Notes
to Unaudited Consolidated Financial Statements
(1)
Background, Basis of Presentation and Liquidity
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 of our revenue from the sale or lease of products,
and sales of services to support our business operations. As we continue to develop and commercialize our products and services,
we expect to have a net decrease in cash due to the use of cash from operating activities unless and until we achieve positive
cash flow from the commercialization of products and services.
The
accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
(“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The interim operating results are not necessarily indicative of the results for a
full year or for any other interim period. Further information on potential factors that could affect the Company’s financial
results can be found in the Company’s Annual Report on Form 10-K for the year ended April 30, 2019 and its Quarterly Reports
on Form 10-Q for the quarters ended July 31, 2019 and October 31, 2019, each filed with the Securities and Exchange Commission
(“SEC”), and elsewhere in this Form 10-Q.
c)
|
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 $218.9 million as of January
31, 2020. As of January 31, 2020, the Company had approximately $10.8 million in cash, cash equivalents, and restricted cash on
hand. The Company generated revenues of $1.1 million and $0.4 million during the nine months ended January 31, 2020 and 2019,
respectively. Based on the Company’s cash, cash equivalents and restricted cash balances as of January 31, 2020, the Company
believes that it will be able to finance its capital requirements and operations into the quarter ending October 31, 2020. Among
other things, the Company is currently evaluating a variety of different financing alternatives and we expect to continue to fund
our business with sales of our securities and through generating revenue with customers. The Company will require additional equity
and/or debt financing to continue its operations into Fiscal Year 2021. 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, continued pursuit of business opportunities, additional funding from current and /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 during the nine months ended January 31, 2020, 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® and new products that it may develop, 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 currently has committed sources of equity financing through its At the Market
Offering Agreement with A.G.P/Alliance Global Partners (“AGP”) and the Aspire Capital financing (each discussed further
below), but the Company cannot be sure 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,
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.
On
August 13, 2018, the Company entered into a common stock purchase agreement with Aspire Capital Fund, LLC (“Aspire Capital”)
which provided that, subject to certain terms, conditions and limitations, Aspire Capital was 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. The number of shares the Company could issue within the 19.99% limit is 183,591 shares.
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. The agreement was cancelled on October
24, 2019, and as of that date, the Company had 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
October 24, 2019, the Company entered into a new common stock purchase agreement with 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. The number of shares the Company can issue within the 19.99% limit is 1,219,010 shares including shares
issued as a commitment fee. Shareholder approval is needed for sale of common stock over the 19.99% limit of the outstanding common
stock on the date of the agreement. At the 2019 annual meeting of stockholders, held on December 20, 2019, the Company’s
stockholders approved an additional 5,400,000 shares to be issued pursuant to the common stock purchase agreement. In consideration
for entering into the agreement, the Company issued to Aspire Capital 194,805 shares of our common stock as a commitment fee.
As of January 31, 2020, the Company has sold 1,024,205 shares of common stock with an aggregate market value of $901,206 at an
average price of $0.88 per share pursuant to this common stock purchase agreement.
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. As part of the public offering, the Company also sold 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. 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.
On
January 7, 2019, the Company entered into an At the Market Offering Agreement (“2019 ATM Facility”) with AGP, under
which the Company may issue and sell to or through AGP, acting as agent and/or principal, shares of the Company’s common
stock having an aggregate offering price of up to $25 million. Through January 31, 2020, under the 2019 ATM Facility, the Company
sold and issued 1,527,145 shares of its common stock with an aggregate market value of $2.9 million at an average price of $1.91
per share and paid AGP a sales commission of approximately $94,724 related to those shares.
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.
If
our common stock is delisted from Nasdaq, our ability to raise capital through public offerings of our securities and to finance
our operations could be adversely affected. See additional risk factors under “Part II, Item 1A – Risk Factors”.
We also believe that delisting would likely result in decreased liquidity and/or increased volatility in our common stock and
could harm our business and future prospects. In addition, we believe that, if our common stock is delisted, our stockholders
would likely find it more difficult to obtain accurate quotations as to the price of the common stock and it may be more difficult
for stockholders to buy or sell our common stock at competitive market prices, or at all.
(d)
Reverse Stock-Split
The
Company initiated a 1-for-20 reverse stock split effective as of the close of markets on March 11, 2019. The common stock began
trading on a reverse stock split-adjusted basis on the Nasdaq on March 12, 2019. All shares and per share data in these consolidated
financial statements and notes thereto have been retroactively adjusted to give effect to 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.
