ABOVE
OPT’s PB3 PowerBuoy® on display in
Montrose, Scotland, for a Technology
Day event that drew more than
100 oil and gas industry representatives.
LEFT
OPT’s PB3 PowerBuoy® deployed in
Premier Oil’s Huntington field in
the central North Sea where it is
demonstrating its decommissioning
Exclusion Zone MonitoringTM capabilities.
BELOW
OPT’s PB3 PowerBuoy® deployed in
the Adriatic Sea to advance Eni’s R&D
MaREnergy project, aiming to develop,
deploy and demonstrate suitability of
wave energy renewable technologies in
oil and gas operations.
Dear Fellow Shareholder:
Throughout fiscal year 2019, we believe that Ocean Power Technologies solidified its standing as the world leader in
wave energy power. As our targeted markets continue to grapple with economic, environmental, and political pressures,
our solutions have attracted interest around the globe.
We believe that our commercialization efforts are resonating as offshore oil and gas operators, defense and government
agencies, and research entities increasingly seek our ocean-based solutions that are driven by clean and reliable
power sources. This is precisely what we have been working toward and we are ready to help these industries meet
their challenges.
In June 2018, we secured our first commercial order in the offshore oil and gas decommissioning market with
Premier Oil and successfully deployed a PB3 PowerBuoy® in the North Sea in August 2019. In November 2018, OPT
successfully deployed a PB3 PowerBuoy® for Eni S.p.A. as a first step toward autonomous underwater vehicle (AUV)
charging and for nearly a full year the PowerBuoy® has performed flawlessly in the Adriatic Sea.
These in-water commercial deployments are attracting strong commercial interest and a rising number of requests
for proposals exploring how we can help tackle a variety of deep-water challenges. Each successful commercial
deployment of a PowerBuoy® positions OPT to leverage those results with new customers and projects. They also
present opportunities, such as hosting a Technology Day to present the PB3 PowerBuoy® and related solutions to
more than 100 invited oil and gas industry representatives in Scotland prior to its deployment in the North Sea.
We also continue to showcase our solutions at conferences and exhibitions, including in Houston at the Offshore
Technology Conference and the Innovation and the Digital Transformation of Upstream Oil & Gas co-hosted by
ExxonMobil and Vodafone Global Enterprise, in Norway at the Offshore North Sea Conference, in Maryland at the Navy
Forum for SBIR/STTR Transition and the U.S. Navy League’s Sea-Air-Space Exposition, and upcoming in November
2019 in Scotland at the Offshore Decommissioning Conference.
As validation of our technical expertise and experience, in February 2019 OPT was awarded a Phase 1 contract with the
United States Navy, allowing our Innovation & Support Services team to begin development of a buoy mooring system
incorporating fiber optics for the transmission of subsea sensor data to airplanes, ships, and satellites. In April 2019, we
were awarded an important Gulf of Mexico feasibility study with a leading oil and gas exploration and production company.
The paid study examined the use of OPT’s products and services in monitoring subsea wells during decommissioning
activities and we are optimistic that it will lead to further commercial opportunities in the Gulf of Mexico.
OPT also entered into several business development agreements in fiscal year 2019. In January 2019, we entered a
non-exclusive agreement to pursue mutual opportunities through joint system solution development and marketing
with Saab Seaeye Ltd, the world’s largest manufacturer of electric underwater robotic systems. The agreement has
a preliminary focus on AUV and remotely operated underwater vehicle (ROV) charging and communications, which
we believe will be an important part of our customers’ future operations. In April 2019, we announced a non-exclusive
memorandum of understanding to develop, explore and exploit mutual opportunities in the global oil and gas and
renewable markets with Acteon Field Life Service Ltd., a leading subsea services and solutions company. These
collaborations are providing opportunities to market the PowerBuoy® as an environmentally sound power source
integrated into a wide range of applications.
Responding to the needs of customers we announced plans for two new products available for purchase in
2020 —a Subsea Battery Solution and the hybrid PowerBuoy® —which complement the existing PB3 PowerBuoy®.
Backed by our existing Support Services, we believe that these solutions will open new opportunities for OPT.
Specifically, we believe that these products will allow for faster deployments to support shorter-term projects or can be
used in conjunction with the PB3 PowerBuoy®.
The OPT intellectual property portfolio was further strengthened in June 2018 with the receipt of our 65th patent.
The patent addresses a method of controlling wave power generation equipment to optimize energy harvesting in
low to moderate sea states, represents an upgrade over earlier control system designs and provides a significant
improvement in power management. The technology associated with the patent is an integral part of our PowerBuoy®
products, allowing us to deliver more energy to our customers’ operations to broaden the range and size of project
opportunities we can address.
In January 2019, we announced receipt of $0.9 million of non-dilutive funding through the New Jersey Economic
Development Authority’s Technology Business Tax Certificate Transfer Program. As in prior years, we sell our net
operating losses and research and development tax credits to a third party for cash through this Program, which is an
important contribution to financing our ongoing technology development efforts.
OPT executed a Common Stock Purchase Agreement with Aspire Capital Fund, LLC in October 2019. This new $10
million facility will provide our Company with flexible access to funding at a lower cost of capital that translates to more
funding for value creation. In the Proxy Statement that accompanies this Annual Report, we are requesting your support
to approve the issuance of additional shares of common stock under the terms of the Agreement. We believe that a
financing strategy focused on lowering costs by utilizing less dilutive equity can provide working capital on a cost-effective
basis at a higher value return for OPT to further advance our continued innovation and commercialization programs.
For the past several years, OPT has been executing an ambitious plan that has included targeted changes in strategy
and products. Throughout fiscal year 2019 to today, we progressed according to that plan with new orders and customer
deployments, creating substantial momentum for the remainder of fiscal year 2020. As an example, an important study
secured in August 2018 with Enel Green Power recently resulted in our first sale of a PB3 PowerBuoy® as part of a
turn-key project we will deliver in spring 2020 for Enel Green Power Chile.
We are energized by the strides we have made and our position in the largely untapped market of renewable ocean
power. Going forward, we plan to continue to leverage the momentum of new business, delivery and deployments,
and the commercial launch of new products to pursue repeat and multiple-unit sales as market adoption continues to
expand. Starting at the top, the entire OPT team is focused on the responsible growth of our business and delivering
long-term value for our shareholders as well as our customers.
Sincerely yours,
George H. Kirby
President and Chief Executive Officer
Terence J. Cryan
Chairman of the Board
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2019
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
Ocean Power Technologies, Inc.
Delaware
(State or other jurisdiction of
incorporation or organization)
22-2535818
(I.R.S. Employer
Identification No.)
28 ENGELHARD DRIVE, SUITE B
MONROE TOWNSHIP, NJ 08831
(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 Capital 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 [X]
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 [X]
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
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 such files). Yes [X] 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. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]
The aggregate market value of the common stock of the registrant held by non-affiliates as of October 31, 2018, the last business day
of the registrant’s most recently completed second fiscal quarter, was $9.5 million based on the closing sale price of the registrant’s common
stock on that date as reported on the Nasdaq Capital Market.
The number of shares outstanding of the registrant’s common stock as of July 15, 2019 was 5,771,747.
OCEAN POWER TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Business .................................................................................................................................................
Item 1.
Item 1A. Risk Factors ............................................................................................................................................
Item 1B. Unresolved Staff Comments ..................................................................................................................
Properties
Item 2.
..............................................................................................................................................................
Item 3.
Legal Proceedings ..................................................................................................................................
Item 4. Mine Safety Disclosures.........................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ....................................................................................................................................
Item 6.
Selected Financial Data ..........................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...............................................................
Item 8.
Financial Statements and Supplementary Data ......................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................
Item 9.
Item 9A. Controls and Procedures ........................................................................................................................
Item 9B. Other Information ...................................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance .....................................................................
Item 11. Executive Compensation ........................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ...................................................................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence .......................................
Item 14. Principal Accountant Fees and Services ................................................................................................
Page
1
15
27
27
27
30
31
31
31
42
42
42
42
42
43
46
53
55
55
PART IV
Item 15. Exhibits, Financial Statement Schedules ................................................................................................
56
PowerBuoy® and the Ocean Power Technologies logo are trademarks 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 2019 are to the fiscal year ended April 30, 2019.
Special Note regarding Reverse Stock Split
At the special meeting of our stockholders on March 8, 2019, our stockholders approved a proposal to amend our
Certificate of Incorporation to affect a reverse split of our common stock at a ratio to be determined by the Company’s
Board of Directors within a specific range. After the special meeting of stockholders, the Company’s Board of Directors
convened and decided to initiate the reverse split, chose a ratio, and directed management to take the necessary steps to
effectuate the reverse split as soon as possible. Pursuant to the direction of the Board, the Company filed a Certificate of
Amendment to our Certificate of Incorporation to affect a one-for-twenty reverse stock split of our common stock (the
“Reverse Stock Split”). As of the close of markets on March 11, 2019, the effective date of the Reverse Stock Split, every
twenty shares of issued and outstanding common stock were combined into one issued and outstanding share of common
stock, without any change in the par value per share. Any fractional shares in connection with the Reverse Stock Split were
rounded up to the nearest whole share and no cash payments were made to stockholders in lieu of fractional shares. The
common stock began trading on a reverse stock split-adjusted basis on the Nasdaq Stock Market (“Nasdaq”) on March 12,
2019. All share and per share data included in this annual report has been retroactively restated to reflect the Reverse Stock
Split.
ii
ITEM 1. BUSINESS
Overview
PART I
Nearly 70% of the Earth’s surface is covered by water, and over 40% of the world’s population lives within
approximately 150 miles of a coast. Thousands of information gathering and/or power systems are deployed in the oceans
today to increase our understanding of weather, climate change, biological processes, and marine mammal patterns as well
as supporting exploration and operations for industries such as oil and gas. Most of these systems are powered by battery,
solar, wind, fuel cell, or fossil fuel generators that may be unreliable and expensive to operate while they also may be
limited in their ability to deliver ample electric power. These current systems often necessitate significant tradeoffs in
sensor accuracy, data processing and communications bandwidth and frequency in order to operate given limited available
power. More persistent power systems requiring less maintenance, such as our products, may have the ability to save costs
over these current systems. Equally important are increases in available power may allow for better sensors, faster data
sampling and higher frequency communication intervals up to real-time which could improve scientific and economic
returns.
Founded in 1984 and headquartered in Monroe Township, New Jersey, we believe we are the leader in ocean
wave power conversion technology. Our PB3 PowerBuoy® is our first fully commercial product which generates
electricity by harnessing the renewable energy of ocean waves. In addition to our PB3 PowerBuoy®, we continue to
develop our PowerBuoy® product line based on modular, ocean-going buoys, which we have been periodically ocean
testing since 1997. In November 2018 the Company announced additional complementary products, the hybrid
PowerBuoy® and subsea battery solutions which leverage our existing expertise in offshore power systems while
expanding our product line beyond our flagship PB3 PowerBuoy® offering.
The PB3 PowerBuoy® generates power for use in remote offshore locations, independent of a conventional power
grid. It features a unique onboard power take-off (“PTO”) system, which incorporates both energy storage and energy
management and control systems. The PB3 generates a nominal name-plated capacity rating of up to 3 kilowatts (“kW”)
of peak power during recharging of the onboard batteries. Power generation is deployment-site dependent whereby average
power generated can increase substantially at very active sites. Our standard energy storage system (“ESS”) has an energy
capacity of up to a nominal 150 kilowatt-hours (“kWh”) to meet specific application requirements. We believe there is a
substantial addressable market for the current capabilities of our PB3, which we believe could be utilized in a variety of
applications.
In addition to leveraging earlier design aspects of our autonomous PowerBuoy®, the PB3 has undergone extensive
factory and in-ocean design validation testing. Currently, our engineering efforts are continuing to expand the PowerBuoy®
capability with simplified deployment and mooring options and working together with our customer base to ensure flexible
systems integration and to optimize energy output. Our marketing efforts are focused on applications in remote offshore
locations that require reliable and persistent power and communications, either by supplying electric power to payloads
that are integrated directly in or on our PowerBuoy® or located in its vicinity, such as on the seabed and in the water
column.
Based on our market research and publicly available data, we believe that numerous markets have a direct need
for our PowerBuoy® including oil and gas, defense and security, science and research, and communications. Depending
on payload power requirements, sensor types and other considerations, we have found that our PowerBuoy® could satisfy
several application requirements within these markets. We believe that the PB3 consistently generates sufficient power to
meet the requirements of many potential customer applications within our target markets.
Since fiscal 2002, government agencies have accounted for a significant portion of our revenues. These revenues
were largely for the support of our development efforts relating to our technology. Today our goal is to generate the majority
of our revenue from the sale or lease of our products, and sales of services to support our business operations. As we
continue to develop and commercialize our products, we expect to have a net loss of cash from operating activities unless
and until we achieve positive cash flow from the commercialization of our products and services. During fiscal 2018 we
continued work on projects with the U.S. Department of Defense (“DOD”), Mitsui Engineering and Shipbuilding Co., Ltd.
(“MES”), and commenced work with Premier Oil (“PMO”) and Eni S.p.A. (“Eni”). During fiscal 2019 we continued work
with PMO and Eni and commenced work with Enel Green Power (“EGP”), the U.S. Navy Small Business Innovation
Research (“U.S. SBIR”) program, and a leading oil & gas operator.
1
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 28 Engelhard
Drive, Suite B, Monroe Township, New Jersey 08831, 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 SEC. The information on our website is not a part
of this Annual Report. Our common stock has been listed on Nasdaq since April 24, 2007, and since July 2015, our common
stock has been listed on the Nasdaq Capital Market. Our fiscal year begins on May 1 and ends on April 30. When we refer
to a particular fiscal year, we are referring to the fiscal year ending on April 30 of that year.
Competitive Advantages
We are commercializing our PB3 PowerBuoy® by targeting customers principally in four markets that require
reliable and persistent power sources in remote offshore locations (as discussed in further detail below). We believe that
our wave energy products and services, and our existing commercial relationships provide the following competitive
advantages in our target markets.
● Numerous applications within multiple, major market segments. We have designed our PB3
PowerBuoy® to address multiple offshore applications around the world. In particular, we are targeting
customers with multiple applications within the oil and gas, defense and security, science and research,
and communications markets.
● Considerable life-cycle cost savings over current solutions for many applications. Our PB3
PowerBuoy® is designed to operate over extended intervals between required servicing, compared to
several current solutions which we found to require more servicing using offshore vessels. We believe
that our PB3 PowerBuoy® reduces costs over multi-year operations compared with current solutions.
These cost reductions are mostly due to reduced vessel and personnel servicing activities.
● Real-time data communications. Some current solutions with less available power than our PowerBuoy®
may have limited communication capabilities or may be able to communicate data only over shorter
periods due to power limitations. Some current solutions may only make data accessible upon physical
retrieval of the sensor. Our PowerBuoy® can be equipped with a variety of communications equipment,
such as 4G LTE, satellite (VSAT) and Wi-Fi, which enables the transmission of data on a more frequent
basis. We believe that more frequent data communication could enable an end-user to more quickly and
proactively make data-driven decisions which could result in economic advantages.
Increased power and persistence compared to certain current solutions. We have found that our
PowerBuoy® may provide substantially increased power and persistence than certain existing battery
and solar powered systems. We believe that this may allow additional sensors to be employed at the same
site, a higher sensor data transmission rate to be achieved, extended operation and reduced downtime,
and improved operational costs for the customer. Enabling these new capabilities may contribute to
enhanced operations through real-time decision making and increased life-cycle cost savings.
●
● Standard transportation and deployment. Our PB3 PowerBuoy® does not require special handling or
transportation, and instead uses conventional transportation and handling methods that are economical
and readily available in standard marine operations. This may result in lower global transportation and
deployment costs than current solutions. Our PB3 PowerBuoy® can be deployed using conventional
vessels and conventional marine cranes and lifts.
● Modular and scalable designs. Our PB3 PowerBuoy® is designed with a modular ESS which allows us
to tailor its configuration to specific application requirements, including expansion of energy storage
capacity, potentially allowing for a more customized solution and potential cost savings for our
customers. We believe that our PowerBuoy® is scalable to higher power levels, and multiple
PowerBuoys® may also be installed in an array in order to achieve higher levels of aggregate power,
although we have not yet demonstrated a PowerBuoy® array.
● Flexible electrical, mechanical and communication interfaces for sensors. The PB3 PowerBuoy® can
be equipped with payloads, either mounted on or within the PowerBuoy®, or tethered to the
PowerBuoy®. The PB3 PowerBuoy® has mechanical and electrical interfaces which allow for simplified
integration of payloads, creating flexibility for the end-user.
● Environmentally benign and aesthetically non-intrusive system design. We believe that our PB3
PowerBuoy® does not present significant risks to marine life, or emit significant levels of pollutants, and
therefore has minimal environmental impact as compared to some other current solutions. We believe
there is no significant audible impact and our system does not have a negative effect on marine life, as
validated by the U.S. Navy and Department of Energy (“DOE”).
2
● Ocean and factory-tested technology. Our PB3 PowerBuoy® is designed to be durable, with a three-year
interval between required maintenance activities. The PB3 has survived hurricanes and tropical storms
during harsh sea conditions. Since 1997 we have conducted ocean tests to demonstrate the viability of
our technology. In 2011, we conducted multiple ocean tests of the predecessor PB3 PowerBuoy® under
a contract with the U.S. Navy. More recently, we conducted multiple ocean tests of our current generation
PB3 PowerBuoy®. Commercial versions of the PB3 have been successfully deployed for MES and Eni.
The MES PB3 PowerBuoy® performed well in a challenging shallow-water, high-current environment,
and achieved its performance and duration objectives. The Eni PB3 PowerBuoy® deployed in the
Adriatic Sea has been in the water for over seven months (as of June 2019) and has generated over one
megawatt-hour of energy. In 2015, we instituted factory-based PTO-accelerated life testing which
simulates continuous operations under extremely harsh conditions. During the 2018 fiscal year, we also
implemented additional features to the PB3 PowerBuoy® design to accommodate heavy top-side
payloads and seafloor-based payloads. Further, we continue to focus on standardizing manufacturing and
production testing procedures and to work closely with our supply base to ensure production
repeatability.
● Efficient design in harnessing wave energy. We have designed and validated our PB3 PowerBuoy® for
maximized power generation in average ocean wave conditions through optimized mechanical to
electrical wave energy conversion. We have designed the onboard ESS to provide several days of
continuous rated power during periods of low or no wave activity, depending on payload power
consumption. The PB3 PowerBuoy® is equipped with a variety of communication capabilities including
satellite, cellular, and Wi-Fi that are capable of transmitting payload data in real time (e.g., sensors or
equipment that require power and communications capabilities), subject to the limits of the service
provider.
● Prior commercial relationships enabled the development of our technology. Our prior and existing
relationships with the U.S. Navy, DOE, U.S. Department of Homeland Security, MES, Eni and PMO
have allowed us to develop our PB3 PowerBuoy® for a variety of needs in various industries. We believe
these relationships have helped position us within the private sector in support of commercialization,
which we believe enhances our market visibility and attractiveness to our prospective customers. For
example, in 2011 our PowerBuoy® provided persistent power to an integrated radar and sonar system,
significantly extending the U.S. Navy’s surveillance range. We have also demonstrated persistent
maritime vessel detection with the U.S. Department of Homeland Security by integrating a hydrophone
onto our PowerBuoy® and demonstrating enhanced maritime traffic detection. In each instance, the
resulting data have informed our next round of design iterations to improve critical operations and
reliability.
Business Strategy
We continue to commercialize our PB3 PowerBuoy® for use in remote offshore power and real-time data
communications applications. To achieve this goal, we are pursuing the following business objectives:
● Sell and/or lease the PB3 PowerBuoy®. We believe our PB3 PowerBuoy® is well-suited for many
remote offshore applications. We have investigated potential market demand for both PowerBuoy® sales
and leases within our selected markets, and we intend to sell and lease the PB3 PowerBuoy® to these
markets. Additionally, we intend to provide services associated with product sales and leases such as
maintenance, remote monitoring and diagnostic, application engineering, planning, training, and logistics
support required for the PB3 PowerBuoy® life-cycle. We continue to increase our commercial
capabilities through new hires in marketing, sales, and application support, and through engagement of
expert market consultants in various geographies.
● Expand product offerings by adding new complimentary products that are cost efficient and designed for
shorter and faster deployments, which will create a system solutions approach for our customers. We
are currently developing two new complementary products to our PB3 PowerBuoy®, the hybrid
PowerBuoy® and subsea battery solutions. These products build on our existing expertise in offshore
power systems and are targeted for a near term deployment. The hybrid PowerBuoy® is to be highly
complementary to the PB3 PowerBuoy® by providing the Company the opportunity to address a broader
spectrum of customer deployment needs, including low-wave environments, with the potential for greater
Company integration within each customer project. The hybrid PowerBuoy® is primarily intended for
shorter term deployment applications such as eROV and AUV inspections and short-term maintenance,
topside surveillance and communications, and subsea equipment and controls. The subsea battery
solutions are expected to offer the possibility of creating a sea floor energy storage solution for remote
offshore operations. These subsea battery systems will contain lithium ion batteries, which provide high
power density to supply power that can enable subsea equipment, sensors, communications, AUVs and
electric remotely operated vehicles (eROV) recharge. Ideal for many remote offshore customer
applications, these subsea battery systems are anticipated to be high performance, cost-efficient, and
quickly deployable.
3
● Concentrate sales and marketing efforts in specific geographic markets. We are currently focusing our
marketing efforts on parts of North America, Europe, South America and Asia. We believe that each of
these areas has sizable end market opportunities, political and economic stability, and high levels of
industrialization and economic development.
● Expand our relationships in key market areas through strategic partnerships and collaborations. We
believe that strategic partners are an important part of commercializing a new product. Partnerships and
collaborations can be used to improve the development of overall integrated solutions, create new market
channels, expand commercial know-how and geographic footprint, and bolster our product delivery
capabilities. We believe that offering a turn-key solution, and not just power, is key to securing long term
success.
● Commercial collaborations. We believe that an important element of our business strategy is to
collaborate with other organizations to leverage our combined expertise, market presence and access,
and core competences across key markets. We have formed such a relationship with several well-known
groups, including Modus Seabed Intervention Ltd. (“Modus”), Saab Seaeye Ltd. (“Saab”), NEC Energy
Solutions (“NEC”), Acteon Field Life Service Ltd. (“Acteon”), MES, PMO and Eni. We continue to seek
other opportunities to collaborate with application experts from within our selected markets.
● Outsourcing of fabrication, deployment and service support. We outsource all fabrication, anchoring,
mooring, cabling supply, and in most cases deployment of our PowerBuoy® to minimize our capital
requirements as we scale our business. Our PTO is a proprietary subsystem and is assembled and tested
at our facility. We believe this distributed manufacturing and assembly approach enables us to focus on
our core competencies and ensure a cost-effective product by leveraging a larger more established supply
base. We also continue to seek strategic partnerships with regard to servicing of our PB3 PowerBuoy®.
● PB3 cost reduction and PowerBuoy® product development. Our engineering efforts are focused on
customer application development for PB3 sales, cost reduction of our PB3 PowerBuoy® and improving
the energy output, reliability, maintenance interval and expected operating life of our PowerBuoy®. We
continue to optimize manufacturability of our designs with a focus on cost competitiveness, and we
believe we will be able to address new applications by developing new products that increase energy
output.
In addition, we are developing complementary products, the hybrid PowerBuoy® and subsea battery solutions
which leverage our existing expertise in offshore power systems while expanding our product line beyond our flagship
PB3 PowerBuoy® offering.
Market Opportunities
The National Oceanographic and Atmospheric Administration (“NOAA”) Ocean Enterprise Report for 2016
estimated that the annual market for what NOAA describes as the “Ocean Enterprise” is $8.5 billion. The report addressed
for-profit and not-for-profit businesses that support ocean measurement, observation and forecasting. Among the market
sectors included in the report are oil and gas, defense and security, and science and research. We believe that this report
addresses only a segment of the potential market opportunities that we are targeting.
Oil and Gas
We believe the offshore oil and gas industry is undergoing a significant transformation as it continues to invest in
new technologies that enable cost savings and the digitization of operations. The industry encompasses more than 10,000
offshore sites, including exploration, production, reservoir management, and sites pending decommissioning based on
information from the U.S. Bureau of Safety and Environmental Enforcement and industry organizations and publications.
We believe that we have opportunities to implement one or more PB3 PowerBuoys® at a large number of these sites to
provide power in applications that are not currently possible, or to displace current power solutions.
Defense and Security
We believe that our PB3 PowerBuoy® is uniquely positioned to be used to provide power and communications
for multiple applications within the defense and security markets. The PB3’s ability to power multiple payloads may be an
attractive feature for these markets, as their systems can be easily integrated into other PowerBuoy® applications allowing
their operation to be concealed. An example application for domestic and international defense departments and defense
contractors includes forward deployed energy and communications outposts (which is a current U.S. Department of
Defense program), both above and below sea surface. Other example applications include early detection and warning
systems, remote sensing stations, high frequency radar, sonar, electro-optical and infrared sensors for maritime security,
network communications systems, and unmanned underwater vehicle docking stations. According to a 2014 Frost and
Sullivan report, market expenditures for global security reached $29.0 billion in 2012 and are projected to reach $56.5
billion in 2022. Maritime security expenditures were approximately 45% of the global security market.
4
Science and Research
The science and research market provides environmental intelligence to the entire ocean enterprise, which
supports ocean measurement, observation and forecasting, and is an important provider of information to maritime
commerce and the entire “blue economy.” Maritime commerce and the scientific community depend on information in
areas such as meteorology, climate change, ocean currents, and biological processes to inform operations and development.
These groups often require a power and communications solution in remote offshore locations. According to NOAA’s
2016 Ocean Enterprise report, the total U.S. available ocean observing market from 2017 through 2021 for ocean-based
systems infrastructure is projected to be $2.0 billion.
Communications
We believe that opportunities also exist in other markets such as communications. The addition of near shore and
offshore cellular and Wi-Fi platforms with reliable and persistent power could open new market opportunities for
telecommunications carriers by displacing a portion of the maritime satellite communications market, while potentially
decreasing communications costs for the marine and offshore oil and gas industries. According to an industry research
paper titled “Prospects for Maritime Satellite Communications” in 2015 the global maritime satellite communications
market had already reached close to 338,000 terminals, with $1.7 billion in revenue at the satellite communications service
provider level. The report also noted that the value of the maritime satellite communications market is expected to continue
to grow over the next decade, with a 10-year compound annual growth rate of 5% in terminals and revenue, primarily due
to the increasing need for maritime data communications.
Implementation Strategy
We have made significant progress in redesigning and validating our commercial-ready PB3 PowerBuoy® for
use in remote offshore applications. Since 2015, we have brought the PB3 from initial concept to a full-scale design. We
have performed multiple prototype iterations. During this time, we have conducted a number of in-ocean tests in
combination with our facility-based accelerated life testing to validate our commercial-ready PB3 PowerBuoy® and to
prepare for low rate initial production. In 2017, we relocated our corporate headquarters to Monroe Township, New Jersey.
We believe that this new facility will allow us to expand our manufacturing capabilities and to move toward higher volume
PowerBuoy® production. In fiscal 2019 we made progress in marketing our PB3 PowerBuoy®, as evidenced by the volume
of proposals submitted to customers and requests for proposals from customers. In addition, during fiscal 2019 we
introduced two new products, the hybrid PowerBuoy® and subsea battery solutions with prototypes set for release in Fall
2019. We have made substantial progress in transitioning from R&D to a commercialization focus with SELL, BUILD,
SHIP as our motto and we intend to build on our success by implementing processes and solutions that cover the entire life
cycle, from demand generation to closing the contract, and from channel strategies to customer care.
Since 2015, we have had initial introductions or meetings with nearly 200 companies and organizations within
our target markets. A large proportion of these engagements (approximately 75%) were U.S.-based, while the remaining
engagements occurred in Europe, Australia, and parts of Asia including Japan. One-third of all engagements have
transitioned from initial introductions to advanced, confidential discussions around specific customer applications. Many
of these discussions occur at the executive, decision-making level, as well as the implementation level.
As previously noted, several of these customer application discussions have resulted in requests for proposals.
Many proposal requests are for projects where our PB3 PowerBuoy® is part of a larger solution demonstration, and
typically include the potential lease or sale of one or more PB3 PowerBuoys®, as well as required services and maintenance
support. Demonstration projects are a necessary step toward broad solution deployment and revenues associated with
specific applications. A proposal phase typically lasts from three months to more than one year. During the demonstration
project specification, negotiation and evaluation period, we are often subject to the prospective customer’s vendor
qualification process, which entails substantial due diligence of our company and capabilities and may include negotiation
of standard terms and conditions. Many proposals contain provisions which would mandate the sale or lease of the PB3
PowerBuoy® upon successful conclusion of the demonstration project.
We believe this is an accurate depiction of the overall sales cycle for new technology in each of our target markets,
including the PB3 PowerBuoy®. However, cycle times for each step of the sales cycle will vary depending on several
customer factors, including, but not limited to, technical evaluation, project priorities, the funding approval process, and
alignment of new technology integration with the customer’s broader operational strategy. We believe that the resulting
evidence of potential demand, vis-à-vis specific application proposal requests, are indicative of significant progress in our
commercialization strategy. We believe that we have the potential for growth as a result of our positioning for higher
volume production of our PB3 PowerBuoy® and the initial indications of demand for our PB3 PowerBuoy® in multiple
customer applications.
5
Product and Technologies
The following is a summary of the development and history of our current PowerBuoy® product and our
technologies.
Wave Energy
The energy contained in ocean waves is a form of renewable energy that can be harnessed to generate electricity.
The interaction between the wind and the ocean surface causes energy to be transferred from the wind to the water. 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 heights, and the amount of kinetic wave energy, depends on wind speed, wind
duration and the distance covered. The vertical water motion caused by the passage of the waves moves the float component
of our PowerBuoy®, creating mechanical energy which our proprietary technologies convert into usable electricity.
We believe that using wave energy for electricity generation has the following potential benefits, compared to
existing incumbent solutions.
● Scalability within a small site area. Due to the dense energy in ocean waves, we believe that multiple
PowerBuoys® may be aggregated in an array that would occupy a reasonably small area to supply
electricity to larger payloads. We believe the aggregation of a larger number of PowerBuoys® could
offer end users a variety of advantages in availability, reliability and scalability. To date, we have not
deployed an array of PowerBuoys® to test and validate our hypothesis, and we cannot assure that a
PowerBuoy® array would generate the energy required to meet the needs of every prospective customer.
