Item 1.
|
Financial Statements
|
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Balance Sheets
(in $000’s, except share data)
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statements of Operations
(in
$000’s, except per share data)
Unaudited
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statements of Comprehensive Loss
(in $000’s)
Unaudited
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statement of Stockholders’ Equity
(in $000’s, except share data)
Unaudited
|
|
Three
Months Ended July 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
Shares
|
|
|
Treasury
Shares
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at May 1, 2020
|
|
|
12,939,420
|
|
|
$
|
13
|
|
|
|
(4,251
|
)
|
|
$
|
(302
|
)
|
|
$
|
231,101
|
|
|
$
|
(220,136
|
)
|
|
$
|
(183
|
)
|
|
|
10,492
|
|
Beginning balance
|
|
|
12,939,420
|
|
|
$
|
13
|
|
|
|
(4,251
|
)
|
|
$
|
(302
|
)
|
|
$
|
231,101
|
|
|
$
|
(220,136
|
)
|
|
$
|
(183
|
)
|
|
|
10,492
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,385
|
)
|
|
|
-
|
|
|
|
(3,385
|
)
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116
|
|
Issuance
of common stock- Aspire financing, net
of issuance costs
|
|
|
5,025,000
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,630
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,635
|
|
Issuance
of common stock- AGP At The Market
offering, net of issuance costs
|
|
|
660,396
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
242
|
|
|
|
-
|
|
|
|
-
|
|
|
|
243
|
|
Other
comprehensive gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
15
|
|
|
|
15
|
|
Other
comprehensive gain/(loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
15
|
|
|
|
15
|
|
Balances
at July 31, 2020
|
|
|
18,624,816
|
|
|
$
|
19
|
|
|
|
(4,251
|
)
|
|
$
|
(302
|
)
|
|
$
|
234,089
|
|
|
$
|
(223,521
|
)
|
|
$
|
(168
|
)
|
|
$
|
10,117
|
|
Ending
balance
|
|
|
18,624,816
|
|
|
$
|
19
|
|
|
|
(4,251
|
)
|
|
$
|
(302
|
)
|
|
$
|
234,089
|
|
|
$
|
(223,521
|
)
|
|
$
|
(168
|
)
|
|
$
|
10,117
|
|
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(in $000’s)
Unaudited
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
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. We are a complete solutions provider, controlling the design, manufacturing, sales, installation, operations and
maintenance of our products while working closely with partners that provide payloads, integration services, and marine installation
capabilities. Our solutions provide distributed offshore power which is persistent, reliable, and economical along with power and communications
for remote surface and subsea applications. Historically, funding from government agencies, such as research and development grants,
accounted for a significant portion of the Company’s revenues. Today our goal is to generate the majority of our revenue from the sale or lease of products
and solutions, 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, solutions and services.
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) and for interim financial information in accordance with the Securities and Exchange
Commission (“SEC”), instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by GAAP 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, 2021, as filed with the SEC and elsewhere in this Form 10-Q. Certain items have been reclassified from prior periods
to be consistent with current GAAP presentations.
For
the three months ended July 31, 2021, and the fiscal year ended April 30, 2021, the Company incurred net losses of approximately
$3.1 million
and $14.8 million,
respectively, and used cash in operations of approximately $5.3
million and $11.7
million, respectively. 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, performance of its products, its ability to market and
commercialize its products 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 integration of acquisitions, pending or threatened
litigation, and the impact of COVID-19 on its business. The Company obtained equity financing through its At the Market Offering
Agreement with A.G.P/Alliance Global Partners (“AGP”) and through its equity line financing with Aspire Capital,
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. Management believes the Company’s current cash balance of $77.7
million is sufficient to fund its planned expenditures
through at least September 2022.
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 AGP,
acting as agent and/or principal, shares of the Company’s common stock having an aggregate offering price of up to $25.0
million. From inception of the program through
its termination on December 8, 2020, under the 2019 ATM Facility, the Company sold and issued an aggregate of 17,595,472
shares of its common stock with an aggregate
market value of $23.4
million at an average price of $1.33
per share, including 12,342,506
shares in fiscal year 2021 with an aggregate
market value of $18.7
million at an average price of $1.51
per share and paid AGP a sales commission of
approximately $0.8
million related to those shares. The agreement
was fully utilized and terminated on December 8, 2020.
On
November 20, 2020, the Company entered into an At the Market Offering Agreement with AGP (the “2020 ATM Facility”), having
capacity up to $100.0 million.
On December 4, 2020, the Company filed a prospectus with the Securities and Exchange Commission whereby, the Company could
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 $50.0
million. From inception of the 2020 ATM Facility
through July 31, 2021, the Company had sold and issued an aggregate of 17,179,883
shares of its common stock with an aggregate
market value of $50.0
million at an average price of $2.91
per share and paid AGP a sales commission of
approximately $1.6
million related to those shares. A prospectus
supplement would need to be filed for the Company to sell an additional amount under the 2020 ATM Facility.
Equity
Line Common Stock Purchase Agreements
On
October 24, 2019, 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 shares of the Company’s
common stock over a 30-month period. Through September 18, 2020, the Company had sold an aggregate of 6,424,205 shares of common stock
with an aggregate market value of $4.0 million at an average price of $0.63 per share pursuant to this common stock purchase agreement,
including 5,025,000 shares in fiscal year 2021 with an aggregate market value of $2.9 million at an average price of $0.57 per share.
The agreement was fully utilized and terminated on September 18, 2020.
On
September 18, 2020, the Company entered into a new 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 $12.5
million shares of the Company’s common
stock over a 30-month period subject to a limit of 19.99%
of the outstanding common stock on the date of the agreement if the price did not exceed a specified price in the agreement. The number
of shares the Company could issue within the 19.99%
limit was 3,722,251
shares without shareholder approval. Shareholder
approval was received at the Company’s annual meeting of stockholders on December 23, 2020 for the sale of 9,864,706
additional shares of common stock which exceeds
the 19.99% limit of the outstanding common stock on the date of the agreement. Through July 31, 2021, the Company had sold an aggregate
of 3,722,251
shares of common stock with an aggregate market
value of $11.8
million at an average price of $3.17
per share pursuant to this common stock purchase
agreement with approximately $1.0
million remaining on the facility as of
July 31, 2021.
(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 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,
among other items, 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. The following table summarizes cash and cash equivalents as of July 31, 2021 and April
30, 2021:
Schedule of Cash and Cash Equivalents
|
|
July
31, 2021
|
|
|
April
30, 2021
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Checking
and savings accounts
|
|
$
|
1,022
|
|
|
$
|
1,850
|
|
Money
market account
|
|
|
76,698
|
|
|
|
81,178
|
|
|
|
$
|
77,720
|
|
|
$
|
83,028
|
|
Restricted
Cash and Security Agreements
The
Company has a letter of credit agreement with Santander Bank, N.A. (“Santander”). Cash of $157,000
is on deposit at Santander and serves as
security for a letter of credit issued by Santander for the lease of warehouse/office space in Monroe Township, New Jersey. This agreement
cannot be extended beyond July 31, 2025 and is cancelable at the discretion of the bank.
Santander
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 $126,000 that will be released 12 months after the
PB3 PowerBuoy® (“PB3”) is fully deployed. The second letter of credit was issued in the amount of $645,000
and reduced to $323,000 in August 2020. The second letter of credit will be reduced by $64,000 once the PB3 is fully deployed and passes final acceptance testing. The remaining restricted amount of $258,000 will be released 12 months after the buoy is fully deployed.
The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets
that total to the same amounts shown in the Consolidated Statements of Cash Flows.
Schedule of Cash and Cash Equivalents and Restricted Cash
|
|
July
31, 2021
|
|
|
April
30, 2021
|
|
|
|
|
(in
thousands)
|
|
Cash
and cash equivalents
|
|
$
|
77,720
|
|
|
$
|
83,028
|
|
Restricted
cash- short term
|
|
|
384
|
|
|
|
384
|
|
Restricted
cash- long term
|
|
|
222
|
|
|
|
222
|
|
|
|
$
|
78,326
|
|
|
$
|
83,634
|
|
(d)
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist principally of accounts receivable and cash and cash equivalents.
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 account and does not believe that it is exposed to any significant risks
related to its cash and money market accounts. Cash and cash equivalents are also maintained at foreign financial institutions. Cash
and cash equivalents in foreign financial institutions as of July 31, 2021 was $0.3
million.