(b)
Use of Estimates
The
preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items
subject to such estimates and assumptions include the 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.
(c)
Cash, 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.
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Checking and savings accounts
|
|
$
|
948
|
|
|
$
|
860
|
|
Money market account
|
|
|
8,929
|
|
|
|
15,800
|
|
|
|
$
|
9,877
|
|
|
$
|
16,660
|
|
Restricted
Cash and Security Agreements
A
portion of the Company’s cash is restricted under the terms of various security agreements.
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 ($0.4 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 January 31, 2020,
there were no letters of credit outstanding under this agreement.
The
other agreements are between the Company and Santander Bank. Cash is on deposit at Santander Bank and serves as security for a
letter of credit issued by Santander Bank for the lease of warehouse/office space in Monroe Township, New Jersey. This agreement
cannot be extended beyond January 31, 2025 and is cancelable at the discretion of the bank. Santander Bank also issued two letters
of credit to subsidiaries of Enel Green Power (“EGP”) pursuant to the Company’s contracts with EGP. The first
letter of credit was issued in the amount of $125,690 that expires in October 2020. The second letter of credit was issued in
the amount of $645,467. This second letter of credit will be reduced to $322,734 in March 2020 and to $64,547 in May 2020. The
remaining amount expires in April 2021. Restricted cash includes the following:
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Barclay’s Bank Agreement
|
|
$
|
-
|
|
|
$
|
344
|
|
Santander Bank
|
|
|
928
|
|
|
|
155
|
|
|
|
$
|
928
|
|
|
$
|
499
|
|
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.
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,877
|
|
|
$
|
16,660
|
|
Restricted cash- short term
|
|
|
707
|
|
|
|
344
|
|
Restricted cash- long term
|
|
|
221
|
|
|
|
155
|
|
|
|
$
|
10,805
|
|
|
$
|
17,159
|
|
(d)
Foreign Exchange Gains and Losses
The
Company maintains cash accounts that are denominated in British pounds sterling, Euros and Australian dollars. These amounts are
included in cash, cash equivalents and restricted cash 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.
(e)
Property and Equipment
Property
and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is calculated using
the straight-line method over the estimated useful lives (three to seven years) of the assets. Leasehold improvements are amortized
using the straight-line method over the shorter of the estimated useful life of the asset or the remaining lease term. Expenses
for maintenance and repairs are charged to operations as incurred. Property and equipment is also reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of the asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, then an impairment
charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.
(f)
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist principally of trade accounts receivable and cash. The
Company believes that its credit risk is limited because the Company’s current contracts are with companies with strong
financial strength. The Company invests its excess cash in a money market fund and does not believe that it is exposed to any
significant risks related to its cash accounts and money market fund. Cash is also maintained at foreign financial institutions.
Cash in foreign financial institutions as of January 31, 2020 was $0.3 million.
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:
|
|
Three months ended
January 31,
|
|
|
Nine months ended
January 31,
|
|
Customer
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eni S.p.A.
|
|
|
6
|
%
|
|
|
53
|
%
|
|
|
10
|
%
|
|
|
60
|
%
|
Premier Oil UK Limited
|
|
|
1
|
%
|
|
|
47
|
%
|
|
|
11
|
%
|
|
|
35
|
%
|
EGP
|
|
|
93
|
%
|
|
|
0
|
%
|
|
|
68
|
%
|
|
|
5
|
%
|
Other
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
11
|
%
|
|
|
0
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
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.
(g)
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 Accounting Standards Codification
(“ASC”) 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.
(h)
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 on the Consolidated Statement of Operations, warrants on common stock, options to purchase
shares of common stock and non-vested restricted stock issued to employees and non-employee directors, totaling 5,565,462 and
1,786,494 for each of the three and nine months ended January 31, 2020 and 2019, respectively, were excluded from each of the
computations as the effect would be anti-dilutive due to the Company’s losses.
(i)
Share-Based Compensation
Costs
resulting from all share-based payment transactions are recognized in the consolidated financial statements at their fair values.
