000. During fiscal
2015, the Company recorded $240,000 in expense relating to this agreement.
In June 2014, the Company entered into an agreement with David L. Keller, who had served as a non-executive director of
the Company since October 2013. Under this agreement, Mr. Keller served as Interim Chief Executive Officer effective with the
F-16
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
June 9, 2014 termination of the Company’s former Chief Executive Officer, Charles F. Dunleavy and received a consulting fee
of $1,500 per day of services provided. Effective January 20, 2015, Mr. George H. Kirby was appointed President, Chief
Executive Officer and Director of the Company and Mr. Keller resigned as Interim CEO. Mr. Keller continues to serve as a non-
executive director of the Company. During fiscal 2015, the Company recorded $254,188 in expense relating to Mr. Keller’s
agreement.
(7) Debt
The Company was awarded a recoverable grant totaling $500,000, between April 2009 and June 2010, 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 November 2011. The terms also
required the Company to assign to the NJBPU a certificate of deposit in an amount equal to the outstanding grant balance. See
Note 2(f).
Total debt ................................................................................................................ $
Current portion of long-term debt ...........................................................................
Long-term debt ........................................................................................................ $
150,000 $
(100,000)
50,000 $
250,000
(100,000)
150,000
April 30,
2015
2014
(8) Deferred Credits Payable
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 carbon emissions credits generated
by the Company during the years 2008 through 2012, at a 30% discount from the then-prevailing market rate. If the Company
received emission credits under applicable laws and failed to sell to the investor the credits up to the full amount of emission
credits covered by the option, the investor was 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). Under the terms of the agreement, if the
Company did not become entitled under applicable laws to the full amount of emission credits covered by the option by
December 31, 2012, the Company was 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. In December 2012, the Company and the investor agreed to extend the period for
the sale of emission credits until December 31, 2017. As of April 30, 2015, the Company has not generated any emissions credits
eligible for purchase under the agreement. The $600,000 has been classified as a noncurrent liability as of April 30, 2015 and
2014.
(9) Common Stock
During the year ended April 30, 2014, the Company issued 3,306,334 shares of common stock under its ATM Facility for
an average purchase price of $3.02 per share, resulting in net proceeds to the Company of approximately $9,698,000, and issued
3,800,000 shares of common stock under the Underwriting Agreement at a price of $3.10 per share, resulting in net proceeds to
the Company of approximately $10,828,000. These transactions were registered under the Company’s S-3 Shelf.
(10) Preferred Stock
The Company has authorized 5,000,000 shares of undesignated preferred stock with a par value of $0.001 per share. As of
April 30, 2015, and 2014, no shares of preferred stock had been issued.
(11) Share-Based Compensation Plans
In 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,
2015, the Company had issued or reserved for issuance 40,200 shares under the 2001 Stock Plan. No further options or other
awards have been or will be granted under the 2001 Stock Plan.
F-17
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
In 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. In 2009, an amendment to the 2006 Stock Incentive Plan was approved by the Company’s
stockholders, increasing the aggregate number of shares authorized for issuance by 850,000 shares to 1,653,215. On October 2,
2013, a further amendment to the 2006 Stock Incentive Plan was approved by the Company’s stockholders, increasing the
aggregate number of shares authorized for issuance by an additional 800,000 shares to 2,453,215. As of April 30, 2015, the
Company had issued share-based awards for 1,043,752 shares of common stock and had reserved an additional 338,382 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. 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 any of the Company's employees, other than 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.
(a) Stock Options
A summary of stock options under the plans described above is as follows:
Shares Under
Weighted
Average
Option
Exercise Price
Weighted
Average
Remaining
Contractual
Term
(In Years)
Outstanding April 30, 2013 ...................................................................
Exercised ...........................................................................................
Forfeited ............................................................................................
Granted ..............................................................................................
1,305,988 $
(4,266)
(320,932)
491,502
Outstanding April 30, 2014 ...............................................................
Forfeited ............................................................................................
Granted ..............................................................................................