● Predictability. The generation of power from wave energy can be forecasted several days in advance.
Available wave energy can be calculated with a high degree of accuracy based on satellite images and
meteorological data, even when the wave field is hundreds of miles away and days from reaching a
PowerBuoy®. Therefore, we believe end-users relying on PowerBuoys® for power may be able to
proactively plan their logistics, payload scheduling and other operational activities based on such data
and proactively, although actual testing has not yet been conducted.
● Constant source of energy. The annual occurrence of waves at certain specific sites can be relatively
constant and defined with relatively high accuracy. Based on our studies and analyses of various sites of
interest, we believe that we will be able to deploy our PowerBuoys® in locations where the waves could
produce usable electricity for the majority of the year.
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, including our PowerBuoy®, utilize
a flotation device to harness wave energy. The heaving or pitching of the flotation 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, we believe 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 same 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 impede development of these systems
due to wave power station size and proximity to communities.
Our principal product is our PB3 PowerBuoy®, which is designed to generate power for use independent of the
power grid in remote offshore locations. It consists of a main hull structure loosely moored to the seabed and surrounded
by a floating buoy-like device that can freely move up and down in response to the passage of the waves. The PTO device
that includes an electrical generator, a power electronics system, our control system, and our ESS are sealed within the
hull. As ocean waves pass the PowerBuoy®, the mechanical stroke action created by the rising and falling of the 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 ESS. 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 the characteristics of the waves which interact with the PowerBuoy®. The control system collects data from the
sensors and the payloads and uses proprietary algorithms to electronically adjust the performance of the PowerBuoy®. We
believe that this ability to optimize and manage the electric power output of the PowerBuoy® is a significant advantage of
our technology.
6
In the event of large storm waves, the control system automatically locks the PowerBuoy® and electricity
generation is suspended. However, the load center (either the on-board payload or one in the vicinity of the PowerBuoy®)
may continue to receive power from the on-board ESS. When wave heights return to normal operating conditions, the
control system automatically unlocks the PowerBuoy® and electricity generation and ESS replenishment recommences.
This safety feature helps to prevent the PowerBuoy® from being damaged by storms.
In March 2016, we announced a rebranding of our PowerBuoy® systems as part of our commercialization efforts
and to closely align our PowerBuoy® products with the perceived best practices of analogous industries based on power
generation and on-board energy storage capabilities. Under our new naming conventions, our current PowerBuoy® is
referred to as the “PB3,” corresponding to “PowerBuoy® with a nominal name-plated capacity rating of three kilowatts.”
References to the “APB350” on our website, and in our SEC filings including this Annual Report refers to earlier prototype
PowerBuoys® containing earlier generation PTOs and other earlier technologies.
The PB3 has undergone design iterations focused on improving its reliability and survivability in the anticipated
operating ocean environment and will continue to undergo further enhancements through customary product life cycle
management. The PB3-A1 was an initial prototype that has now undergone in-ocean and accelerated life testing, and we
believe that the PB3 achieved a maturity level for use by early adopters in fiscal 2017. We continue the process of
commercialization of our product and we cannot assure you that we will be successful in our efforts to do so. We believe
that the PB3 will generate and store sufficient power to address some application requirements in our target markets. Our
engineering efforts are focused, in part, on increasing the energy output and efficiency of our PowerBuoys® and, if we are
able to do so, we believe the PowerBuoy® would then be useful for additional applications where cost savings and
additional power are required by our potential customers. We continue to explore opportunities in these target markets,
although we have not yet developed any integrated solutions and product offerings in these potential markets. We believe
that by increasing the energy output of our PowerBuoys® we may be able to address larger segments of our target markets.
By improving our design and manufacturing, we also seek to reduce the cost of our PowerBuoys® through further design
iterations and manufacturing ramp-up. In so doing, we seek to improve customer value, displace more incumbent solutions,
and become a viable power source for additional applications in our target market segments.
Deployments
We continue to receive important feedback from in-ocean trial deployments of our PowerBuoys®, as is customary
in the marine industry for new vessels and products prior to final acceptance by their customers. If we are able to increase
PowerBuoy® production, we anticipate that the need for in-ocean trials of our mature products will diminish. Deployment
sites are selected based on minimum ocean depth, appropriate wave activity for power generation requirements of
associated deployment payloads, and proximity to end-user operations. The PB3 can be transported over land to the
deployment port using conventional transportation methods. Once at port, the PB3 can be lifted into the water or onboard
a vessel using a readily available crane of appropriate capacity. The PB3 may then be towed to site using a standard vessel
(if the location is within an appropriate distance from the port), or the PB3 may be carried aboard a vessel to its offshore
location and craned into the water at site. The PB3 is then attached to the mooring system, which is installed during a
separate operation, after which a brief commissioning process places the PB3 into operation. Recent deployments include
off the coast of Kozushima Island, Japan for MES in April 2017 and in the Adriatic Sea for Eni in November 2018. The
Company is planning to deploy in August 2019 a PB3 in the Central North Sea for PMO.
Product Insurance. We currently have a property loss and liability insurance policy underwritten by Lloyd’s
Underwriters that covers the deployment and storage of our PowerBuoys®.
Site Approval. In the U.S., 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 U.S. Bureau of Ocean Energy Management (“BOEM”). For projects located
within three miles of the U.S. 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 national and local regulatory and environmental requirements. In
connection with issuing permits or leases enabling project use, the respective government agency often requires site
restoration or other activities at the conclusion of the permit or lease period.
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 U.S., the construction and operation of
PowerBuoys® offshore would require permits and approvals from the U.S. Coast Guard, the U.S. 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 provide you with additional information under “Regulation” below.
7
Research and Development
Our team has a broad range of experience in mechanical, electrical, and ocean engineering. We have engaged in
extensive efforts to develop the PowerBuoy®, improve PowerBuoy® efficiency, reliability and power output, and improve
manufacturability while reducing cost and complexity. Our recent efforts have been focused on optimizing our
PowerBuoys® in order to balance customer cost (both capital and operating expenses) with power output of our
PowerBuoys®. Such efforts 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 seek to increase the capabilities of our PowerBuoy® systems by designing flexible interfaces and rendering them sensor
and payload agnostic.
We have also focused on 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 and extreme conditions. This testing allows us to
quantify the life characteristics of critical components and subsystems which would normally require several years of
operation in ocean conditions to achieve similar levels of wear and tear. Accelerated life testing is used successfully in
other industries such as automotive and aerospace and is a critical enabler for rapid product and technology development
and maturation.
It is our intent to fund the majority of our future research and development expenses with sources of external
funding, including cost sharing obligations under customer contracts. However, we cannot assure you that we will be
successful in our efforts to secure additional contracts. If we are unable to obtain external funding, we may curtail our
research and development expenses or reduce the scope of our operations as necessary to lower our operating costs.
In addition to improving and optimizing our PB3 PowerBuoy® we have spent considerable effort in developing
two new complementary products, the hybrid PowerBuoy®, and subsea battery solutions. These products build on our
existing expertise in offshore power systems and are targeted for first deployment in Fall 2019.
● hybrid PowerBuoy® - The Company is in the process of creating a hybrid PowerBuoy® that will be a
smaller liquid-fueled surface buoy, compared to the wave power based PB3 PowerBuoy®, capable of
providing reliable power in remote offshore locations. This product is to be highly complementary to the
PB3 PowerBuoy® by providing the Company the opportunity to address a broader spectrum of customer
deployment needs, with the potential for greater Company integration within each customer project. It is
primarily intended for shorter term deployment applications such as eROV and AUV inspections and
short-term maintenance, topside surveillance and communications, and subsea equipment and controls.
The hybrid PowerBuoy® is anticipated to be a lightweight, quickly deployable and cost-effective
solution. The design is also anticipated to have a high payload capacity for communications and
surveillance, with the capability of being tethered to subsea payloads and battery packs or with a
conventional anchor mooring system. The Company intends to design the hybrid PowerBuoy®, with a
Stirling engine, to outperform traditional diesel buoys, which we believe to have more frequent service
and refueling intervals. We believe the hybrid PowerBuoy® will be able to operate in an environmentally
safer manner using more robust fuels, while operating over a wider temperature range than diesel buoys.
● Subsea battery solutions - The Company is in the process of creating a sea floor energy storage solution
for remote offshore operations. These subsea battery systems will contain lithium ion batteries, which
provide high power density, to supply power that can enable subsea equipment, sensors,
communications, AUVs and electric remotely operated vehicles (eROV) recharge. The Company’s PB3
PowerBuoy® is complimentary to subsea battery systems by providing a means for recharging during
longer term deployments, or the subsea battery systems can be used independently for shorter term
deployments. Ideal for many remote offshore customer applications, these subsea battery systems are
anticipated to be high performance, cost-efficient, and quickly deployable. Given the Company’s
expertise in offshore energy storage systems from existing PB3 PowerBuoy® technology, the subsea
battery solutions will provide an opportunity for the Company to differentiate through technical, cost and
delivery leadership.
Customers
Commercial Activities
We continue to seek new strategic relationships, and further develop our existing partnerships, with other
companies that have developed or are developing in-ocean applications requiring a persistent source of power that is also
capable of real time data collection, processing and communication, to address potential customer needs.
8
The table below shows the percentage of our revenue we derived from significant customers for the periods
indicated:
Twelve months ended April 30,
2019
2018
Eni S.p.A. ..............................................................................
Mitsui Engineering & Shipbuilding ......................................
Premier Oil UK Limited ........................................................
Office of Naval Research ......................................................
Other ......................................................................................
54 %
0 %
33 %
0 %
13 %
100 %
33 %
43 %
10 %
14 %
0 %
100 %
In order to achieve success in commercializing our products, we must expand our customer base and obtain
commercial contracts to lease or sell our PowerBuoy® and related services to customers. Our potential customer base for
our PowerBuoys® includes various public and private entities, and agencies that require remote offshore power. To date,
substantially all of our revenue producing contracts have been with a small number of customers under contracts to fund a
portion of the costs of our operational efforts to develop and improve our technology, validate our product through ocean
and laboratory testing, and business development activities with potential commercial customers. Our goal in the future is
that an increased portion of our revenues will be from the lease or sale of our products and related maintenance and other
services.
Current Customers
●
●
●
●
●
●
In April 2019 we entered into an agreement with a leading oil and gas operator to conduct a detailed
feasibility study of using the Company’s technology to monitor subsea wells.
In February 2019, we entered into a contract with the U.S. Navy to carry out the first phase of a project
to design and develop a buoy mooring system which incorporates fiber optics for the transmission of
subsea sensor data to airplanes, ships, and satellites.
In August 2018 we entered into an agreement with EGP to evaluate a PB3 PowerBuoy® deployment
along the coast of Chile through a detailed feasibility study of the PowerBuoy® as an offshore
autonomous platform hosting oceanographic sensor systems.
In June 2018, we entered into a contract with PMO for the lease (for at least three months and a maximum
of twelve months) of a PB3 PowerBuoy® to be deployed in one of PMO’s offshore fields in the North
Sea.
In March 2018, we entered into an agreement with Eni that provides for a minimum 24-month contract
that includes an 18-month PB3 PowerBuoy® lease and associated project management.
In September 2016, we entered into a contract with U.S. Department of Defense Office of Naval Research
(“ONR”) totaling approximately $0.2 million to carry out the first phase of a project which focuses on
the initial concept design and development of a mass-on-spring PTO-based PowerBuoy® leveraging a
number of OPT patents covering such a technology. If successful, this device is expected to be able to
respond to the unique set of requirements expected in various military marine applications. We completed
the Phase 2 BASE Effort work under the contract which focused on the initial concept design and
development of a mass-on-spring PTO-based PowerBuoy®. The Company is waiting for ONR funding
of Phase 2, Option 1 to be approved.
● We have worked with MES (from 2010 to current) to develop several PowerBuoy® projects in Japan.
Historically, our agreements with MES have provided for MES to reimburse us for specific costs
associated with research, development and deployment of our PowerBuoy® product. In March 2016, we
entered into a letter of intent with MES to conduct funded pre-work tasks and to negotiate a definitive
agreement that would allow for the lease of the PB3 PowerBuoy® for a project off the coast of
Kozushima Island, Japan following a planned stage gate review. 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 is a generally accepted industry practice and has been utilized by other customers such as
the DOE. A final contract totaling nearly $1.0 million was negotiated and finalized with MES in May
2016 that included engineering and logistics support, and the lease of our PB3 PowerBuoy® for a 7-
month period, its ocean deployment, associated data collection and monitoring of its performance. Upon
the completion of the engineering pre-work and a successful stage gate review, the PB3 was shipped to
Japan and was deployed off Kozushima Island from April to September 2017. The MES lease concluded
in September 2017 and the PB3 was shipped back to New Jersey.
9
Partnerships
●
●
●
●
●
●
In May 2019, we signed a memorandum of understanding with Modus, Ltd. for the purpose of developing
and delivering commercial market solutions that offer a step-change in innovation and market value
against conventional methodologies, specifically through development and marketing of a combined
Hybrid Autonomous Underwater Vehicle (HAUV) charging station which will be able to utilize the
PowerBuoy® system for topside charging and communications.
In April 2019, we signed a memorandum of understanding with Acteon to develop, explore and exploit
mutual opportunities in the global oil and gas and renewable markets.
In January 2019, we entered into a Joint System Solution Development and Marketing Agreement with
Saab. The agreement anticipates a preliminary focus on AUV and eROV charging and communications
systems.
In December 2018 we signed a letter of intent to enter into a non-exclusive long-term supply agreement
with NEC Energy Solutions (“NEC ES”), a pioneer and global leader in utility scale energy storage.
Under the terms of the supply agreement, NEC ES will be a supplier of lithium ion batteries for our
subsea battery systems.
In December 2016, we entered into a Joint Marketing Agreement with Sonalysts to explore and pursue
mutual opportunities in defense and oil and gas applications. The agreement includes the exploration and
assessment of the use of the PB3 as a platform to provide power and communications for these markets.
In May 2016, we entered into a Memorandum of Agreement (“MOA”) with WCS to explore the use of
our PowerBuoys® in conjunction with ocean life monitoring sensors to collect ocean mammal migration
data. The MOA includes the exploration and assessment of the use of the PB3 as an integration platform
to provide power and communications to sensors that monitor marine life migrations. An initial effort
consisting of a battery powered sensor mounted to the PB3-A1 was deployed off of the coast of New
Jersey which sought to establish a baseline acoustic survey. The deployment proceeded for
approximately three months and met all project objectives.
● In 2016, we entered into a cooperative research and development agreement (“CRADA”) with the NDBC
to conduct ocean demonstrations of its innovative Self-Contained Ocean Observing Payload (“SCOOP”)
monitoring system integrated into our PB3-A1 PowerBuoy®. NDBC operates a large network of buoys
and stations which provide critical meteorological and oceanic observations that are utilized by
government, industry, and academia throughout the world. Under the CRADA, an initial ocean
demonstration was to be conducted off the coast of New Jersey. We integrated the SCOOP onto our PB3
PowerBuoy® and in June 2016 we deployed the system off of the coast of New Jersey. Site-specific
measurements of meteorological and ocean conditions, as well as system performance and maintenance
data collection, were carried out. The SCOOP was powered by the PB3 and provided metocean data to
OPT and to NDBC. The deployment proceeded for approximately three months and met all project
objectives.
Historic Projects
Our relationships and projects during recent years include, but are not limited to, the following:
● The U.S. Navy and Department of Homeland Security.
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 PowerBuoy® under the LEAP contract with additional sensors. This additional
deployment provided critical data which informed our next design iteration, and which incorporated
major modifications to address critical operations and reliability improvements. This project
concluded in 2013.
From 2009 to 2011, we ocean-tested our utility-scale PowerBuoy® at the U.S. Marine Corps Base,
Hawaii at Kaneohe Bay. The PowerBuoy® was launched under our program with the U.S. Navy for
ocean testing and demonstration of a prior iteration of our PowerBuoy®, including connection to
the Oahu power grid.
10
In 2009 and 2010, we were awarded $2.4 million and $2.75 million, respectively, from the U.S.
Navy to develop a Littoral Expeditionary Autonomous PowerBuoy® (“LEAP”) prototype. The
LEAP contract was developed to enhance the U.S. 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 U.S. Coast
Guard vessel and was ocean-tested approximately 20 miles off the coast of New Jersey. It was
integrated with a Rutgers University-operated land-based radar network that provided ocean current
mapping data for the National Oceanographic and Atmospheric Administration (“NOAA”) and U.S.
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. During the ocean
testing under these contracts, our PowerBuoy® withstood the high storm waves of Hurricane Irene
which occurred in August 2011.
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 U.S.
Navy’s Deep Water Active Detection System (“DWADS”).
● Lockheed Martin. From 2004 to 2014, we had several project teaming agreements and license agreements
with Lockheed Martin.
● 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. 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, we 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. The Initial Funding was returned to ARENA. We do not
currently have any projects in Australia.
● Reedsport, Oregon Project. We obtained a permit in 2007 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 the 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. In fiscal 2016, we dispositioned the PowerBuoy®. In late fiscal 2016 and early fiscal 2017,
we disposed of the remaining anchoring and mooring equipment through a local entity and by June 2017
the project was closed out.
11
● 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 (referred to as
the “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 U.K. 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. In March
2015, we successfully completed a stage gate review and a review of project deliverables with the DOE
where advancements related to PTO design aspects such as reliability, cost take out, manufacturability
and scalability were reviewed. Following a stage gate review, the project was successfully completed in
fiscal 2016.
Manufacturing
We engage in two types of manufacturing activities: 1) the manufacturing of the high value-added PTO
components for systems control, power generation and conversion, and energy storage for each PowerBuoy®; and 2)
contracting with outside companies for the fabrication of the buoy structure, mooring system, and cabling.
Our core in-house manufacturing activity is the assembly, final systems integration and testing of the PTO and its
components, which is conducted at our New Jersey facility. The power generation system consists of electro-mechanical
components, and the control modules include the critical electrical and electronic systems that convert the mechanical
energy into usable electricity. The sensors and control systems use sophisticated technology to optimize the performance
of the PowerBuoy® in response to changing operating conditions and payload power demand. We maintain a portfolio of
patents, including those that cover our power generation, power conversion and control technologies.
We purchase the remaining components and 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 and test procedure results. After the vendor completes the testing of
the buoy structure, it is transported to our facility for final integration of the PTO. After each vendor completes testing of
the remaining components, they are transported ready-to-install to the project site. We do not believe that we are dependent
on any single vendor for manufacturing the components of and materials for our PowerBuoy®, and we believe that there
are many available manufacturers for our component parts if a particular manufacturing partner should become unavailable
or expensive. However, we have only manufactured our PowerBuoys® in limited quantities for use in development and
testing and have limited commercial manufacturing experience, and our work with our vendors has not included work on
multiple orders on time-critical deadlines. Moreover, we do not have long-term contracts with our third-party
manufacturers or vendors. In order to be successful in our efforts to commercialize our PowerBuoys®, we will need to
secure stable relationships with a variety of manufacturers and vendors that can supply component parts and materials for
our PowerBuoy® products.
In December 2017, we relocated our corporate headquarters and manufacturing operations from Pennington, New
Jersey to Monroe, New Jersey. Our new facility offers approximately 56,000 square feet of manufacturing and office space,
which is more than double the size of our prior facility. This larger space supports our increased operational needs, and
also allows for our anticipated growth over the next several years. We believe this new facility will enable us to implement
world class assembly and testing processes, emphasizing product quality and employee safety, while significantly
improving our ability to increase product throughput. We believe that our decision to relocate our operations is integral to
our overall business growth strategy.
Marketing and Sales
We continue to enhance our marketing capabilities across our target markets and we have begun actively
marketing our PowerBuoys®. We currently use a direct sales force consisting of employees and industry expert consultants.
Because our PowerBuoys® use technology which is not yet considered mature by our target markets, we expect that the
customer decision process could require us to spend substantial time educating end-users and stakeholders, which may
result in a lengthy sales cycle.
We attend and display our products at trade shows and conferences that represent our pursued markets. In May
2019, the Company was an exhibitor at the Offshore Technology Conference in Houston, Texas. In May 2019, the
Company was an exhibitor at the U.S. Navy League’s Sea-Air-Space Exposition in National Harbor, Maryland. In August
2018, the Company was an exhibitor at the Offshore North Sea 2018 Conference in Stavanger, Norway. In May 2018, we
displayed our full-size PB3 PowerBuoy® at the Offshore Technology Conference in Houston, Texas. In April 2018, we
highlighted our Anchorless PowerBuoy® at the Navy Forum for SBIR/STTR Transition in National Harbor, Maryland.
12
We market our PowerBuoys® to companies and entities requiring remote offshore power and communications;
for example, oil and gas companies for potential applications such as remote sensing, trace heating, or autonomous site
monitoring, power and communications for remotely operated vehicles or autonomous underwater vehicle charging
stations. We also see opportunities for defense and security applications using active sensors such as high frequency radar
and acoustic systems with significant processing and communications requirements.
Additionally, we continue to seek to enter into strategic relationships to develop application solutions with
commercial and military sensor and equipment manufacturers, where we might grant licenses to manufacture, market or
operate PowerBuoys® or PowerBuoy® subsystems.
Backlog
As of April 30, 2019, our backlog was $0.9 million. 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 (U.S. Congress, in the case of U.S. Government agencies), and unfunded amounts, which are unfilled firm orders
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 contract.
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.
Competition
We expect to compete with other providers of in-ocean autonomous power sources, primarily consisting of subsea
batteries, solar and fossil-fuel power sources, where many of the providers are substantially larger than OPT and may have
access to greater financial resources. Incumbent sources of in-ocean power may also represent established and reliable
power sources and may have already gained customer acceptance. Our ability to compete successfully for business from
applications seeking in-ocean power will depend on our ability to produce and store energy reliably and at a total cost that
is competitive with or lower than that of other sources, and on the on-going reliability of our product and customer
perception of our company. Our ability to compete effectively may be adversely affected by our current need for additional
financing and our future customers’ concerns about our long-term viability.
We also may eventually compete against other renewable wave generated power providers. As of June 2018, there
were more than nearly 260 companies, some with institutional funding, listed in the DOE’s Marine and Hydrokinetic
(“MHK”) Technology Database. This DOE database provides up-to-date information on marine and hydrokinetic
renewable energy technologies and companies, both in the U.S. and around the world. Many of these companies are located
in the U.K., continental Europe, Japan, Israel, the U.S. and Australia, and many of those companies are pursuing the utility,
grid-connected energy market. The MHK industry is both highly competitive and continually evolving as participants strive
to differentiate themselves by promoting their specific technology focusing on cost and efficiency. The companies are
subdivided by implementation: wave power, current power, tidal 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. Our PowerBuoy® wave energy converter is classified as a point absorber.
The vast majority of the companies in the DOE’s database are small, start-up type companies with a small number
of employees and in early stage development that do not have our in-ocean validation experience. Only a few of these
companies have conducted testing similar to us, such as accelerated life testing and extensive wave tank testing on reduced
scale models of their devices. We believe our in-ocean experience is critical in proving the reliability, survivability and
performance of any wave energy system, which we believe our future customers will require before adopting any wave
generated energy solution. We believe our experience gained through full scale in-ocean deployments, coupled with other
types of factory and laboratory testing, and our resulting understanding of risks and failure modes provides us with an
advantage compared to potential wave energy competitors.
Our analysis of the DOE database indicates that approximately 20 wave energy technologies were selected for
further evaluation by the DOE, primarily based on company financial capability, type of system and potential to compete
in autonomous (non-grid connected) markets. Of these, there are three companies that we believe may have the technical
capability and financial viability to compete in the offshore autonomous power market; however, their technologies are
still in early stage development with limited ocean testing. We believe that none of these technologies are at the maturity
level of our current PB3 PowerBuoy®, and because of this we believe that we continue to maintain a first mover advantage.
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Intellectual Property
We believe that our technology differentiates us from other providers of wave energy conversion 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 upon the proprietary rights of others and to prevent others from
infringing upon our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods,
filing U.S. 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 June 2019, we have been issued 66 U.S. patents, of which 47 are active and 18 have expired and 1 was
abandoned. Outside of the U.S. we have been issued 237 patents across 13 countries with 37 of the active U.S. patents
having at least one corresponding issued foreign patent. We have filed for 4 additional U.S. patents and none of the U.S.
patents applications have corresponding foreign patent applications. Our patent portfolio includes patents and patent
applications with claims directed to:
●
system design;
control systems;
●
● power conversion;
●
● wave farm architecture.
anchoring and mooring; and
The expiration dates for our issued U.S. patents range from 2019 to 2037. 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 U.S. 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 our products and believe that having distinctive marks is an important factor in
marketing our products. We have registered our PB-Vue ®, OPTMicrobuoy ®, CellBuoy ®, PowerTower ®, Making Waves
in Power ®, Talk on Water ® and
indefinite duration when marks are properly maintained in commercial use.
® marks in the United States. Trademark ownership is generally of
Regulation
Our PowerBuoys® are subject to regulation in the U.S. and in foreign jurisdictions concerning, among other areas,
site approval and environmental approval and compliance. In order to encourage the adoption of offshore power solutions,
many governments offer subsidies and other financial incentives and have mandated renewable energy targets which some
of our customers may be able to leverage. However, these subsidies, incentives and targets may not be applicable to our
technology and therefore may not be available to 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 continues to evolve, 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, and environmental protection.
Site Approval, Environmental Approval and Compliance
We present additional information regarding the regulatory requirements relating to our in-ocean deployments
above, under “Product and Technologies - Deployments.”
Subsidies and Incentives
Renewable energy subsidies and incentives are generally applicable only to electric generation and supply to the
utility grid. However, our autonomous applications may permit a customer to reduce its carbon emissions, which our
potential customers may be able to publicize in their environmental stewardship reports.
Employees
As of April 30, 2019, we had 39 full-time employees. Of these employees, 38 are located in the United States and
one is located in the United Kingdom. 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 are represented by a labor union, and we believe our
employee relations are good.
14
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. 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 Related to Our Financial Condition
Our auditors have raised substantial doubts as to our ability to continue as a going concern.
Our financial statements have been prepared assuming we will continue as a going concern. Due to the significant
engineering and product development costs associated with our business and operations, we have experienced substantial
and recurring losses from operations, which have contributed to an accumulated deficit of $209.8 million at April 30, 2019.
At April 30, 2019, the Company had approximately $17.2 million in cash, cash equivalents and restricted cash on hand.
The Company generated revenues of only $0.6 million and $0.5 million during the twelve months ended April 30, 2019
and 2018. Based on the Company’s cash, cash equivalents and restrictive cash balances as of April 30, 2019, the Company
believes that it will be able to finance its capital requirements and operations into the quarter ending July 31, 2020.
We continue to experience operating losses and currently have four revenue producing contracts. During fiscal
2019, our net burn rate (cash used in operations less cash generated by operations) including product development spending
was approximately $1.0 million per month.
We have been funding our business principally through sales of our securities, and we expect to continue to fund
our business with sales of our securities and, to a limited extent, with our revenues until, if ever, we generate sufficient
cash flow to internally fund our business. These factors, among others, raise substantial doubt about our ability to continue
as a going concern. Our consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty. We anticipate that our operating expenses will be approximately $14.4 million in fiscal 2020
including product development spending of more than $7.4 million. However, we may choose to reduce our operating
expenses through personnel reductions, and reductions in our research and development and other operating costs during
fiscal year 2020, if we are not successful in our efforts to sell enough products. We cannot assure our stockholders that we
will be able to increase our revenues and cash flow to a level which would support our operations and provide sufficient
funds to pay our obligations for the foreseeable future. Further, we cannot assure our stockholders that we will be able to
secure additional financing or raise additional capital or, if we are successful in our efforts to raise additional capital, of
the terms and conditions upon which any such financing would be extended. If we are unable to meet our obligations, we
would be forced to cease operations, in which event investors would lose their entire investment in our company.
We may not be able to raise sufficient capital to continue to operate our business.
Historically, we have funded our business operations through sales of equity securities. We do not know whether
we will be able to secure additional funding or, if secured, whether the terms will be favorable to us or our investors. Our
ability to obtain additional funding will be subject to a number of factors, including market conditions, our operating
performance, pending litigation and investor sentiment. These factors may make additional funding unavailability, or the
timing, dollar amount, and terms and conditions of additional funding unattractive.
If we issue additional securities to raise capital, our existing stockholders could experience dilution or may be
subordinated to any rights, preferences or privileges granted to the new security holders. In particular, any new securities
issued could have rights senior to those associated with our common stock and could contain covenants that would restrict
our operations. Should the financing we require to sustain our working capital needs be unavailable or prohibitively
expensive when we require it, our business, operating results, financial condition and prospects could be materially and
adversely affected, and we may be unable to continue our 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 of $12.2 million and $10.2
million in fiscal 2019 and 2018, respectively. As of April 30, 2019, we had an accumulated deficit of $209.8 million. To
date, our activities have consisted primarily of activities related to the development and testing of our technologies and our
PowerBuoy®. Thus, our losses to date 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 continue to have a net use of cash from operating activities unless or until we achieve positive cash flow from
the commercialization of our products and services.
15
We do not know whether we will be able to successfully commercialize our PowerBuoys®, or whether we can
achieve profitability. There is significant uncertainty about our ability to successfully commercialize our PowerBuoys® in
our targeted markets. Even if we do achieve commercialization of our PowerBuoy® and become profitable, we may not
be able to achieve or, if achieved, sustain profitability on a quarterly or annual basis.
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;
● our inability to successfully develop and market new products;
● 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;
● 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
inherent uncertainties in 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 sale 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.
Risks Related To Growth Of Our Business
We 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.
Historically, a small number of customers have provided substantially all of our revenues and we expect that such
concentration will continue for the foreseeable future. In fiscal 2019 commercial contracts accounted for 92% of our
revenues and governmental contracts accounted for 8%. In fiscal 2018, revenues from commercial contacts accounted for
86% of our revenues and governmental contracts accounted for 14%. Because we currently have a small number of
customers and contracts, problems with a single contract would adversely affect our business, financial condition and
results of operations.
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, would adversely affect our
business, financial condition and results of operations. We cannot assure you that we will be successful in our efforts to
secure additional commercial customers, or additional revenue-generating contracts.