The following table summarizes share-based compensation related to the Company’s share-based plans by expense category for
the three and nine months ended January 31, 2020 and 2019:
|
|
Three months ended
January 31,
|
|
|
Nine months ended
January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
$
|
12
|
|
|
$
|
(14
|
)
|
|
$
|
52
|
|
|
$
|
7
|
|
Selling, general and administrative
|
|
|
44
|
|
|
|
79
|
|
|
|
173
|
|
|
|
193
|
|
Total share-based compensation expense
|
|
$
|
56
|
|
|
$
|
65
|
|
|
$
|
225
|
|
|
$
|
200
|
|
(j)
Deferred Rent
On
March 31, 2017, the Company signed a 7-year lease for approximately 56,000 square feet in Monroe Township, New Jersey that is
being used as warehouse/production space, 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 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 recorded lease incentive
liability to deferred rent. With the Company’s adoption of Accounting Standards Update (“ASU”) No. 2016-02 on
May 1, 2019, the balances in lease incentive liability and deferred rent have been included in the value of the right of use asset.
(k)
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 unpriced change orders
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’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. The Company reports its disaggregation of revenue by contract type
since this method best represents the Company’s business. For the nine-month period ended January 31, 2020 and 2019 all
of the Company’s contracts were classified as firm fixed price.
As
of January 31, 2020, the Company’s total remaining performance obligations, also referred to as backlog, totaled $1.4 million.
The Company expects to recognize approximately 99%, or $1.3 million, of the remaining performance obligations as revenue over
the next twelve months.
PB3
PowerBuoy® Leasing
The Company enters into lease arrangements
with certain customers for their PB3 PowerBuoy® (“PB3”). As of January 31, 2020, the Company has two lease arrangements
with up to 4 months remaining in their terms. Revenue related to multiple-element arrangements is allocated to lease and
non-lease elements based on their relative standalone selling prices or expected cost plus a margin approach. Lease elements generally
include a PB3 and components, while non-lease elements generally include engineering, monitoring and support services. In the
lease arrangement, the customer is provided an option to extend the lease term or purchase the leased PB3 at some point during
and/or at the end of the lease term.
The
Company classifies leases as either operating or financing in accordance with the authoritative accounting guidance contained
within ASC Topic 842, “Leases”. At inception of the contract, the Company evaluates the lease against the lease
classification criteria within ASC Topic 842. If the direct financing or sales-type classification criteria are met, then the
lease is accounted for as a finance lease. All others are treated as an operating lease.
The
Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term and is presented
in Revenues in the Consolidated Statement of Operations. The lease income for the three and nine months ended January 31, 2020
was immaterial.
(l)
Recently Issued Accounting Standards
In
February 2016, the Financial Accounting Standards Board (“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 was effective for annual
periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted.
The guidance permits the Company to utilize the package of practical expedients 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.
Additionally, the Company elected to exclude short-term leases having initial terms of 12 months or less and recognizes rent expense
on a straight-line basis over the lease term. The Company adopted Topic 842 on May 1, 2019 using the modified retrospective approach.
Under this approach, comparative periods presented in the financial statements in which the new lease standard is adopted will
continue to be presented in accordance with prior GAAP. The adoption of this standard had an impact on the Company’s Consolidated
Balance Sheets, recognizing a ROU and a lease liability of approximately $1.4 million and $1.5 million, respectively, and eliminating
deferred rent of $39,000 and an unamortized lease incentive receivable of $108,000. Refer to Note 6 to the Consolidated Financial
Statements for disclosure requirements related to the adoption of this standard.
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of
Credit Losses on Financial Instruments.” The amendment in this update replaces the incurred loss impairment methodology
in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables.
This update is intended to provide financial statement users with more decision-useful information about the expected credit losses.
This ASU is effective for annual periods and interim periods beginning after December 15, 2019. The Company is currently evaluating
the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.
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 January 31, 2020 and April 30, 2019.
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
63
|
|
|
$
|
171
|
|
Amount invoiced to customer
|
|
|
1,217
|
|
|
|
857
|
|
Collections
|
|
|
(1,210
|
)
|
|
|
(965
|
)
|
Ending balance
|
|
$
|
70
|
|
|
$
|
63
|
|
Contract
Assets and Contract Liabilities
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. The increase in contract assets is primarily a result of services performed
but unbilled during the nine months ended January 31, 2020.
Contract
liabilities consist of amounts invoiced to customers in excess of revenue recognized. The increase in contract liabilities is
primarily a result of an advance payment made by EGP during the nine months ended January 31, 2020.