The
table below shows the amount 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:
Schedule of Revenue by Major Customers by Reporting Segments
|
|
Three
months ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in
thousands)
|
|
Eni
S.p.A.
|
|
$
|
-
|
|
|
$
|
28
|
|
Harbour
(p/k/a Premier Oil)
|
|
|
-
|
|
|
|
27
|
|
EGP
|
|
|
149
|
|
|
|
114
|
|
Valaris
|
|
|
89
|
|
|
|
-
|
|
Other
(no customer over 10%)
|
|
|
34
|
|
|
|
-
|
|
|
|
$
|
272
|
|
|
$
|
169
|
|
(e) 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
months ended July 31, 2021 and 2020:
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs
|
|
Three
months ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in
thousands)
|
Engineering
and product development
|
|
$
|
217
|
|
|
$
|
37
|
|
Selling,
general and administrative
|
|
|
173
|
|
|
|
79
|
|
Total
share-based compensation expense
|
|
$
|
390
|
|
|
$
|
116
|
|
(f)
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. There was no variable consideration
as of July 31, 2021 and 2020. The Company presents shipping and handling costs, that occur after control of the promised goods or services
transfer to the customer, as fulfillment costs rather than evaluating whether the shipping and handling activities are promised services
to the customer.
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. 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. If estimated total costs on any
contract project a loss, the Company charges the entire estimated loss to operations in the period the loss becomes known. The cumulative
effect of revisions to revenue, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims,
anticipated losses, and others are recorded in the accounting period in which the events indicating a loss are known and the loss can
be reasonably estimated. These loss projects are re-assessed for each subsequent reporting period until the project is complete. Such
revisions could occur at any time and the effects may be material.
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 three-month periods ended July 31, 2021 and 2020, all of the Company’s contracts were classified
as firm fixed price.
As
of July 31, 2021, the Company’s total remaining performance obligations, also referred to as backlog, totaled $0.4 million. The
Company expects to recognize 100%, or $0.4 million, of the remaining performance obligations as revenue over the next twelve
months.
The
Company also enters into lease arrangements for its PB3 with certain customers. 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.
Products
and Solutions Leasing
The
Company enters into lease arrangements with certain customers for their products and solutions. As of July 31, 2021, the Company had
one lease arrangement with a remaining operating lease term of less than 10 months. 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 operating leases.
The
Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term which is presented
in Revenues in the Consolidated Statement of Operations. The lease income for the three months ended July 31, 2021 and 2020 was immaterial.
(g)
Net Loss per Common Share
Basic
and diluted net loss per common 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 unvested restricted stock issued to employees and non-employee directors, were excluded from the
diluted loss per common share calculation due to their anti-dilutive effect.
In
computing diluted net loss per common 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 5,243,647
and 5,564,404
for the three months ended July 31, 2021 and
2020, respectively, were excluded from each of the computations as the effect would be anti-dilutive due to the Company’s net losses.
(h)
Recently Issued Accounting Standards
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments -
Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” This amendment 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. In November 2019, the FASB issued No. 2019-10, Financial Instruments—Credit Losses
(Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date of ASU 2016-13 for Smaller
Reporting Companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company
is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.
(3)
Account Receivable and Contract Assets
The
following provides further details on the balance sheet accounts of accounts receivable and contract assets from contracts with customers:
Schedule of Accounts Receivable, Contract Assets and Contract Liabilities
|
|
July
31, 2021
|
|
|
April
30, 2021
|
|
|
|
(in
thousands)
|
|
Accounts
receivable
|
|
$
|
446
|
|
|
$
|
350
|
|
Contract
assets
|
|
|
304
|
|
|
|
190
|
|
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 goods have transferred to the customer. Accounts
receivable represent an unconditional right to consideration arising from the Company’s performance under contracts with customers.
The carrying value of such receivables represents their estimated realizable value.
Contract
Assets
Significant
changes in the contract assets balances during the period were as follows:
Schedule of Significant Changes in Contract assets and Contract Liabilities
|
|
Three
months ended
|
|
|
|
July
31, 2021
|
|
|
|
|
(in
thousands)
|
|
Transferred
to receivables from contract assets recognized at the beginning of the period
|
|
$
|
(190
|
)
|
Revenue
recognized and not billed as of the end of the period
|
|
|
304
|
|
Net
change in contract assets
|
|
$
|
114
|
|
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.
(4)
Other Current Assets
Other
current assets consisted of the following at July 31, 2021 and April 30, 2021:
Schedule of Other Current Assets
|
|
July
31, 2021
|
|
|
April
30, 2021
|
|
|
|
(in
thousands)
|
Deposits
|
|
$
|
70
|
|
|
$
|
68
|
|
Other
receivables
|
|
|
17
|
|
|
|
21
|
|
Prepaid
insurance
|
|
|
97
|
|
|
|
194
|
|
Prepaid
recruiting
|
|
|
148
|
|
|
|
12
|
|
Prepaid
expenses- other
|
|
|
175
|
|
|
|
192
|
|
Other
current assets
|
|
$
|
507
|
|
|
$
|
487
|
|
(5)
Property and Equipment, net
The
components of property and equipment, net as of July 31, 2021 and April 30, 2021 consisted of the following:
Schedule of Components of Property and Equipment
|
|
July
31, 2021
|
|
|
April
30, 2021
|
|
|
|
(in
thousands)
|
Equipment
|
|
$
|
311
|
|
|
|
291
|
|
Computer
equipment & software
|
|
|
486
|
|
|
|
498
|
|
Office
furniture & equipment
|
|
|
339
|
|
|
|
341
|
|
Leasehold
improvements
|
|
|
474
|
|
|
|
474
|
|
Construction
in process
|
|
|
15
|
|
|
|
15
|
|
Property
and equipment, gross
|
|
$
|
1,625
|
|
|
$
|
1,619
|
|
Less:
accumulated depreciation
|
|
|
(1,252
|
)
|
|
|
(1,213
|
)
|
Property
and equipment, net
|
|
$
|
373
|
|
|
$
|
406
|
|
Depreciation
expense was approximately $40,000 and $37,000 for the three-month periods ended July 31, 2021 and 2020, respectively.
(6)
Leases
Lessor
Information
As
of July 31, 2021, the Company has one lease which has been classified as an operating lease per accounting guidance contained within
ASC Topic 842,” Leases”. The Company’s remaining term on this operating lease is less than 10 months. The maturity
of lease payments remaining on this lease is immaterial.
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 which is set to expire in November of 2024 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 also has one lease located in Houston, Texas that was acquired as part of the 3Dent acquisition that is used as office
space. The lease term is for 3
years, and
is set to expire in January of 2023. The lease is classified as an operating lease, and included in the right-of-use assets,
lease liabilities- current and lease liabilities- long-term on the Company’s Consolidated Balance Sheets.
The
Company has one lease for additional office space also located in Houston, Texas. The lease was renewed for a 12-month term ending
on June
30, 2022. As the lease term is 12 months, the
asset was recognized directly to the profit and loss statement on a straight-line basis under ASC 842-20-25-2 and was
not recognized as a right-of-use asset.
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 uses 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 cash flow payments for the three months ended July 31, 2021 and 2020 were $102,000
and $83,000,
respectively.
The
components of lease expense in the Consolidated Statement of Operations for the three months ended July 31, 2021 and 2020 were
as follows:
Schedule
of Operating Lease Costs
|
|
2021
|
|
|
2020
|
|
|
|
Three
months ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
Operating
lease cost
|
|
$
|
92
|
|
|
$
|
79
|
|
Short-term
lease cost
|
|
|
5
|
|
|
|
2
|
|
Total
lease cost
|
|
$
|
97
|
|
|
$
|
81
|
|
Information
related to the Company’s right-of use assets and lease liabilities as of July 31, 2021 was as follows:
Schedule of Right-of Use Assets and Lease Liabilities
|
|
July 31, 2021
|
|
|
|
(in thousands)
|
|
|
|
|
|
Operating lease:
|
|
|
|
|
Operating right-of-use asset, net
|
|
$
|
967
|
|
|
|
|
|
|
Right-of-use liability- current
|
|
|
317
|
|
Right-of-use liability- long term
|
|
|
774
|
|
Total lease liability
|
|
$
|
1,091
|
|
|
|
|
|
|
Weighted average remaining lease term- operating leases
|
|
|
3.10 years
|
|
Weighted average discount rate- operating leases
|
|
|
8.2
|
%
|
Total
remaining lease payments under the Company’s operating leases are as follows:
Schedule
of Future Minimum Lease Payments Under Operating Lease
|
|
July 31, 2021
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Remainder of fiscal year 2022
|
|
$
|
339
|
|
2023
|
|
|
391
|
|
2024
|
|
|
362
|
|
2025
|
|
|
182
|
|
Total future minimum lease payments
|
|
$
|
1,274
|
|
Less imputed interest
|
|
|
(183
|
)
|
Total
|
|
$
|
1,091
|
|
(7)
Accrued Expenses
Accrued
expenses consisted of the following at July 31, 2021 and April 30, 2021:
Schedule
of Accrued Expenses
|
|
July
31, 2021
|
|
|
April
30, 2021
|
|
|
|
(in
thousands)
|
|
|
|
|
Project
costs
|
|
$
|
198
|
|
|
$
|
368
|
|
Contract
loss reserve
|
|
|
328
|
|
|
|
328
|
|
Employee
incentive payments
|
|
|
323
|
|
|
|
283
|
|
Accrued
salary and benefits
|
|
|
598
|
|
|
|
631
|
|
Legal
and accounting fees
|
|
|
292
|
|
|
|
200
|
|
Other
|
|
|
82
|
|
|
|
71
|
|
Accrued
expenses total
|
|
$
|
1,821
|
|
|
$
|
1,881
|
|
(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 on December 3, 2021, five
years following the Initial Exercise Date. As
of July 31, 2021, none
of the warrants had 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 exercise date of January 23, 2017. As of July 31, 2021, none
of the warrants had 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 July 31, 2021, all of the pre-funded warrants had 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 July 31, 2021,
all of the common warrants had been exercised.