16
Wave energy technology may not gain broad commercial acceptance and, therefore, our revenues may not increase,
and we may be unable to achieve and, even if achieved, 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
●
●
sources and products;
fluctuations in economic and market conditions, such as increases or decreases in the prices of oil and
other fossil fuels;
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, it is unlikely that we will be able to
commercialize our PowerBuoy® and our business will be materially harmed, in which case, we may curtail or cease
operations.
If sufficient demand for our PowerBuoy® or new products does not develop or takes longer to develop than we
anticipate, our revenue generation will be limited, and it is unlikely that we will be able to achieve and, if achieved, 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 seek 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® or new products fails to develop sufficiently, it is unlikely that we will be able
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 parts of North America, Europe, South America and Asia, may
not develop or may develop to a lesser extent than we anticipate.
If we are not successful in commercializing our PowerBuoy® or new products, or are significantly delayed in
doing so, our business, financial condition and results of operations will 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 have limited financial resources and cannot be
certain that we will be able to attract, retain and motivate such employees. The loss of the services of one or more of these
employees could have a material adverse effect on our business. There is a risk that we will not be able to retain or replace
these key employees. 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.
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.
To be successful, we need to 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 means they
can terminate their employment relationship with us at any time, and their knowledge of our business and industry would
be difficult to replace. If we lose the services of key personnel, or do not hire or retain other personnel for key positions,
our business, results of operations and stock price could be adversely affected.
17
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
desired growth, we may need to add sales, marketing and engineering offices in our existing and/or additional locations,
which may include areas such as 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.
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 enter into service contracts with our customers under which
we would be paid fees for services related to the maintenance and operation of the PowerBuoys® 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 additional 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.
Since our PowerBuoys® can only be deployed in certain geographic locations, our ability to grow our business could
be adversely affected.
Our PowerBuoys® are designed for use offshore, but not all offshore 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 certain
coastal areas. If we are unable to identify and deploy PowerBuoys® at sufficient sites with appropriate natural resources
to permit our PowerBuoys® to capture wave energy, our ability to grow our business could be adversely affected.
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 have been and expect to continue to be 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.
18
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-venture partners.
It is part of our strategy that we may co-invest with third parties through joint ventures or by acquiring non-
controlling interests in special purpose entities. In these situations, we may not be in a position to exercise sole decision-
making authority regarding the joint venture. Our co-ventures may have economic or other business interests or goals that
may not be consistent with our own and may be in a position to take actions that are contrary to our policies or objectives.
Additionally, 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.
Disputes between us and our co-venture partners 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. In addition, we may not be
able to identify appropriate strategic partners, or successfully negotiate, finance or operate any joint ventures or other
collaborative projects to advance this aspect of our strategy. Consequently, both the entrance into a joint venture itself, or
the failure to identify appropriate potential opportunities, could materially and adversely affect our business, financial
condition and results of operations.
Our targeted markets are highly competitive. We compete against incumbent solutions already being utilized by our
customers and potential customers. If we are unable to compete effectively, we may be unable to increase our revenues
and achieve or maintain profitability.
In our targeted markets, which are highly competitive, we compete against incumbent power solutions already
being utilized by our customers and potential customers. If we are unable to demonstrate to our customers and our potential
customers that our PowerBuoy® is cost competitive to their existing alternative power solutions, 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, continue to commercialize our PowerBuoy®, or become profitable. In addition, if the cost
associated with these development efforts exceeds our projections, our results of operations could be materially and
adversely affected.
In addition, 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 power, we may not be able to respond effectively
to competitive pressures from other renewable energy technologies or improvements to existing technologies.
If we are unable to respond effectively to such competitive forces, our business, financial condition and results of
operations could be adversely affected. Our targeted markets are subject to their own inherent risks, and if those risks
should materialize then our business, financial condition and results of operations could be adversely affected.
We market and plan to market our products in multiple 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 multiple global regions, including parts of North America, Europe,
South America and Asia, and we are therefore subject to risks associated with having international operations. Revenues
from customers who are based outside of the U.S. accounted for 92% of our revenues in fiscal 2019 and 86% of our
revenues in fiscal 2018. 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 U.S. 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®;
inability to obtain, maintain or enforce intellectual property rights; and
●
● difficulty in enforcing agreements in foreign legal systems.
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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.
We anticipate that our contracts with our customers will generally include cancellation for convenience clauses that
permit our customers to terminate the contract for their convenience; if a customer were to terminate its contract with
us for convenience, this could materially adversely affect our business.
We anticipate that our contracts with our customers will be structured as capital equipment contracts or capital
equipment leases, and could include a cancellation for convenience clause, which we believe is relatively standard in these
types of contracts. Cancellation for convenience clauses allow the customer to cancel the contract or lease at their option
without cause prior to defined points in time, generally subject to a reasonable notice period. If any of our current or future
customers were to cancel their contracts with us for convenience, such cancellation could adversely affect our business.
Cyber-security breaches of our systems and information technology could adversely impact our ability to operate.
We utilize, develop, install and maintain a number of information technology systems both for us and for others.
Various privacy and security laws require us to protect sensitive and confidential information from disclosure. In addition,
we are bound by our client and other contracts, as well as our own business practices, to protect confidential and proprietary
information (whether it be ours or a third party’s information entrusted to us) from disclosure. Our computer systems, as
well as those of our clients, contractors and other vendors, face the threat of unauthorized access, computer hackers, viruses,
malicious code, cyber-attacks, phishing and other security incursions and system disruptions, including attempts to
improperly access our confidential and proprietary information as well as the confidential and proprietary information of
our clients and other business partners. While we endeavor to maintain industry- accepted security measures and
technology to secure our computer systems and while we endeavor to ensure our cloud vendors that store our data maintain
similar measures, these systems and the information stored on these systems may still be subject to threats. There can be
no assurance that our efforts will prevent these threats. Further, as these security threats continue to evolve, we may be
required to devote additional resources to protect, prevent, detect and respond against such threats. A party who
circumvents our security measures, or those of our clients, contractors or other vendors, could misappropriate confidential
or proprietary information, improperly manipulate data, or cause damage or interruptions to systems. Any of these events
could damage our reputation, result in litigation and regulatory fines and penalties, or have a material adverse effect on our
business, financial condition, results of operations or cash flows.
Risks Related to Product Development and Commercialization
Our engineering and product development costs are substantial and may increase in the future.
Our engineering and product development costs primarily relate to our efforts to increase the output, durability
and commercial viability of our PowerBuoy®. Our engineering and product development costs were $5.0 million and $4.3
million in fiscal 2019 and 2018, respectively. It is our goal to fund the majority of our engineering and product development
expenses, including cost sharing obligations under some of our customer contracts, over the next several years with sources
of external funding, but we do not currently have any such committed sources of funding, and we may not be able to secure
any such funding in the future. If we are unable to obtain external funding, our operations may be materially and adversely
affected, and we may be required to curtail our engineering and product development expenses, among other consequences.
We have only manufactured a limited number of PowerBuoys® and to date we have not produced PowerBuoys® in any
significant quantity or for commercial production. Our PowerBuoys® have been used for testing and development and
may 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 a limited number of PowerBuoys® for use in ocean testing and development. The longest continuous in-
ocean deployment of our PowerBuoy® was from December 2009 to January 2012. As a result, our PowerBuoys® may not
have a sufficient operating history to confirm how they will perform over their estimated useful life. Our technology may
not yet have 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® is ultimately
proven 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 expenses which could in turn
adversely affect our business, financial condition and results of operations.
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We face numerous accident and safety risks and hazards, including extreme environmental hazards, which 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, liberation of a
PowerBuoy® from its mooring due to extreme environmental conditions and damage caused by its drifting, and other
damages which may include damage to our properties, including our PowerBuoy®, and the properties of others and other
consequential damages, and could lead to the suspension of certain of our operations, large damage claims, damage to our
safety reputation and a loss of business. Some of these risks may be uninsurable and some claims may exceed our insurance
coverage. Therefore, the occurrence of a significant accident or other risk event or hazard that is not fully covered by
insurance could materially and adversely affect our business and financial results and, even if fully covered by insurance,
could materially and adversely affect our business due to the impact on our reputation for 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.
Our relationships with our strategic 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 in-ocean energy sources. Generally,
these types of relationships obligate us to provide certain services or perform certain tasks in connection with the
relationship with the alliance partner, and we are generally responsible for paying the costs we incur relating to such
services or tasks. These relationships generally are not expected to provide us with any revenues or sources of financing.
If we are unable to reach agreements with additional suitable alliance partners, we may fail to meet our business objectives
for the commercialization of our PowerBuoys®. 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, 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.
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 PTO advanced control and
generation systems, while outsourcing the manufacturing for other components of our PowerBuoys®, including the
structure itself. However, we have only manufactured our PowerBuoys® in limited quantities for use in development and
testing and have limited commercial manufacturing experience, and our work with our vendors has not included work on
multiple orders on time-critical deadlines. Our future success depends on our ability to significantly increase both our
manufacturing capacity and production throughput in a cost-effective and efficient manner, and to manage multiple vendors
with several orders on specific deadlines. In order to meet our growth objectives, we will need to increase our engineering,
contract management, and manufacturing staff. There is intense competition for hiring qualified technical and engineering
personnel, and we have limited funding available to retain such additional staff. Therefore, 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 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.
Problems with the quality or performance of our PowerBuoys® would 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
analytical assumptions regarding the durability, reliability and performance of the systems, and we may not be able to
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.
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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 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, our ability to manufacture and produce multiple PowerBuoys® in a short period of
time, receipt of required governmental permits, obtaining adequate financing, successful array design and 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.
The development and deployment of an array of PowerBuoys® could 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.
Our future success in our selected markets depends in part on our ability to achieve cost savings over existing and
incumbent solutions. If we are unable to achieve cost savings relating to our PowerBuoy®, the commercial prospects
for our PowerBuoy® may be adversely affected.
Our goal is to commercialize our PowerBuoy®. Our success in meeting this objective depends, in part, on our
ability to provide energy to our prospective customers at a cost savings over existing and incumbent power solutions already
being utilized by our customers and potential customers. 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 are unable to demonstrate to our prospective customers that our PowerBuoy® is cost competitive with existing
alternative power sources, or if it takes us longer to do so than we anticipate, we may be unable to continue our business,
achieve commercialization of our PowerBuoy®, achieve a competitive position, satisfy our contractual obligations, or
become profitable. In addition, if the costs associated with these development efforts exceed our projections, our results of
operations will be materially and adversely affected.
We must continually improve existing products, design and sell new products and invest in research and development
in order to compete effectively.
The markets for our products are characterized by rapid technological change, evolving industry standards and
continuous improvements in products. Due to constant changes in our markets, future success depends on our ability to
develop new technologies, products, processes and product applications. Examples of this include our subsea battery
solution and our hybrid PowerBuoy®. New product development and commercialization efforts, including efforts to enter
markets or product categories in which we have limited or no prior experience, have inherent risks. These risks include the
costs involved, such as development and commercialization, product development or launch delays, and the failure of new
products and line extensions to achieve anticipated levels of market acceptance or growth in sales or operating income. We
also face the risk that our competitors will introduce innovative new products that compete with our products. If new
product development and commercialization efforts are not successful, our financial results could be adversely affected.
Product and technological developments are accomplished primarily through internally-funded R&D projects.
Because it is not generally possible to predict the amount of time required and costs involved in achieving certain R&D
objectives, actual development costs may exceed budgeted amounts and estimated product development schedules may be
extended. Our financial condition and results of operations may be materially and adversely affected if:
● Product improvements are not completed on a timely basis;
● New products are not introduced on a timely basis or do not achieve sufficient market penetration;
● There are budget overruns or delays in R&D efforts; or
● New products experience reliability or quality problems, or otherwise do not meet customer preferences
or requirements.
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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 U.S. 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 U.S. 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 and we do not know what the cost to do so would be. 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 U.S. and other countries may diminish the value of our intellectual property
or narrow the scope of our patent protection, which could in turn adversely affect our business, financial condition and
results of operations.
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.
Foreign laws may not afford us sufficient protections for our intellectual property, and we may not be able to obtain
patent protection outside of the United States.
Intellectual property rights protection continues to present significant challenges to foreign businesses in many
countries around the world. The body of law is often relatively undeveloped compared to the commercial law in the United
States and only limited protection of intellectual property may be available in those jurisdictions. Although we have taken
precautions to protect our intellectual property, any local design or manufacture of products that we undertake in a foreign
jurisdiction could subject us to an increased risk that unauthorized parties will be able to copy or otherwise obtain or use
our intellectual property, which could harm our business. We may also have limited legal recourse in the event we encounter
patent or trademark infringement. If we are unable to manage our intellectual property rights, our business and operating
results may be seriously harmed.
If we infringe or are alleged to have infringed upon intellectual property rights of third parties, our business, financial
condition and results of operations could be adversely affected.
Our products or use of our trademarks may infringe, or be claimed to infringe, upon patents, patent applications
or trademarks under which we do not hold licenses or other rights. Third parties may own or control these patents, patent
applications or trademarks 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 or trademark 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 or trademark 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 non-exclusive, 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 or trademark 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.
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In addition to infringement claims against us, we may become a party to other types of patent or trademark litigation
and other proceedings, including proceedings declared by the U.S. Patent and Trademark Office and proceedings in the European
Patent Office, regarding intellectual property rights with respect to our products and technology. The cost to us of any patent or
trademark 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 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.
Our contracts with governmental entities could negatively affect our intellectual property rights, and our ability to
commercialize our products could be impaired.
Our prior agreements with government agencies in large part funded the research and development of our PowerBuoy®.
When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting
patents, technical data and software, generally including, at a minimum, a non-exclusive 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 U.S.
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. U.S. government-funded inventions must be reported to the government and U.S. government funding must be
disclosed in any resulting patent applications; 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 U.S. 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. Foreign governments with which we contract to provide funding for our research and development may seek similar
rights.
Risks Related to Regulatory and Compliance Matters
If we are unable to obtain all necessary regulatory permits and approvals, it could be possible we will not be able to implement
our planned projects or business plan.
Offshore deployment of our PowerBuoy® is heavily regulated. Each of our deployments 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 in-ocean power generation and the associated potential for environmental hazards of
PowerBuoy® deployment, we 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
deployments could result in increased costs, 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.
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. 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.
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Our business could suffer as a result of the United Kingdom’s decision to end its membership in the European Union.
The decision of the United Kingdom (U.K.) to exit from the European Union (E.U.) (generally referred to as
“BREXIT”) could cause disruptions to and create uncertainty surrounding our business, including affecting our
relationships with existing and potential customers, suppliers and employees. The effects of BREXIT will depend on any
agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently. The
measures could potentially disrupt some of our target markets and jurisdictions in which we operate, and adversely change
tax benefits or liabilities in these or other jurisdictions. In addition, BREXIT could lead to legal uncertainty and potentially
divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. BREXIT also may
create global economic uncertainty, which may cause our customers and potential customers to monitor their costs and
reduce their budgets for our products and services. Any of these effects of BREXIT, among others, could materially
adversely affect our business, business opportunities, results of operations, financial condition and cash flows.
A portion of products we acquire from our suppliers are manufactured in foreign countries, making the price and
availability of these products subject to international trade risks and other international conditions.
A portion of our parts for our products are sourced from foreign countries, some of which in the future are or
could become subject to trade restrictions, including increased tariffs or quotas, embargoes and customs restrictions, which
would increase the cost or could reduce the supply of products available to us, and could have a material adverse effect on
our business, financial condition and results of operations. Tariffs on imports from foreign countries, as well as changes in
tax and trade policies, such as a border adjustment tax or disallowance of certain tax deductions for imported product, could
materially increase our manufacturing costs, the costs of our imported products or our income tax expense, which would
have a material adverse effect on our financial condition and results of operations. Tariffs imposed by foreign countries on
imports of our products could also adversely affect our international sales. Any increase in manufacturing costs, the cost
of our products or limitation on the amount of products we are able to purchase, could have a material adverse effect on
our financial condition and results of operations.
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, particularly 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.
Risks Related to Litigation
We are the subject of pending litigation, which is costly and time-consuming to defend, and if decided against us, could
require us to pay substantial judgments or settlements. We may be the subject of future securities or other litigation,
which could adversely affect our company, our business and our liquidity.
We are the subject of certain pending litigation. Any litigation is costly, and time consuming to defend and may
distract our management from the daily operations of our business. We may be the subject of additional future litigation,
which could adversely affect our company, our business and our liquidity. Although we maintain insurance coverage, we
cannot assure you that this insurance coverage will be sufficient to cover the substantial fees of lawyers and other
professionals advisors relating to these pending lawsuits or any future litigation, our obligations to indemnify our officers
and directors who may become parties to such pending and future actions, or the amount of any judgments or settlements
that we may be obligated to pay in connection with these lawsuits. In addition, these actions have caused our insurance
premiums and retention amounts to increase, and we may be subject to additional increases in the future or be subjected to
other changes in our insurance coverages. Further, given the volatility of the market price of our Common Stock, we may
be subject to future class action securities and other litigation. Accordingly, we have incurred and may continue to incur
substantial legal expenses, judgments and/or settlements relating to pending and future litigation and our management’s
time and attention may be diverted from the operation of our business, which could materially and adversely affect the
Company.
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We 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 class action securities
litigation and derivative lawsuits have been filed against us 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 any future lawsuits, are not resolved against us, the costs of defending such lawsuits
may be material to our business and our operations. 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 and Note 14 “Commitments and Contingencies - Litigation” in the accompanying consolidated financial
statements for the fiscal year ended April 30, 2019.
Risks Related to Our Common Stock
If we issue additional shares of our equity securities in the future, our stockholders may experience substantial dilution
in the value of their investment or their ownership interest.
Our certificate of incorporation currently authorizes us to issue up to 100,000,000 shares of our common stock
and to issue and designate the rights of, without stockholder approval, up to 5,000,000 shares of preferred stock. In the
future, in order to raise additional capital, we may offer additional shares of our common stock or other securities
convertible into or exchangeable for our common stock at prices that may not be the same as the price per share paid by
other investors, and dilution to our stockholders in the value of their investment and their ownership and voting interest in
the Company could result. We may sell shares or other securities in any other offering at a price per share that is less than
the price per share paid by existing investors, and investors purchasing shares or other securities in the future could have
rights superior to existing stockholders.
In addition, we have a significant number of stock options and warrants outstanding. To the extent that outstanding
stock options or warrants have been or may be exercised or other shares issued, current stockholders and future investors
who have purchased our common stock will experience further dilution. In addition, we may choose to raise additional
capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or
future operating plans. To the extent that we issue new securities or raise additional capital through the sale of equity or
convertible debt securities, the issuance of these securities could result in further dilution to our stockholders or result in
downward pressure on the price of our common stock.
Historically, our stock price has been volatile, and this is likely to continue; purchasers of our common stock could
incur substantial losses as a result.
Historically, the market price of our common stock has fluctuated significantly, and we expect that this will
continue. Purchasers of our common stock could incur substantial losses relating to their investment in our stock as a result.
For the fiscal year ended April 30, 2019, the 52-week low and high prices for our common stock was $2.45 and $24.00,
respectively. Also, 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;
● developments or disputes concerning patents or other proprietary rights;
●
● quarterly or annual variations in our financial results or those of companies that are perceived to be
the recruitment or departure of key personnel;
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 our targeted markets; and
●
●
●
● general economic, political and market conditions.
26
Provisions in our corporate charter documents and under Delaware law may delay or prevent attempts by our
stockholders to change our management and hinder efforts to acquire a controlling interest in us.
As a result of our reincorporation in Delaware in April 2007, provisions of our certificate of incorporation and
bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider
favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These
provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These
provisions include:
●
●
●
advance notice requirements for stockholder proposals and nominations;
the inability of stockholders to act by written consent or to call special meetings; and
the ability of our Board of Directors to designate the terms of and issue new series of preferred stock
without stockholder approval, which could be used to institute a “poison pill” that would work to dilute
the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been
approved by our Board of Directors.
The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote is necessary to
amend or repeal the above provisions of our certificate of incorporation. In addition, absent the 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.
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 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our corporate headquarters are currently located in Monroe Township, New Jersey, where we occupy
approximately 56,000 square feet under a lease expiring on October 31, 2024. We use this facility for administration,
research and development, as well as assembly and testing of the generators and control models for our PowerBuoy®
systems.
ITEM 3. LEGAL PROCEEDINGS
Shareholder Litigation
The Company and certain of its current and former directors and officers were identified as 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 alleged claims for breach of
fiduciary duty, abuse of control, gross mismanagement and unjust enrichment relating to the 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 derivative complaint sought unspecified monetary damages and other relief.
27
On July 10, 2015, a second derivative lawsuit, captioned Rywolt v. Dunleavy, et al., Case No. 3:15-cv-05469, was
filed by another shareholder against the same defendants in the United States District Court for the District of New Jersey
alleging similar claims for breach of fiduciary duty, gross mismanagement, abuse of control, and unjust enrichment relating
to the now terminated agreement between VWP and ARENA. The Rywolt complaint also sought unspecified monetary
damages and other relief.
On April 21, 2016, a third derivative lawsuit, captioned LaCalamito v. Dunleavy, et al., Case No. 3:16-cv-02249,
was filed by another shareholder against certain current and former directors and officers of the Company in the United
States District Court for the District of New Jersey alleging similar claims for breach of fiduciary duty relating to the now
terminated agreement between VWP and ARENA. The LaCalamito complaint sought unspecified monetary damages and
other relief.
On June 9, 2016, a fourth derivative lawsuit, captioned Pucillo v. Dunleavy, et al., was filed by another shareholder
against certain current and former directors and officers of the Company in the United States District Court for the District
of New Jersey alleging similar claims for breach of fiduciary duty, unjust enrichment, and abuse of control relating to the
now terminated agreement between VWP and ARENA. The Pucillo complaint sought unspecified monetary damages and
other relief.
On October 25, 2016, the Court approved and entered a Stipulation and Order that, among other things, (i)
consolidated the LaBare, Rywolt, LaCalamito and Pucillo derivative actions; (ii) identified plaintiff Pucillo as the lead
plaintiff in the consolidated actions; and (iii) stayed the consolidated actions pending the November 14, 2016 settlement
hearing in the now-settled securities class action and further order of the Court.
On October 23, 2017, the parties entered into a Stipulation and Agreement of Settlement to resolve the four
consolidated derivative lawsuits. The settlement provided for, among other things, the Company to implement certain
corporate governance changes, a $350,000 payment to the plaintiffs’ attorneys for attorneys’ fees and costs that will be
made by the Company’s insurance carrier, dismissal of the derivative lawsuits, and certain releases. On November 21,
2017, the plaintiffs filed an unopposed motion seeking preliminary approval of the settlement, which the Court granted on
March 9, 2018. On May 14, 2018, the Court held a final settlement approval hearing at which the Court stated that it was
approving the settlement. On June 13, 2018, the Court issued a Final Order and Judgment, approving the Stipulation and
Agreement of Settlement. The Company had accrued $350,000 related to this matter as a probable and reasonably estimable
loss contingency during the twelve months ended April 30, 2018. The Company also recorded a receivable of $350,000
from its insurance carrier with the offset to the Statement of Operations. The Company’s insurance carrier made a payment
of $350,000 to the plaintiffs’ attorneys on May 3, 2018. As a result, the consolidated derivatives lawsuits are now
completely resolved, the releases are operative, and the matter is closed.
Employment Arbitration
On June 10, 2014, the Company announced that it had terminated Charles Dunleavy as its 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. In 2014, the
Company and Mr. Dunleavy entered into a tolling agreement with respect to his alleged employment claims pending
resolution of a securities class action and shareholder litigation. The securities class action was resolved in November 2017
and the derivatives litigation was resolved in June 2018.
On August 28, 2018, counsel for Mr. Dunleavy filed a demand for arbitration, captioned Charles F. Dunleavy v.
Ocean Power Technologies, Inc., Case No. 01-18-0003-2374, before the American Arbitration Association in New Jersey.
The demand names Ocean Power Technologies, Inc. as the respondent and alleges various claims and seeks declaratory
relief and permanent injunction. The demand seeks damages in the amount of $5 million for compensatory and punitive
damages, plus interest and attorneys’ fees as well as certain equitable relief. On November 8, 2018, the Company through
counsel responded to the demand for arbitration, denied all allegations, and asserted various affirmative defenses. On April
5, 2019, a three-member arbitration panel scheduled the discovery process to run from April 12, 2019 until November 9,
2019, set a pre-hearing case management conference for October 14, 2019, and set the hearing for December 9-13, 2019
in Princeton, New Jersey. As of April 30, 2019, the Company has not accrued any provision related to this matter since it
cannot reasonably estimate the loss contingency.
28
Tide Runner Marine, Inc. Lawsuit
On June 13, 2018, Tide Runner Marine, Inc. (“Tide Runner”) filed a lawsuit in the United States District Court
for the District of New Jersey captioned Tide Runner Marine, Inc. v. Ocean Power Technologies, Inc., Case No. 1:18-cv-
10496. The complaint names the Company as defendant and alleges claims for breach of contract, unjust enrichment,
conversion, and fraud, negligent and/or reckless misrepresentation all as associated with the removal of a Company
mooring system off the coast of New Jersey that was completed in May 2017. The complaint seeks damages in the amount
of $2,825,130 together with interest, costs, attorney’s fees, punitive damages and such other relief as may be appropriate
under the circumstances. On July 27, 2018, the Company filed an answer denying the claims in the complaint, asserted
various affirmative defenses, and asserted a counter-claim for damages in the amount of $15,000 for Tide Runner’s failure
to pay the Company for certain portions of the mooring system that were recovered. On August 2, 2018, Tide Runner filed
its answer to and denied the Company’s counterclaim and asserted various affirmative defenses. During the initial
scheduling conference held on September 13, 2018, the parties agreed to engage in mediation in an effort to resolve this
matter and also agreed to include Tide Runner’s subcontractor, Wittich Bros. Marine Inc. (“Wittich”) in the mediation
process. The parties participated in mediation on November 15, 2018 but were unable to reach an agreement. However,
the parties agreed to continue the mediation process and on February 11, 2019 reached a settlement agreement. On February
22, 2019, the parties executed a Settlement Agreement and Release (“Settlement”). Under the Settlement, the Company
will pay to Wittich (i) $50,000 within 10 days after the final execution of the Settlement and (ii) another $150,000 on or
before May 1, 2019. Subsequently, the parties filed a stipulation of dismissal of both Tide Runner’s complaint and the
Company’s counterclaim with prejudice and without costs and the Court granted the dismissal and terminated the case.
The parties have also provided mutual releases for the matters in dispute in the litigation and will indemnify each other for
future similar claims. As of April 30, 2019, the Company made the two required payments to Wittich.
Nasdaq Compliance
On August 9, 2018, the Company received written notification from Nasdaq indicating that the closing bid price
of the Company’s common stock had been below $1.00 per share for a period of 30 consecutive trading days, and as a
result, the Company was not in compliance with the minimum bid price requirement for continued listing. Under the
Nasdaq Listing Rules, the Company was provided with a grace period of 180 calendar days, or until February 5, 2019, in
which to regain compliance with the minimum bid price rule. To regain compliance, the closing bid price of the Company’s
common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during the grace
period. If the Company did not regain compliance before February 5, 2019, Nasdaq stated that it would provide the
Company with written notice that its securities are subject to delisting. At that time, the Company could appeal Nasdaq’s
determination to a Nasdaq Listing Qualifications Panel, which would stay any further delisting action by Nasdaq pending
a final decision by the panel. Alternatively, the Company could have been eligible for an additional 180 calendar day grace
period if it met the continued listing standards, with the exception of bid price, for the Nasdaq Capital Market, and if the
Company stated its intent to affect a reverse split, if necessary, to cure such deficiency.
On February 11, 2019, the Company received another written notification from Nasdaq indicating that the
Company had not regained compliance with the minimum bid price requirement and that the Company’s stockholders’
equity, as reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2018, did not
qualify the Company for an additional 180 calendar day extension period for compliance. On February 19, 2019, the
Company appealed Nasdaq’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the
Nasdaq Listing Rule 5800 Series. The appeal stayed the suspension of the Company’s securities pending the Panel’s
decision, during which time the Company’s common stock will continue to be listed on Nasdaq, and the Company’s
common stock will continue to trade under the symbol “OPTT”.
On March 14, 2019, the Company received another written notification from Nasdaq indicating that the Company
did not comply with the minimum stockholders’ equity requirement for continued listing. The earlier-filed appeal of the
minimum bid price requirement was sufficient to encompass the minimum stockholder’s equity requirement, and the stay
of suspension continued pending the Panel hearing and decision.
The Panel held its hearing on March 28, 2019. On April 4, 2019, the Panel issued the following two decisions: (i)
the Panel concluded that the Company was in compliance with the minimum bid price rule; and (ii) the Panel granted the
Company’s request to cure its stockholder equity deficiency by conducting a public offering that was estimated to raise
$10 million by no later than April 30, 2019. On April 24, 2019, the Company provided the Panel with an update following
a public offering that raised approximately $15.7 million (after deducting underwriter fees, commissions and other offering
expenses) and closed on April 8, 2019. The update included revised projections of stockholder equity based upon the actual
amount of proceeds raised during the public offering, which in the Company’s opinion was sufficient to cure the
stockholder equity deficiency.
29
On May 20, 2019 the Company received a letter from Nasdaq confirming that the Company has regained
compliance with the minimum shareholders’ equity rule, as required by the Panel’s decision dated April 4, 2019, and is in
compliance with other applicable requirements as set forth in the decision and required for listing on Nasdaq. Accordingly,
the Panel has determined to continue the listing of the Company’s securities on Nasdaq and closed the matter.
FINRA Review
On April 4, 2019, FINRA notified the Company that it was conducting a routine review of the Company’s stock
associated with two public announcements and asked several questions regarding: (i) an April 3, 2019 announcement that
the Company had won a contract with a leading oil and gas operator; and (ii) an April 4, 2019 announcement of the pricing
of an underwritten public offering. The Company provided its response to the FINRA questions on Tuesday, April 9, 2019.
As of July 22, 2019, FINRA has not provided any follow-up.