(4)
Other Current Assets
Other
current assets consist of the following at January 31, 2020 and April 30, 2019:
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
71
|
|
|
$
|
63
|
|
Other receivables
|
|
|
273
|
|
|
|
44
|
|
Prepaid insurance
|
|
|
161
|
|
|
|
93
|
|
Prepaid offering costs
|
|
|
423
|
|
|
|
144
|
|
Prepaid expenses- other
|
|
|
167
|
|
|
|
193
|
|
|
|
$
|
1,095
|
|
|
$
|
537
|
|
(5)
Property and Equipment, net
The
components of property and equipment, net as of January 31, 2020 and April 30, 2019 consisted of the following:
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
342
|
|
|
|
339
|
|
Computer equipment & software
|
|
|
719
|
|
|
|
558
|
|
Office furniture & equipment
|
|
|
341
|
|
|
|
341
|
|
Leasehold improvements
|
|
|
474
|
|
|
|
474
|
|
Equipment under capitalized lease
|
|
|
-
|
|
|
|
103
|
|
Construction in process
|
|
|
15
|
|
|
|
15
|
|
|
|
$
|
1,891
|
|
|
$
|
1,830
|
|
Less: accumulated depreciation
|
|
|
(1,355
|
)
|
|
|
(1,238
|
)
|
|
|
$
|
536
|
|
|
$
|
592
|
|
Depreciation
expense was approximately $40,000 and $45,000 for the three-month period ended January 31, 2020 and 2019, and approximately $117,000
and $135,000 for the nine-month period ended January 31, 2020 and 2019, respectively.
(6)
Leases
Lessor
Information
As of January 31, 2020, the Company has two
leases which have been classified as operating leases per accounting guidance contained within ASC Topic 842,”
Leases”. The Company’s remaining operating lease term on these leases is less than a year. The maturity
of lease payments remaining on this lease is immaterial. The accounting of the operating lease income according to ASC Topic 842,
“Leases” is similar to the accounting in prior years.
Lessee
Information
The
Company has one lease for its facility located in Monroe Township, New Jersey that is used as warehouse/production space and the
Company’s principal offices and corporate headquarters. The initial lease term is for 7 years with an option to extend the
lease for another 5 years. The lease is classified as an operating lease. The operating lease is included in right-of-use assets,
lease liabilities- current and lease liabilities- long-term on the Company’s Consolidated Balance Sheets. The Company has
elected the package of practical expedients which applies to leases that commenced before the adoption date. By electing the package
of practical expedients, the Company did not need to reassess whether any existing contracts are or contain leases, the lease
classification for any existing leases and initial direct costs for any existing leases.
Right-of-use
asset and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease
term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, the Company used the incremental
borrowing rate based on the information available at the effective date to determine the present value of future payments. Lease
terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise those
options. The renewal options have not been included in the lease term as they are not reasonably certain of exercise. Lease expense
for minimum lease payments is recognized on a straight- line basis over the lease term and consists of interest on the lease liability
and the amortization of the right of use asset. Variable lease expenses, if any, are recorded as incurred. The operating lease
straight-line expense in the Consolidated Statement of Operations for the three and nine months ended January 31, 2020 was $79,000
and $238,000. The operating cash flows from operating leases cash payments for the three and nine months ended January 31, 2020
was $82,000 and $240,000.
Information
related to the Company’s right-of use assets and lease liabilities as of January 31, 2020 was as follows:
|
|
January 31, 2020
|
|
|
|
|
(in thousands)
|
|
Operating lease:
|
|
|
|
|
Operating right-of-use asset, net
|
|
$
|
1,215
|
|
|
|
|
|
|
Right-of-use liability- current
|
|
|
222
|
|
Right-of-use liability- long term
|
|
|
1,139
|
|
Total lease liability
|
|
$
|
1,361
|
|
|
|
|
|
|
Weighted average remaining lease term- operating leases
|
|
|
4.74 years
|
|
Weighted average discount rate- operating leases
|
|
|
8.5
|
%
|
Total
remaining lease payments under the Company’s operating leases are as follows:
|
|
January 31, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
2020 (Feb- April)
|
|
|
82
|
|
2021
|
|
|
331
|
|
2022
|
|
|
341
|
|
2023
|
|
|
352
|
|
2024
|
|
|
362
|
|
Thereafter
|
|
|
184
|
|
Total future minimum lease payments
|
|
$
|
1,652
|
|
Less imputed interest
|
|
|
(291
|
)
|
Total
|
|
$
|
1,361
|
|
ASC
840 Disclosure
The
Company elected the modified retrospective transition method and is required to present previously disclosed information under
the prior accounting standard for leases.