The
Company accounts for warrants issued in connection with its June 2016 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 2016 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 had a value near zero
at July 31, 2021 and April 30, 2021 and were
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.
(9)
Paycheck Protection Program Loan
On
March 27, 2020, the U.S. Government passed into law the Coronavirus Aid, Relief and Economic Security Act, or the (“CARES
Act”). On May 3, 2020, the Company signed a Paycheck Protection Program (“PPP”) loan with Santander as the lender
for approximately $891,000 in
support through the Small Business Association (“SBA”) under the PPP Loan. The PPP Loan was unsecured and
evidenced by a note in favor of Santander as the lender and governed by a Loan Agreement with Santander. The loan contained
an interest rate of 1%
and was repayable over two years. The loan contained customary events of defaults relating to, among other things,
payment defaults or breaches of the terms of the loan. Upon the occurrence of an event of default, the lender could have
required immediate repayment of all outstanding amounts under the loan. Interest and principal payments were deferred for
the first 6 months from the date of the loan. Principal and interest were payable monthly commencing 6 months after the
disbursement date and were allowed to be repaid by the Company at any time prior to maturity with no prepayment penalties.
The Company received the proceeds on May 5, 2020.
The
Company filed its loan forgiveness application at the end of February 2021 asking for 100% forgiveness of the loan. In June 2021, the
Company was informed that its application was approved, and that the loan is now fully forgiven. The Company recognized
a gain on extinguishment of PPP loan of approximately $891,000 in
the July 31, 2021 Consolidated Statement of Operations.
(10)
Preferred Stock
The
Company has authorized 5,000,000 shares of undesignated preferred stock with a par value of $0.001 per share. As of July 31, 2021, no
shares of preferred stock had been issued.
(11)
Common Stock
The
Company has authorized 100,000,000 shares of common stock with a par value of $0.001 per share. As of July 31, 2021, 52,458,011 shares
had been issued and are outstanding.
(12)
Treasury Shares
During
each of the three months ended July 31, 2021 and 2020, no
shares of common stock were purchased by
the Company from employees to pay taxes related to the vesting of restricted stock.
(13)
Share-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 1,332,036
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. 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 July 31, 2021, the
Company has 193,928
shares available for future issuance under the
2015 Plan which reflects adjustments made for the departure of our former CEO as well as other departures.
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 711(a) of the NYSE American Company Guide, 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 July 31, 2021, 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 is estimated using
the “simplified” method as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment. Expected
volatility is based on the Company’s historical volatility over the expected life of the stock option granted. The Company did
not grant any stock options during the three months ended July 31, 2021 and 2020. The following assumptions were used to value
the awards:
Schedule
of Share-based Payment Award, Stock Options, Valuation Assumptions
|
|
Three
months ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
Risk-free
interest rate
|
|
|
1.0
|
%
|
|
|
N/A
|
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
|
N/A
|
|
Expected
life (in years)
|
|
|
5.8
|
%
|
|
|
N/A
|
|
Expected
volatility
|
|
|
120.0
|
%
|
|
|
N/A
|
|
A
summary of stock options under our stock incentive plans is detailed in the following table.
Schedule of Stock Option Activity
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
Shares
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Term
|
|
|
|
|
Options
|
|
|
Price
|
|
|
(In
Years)
|
|
Outstanding
as of April 30, 2021
|
|
|
|
516,827
|
|
|
$
|
3.89
|
|
|
|
8.3
|
|
Granted
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Exercised
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
|
(3,681
|
)
|
|
$
|
13.81
|
|
|
|
|
|
Outstanding
as of July 31, 2021
|
|
|
|
513,146
|
|
|
$
|
3.81
|
|
|
|
8.7
|
|
Exercisable
as of July 31, 2021
|
|
|
|
247,954
|
|
|
$
|
4.92
|
|
|
|
8.0
|
|
As
of July 31, 2021, the total intrinsic value of outstanding and exercisable options was approximately $0.2
million.
As of July 31, 2021, approximately 265,000
additional options were unvested, which had an
intrinsic value of $19,000
and a weighted average remaining contractual
term of 9.4
years. There was approximately $110,000
and $90,000
of total recognized compensation cost related
to stock options during each of the three months ended July 31, 2021 and 2020, respectively. As of July 31, 2021, there was approximately
$0.4
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
1.2
years.
The
Company’s acquisition of 3Dent (See Note 18) was valued at the fair value of the stock on the acquisition date of $1,451,584
(361,991
shares at $4.01).
Since the shares will be restricted for one year and lack marketability, the Company applied a 20% discount to the purchase price to
make the adjusted fair value $1,161,267.
Additionally, as the Sellers must be employed for 12 months from the date of acquisition, the difference between the calculated fair
value and the net assets acquired represents the value of the compensation expense to be recognized over the period of the agreed
upon employment.
Schedule
of Business Acquisition and Fair Value of Net Assets, Compensation Expense Recognized
Fair
Value of Purchase
|
|
$
|
1,161,267
|
|
Total
Acquired Assets
|
|
$
|
(593,571
|
)
|
Total
Acquired Liabilities
|
|
$
|
117,106
|
|
Compensation
Expense
|
|
$
|
684,802
|
|
Quarterly
Compensation Expense
|
|
$
|
171,201
|
|
The
Company will recognize approximately $171,000
of compensation expense on a quarterly basis
for the consideration paid until 12 months from the acquisition date on February 2, 2022.
Performance
Stock Options
In
January of 2020, the Company issued 81,337
performance-based stock options to two of its
executives. The
awards vest over 2 years if there is positive total shareholder return (e.g. share price increase) as measured by the 5-day (January
11-15, 2021) and (January 10-14, 2022) share price volume weighted average price (“VWAP”).
There were 40,668
shares that were unvested and outstanding
for at July 31, 2021. One of the executives, the Company’s former President and CEO, left the Company as of June
18, 2021, however, he is able to exercise any vested options for a period of 180 days after his departure.
In
January of 2021, the Company issued 344,723
performance-based stock options to employees
and executives. The
awards vest over 2 years provided there is positive total shareholder return (e.g. share price increase) as measured by the closing
share price on January 14, 2022 and January 14, 2023. There
were 343,456
shares unvested and outstanding at July
31, 2021. None of the shares granted to our former President and CEO under this issuance vested and lapsed as of
June 18, 2021.
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:
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions
|
|
Three
months ended January 31,
|
|
|
|
2021
|
|
|
2020
|
|
Risk-free
interest rate
|
|
|
1.0
|
%
|
|
|
N/A
|
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
|
N/A
|
|
Expected
life (in years)
|
|
|
5.8
|
|
|
|
N/A
|
|
Expected
volatility
|
|
|
120.0
|
%
|
|
|
N/A
|
|
A
summary of performance stock options under our stock incentive plans is detailed in the following table.