1,472,292
(504,253)
115,913
Outstanding April 30, 2015 ...............................................................
1,083,952
7.43
2.00
6.84
1.32
5.53
7.11
1.02
4.32
Exercisable April 30, 2015 ................................................................
785,983 $
5.45
5.9
5.9
5.7
4.7
As of April 30, 2015, the total intrinsic value of outstanding and exercisable options was $0. As of April 30, 2015,
approximately 289,000 additional options were unvested, which options had no intrinsic value and a weighted-average remaining
contractual term of 8.3 years. There was approximately $74,000 and $587,000 of total recognized compensation cost related to
employees for stock options during the years ended April 30, 2015 and 2014, respectively. As of April 30, 2015, there was
approximately $158,000 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 2.1 years. The Company typically issues new shares to
satisfy option exercises under these plans.
Certain options were granted to non-employee directors and consultants during the years ended April 30, 2015 and 2014.
The Company has charged compensation expense of approximately $106,000 and $91,000 related to these option grants, the
majority of which relates to non-employee directors. These expenses have been included in selling, general and administrative
costs in the accompanying consolidated statements of operations for the years ended April 30, 2015 and 2014, respectively.
F-18
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
During fiscal year 2015, the Company terminated the employment of Chief Executive Officer Charles F. Dunleavy. At the
time of Mr. Dunleavy’s termination, he held 427,357 outstanding options, 304,895 of which were exercisable, at a weighted
average per share exercise price of $7.02 and $8.65, respectively. These options were forfeited upon termination.
(b) Restricted Stock
Compensation expense for non- restricted stock is generally recorded based on its market value on the date of grant and
recognized ratably over the associated service and performance period. During fiscal 2015, the Company granted 438,012 shares
subject to service-based vesting requirements and 371,000 shares subject to performance-based vesting requirements. The
service-based vesting grants include a grant to a non-executive director of the Company for 104,000 shares. This grant was issued
pursuant to the Company’s Amended and Restricted 2006 Stock Incentive Plan and will vest immediately upon the approval by
the shareholders at the 2015 Annual Meeting of additional shares to be authorized under the 2006 Stock Incentive Plan. In the
event that the shareholder approval referred to above is not obtained or is otherwise deemed unnecessary, the Board will
determine such other vesting schedule or other form(s) of equivalent compensation as may be necessary or appropriate. The
achievement or vesting requirement of the performance-based grants is tied to the Company’s total shareholder return (TSR)
relative to the total shareholder return of three alternative energy Exchange Traded Funds as measured over a specific
performance period. No vesting of the relevant shares will occur in instances where the Company’s TSR for the relevant period
is below 80% of the peer group. However, additional opportunities to vest some or all of a portion of the shares in a subsequent
period may occur. Compensation expense for these awards with market-based vesting is calculated based on the estimated fair
value as of the grant date utilizing a Monte Carlo simulation model and is recognized over the service period on a straight-line
basis. During fiscal 2015, 9,380 shares of non-vested restricted stock subject to performance-based vesting requirements were
forfeited in accordance with performance objectives. Restricted stock issued and unvested at April 30, 2015 included 404,662
shares of non-vested restricted stock subjected to performance-based vesting requirements.
A summary of non-vested restricted stock under the plans is as follows
Weighted
Average
Price per
Share
Number
of Shares
Issued and unvested at April 30, 2013 .................................................................................
54,802 $
Granted .................................................................................................................................
Forfeited ...............................................................................................................................
Vested ..................................................................................................................................
96,239
(16,417)
(37,014)
Issued and unvested at April 30, 2014 .................................................................................
97,610
Granted .................................................................................................................................
Forfeited ...............................................................................................................................
Vested ..................................................................................................................................
Issued and unvested at April 30, 2015 .................................................................................