Lessee
Information
Future
minimum lease payments under the Company’s operating lease as of April 30, 2019 are as follows:
|
|
April 30, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
2020
|
|
|
322
|
|
2021
|
|
|
331
|
|
2022
|
|
|
341
|
|
2023
|
|
|
352
|
|
2024
|
|
|
362
|
|
Thereafter
|
|
|
184
|
|
|
|
$
|
1,892
|
|
(7)
Accrued Expenses
Accrued
expenses consist of the following at January 31, 2020 and April 30, 2019:
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Project costs
|
|
$
|
21
|
|
|
$
|
9
|
|
Contract loss reserve
|
|
|
264
|
|
|
|
211
|
|
Employee incentive payments
|
|
|
682
|
|
|
|
580
|
|
Accrued salary and benefits
|
|
|
470
|
|
|
|
500
|
|
Legal and accounting fees
|
|
|
303
|
|
|
|
273
|
|
Accrued taxes payable
|
|
|
177
|
|
|
|
177
|
|
Other
|
|
|
292
|
|
|
|
188
|
|
|
|
$
|
2,208
|
|
|
$
|
1,938
|
|
(8)
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 January 31, 2020, 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 January 31, 2020, none of the warrants
have been exercised.
Equity
Classified Warrants
On
April 8, 2019, 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 January 31, 2020, 3,246,400 of
the pre-funded warrants have been exercised. The common stock warrants have an exercise price of $3.85 per share and expire five
years from the issuance date. As of January 31, 2020, none of the common stock warrants have been exercised.
The
Company accounts for warrants issued in connection with its June and July 2016 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 in Topic 480. The warrants have a value of zero at January 31, 2020 and $6,000 at April 30, 2019
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.
An
unrealized gain of approximately zero and $47,000 for the three months ended January 31, 2020 and 2019, respectively, and $6,000
and $183,000 for the nine months ended January 31, 2020 and 2019, respectively, were included within “Gain due to change
in fair value of warrant liabilities” in the Consolidated Statements of Operations. The Company determined the fair value
using the Black-Scholes option pricing model with the following assumptions:
|
|
January 31, 2020
|
|
|
January 31, 2019
|
|
|
|
|
|
|
|
|
Dividend rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free rate
|
|
|
1.5
|
%
|
|
|
2.4
|
%
|
Expected life (years)
|
|
|
1.3 - 1.4
|
|
|
|
2.5 - 2.8
|
|
Expected volatility
|
|
|
109.8% - 130.1
|
%
|
|
|
90.8% - 142.7
|
%
|
(9)
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 January 31,
2020, and 2019, no shares of preferred stock had been issued.
(10)
Common Stock
The
Company has 100,000,000 shares authorized with a par value of $0.001 per share. As of January 31, 2020, there were 8,699,319 shares
issued.
On August 13, 2018, the Company entered into
a common stock purchase agreement with Aspire Capital which provided that, subject to certain terms, conditions and limitations,
Aspire Capital was 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. The number of shares
the Company could issue within the 19.99% is 183,591 shares. 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 common stock
as a commitment fee. The agreement was cancelled on October 24, 2019, and as of that date, the Company had 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
October 24, 2019, the Company entered into a new common stock purchase agreement with 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. The number of shares the Company can issue within the 19.99% limit is 1,219,010 shares. Shareholder approval
is needed for sale of common stock over the 19.99% limit of the outstanding common stock on the date of the agreement. At the
2019 annual meeting of stockholders, held on December 20, 2019, the Company’s stockholders approved an additional 5,400,000
shares to be issued pursuant to the common stock purchase agreement. In consideration for entering into the agreement, the Company
issued to Aspire Capital 194,805 shares of common stock as a commitment fee. As of January 31, 2020, the Company has sold 1,024,205
shares of common stock with an aggregate market value of $901,206 at an average price of $0.88 per share pursuant to this common
stock purchase agreement.
On
January 7, 2019, the Company entered into the 2019 ATM Facility with 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 January 31, 2020, under the 2019 ATM Facility the Company had issued and sold 1,527,145
shares of its common stock with an aggregate market value of $2.9 million at an average price of $1.91 per share and paid AGP
a sales commission of approximately $94,724 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 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.