Schedule of Stock Option Activity
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
Shares
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Term
|
|
|
|
|
Options
|
|
|
Price
|
|
|
(In
Years)
|
|
Outstanding
as of April 30, 2021
|
|
|
|
424,790
|
|
|
$
|
2.57
|
|
|
|
8.7
|
|
Granted
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Exercised
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
|
(6,767
|
)
|
|
$
|
2.93
|
|
|
|
|
|
Outstanding
as of July 31, 2021
|
|
|
|
418,023
|
|
|
$
|
2.56
|
|
|
|
9.3
|
|
Exercisable
as of July 31, 2021
|
|
|
|
40,668
|
|
|
$
|
1.05
|
|
|
|
8.5
|
|
As
of July 31, 2021, the total intrinsic value of both outstanding and exercisable options was approximately $37,000
and zero,
respectively. As of July 31, 2021, approximately 377,000
additional options were unvested, which had an
intrinsic value of $37,000
and a weighted average remaining contractual
term of 9.4
years. There was approximately $95,000
and $8,000
of total recognized compensation cost related
to stock options during each of the three months ended July 31, 2021 and 2020, respectively. As of July 31, 2021, there was approximately
$0.5
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
1.4
years.
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 three months ended July 31, 2021 and 2020, the Company granted no
shares that were subject to service-based
vesting requirements.
A
summary of non-vested restricted stock under our stock incentive plans is as follows:
Schedule of Non-vested Restricted Stock Activity
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
Price per
|
|
|
|
of
Shares
|
|
|
Share
|
|
Issued
and unvested at April 30, 2021
|
|
|
10,000
|
|
|
$
|
2.93
|
|
Granted
|
|
|
100,000
|
|
|
$
|
2.37
|
|
Vested
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled/forfeited
|
|
|
-
|
|
|
$
|
-
|
|
Issued
and unvested at July 31, 2021
|
|
|
110,000
|
|
|
$
|
2.42
|
|
There
was approximately $and $5,000
of total recognized compensation cost related
to restricted stock for the three months ended July 31, 2021 and 2020, respectively. As of July 31, 2021, there is approximately
$202,000
of unrecognized compensation cost remaining related to unvested restricted
stock granted under our plans. This cost is expected to be recognized over a weighted-average period of 0.5
years.
In
December 2019, the Company granted 51,547
shares to an employee, subject to service-based
vesting requirements, that were outside the Company stock incentive plans. There was approximately zero
and $12,000
of total recognized compensation cost related
to this award for the three months ended July 31, 2021 and 2020, respectively. As of July 31, 2021, there was no
unrecognized compensation cost remaining related
to this award.
CEO
Stock Options
On
June 18, 2021, the Company issued 100,000
restricted shares to the Company’s new
President and CEO, subject to vesting. A total of 66,667
of those shares are subject to performance-based
vesting and the remaining 33,333
shares are subject to time-based vesting equally
at the end of each of the next two
years. The
vesting of the performance-based shares is contingent upon the future closing share price on June 18, 2022, and June 18, 2023.
The
analysis required a Monte Carlo simulation due to the performance vesting schedule. These performance-based shares only vest in the event
that the future stock price increases above the closing price of June 18, 2021 of 2.37 per share. A total of 50% of the performance-based
shares will vest if the closing price of the Company’s stock on June 18, 2022, exceeds $2.37 per share, and 50% of
the options will vest if the closing price of the Company’s stock on June 18, 2023, exceeds the closing price on
June 18, 2022.
(14)
Fair Value Measurements
ASC
Topic 820, “Fair Value Measurements” states that fair value is an exit price, representing the amount 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.
Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs
used to measure fair value. This hierarchy maximizes the use of observable input and minimizes the use of unobservable inputs. The following
is a description of the three hierarchy levels.
Level
1
|
Unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement
date.
|
|
|
Level
2
|
Inputs
other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
|
|
|
Level
3
|
Inputs
that are unobservable for the asset or liability.
|
Disclosure
of Fair Values
The
Company’s financial instruments that are not re-measured at fair value include cash, cash equivalents, restricted cash, accounts
receivable, contract assets and liabilities, deposits, accounts payable, and accrued expenses. The carrying values of these financial
instruments approximate their fair values and are viewed as Level 1 items. The Company’s warrant liabilities represent the only
asset or liability classified financial instrument that is measured at fair value on a recurring basis.
The
fair value of the Company’s warrant liabilities (refer to Note 8) is based on the Black-Scholes option pricing model which is based
on Level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions. The
assumptions used by the Company are the quoted price of the Company’s common stock in an active market, risk-free interest rate,
volatility and expected life, and assumes no dividends. 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 fair value on a recurring
basis as of July 31, 2021 and April 30, 2021 was near zero.
There
were no unrealized gains or losses for the three months ended
July 31, 2021 and 2020. When incurred, gains and losses are included within “Gain (loss) 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:
Schedule
of Share-based Payment Award, Stock Options, Valuation Assumption
|
|
July 31, 2021
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
Dividend rate
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Risk-free rate
|
|
|
0.05% - 0.06%
|
|
|
|
0.1%
|
|
Expected life (years)
|
|
|
0.4
|
|
|
|
1.0 - 1.4
|
|
Expected volatility
|
|
|
154.0%
|
|
|
|
101.8%
|
|
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 hierarchy levels during each of the three months ended July 31, 2021 and 2020.
(15)
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. 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 named Ocean Power Technologies, Inc. as the respondent and alleged various claims and sought declaratory relief and permanent
injunction. The demand sought damages in the amount of $5.0
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. The final day of hearing occurred in
Princeton, New Jersey on July 15, 2020. Post-hearing briefs were filed on September 22, 2020. Following those filings, the panel issued
two interim awards finding, among other things, that the termination for cause of Mr. Dunleavy was in breach of his employment contract
and awarding him compensatory damages in the amount of $438,255.
The panel denied Mr. Dunleavy’s claims for defamation and injunctive and declaratory relief. The panel also awarded Mr. Dunleavy
attorneys’ fees, costs and pre-judgment interest. The Company agreed, on May 24, 2021, to pay Mr. Dunleavy $1,223,963,
representing the total compensatory damages, attorneys’ fees, costs and pre-judgment interest, which was the full amount
awarded by the panel and was accrued in the Company’s Consolidated Balance Sheet at April 30, 2021. This amount was
paid in full on May 26, 2021, and the matter is now closed.
Spain
Income Tax Audit
The
Company underwent an income tax audit in Spain for the period from 2011 to 2014, when our Spanish branch was closed. In connection
with the tax audit, the Spanish tax inspector challenged the Company’s recognition of grant funds received in 2011 to 2014 from
the European Commission in connection with the Company’s Waveport project. On July 30, 2018, the inspector concluded that although
there was no tax owed in light of losses reported, the Company’s Spanish branch owed penalties for failure to properly account
for the income associated with the funding grant. On August 30, 2018, the Company filed an administrative appeal of the penalty and its
underlying conclusions. During the three months ended July 31, 2020, the Company received notice from the Spanish Central Economic and
Administrative Tribunal that it agreed with the inspector and ruled that the Company owes the full amount of the penalty in the amount
of €279,870
or approximately $331,000.
In the quarter ended October 31, 2020, the Company recorded an additional reserve of €117,146
(or approximately $154,000)
to Selling, general and administrative costs in the Statement of Operations making the total reserve €279,870,
which amount was paid by the Company to the Spanish Tax Administration on January 25, 2021. On April 30, 2021, the Company filed its
appeal of the decision of the Central Court to the Spanish National Court. There is no schedule for a ruling from the Spanish National
Court.
(16)
Income Taxes
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. At July 31, 2021, the Company had no unrecognized tax positions.
The Company does not expect any material increase or decrease in its income tax expense in the next twelve months, related to examinations
or uncertain tax positions. 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.
Income Tax Benefit
The Company sold New Jersey
State net operating losses and research development credits (“NJ NOL”) under the NJEDA Tax Transfer program in the amount
of approximately $12 million for the year ended April 30, 2021, for net proceeds of approximately $1.0 million which was received in
May 2021 and recorded in the Company’s Statement of Operations in fiscal year 2022.
(17)
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 U.S. and subsidiaries in the UK and in Australia. Revenues and
expenses are generally attributed to the operating company that bills the customers. During each of the three months ended July
31, 2021 and 2020, the Company’s primary business operations were in North America.
(18)
Acquisition of 3dent Technologies, LLC
On
February 1, 2021, the Company acquired all of the outstanding equity interest of 3dent Technologies, LLC (“3Dent”),
a Houston, Texas based company that offers offshore energy engineering and design services that are complementary to OPT’s
technology and products. As consideration for the purchase, the Company issued 361,991
shares of its common stock to the seller, subject
to a 12-month post acquisition employment condition. In addition, the former owners of 3Dent will be eligible for awards of performance
stock with a potential value of $360,000
if certain revenue targets are achieved over
the 12 month-period post acquisition. There were no changes during the three months ended July 31, 2021 that would affect
this valuation.