809,012
(14,880)
(50,901)
840,841 $
4.52
2.19
5.75
3.96
2.23
0.65
1.71
2.13
0.73
There was approximately $57,000 and $60,000 of total recognized compensation cost relating to restricted stock granted to
employees during the years ended April 30, 2015 and 2014, respectively. Certain shares of restricted stock were granted to non-
employee directors during the years ended April 30, 2015 and 2014, with respect to which the Company recorded compensation
expenses of approximately $96,000 and $34,000 in 2015 and 2014, respectively. As of April 30, 2015, there was approximately
$338,000 of total unrecognized compensation cost related to non-vested restricted stock granted under the plans. This cost is
expected to be recognized over a weighted-average period of 2.3 years.
F-19
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
(c) Treasury Stock
During the years ended April 30, 2015 and 2014, 806 and 4,081 shares of common stock, respectively, were purchased by
the Company from employees to pay taxes related to the vesting of restricted stock.
(12) Income Taxes
Loss before income taxes for the years ended April 30, 2015 and 2014 consisted of the following components:
April 30,
2015
2014
Domestic ..................................................................................................................... $
Foreign ........................................................................................................................
Total loss before income taxes ................................................................................ $
(12,403,155) $
(1,958,384)
(14,361,539) $
(9,532,725)
(3,404,224)
(12,936,949)
The components of income taxes (benefit) for the years ended April 30, 2015 and 2014 were as follows:
April 30,
2015
2014
Current:
Federal ..................................................................................................................... $
State .........................................................................................................................
Foreign ....................................................................................................................
Total current .........................................................................................................
− $
(1,137,872)
−
(1,137,872)
Deferred:
Federal .....................................................................................................................
State .........................................................................................................................
Foreign ....................................................................................................................
Total deferred .......................................................................................................
Total income tax benefit ...................................................................................... $
−
−
−
-
(1,137,872) $
−
(1,745,895)
−
(1,745,895)
−
−
−
-
(1,745,895)
F-20
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
Tax Rate Reconciliation
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:
Computed "expected" tax benefit ....................................................................................
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal benefit ........................................................................
Stock-based compensation expense ................................................................................
Federal research and development tax credits .................................................................
Foreign rate differential ...................................................................................................
Other non-deductible expenses .......................................................................................
Expiration of net operating losses and tax credit carryforwards .....................................
Expiration in compensatory options ................................................................................
Proceeds of sale of New Jersey tax benefits ....................................................................
Other ...............................................................................................................................
Increase in valuation allowance ......................................................................................
Income tax benefit ...........................................................................................................
Significant Components of Deferred Taxes
April 30,
2015
2014
(34)%
(5)
―
(1)
1
3
―
―
(8)
8
28
(8)%
(34)%
(6)
1
(1)
2
4
―
―
(13)
10
24
(13)%
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,
2015
2014
Deferred tax assets:
Federal net operating loss carryforwards ........................................................................ $
Foreign net operating loss carryforwards ........................................................................
State operating loss carryforwards ..................................................................................
Federal and New Jersey research and development tax credits .......................................
Stock compensation ........................................................................................................
Capitalized research and development costs, net of amortization ...................................
Unrealized foreign exchange loss ....................................................................................
Accrued expenses ............................................................................................................
Other ...............................................................................................................................
37,135,000 $
5,952,000
2,175,000
2,392,000
799,000
—
518,000
730,000
1,087,000
29,724,000
6,021,000
1,411,000
2,178,000
730,000
4,901,000
258,000
652,000
881,000
Gross deferred tax assets .................................................................................................
50,788,000
46,756,000
Valuation allowance ........................................................................................................
(50,788,000)
(46,756,000)
Net deferred tax assets .................................................................................................... $
- $
-
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 are utilized. As of April 30, 2015 and 2014, based upon the level of historical taxable losses, valuation allowances
of $50,788,000 and $46,756,000, respectively, were recorded to fully offset deferred tax assets. The valuation allowance
increased $4,032,000 and $3,031,000 during the years ended April 30, 2015 and 2014, respectively.