Spain Income Tax Audit
The Company is currently undergoing an income tax audit in Spain for the period from 2008 to 2014, when our
Spanish branch was closed. The branch reported net operating losses for each of the years reported that the Spanish tax
inspector claims should have been capitalized on the balance sheet instead of charged as an expense in the Statement of
Operations. As of April 30, 2017, the Company had recorded a penalty of $132,000 to Selling, general and administrative
costs in the Statement of Operations. The Spanish tax inspector has recently closed its discussion relating to the
capitalization of expenses and as of April 30, 2018 the Company reversed the penalty. However, during the year-ended
April 30, 2018 the Spanish tax inspector has now raised questions with respect to the Company’s recognition of funds
received in 2011 to 2014 from a governmental grant from the European Commission in connection with the Waveport
project. It is anticipated that we will be assessed a penalty relating to these tax years. The Company has estimated this
penalty to be $177,000 and as of April 30, 2019 and 2018 has recorded the penalty in Accrued expenses in the Consolidated
Balance Sheet.
Item 4. MINE SAFETY DISCLOSURES
None.
30
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Stockholders
Our common stock is listed on the Nasdaq Capital Market, under the symbol “OPTT.” As of June 28, 2019, there
were 142 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.
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.
Transfer Agent Information
Our transfer agent is Computershare Trust Company, N.A. Computershare is located at 250 Royall Street, Canton,
MA 02021-1011. Its contact information is: United States and Canada: (800) 662 - 7232, International (781) 575 - 4238
and its website is located at www.computershare.com.
Purchases of Equity Securities by the Issuer
The following table details our share repurchases for the three months ended April 30, 2019:
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
Approximate
Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plan
February 1 - February 28 .....
March 1 - March 31 .............
April 1 - April 30 .................
- $
- $
- $
-
-
-
-
-
-
-
-
-
Equity Compensation Plan Information
See “Part III, Item 12- Security Ownership of Certain Beneficial Owners, Management and Related Stockholder
Matters- Equity Compensation Plan Information.”
Unregistered Sales of Equity Securities and Use of Proceeds
There have been no unregistered sales of equity securities or purchases of equity securities that are required to be
disclosed.
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, and elsewhere in this 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 2019 are to the fiscal year ended
April 30, 2019.
31
Overview
We are commercializing proprietary systems that generate electricity predominantly by harnessing the renewable
energy of ocean waves. Our PB3 PowerBuoy® systems use proprietary technologies to convert the mechanical energy
created by the rising and falling of ocean waves into electricity. We currently have developed our PB3 PowerBuoy®
product and are in process of developing two new complementary products, the hybrid PowerBuoy® and subsea battery
solutions. 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 relating to our technology. Today our goal is to generate
the majority of revenue from the sale of products and services, and sales and services to support our business operations.
As we continue to develop and commercialize our products and services, we expect to have a net use of cash in operating
activities unless or until we achieve positive cash flow from the commercialization of our products and services.
We are marketing our 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
PowerBuoy®, within markets such as oil and gas, defense and security, science and research and communications, which
we refer to collectively as autonomous application markets.
We were incorporated in New Jersey in 1984, began business operations in 1994, and were re-incorporated in
Delaware in 2007. We currently have five 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, 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.
Product Development
The development of our technology has been funded by capital we raised, by development engineering contracts
we received starting in fiscal 1995, including projects with the DOE, the U.S. Navy, the Department of Homeland Security,
and revenue generating projects with MES, PMO and Eni. Please see Item 1 of this Annual Report- “Business - Customers”
and “Business - Historic Projects” for more information.
Through these historic projects, we also continued development of our PowerBuoy® technologies. We are
continuing to focus on marketing and developing our PowerBuoy® products and services for use in autonomous power
applications.
During fiscal 2019, we continued to focus on the commercialization of our PowerBuoy® technology, while
expanding the application of our PB3 product in autonomous application markets. In March 2018, we entered into an
agreement with Eni that provides for a minimum 24-month contract that includes a lease and associated project
management. In June 2018, we entered into a contract with PMO for the lease of a PB3 PowerBuoy® to be deployed in
one of PMO’s offshore fields in the North Sea. In August 2018, we entered into an agreement with EGP to evaluate a PB3
PowerBuoy® deployment along the coast of Chile through a detailed feasibility study as an offshore autonomous platform
hosting oceanographic sensor systems. In February 2019, we entered into a contract with the U.S. Navy to carry out the
first phase of a project to design and develop a buoy mooring system which incorporates fiber optics for the transmission
of subsea sensor data to airplanes, ships, and satellites.
In November 2017 we completed the Phase I work under the contract with ONR which focused on the initial
concept design and development of a mass-on-spring PTO-based PowerBuoy®. We are waiting for ONR funding to be
approved for the next phase. Working closely with potential customers, we also continued to analyze and further develop
new applications for the PowerBuoy® including subsea well monitoring for oil and gas, Autonomous Underwater Vehicle
(“AUV”) charging, and independent telecommunications platforms.
In addition to the PB3 commercial product validation activities, a concerted effort has been underway which
focuses on proactively implementing additional features driven by extensive and direct discussions with potential users,
customers, marketing partners and end users in our target markets. Such features include:
● The design, development and implementation of a versatile mooring interface that allows the PB3 to
accommodate various types of mooring configurations depending on the specifics and the needs of the
customer, eliminating the need for a redesign of the device.
● The design, development and implementation of a flexible power transmission system intended to
support delivery of power and communication capabilities to customer payloads which are external to
the PowerBuoy®, and which may reside in the water column or on the seabed.
● The design and development of a combined power and communications single point mooring solution
that allows for quick deployment of the PowerBuoy®.
32
Additionally, and building upon our initial success in implementing an auto-ballast system in our commercial
PB3, we further enhanced this feature to achieve faster and more cost effective PB3 deployments and retrievals.
As previously stated, the PB3 has achieved commercial status through a series of design iterations which focused
on improving its reliability and survivability in the ocean environment. Though the PB3 will continue to undergo further
enhancements through customary product life cycle management, we believe the PB3 has achieved a maturity level for
immediate commercial use. We believe that the PB3 will generate and store sufficient power to address various application
requirements in our target markets. Our product development and engineering efforts are focused, in part, on increasing
the energy output and efficiency of our PowerBuoys® and, if we are able to do so, we believe the PowerBuoy® would be
useful for additional applications where cost savings and additional power are required by our potential customers. We
continue to explore opportunities in these target markets. We believe that by demonstrating the capability of our
PowerBuoy® in oil & gas and telecommunications applications, we can advance our technology and gain further adoption
from our target markets. We continue to improve design and manufacturing of the PB3 to enhance our ability to improve
customer value, displace incumbent solutions, and become the preferred power source for new and existing applications in
our target markets.
We are utilizing our experience with multiple commercial PB3 deployments globally to continually improve our
product so that we have higher energy efficiency, additional mooring capability, platform flexibility and higher reliability.
For example, the redesigned PB3 leverages our knowledge base from past designs to incorporate new design features which
we believe will improve its reliability and efficiency.
In November 2018, the Company announced several new product offerings including the hybrid PowerBuoy®,
subsea battery solutions and support services.
● hybrid PowerBuoy® - The Company is in the process of creating a hybrid PowerBuoy® that will be a
smaller liquid-fueled surface buoy, compared to the wave power based PB3 PowerBuoy®, capable of
providing reliable power in remote offshore locations. This product is to be highly complementary to the
PB3 PowerBuoy® by providing the Company the opportunity to address a broader spectrum of customer
deployment needs, with the potential for greater Company integration within each customer project. It is
primarily intended for shorter term deployment applications such as eROV and AUV inspections and
short-term maintenance, topside surveillance and communications, and subsea equipment and controls.
The hybrid PowerBuoy® is anticipated to be a lightweight, quickly deployable and cost-effective
solution. The design is also anticipated to have a high payload capacity for communications and
surveillance, with the capability of being tethered to subsea payloads and battery packs, or with a
conventional anchor mooring system. The Company intends to design the hybrid PowerBuoy®, with a
Stirling engine, to outperform traditional diesel buoys, which we believe to have more frequent service
and refueling intervals. We believe the hybrid PowerBuoy® will be able to operate in an environmentally
safer manner using more robust fuels, while operating over a wider temperature range than diesel buoys.
● Subsea battery solutions - The Company is in the process of creating a sea floor energy storage solution
for remote offshore operations. These subsea battery systems will contain lithium ion batteries, which
provide high power density, to supply power that can enable subsea equipment, sensors, communications
and AUVs and electric remotely operated vehicles (eROV) recharge. The Company’s PB3 PowerBuoy®
is complimentary to subsea battery systems by providing a means for recharging during longer term
deployments, or the subsea battery systems can be used independently for shorter term deployments.
Ideal for many remote offshore customer applications, these subsea battery systems are anticipated to be
high performance, cost-efficient, and quickly deployable. Given the Company’s expertise in offshore
energy storage systems from existing PB3 PowerBuoy® technology, the subsea battery solutions will
provide an opportunity for the Company to differentiate through technical, cost and delivery leadership.
● Support services – The Company offers customers a comprehensive range of support services that meet
their specific needs. These support services include innovation services, remote monitoring, extended
service agreements, customization and pre-packaged payload options, engineering-design-testing
services, mooring design, and marine services. These same support services will be extended to the new
subsea battery solution and hybrid PowerBuoy® products.
33
Capital Raises
On June 2, 2016, we entered into a securities purchase agreement, which was amended on June 7, 2016 (as
amended, the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”). Pursuant to the terms of the
Purchase Agreement, we sold an aggregate of 20,850 shares of common stock together with warrants to purchase up to an
aggregate of 7,298 shares of common stock. Each share of common stock was sold together with a warrant to purchase
0.35 of a share of common stock at a combined purchase price of $92.00. The net proceeds from the offering to us were
approximately $1.7 million, after deducting placement agent fees and estimated offering expenses payable by us, but
excluding the proceeds, if any, from the exercise of the warrants issued in the offering. The warrants have an exercise price
of $121.60 per share, will be exercisable on December 8, 2016, and will expire five years following the date of issuance.
The Company paid the placement agents approximately $100,000 as placement agent fees in connection with the sale of
securities in the offering. The Company also reimbursed the placement agents $35,000 for their out of pocket and legal
expenses in connection with the offering.
On July 22, 2016, the Company entered into the Second Amendment to the Purchase Agreement (the “Second
Amended Purchase Agreement”) with certain purchasers (the “July Purchasers”). Pursuant to the terms of the Second
Amended Purchase Agreement, the Company sold an aggregate of 29,750 shares of Common Stock together with warrants
to purchase up to an aggregate of 8,925 shares of Common Stock. Each share of Common Stock was sold together with a
warrant to purchase 0.30 of a share of Common Stock at a combined purchase price of $135.00. The net proceeds to the
Company from the offering were approximately $3.6 million, after deducting placement agent fees and estimated offering
expenses payable by the Company, but excluding the proceeds, if any, from the exercise of the warrants issued in the
offering. The Warrants were exercisable immediately at an exercise price of $187.20 per share. The Warrants will expire
on the fifth (5th) anniversary of the initial date of issuance.
On October 19, 2016, the Company sold 138,000 shares of common stock at a price of $55.00 per share, which
includes the sale of 18,000 shares of the Company’s common stock sold by the Company pursuant to the exercise, in full,
of the over-allotment option by the underwriters in a public offering. The net proceeds to the Company from the offering
were approximately $6.9 million, after deducting placement agent fees and offering expenses payable by the Company.
On May 2, 2017, the Company sold 309,638 shares of common stock at a price of $26.00 per share, which includes
the sale of 40,388 shares of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the
over-allotment option by the underwriters in a public offering. The net proceeds to the Company from the offering were
approximately $7.2 million, after deducting placement agent fees and offering expenses payable by the Company.
On October 23, 2017, the Company sold 286,972 shares of common stock at a price of $28.40 per share in a best
efforts public offering. The net proceeds to the Company from the offering were approximately $7.4 million, after
deducting placement fees and offering expenses payable by the Company.
On August 13, 2018, the Company entered into a common stock purchase agreement with Aspire Capital Fund,
LLC (“Aspire Capital”) which provides that, subject to certain terms, conditions and limitations, Aspire Capital is
committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock over a 30-month
period that does not exceed 19.99% of the outstanding common stock on the date of the agreement. Shareholder approval
was not needed since the number of common stock offered for sale in the common stock purchase agreement did not exceed
19.99% of the outstanding common stock on the date of the agreement. In consideration for entering into the agreement,
the Company issued to Aspire Capital 21,429 shares of our common stock as a commitment fee. As of April 30, 2019, the
Company has sold 162,162 shares of common stock with an aggregate market value of $949,259 at an average price of
$5.85 per share pursuant to this common stock purchase agreement.
On January 7, 2019, the Company entered into an At the Market Offering Agreement (“2019 ATM Facility”) with
A.G.P./Alliance Global Partners (“AGP”), under which the Company may issue and sell to or through A.G.P./Alliance
Global Partners, acting as agent and/or principal, shares of the Company’s common stock having an aggregate offering
price of up to $25 million. As of April 30, 2019, under the 2019 ATM Facility the Company had issued and sold 151,561
shares of its common stock with an aggregate market value of $958,229 at an average price of $6.32 per share and paid
AGP a sales commission of approximately $33,469 related to those shares.
On April 8, 2019, the Company sold 1,542,000 shares of common stock, which includes the sale of 642,000 shares
of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the over-allotment option by the
underwriters in a public offering, prefunded warrants to purchase up to 3,385,680 shares of common stock and common
warrants to purchase up to 4,927,680 shares of our common stock in an underwritten public offering. The net proceeds to
the Company from the offering were approximately $15.7 million, after deducting underwriter fees and offering expenses
payable by the Company.
34
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 or preferred stock, these securities could have rights senior to those
associated with our common stock and could contain covenants that would restrict our operations. We do not have any
committed sources of debt or equity financing and we cannot assure you that financing will be available in amounts or on
terms acceptable to us when needed, or at all. If we are unable to obtain required financing when needed, we may be
required to reduce the scope of our operations, including our planned product development and marketing efforts, which
could materially and adversely affect our financial condition and operating results. If we are unable to secure additional
financing, we may be forced to cease our operations.
Backlog
As of April 30, 2019, our negotiated backlog was $0.9 million. As of April 30, 2018, our negotiated backlog was
$0.7 million. Our backlog can include unfilled firm orders for our products and services from commercial and governmental
customers. If any of our contracts were to be terminated, our backlog would be reduced by the expected value of the
remaining terms of such contract.
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 has been for the support of our product development efforts. These revenues are mostly
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.
Going Concern
Our financial statements have been prepared assuming we will continue as a going concern. We have experienced
substantial and recurring losses from operations, which losses have caused an accumulated deficit of $209.8 million at
April 30, 2019. Based on the Company’s cash, cash equivalents and restricted cash balances as of April 30, 2019, the
Company believes that it will be able to finance its capital requirements and operations into the quarter ending July 31,
2020. The report of our independent registered public accounting firm on our consolidated financial statements for the year
ended April 30, 2019, contains an explanatory paragraph regarding our ability to continue as a going concern, based on,
among other factors, that our ability to continue as a going concern is dependent upon our ability to raise additional external
capital and increase revenues. These factors, among others, raise substantial doubt about our ability to continue as a going
concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty. We cannot assure you that we will be successful in our efforts to generate revenues, become profitable, raise
additional outside capital or to continue as a going concern. If we are not successful in our efforts to raise additional capital
sufficient to support our operations, we would be forced to cease operations, in which event investors would lose their
entire investment in our company.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations set forth below are based on our
consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting
principles (U.S. 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.
Legal contingencies
As discussed in Part I, Item 3 of this Annual Report under the heading “Legal Proceedings” and in Note 14,
“Commitments and Contingencies,” in Notes to the Consolidated Financial Statements, the Company is currently subject
to various legal proceedings and claims. The Company records a contingent liability when it is probable that a loss has
been incurred and the amount is reasonably estimable in accordance with ASC Topic 450, Contingencies: Loss
Contingencies. There is a significant judgment required in both the probability determination and as to whether an exposure
can be reasonably estimated since the outcome of legal proceedings and claims brought against the Company are subject
to significant uncertainty. In management’s opinion, any reasonable possible losses in addition to the amounts accrued for
litigation, individually or in the aggregate, could possibly have a material adverse effect on its financial condition or
operating results.
35
Revenue recognition
A performance obligation is the unit of account for revenue recognition. The Company assesses the goods or
services promised in a contract with a customer and identifies as a performance obligation either: a) a good or service (or
a bundle of goods or services) that is distinct; or b) a series of distinct goods or services that are substantially the same and
that have the same pattern of transfer to the customer. A contract may contain a single or multiple performance obligations.
For contracts with multiple performance obligations, the Company allocates the contracted transaction price to each
performance obligation based upon the relative standalone selling price, which represents the price the Company would
sell a promised good or service separately to a customer. The Company determines the standalone selling price based upon
the facts and circumstances of each obligated good or service. The majority of the Company’s contracts have no observable
standalone selling price since the associated products and services are customized to customer specifications. As such, the
standalone selling price generally reflects the Company’s forecast of the total cost to satisfy the performance obligation
plus an appropriate profit margin.
The nature of the Company’s contracts may give rise to several types of variable consideration, including claims
and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. Variable consideration can
also arise from modifications to the scope of services. Variable consideration is included in the transaction price to the
extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty
associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether
to include such amounts in the transaction price are based largely on our assessment of legal enforceability, performance
and any other information (historical, current, and forecasted) that is reasonably available to us.
The Company recognizes revenue when or as it satisfies a performance obligation by transferring a good or service
to a customer, either (1) at a point in time or (2) over time. A good or service is transferred when or as the customer obtains
control of it. The evaluation of whether control of each performance obligation is transferred at a point in time or over time
is made at contract inception. Input measures such as costs incurred or time elapsed are utilized to assess progress against
specific contractual performance obligations for the Company’s services. The selection of the method to measure progress
towards completion requires judgment and is based on the nature of the services to be provided. For the Company, the
input method using costs incurred or time elapsed best represents the measure of progress against the performance
obligations incorporated within the contractual agreements. When the Company’s estimate of total costs to be incurred to
satisfy the performance obligations exceed revenue, the Company recognizes the loss immediately.
Warrant accounting
The Company accounts for warrants issued in connection with its public offerings in accordance with the guidance
on “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” in Topic 480 which
provides that warrants meeting the classification of a liability award are recorded as a liability at its fair value. The warrant
liabilities are subject to re-measurement at each balance sheet date using the Black-Scholes option pricing model. The
Company recognizes any change in fair value in its consolidated statements of operations within “Gain due to the change
in fair value of warrant liabilities”. The Company will continue to adjust the carrying value of the warrants for changes in
the estimated fair value until such time as these instruments are exercised or expire. At that time, the liabilities will be
reclassified to “Additional paid-in capital”, a component of “Stockholders’ equity” on the Consolidated Balance Sheets.
The common warrants issued in connection with the Company’s public offerings in June and July 2016 met the criteria of
a liability award and were classified to warrant liabilities. The pre-funded and common warrants issued in the Company’s
April 8, 2019 public offering did not meet the criteria required to be classified as a liability award and therefore were
treated as an equity award.
Financial Operations Overview
Over the next several years, it is our goal to fund the majority of our product development efforts with sources
from commercial relationships, including cost-sharing agreements. If we are unable to obtain commercial relationships or
cost-sharing arrangements, we may be forced to curtail our development expenses and scope to reduce our overall expenses.
We recently narrowed our development focus to the PB3 to drive toward commercialization of that product and to reduce
our overall expenses.
36
The following table provides information regarding the breakdown of our revenues by customer for fiscal years
2019 and 2018:
Twelve months ended April 30,
2019
2018
(in thousands)
Eni S.p.A. ........................................................... $
Mitsui Engineering & Shipbuilding ...................
Premier Oil UK Limited ....................................
Office of Naval Research ...................................
Other ..................................................................
$
341 $
-
206
-
85
632 $
171
218
51
71
-
511
We currently focus our sales and marketing efforts on parts of North America, Europe, South America and Asia.
The following table shows the percentage of our revenues by geographical location of our customers for fiscal 2019 and
2018:
Customer Location
Twelve months ended April 30,
2019
2018
Asia ...................................................................
Europe ...............................................................
United States .....................................................
0 %
92 %
8 %
100 %
43 %
43 %
14 %
100 %
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. Due to the
macroeconomic pressures in certain European countries, foreign exchange rates may become more volatile in the future.
We maintain cash accounts that are denominated in British pounds sterling, Euros and Australian dollars. These
foreign denominated accounts had a balance of $0.7 million as of April 30, 2019 and $1.0 million as of April 30, 2018,
compared to our total cash, cash equivalents, and restricted cash balances of $17.2 million as of April 30, 2019 and $12.3
million as of April 30, 2018. These foreign currency balances are translated at each month end to our functional currency,
the US dollar, and any resulting gain or loss is recognized in our results of operations.
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
pound 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.
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.
Results of Operations
This section should be read in conjunction with the discussion below under “- Liquidity and Capital Resources.”
37
Fiscal Years Ended April 30, 2019 and 2018
The following table contains selected statement of operations information, which serves as the basis of the
discussion of our results of operations for the years ended April 30, 2019 and 2018:
Twelve months ended April 30,
2019
2018
(in thousands)
% change
2019 period to
2018 period
632 $
1,303
(671 )
4,984
7,616
12,600
(13,271 )
195
35
-
(55 )
(13,096 )
850
(12,246 ) $
511
763
(252 )
4,320
6,988
11,308
(11,560 )
122
83
4
75
(11,276 )
1,119
(10,157 )
24 %
71 %
15 %
9 %
60 %
-58 %
-100 %
-173 %
16 %
-24 %
21 %
Revenues ..................................................................... $
Cost of revenues ..........................................................
Gross loss ............................................................
Operating expenses:
Engineering and product development costs ...........
Selling, general and administrative costs ................
Total operating expenses .....................................
Operating loss .............................................................
Gain due to the change in fair value of warrant
liabilities .....................................................................
Interest income, net .....................................................
Other income ..............................................................
Foreign exchange gain/(loss) ......................................
Loss before income taxes ............................................
Income tax benefit ...............................................
Net loss ....................................................................... $
Revenues
Revenues for the fiscal years ended April 30, 2019 and 2018 were approximately $0.6 million and $0.5 million,
respectively. The increase of approximately $0.1 million or 24% over 2018 was attributable to more new contracts signed
and started at the end of fiscal year 2018 and beginning of fiscal year 2019 relating to Eni, PMO, EGP, and the U.S. Navy
SBIR grant. The MES and ONR contracts were completed in the first half of fiscal 2018.
Cost of revenues
Cost of revenues consists primarily of incurred material, labor and manufacturing overhead expenses, such as
engineering expense, equipment depreciation and maintenance and facility related expenses, and includes the cost of
PowerBuoy® parts and services supplied by third-party suppliers. Cost of revenues also includes PowerBuoy® system
delivery and deployment expenses and may include anticipated losses at completion on certain contracts.
Cost of revenues for the fiscal years ended April 30, 2019 and 2018 were approximately $1.3 million and $0.8
million, respectively. The increase of approximately $0.5 million, or 71%, over 2018 mostly due to higher upfront spending
and material costs on the new customer contracts in fiscal 2019 as compared to the same period in the fiscal 2018. During
fiscal 2018, all of projects were completed in the first half of the year and spending on the new customer contracts
commenced in the fourth quarter, 2018.
Engineering and product development costs
Our engineering and 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
engineering and product development costs relate primarily to our efforts to increase the power output and reliability of
our PowerBuoy® system, and the development of new products, product applications and complementary technologies.
We expense all our engineering and product development costs as incurred.
Engineering and product development costs during the fiscal year ended April 30, 2019 were $5.0 million as
compared to $4.3 million for fiscal year 2018. The increase of $0.7 million, or 15%, is due to higher spending on new
products being developed, PB3 PowerBuoy® builds for future customer contracts, and higher personnel costs as compared
to the same period in fiscal 2018.
38
Selling, general and administrative costs
Our selling, general and administrative costs consist primarily of professional fees, salaries and other personnel-
related costs for employees and consultants engaged in sales and marketing and support of our PowerBuoy® systems and
costs for executive, accounting and administrative personnel, professional fees and other general corporate expenses.
Selling, general and administrative costs during the fiscal year months ended April 30, 2019 were $7.6 million as
compared to $7.0 for fiscal year 2018. The increase of $0.6 million, or 9%, is primarily attributable to higher investor
relations costs of $0.4 million, higher professional fees of $0.2 million and higher sales and marketing of $0.1 million
partly offset by lower spending of $0.1 million in employee related costs.
Gain due to the change in fair value of warrant liabilities
The change in fair value of warrant liabilities during the fiscal year ended April 30, 2019 was an unrealized gain
of $195,000 versus an unrealized gain of $122,000 for the fiscal months ended April 30, 2018. The change between periods
is mainly due to a lower stock price for the twelve months ended April 30, 2019.
Interest income, net
Interest income, net consists of interest received on cash and cash equivalents, investments in money market
accounts and interest expense paid on certain obligations to third parties. Total cash, cash equivalents, and restricted cash
were $17.2 million as of April 30, 2019, compared to $12.3 million as of April 30, 2018.
Interest income, net during the fiscal year 2019 was approximately $35,000 compared to $83,000 for fiscal 2018.
The decrease in interest income year over year is due to a lower average cash balance in fiscal year 2019.
Foreign exchange gain/(loss)
Foreign exchange loss was approximately $55,000 for fiscal year 2019 as compared to a foreign exchange gain
of $75,000 for fiscal year 2018. The difference was attributable primarily to the relative change in value of the British
pound sterling, Euro and Australian dollar compared to the U.S. dollar during the two periods.
Income tax benefit
During the fiscal years ended April 30, 2019 and 2018, the Company sold New Jersey State net operating losses
and research and development credits in the amount of $9.1 million and $11.5 million, respectively, resulting in the
recognition of income tax benefits of $0.9 million and $1.1 million, respectively. The Company has a full valuation
allowance against its deferred tax assets.
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 our business. For the two years ended April 30, 2019, our aggregate revenues were $1.1
million, our aggregate net losses were $22.4 million and our aggregate net cash used in operating activities was $22.8
million.
Net cash used in operating activities
Net cash flows used in operating activities during the fiscal year ended April 30, 2019 were $12.1 million, an
increase of $1.4 million, when compared to $10.7 million during the fiscal year ended April 30, 2018. The change was the
result of an increase in net loss of $2.1 million and payment of deferred credits of $0.6 million partly offset by the net
change in operating assets and liabilities of $1.3 million.
Net cash used in investing activities
Net cash used in investing activities was approximately $29,000 for fiscal year 2019 versus net cash used by
investing activities of approximately $658,000 for fiscal year 2018. The change was primarily the result of the Company’s
decreased spending on equipment and leasehold improvements relating to its new facility in Monroe, New Jersey.
Net cash provided by financing activities
Net cash provided by financing activities was approximately $17.2 million in fiscal year 2019, and net cash
provided by financing activities was approximately $14.6 million for fiscal 2018. The increase in net cash provided in
fiscal year 2019 compared to fiscal year 2018 was due primarily to the Company receiving more proceeds from sales of its
common stock in fiscal year 2019.
39
Effect of exchange rates on cash and cash equivalents
The effect of exchange rates on cash and cash equivalents was a reduction of approximately $80,000 in fiscal year
2019, a decrease of $168,000 from fiscal year 2018, 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
Our financial statements have been prepared assuming we will continue as a going concern. We have experienced
substantial and recurring losses from operations, which losses have caused an accumulated deficit of $209.8 million at
April 30, 2019. We generated revenues of only $0.6 million in fiscal year 2019, and $0.5 million in fiscal year 2018. Based
on the Company’s cash, cash equivalents and restricted cash balances as of April 30, 2019, the Company believes that it
will be able to finance its capital requirements and operations into the quarter ending July 31, 2020. These conditions raise
substantial doubt about our ability to continue as a going concern.
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 but not limited to:
● our ability to commercialize our PowerBuoys®, and achieve and sustain profitability;
● our continued development of our proprietary technologies, and expected continued use of cash from
operating activities unless or until we achieve positive cash flow from the commercialization of our
products and services;
● our ability to obtain additional funding, as and if needed which will be subject to a number of factors,
including market conditions, and our operating performance;
● our estimates regarding expenses, future revenues and capital requirements;
●
the adequacy of our cash balances and our need for additional financings;
● our ability to develop and manufacture a commercially viable PowerBuoy® product;
● our ability to successfully develop and market new products, such as a hybrid PowerBuoy® or subsea
●
battery solutions;
that we will be successful in our efforts to commercialize our PowerBuoy® or the timetable upon which
commercialization can be achieved, if at all;
● our ability to identify and penetrate markets for our PowerBuoys® and our wave energy technology;
● our ability to implement our commercialization strategy as planned, or at all;
● our relationships with our strategic partners may not be successful and we may not be successful in
establishing additional relationships;
the reliability of our technology and our PowerBuoys®;
● our ability to maintain the listing of our common stock on the Nasdaq Capital Market;
●
● our ability to improve the power output, survivability and reliability of our PowerBuoys®;
●
●
the impact of pending and threatened litigation on our business, financial condition and liquidity;
changes in current legislation, regulations and economic conditions that affect the demand for renewable
energy;
● our ability to compete effectively in our target markets;
● our limited operating history and history of operating losses;
● our sales and marketing capabilities and strategy in the United States and internationally; and
● our ability to protect our intellectual property portfolio.
Our business is capital intensive, and, to date, we have been funding our business principally through sales of our
securities, and we expect to continue to fund our business with sales of our securities and, to a limited extent, with our
revenues until, if ever, we generate sufficient cash flow to internally fund our business. This is largely a result of the high
engineering and product development costs associated with our product development. We anticipate that our operating
expenses will be approximately $14.4 million in fiscal year 2020 including product development spending of more than
$7.4 million. We may choose to reduce our operating expenses through personnel reductions, and reductions in our research
and development and other operating costs during the fiscal year 2020, if we are not successful in our efforts to raise
additional capital. We cannot assure you that we will be able to increase our revenues and cash flow to a level which would
support our operations and provide sufficient funds to pay our obligations for the foreseeable future. Further, we cannot
assure you that we will be able to secure additional financing or raise additional capital or, if we are successful in our
efforts to raise additional capital, of the terms and conditions upon which any such financing would be extended. If we are
unable to raise additional capital when needed or generate positive cash flow, it is unlikely that we will be able to continue
as a going concern. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
40
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet financing activities.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU)
No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 outlines a new, single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current
revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-
step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company
expects to receive in exchange for those goods or services. The FASB subsequently issued additional clarifying standards
to address issues arising from implementation of the new revenue standard, including a one-year deferral of the effective
date for the new revenue standard. Public companies should now apply the guidance in ASU 2014-09 to annual reporting
periods beginning after December 15, 2017 and interim periods within those annual periods. Earlier application is permitted
only as of annual reporting periods beginning after December 15, 2016, including interim periods within that annual period.
Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. Under the full
retrospective method, the standard would be applied to each prior reporting period presented and the cumulative effect of
applying the standard would be recognized at the earliest period shown. Under the modified retrospective method, the
cumulative effect of applying the standard would be recognized at the date of application. Effective May 1, 2018, the
Company adopted the requirements of ASU 2014-09 using the modified retrospective method. As a practical expedient,
the Company adopted the new standard only for existing contracts as of May 1, 2018, the date of adoption. Any contracts
that had expired prior to May 1, 2018 were not evaluated against the new standard. The Company adopted ASU 2014-09
and the adoption did not have a material impact on the Company’s consolidated financial position, results of operations or
cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” which amends the existing guidance
on accounting for leases. Topic 842 was further clarified and amended within ASU 2017-13, ASU 2018-01, ASU 2018-
10, ASU 2018-11 and ASU 2018-20. The new standard establishes a right-of-use (ROU) model that requires a lessee to
record a ROU asset and a lease liability on the balance sheet for all leases with terms greater than twelve months or leases
that contain a purchase option that is reasonably certain to be exercised. Leases will be classified as either finance or
operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is
effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods,
with early adoption permitted. The company will adopt Topic 842 during the first quarter of 2019 using the modified
retrospective method. The new guidance will be applied to leases that exist or are entered into on or after May 1, 2019
without adjusting comparative periods in the financial statements. The Company expects to utilize the package of practical
expedients in ASC 842-10-65-1(f) that, upon adoption of Topic 842, allows entities to (1) not reassess whether any expired
or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as
of the date of adoption and (3) not reassess initial direct costs for any existing leases. Based on the most recent assessment
of existing leases, the Company expects to record a right-of-use asset and a lease liability in the range of $1.0 to $2.0
million that will be included on the balance sheet as of May 1, 2019. The Company does not expect the adoption of Topic
842 to have a material impact on the company’s results of operations or cash flows.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments” providing additional guidance on eight specific cash flow classification issues. The
goal of the ASU is to reduce diversity in practice of classifying certain items. The amendments in the ASU are effective
for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is
permitted. The Company adopted the standard on May 1, 2018 and determined the standard had no impact on its financial
position, results of operations or cash flows.
In May 2017, the FASB issued ASU 2017-09, “Compensation — Stock Compensation (ASC Topic 718): Scope
of Modification Accounting,” which clarifies when changes to the terms or conditions of a share-based payment award
must be accounted for as a modification. Entities should apply the modification accounting guidance if the value, vesting
conditions or classification of the award changes. The amendments in the ASU are effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years and early adoption is permitted. The Company adopted
the standard on May 1, 2018 and determined the standard no impact on its financial position, results of operations or cash
flows.
41
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” The ASU modifies,
removes and adds several disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The
ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in
the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon
their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any
removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until
their effective date. The Company is evaluating the effect ASU 2018-13 will have on its consolidated financial statements
and disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles — Goodwill and Other — Internal-Use
Software (Subtopic 350-40).” The ASU provides for the recognition of an intangible asset for the costs of internal-use
software licenses included in a cloud computing arrangement. Costs of arrangements that do not include a software license
should be accounted for as a service contract and expensed as incurred. This ASU is effective for fiscal years beginning
after December 15, 2019, with early adoption permitted. The ASU permits two methods of adoption: prospectively to all
implementation costs incurred after the date of adoption, or retrospectively to each prior reporting period presented. The
Company is evaluating the effect ASU 2018-15 will have on its consolidated financial statements and disclosures and has
not yet determined the effect of the standard on its 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, 2019, 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,
2019.
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, 2019 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
42
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Directors
All of the 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 director 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
Terence J. Cryan
Dean J. Glover
George H. Kirby III
Steven M. Fludder
Robert K. Winters
Kristine S. Moore
Age
56
53
49
59
51
58
Position(s) with the Company
Chairman of the Board
Vice Chairman of the Board and Independent Director
Chief Executive Officer and Director
Independent Director
Independent Director
Independent Director
Served as
Director
From
2012
2014
2015
2016
2016
2018
Terence J. Cryan has been a member of our Board of Directors since October 2012 and Chairman of the board
since June 2014. Prior to joining our Board, Mr. Cryan was a member of our Board of Advisors. Mr. Cryan was our lead
independent director from October 2013 to June 2014 when he became Chairman of the Board. Since August 2017, Mr.
Cryan has served as the Chairman of the Board of Westwater Resources, Inc. Mr. Cryan has served on the boards of
directors of a number of other publicly traded companies including Uranium Resources, Inc. from 2006 to 2016; Global
Power Equipment Group Inc. from 2008 to 2017; Superior Drilling Products from May 2014 to 2016; Gryphon Gold
Corporation from 2009 to 2012; and The Providence Service Corporation from 2009 to 2011. Mr. Cryan previously served
as President and Chief Executive Officer of Medical Acoustics, LLC from 2007 through 2010. 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 and served until March 2016. Mr. Cryan served as
President and CEO of Global Power Equipment Group Inc., from March 2015 until July 2017. Mr. Cryan co-founded in
2001 Concert Energy Partners, LLC, an investment and private equity firm based in New York with a focus on the
traditional and alternative energy, power and natural resources industries, and served as Managing Director until 2015.
Between 1990 and 2001, Mr. Cryan was a Senior Managing Director in the investment banking department at Bear Stearns
& Co. Inc. in New York City and a Managing Director at Paine Webber/Kidder Peabody in both New York City and
London. Mr. Cryan earned his Bachelor of Arts degree from Tufts University in 1983 and a Master 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.
Dean J. Glover became a member of our Board of Directors in October 2014, replacing a director who retired,
and was elected Vice Chairman of our Board of Directors in July 2016. Since March 2018, Mr. Glover has served as a
member of the Board of Directors of ConXtech. Mr. Glover is currently the CEO of Techniks Tool Group. Prior to Techniks
Tool Group from October 2014 until 2017, Mr. Glover served as MIRATECH President & CEO. 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 (NYSE: GE) in various managerial and technical roles and is a certified Six Sigma Master Black belt. Mr. Glover
currently serves as a director of Oklahoma Scholastic Organization, a non-profit organization. Mr. Glover holds a
Bachelor’s 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.
43
George H. Kirby III has served as our President, Chief Executive Office and a member of our Board of Directors
since January 20, 2015. Prior to this, Mr. Kirby was Senior Vice President at AECOM Technology Corporation (NYSE:
ACM) a leading provider of engineering, procurement and construction (“EPC”) services. 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. In June 2016, Mr. Kirby was elected to the Board of Trustees of the Sea Research Foundation, a non-profit
organization in Mystic, Connecticut. Mr. Kirby previously served as a director of Blade Dynamics, LLC from April to
December 2011, and Schooner, Inc. from June to October 2012. Mr. Kirby earned a Bachelor of Science degree in
Aerospace Engineering from Syracuse University in 1992 and an M.B.A. from Smeal College of Business at Pennsylvania
State University in 2008. We believe Mr. Kirby’s significant leadership experience in energy industries qualifies him to
serve on our Board of Directors.
Steven M. Fludder became a member of the Board of Directors on May 5, 2016. Mr. Fludder brings more than
30 years of global executive leadership in energy and infrastructure markets. Since November 2017, Mr. Fludder has served
as the Chief Executive Officer for NEC Energy Solutions. Prior to joining NEC Energy Solutions, Mr. Fludder was the
Chief Executive Officer with alpha-En, a publicly traded innovative clean technology company focused on enabling next
generation battery technologies by developing high purity lithium products. Prior to alpha-En, Mr. Fludder was Chief
Executive of AECOM’s global Energy and Water practice. Prior to AECOM, he was Senior Executive Vice President,
Division General Manager and Samsung group officer where he was head of worldwide sales and marketing for Samsung
Engineering, a global engineering, procurement and construction (EPC) firm serving a broad range of energy industries
including power, oil & gas, petrochemicals, and metallurgy. He was subsequently President of Samsung Techwin Power
Systems Division. Prior to Samsung, Mr. Fludder served as a Vice President and General Electric corporate officer where
he led GE’s companywide environmental business initiative “ecomagination”. Earlier in his career at GE, Mr. Fludder held
executive leadership roles in the Water, Energy Services, Energy China, and Aircraft Engines divisions. He has significant
experience scaling and growing energy related technology businesses through start-ups, acquisitions and turnarounds. Mr.
Fludder holds a Master’s degree in Mechanical Engineering from the Massachusetts Institute of Technology, a bachelor’s
degree in Mechanical Engineering from Columbia University, and a second Bachelor of Science degree from Providence
College. We believe Mr. Fludder’s qualifications to serve on our Board of Directors include his wide experience in both
the energy and infrastructure markets, as well a variety of other industry segments related to our business.
Robert K. Winters became a member of the Board of Directors on May 5, 2016. Robert Winters has been with
Alpha IR Group since September 2015, and currently serves as Senior Managing Director. He established and is running
the NYC office for Chicago-based firm, which specializes in providing strategic counsel to small- and mid-cap U.S.
companies across a broad range of industries. Prior to this, he was a partner and portfolio manager at Zesiger Capital Group,
LLC for 14 years; Zesiger Capital Group, LLC is an investment advisor based in NYC, catering to both large institutional
clients and high net-worth individuals. Zesiger’s investment strategy during Mr. Winters’ tenure was to take concentrated,
long-term investment positions in small-and mid-cap stocks in the U.S., as well as in select emerging and frontier markets.
Additionally, Mr. Winters managed fixed income investments on behalf of clients at Zesiger, as well as private investments;
Mr. Winters sat on the boards of several private portfolio companies during his time at Zesiger. Prior to his work at Zesiger
Capital Group, LLC, Mr. Winters worked as a Managing Director and Senior Natural Resource analyst for almost 10 years
at Bear, Stearns & Co., Inc., where he focused on energy, metals and mining. Mr. Winters began his finance career at CS
First Boston following his work as an international trade analyst with Kilpatrick & Cody in Washington, D.C. Mr. Winters
served as a director of LRM Industries International from 2009 until 2014 Mr. Winters graduated from Georgetown
University in 1990 with a dual major in International Relations and History. We believe Mr. Winter’s qualifications to
serve on our Board of Directors include his extensive finance experience, as well his experience with small-cap and mid-
cap public companies.
Kristine S. Moore became a member of the Board of Directors on September 10, 2018. From December 2015
through April 2018, Ms. Moore served as non-executive director at Achilles Ltd., a global private-equity held company
based in London. Prior to Achilles, Ltd. from 2001 to 2015, Ms. Moore was with Royal Dutch Shell (“Shell”), an
international energy company. During this time, Ms. Moore held various positions at Shell; during 2015 Ms. Moore was
Vice President of Contracting and Procurement; from 2011 to 2014, Vice President of Contracting and Procurement
Operations and Group Materials Management; from 2007 to 2010, Vice President of Global Functions Sourcing; and from
2001 to 2007, Ms. Moore held various managerial positions. Prior to Shell, Ms. Moore from 2000 to 2001 served as Vice
President of Marketing and Sales for Quaris, Inc. Ms. Moore began her career at International Business Machines where
she held various positions. Ms. Moore is a graduate of Rice University with a Bachelor of Science in Civil Engineering.
We believe Ms. Moore’s qualifications to serve on our Board of Directors include her extensive experience in the oil and
gas markets, as well as her business background in sales, marketing, and supply chain management.
44
Executive Officers
We have one executive officer who is not also a director:
Name
Age
Position with Ocean Power Technologies, Inc.
Matthew T. Shafer
48
Vice President, Chief Financial Officer and Treasurer
Matthew T. Shafer joined the Company in September 2016 as Chief Financial Officer and Treasurer of the
Company. Mr. Shafer previously served as a Vice President of Finance and Corporate Controller for CMF Associates from
May 2015 to September 2016, where he led teams in providing finance solutions for small and middle-market high-growth
organizations. Prior to that, beginning in 2013 he served as a Business Unit Chief Financial Officer at Valeant
Pharmaceuticals International (NYSE: VRX), a large global publicly traded company that develops, manufactures, markets
and sells specialty pharmaceuticals and medical devices. He held this Finance Leadership role for the Valeant Dentistry,
Generics and Neurology business units, and had worked closely with commercial operations and corporate level teams on
numerous product launches, sales force expansions, mergers and acquisitions, financial systems integrations, and internal
controls. Mr. Shafer has a foundation in Public Accounting working at Arthur Andersen LLP at the beginning of his career,
holds a Bachelor of Science in Accounting from The Stillman School of Business at Seton Hall University, an MBA in
Finance from Rutgers Business School in New Brunswick, N.J. and is a Certified Public Accountant.
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 28 Engelhard Drive, Monroe Township, NJ 08831.
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 the Company;
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.
Audit Committee
The members of our Audit Committee are Dean J. Glover, Steven M. Fludder and Robert K. Winters. Mr. Glover
is the chair of the Audit Committee. The Board of Directors has determined that Mr. Glover is an “audit committee financial
expert” within the meaning of the regulations of the Securities and Exchange Commission (the “SEC”). The Audit
Committee met 4 times in fiscal 2019. 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”).
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 SEC regulations.
45
Material Changes in Director Nominations Process
There have not been any material changes to the procedures by which shareholders may recommend nominees to
our Board.
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 28 Engelhard Drive, Suite B, Monroe Township, NJ 08831. 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 thereunder, 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 the Form 3 for Ms. Moore was not filed in fiscal 2019
in a timely manner.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
For Board service year 2019, the Board of Directors approved, for each non-employee director, an annual payment
of $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 or (b) Common Stock worth $50,000, with such option award or stock award to vest, if at all, at the next
annual meeting of stockholders. For fiscal year 2019 each of the Directors chose to take a stock option of 2,500 shares.
Directors serving a portion of a year receive a pro-rata grant. Each non-employee director also receives a per annum
supplement ranging from $2,000 to $9,600 for each committee that they chair. In addition, the Chairman of the Board
annually receives an additional $38,000.
We reimburse each non-employee director for out-of-pocket expenses incurred in connection with attending our
Board and Board committee meetings. Compensation for our directors, including cash and equity compensation, is
determined, and remains subject to adjustment, by our Board of Directors.
The following table summarizes compensation paid to each of our non-employee directors who served during
fiscal year 2019.
Name (1)
Fees Earned
or
Paid in Cash
($) (2)
Stock
Awards
($)
Option
Awards
($) (3)
Total
($)
Terence J. Cryan ............................
85,000
-
17,870
102,870
Dean J. Glover ...............................
54,600
-
17,870
72,470
Steven M. Fludder .........................
53,000
-
17,870
70,870
Robert K. Winters ..........................
45,000
-
17,870
62,870
Kristine S. Moore ..........................
24,946
-
17,870
42,816
(1) George H. Kirby III, the Company’s President and Chief Executive Officer is not included in this table
as he is an employee of the Company and thus receives no compensation for his services as a Director.
The compensation received by Mr. Kirby as an employee of the Company is shown in the Summary
Compensation Table on page 48.
(2) Fees earned or paid in cash reflect annual retainer and committee meeting fees.
46
(3) Stock options granted to directors vest fully on the date of the first annual shareholders meeting following
the grant date. The amounts in the “Option Awards” column reflect the aggregate grant date fair value
of stock options granted during the year computed in accordance with the provisions of Accounting
Standards Codification (ASC) No. 718, “Compensation- Stock Compensation.” The assumptions used in
calculating these amounts are incorporated by reference to Note 2 to the financial statements in this
Annual Report.
The following table summarizes grants during fiscal year 2019.
Name
Stock
Awards
Option
Awards
Total
Terence J. Cryan (1) ............................................
Dean J. Glover (1) ...............................................
Steven M. Fludder (1) .........................................
Robert K. Winters (1) ..........................................
Kristine S. Moore (1) ..........................................
-
-
-
-
-
2,500
2,500
2,500
2,500
2,500
2,500
2,500
2,500
2,500
2,500
(1) During fiscal year 2019 each board member was granted stock options exercisable for 2,500 shares of
common stock for Board service during the year ending October 31, 2019.
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.
●
47
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, organizational 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 and regulatory approval and licensing. Because of this, many of the traditional benchmarking metrics, such
as product sales, revenues and profits are inappropriate for our Company. 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.
Summary Compensation Table
The following table sets forth the compensation paid or accrued during the fiscal years ended April 30, 2019 and
April 30, 2018 to our named executive officers.
Name and
Principal Position
Year
Salary
($) (1)
Bonus
($) (2)
Stock
Awards
($) (3)
Option
Awards
($)
All Other
Compensation
($)
Total
($)
George H. Kirby III ................... 2019 391,140 173,138
President and
Chief Executive Officer
2018 381,600 276,565 70,000
- 71,480
-
Matthew T. Shafer ..................... 2019 253,125 73,406
Vice President,
Chief Financial Officer and
Treasurer
2018 236,042 118,750 20,418
- 41,101
-
84,104 (4) 719,862
51,710 (4) 779,875
9,434 (5) 377,066
4,450 (5) 379,660
Christopher Phebus (6) ................ 2019 158,649
Vice President, Engineering
-
2018 79,784 37,406 108,000
-
Dr. Mike M. Mekhiche (8) .......... 2019
Former Executive Vice
President,
Engineering and Operations
2018 91,814
-
-
-
-
-
-
-
-
-
37,590 (7) 196,239
17,815 (7) 243,005
-
-
33,712 (9) 125,526
(1) 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.
(2) This amount represents bonuses earned by the named executive officers in fiscal year 2019 and 2018.
(3) The amounts in the “Stock Awards” column reflect the aggregate grant date fair value of stock options
granted during the year computed in accordance with the provisions of Accounting Standards
Codification (ASC) No. 718, “Compensation- Stock Compensation.” The assumptions used in
calculating these amounts are incorporated by reference to Note 2 to the financial statements in this
Annual Report.
(4) For fiscal year 2019 the amount of $84,104 includes $48,024 for relocation expenses, $27,079 payout
for unused vacation and $9,000 relates to the Company’s matching contributions to the 401(K) Plan. For
fiscal year 2018 the amount of $51,710 includes $42,710 for relocation expenses and $9,000 relates to
the Company’s matching contributions to the 401(K) Plan. In accordance with his employment
agreement Mr. Kirby is eligible for reimbursement of relocation expenses.
48
(5) For fiscal year 2019 the amount of $9,434 includes $3,636 payout for unused vacation and $5,797 relates
to the Company’s matching contributions to the 401(K) Plan. For fiscal year 2019 the amount of $4,450
relates to the Company’s matching contributions to the 401(K) Plan.
(6) Mr. Phebus joined the Company on January 15, 2018 to serve as the Company’s Vice President of
Engineering. Mr. Phebus resigned from his position as Vice President of Engineering effective
November 30, 2018.
(7) For fiscal 2019 the amount $37,590 includes $32,185 for relocation expenses and $5,405 for unused
vacation payout. For fiscal year 2018 the amount of $17,815 is relocation expenses in accordance with
Mr. Phebus’ employment agreement.
(8) Dr. Mekhiche resigned from his position as Executive Vice President, Engineering and Operations
effective August 8, 2017.
(9) For fiscal year 2018 the amount of $33,712 includes $31,612 payout for unused vacation and $2,100
relates to the Company’s matching contributions to the 401(K) Plan. For fiscal year 2017 the amount of
$20,086 includes $12,886 payout for unused vacation and $7,200 relates to the Company’s matching
contributions to the 401(K) Plan.
Employment Agreements
George H. Kirby III - President, Chief Executive Officer and Director
Under an agreement entered into on December 29, 2014, Mr. Kirby was entitled to an initial annual base salary
of $360,000 subject to adjustment upon annual review by our Board of Directors, was subsequently increased to $381,600
on May 1, 2016 and to $391,140 on May 1, 2018. Mr. Kirby 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, other than as a result of a change of control, or if
he terminates his employment for good reason (as such terms are defined in his employment agreement), Mr. Kirby has
the right to receive severance payments. If such termination occurs, 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.
Matthew T. Shafer - Vice President, Chief Financial Officer and Treasurer
On August 23, 2016, and in connection with his hiring by the Company, Mr. Shafer entered into an employment
agreement with the Company, to be effective on September 7, 2016 (the “Shafer Employment Agreement”). Under the
Shafer Employment Agreement, Mr. Shafer was entitled to an initial annual base salary of $220,000 subject to adjustment
upon annual review by the Company’s Board of Directors, was subsequently increased to $250,000 on October 18, 2017
and to $253,125 on May 1, 2018. Mr. Shafer is also eligible to earn discretionary incentive bonuses and incentive
compensation. He is also entitled to participate in all Company employee benefit plans.
Upon the termination of his employment other than for cause, or if he terminates his employment for good reason
(as such terms are defined in the Shafer Employment Agreement), Mr. Shafer has the right to receive severance payments.
If such termination occurs before the end of six months of service, he receives no severance. If such termination occurs
after completing six months of service, Mr. Shafer will receive six months of his base salary. Pursuant to this agreement,
Mr. Shafer is also subject to covenants regarding confidentiality, non-competition and non-solicitation during and after the
term of his employment.
Stock Option and Other Compensation Plans
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 42,500 shares to 82,661 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 our stockholders, increasing
the aggregate number of shares authorized for issuance by an additional 40,000 shares to 122,661.
49
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
10,000 per calendar year.
Our 2006 Stock Incentive Plan was 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 could 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 selected the recipients of awards and determined:
●
●
●
●
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 delegated authority to an officer, the officer had the power to make awards to all of our
employees, except to executive officers. Our Board of Directors fixed 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 could
make.
If a merger or other reorganization event occurred, our Board of Directors could provide that all of our outstanding
options are to be assumed or substituted by the successor corporation. Our Board of Directors could also provide that, in
the event the succeeding corporation did not agree to assume, or substitute for, outstanding options, then all unexercised
options would become exercisable in full prior to the completion of the event and that these options would terminate
immediately prior to the completion of the merger or other reorganization event if not previously exercised. Our Board of
Directors could also provide for cashing out the value of any outstanding options.
No awards could be granted under our 2006 Stock Incentive Plan after December 6, 2016, but the vesting and
effectiveness of awards granted before that date could extend beyond that date. Our Board of Directors could amend,
suspend or terminate our 2006 Stock Incentive Plan at any time, except that stockholder approval would 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, 2019, options to purchase 701 shares of our Common Stock at a weighted average exercise price
of $566.62 were outstanding under our 2006 Stock Incentive Plan.
As of April 30, 2019, we had granted 5,701 shares of restricted Common Stock under our 2006 Stock Incentive
Plan, of which zero remain outstanding as of April 30, 2019.
Once the 2015 Omnibus Incentive Plan (discussed below) was approved by the stockholders on October 22, 2015,
no further stock options or other awards were awarded under the 2006 Stock Incentive Plan and it was terminated.
2015 Omnibus Incentive Plan
On August 17, 2015, the Board of Directors approved, subject to the receipt of stockholder approval, the Ocean
Power Technologies, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”). On October 22, 2015, the stockholders approved
the 2015 Plan and the 2006 Stock Incentive Plan was terminated. Effective August 17, 2016, our Board approved and
adopted an amendment to the 2015 Plan, subject to stockholder approval, to increase the number of shares available for
grant under the 2015 Plan from 12,036 to 32,036 in order to assure that adequate shares will be available for future grants.
On October 21, 2016, the stockholders approved the amendment to the 2015 Plan. Effective September 28, 2018, our Board
approved and adopted an amendment to the 2015 Plan, subject to stockholder approval, to increase the number of shares
available for grant under the 2015 Plan from 32,036 to 132,036 in order to assure that adequate shares will be available for
future grants. On December 7, 2018, the stockholders approved the amendment to the 2015 Plan.
50
Description of 2015 Plan
The following is a summary of the material provisions of the 2015 Plan, as amended, and is qualified in its entirety
by reference to the complete text of the 2015 Plan, a copy of which is filed as Annex A to our Proxy Statement on Schedule
14A filed with the SEC on September 3, 2015.
Administration
The 2015 Plan is administered by a committee of the Board, which consists of not fewer than two directors of the
Company designated by the Board, each of whom is a “non-employee director” within the meaning of Rule 16b-3
promulgated under the Exchange Act, an “outside director” within the meaning of Section 162(m) of the Internal Revenue
Code as amended (as now in effect or later amended and any successor thereto, the “Code”) and, for so long as our Common
Stock is listed on the Nasdaq, an “independent director” within the meaning of the Nasdaq rules. Among other things, the
committee administering the 2015 Plan has full power and authority to take all actions and to make all determinations
required or provided for under the 2015 Plan, any award under the 2015 Plan or any award agreement under the 2015 Plan,
not inconsistent with the specific terms and conditions of the 2015 Plan, which the committee deems to be necessary or
appropriate to the administration of the 2015 Plan. The committee administering the 2015 Plan, may amend, modify or
supplement the terms of any outstanding award, provided that no amendment, modification or supplement of the terms of
any outstanding award shall impair a grantee’s rights under an award without the consent of the grantee. The committee
administering the 2015 Plan is also authorized to construe the award agreements and may prescribe rules relating to the
2015 Plan. Notwithstanding the foregoing, our full Board will conduct the general administration of the 2015 Plan with
respect to all awards granted to our non-employee directors. In addition, in its sole discretion, our Board may at any time
and from time to time exercise any and all rights and duties of the committee under the 2015 Plan except with respect to
matters which are required to be determined in the sole discretion of the committee under Rule 16b-3 of the Exchange Act
or Section 162(m) of the Code, or any regulations or rules issued thereunder.
Grant of Awards; Shares Available for Awards; Award Limits; Eligible Grantees
The 2015 Plan provides for the grant of stock options, SARs, restricted stock awards, stock unit awards and
unrestricted stock awards, dividend equivalent rights, performance share awards or other performance-based awards, other
equity-based awards or cash to eligible employees, officers and non-employee directors of the Company or any affiliate of
the Company, or any consultant or adviser to the Company or an affiliate who is currently providing services to the
Company or an affiliate, or to any other individual whose participation in the 2015 Plan is determined to be in the best
interests of the Company by the committee administering the 2015 Plan. We have reserved a total of 10,000 shares of
Common Stock for issuance as or under awards to be made under the 2015 Plan, plus (y) 2,036, which was the number of
shares of Common Stock available for issuance under our 2006 Stock Incentive Plan as of the effective date of the 2015
Plan, plus (z) the number of shares of our Common Stock related to awards under the 2006 Stock Incentive Plan as of the
effective date of the 2015 Plan which thereafter terminate by expiration, forfeiture, cancellation, or otherwise without the
issuance of such shares. With the amendment to the Plan approved by the stockholders on October 21, 2016, the number
of shares of Common Stock increased from 12,036 to 32,036. If any award expires, is cancelled, or terminates unexercised
or is forfeited, the number of shares subject thereto is again available for grant under the 2015 Plan. The maximum number
of shares of stock that can be granted under the 2015 Plan pursuant to incentive stock option awards is currently ten
thousand (10,000). The maximum number of shares of stock subject to awards that can be granted under the 2015 Plan in
any one calendar year to any person, other than a non-employee director, is three thousand seven hundred fifty (3,750).
The maximum fair market value of shares of stock that may be granted under the 2015 Plan in any one calendar year to
any non-employee director is ten thousand dollars ($10,000). The limitation on the amount of shares of stock issuable under
the 2015 Plan is subject to adjustment in the event of certain changes in our capital stock, such as recapitalizations,
reclassifications, stock splits, reverse stock splits, spin-offs, combinations of our stock, exchanges of our stock and other
increases or decreases in our stock without receipt of consideration.
As of April 30, 2019, options to purchase 64,871 shares of our Common Stock at a weighted average exercise
price of $15.19 were outstanding under our 2015 Omnibus Incentive Plan.
As of April 30, 2019, we had granted 17,350 shares of Restricted Common Stock under our 2015 Omnibus
Incentive Plan. 10,248 shares vested and 2,596 shares were cancelled, with 4,506 shares remaining outstanding.
The 2015 Plan will terminate automatically on October 22, 2025, which is ten years after the date on which
stockholders approve the 2015 Plan. As of April 30, 2019, there are 58,555 shares available for grant under the 2015
Omnibus Incentive Plan.
51
2018 Employment Inducement Incentive Award Plan
On January 18, 2018, the Board adopted the Ocean Power Technologies, Inc. Employment Inducement Incentive
Award Plan (the “Inducement Plan”) and, subject to the adjustment provisions of the Inducement Plan, reserved 25,000
shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan.
The Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) and Rule 5635(c)(3)
of the Nasdaq Listing Rules. The Inducement Plan provides for the grant of equity-based awards, including restricted stock
units, restricted stock, performance shares and performance units, and its terms are substantially similar to the Company’s
2015 Omnibus Incentive Plan, including with respect to treatment of equity awards in the event of a “change in control”
as defined under the Inducement Plan, but with such other terms and conditions intended to comply with the Nasdaq
inducement award exception.
In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the
Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company
(or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the
individuals’ entry into employment with the Company. An award is any right to receive the Company’s common stock
pursuant to the 2018 Inducement Plan, consisting of a performance share award, restricted stock award, a restricted stock
unit award or a stock payment award. No Awards may be granted or awarded during any period of suspension or after
termination of the Plan, and in no event may any Award be granted under the Plan after the tenth (10th) anniversary of the
date of its adoption. Any Awards that are outstanding on the Expiration Date, or the date of termination of the Plan (if
earlier), shall remain in force according to the terms of the Plan and the applicable Award Agreement. As of April 30,
2019, there were no shares outstanding and 25,000 shares available for grant under the 2018 Inducement Plan.
2018 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, 2019:
Option Awards
Numbers of
Shares
Underlying
Unexercised
Options (#)
Exercisable
Numbers of
Shares
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price ($)
Option
Expiration
Date
Stock Awards
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
Name and
Principal Position
George H. Kirby III ...
Matthew T. Shafer .....
-
-
10,000 $
8.20 12/7/2028 (1)
2,500 (2)
5,750 $
8.20 12/7/2028 (3)
258 (4)
729 (5)
6,950
717
2,027
(1) Options granted December 7, 2018 relating to an aggregate of 10,000 shares, of which 100% vest on the
anniversary of the grant date or on the date of the annual shareholder meeting.
(2) Represent shares of restricted stock granted on May 19, 2017 relating to an aggregate of 2,500 shares
which vest after a two- year period based on service requirements.