The
Company accounted for the transaction as a business combination under ASC 805, “Business Combinations.” Accordingly,
the assets and liabilities acquired were recorded at their estimated fair value on the date of acquisition. Under ASC 805, acquisition-related
transaction costs (such as advisory, legal, valuation, other professional fees) were expensed in the Consolidated Statement of Operations
in the period incurred.
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The
following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and
related notes included in this Quarterly Report on Form 10-Q. Some of the information contained in this management’s discussion
and analysis is set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business,
pending and threatened litigation and our liquidity, includes forward-looking statements that involve risks and uncertainties. You should
review the “Risk Factors” section of our Annual Report on Form 10-K for the year ended April 30, 2021 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. References to a fiscal year in this Form 10-Q refer to the year ended
April 30 of that year (e.g., fiscal 2021 refers to the year ended April 30, 2021).
Overview
We
are a marine power equipment, data solutions and consulting services provider. We control the design, manufacture, sales, installation,
operations and maintenance of our solutions and services while working closely with commercial, technical, and other development partners
that provide software, controls, mechatronics, sensors, integration services, and marine installation services. We believe our renewable
autonomous ocean solutions deliver power and data collection, analysis and communication in remote ocean environments, allowing users
to generate actionable intelligence and control certain equipment. Our mission and purpose are to provide intelligent maritime solutions
and services that enable safer and more productive ocean operations for the defense and security, offshore oil and gas, science and research,
and offshore wind markets. We achieve this through our proprietary, state-of-the-art technologies that are at the core of our clean and
renewable energy platforms upon which we offer our solutions and services.
We
continue to develop and commercialize our proprietary systems that generate electricity by harnessing the renewable energy of ocean waves
for our PowerBuoy® (“PB3”), and solar power for our hybrid PowerBuoy® (the “hybrid”). The PB3 uses proprietary
technologies that convert the kinetic energy created by the heaving motion of ocean waves into electricity. Our strategy includes developing
complete solutions and services, including cloud-based delivery systems for ocean data and predictive analytics to provide actionable
intelligence for our clients. Based on feedback from our current customers, discussions with potential customers in the defense and security,
offshore oil and gas, science and research, and offshore wind markets, as well as government applications in fishery protection and marine
protected areas, together with our market research and publicly available data, we believe that numerous markets have a direct need for
our solutions. Our recent projects have been in the offshore oil and gas and science and research industries. We believe there is an
increasing need for our products and services in areas such as fishery protection, offshore windfarm support, and maritime domain awareness
applications. We believe that having demonstrated the capability of our solutions, we can advance our product and services and gain further
adoption from our target markets. Our marketing efforts are focused on offshore locations that require a cost-efficient solution for
renewable, reliable, and persistent power and communications, either by supplying electric power to payloads that are integrated directly
with our product or located in its vicinity, such as on the seabed and in the water column. We believe we are the leader in offshore
autonomous ocean wave power conversion technology which provides renewable power for offshore operations that were previously logistically
problematic and difficult to decarbonize.
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. We are continuing to build upon our
mission of connecting the oceans with those who operate, and manage the resource, in the environment. We do this through
our solutions’ offerings, that are based on our proprietary renewable power platforms and engineering skills. Our solutions
focus on three major services areas, Data as a Service, supported and enabled by Power as a Service, and underpinned by our Strategic
Consulting Services, which we expanded with the acquisition of 3dent Technology, LLC (“3Dent”), in February 2021. Over the
course of fiscal 2022, we intend to continue to grow our service sectors and develop, evolve, and strengthen our solutions.
Our
Power as a Service solutions deliver value to customers by utilizing our managed power platforms, such as the PB3 PowerBuoy® or
hybrid PowerBuoy®, and subsea battery for topside and subsea power applications. Our focus for this solution is on bringing autonomous
clean power to our customers wherever it is required. On our project with Eni S.p.A. (“Eni”), we utilized our PB3 PowerBuoy®,
which operated in the Adriatic Sea for
over 600 days of continuous operation as part of Eni’s resident autonomous underwater vehicle (“AUV”) feasibility
studies. During commercial operations, an AUV would remain on site to perform various inspection, maintenance, and repair tasks. As demonstrated
during our project with Eni, our solutions generated sufficient power that could, with client assets, extend missions for longer
durations.
Our
Data as a Service solution is an evolution of the work we did for Harbour Energy (formerly known as Premier Oil) in 2019
in the North Sea. Since then, we have been developing a Maritime Domain Awareness solution (“MDA-S” or “MDA”)
to introduce edge computing and artificial intelligence modules that can be delivered to customers via cyber secure cloud environments.
Our
Strategic Consulting Services, materially strengthened by the acquired 3Dent team, focus on delivering value to our customers in the
areas of ocean engineering, structural and dynamic analysis, Front End Engineering and Design (“FEED”) studies, and motion
simulation. These services can be delivered as part of our broader Power and/or Data as a Service solution utilizing our solutions
or on a standalone basis. In the near term, we are focusing on increasing our market share in the floating offshore wind market and the
broader floating foundation design market, as well as our business with offshore oil and gas customers.
Throughout
fiscal 2021 we delivered several transactions and projects laying the foundation for our growth in fiscal 2022. We have
identified, and are pursuing, several new applications for our PowerBuoys® in the areas of defense, security
and maritime domain awareness solutions. In February 2021, the Company acquired all the outstanding equity interest of 3Dent, a company
based in Houston, Texas, that offers offshore engineering and design services that are complementary to our technology and products and
strengthen our Strategic Consulting Services. During the first quarter of fiscal 2022, we commenced several research and development
(“R&D”) and commercial development programs, including commencing our custom software development efforts with Greensea
and Fathom5 to further extend our edge computing and cloud hosting capabilities.
In
November 2020, the Company entered into an agreement with the Offshore Operators Committee (“OOC”) under which the Company
provided engineering and technical services for a new project under the DeepStar Global Technology Consortium Program. This project
showcased our Power as a Service offering among well-known operators in the industry.
In
October 2020, the Company entered into an agreement with Adams Communication & Engineering Technology, Inc. (“ACET”)
to conduct a feasibility study for the evaluation of a PB3 power and 5G communications solution in support of the U.S. Navy’s Naval
Postgraduate School’s Sea, Land, Air, Military Research Initiative (“SLAMR”). This forms part of our Data as a Service
division.
Business
Update Regarding COVID-19
The
COVID-19 pandemic presented substantial health and economic risks, uncertainties and challenges to our business, the global economy
and financial markets. In March 2020, one of the Company’s customers cancelled a portion of their contract due to the outbreak
of COVID-19 and instead extended an existing lease. In April 2020, the Company declared force majeure on a contract with a different
customer and delayed the deployment of its PB3 PowerBouy® in Chile. For additional information on various uncertainties and
risks posed by the COVID-19 pandemic, see Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the
year ended April 30, 2021.
On
March 27, 2020, the U.S. Government passed into law the Coronavirus Aid, Relief and Economic Security Act, or the (“CARES Act”).
On May 3, 2020, the Company signed a Paycheck Protection Program (“PPP”) loan with Santander as the lender for approximately
$891,000 in support through the Small Business Association (“SBA”) under the PPP loan. The PPP loan is unsecured and
evidenced by a note in favor of Santander as the lender and governed by a Loan Agreement with Santander. The loan contained an
interest rate of 1% and was repayable over two years. The loan contained customary events of defaults relating to,
among other things, payment defaults or breaches of the terms of the loan. Upon the occurrence of an event of default, the lender could
have required immediate repayment of all outstanding amounts under the loan. Interest and principal payments are deferred for the
first 6 months from the date of the loan. Principal and interest were payable monthly commencing 6 months after the disbursement
date and were allowed to be repaid by the Company at any time prior to maturity with no prepayment penalties. The Company received
the proceeds on May 5, 2020.
The
Company filed its loan forgiveness application at the end of February 2021 asking for 100% forgiveness of the loan. In June 2021, the
Company was informed that its application was approved, and that the loan is now fully forgiven. The Company recognized
a gain on extinguishment of PPP loan of approximately $891,000 in the July 31, 2021 Consolidated Statement of Operations.
Our
Solutions and Power Generating Platform Services
PB3
PowerBuoy®
The
PB3 generates electricity by harnessing the renewable energy of ocean waves. The PB3 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. Our standard energy storage system (“ESS”) has an energy capacity of up to a nominal 150 kW-hours to meet specific
application requirements.