F-21
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
As of April 30, 2015, the Company had net operating loss carryforwards for federal income tax purposes of approximately
$109,220,000, which begin to expire in fiscal 2019. The Company also had federal research and development tax credit
carryforwards of approximately $2,320,000 as of April 30, 2015, which begin to expire in 2019. 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. Such limitation only applies to net operating
losses incurred in periods prior to the ownership change. The Company has not performed additional analysis on ownership
changes that may have occurred subsequently to further limit the ability to utilize net tax attributes. As of April 30, 2015, the
Company had state net operating loss carryforwards of approximately $37,520,000 which begin to expire in 2026, which also
may be limited to utilization limitations. As of April 30, 2015, the Company had foreign net operating loss carryforwards of
approximately $25,407,000, which begin to expire in 2024. The ability to utilize these carryforwards may also be limited in the
event of a significant change to ownership.
During the years ended April 30, 2015 and 2014, the Company sold New Jersey State net operating losses in the amount of
$14,004,000 and $15,347,000, respectively, resulting in the recognition of income tax benefits of $1,138,000 and $1,746,000,
respectively, recorded in the Company’s Statement of Operations.
The Company applies the 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, 2015 and
2014, the Company had no unrecognized tax positions. The Company does not expect any material increase or decrease in its
income tax expense in the next twelve months, related to examinations or uncertain tax positions. US federal and state income
tax returns were audited through fiscal 2007 and fiscal 2010, respectively and fiscal 2014 is currently under US federal
examination. Net operating loss and credit carryforwards since inception remain open to examination by taxing authorities, and
will continue to remain open for a period of time after utilization.
Initial grant funding, net of GST, of approximately A$5,087,000 ($4,709,000) received from ARENA was estimated by the
Company to be non-taxable in fiscal 2014, the year of receipt, due to claw-back provisions in the grant that apply if certain
contractual requirements, including performance criteria, are not satisfied. During fiscal 2015, the Company returned the initial
grant funding to ARENA in accordance with the Deed of Variation and Termination of Funding Deed executed between the
parties in August 2014.
The Company does not have any interest or penalties accrued related to uncertain tax positions as it does not have any
unrecognized tax benefits.
(13) Commitments and Contingencies
(a) Operating Lease Commitments
The Company leases office, laboratory, manufacturing and other space in Pennington, New Jersey under an operating lease
that expires on December 31, 2017. Rent expense under operating leases was approximately $295,000 and $299,000 for the years
ended April 30, 2015 and 2014, respectively. Future minimum lease payments under this operating lease as of April 30, 2015 are
as follows:
Year ending April 30,
2016 .................................................................................................................................. $
2017 ..................................................................................................................................
2018 ..................................................................................................................................
$
244,000
244,000
163,000
651,000
F-22
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
(b) Litigation
Shareholder Litigation:
The Company and its former Chief Executive Officer Charles Dunleavy are defendants in consolidated securities class
action lawsuits pending in the United States District Court for the District of New Jersey captioned In Re: Ocean Power
Technologies, Inc. Securities Litigation, Civil Action No. 14-3799 (FLW) (LHG). The consolidated actions are Roby v. Ocean
Power Technologies, Inc., et al., Case No. 3:14-cv-03799-FLW-LHG; Chew, et al. v. Ocean Power Technologies, Inc. et. al.,
Case No 3:14-cv-03815; Konstantinidis v. Ocean Power Technologies, Inc., et al., Case No. 3:14-cv-04015; and Turner v. Ocean
Power Technologies, Inc., et al., Case No. 3:14-cv-04592. On March 17, 2015, the court entered an order appointing Five More
Special Situation Fund Ltd. as the lead plaintiff. On May 18, 2015, the lead plaintiff filed an amended class action complaint.
The amended class action complaint alleges claims for violations of sections 12(a) (2) and 15 of the Securities Act of 1933 and
for violations of §10(b) and §20(a) of the Securities Exchange Act of 1934 arising out of public statements relating to a now
terminated agreement between Victorian Wave Partners Pty. Ltd. (VWP) and the Australian Renewable Energy Agency
(ARENA) for the development of a wave power station (the "VWP Project"). The amended complaint seeks unspecified
monetary damages and other relief. The case is still in its preliminary stage and defendants have not yet responded to the amended
complaint.