(3) Options granted December 7, 2018 relating to an aggregate of 5,750 shares, of which 100% vest on the
anniversary of the grant date or on the date of the annual shareholder meeting.
(4) Represent shares of restricted stock granted on October 21, 2016 relating to an aggregate of 773 shares
which vest over a three- year period based on service requirements; 258 shares vested on Sept 17, 2017
and 257 shares vested on Sept 17, 2018.
(5) Represent shares of restricted stock granted on May 19, 2017 relating to an aggregate of 2,500 shares
which vest after a two- year period based on service requirements.
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. We do not include information for Mr. Phebus or Mr. Mekhiche since they are
no longer employed by the Company and their departures did not trigger any payments.
52
Termination by Company without Cause; Termination by Executive for Good Reason. Our employment agreement
with Mr. Kirby provides for severance pay 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, in the amount of twelve months of
base salary. 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 of employment (but not longer than the original term of such options).
Our employment agreement with Mr. Shafer provides, upon the termination of his employment other than for
cause, or if Mr. Shafer terminates his employment for good reason, that Mr. Shafer has the right to receive severance
payments. If such termination occurs before the end of six months of service, Mr. Shafer will receive no severance. If such
termination occurs after completing six months of service, Mr. Shafer will receive six months of his base salary.
Termination by Company for Cause; Termination by Executive without Good Reason. Under our employment
contracts with Mr. Kirby 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. The employment
agreement with Mr. Shafer does not contain provisions regarding severance in the event of a termination by the Company
with or without cause or termination by the executive without good reason.
Change in Control. Our employment agreement with Mr. Kirby provides for severance pay equal to two (2) years
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 (but not longer than the original term
of such options). 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 would become fully vested.
The employment agreement for Mr. Shafer does 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 Mr. Kirby 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 agreement for Mr. Shafer does 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.
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 July
15, 2019 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 executive officer (c) each director, and (d) all executive officers and directors as a group.
The Percentage of Common Stock outstanding is based on 5,771,747 shares of our Common Stock outstanding
as of July 15, 2019. 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 July 15, 2019 to be
outstanding and to be beneficially owned by the person holding the options 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 such person, subject to community property
laws, where applicable. The street address of each beneficial owner shown in the table below is c/o Ocean Power
Technologies, Inc., 28 Engelhard Drive, Suite B, Monroe Township, NJ 08831.
53
Name of Beneficial Owner
Number of Shares
Beneficially Owned
Percentage of
Shares Beneficially
Owned
Terence J. Cryan (1) ............................................................
George H. Kirby III (2) .......................................................
Matthew T. Shafer (3) .........................................................
Steven M. Fludder (4) .........................................................
Dean J. Glover (5) ...............................................................
Robert K. Winters (6) ..........................................................
Kristine S. Moore (7) ..........................................................
All directors and executive officers as a group
(7 individuals) ....................................................................
4,712
6,936
865
4,173
9,287
3,573
-
29,546
*
*
*
*
*
*
*
*
* Represents a beneficial ownership of less the one percent of our outstanding common stock
(1) Beneficial ownership includes 361 shares of our common stock and 4,351 shares issuable upon the
exercise of options that are currently exercisable or exercisable within sixty days of July 15, 2019.
(2) Beneficial ownership includes 6,936 shares of our common stock.
(3) Beneficial ownership includes 865 shares of our common stock.
(4) Beneficial ownership includes 600 shares of our common stock and 3,573 shares issuable upon the
exercise of options that are currently exercisable or exercisable within sixty days of July 15, 2019.
(5) Beneficial ownership includes 5,248 shares of our common stock and 4,039 shares issuable upon the
exercise of options that are currently exercisable or exercisable within sixty days of July 15, 2019.
(6) Beneficial ownership includes 3,573 shares issuable upon the exercise of options that are currently
exercisable or exercisable within sixty days of July 15, 2019.
(7) Ms. Moore joined the Board on September 10, 2018 and does not have any ownership of our common
stock or options that are currently exercisable or exercisable within sixty days of July 15, 2019.
Equity Compensation Plan Information
The following table sets forth the indicated information as of April 30, 2019 with respect to our equity
compensation plans:
Number of Shares
to be Issued Upon
Exercise of
Outstanding
Options and
Restricted Stock
Weighted-Average
Exercise Price of
Outstanding
Options
Number of Shares
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding Shares
Reflected in First Column
Plan category
Equity compensation plans approved by
shareholders
Stock Options............................................
Restricted Stock ........................................
65,572 $
4,506
21.08
N/A
Equity compensation plans not approved by
shareholders
Stock Options............................................
Restricted Stock ........................................
-
-
-
-
58,555 (1)
-
-
25,000 (2)
(1) Consists of shares of our common stock available for issuance under the 2015 Omnibus Incentive Plan.
(2) Consists of shares of our common stock available for issuance under the 2018 Employee Inducement
Incentive Award Plan.
Our equity compensation plans consist of 2006 Stock Incentive Plan and 2015 Omnibus Incentive Plan which
were approved by our stockholders. Once the 2015 Omnibus Incentive Plan was approved by the stockholders on October
22, 2015, no further stock options or other awards were awarded under the 2006 Stock Incentive Plan and it was terminated.
Shares that are forfeited under the 2006 Stock Incentive Plan on or after October 22, 2015 will become available for
issuance under the 2015 Omnibus Incentive Plan.
The equity compensation plan that has not been approved by our shareholders is our 2018 Employee Inducement
Incentive Award Plan.
54
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 all of our current directors are “independent directors” within the meaning of the
applicable listing standards of the Nasdaq, except for George H. Kirby III who is our President and Chief Executive Officer.
Certain Relationship and Related Person Transaction
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 recuse 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.
Fiscal Year 2019 Fiscal Year 2018
Audit Fees (1) ................................................................ $
Audit- Related Fees .....................................................
Tax Fees (2) ...................................................................
All Other Fees (3) ..........................................................
376,095 $
-
11,438
1,780
322,000
-
19,000
1,780
Total Fees .................................................................... $
389,313 $
342,780
(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 the statutory and regulatory filings or
engagements. Fiscal year 2019 and 2018 audit fees include fees for comfort letters and consents of
$128,500 and $72,500, respectively, related to several equity offerings. Fiscal 2019 and 2018 include
$2,595 and $4,500 for out of pocket fees, respectively.
(2) Tax Fees include fees for the tax return preparation assistance and review.
(3) All Other Fees for fiscal 2019 and 2018 includes subscription fee for KPMG’s accounting research tool.
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 a description of the services that documents 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 years 2019 and 2018 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.
55
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) (1) Financial Statements: See Index to Consolidated Financial Statements on page F-1.
(3) Exhibits: See Exhibit Index on pages 58 to 59.
ITEM 16. FORM 10-K SUMMARY
None.
56
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 22, 2019
OCEAN POWER TECHNOLOGIES, INC.
/s/ George H. Kirby III
By: George H. Kirby III
President and 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
/s/ George H. Kirby III
George H. Kirby III
President, Chief Executive Officer
and Director (Principal Executive
Officer)
DATE
July 22, 2019
/s/ Matthew T. Shafer
Matthew T. Shafer
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
July 22, 2019
Officer)
/s/ Terence J. Cryan
Terence J. Cryan
Chairman of the Board and Director
July 22, 2019
/s/ Dean J. Glover
Dean J. Glover
Vice Chairman of the Board and
Director
/s/ Steven M. Fludder
Steven M. Fludder
/s/ Robert K. Winters
Robert K. Winters
/s/ Kristine S. Moore
Kristine S. Moore
Director
Director
Director
July 22, 2019
July 22, 2019
July 22, 2019
July 22, 2019
57
Exhibit
Number
Exhibits Index
Description
3.1
3.2
3.3
3.4
3.5
4.1
4.2
Restated Certificate of Incorporation of the registrant (incorporated by reference from Exhibit 3.1 to our Quarterly
Report on Form 10-Q filed September 14, 2007).
Certificate of Amendment of Certificate of Incorporation of Ocean Power Technologies, Inc. dated October 27, 2015
(incorporated by reference from Exhibit 3.1 to Current Report on Form 8-K filed on October 28, 2015).
Amended and Restated Bylaws of the registrant (incorporated by reference from Exhibit 3.2 to the Current Report
on Form 8-K filed June 23, 2016).
Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the
State of Delaware on October 21, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report
on Form 8-K filed on October 21, 2016).
Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the
State of Delaware on December 7, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report
on Form 8-K filed on December 7, 2018).
Specimen certificate of Common Stock (incorporated by reference from Exhibit 4.1 to Form S-1/A filed March 19,
2007).
Form of Warrant to Purchase Common Stock (incorporated by reference from Exhibit 4.1 to Current Report on Form
8-K/A filed on June 7, 2016).
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).
10.2
Amended and Restated 2006 Stock Incentive Plan (incorporated by reference from Exhibit A to Proxy Statement
filed August 28, 2013).*
10.3
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).
10.4
Form of Restricted Stock Agreement (incorporated by reference from Exhibit 10.1 to Form 10-Q filed March 14,
2011).*
10.5
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).
10.6
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).*
10.7
Placement Agency Agreement dated June 2, 2016, by and among Ocean Power Technologies, Inc., Roth Capital
Partners, LLC and Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit
99.2 to Current Report on Form 8-K filed on June 2, 2016).
10.8
Form of Securities Purchase Agreement dated June 2, 2016 (incorporated by reference to Exhibit 99.3 to Current
Report on Form 8-K filed on June 2, 2016).
10.9
Form of Amendment No. 1 to Securities Purchase Agreement, dated June 7, 2016 (incorporated by reference to
Exhibit 99.4 to the Current Report on Form 8-K/A filed on June 7, 2016).
10.10
2015 Omnibus Incentive Plan* (incorporated by reference to Annex A to Proxy Statement filed on September 3,
2015).
10.11
Stipulation and Agreement of Class Settlement dated as of May 5, 2016 (incorporated by reference to Exhibit 10.1
to Current Report on Form 8-K filed on May 11, 2016).
10.12
10.13
Agreement by and between Ocean Power Technologies, Inc. and Mitsui Engineering & Shipbuilding Co., Ltd dated
May 31, 2016 (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K/A filed on June 6, 2016).
Form of the Securities Purchase Agreement, dated June 2, 2016 (incorporated by reference to Exhibit 99.3 to the
Current Report on Form 8-K filed on June 2, 2016).
10.14
Form of Amendment No. 1 to Securities Purchase Agreement, dated June 7, 2016 (incorporated by reference to
Exhibit 99.4 to the Current Report on Form 8-K/A filed on June 7, 2016)
10.15
Form of Amendment No. 2, dated as of July 21, 2016, to the Securities Purchase Agreement, dated as of June 2,
2016, by and among Ocean Power Technologies, Inc. and the investor’s signatory thereto, and (incorporated by
reference from Exhibit 99.2 to the Current Report on Form 8-K filed July 21, 2016).
10.16
Form of Placement Agency Agreement, dated July 22, 2016, between the Company and the Placement Agent
(incorporated by reference from Exhibit 1.1 to the Current Report on Form 8-K filed July 22, 2016).
10.17
Form of Subscription Agreement, dated July 22, 2016 between the Company and the Purchasers thereto (incorporated
by reference from Exhibit 10.1 to the Current Report on Form 8-K filed July 22, 2016).
10.18
Employment Letter between the Company and Matthew Shafer dated August 23, 2016, (incorporated by reference
from Exhibit 10.1 to the Current Report on Form 8-K filed August 29, 2016).
10.19
Letter Agreement between the Company and Mark A. Featherstone dated August 25, 2016, (incorporated by
reference from Exhibit 10.3 to the Current Report on Form 8-K filed August 29, 2016).
10.20
Employment Letter between the Company and Mike Mekhiche dated September 12, 2016, (incorporated by reference
from Exhibit 10.4 to the Current Report on Form 8-K filed August 29, 2016).
58
Exhibit
Number
Description
10.21
Letter Agreement between the Company and Mike Mekhiche dated June 19, 2014, (incorporated by reference from
Exhibit 10.5 to the Current Report on Form 8-K filed August 29, 2016).
10.22
Agreement by and between the Company and the U.S. Office of Naval Research dated September 13, 2016
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 14,
2016).
10.23
Ocean Power Technologies, Inc. Employment Inducement Incentive Award Plan (incorporated by reference to
Exhibit 10.1 to Form 8-K filed with the SEC on January 19, 2018).*
10.24
Form of Restricted Stock Agreement for Employment Inducement Incentive Award Plan (incorporated by reference
to Exhibit 10.2 to Form 8-K filed with the SEC on January 19, 2018).*
10.25
Contract between Eni S.p.A. and the Company dated March 14, 2018 (incorporated by reference to Exhibit 10.1 to
Form 8-K filed with the SEC on March 19, 2018). +
10.26
Contract between Premier Oil UK Limited and the Company dated June 27, 2018 (incorporated by reference to
Exhibit 10.27 to Form 10-K filed with the SEC on July 17, 2018).+
10.27
Amendment to the Employment Agreement of George H. Kirby III (incorporated by reference to Exhibit 10.2 to
Form 8-K filed with the SEC on July 18, 2018). *
10.28
Common Stock Purchase Agreement with Aspire Capital Fund, LLC (incorporated by reference to Exhibit 10.1 to
Form 8-K filed with the SEC on August 13, 2018).
10.29
Registration Rights Agreement with Aspire Capital Fund, LLC (incorporated by reference to Exhibit 4.1 to Form 8-
K filed with the SEC on August 13, 2018).
10.30
Sales Agreement between the Company and A.G.P./Alliance Global Partners (incorporated by reference to Exhibit
10.1 to Form 8-K filed with the SEC on January 7, 2019).
10.31
Contract between U.S. Navy and the Company dated February 11, 2019 (incorporated by reference to Exhibit 10.2
to Form 10-Q filed with the SEC on March 11, 2019).
10.32
Form of Warrant Agency Agreement by and between the Company and Computershare Trust Company, N.A.
collectively as warrant agent (incorporated by reference to Exhibit 4.7 to Amendment No.2 to the Company’s
Registration Statement on Form S-1 (file No. 333-230199, filed with the SEC on April 3, 2019.
10.33
Form of Common Warrant ((incorporated by reference to Exhibit 4.2 to Form 8-K filed with the SEC on April 5,
2019).
10.34
Form of Pre-Funded Warrant ((incorporated by reference to Exhibit 4.3 to Form 8-K filed with the SEC on April 5,
2019).
10.35
Warrant Agency Agreement between Ocean Power Technologies, Inc. and Computershare Trust Company, N.A.
dated April 8, 2019 (incorporated by reference to Exhibit 4.1 to Form 8-K filed with the SEC on April 8, 2019.
10.36
Contract amendment between Premier Oil UK Limited and the Company dated June 24, 2019 (incorporated by
reference to Exhibit 10.1 to Form 8-K filed with the SEC on June 25, 2019).+
10.37
Lease Agreement dated March 31, 2017 between Ocean Power Technologies, Inc. and PPH Industrial 28 Engelhard,
21.1
23.1
31.1
31.2
32.1
32.2
101
LLC.
Subsidiaries of the registrant
Consent of KPMG LLP
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002**
Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002**
The following financial information from Ocean Power Technologies, Inc.’s Annual Report on Form 10-K for the
annual period ended April 30, 2019, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated
Balance Sheets - as of April 30, 2019 and 2018, (ii) Consolidated Statements of Operations - for the years ended
April 30, 2019 and 2018, (iii) Consolidated Statements of Comprehensive Loss - for the years ended April 30, 2019
and 2018, (iv) Consolidated Statements of Stockholders’ Equity - for the years ended April 30, 2019 and 2018 (v)
Consolidated Statements of Cash Flows - for the years ended April 30, 2019 and 2018, (vi) Notes to Consolidated
Financial Statements.***
+ Indicates that confidential treatment has been requested for this exhibit.
* Management contract or compensatory plan or arrangement.
** As provided in Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed to be “filed” or part
of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as
amended, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934
or otherwise subject to the liability under those sections.
*** As provided in Rule 406T of Regulation S-T, this exhibit shall not be deemed “filed” or a part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended,
and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise
subject to the liability under those sections.
59
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Reports of Management ............................................................................................................................................
Reports of Independent Registered Public Accounting Firm....................................................................................
Consolidated Balance Sheets, April 30, 2019 and 2018 ...........................................................................................
Consolidated Statements of Operations, Years ended April 30, 2019 and 2018 ......................................................
Consolidated Statements of Comprehensive Loss, Years ended April 30, 2019 and 2018 ......................................
Consolidated Statements of Stockholders’ Equity, Years ended April 30, 2019 and 2018 ......................................
Consolidated Statements of Cash Flows, Years ended April 30, 2019 and 2018 .....................................................
Notes to Consolidated Financial Statements .............................................................................................................
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
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, 2019. 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 (2013). Based on this
assessment using those criteria, management concluded that the Company’s internal control over financial reporting was
effective as of April 30, 2019.
/s/ George H. Kirby III
George H. Kirby III
President and Chief Executive Officer
/s/ Matthew T. Shafer
Matthew T. Shafer
Chief Financial Officer and Treasurer
F-2
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Ocean Power Technologies, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ocean Power Technologies, Inc. and
subsidiaries (the Company) as of April 30, 2019 and 2018, 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, 2019,
and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of April 30, 2019 and 2018, and
the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2019, in
conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1(b) to the consolidated financial statements, as of April 30, 2019 the
Company has cash and cash equivalents of $16.7 million, and the Company has suffered recurring losses from operations
and has an accumulated deficit. These factors raise substantial doubt about its ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 1(b). The consolidated financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principle
As discussed in Note 1(o) to the consolidated financial statements, effective May 1, 2018, the Company adopted
Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and several related amendments,
issued by the Financial Accounting Standards Board (FASB). This change was adopted using the modified retrospective
method.
Basis for Opinion
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 are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2004.
Philadelphia, Pennsylvania
July 22, 2019
F-3
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
April 30, 2019
April 30, 2018
Current assets:
ASSETS
Cash and cash equivalents ..................................................................... $
Marketable securities .............................................................................
Restricted cash- short-term ....................................................................
Accounts receivable ...............................................................................
Unbilled receivables ..............................................................................
Contract assets .......................................................................................
Litigation receivable ..............................................................................
Other current assets ................................................................................
Total current assets ............................................................................
Property and equipment, net ......................................................................
Restricted cash- long-term .........................................................................
Total assets ......................................................................................... $
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable ................................................................................... $
Accrued expenses ..................................................................................
Litigation payable ..................................................................................
Unearned revenue ..................................................................................
Contract liabilities ..................................................................................
Warrant liabilities ..................................................................................
Current portion of capital lease obligations ...........................................
Deferred credits payable current ............................................................
Total current liabilities .......................................................................
Deferred rent ..............................................................................................
Total liabilities ...................................................................................
Commitments and contingencies
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 100,000,000 shares,
issued 5,425,517 and 921,247 shares, respectively ................................
Treasury stock, at cost; 3,770 and 3,701 shares, respectively ................
Additional paid-in capital ......................................................................
Accumulated deficit ...............................................................................
Accumulated other comprehensive loss .................................................
Total stockholders’ equity..................................................................
Total liabilities and stockholders’ equity ........................................... $
16,660 $
-
344
63
-
15
-
537
17,619
592
155
18,366 $
312 $
1,938
-
-
188
6
-
-
2,444
147
2,591
11,499
25
572
171
71
-
350
567
13,255
712
154
14,121
290
2,261
350
18
-
201
23
600
3,743
142
3,885
-
-
5
(301 )
226,026
(209,784 )
(171 )
15,775
18,366 $
1
(300 )
208,233
(197,538 )
(160 )
10,236
14,121
Common stock, Treasury stock, Additional paid-in capital and share data at April 30, 2018 has been adjusted
retroactively to reflect a 1-for-20 reverse stock split effective March 11, 2019.
See accompanying notes to consolidated financial statements.
F-4
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Revenues ........................................................................................................ $
Cost of revenues ............................................................................................
Gross profit/(loss) ......................................................................................
Operating expenses:
Engineering and product development costs .............................................
Selling, general and administrative costs ...................................................
Total operating expenses .......................................................................
Operating loss ................................................................................................
Gain due to the change in fair value of warrant liabilities .............................
Interest income, net ........................................................................................
Other income .................................................................................................
Foreign exchange gain/(loss) .........................................................................
Loss before income taxes ...............................................................................
Income tax benefit .....................................................................................
Net loss .......................................................................................................... $
Basic and diluted net loss per share ............................................................... $
Weighted average shares used to compute basic and diluted net loss per
share ...........................................................................................................
Twelve months ended April 30,
2019
2018
632 $
1,303
(671 )
4,984
7,616
12,600
(13,271 )
195
35
-
(55 )
(13,096 )
850
(12,246 ) $
(9.52 ) $
511
763
(252 )
4,320
6,988
11,308
(11,560 )
122
83
4
75
(11,276 )
1,119
(10,157 )
(13.24 )
1,286,727
767,330
Common stock and share data at April 30, 2018 has been adjusted retroactively to reflect a 1-for-20 reverse stock split
effective March 11, 2019.
See accompanying notes to consolidated financial statements.
F-5
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(in thousands)
Twelve months ended April 30,
2019
2018
Net loss ...................................................................................................... $
Foreign currency translation adjustment ....................................................
Total comprehensive loss ........................................................................... $
(12,246 ) $
(11 )
(12,257 ) $
(10,157 )
-
(10,157 )
See accompanying notes to consolidated financial statements.
F-6
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Common Shares Treasury Shares
Shares Amount Shares Amount Capital Deficit
Paid-In Accumulated
Additional
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balances, April 30, 2017 ........................... 315,700 $
Net loss ......................................................
Stock based compensation ........................
Issuance/(forfeiture) of restricted stock,
net ..............................................................
8,937
Sale of stock .............................................. 596,610
Acquisition of treasury stock ....................
Adoption of accounting standard update
related to stock compensation accounting
(ASU 2016-09) ..........................................
Other comprehensive loss .........................
Balances, April 30, 2018 ........................... 921,247 $
- (2,403) $
(263 ) $ 193,240 $
-
1
(1,298)
(37 )
329
-
14,653
(187,370) $
(10,157)
(160 ) $
5,447
(10,157 )
329
-
14,654
(37 )
11
(11)
1 (3,701) $
(300 ) $ 208,233 $
(197,538) $
-
(160 ) $
-
10,236
(5,090 )
21,429
Net loss ......................................................
Stock based compensation ........................
Issuance/(forfeiture) of restricted stock,
net ..............................................................
Common stock issued for commitment
fee ..............................................................
Issuance of common stock- Aspire
financing, net of issuance costs ................. 162,162
Issuance of common stock- AGP At The
Market offering, net of issuance costs ...... 151,561
Issuance of common stock, common and
pre-funded warrants, net of issuance
costs ........................................................... 1,542,000
Exercise of pre-funded warrants ............... 2,632,120
Acquisition of treasury stock ....................
Other comprehensive loss .........................
Other ..........................................................
88
Balances, April 30, 2019 ........................... 5,425,517 $
(12,246)
295
-
295
593
882
15,711
17
(1 )
-
(301 ) $ 226,026 $
(209,784) $
-
-
-
-
1
3
(89)
-
20
5 (3,770) $
(12,246 )
295
-
295
593
882
15,712
20
(1 )
(11 )
-
15,775
(11 )
(171 )
Common stock, Treasury stock, Additional paid-in capital and share data at April 30, 2018 and April 30, 2017 have
been adjusted retroactively to reflect a 1-for-20 reverse stock split effective March 11, 2019.
See accompanying notes to consolidated financial statements
F-7
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Twelve months ended April 30,
2019
2018
(12,246 ) $
(10,157 )
Cash flows from operating activities:
Net loss ........................................................................................................ $
Adjustments to reconcile net loss to net cash used in operating activities:
Foreign exchange loss/(gain) ...................................................................
Depreciation ............................................................................................
Loss on disposal of property, plant and equipment .................................
Compensation expense related to stock option grants and restricted
stock ........................................................................................................
Gain due to the change in fair value of warrant liabilities .......................
Changes in operating assets and liabilities:
Accounts receivable ............................................................................
Unbilled receivables ............................................................................
Contract assets .....................................................................................
Other assets .........................................................................................
Accounts payable ................................................................................
Accrued expenses ................................................................................
Deferred rent .......................................................................................
Deferred credit payable .......................................................................
Unearned revenue ................................................................................
Contract liabilities ...............................................................................
Net cash used in operating activities ...............................................
Cash flows from investing activities:
Purchases of marketable securities ..............................................................
Maturities of marketable securities ..............................................................
Leasehold improvements and purchase of equipment .................................
Net cash used in investing activities................................................
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs .................
Proceeds from issuance of common stock- Aspire financing net of
issuance costs...............................................................................................
Proceeds from issuance of common stock- AGP At The Market offering,
net of issuance costs ....................................................................................
Proceeds from issuance of common stock, common and pre-funded
warrants, net of issuance costs .....................................................................
Proceeds from exercise of pre-funded warrants ...........................................
Payment of capital lease obligations ............................................................
Acquisition of treasury stock .......................................................................
Net cash provided by financing activities .......................................
Effect of exchange rate changes on cash, cash equivalents and restricted
cash ..................................................................................................................
Net increase in cash, cash equivalents and restricted cash ..............
Cash, cash equivalents and restricted cash, beginning of period .....................
Cash, cash equivalents and restricted cash, end of period ................................ $
55
180
-
295
(195 )
108
71
(15 )
325
23
(316 )
5
(600 )
(18 )
188
(12,140 )
(25 )
50
(54 )
(29 )
-
593
882
15,712
20
(23 )
(1 )
17,183
(80 )
4,934
12,225
17,159 $
Supplemental schedule of cash flows information:
Cash paid for interest ................................................................................... $
1 $
Supplemental disclosure of noncash investing activities:
Acquisition of leasehold improvements and equipment through accrued
expenses ....................................................................................................... $
5 $
Supplemental disclosure of noncash financing activities:
Common stock issued for payment of commitment fee ............................... $
295 $
See accompanying notes to the consolidated financial statements
F-8
(75 )
122
5
329
(122 )
(123 )
225
-
194
(296 )
(821 )
5
-
18
-
(10,696 )
(25 )
25
(658 )
(658 )
14,654
-
-
-
-
(35 )
(37 )
14,582
88
3,316
8,909
12,225
3
11
-
OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Background and Liquidity
(a) Background
Ocean Power Technologies, Inc. (the “Company”) was founded in 1984 in New Jersey, commenced business
operations in 1994 and re-incorporated in Delaware in 2007. The Company is developing and commercializing its
proprietary systems that generate electricity by harnessing the renewable energy of ocean waves. The Company uses
proprietary technologies that convert the mechanical energy created by the heaving motion of ocean waves into electricity.
The Company has designed and continues to develop the PowerBuoy® product line which is based on modular, ocean-
going buoys, which the Company has been periodically ocean testing since 1997. 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 relating to our
technology. Today our goal is to generate the majority our revenue from the sale or lease of products, and sales and services
to support our business operations. As we continue to develop and commercialize our products and services, we expect to
have a net use of cash from operating activities unless and until we achieve positive cash flow from the commercialization
of products and services.
(b) Liquidity/Going Concern
Our consolidated financial statements have been prepared assuming the Company will continue as a going
concern. The Company has experienced substantial and recurring losses from operations, which have contributed to an
accumulated deficit of $209.8 million at April 30, 2019. At April 30, 2019, the Company had approximately $17.2 million
in cash, cash equivalents and restricted cash on hand. The Company generated revenues of only $0.6 million and $0.5
million during the years ended April 30, 2019 and 2018, respectively. Based on the Company’s cash, cash equivalents and
restricted cash balances as of April 30, 2019, the Company believes that it will be able to finance its capital requirements
and operations into the quarter ending July 31, 2020. The Company will require additional equity and/or debt financing to
continue its operations. The Company cannot provide assurances that it will be able to secure additional funding when
needed or at all, or, if secured, that such funding would be on favorable terms. These factors raise substantial doubt about
the Company’s ability to continue as a going concern.
The consolidated financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements
do not include any adjustments relating to the recoverability and classification of recorded assets amounts or the amounts
and classification of liabilities that might result from the outcome of this uncertainty.
Management is evaluating different strategies to obtain the required additional funding for future operations.
These strategies may include, but are not limited to, additional funding from current or new investors, officers and directors;
borrowings of debt; a public offering of the Company’s equity or debt securities; partnerships and/or collaborations. There
can be no assurance that any of these future-funding efforts will be successful.
In fiscal 2019 and 2018, 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 future operating results and cause actual results to vary materially from
expectations include, but are not limited to, risks from lack of available financing and insufficient capital, performance of
PowerBuoys®, its inability to market and commercialize its PowerBuoys®, technology development, scalability of
technology and production, dependence on skills of key personnel, concentration of customers and suppliers, deployment
risks and laws, regulations and permitting. In order to continue to implement its business strategy, the Company requires
additional equity and/or debt financing. The Company closed five equity financing arrangements during the two-year
period ended April 30, 2019. The Company does not currently have any committed sources of debt or equity financing,
and the Company cannot assure that additional equity and/or debt financing will be available to the Company as needed
on acceptable terms, or at all. Historically, the Company has raised capital through securities sales in the public capital
markets. If sufficient additional financing is not obtained when needed, the Company may be required to further curtail or
limit operations, engineering and product development costs, and/or selling, general and administrative activities in order
to reduce its cash expenditures. This could cause the Company to be unable to execute its business plan, take advantage of
future opportunities and may cause it to scale back, delay or eliminate some or all of its product development activities
and/or reduce the scope of or cease its operations.
F-9
On June 2, 2016, the Company entered into a securities purchase agreement, which was amended on June 7, 2016
(as amended, the “Purchase Agreement”) with certain institutional purchasers (the “June Purchasers”). Pursuant to the
terms of the Purchase Agreement, the Company sold an aggregate of 20,850 shares of Common Stock together with
warrants to purchase up to an aggregate of 7,298 shares of Common Stock. Each share of Common Stock was sold together
with a warrant to purchase 0.35 of a share of Common Stock at a combined purchase price of $92.00. The net proceeds to
the Company from the offering were approximately $1.7 million, after deducting placement agent fees and estimated
offering expenses payable by the Company, but excluding the proceeds, if any, from the exercise of the warrants issued in
the offering. The warrants have an exercise price of $121.60 per share, became exercisable on December 3, 2016 (“Initial
Exercise Date”), and will expire five years following the Initial Exercise Date. The Company paid the placement agents
approximately $100,000 as placement agent fees in connection with the sale of securities in the offering. The Company
also reimbursed the placement agents $35,000 for their out of pocket and legal expenses in connection with the offering.