The
PB3 is designed to generate power for use independent of the power grid in remote offshore locations. The hull consists of a main spar
structure loosely moored to the seabed and surrounded by a floating annular structure that can freely move up and down in response to
the passage of the waves. The PTO system includes a mechanical actuating system, an electrical generator, a power electronics system,
our control system, and our ESS which is sealed within the hull. As ocean waves pass the PB3, 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 electric generator.
The power electronics system then conditions the electrical output which is collected within an ESS. The operation of the PB3 is controlled
by our customized, proprietary control system.
The
control system uses sensors and an onboard computer to continuously monitor the PB3 subsystems. We believe that this ability to optimize
and manage the electric power output of the PB3 is a significant advantage of our technology. In the event of large storm waves, the
control system automatically locks the PB3, and electricity generation is suspended. However, the load center (either the on-board payload
or one in the vicinity of the PB3) may continue to receive power from the ESS. When wave heights return to normal operating conditions,
the control system automatically unlocks the PB3 and electricity generation and ESS replenishment recommences. This safety feature helps
to prevent the PB3 from being damaged by storms.
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 a 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.
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 the electricity may be aggregated to supply
larger payloads, as a result, for example, of multiple PB3s which are placed in an array, occupying a relatively small area.
We believe the array of a larger number of PB3s could offer end users a variety of advantages in availability, reliability
and scalability.
|
|
|
●
|
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 PB3. Therefore, we believe end-users relying on PB3 for power may be able to proactively plan their logistics,
payload scheduling and other operational activities based on such data.
|
|
|
●
|
Constant
source of energy. The annual occurrence of waves at specific sites can be relatively persistent 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 PB3 in locations
where the waves could produce usable electricity for most of the year.
|
Based
on our market research and publicly available data, including but not limited to the U.S. Department of Energy (“DOE”) 2019
Powering the Blue Economy Report, the Westwood Energy World ROV Operations Forecast 2019-2023, and the World Bank Database, we believe
that numerous markets may have a direct need for our PB3 including defense and security, offshore oil and gas, science and research,
and offshore wind, as well as government applications in fishery protection and marine protected areas. Depending on payload power requirements,
sensor types and other considerations, we have found that our PB3 could satisfy several application requirements within these markets.
We believe that the PB3 can generate sufficient power to meet the requirements of many potential customer applications within
our target markets, and that the hybrid could provide ample power in geographies where wave conditions may not be sufficient to allow
the PB3 to generate sufficient power.
hybrid
PowerBuoy®
The
Company has product launched a hybrid PowerBuoy® (“hPB”) that is a solar powered surface buoy, compared to the
wave power generating PB3. The hybrid PowerBuoy® is powered primarily through solar panels with an efficient and clean burning external
combustion Stirling engine to provide back-up power and is capable of providing reliable power in remote offshore locations, regardless
of ocean wave conditions. We believe this product is complementary to the PB3 by providing the Company the opportunity to address a broader
spectrum of customer deployment needs, including low-wave environments, with the potential for greater product integration within each
customer project. It is intended for agile deployment applications, such as recharging and surface communications hub for electric
remotely operated vehicles (“eROV”) and autonomous underwater vehicles (“AUV”) used for underwater
inspections and short-term maintenance, subsea equipment monitoring and control, and provides a flexible platform to optimize
power storage based on the environment and the application. The hybrid can be quickly deployed and offers customers a cost-effective
solution. The design has a high payload capacity for communications and surveillance, with the capability of being tethered to subsea
payloads such as batteries, or with a conventional anchor mooring system. The hybrid generates power from both an array of solar panels
and an efficient, clean burning 1 kW Stirling engine fueled by liquid propane. This energy is stored in onboard batteries which power
subsea and topside payloads. The Company has designed the hybrid with a Stirling engine backup system to outperform traditional diesel
buoys, which we believe have more frequent service and refueling intervals and higher carbon intensities. We believe the hybrid will
be able to operate over a broad range of temperature and ocean wave conditions.
The
towable, boat-shaped hull design of the hybrid is appropriate for deployment throughout the world. Power is generated independent of
wave activity, making it a good solution for providing power in relatively calm, low wave environments with high solar intensity
and is complimentary to the PB3.
As
with the PB3, the control system uses sensors and an onboard computer to continuously monitor the hybrid subsystems. We believe that
this ability to optimize and manage the electric power output of the hybrid is a significant advantage of our technology. In the event
of extended cloudy periods, the control system automatically switches electricity generation from the solar panels to the backup engine.
However, the load center, either the on-board payload or one in the vicinity of the hybrid, may continue to receive power from the on-board
ESS. When more suitable solar power generation conditions return, the control system automatically stops the backup up engine and ESS
replenishment recommences by way of solar electricity generation.
The
hybrid is designed for use with a single point umbilical and mooring but can be adapted for a 3-point mooring installation for use as
a temporary replacement for PB3 installations during planned maintenance or repairs.
The
hybrid can be transported over land to the deployment port using conventional transportation methods. Once at port, the hybrid is fitted
with additional stabilizing outriggers, and then can be lifted into the water or onboard a vessel using a readily available crane of
appropriate capacity. The hybrid may then be towed to a site using a standard vessel (if the location is within an appropriate
distance from the port), or the hybrid may be carried aboard a vessel to its offshore location and craned into the water at site. The
hybrid is then attached to the single point mooring system, which is installed during a separate operation, after which a brief commissioning
process places the hybrid into operation.
The
hybrid is configured with a nominal 30 kW-hours of battery energy storage and approximately 1 megawatt-hour (“MWh”) of stored
energy in the propane system. While the batteries are primarily charged through solar power generation, the propane powered Stirling
engine system on the hybrid can be considered reserve energy storage, with propane having a much higher energy storage density than lithium-ion
batteries. It can be utilized when needed based on load demand and will provide approximately 1 MWh of stored energy capacity. We believe
that this amount of stored energy offers an attractive local, autonomous energy solution for clients in a range of industries, including
but not limited to offshore oil and gas and marine observation, particularly for shorter term deployments.
During
the first quarter of fiscal 2022, we commenced efforts to upgrade the current version of the hPB to host our MDA-S (as defined
below) offering by adding further stabilizing features.
Subsea
Battery
We
have product launched a subsea battery that is complementary to both the PB3 and hybrid products and can be deployed together
with our PowerBuoys® or on its own. It offers customers the option of placing additional modular and expandable energy storage on
the seabed near existing, or to be installed, subsea equipment. Our lithium-ion subsea batteries supply power that can
enable subsea equipment, sensors, communications and AUV and eROV recharge. Our PB3 and hybrid are complimentary to the subsea batteries
by providing a means for recharging during longer term deployments, or the batteries can be used independently for shorter term deployments.
The
subsea battery has been designed to provide continuous and/or short-term power supply from its integrated energy storage system, enabling
us to supply into a range of industries and applications, from backup power to critical subsea infrastructure to continuous operation
of subsea equipment, such as electric valves. The base design of the subsea battery has a nominal 100 kW-hours of energy storage. The
subsea battery can be transported over land to the deployment port using conventional transportation methods. Once at port, the subsea
battery can be lifted onboard a vessel using a readily available crane of appropriate capacity. The battery can then be carried aboard
a vessel to its offshore location and craned into the water at site. It comes installed on a ready deployable subsea skid suitable for
installation on the seabed. The subsea battery can be integrated into other subsea equipment on land prior to deployment. The battery
is then connected to the other components on the seabed with the use of an eROV.
Maritime
Domain Awareness Solution (“MDA-S”)
The
International Maritime Organization defines Maritime Domain Awareness as the effective understanding of any activity that could impact
upon the security, safety, economy, or environment. Since 2002 the United States of America, for example, has had an active strategy
to secure the Maritime Domain. Furthermore, in 2020 the U.S. Coast Guard elevated Illegal, Unreported and Unregulated (“IUU”)
fisheries, one aspect of MDA security, as the leading global maritime threat. It is estimated that tens of billions of Dollars
are lost every year to IUU fishing alone.
We
intend our MDA-S payload to consist of a high-definition radar, gyro-stabilized high-definition optical and thermal imaging cameras,
vessel automatic identification system (“AIS”) detection, and integrated command and control software and as customer needs
dictate. Capabilities include 24/7 vessel tracking, automatic radar plotting, automated vessel warnings, and high-definition optical
and thermal video surveillance capable of providing evidentiary backup of activity to aid in prosecution.