(11)
Treasury Shares
During
the nine months ended January 31, 2020 and 2019, 481 and 1,770 shares of common stock, respectively, were purchased by the Company
from employees to pay taxes related to the vesting of restricted stock and are reflected in Treasury Stock as of January 31, 2020.
(12)
Stock-Based Compensation
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. On December 7, 2018, upon approval by the Company’s stockholders, the Company increased the number of
shares authorized for issuance to 132,036. On December 20, 2019, upon approval by the Company’s stockholders, the Company
increased the number of shares authorized for issuance to 732,036. 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.
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. As of January 31, 2020, the Company has 167,784 shares available for future issuance under the 2015 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 January 31, 2020, there were
11,487 shares available for grant under the 2018 Inducement Plan.
Stock
Options
The
Company estimates the fair value of each stock option award granted with service-based vesting requirements, using the Black-Scholes
option pricing model, assuming no dividends, and using the weighted average valuation assumptions noted in the following table.
The risk-free rate is based on the US Treasury yield curve in effect at the time of grant. The expected life (estimated period
of time outstanding) of the stock options granted was estimated using the “simplified” method as permitted by the
SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment. Expected volatility was based on the Company’s
historical volatility over the expected life of the stock option granted. There were 411,666 and 49,750 shares granted in the
three and nine months ended January 31, 2020 and 2019.
|
|
Three months ended
January 31,
|
|
|
Nine months ended
January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
|
2.7
|
%
|
|
|
1.7
|
%
|
|
|
2.7
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life (in years)
|
|
|
5.5- 5.7
|
|
|
|
5.5
|
|
|
|
5.5- 5.7
|
|
|
|
5.5
|
|
Expected volatility
|
|
|
127.6% - 128.2
|
%
|
|
|
126.4
|
%
|
|
|
127.6% - 128.2
|
%
|
|
|
126.4
|
%
|
Performance
Stock Options
The Company in January of 2020 issued
81,334 performance-based stock options to two of its executives. The awards can vest over 2 years if there is positive total shareholder
return (e.g. share price increase) as measured to the 5-day (January 11-15, 2021) and (January 10-14, 2022) share price VWAP.
There were 81,334 shares unvested and outstanding for the nine months ended January 31, 2020. The Company determined these
awards contain a market- based condition and estimated the fair value using the Monte Carlo simulation model with the following
assumptions:
Risk-free interest rate
|
|
|
2.3
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected life (in years)
|
|
|
10.0
|
|
Expected volatility
|
|
|
115.0
|
%
|
A
summary of stock options under our stock incentive plans is detailed in the following table.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Term
|
|
|
|
Options
|
|
|
Price
|
|
|
(In Years)
|
|
Outstanding as of April 30, 2019
|
|
|
65,572
|
|
|
$
|
21.08
|
|
|
|
8.9
|
|
Granted
|
|
|
493,000
|
|
|
$
|
1.05
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(2,073
|
)
|
|
$
|
52.66
|
|
|
|
|
|
Outstanding as of January 31, 2020
|
|
|
556,499
|
|
|
$
|
3.24
|
|
|
|
9.7
|
|
Exercisable as of January 31, 2020
|
|
|
63,499
|
|
|
$
|
20.21
|
|
|
|
8.0
|
|
As
of January 31, 2020, the total intrinsic value of both outstanding and exercisable options was zero. As of January 31, 2020, approximately
493,000 additional options were unvested, which had no intrinsic value and a weighted average remaining contractual term of 10.0
years. There was approximately $207,000 and $151,000 of total recognized compensation cost related to stock options during each
of the nine months ended January 31, 2020 and 2019, respectively. As of January 31, 2020, there was approximately $429,000 of
total unrecognized compensation cost related to non-vested stock options granted under the plans. This cost is expected to be
recognized over a weighted-average period of 1.2 years. The Company typically issues newly authorized but unissued shares to satisfy
option exercises under these plans.
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 the nine months ended January 31, 2020, the Company granted 13,513
shares subject to service-based vesting requirements.