On July 22, 2016, the Company entered into the Second Amendment to the Purchase Agreement (the “Second
Amended Purchase Agreement”) with certain purchasers (the “July Purchasers”). Pursuant to the terms of the Second
Amended Purchase Agreement, the Company sold an aggregate of 29,750 shares of Common Stock together with warrants
to purchase up to an aggregate of 8,925 shares of Common Stock. Each share of Common Stock was sold together with a
warrant to purchase 0.30 of a share of Common Stock at a combined purchase price of $135.00. The net proceeds to the
Company from the offering were approximately $3.6 million, after deducting placement agent fees and estimated offering
expenses payable by the Company, but excluding the proceeds, if any, from the exercise of the warrants issued in the
offering. The Warrants were exercisable immediately at an exercise price of $187.20 per share. The Warrants will expire
on the fifth (5th) anniversary of the initial date of issuance.
On October 19, 2016, the Company sold 138,000 shares of common stock at a price of $55.00 per share, which
includes the sale of 18,000 shares of the Company’s common stock sold by the Company pursuant to the exercise, in full,
of the over-allotment option by the underwriters in a public offering. The net proceeds to the Company from the offering
were approximately $6.9 million, after deducting underwriter fees and offering expenses payable by the Company.
On May 2, 2017, the Company sold 309,638 shares of common stock at a price of $26.00 per share, which includes
the sale of 40,388 shares of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the
over-allotment option by the underwriters in a public offering. The net proceeds to the Company from the offering were
approximately $7.2 million, after deducting underwriter fees and offering expenses payable by the Company.
On October 23, 2017, the Company sold 286,972 shares of common stock at a price of $28.40 per share in a best
efforts public offering. The net proceeds to the Company from the offering were approximately $7.4 million, after
deducting placement fees and offering expenses payable by the Company.
On August 13, 2018, the Company entered into a common stock purchase agreement with Aspire Capital Fund,
LLC (“Aspire Capital”) which provides that, subject to certain terms, conditions and limitations, Aspire Capital is
committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock over a 30-month
period that does not exceed 19.99% of the outstanding common stock on the date of the agreement. Shareholder approval
was not needed since the number of common stock offered for sale in the common stock purchase agreement did not exceed
19.99% of the outstanding common stock on the date of the agreement. In consideration for entering into the agreement,
the Company issued to Aspire Capital 21,429 shares of our common stock as a commitment fee. As of April 30, 2019, the
Company has sold 162,162 shares of common stock with an aggregate market value of $949,259 at an average price of
$5.85 per share pursuant to this common stock purchase agreement.
On January 7, 2019, the Company entered into an At the Market Offering Agreement (“2019 ATM Facility”) with
A.G.P./Alliance Global Partners (“AGP”), under which the Company may issue and sell to or through A.G.P./Alliance
Global Partners, acting as agent and/or principal, shares of the Company’s common stock having an aggregate offering
price of up to $25 million. As of April 30, 2019, under the 2019 ATM Facility the Company issued and sold 151,561 shares
of its common stock with an aggregate market value of $958,229 at an average price of $6.32 per share and paid AGP a
sales commission of approximately $33,469 related to those shares.
On April 8, 2019, the Company sold 1,542,000 shares of common stock, which includes the sale of 642,000 shares
of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the over-allotment option by the
underwriters in a public offering, prefunded warrants to purchase up to 3,385,680 shares of common stock and common
warrants to purchase up to 4,927,680 shares of our common stock in an underwritten public offering. The net proceeds to
the Company from the offering were approximately $15.7 million, after deducting underwriter fees and offering expenses
payable by the Company.
F-10
The sale of additional equity or convertible securities could result in dilution to stockholders. If additional funds
are raised through the issuance of debt securities, these securities could have rights senior to those associated with the
Company’s Common Stock and could contain covenants that would restrict its operations. Financing may not be available
in amounts or on terms acceptable to the Company, or at all. If the Company is unable to obtain required financing, it may
be required to reduce the scope of its operations, including its planned product development and marketing efforts, which
could materially and adversely harm its financial condition and operating results. If the Company is unable to secure
additional financing, it may be forced to cease operations.
(c) Reverse Stock-Split
At the special meeting of the Company’s stockholders on March 8, 2019, our stockholders approved a proposal
to amend our Certificate of Incorporation to affect a reverse split of our common stock at a ratio to be determined by the
Company’s Board of Directors within a specific range. After the special meeting of stockholders, the Company’s Board of
Directors convened and decided to initiate the reverse split, chose a ratio, and directed management to take the necessary
steps to effectuate the reverse split as soon as possible. Pursuant to the direction of the Board, the Company filed a
Certificate of Amendment to our Certificate of Incorporation to affect a one-for-twenty reverse stock split of our common
stock (the “Reverse Stock Split”). As of the close of markets on March 11, 2019, the effective date of the Reverse Stock
Split, every twenty shares of issued and outstanding common stock were combined into one issued and outstanding share
of common stock, without any change in the par value per share. Any fractional shares in connection with the Reverse
Stock Split were rounded up to the nearest whole share and no cash payments were made by the Company to stockholders
in lieu of fractional shares. The common stock began trading on a reverse stock split-adjusted basis on the Nasdaq Stock
Market (“Nasdaq”) on March 12, 2019. All share and per share data included in this annual report has been retroactively
restated to reflect the Reverse Stock Split.
(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. The Company
also periodically 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, 2019, 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 fair value of warrant liabilities;
estimated costs to complete projects 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
A performance obligation is the unit of account for revenue recognition. The Company assesses the goods or
services promised in a contract with a customer and identifies as a performance obligation either: a) a good or service (or
a bundle of goods or services) that is distinct; or b) a series of distinct goods or services that are substantially the same and
that have the same pattern of transfer to the customer. A contract may contain a single or multiple performance obligations.
For contracts with multiple performance obligations, the Company allocates the contracted transaction price to each
performance obligation based upon the relative standalone selling price, which represents the price the Company would
sell a promised good or service separately to a customer. The Company determines the standalone selling price based upon
the facts and circumstances of each obligated good or service. The majority of the Company’s contracts have no observable
standalone selling price since the associated products and services are customized to customer specifications. As such, the
standalone selling price generally reflects the Company’s forecast of the total cost to satisfy the performance obligation
plus an appropriate profit margin.
F-11
The nature of the Company’s contracts may give rise to several types of variable consideration, including claims
and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. Variable consideration can
also arise from modifications to the scope of services. Variable consideration is included in the transaction price to the
extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty
associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether
to include such amounts in the transaction price are based largely on our assessment of legal enforceability, performance
and any other information (historical, current, and forecasted) that is reasonably available to us.
The Company recognizes revenue when or as it satisfies a performance obligation by transferring a good or service
to a customer, either (1) at a point in time or (2) over time. A good or service is transferred when or as the customer obtains
control of it. The evaluation of whether control of each performance obligation is transferred at a point in time or over time
is made at contract inception. Input measures such as costs incurred or time elapsed are utilized to assess progress against
specific contractual performance obligations for the Company’s services. The selection of the method to measure progress
towards completion requires judgment and is based on the nature of the services to be provided. For the Company, the
input method using costs incurred or time elapsed best represents the measure of progress against the performance
obligations incorporated within the contractual agreements. When the Company’s estimate of total costs to be incurred to
satisfy the performance obligations exceed revenue, the Company recognizes the loss immediately.
The Company classifies leases as either operating or capital lease arrangements in accordance with the
authoritative accounting guidance contained within Accounting Standards Codification (“ASC”) Topic 840, “Leases”. At
inception of the contract, the Company evaluates the lease against the four lease classification criteria within ASC Topic
840. In general, if one of the four criteria is met, then the lease is accounted for as a capital lease. All others are treated as
an operating lease. For operating leases, lessee payments are recorded to revenue on a straight-line basis over the term of
the lease.
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. Under cost plus contracts, a profit or loss on a project is
recognized depending on whether actual costs are more or less than the agreed upon amount.
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 products and services specified in the contract, a
profit or loss is recognized depending on whether actual costs are more or less than the agreed upon amount. 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. 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. For the twelve-month period ended April 30, 2019 and 2018 all of the Company’s contracts were classified as
firm fixed price.
As of April 30, 2019, the Company’s total remaining performance obligations, also referred to as backlog, totaled
$0.9 million. The Company expects to recognize approximately 81%, or $0.7 million, of the remaining performance
obligations as revenue over the next twelve months and an additional 19% the following twelve months.
(d) Cash and Cash Equivalents, Restricted Cash and Security Agreements
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 a money market account. The following table summarizes cash
and cash equivalents for the years ended April 30, 2019 and 2018:
April 30, 2019 April 30, 2018
(in thousands)
Checking and savings accounts .......................................... $
Money market account .......................................................
$
860 $
15,800
16,660 $
1,332
10,167
11,499
Restricted Cash and Security Agreements
A portion of the Company’s cash is restricted under the terms of two security agreements.
F-12
One agreement is between the Company 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 is approximately €0.3 million ($0.3 million) and carries a fee of 1% per annum of the amount
of any such obligations issued by Barclays Bank. The credit facility does not have an expiration date but is cancelable at
the discretion of the bank. As of April 30, 2019, there was €0.3 million ($0.3 million) in letters of credit outstanding under
this agreement.
The other agreement is between the Company and Santander Bank. Under the agreement, the cash is on deposit
at Santander Bank and serves as security for letter of credit issued by Santander Bank for the lease of new warehouse/office
space in Monroe Township, New Jersey. The agreement cannot be extended beyond January 31, 2025 and is cancelable at
the discretion of the bank. The following table summarizes restricted cash for the years ended April 30, 2019 and 2018:
April 30, 2019 April 30, 2018
(in thousands)
Barclay’s Bank Agreement ................................................. $
Santander Bank...................................................................
$
344 $
155
499 $
372
354
726
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the
statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows for the
years ended April 30, 2019 and 2018:
April 30, 2019 April 30, 2018
(in thousands)
Cash and cash equivalents .................................................. $
Restricted cash- short term .................................................
Restricted cash- long term ..................................................
$
16,660 $
344
155
17,159 $
11,499
572
154
12,225
(e) Marketable Securities
Marketable securities with original maturities longer than three months but that mature in less than one year from
the balance sheet date are classified as current assets. Marketable securities that 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, 2019, the Company did not have
any marketable securities. As of April 30, 2018, the Company had $25,000 in certificates of deposit and all of the
Company’s investments were classified as held-to-maturity.
(f) Property and Equipment
Property and equipment consists primarily of equipment, furnishings, fixtures, computer equipment and leasehold
improvements and are recorded at cost. Depreciation and amortization is calculated using the straight-line method over the
estimated useful lives of the assets. 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.
Description
Estimated useful life
Equipment
Computer equipment & software
Office furniture & fixtures
Equipment under capitalized lease
Leasehold improvements
5 - 7 years
3 years
3 - 7 years
Over the life of the lease
Shorter of the estimated useful life or lease term
F-13
(g) 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 are included in “foreign exchange gain
(loss)” in the accompanying consolidated statements of operations.
(h) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of
cash balances and trade receivables. The Company invests its excess cash in money market funds and does not believe that
it is exposed to any significant risks related to its cash accounts.
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:
Twelve months ended April 30,
2019
2018
Eni S.p.A. ...........................................................................
Mitsui Engineering & Shipbuilding ...................................
Premier Oil UK Limited .....................................................
Office of Naval Research ...................................................
Other ...................................................................................
54 %
0 %
33 %
0 %
13 %
100 %
33 %
43 %
10 %
14 %
0 %
100 %
The loss of, or a significant reduction in revenues from a current customer could significantly impact the
Company’s financial position or results of operations. The Company does not require its customers to maintain collateral.
(i) Warrant Accounting
The Company accounts for warrants issued in connection with its public offerings in accordance with the guidance
on “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” in Topic 480 which
provides that warrants meeting the classification of a liability award are recorded as a liability at its fair value. The warrant
liabilities are subject to re-measurement at each balance sheet date using the Black-Scholes option pricing model. The
Company recognizes any change in fair value in its consolidated statements of operations within “Gain due to the change
in fair value of warrant liabilities”. The Company will continue to adjust the carrying value of the warrants for changes in
the estimated fair value until such time as these instruments are exercised or expire. At that time, the liabilities will be
reclassified to “Additional paid-in capital”, a component of “Stockholders’ equity” on the Consolidated Balance Sheets.
The warrants issued in connection with the Company’s public offerings in June and July 2016 met the criteria of a liability
award and were classified in warrant liabilities. The pre-funded and common warrants issued in the Company’s April 8,
2019 public offering did not meet the criteria to be classified as a liability award and therefore were treated as an equity
award.
(j) 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 and common stock equivalents outstanding during the period. The pre-funded
warrants were determined to be common stock equivalents and have been included in the weighted average number of
shares outstanding for calculation of the basic earnings per share number. Due to the Company’s net losses, potentially
dilutive securities, consisting of options to purchase shares of common stock, warrants on common stock and non-vested
restricted stock issued to employees and non-employee directors, were excluded from the diluted loss per share calculation
due to their anti-dilutive effect.
In computing diluted net loss per share, options to purchase shares of common stock, warrants on common stock
and non-vested restricted stock issued to employees and non-employee directors, totaling 5,013,981 and 45,503 for the
years ended April 30, 2019 and 2018, respectively, were excluded from each of the computations as the effect would be
anti-dilutive due to the Company’s losses.
F-14
(k) Share-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, 2019 and 2018 was approximately $0.3 million and $0.3 million, respectively. The following
table summarizes share-based compensation related to the Company’s share-based plans by expense category for the years
ended April 30, 2019 and 2018:
Twelve months ended April 30,
2019
2018
(in thousands)
Product development .......................................................... $
Selling, general and administrative ....................................
Total share-based compensation expense ........................... $
29 $
266
295 $
24
305
329
Valuation Assumptions for Restricted Stock and Options Granted During the Years Ended April 30, 2019 and 2018
Options
The fair value of each stock option granted, for both service-based and performance-based vesting requirements
during the year ended April 30, 2019, 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 below table. The risk-free rate
is based on the U.S. 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 SEC’s Staff
Accounting Bulletin No. 110, Share-Based Payment. Expected volatility was based on the Company’s historical volatility
during the twelve months ended April 30, 2019.
Twelve months ended April 30,
2019
2018
Risk-free interest rate .........................................................
Expected dividend yield .....................................................
Expected life (in years) .......................................................
Expected volatility ..............................................................
2.7 %
0.0 %
5.5
126.4 %
2.1 %
0.0 %
5.5
128.2 %
The above assumptions were used to determine the weighted average per share fair value of $7.15 and $23.40 for
stock options granted during the years ended April 30, 2019 and 2018, respectively.
Restricted Stock
Compensation expense for non-vested restricted stock is recorded based on its market value on the date of grant
and recognized ratably over the associated service and performance period. During the twelve months ended April 30,
2019, the Company granted 943 shares subject to service-based vesting requirements.
(l) Deferred Rent
On March 31, 2017, the Company signed a new 7-year lease for approximately 56,000 square feet in Monroe
Township, New Jersey that will be used as warehouse/production space and the Company’s principal offices and corporate
headquarters. The lease was classified as an operating lease. Rent payments relating to the Monroe premises are subject to
annual increases. The minimum monthly payments will vary over the 7-year term of the lease. The Company will record
rent expense on a straight-line basis over the 7-year term of the lease. The difference between rent expense and the monthly
lease payment will go to a deferred rent/prepaid rent account. The Landlord has provided the Company a tenant
improvement allowance in an amount up to, but not exceeding, $137,563 to be applied to the cost of tenant improvement
work. The Company collected the full amount of the tenant improvement allowance in May 2018. The Company recorded
lease incentive liability to deferred rent. With the Company’s adoption of ASU No. 2016-02 on May 1, 2019, the balances
in lease incentive liability and deferred rent will be included in the value of the right of use asset.
F-15
(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 carry forwards. 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 carry forwards 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 U.S. 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) Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 outlines a new, single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current
revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-
step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company
expects to receive in exchange for those goods or services. The FASB subsequently issued additional clarifying standards
to address issues arising from implementation of the new revenue standard, including a one-year deferral of the effective
date for the new revenue standard. Public companies should now apply the guidance in ASU 2014-09 to annual reporting
periods beginning after December 15, 2017 and interim periods within those annual periods. Earlier application is permitted
only as of annual reporting periods beginning after December 15, 2016, including interim periods within that annual period.
Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. Under the full
retrospective method, the standard would be applied to each prior reporting period presented and the cumulative effect of
applying the standard would be recognized at the earliest period shown. Under the modified retrospective method, the
cumulative effect of applying the standard would be recognized at the date of application. Effective May 1, 2018, the
Company adopted the requirements of ASU 2014-09 using the modified retrospective method. As a practical expedient,
the Company adopted the new standard only for existing contracts as of May 1, 2018, the date of adoption. Any contracts
that had expired prior to May 1, 2018 were not evaluated against the new standard. The Company adopted ASU 2014-09
and the adoption did not have a material impact on the Company’s consolidated financial position, results of operations or
cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” which amends the existing guidance
on accounting for leases. Topic 842 was further clarified and amended within ASU 2017-13, ASU 2018-01, ASU 2018-
10, ASU 2018-11 and ASU 2018-20. The new standard establishes a right-of-use (ROU) model that requires a lessee to
record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months or leases
that contain a purchase option that is reasonably certain to be exercised. Leases will be classified as either finance or
operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is
effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods,
with early adoption permitted. The company will adopt Topic 842 during the first quarter of 2019 using the modified
retrospective method. The new guidance will be applied to leases that exist or are entered into on or after May 1, 2019
without adjusting comparative periods in the financial statements. The company expects to utilize the package of practical
expedients in ASC 842-10-65-1(f) that, upon adoption of Topic 842, allows entities to (1) not reassess whether any expired
or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as
of the date of adoption and (3) not reassess initial direct costs for any existing leases. Based on the most recent assessment
of existing leases, the Company expects to record a right-of-use asset and lease liability in the range of $1.0 to $2.0 million
that will be included on the balance sheet as of May 1, 2019. The Company does not expect the adoption of Topic 842 to
have a material impact on the company’s results of operations or cash flows.
F-16
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments”, providing additional guidance on eight specific cash flow classification issues. The
goal of the ASU is to reduce diversity in practice of classifying certain items. The amendments in the ASU are effective
for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is
permitted. The Company adopted the standard on May 1, 2018 and determined the standard had no impact on its financial
position, results of operation or cash flows.
In May 2017, the FASB issued ASU 2017-09, “Compensation — Stock Compensation (ASC Topic 718): Scope
of Modification Accounting,” which clarifies when changes to the terms or conditions of a share-based payment award
must be accounted for as a modification. Entities should apply the modification accounting guidance if the value, vesting
conditions or classification of the award changes. The amendments in the ASU are effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years and early adoption is permitted. The Company adopted
the standard on May 1, 2018 and determined the standard had no impact on its financial position, results of operations or
cash flows.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” The ASU modifies,
removes and adds several disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.
ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in
the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon
their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any
removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until
their effective date. The Company is evaluating the effect ASU 2018-13 will have on its consolidated financial statements
and disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles — Goodwill and Other — Internal-Use
Software (Subtopic 350-40).” The ASU provides for the recognition of an intangible asset for the costs of internal-use
software licenses included in a cloud computing arrangement. Costs of arrangements that do not include a software license
should be accounted for as a service contract and expensed as incurred. This ASU is effective for fiscal years beginning
after December 15, 2019, with early adoption permitted. The ASU permits two methods of adoption: prospectively to all
implementation costs incurred after the date of adoption, or retrospectively to each prior reporting period presented. The
Company is evaluating the effect ASU 2018-15 will have on its consolidated financial statements and disclosures and has
not yet determined the effect of the standard on its ongoing financial reporting at this time.
(3) Account Receivable, Contract Assets, and Contract Liabilities
The following provides further details on the balance sheet accounts of accounts receivable, contract assets, and
contract liabilities.
Accounts Receivable
The Company grants credit to its customers, generally without collateral, under normal payment terms (typically
30 to 60 days after invoicing). Generally, invoicing occurs after the related services are performed or control of good has
transferred to the customer. Accounts receivable represents an unconditional right to consideration arising from the
Company’s performance under contracts with customers. The carrying value of such receivables represent their estimated
realizable value. Accounts receivable consisted of the following at April 30, 2019 and April 30, 2018.
April 30, 2019 April 30, 2018
(in thousands)
Opening balance ................................................................. $
Amount invoiced to customer ............................................
Collections ..........................................................................
Ending balance ................................................................... $
171 $
857
(965 )
63 $
48
754
(631 )
171
Contract Assets and Contract Liabilities
Contract assets (previously referred to as unbilled receivables). Contract assets include unbilled amounts typically
resulting from arrangements whereby the right to payment is conditioned on completing additional tasks or services for a
performance obligation. On May 1, 2018, the day of adoption of ASC 2014-09, the Company reclassified $71,000 of
unbilled receivables to contract assets.
F-17
Contract liabilities (previously referred to as unearned revenue). Contract liabilities consist of amounts invoiced
to customers in excess of revenue recognized. On May 1, 2018, the day of adoption of ASC 2014-09, the Company
reclassified $18,000 of unearned revenue to contract liabilities.
A summary of the contract assets and contract liabilities is as follows:
April 30, 2019 April 30, 2018
(in thousands)
Contract assets .................................................................... $
Contract liabilities ..............................................................
Contract (liability)/assets, net ............................................. $
15 $
(188 )
(173 ) $
-
-
-
The increase in contract assets is primarily a result of services performed but unbilled during the twelve months
ended April 30, 2019. The increase in contract liabilities is primarily a result of additional amounts invoiced to customers
in excess of revenue recognized during the twelve months ended April 30, 2019. During the twelve months ended April
30, 2019, the Company recognized $18,000 of revenue that was included in contract liabilities at May 1, 2018. During the
twelve months ended April 30, 2019, the Company recognized revenue of $145,000 related to performance obligations
that were partially satisfied in previous periods.
(4) Property and Equipment
The components of property and equipment as of April 30, 2019 and 2018 consisted of the following:
April 30, 2019 April 30, 2018
(in thousands)
Equipment .......................................................................... $
Computer Equipment & Software ......................................
Office Furniture & Equipment ...........................................
Leasehold improvements ....................................................
Equipment under capitalized lease .....................................
Construction in process ......................................................
$
Less: accumulated depreciation ..........................................
$
339 $
558
341
474
103
15
1,830 $
(1,238 )
592 $
394
614
338
473
103
0
1,922
(1,210 )
712
Depreciation expense was $0.2 million and $0.1 million for the years ended April 30, 2019 and 2018, respectively.
As of April 30, 2019 and 2018, computer equipment and software under capital leases was $103 thousand and
$103 thousand, respectively. The terms of the leases are for 36 months. The leases for computer equipment and software
under capital leases have ended and there no future minimum lease payments under capital leases as of April 30, 2019.
(5) Accrued Expenses
Accrued expenses consist of the following at April 30, 2019 and April 30, 2018.
April 30, 2019 April 30, 2018
(in thousands)
Project costs ........................................................................ $
Contract loss reserve ..........................................................
Employee incentive payments ............................................
Accrued salary and benefits ................................................
Legal and accounting fees ..................................................
Accrued taxes payable ........................................................
Other ...................................................................................
$
9 $
211
580
500
273
177
188
1,938 $
57
395
761
442
246
179
181
2,261
F-18
(6) Deferred Credits Payable
During the year ended April 30, 2001, in connection with the sale of Common Stock to an investor, the Company
received $0.6 million 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 $0.6 million,
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. The Company did
not generate any emissions credits eligible for purchase under the agreement and it was agreed by the investor and the
Company that the Company return the option fee of $0.6 million, which was completed as of August 31, 2018. As a result,
this matter is completely resolved, and no additional amounts are owed by the Company to the investor.
(7) Warrants
Liability Classified Warrants
On June 2, 2016, the Company entered into a securities purchase agreement, which was amended on June 7, 2016
(as amended, the “June Purchase Agreement”) with certain institutional purchasers (the “June Purchasers”). Pursuant to
the terms of the June Purchase Agreement, the Company sold an aggregate of 20,850 shares of Common Stock together
with warrants to purchase up to an aggregate of 7,298 shares of Common Stock. Each share of Common Stock was sold
together with a warrant to purchase 0.35 of a share of Common Stock at a combined purchase price of $92.00. The warrants
have an exercise price of $121.60 per share, became exercisable on December 3, 2016 (“Initial Exercise Date”), and will
expire five years following the Initial Exercise Date. As of April 30, 2019, none of the warrants have been exercised.
On July 22, 2016, the Company entered into a Second Amendment to the Purchase Agreement (the “Second
Amended Purchase Agreement”) with certain institutional purchasers (the “July Purchasers”). Pursuant to the terms of the
Second Amended Purchase Agreement, the Company sold an aggregate of 29,750 shares of Common Stock together with
warrants to purchase up to an aggregate of 8,925 shares of Common Stock. Each share of Common Stock was sold together
with a warrant to purchase 0.30 of a share of Common Stock at a combined purchase price of $135.00. The Warrants were
exercisable immediately at an exercise price of $187.20 per share. The Warrants will expire on the fifth (5th) anniversary
of the initial date of issuance. As of April 30, 2019, none of the warrants have been exercised.
Equity Classified Warrants
On April 8, 2019, the Company entered into a securities purchase agreement (the “April Purchase Agreement”) with
certain institutional purchasers. Pursuant to the terms of the April Purchase Agreement, the Company issued and sold
1,542,000 shares of common stock and pre-funded warrants to purchase up to 3,385,680 shares of common stock and
common warrants to purchase up to 4,927,680 shares of our common stock in an underwritten public offering. The public
offering price for the pre-funded warrants was equal to the public offering price of the common stock, less the $0.01 per
share exercise price of each warrant. The pre-funded warrants have no expiration date. As of April 30, 2019, 753,560 of
the pre-funded warrants have not been exercised. In connection with the public offering, the Company issued common
warrants to purchase up to 4,927,680 shares of our common stock. The common stock warrants have an exercise price of
$3.85 per share and expire five years from the issuance date. As of April 30, 2019, none of the common stock warrants
have been exercised.
The Company accounts for warrants issued in connection with its public offerings in accordance with the guidance
on “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” in Topic 480 which
provides that the Company classify the warrant instruments as a liability at its fair value. The warrant liabilities are subject
to re-measurement at each balance sheet date using the Black-Scholes option pricing model. The June and July 2016
warrants contain a feature whereby they could require the transfer of assets and therefore are classified as a liability award
in accordance with the guidance Topic 480. As such, the warrants have a value of $6,000 at April 30, 2019 and $0.2 million
at April 30, 2018 and are reflected within “Warrant liabilities” in the consolidated balance sheets. The pre-funded and
common warrants issued in the Company’s April 8, 2019 public offering did not meet the criteria to be classified as a
liability award and therefore were treated as an equity award and recorded as a component of stockholders’ equity in the
consolidated balance sheets.
F-19
An unrealized gain of $0.2 million and $0.1 million, were included within “Gain due to change in fair value of
warrant liabilities” in the consolidated statements of operations for the year ended April 30, 2019 and 2018, respectively.
The Company determined the fair value using the Black-Scholes option pricing model with the following assumptions for
the period ended April 30, 2019 and April 30, 2018:
April 30, 2019 April 30, 2018
Dividend rate ............................................
Risk-free rate ............................................
Expected life (years) .................................
Expected volatility .................................... 110.0% - 153.4 % 132.9% - 142.7%
0.0 %
2.2% - 2.3 %
2.2 - 2.6
0.0%
2.7% - 2.8%
3.2 - 3.6
(8) 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, 2019, and 2018, no shares of preferred stock had been issued.
(9) Common Stock
As of April 30, 2019, the Company has 100,000,000 shares authorized with a par value of $0.001 per share and
5,425,517 shares issued.
On May 2, 2017, the Company sold 309,638 shares of common stock at a price of $26.00 per share, which includes
the sale of 40,388 shares of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the
over-allotment option by the underwriters in a public offering. The net proceeds to the Company from the offering were
approximately $7.2 million, after deducting underwriter fees and offering expenses payable by the Company.
On October 23, 2017, the Company sold 286,972 shares of common stock at a price of $28.40 per share in a best
efforts public offering. The net proceeds to the Company from the offering were approximately $7.4 million, after
deducting placement fees and offering expenses payable by the Company.
On August 13, 2018, the Company entered into a common stock purchase agreement with Aspire Capital Fund,
LLC (“Aspire Capital”) which provides that, subject to certain terms, conditions and limitations, Aspire Capital is
committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock over a 30-month
period that does not exceed 19.99% of the outstanding common stock on the date of the agreement. Shareholder approval
was not needed since the number of common stock offered for sale in the common stock purchase agreement did not exceed
19.99% of the outstanding common stock on the date of the agreement. In consideration for entering into the agreement,
the Company issued to Aspire Capital 21,429 shares of our common stock as a commitment fee. As of April 30, 2019, the
Company has sold 162,162 shares of common stock with an aggregate market value of $949,259 at an average price of
$5.85 per share pursuant to this common stock purchase agreement.
On January 7, 2019, the Company entered into an At the Market Offering Agreement (“2019 ATM Facility”) with
A.G.P./Alliance Global Partners (“AGP”), under which the Company may issue and sell to or through A.G.P./Alliance
Global Partners, acting as agent and/or principal, shares of the Company’s common stock having an aggregate offering
price of up to $25 million. As of April 30, 2019, under the 2019 ATM Facility the Company had issued and sold 151,561
shares of its common stock with an aggregate market value of $958,229 at an average price of $6.32 per share and paid
AGP a sales commission of approximately $33,469 related to those shares.
On April 8, 2019, the Company sold 1,542,000 shares of common stock, which includes the sale of 642,000 shares
of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the over-allotment option by the
underwriters in a public offering, prefunded warrants to purchase up to 3,385,680 shares of common stock and common
warrants to purchase up to 4,927,680 shares of our common stock in an underwritten public offering. The net proceeds to
the Company from the offering were approximately $15.7 million, after deducting underwriter’s fees and offering expenses
payable by the Company.
(10) Treasury Shares
During the years ended April 30, 2019 and 2018, 89 and 1,298 shares of Common Stock, respectively, were
purchased by the Company from employees to pay taxes related to the vesting of restricted stock.