On July 10, 2014, the Company received a demand letter ("Demand Letter") from an attorney claiming to represent a
shareholder demanding that the Company's Board of Directors establish an independent committee to investigate and remedy
alleged breaches of fiduciary duties by the Board of Directors and management relating to the VWP Project. The Company is
continuing to evaluate the Demand Letter but also invited the attorney to participate in the Section 220 Demand process discussed
below. On February 6, 2015, the Company produced documents to the attorney pursuant to a confidentiality agreement in
connection with the Section 220 Demand
process.
The Company also received a letter, dated August 19, 2014, (the "Section 220 Demand") from another attorney claiming
to represent a shareholder demanding, pursuant to 8 Del. C. §220, to inspect certain books and records of the Company relating
to the VWP Project and the termination of Charles Dunleavy as the Company's Chief Executive Officer. The Company has
received two additional Section 220 Demands relating to the same subject matter from attorneys claiming to represent two
different shareholders. The Company has responded in writing to the three Section 220 Demands and on February 6, 2015
produced documents to each of the attorneys pursuant to confidentiality agreements.
The Company and certain of its current and former directors and officers are defendants in a derivative lawsuit filed on
March 18, 2015 in the United States District Court for the District of New Jersey captioned Labare v. Dunleavy, et. al., Case No.
3:15-cv-01980-FLW-LHG. The derivative complaint alleges claims for breach of fiduciary duty, abuse of control, gross
mismanagement and unjust enrichment relating to the now terminated agreement between VWP and ARENA referred to above.
The derivative complaint seeks unspecified monetary damages and other relief. On May 18, 2015, the plaintiff and all the
defendants agreed to stay the derivative lawsuit pending action in the consolidated class action securities litigation discussed
above (namely, a court order denying any motions to dismiss the commencement of discovery, a joint request to lift the stay, or
further order of the court.)
Employment Litigation:
On June 10, 2014, the Company announced that it had terminated Charles Dunleavy as Chief Executive Officer and as an
employee of the Company for cause, effective June 9, 2014, and that Mr. Dunleavy had also been removed from his position as
Chairman of the Board of Directors. On June 17, 2014, Mr. Dunleavy wrote to the Company stating that he had retained counsel
to represent him in connection with an alleged wrongful termination of his employment. On July 28, 2014, Mr. Dunleavy resigned
from the Board and the boards of directors of the Company's subsidiaries. The Company and Mr. Dunleavy have agreed to toll
his alleged employment claims pending resolution of the shareholder litigation.
F-23
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements— (Continued)
(c) Regulatory Matters:
SEC Subpoena
On February 4, 2015, the Company received a subpoena from the Securities and Exchange Commission “SEC” requesting
information related to the VWP Project. The Company has provided information to the SEC in response to that subpoena, and
continues to cooperate with the SEC.
Spain IVA (sales tax)
In June 2012, the Company received notice that the Spanish tax authorities are inquiring into its 2010 IVA (value-added
tax) filing for which the Company benefitted from the offset of approximately $250,000 of input tax. The Company believes that
the inquiry will find that the tax credit was properly claimed and, therefore, no liability has been recorded. The Company issued
two letters of credit in the amount of €278,828 ($307,492) at the request of the Spanish tax authorities. This is a customary
request during the inquiry period. In November 2014 and March 2015 the Company received partial refunds of the amount under
dispute and continues to expect that this matter will be resolved in the Company’s favor.
(14) 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 and operating subsidiaries in the UK and in
Australia. Revenues and expenses are generally attributed to the operating unit that bills the customers.
Geographic information is as follows:
Year Ended April 30, 2015
4,105,424 $
Revenues from external customers ......................................... $
Operating loss ......................................................................... (12,294,263)
Long-lived assets .....................................................................