We
intend data from our MDA-S will be processed onboard our buoys using edge computing, developed together with our software partners,
transmitted to shore-based command stations via cyber-secure Wi-Fi, cellular, and/or satellite systems, depending upon location, and
then further processed in our cloud-based analytics platform. Surveillance data can be integrated with readily available marine monitoring
software or with our own MDA software solution developed together with leading partners in the technology industry to provide
command and control features of a multi-buoy surveillance network. The data can also be integrated with satellite, weather, bathymetric,
and other data feeds to form a detailed surface and subsea picture of a monitored area.
A
single MDA-S, PB3 PowerBuoy®, can monitor vessel traffic, with or without AIS turned on, across an area approximately 1,300
square nautical miles of ocean territory on a permanent or temporary basis, with the ability to link multiple surveillance assets together
over large ocean areas giving end-users visibility into potentially damaging environmental or illegal activities. Customized solutions
are also available including the addition of subsea sensors to monitor for acoustic signatures, including tsunami, and water quality.
The
development of our MDA-S is underway, and we intend to launch the first offshore demonstrations of the
newly developed system during the second and third quarters of fiscal 2022.
Strategic
Consulting Services
In
addition to work being performed by OPT for the DeepStar project, through our technology subsidiary, 3Dent, we also offer a full range
of high-level offshore engineering, including providing consulting engineering and design services to offshore wind developers, offshore
construction companies, drilling contractors, major oil companies, service companies, shipyards, and engineering firms. 3Dent’s
team of dedicated consultants/designers has expertise in structural engineering, hydrodynamics and naval architecture. Among its services
is a focus on addressing the issues current or would-be owners of offshore floaters, jackups, and lift boats have with their fleet. 3Dent’s
services include simulation engineering, software engineering, concept design and motion analysis.
Commercial
Activities
We
continue to seek new strategic relationships and further develop our existing partnerships. We collaborate with 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. 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 July 31,
|
|
|
|
2021
|
|
|
2020
|
|
Eni
S.p.A.
|
|
|
0
|
%
|
|
|
17
|
%
|
Harbour
(p/k/a Premier Oil)
|
|
|
0
|
%
|
|
|
16
|
%
|
EGP
|
|
|
55
|
%
|
|
|
67
|
%
|
Valaris
|
|
|
33
|
%
|
|
|
0
|
%
|
Other
(no customer over 10%)
|
|
|
12
|
%
|
|
|
0
|
%
|
|
|
|
100
|
%
|
|
|
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 solutions and services to customers. Our potential customer base for our solutions 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 as well as consultative and other services.
Current
and Recent Customers
●
|
In
June 2021, the Company was notified of a pre-award for a Department of Energy (“DOE”) Small Business Innovation Research
program (“SBIR”) to support the development of the next generation of our wave energy conversion systems. In August
2021, we completed all required documentation, signed the DOE contract and initiated the 9-month project which will begin in the
second quarter of fiscal 2022.
|
|
|
●
|
Throughout
the first quarter of fiscal 2022, our strategic consulting services, continued to generate revenues from prior and new customers
of approximately $220,000.
|
|
|
●
|
In
November 2020, the Company entered into an agreement with the OOC under which the Company will provide engineering and technical
services for a new project under the DeepStar Global Technology Consortium Program. This project showcased our Power as
a Service solution among well-known operators in the industry.
|
|
|
●
|
In
October 2020, the Company entered into an agreement with ACET to conduct a feasibility study for the evaluation of a PB3 power and
5G communications solution in support of the U.S. Navy Naval Postgraduate School’s SLAMR. The study was completed and the
Company is currently in active discussions with the Naval Postgraduate School on the project’s next steps on providing the data and
power solution.
|
|
|
●
|
In
March 2020, Eni exercised their option from the March 2018 contract to extend their lease of the PB3 for an additional 18 months.
The initial provision in March 2018 agreement provided for a minimum 24-month contract that included an 18-month PB3 lease and associated
project management. In November 2020, Eni retrieved the PB3 and returned it to shore due to a mooring issue. The PB3 has since
been returned to our headquarters in New Jersey and is currently being refurbished to be redeployed.
|
|
|
●
|
In
September 2019, we entered into two contracts with subsidiaries of EGP, which included the sale of a PB3 and the development
and supply of a turn-key integrated Open Sea Lab (“OSL”) that was expected to be the Company’s first deployment
off the coast of Chile. Due to the COVID-19 pandemic, force majeure was declared in April 2020 and delayed the deployment. In March
2021, the Company began the deployment process and placed the PB3 in the water. Final deployment installation activities
are anticipated in late 2021.
|
|
|
●
|
In
June 2018, we entered into a contract with Harbour Energy for the lease of a PB3 to be deployed in one of Harbour Energy’s
offshore fields in the North Sea. During its deployment, the PB3 provided unmanned EZM service. In early
March 2020 the Company and Harbour Energy retrieved the PB3. This PB3 has since been returned to our headquarters in New Jersey
and is currently being refurbished to be redeployed. We continue to have active discussions to engage with Harbor Energy on the next
phase of this project.
|
Partnerships
We
believe that our solutions are best developed, sold, deployed, and maintained together with subject matter experts in their
respective fields. This enables OPT to protect, maintain, and evolve our power platforms and integrate them with surface and subsea
payloads. OPT has previously entered into partnerships focused on including, but not limited to, deployment and installations,
sourcing of surface payloads, and integration with autonomous vehicles. To further develop the MDA-S, we recently entered into
strategic software and robotics partnerships with two software companies, Greensea Systems, Inc. and Fathom5. We believe, the
partnerships with Greensea and Fathom5 will further the development of our next-generation MDA-S product for the maritime industrial
market and governmental defense and security organizations.
Greensea
Systems, Inc. will be contributing to OPT’s MDA-S by providing integration software, control software, autonomy and systems
integration for the buoy sensor payload.
Fathom5
will be designing and building a customized industrial analytics platform to support OPT’s MDA-S. The Fathom5 customized
platform will integrate sensor technologies, combine data feeds, and provide a flexible plug-in analytic capability to apply artificial
intelligence and machine learning to sensor feeds. Fathom5 is also building the user interface that will allow remote operators to control
the MDA-S payload and view sensor data in real time.
Furthermore,
we are in active discussions with larger systems integrators to develop partnerships focused on selling our platforms and solutions as
part of larger projects.
Business
Strategy
During
fiscal 2021 and the first quarter of fiscal 2022, we advanced our marketing programs, products, and solutions. We have made progress
in transitioning from R&D to commercialization and we intend to build on these efforts by implementing processes and solutions that
cover the entire life cycle, from demand generation to close of contract, and from channel strategies to customer care.
Most
of the Company’s opportunities with potential customers have been for projects in Western Europe, including the North Sea, as well
as North America and Asia. Nearly two-thirds of these opportunities have progressed past initial feasibility and non-disclosure agreement
stages to more detailed, confidential discussions around specific customer applications.
Many
proposal requests are for projects where one of our PowerBuoy® products, either the PB3, the hybrid, or our subsea battery is part
of a larger solution deployment, and typically include the potential lease or sale of one or more PowerBuoys®, as well as required
services and maintenance support. A majority of hybrid inquiries are for shorter term deployments in calmer waters. Historically, demonstration
projects have been 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 the
Company and capabilities and may include negotiation of standard terms and conditions. Many proposals contain provisions which would
mandate the sale or lease of our PowerBuoy® product 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 our products
and solutions. 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, project 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, is indicative of 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 PowerBuoy® products and the initial indications of
demand for our PowerBuoy® products in multiple customer applications.
The
Company is pursuing a long-term growth strategy to expand its market value proposition while building the Company’s revenue base.
This strategy includes partnerships with leading companies in adjacent and complementary markets. We continue to commercialize our PowerBuoy®
products for use in remote offshore power and real-time data communications applications, and in order to achieve this goal, we are pursuing
the following business objectives:
●
|
Integrated
turn-key solutions sales or leases incorporating our products and services. We believe our PB3 hybrid and our subsea battery
solutions, as well as our MDA-S, are well suited to enable many uncrewed, autonomous (non-grid connected) offshore solutions,
such as topside and subsea surveillance and communications, subsea equipment monitoring, early warning systems platform and subsea
power and buffering, and weather and climate data collection. We have investigated and realized market demand for some of these solutions
and we intend to sell and lease our products to these markets as part of these broader integrated solutions. Additionally, we intend
to provide services associated with our solution offerings such as paid engineering studies, value-added engineering, maintenance,
remote monitoring and diagnostic, application engineering, planning, training, project management, and marine and logistics support
required for our solution life cycle. We continue to increase our commercial capabilities through new hires in sales and application
support, and through engagement of expert market consultants in various geographies.
|
●
|
Expand
customer system solution offerings through new complimentary products that enable shorter and more cost-efficient deployments.