F-20
(11) Share-Based Compensation Plans
2015 Omnibus Incentive Plan
In 2015, upon approval by the Company’s stockholders, the Company’s 2015 Omnibus Incentive Plan (the “2015
Plan”) became effective. A total of 12,036 shares were authorized for issuance under the 2015 Omnibus Incentive Plan,
including shares available for awards under the 2006 Stock Incentive Plan remaining at the time that plan terminated, or
that were subject to awards under the 2006 Stock Incentive Plan that thereafter terminated by reason of expiration,
forfeiture, cancellation or otherwise. On October 21, 2016, upon approval by the Company’s stockholders, the Company
increased the number of shares authorized for issuance to 32,036. If any award under the 2006 Stock Incentive Plan or
2015 Plan expires, is cancelled, terminates unexercised or is forfeited, those shares become again available for grant under
the 2015 Plan. As of April 30, 2019, the Company has 58,555 shares available for future issuance under the 2015 Plan.
The 2015 Plan provides for the grant of stock options, SARs, restricted stock awards, stock unit awards and
unrestricted stock awards, dividend equivalent rights, performance share awards or other performance-based awards, other
equity-based awards or cash to eligible employees, officers and non-employee directors of the Company or any affiliate of
the Company, or any consultant or adviser to the Company. The maximum number of shares of stock subject to Awards
that can be granted under the 2015 Plan in any one calendar year to any person, other than a non-employee director, is
3,750. However, incentive stock options may only be granted to employees. The limitation on the amount of shares of
stock issuable under the 2015 Plan is subject to adjustment in the event of certain changes in the Company’s capital stock,
such as recapitalizations, reclassifications, stock splits, reverse stock splits, spin-offs, combinations of our stock, exchanges
of the Company’s stock and other increases or decreases in the Company’s stock without receipt of consideration.
The 2015 Plan will terminate ten years after its effective date, in October 2025, but is subject to earlier termination
as provided in the 2015 Plan.
Except in connection with a corporate transaction in which the Company is involved, without obtaining
stockholder approval, the 2015 Plan may not be amended to reduce the exercise price of such outstanding options or SARs,
cancel outstanding options or SARs in exchange for or in substitution of options or SARs with an exercise price that is less
than the exercise price of the original options or SARs, or cancel outstanding options or SARs with an exercise price above
the current stock price in exchange for cash or other securities.
2018 Employment Inducement Incentive Award Plan
On January 18, 2018, the Company’s Board of Directors adopted the Company’s Employment Inducement
Incentive Award Plan (the “2018 Inducement Plan”) pursuant to which the Company reserved 25,000 shares of common
stock for issuance under the Inducement Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq
Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees of the
Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement
material to the individuals’ entry into employment with the Company. An award is any right to receive the Company’s
common stock pursuant to the 2018 Inducement Plan, consisting of a performance share award, restricted stock award, a
restricted stock unit award or a stock payment award. As of April 30, 2019, there were no shares outstanding and 25,000
shares available for grant under the 2018 Inducement Plan.
(a) Stock Options
A summary of stock options under the plans described above is as follows:
Shares
Underlying
Options
Weighted
Average
Exercise
Price
Outstanding as of April 30, 2018 .....................................
Granted .............................................................................
Exercised ..........................................................................
Cancelled/forfeited ...........................................................
Outstanding as of April 30, 2019 .....................................
Exercisable as of April 30, 2019 ......................................
19,427 $
49,750 $
- $
(3,605 ) $
65,572 $
17,822 $
123.00
8.20
-
392.80
21.08
55.60
F-21
Weighted
Average
Remaining
Contractual
Term
(In Years)
7.4
8.9
7.1
As of April 30, 2019, the total intrinsic value of outstanding and exercisable options was approximately zero. As
of April 30, 2019, approximately 42,343 additional options were unvested, which options had no intrinsic value and a
weighted-average remaining contractual term of 9.6 years. There was approximately $0.2 million and $0.2 million of total
recognized compensation cost related to employees for stock options during the years ended April 30, 2019 and 2018,
respectively. As of April 30, 2019, there was approximately $0.2 million 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 0.6 years. The Company typically issues newly authorized but unissued shares to satisfy option exercises under these
plans.
(b) Restricted Stock
Compensation expense for non- vested 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 2019, the Company
granted 943 shares subject to service-based vesting requirements and no shares subject to performance-based vesting
requirements.
A summary of unvested restricted stock under the plans described above is as follows:
Weighted
Average Price
per
Share
Number
of Shares
Issued and unvested at April 30, 2018 .............
Granted ............................................................
Vested ..............................................................
Cancelled/forfeited ..........................................
Issued and unvested at April 30, 2019 .............
9,854 $
943 $
(258 ) $
(6,033 ) $
4,506 $
27.00
22.80
64.40
22.51
30.08
There was approximately $0.1 million and $0.1 million of total recognized compensation cost relating to restricted
stock granted to employees during the years ended April 30, 2019 and 2018, respectively. As of April 30, 2019, there was
$9,000 of total unrecognized compensation cost related to unvested restricted stock granted under the plans. This cost is
expected to be recognized over a weighted-average period of 0.3 years.
(12) Fair Value Measurements
The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (exit price). GAAP specifies a three-level hierarchy that is used when
measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active
markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An
instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation.
The following is a description of the three hierarchy levels.
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities
occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for
substantially the full term of the asset or liability. This category includes quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.
Level 3 Unobservable inputs are not corroborated by market data. This category is comprised of financial and non-
financial assets and liabilities whose fair value is estimated based on internally developed models or
methodologies using significant inputs that are generally less readily observable from objective sources.
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers
occurred. There were no transfers between any levels during the year ended April 30, 2019 and 2018.
The following information is provided to help readers gain an understanding of the relationship between amounts
reported in the accompanying consolidated financial statements and the related market or fair value. The disclosures include
financial instruments and derivative financial instruments, other than investment in affiliates.
F-22
Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair
value and details of the valuation models, key inputs to those models and significant assumptions utilized.
Warrant Liabilities
The fair value of the Company’s warrant liabilities (refer to Note 7) recorded in the Company’s financial
statements is determined using the Black-Scholes option pricing model and the quoted price of the Company’s common
stock in an active market, volatility and expected life, is a Level 3 measurement. Volatility is based on the actual market
activity of the Company’s stock. The expected life is based on the remaining contractual term of the warrants and the risk-
free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the
warrants’ expected life.
The following table presents financial assets and liabilities measured at fair value on a recurring basis as of April
30, 2019:
Total Carrying
Value in
Consolidated
Balance Sheet
Quoted prices in
active markets
for identical
assets or
liabilities
(Level 1)
Significant
other
observable
inputs
(Level 2)
(in thousands)
Significant
unobservable
inputs
(Level 3)
Warrant liabilities ................................ $
6 $
- $
- $
6
The following table presents financial assets and liabilities measured at fair value on a recurring basis as of April
30, 2018:
Total Carrying
Value in
Consolidated
Balance Sheet
Quoted prices in
active markets
for identical
assets or
liabilities
(Level 1)
Significant
other
observable
inputs
(Level 2)
(in thousands)
Significant
unobservable
inputs
(Level 3)
Warrant liabilities ................................ $
201 $
- $
- $
201
The following table provides a summary of changes in the fair value of the warrant liabilities during the year
ended April 30, 2019;
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
Total
Warrant
Liability
(in thousands)
Fair value – April 30, 2017 ........................................................... $
Issuance ........................................................................................
Transfers .......................................................................................
Change in fair value ......................................................................
Fair value – April 30, 2018 ........................................................... $
Change in fair value ......................................................................
Fair value – April 30, 2019 ........................................................... $
323
-
-
(122 )
201
(195 )
6
F-23
(13) Income Taxes-
Loss before income taxes for the years ended April 30, 2019 and 2018 consisted of the following components:
April 30, 2019 April 30, 2018
(in thousands)
Domestic ........................................................................................... $
Foreign ..............................................................................................
Total loss before income taxes ...................................................... $
(12,860 ) $
(236 )
(13,096 ) $
(11,004 )
(272 )
(11,276 )
The income tax benefit for the years ended April 30, 2019 and 2018 consist of state income tax benefits of $0.9
million and $1.1 million, respectively, from the sale of New Jersey net operating losses and research and development
credits.
Tax Rate Reconciliation
The effective income tax rate differed from the percentages computed by applying the US federal income tax rate
for the periods ended April 30, 2019 and 2018 to loss before income taxes as a result of the following:
April 30, 2019 April 30, 2018
Computed expected tax (benefit) ......................................................
Increase(reduction) in income taxes resulting from:
State income taxes, net of federal (benefit) ...................................
Federal research and development tax credits ...............................
Foreign rate differential .................................................................
Other non-deductible expenses .....................................................
Proceeds of sale of New Jersey tax (benefits) ...............................
U.S. tax reform effects ..................................................................
Other .............................................................................................
Increase in valuation allowance ....................................................
Income tax (benefit) ......................................................................
-21.0 %
-29.7 %
0.8 %
-1.5 %
0.2 %
0.1 %
-6.5 %
0.0 %
0.6 %
20.8 %
-6.5 %
3.0 %
-1.5 %
0.3 %
0.4 %
-9.9 %
162.2 %
5.1 %
-139.4 %
-9.5 %
Significant Components of Deferred Taxes
The tax effects of temporary differences and carry forwards that give rise to the Company’s deferred tax assets
and deferred tax liabilities are presented below.
April 30, 2019 April 30, 2018
(in thousands)
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 ......................................................................
Unrealized foreign exchange loss .................................................
Accrued expenses ..........................................................................
Other .............................................................................................
Net deferred tax assets before valuation allowance ......................
Valuation allowance ......................................................................
Net deferred tax assets .................................................................. $
32,025 $
3,641
1,653
3,315
486
5
145
438
41,708
(41,708 )
- $
29,329
3,852
1,460
3,143
645
12
487
330
39,258
(39,258 )
-
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 carry forwards
become deductible or are utilized. As of April 30, 2019 and 2018, based upon the level of historical taxable losses, valuation
allowances of $41.7 million and $39.3 million, respectively, were recorded to fully offset deferred tax assets. The valuation
allowance increased $2.5 million during the year ended April 30, 2019 and decreased $15.4 million during the year ended
2018 respectively.
F-24
As of April 30, 2019, the Company had net operating loss carry forwards for federal income tax purposes of
approximately $152.5 million, which begin to expire in fiscal 2019. The Company also had federal research and
development tax credit carry forwards of approximately $3.2 million as of April 30, 2019, which begins to expire in 2019.
The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carry forwards
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 U.S. initial public
offering in April 2007. The Company’s annual Section 382 limitation is approximately $3.3 million. The Section 382
limitation is cumulative from year to year, and thus, to the extent net operating loss or other credit carry forwards 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, 2019, the Company had state net operating loss carry
forwards of approximately $23.3 million which begin to expire in 2037, which also may be limited to utilization limitations.
As of April 30, 2019, the Company had foreign net operating loss carry forwards of approximately $16.9 million. The
ability to utilize these carry forwards may also be limited in the event of a significant change to ownership.
New Jersey Net Operating Loss
During the years ended April 30, 2019 and 2018, the Company sold New Jersey State net operating losses and
research and development credits in the amount of $9.1 million and $11.5 million, respectively, resulting in the recognition
of income tax benefits of $0.9 million and $1.1 million, respectively, recorded in the Company’s Statement of Operations.
Uncertain Tax Positions
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. The
Company is currently undergoing an income tax audit in Spain for the period from 2008 to 2014, when the Company’s
Spanish branch was closed (see Note 15 to the Consolidated Financial Statements) . At April 30, 2019 and 2018, the
Company had no other 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. U.S. federal and state
income tax returns were audited through fiscal 2014 and fiscal 2010 respectively. Net operating loss and credit carry
forwards since inception remain open to examination by taxing authorities and will continue to remain open for a period
of time after utilization.
The Company does not have any interest or penalties accrued related to uncertain tax positions as it does not have
any unrecognized tax benefits.
(14) Commitments and Contingencies
(a) Operating Lease Commitments
The Company leases office, laboratory, manufacturing and other space in Monroe Township, New Jersey under
an operating lease that expires on October 31, 2024. The lease commencement date is November 1, 2017, with lease
payments beginning the same month. The lease expiration date is seven years from the rent commencement date. The
Company provided a cash security deposit of approximately $154,000. The Lease contains a tenant improvement allowance
of up to $138,000 and annual escalations, as such, the Company accounts for rent expense on a straight-line basis. Rent
expense under operating leases was approximately $0.5 million and $0.4 million for the years ended April 30, 2019 and
2018, respectively.
Future minimum lease payments under operating leases as of April 30, 2019 are as follows:
April 30, 2019
(in thousands)
2020 .........................................................................
2021 .........................................................................
2022 .........................................................................
2023 .........................................................................
2024 .........................................................................
Thereafter .................................................................
$
322
331
341
352
362
184
1,892
F-25
Shareholder Litigation
The Company and certain of its current and former directors and officers were identified as 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 alleged claims for breach of
fiduciary duty, abuse of control, gross mismanagement and unjust enrichment relating to the 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 derivative complaint sought unspecified monetary damages and other relief.
On July 10, 2015, a second derivative lawsuit, captioned Rywolt v. Dunleavy, et al., Case No. 3:15-cv-05469, was
filed by another shareholder against the same defendants in the United States District Court for the District of New Jersey
alleging similar claims for breach of fiduciary duty, gross mismanagement, abuse of control, and unjust enrichment relating
to the now terminated agreement between VWP and ARENA. The Rywolt complaint also seeks unspecified monetary
damages and other relief.
On April 21, 2016, a third derivative lawsuit, captioned LaCalamito v. Dunleavy, et al., Case No. 3:16-cv-02249,
was filed by another shareholder against certain current and former directors and officers of the Company in the United
States District Court for the District of New Jersey alleging similar claims for breach of fiduciary duty relating to the now
terminated agreement between VWP and ARENA. The LaCalamito complaint sought unspecified monetary damages and
other relief.
On June 9, 2016, a fourth derivative lawsuit, captioned Pucillo v. Dunleavy, et al., was filed by another shareholder
against certain current and former directors and officers of the Company in the United States District Court for the District
of New Jersey alleging similar claims for breach of fiduciary duty, unjust enrichment, and abuse of control relating to the
now terminated agreement between VWP and ARENA. The Pucillo complaint seeks unspecified monetary damages and
other relief.
On October 25, 2016, the Court approved and entered a Stipulation and Order that, among other things, (i)
consolidated the LaBare, Rywolt, LaCalamito and Pucillo derivative actions; (ii) identified plaintiff Pucillo as the lead
plaintiff in the consolidated actions; and (iii) stayed the consolidated actions pending the November 14, 2016 settlement
hearing in the now-settled securities class action and further order of the Court.
On October 23, 2017, the parties entered into a Stipulation and Agreement of Settlement to resolve the four
consolidated derivative lawsuits. The settlement provided for, among other things, the Company to implement certain
corporate governance changes, a $350,000 payment to the plaintiffs’ attorneys for attorneys’ fees and costs that will be
made by the Company’s insurance carrier, dismissal of the derivative lawsuits, and certain releases. On November 21,
2017, the plaintiffs filed an unopposed motion seeking preliminary approval of the settlement, which the Court granted on
March 9, 2018. On May14, 2018, the Court held a final settlement approval hearing at which the Court stated that it was
approving the settlement. On June 13, 2018, the Court issued a Final Order and Judgment, approving the Stipulation and
Agreement of Settlement. The Company had accrued $350,000 related to this matter as a probable and reasonably estimable
loss contingency during the twelve months ended April 30, 2018. The Company also recorded a receivable of $350,000
from its insurance carrier with the offset to the statement of operations. The Company’s insurance carrier made a payment
of $350,000 to the plaintiffs’ attorneys on May 3, 2018. As a result, the consolidated derivatives lawsuits are now
completely resolved, the releases are operative, and the matter is closed.
Employment Arbitration
On June 10, 2014, the Company announced that it had terminated Charles Dunleavy as its 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. In 2014, the
Company and Mr. Dunleavy entered into a tolling agreement with respect to his alleged employment claims pending
resolution of a securities class action shareholder litigation. The securities class action was resolved in November 2017
and the the derivatives litigation was resolved in June 2018.
On August 28, 2018, counsel for Mr. Dunleavy filed a demand for arbitration, captioned Charles F. Dunleavy v.
Ocean Power Technologies, Inc., Case No. 01-18-0003-2374, before the American Arbitration Association in New Jersey.
The demand names Ocean Power Technologies, Inc. as the respondent and alleges various claims and seeks declaratory
relief and permanent injunction. The demand seeks damages in the amount of $5 million for compensatory and punitive
damages, plus interest and attorneys’ fees as well as certain equitable relief. On November 8, 2018, the Company through
counsel responded to the demand for arbitration, denied all allegations, and asserted various affirmative defenses. On April
5, 2019, a three-member arbitration panel scheduled the discovery process to run from April 12, 2019 until November 9,
2019, set a pre-hearing case management conference for October 14, 2019, and set the hearing for December 9-13, 2019
in Princeton, New Jersey. As of April 30, 2019, the Company has not accrued any provision related to this matter since it
cannot reasonably estimate the loss contingency.
F-26
Tide Runner Marine, Inc. Lawsuit
On June 13, 2018, Tide Runner Marine, Inc. (“Tide Runner”) filed a lawsuit in the United States District Court
for the District of New Jersey captioned Tide Runner Marine, Inc. v. Ocean Power Technologies, Inc., Case No. 1:18-cv-
10496. The complaint names the Company as defendant and alleges claims for breach of contract, unjust enrichment,
conversion, and fraud, negligent and/or reckless misrepresentation all as associated with the removal of a Company
mooring system off the coast of New Jersey that was completed in May 2017. The complaint seeks damages in the amount
of $2,825,130 together with interest, costs, attorney’s fees, punitive damages and such other relief as may be appropriate
under the circumstances. On July 27, 2018, the Company filed an answer denying the claims in the complaint, asserted
various affirmative defenses, and asserted a counter-claim for damages in the amount of $15,000 for Tide Runner’s failure
to pay the Company for certain portions of the mooring system that were recovered. On August 2, 2018, Tide Runner filed
its answer to and denied the Company’s counterclaim and asserted various affirmative defenses. During the initial
scheduling conference held on September 13, 2018, the parties agreed to engage in mediation in an effort to resolve this
matter and also agreed to include Tide Runner’s subcontractor, Wittich Bros. Marine Inc. (“Wittich”) in the mediation
process. The parties participated in mediation on November 15, 2018 but were unable to reach an agreement. However,
the parties agreed to continue the mediation process and on February 11, 2019 reached a settlement agreement. On February
22, 2019, the parties executed a Settlement Agreement and Release (“Settlement”). Under the Settlement, the Company
will pay to Wittich (i) $50,000 within 10 days after the final execution of the Settlement and (ii) another $150,000 on or
before May 1, 2019. Subsequently, the parties filed a stipulation of dismissal of both Tide Runner’s complaint and the
Company’s counterclaim with prejudice and without costs, and the Court granted the dismissal and terminated the case.
The parties have also provided mutual releases for the matters in dispute in the litigation and will indemnify each other for
future similar claims. As of April 30, 2019, the Company made the two required payments to Wittich.
Nasdaq Compliance
On August 9, 2018, the Company received written notification from Nasdaq indicating that the closing bid price
of the Company’s common stock had been below $1.00 per share for a period of 30 consecutive trading days, and as a
result, the Company was not in compliance with the minimum bid price requirement for continued listing. Under the
Nasdaq Listing Rules, the Company was provided with a grace period of 180 calendar days, or until February 5, 2019, in
which to regain compliance with the minimum bid price rule. To regain compliance, the closing bid price of the Company’s
common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during the grace
period. If the Company did not regain compliance before February 5, 2019, Nasdaq stated that it would provide the
Company with written notice that its securities are subject to delisting. At that time, the Company could appeal Nasdaq’s
determination to a Nasdaq Listing Qualifications Panel, which would stay any further delisting action by Nasdaq pending
a final decision by the panel. Alternatively, the Company could have been eligible for an additional 180 calendar day grace
period if it met the continued listing standards, with the exception of bid price, for the Nasdaq Capital Market, and if the
Company stated its intent to affect a reverse split, if necessary, to cure such deficiency.
On February 11, 2019, the Company received another written notification from Nasdaq indicating that the
Company had not regained compliance with the minimum bid price requirement and that the Company’s stockholders’
equity, as reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2018, did not
qualify the Company for an additional 180 calendar day extension period for compliance. On February 19, 2019, the
Company appealed Nasdaq’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the
Nasdaq Listing Rule 5800 Series. The appeal stayed the suspension of the Company’s securities pending the Panel’s
decision, during which time the Company’s common stock will continue to be listed on Nasdaq, and the Company’s
common stock will continue to trade under the symbol “OPTT”.
On March 14, 2019, the Company received another written notification from Nasdaq indicating that the Company
did not comply with the minimum stockholders’ equity requirement for continued listing. The earlier-filed appeal of the
minimum bid price requirement was sufficient to encompass the minimum stockholder’s equity requirement, and the stay
of suspension continued pending the Panel hearing and decision.
The Panel held its hearing on March 28, 2019. On April 4, 2019, the Panel issued the following two decisions: (i)
the Panel concluded that the Company was in compliance with the minimum bid price rule; and (ii) the Panel granted the
Company’s request to cure its stockholder equity deficiency by conducting a public offering that was estimated to raise
$10 million by no later than April 30, 2019. On April 24, 2019, the Company provided the Panel with an update following
a public offering that raised approximately $15.7 million (after deducting underwriter fees, commissions and other offering
expenses) and closed on April 8, 2019. The update included revised projections of stockholder equity based upon the actual
amount of proceeds raised during the public offering, which in the Company’s opinion was sufficient to cure the
stockholder equity deficiency.
On May 20, 2019 the Company received a letter from Nasdaq confirming that the Company has regained
compliance with the minimum shareholders’ equity rule, as required by the Panel’s decision dated April 4, 2019, and is in
compliance with other applicable requirements as set forth in the decision and required for listing on Nasdaq. Accordingly,
the Panel has determined to continue the listing of the Company’s securities on Nasdaq and closed the matter.
F-27
FINRA Review
On April 4, 2019, FINRA notified the Company that it was conducting a routine review of the Company’s stock
associated with two public announcements and asked several questions regarding: (i) an April 3, 2019 announcement that
the Company had won a contract with a leading oil and gas operator; and (ii) an April 4, 2019 announcement of the pricing
of an underwritten public offering. The Company provided its response to the FINRA questions on Tuesday, April 9, 2019.
As of July 22, 2019, FINRA has not provided any follow-up.
Spain Income Tax Audit
The Company is currently undergoing an income tax audit in Spain for the period from 2008 to 2014, when our
Spanish branch was closed. The branch reported net operating losses for each of the years reported that the Spanish tax
inspector claims should have been capitalized on the balance sheet instead of charged as an expense in the Statement of
Operations. As of April 30, 2017, the Company had recorded a penalty of $132,000 to Selling, general and administrative
costs in the Statement of Operations. The Spanish tax inspector has recently closed its discussion relating to the
capitalization of expenses and as of April 30, 2018 the Company reversed the penalty. However, during the fiscal year
ended April 30, 2018 the Spanish tax inspector raised questions with respect to the Company’s recognition of funds
received in 2011 to 2014 from a governmental grant from the European Commission in connection with the Waveport
project. It is anticipated that we will be assessed a penalty relating to these tax years. The Company has estimated this
penalty to be $177,000 and as of April 30, 2019 and 2018 has recorded the penalty in Accrued expenses in the Consolidated
Balance Sheet.
(15) Operating Segments and Geographic Information
The Company’s business consists of one segment as this represents management’s view of the Company’s
operations. The Company operates on a worldwide basis with one operating company in the US 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:
North
America
Year Ended April 30, 2019
Asia and
Australia
Europe
(in thousands)
Total
Revenues from external customers ............................. $
Operating loss .............................................................
Long-lived assets ........................................................
Total assets .................................................................
632 $
(13,045)
592
18,028
- $
(204 )
-
49
- $
(22)
-
289
632
(13,271 )
592
18,366
North
America
Year Ended April 30, 2018
Asia and
Australia
Europe
(in thousands)
Total
Revenues from external customers ............................. $
Operating loss .............................................................
Long-lived assets ........................................................
Total assets .................................................................
511 $
(11,282)
712
13,762
- $
(243 )
-
22
- $
(35)
-
337
511
(11,560 )
712
14,121
(16) Adoption of Revenue Recognition Guidance
The Company adopted the new revenue recognition guidance effective May 1, 2018, using the modified
retrospective method. The primary impact of the new guidance was a change in the timing of revenue recognition on certain
long-term contracts. The new guidance does not change the total sales or operating income on the related customer
contracts, only the timing of when sales and operating income are recognized. The Company uses the expected cost plus a
margin approach and lease accounting literature for revenue recognition on customer contracts. The impact of the adoption
for the twelve months ended April 30, 2019 was an increase of $118,000 to net loss. Further, as the Company’s adoption
of the guidance decelerated the timing of revenue recognition on the Company’s contracts, the adoption resulted in an
$118,000 increase in the Company’s remaining performance obligations, also referred to as backlog, as of April 30, 2019.
F-28
The following tables present how the adoption of the new revenue recognition standard affected certain line items
in the Company’s condensed statement of operations for the twelve months ended April 30, 2019.
Twelve months ended April 30, 2019
As Reported
Amounts Excluding
Effect of Adoption Effect of Adoption
Revenues ......................................................... $
Operating loss .................................................
Net loss ........................................................... $
Basic and diluted net loss per share ................ $
Weighted average shares used to compute
basic and diluted net loss per share .............
632 $
(13,271 )
(12,246 ) $
(9.52 ) $
(118 ) $
(118 )
(118 ) $
(0.09 ) $
750
(13,153 )
(12,128 )
(9.43 )
1,286,727
1,286,727
1,286,727
The following tables present how the adoption of the new revenue recognition standard affected certain line items
in the Company’s statement of comprehensive loss for the twelve months ended April 30, 2019.
Twelve months ended April 30, 2019
As Reported
Amounts Excluding
Effect of Adoption Effect of Adoption
Net loss ........................................................... $
Foreign currency translation adjustment .........
Total comprehensive loss ................................ $
(12,246 ) $
(11 )
(12,257 ) $
(118 ) $
-
(118 ) $
(12,128 )
(11 )
(12,139 )
The following tables present how the adoption of the new revenue recognition standard affected certain line items
in the Company’s consolidated balance sheet as of April 30, 2019.
ASSETS
Contract assets ................................................ $
Total assets ................................................. $
LIABILITIES AND STOCKHOLDERS’
EQUITY
Contract liability ............................................. $
Accumulated deficit ........................................
Total stockholders’ equity .......................... $
Total liabilities and stockholders’ equity .... $
As of April 30, 2019
As Reported
Effect of Adoption Effect of Adoption
Amounts Excluding
15 $
18,366 $
(70 ) $
(70 ) $
85
18,436
188 $
(209,784 )
15,775 $
18,366 $
48 $
(118 )
(70 ) $
(70 ) $
140
(209,666 )
15,845
18,436
The following tables present how the adoption of the new revenue recognition standard affected certain line items
in the Company’s consolidated statement of cash flows for the twelve months ended April 30, 2019.
Twelve months ended April 30, 2019
As Reported
Effect of Adoption Effect of Adoption
Amounts Excluding
Net loss ........................................................... $
Contract assets ................................................
Contract liability .............................................
Net cash used in operating activities ........... $
Net increase in cash, cash equivalents and
restricted cash ............................................. $
Cash, cash equivalents and restricted cash,
end of period ................................................... $
(12,246 ) $
(15 )
188
(12,140 ) $
4,934 $
17,159 $
F-29
(118 ) $
70
48
- $
- $
- $
(12,128 )
(85 )
140
(12,140 )
4,934
17,159
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OCEAN POWER TECHNOLOGIES, INC.
Directors
Executive Officers
Registrar
George H. Kirby III
President, Chief Executive Officer and Director
Matthew T. Shafer
Chief Financial Officer, Vice President
of Finance and Treasurer
John W. Lawrence
General Counsel and Corporate Secretary
Computershare Trust Company, N.A.
462 South 4th Street
Suite 1600
Louisville, KY 40202
US & Canada: 800-662-7232
International: 781-575-4238
www.computershare.com
Terence J. Cryan
Independent Director and Chairman of
Ocean Power Technologies, Inc., Co-Founder,
Concert Energy Partners, LLC
Dean J. Glover
Independent Director and Vice Chairman
of Ocean Power Technologies, Inc., Chief
Executive Officer of Teckniks Tool Group
George H. Kirby III
President, Chief Executive Officer and Director
Steven M. Fludder
Independent Director, Chief Executive Officer
of NEC Energy Solutions
Kristine S. Moore
Independent Director, former Royal Dutch
Shell Executive
Robert K. Winters
Independent Director, Senior Managing
Director of Alpha IR Group
Independent Registered
Public Accounting Firm
KPMG LLP
1601 Market Street
Philadelphia, PA 19103-2499
USA
Legal Advisor
Porter Hedges LLP
1000 Main Street, 36th Floor
Houston, TX 77002
Bankers
Santander Bank
3 Terry Drive
Newtown, PA 18974
USA
Barclays Bank Plc
1 Churchill Place
London E14 5HP
UK
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.
28 Engelhard Drive
Suite B
Monroe Township, NJ 08831
USA
Website Address: www.oceanpowertechnologies.com
OPT Projects Around the World
Adriatic Sea
Fall 2018
Deployment
North Sea
Summer 2019
Deployment
Sea of Japan
Spring 2017
Deployment
Gulf of Mexico
Summer 2019
Feasibility Study
South Pacific Ocean
Spring 2020
Deployment
Target Applications
Subsea
Power
• Sea floor equipment and
system operation
Surveillance and
Monitoring
• Sea floor equipment and
system monitoring
• Unmanned underwater
• Topside and subsea threat
vehicle charging
surveillance
• Reduce need for power and
communications umbilicals
• Traffic monitoring and
collision avoidance
• Enhance subsea battery
• Environmental monitoring
systems with charging and
communications platform
• Unmanned station
replaces manned vessels
Offshore
Connectivity
• Persistent power and
unmanned platform
for 4G, Wi-Fi, and satcom
• Real-time data processing,
storage and communication
• Amplifies and extends
connectivity where
infrastructure does not
yet exist