262,985
Total assets .............................................................................. $ 17,899,273 $
— $
(1,126,109)
913
597,796 $
North
America
Europe
Asia and
Australia
— $
Total
4,105,424
(866,188) (14,286,560)
263,898
373,817 $ 18,870,886
—
Year Ended April 30, 2014
Asia and
Australia
Europe
181,069 $
(1,180,334)
12,024
Total
1,498,892
(1,867,370) (13,150,309)
317,513
1,003,205 $ 5,768,390 $ 38,084,835
175
— $
1,317,823 $
Revenues from external customers ......................................... $
Operating loss ......................................................................... (10,102,605)
Long-lived assets .....................................................................
305,314
Total assets .............................................................................. $ 31,313,240 $
North
America
F-24
OCEAN POWER TECHNOLOGIES, INC.
Directors
Senior Management Team
Registrar
George H. Kirby*
President and Chief Executive Officer
David R. Heinz*
Chief Operating Officer
Mark A. Featherstone*
Chief Financial Officer and Treasurer
Mike M. Mekhiche
Vice President, Engineering
John W. Lawrence
General Counsel and Secretary
*Denotes Executive Officers
Terence J. Cryan
Chairman of Ocean Power Technologies, Inc.,
Chairman of Uranium Resources, Inc.,
President & Chief Executive Officer of Global
Power Equipment Group, Inc.,
Co-Founder & Managing Director, Concert
Energy Partners, LLC
Robert J. Burger
Independent Director Victory Energy
Operations, LLC
Eileen M. Competti
Vice President, Global Competitiveness
Babcock & Wilcox Company
(Retired July 2015)
Dean J. Glover
President and Chief Executive Officer
Miratech Group
David L. Keller
Independent Director Global Power
Equipment Group, Inc.
George H. Kirby*
President and Chief Executive Officer
Independent Registered
Public Accounting Firm
KPMG LLP
1601 Market Street
Philadelphia, PA 19103-2499
USA
Legal Advisor
Cozen O’Connor
1 Liberty Place
1650 Market Street
Philadelphia, PA 19103
USA
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021-1011
US & Canada: 800-662-7232
International: 781-575-4238
www.computershare.com
Bankers
Barclays Bank Plc
1 Churchill Place
London E14 5HP
UK
Santander Bank
2583 Pennington Road
Pennington, NJ 08534
USA
Share Price Information
The Company’s share price is quoted on the NASDAQ Capital Market under the symbol OPTT. Go to www.nasdaq.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.
Contact Us
Ocean Power Technologies, Inc.
1590 Reed Road
Pennington, NJ 08534
USA
Website Address: www.oceanpowertechnologies.com
Defense & Security
Applications:
• Remote sensors: High frequency radar & sonar
• Autonomous unmanned vehicles (also used in O&G)
• Self positioning (“station keeping”) systems
• Network and communication systems
• Additional disruptive applications under consideration
• 70% of the earth’s surface
is covered by oceans
Ocean Power
• 44% of the world’s
population is coastal
• 1 out of 6 U.S. jobs is
• 95% of our underwater world
marine-related
remains unexplored
• >33% of the U.S.
economy originates
from coastal areas
Oil & Gas
Applications:
• Seismic mapping: Early exploration and
reservoir management
• Communications
• Equipment monitoring
• Wellhead sensing
• Pipeline trace heating
• Weather forecasting
• Ocean currents
• Remote data centers
Ocean Observing
Applications:
• Weather forecasting
• Climate change monitoring
• “Ocean Health” monitoring
• Toxicity and radiation
detection
• Ocean floor seismometry
• Biological processes
• Ocean power
addresses critical issues
such as climate, weather,
energy, transportation,
and security
Offshore Wind
Applications:
• Wind assessments
• Environmental assessments
• Ocean current measurements
Our Mission
We will deliver durable, reliable, cost-effective ocean energy
solutions that enable new capabilities for our customers and
partners, value to our shareholders, inspire our employees,
and enhance the environment.