A
summary of non-vested restricted stock under our stock incentive plans is as follows:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average Price
|
|
|
|
of Shares
|
|
|
per Share
|
|
|
|
|
|
|
|
|
Issued and unvested at April 30, 2019
|
|
|
4,506
|
|
|
$
|
30.08
|
|
Granted
|
|
|
13,513
|
|
|
$
|
1.48
|
|
Vested
|
|
|
(4,380
|
)
|
|
$
|
30.14
|
|
Cancelled/forfeited
|
|
|
(126
|
)
|
|
$
|
28.00
|
|
Issued and unvested at January 31, 2020
|
|
|
13,513
|
|
|
$
|
1.48
|
|
There
was approximately $10,000 and $49,000 of total recognized compensation cost related to restricted stock for the nine months ended
January 31, 2020 and 2019, respectively. As of January 31, 2020, there is 15,000 unrecognized compensation cost remaining related
to unvested restricted stock granted under our plans.
During the nine months
ended January 31, 2020, the Company granted 51,547 shares, subject to service-based vesting requirements, to an executive that
were outside the Company stock incentive plans. There was approximately $8,000 of total recognized compensation cost related to
this award for the nine months ended January 31, 2020. As of January 31, 2020, there is $43,000 unrecognized compensation cost
remaining related to this award.
(13)
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 each of the nine months ended January 31, 2020 and 2019.
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.
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 8) 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 January 31, 2020.
|
|
|
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)
|
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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)
|
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6
|
|
The
following table provides a summary of changes in fair value of the Company’s warrant liabilities held at January 31, 2020.
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
Total
|
|
|
|
Warrant
|
|
|
|
Liability
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Fair value – April 30, 2018
|
|
$
|
201
|
|
Change in fair value
|
|
|
(195
|
)
|
Fair value – April 30, 2019
|
|
|
6
|
|
|
|
|
|
|
Change in fair value
|
|
|
(6
|
)
|
Fair value – January 31, 2020
|
|
$
|
-
|
|
There
were no other re-measured assets or liabilities at fair value on a non-recurring basis during the nine months ended January 31,
2020 and 2019.
(14)
Commitments and Contingencies
Employment
Litigation
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 derivative
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-person 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. On September 30, 2019, the parties completed the factual discovery
process and the Company identified its expert witnesses. On October 14, 2019, the parties participated in a pre-hearing case management
conference with arbitration panel and altered slightly the dates for the hearing. The hearing was conducted in Princeton, New
Jersey between December 9-11, 2019, and between December 16-18, 2019, and on December 18, 2019 the panel decided to continue the
hearing for at least another day of testimony on May 18, 2020. As of January 31, 2020, the Company has not accrued any provision
related to this matter since it is not probable and cannot reasonably estimate the loss contingency.
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 April 9, 2019. As of March 9, 2020, 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 Consolidated 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 Consolidated 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, 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 the Company will be assessed a penalty relating to these tax years. The Company
has estimated this penalty to be $177,000 and as of January 31, 2020 and April 30, 2019 has recorded the penalty in Accrued expenses
in the Consolidated Balance Sheets.
(15)
Income Taxes
During the three and nine months ended January
31, 2019, the Company recorded an income tax benefit of $0.9 million, representing the proceeds from the sale of $9.1 million
of New Jersey net operating loss carryforwards and research and development tax credits. During the three and nine months ended
January 31, 2020, the Company has not received any proceeds from the sale of its New Jersey net operating loss carryforwards
and research and development tax credits.
Other
than the sale of New Jersey net operating loss carryforwards and research and development tax credits, the Company did not recognize
any consolidated income tax benefit (expense) during the three and nine months ended January 31, 2020 and 2019. The Company has
recorded a valuation allowance to reduce its net deferred tax asset to an amount that is more likely than not to be realized in
future years. Accordingly, the benefit of the net operating loss that would have been recognized was offset by changes in the
valuation allowance.
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 our Spanish branch was closed (see Note 14 to the Consolidated
Financial Statements). At January 31, 2020 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.
(16)
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 subsidiaries in the UK and in Australia. Revenues
and expenses are generally attributed to the operating unit that bills the customers. During the three and nine months ended January
31, 2020 and 2019, the Company’s primary business operations were in North America.
(17)
Subsequent Event
Nasdaq
Delisting Notification
On
March 3, 2020, the Company received a notification from the Nasdaq Stock Market (the “NASDAQ”) indicating that the
minimum bid price of the Company’s common stock has been below $1.00 per share for 30 consecutive business days and as a
result, the Company is not in compliance with the minimum bid price requirement for continued listing. The Nasdaq notice has no
immediate effect on the listing or trading of the Company’s common stock. Under the Nasdaq Listing Rules, the Company has
a grace period of 180 calendar days, or until August 31, 2020, 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 this grace period.