The hybrid is highly complementary to the PB3 by providing the Company the opportunity to address a broader spectrum of customer
deployment needs, including low-wave environments, with the potential for greater system integration within each customer project.
The hybrid 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 Company has developed a subsea battery system that
is complimentary to the Company’s PowerBuoy® products. The subsea battery system offers the possibility of creating a sea
floor energy storage solution for remote offshore operations. These subsea battery systems contain lithium-ion batteries, which provide
high power density to supply power to subsea equipment, sensors, communications, and the recharging of AUVs and eROVs. Ideal for
many remote offshore customer applications, these subsea battery systems are anticipated to be safe, high performance, cost-efficient,
and quickly deployable.
|
|
|
●
|
Concentrate
sales and marketing efforts in global markets. We are currently focusing our marketing efforts globally. We believe that
each of these areas has demand for our solutions, sizable end market opportunities, political and economic stability, and high levels
of industrialization and economic development. In fiscal 2021, we opened an office in Houston, Texas to further support our customers
and strengthen our dialogue with our solution partners.
|
|
|
●
|
Expand
our relationships in key market areas through strategic partnerships and collaborations. We believe that strategic partners are
an important part of commercializing new products. 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 have formed such a relationship with several well-known groups, and we continue to seek other opportunities to collaborate
with application experts from within our selected markets. These partnerships have helped us source services, such as installation
expertise, and products, such as MDA enabling equipment, to meet our development and customer obligations. Since our acquisition
of 3Dent, we have been actively pursuing additional opportunities to bring in-house skills, capabilities, and solutions that are
complementary to our strategy and enable us to scale more quickly.
|
|
|
●
|
Partnering
with fabrication, deployment and service support. In
order to minimize our capital requirements as we scale our business, we intend to optimize and utilize state of the art
fabrication, anchoring, mooring, cabling supply, and in some cases, deployment of our products and solutions. Our PTO
is a proprietary subsystem that 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 continue to seek strategic partnerships regarding servicing of our products and solutions.
|
|
|
●
|
Cost
reduction and PowerBuoy® solution development. Our engineering efforts are mainly focused on addressing customer solutions;
product and solution sales; reducing production, installation, and product life-cycle costs; and improving the energy output, reliability,
maintenance interval and expected operating life of our products. We continue to optimize the manufacturing of our designs
with a focus on cost competitiveness, and we believe we will be able to address new applications by developing new payloads and solutions
that address customer needs.
|
Through
our 3Dent subsidiary, we plan to expand our customer base and increase our revenue base, by providing consulting
engineering and design services to offshore wind developers, offshore construction companies, drilling contractors, major oil companies,
service companies, and engineering firms.
Liquidity
During
the first three months ending July 31, 2021, the Company incurred a
net loss of approximately $3.1 million and used cash in operations of approximately $5.3 million. 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, performance of its products, its ability to market and commercialize its products
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 integration of acquisitions, pending or threatened litigation, and the
continued impact of COVID-19 on its business. 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, 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. Management
believes the Company’s current cash balance of $78.1 million is sufficient to fund its planned expenditures through at least September
30, 2022. In addition to the acquisition of 3Dent in the prior year, the Company is looking at further organic and inorganic
growth opportunities to advance our data and power services and solutions.
Capital
Raises
At
the Market Offering Agreements
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 $25.0 million. From inception of the program through its termination on December 8, 2020, under
the 2019 ATM Facility, the Company sold and issued an aggregate of 17,595,472 shares of its common stock with an aggregate market value
of $23.4 million at an average price of $1.33 per share and paid AGP a sales commission of approximately $0.8 million related to those
shares. The agreement was fully utilized and terminated on December 8, 2020.
On
November 20, 2020, the Company entered into an At the Market Offering Agreement with AGP (the “2020 ATM Facility”). On
December 4, 2020 the Company filed a prospectus with the Securities and Exchange Commission whereby, the Company could 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 $50.0 million. From inception of the 2020 ATM Facility through April 30, 2021, the Company sold and issued an aggregate
of 17,179,883 shares of its common stock with an aggregate market value of $50.0 million at an average price of $2.91 per share and paid
AGP a sales commission of approximately $1.6 million related to those shares. A prospectus supplement would need to be filed for the
Company to sell additional amounts under the 2020 ATM Facility.
Equity
Line Common Stock Purchase Agreements
On
October 24, 2019, 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 shares of the Company’s
common stock over a 30-month period. Through September 18, 2020, the Company had sold an aggregate of 6,424,205 shares of common stock
with an aggregate market value of $4.0 million at an average price of $0.63 per share pursuant to this common stock purchase agreement.
The agreement was fully utilized and terminated on September 18, 2020.
On
September 18, 2020, the Company entered into a new 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 $12.5 million shares of the
Company’s common stock over a 30-month period subject to a limit of 19.99% of the outstanding common stock on the date of the agreement
if the price did not exceed a specified price in the agreement. The number of shares the Company could issue within the 19.99% limit
was 3,722,251 shares without shareholder approval. Shareholder approval was received at the Company’s annual meeting of stockholders
on December 23, 2020 for the sale of 9,864,706 additional shares of common stock which exceeds the 19.99% limit of outstanding
common stock on the date of the agreement. Through July 31, 2021, the Company had sold an aggregate of 3,722,251 shares of common stock
with an aggregate market value of $11.8 million at an average price of $3.17 per share pursuant to this common stock purchase agreement.
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. The Company has obtained equity financing
through its At the Market Offering Agreement with AGP and the Aspire Capital financing, 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. 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 July 31, 2021, the Company’s backlog was $0.4 million. As of April 30, 2021, backlog was $0.2 million. Our backlog can include
unfilled firm orders for our products and services from commercial or 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 is recognized
using the input method used to measure completion over time of customer contracts, 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.
Critical
Accounting Policies and Estimates
To
understand our financial statements, it is important to understand our critical accounting policies and estimates. We prepare our financial
statements in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The preparation of financial statements
also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related
disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences
between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and
cash flows will be affected. We believe that the accounting policies are critical to understanding our historical and future performance,
as these policies relate to the more significant areas involving management’s judgments and estimates.
For
a discussion of our critical accounting estimates, see the section entitled Item 7.- “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended April 30, 2021. There were
no material changes to our critical accounting estimates or accounting policies during the three months ended July 31, 2021.
Recently
Issued Accounting Standards
In June 2016, the Financial Accounting Standards
Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of
Credit Losses on Financial Instruments.” This amendment 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. In November 2019, the FASB
issued No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic
842), which deferred the effective date of ASU 2016-13 for Smaller Reporting Companies for fiscal years beginning after December
15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2016-13
will have on its consolidated financial statements.
Financial
Operations Overview
The
following describes certain line items in our statement of operations and some of the factors that affect our operating results.
Revenues
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 considerations, 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. There was no variable consideration
as of July 31, 2021 and 2020.
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 three-month periods ended July 31, 2021 and 2020, all of the Company’s contracts
were classified as firm fixed price.
As
of July 31, 2021, the Company’s total remaining performance obligations, also referred to as backlog, totaled $0.4 million. The
Company expects to recognize approximately 100%, or $0.4 million, of the remaining performance obligations as revenue over the next twelve
months.
The
Company also enters into lease arrangements for its PB3 with certain customers. 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 months ended July 31, 2021 and 2020 was
immaterial.
The
following table provides information regarding the breakdown of our revenues by customer for the three months ended July 31, 2021 and 2020.
|
|
Three
months ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Eni
S.p.A.
|
|
$
|
-
|
|
|
$
|
28
|
|
Harbour
(p/k/a Premier Oil)
|
|
|
-
|
|
|
|
27
|
|
EGP
|
|
|
149
|
|
|
|
114
|
|
Valaris
|
|
|
89
|
|
|
|
-
|
|
Other
(no customer over 10%)
|
|
|
34
|
|
|
|
-
|
|
|
|
$
|
272
|
|
|
$
|
169
|
|
We
currently focus our sales and marketing efforts globally. The following table shows the percentage of our revenues by geographical location
of our customers for the three months ended July 31, 2021 and 2020.
|
|
Three
months ended July 31,
|
|
Customer
Location
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Europe
|
|
|
0
|
%
|
|
|
33
|
%
|
South
America
|
|
|
55
|
%
|
|
|
67
|
%
|
North
America
|
|
|
45
|
%
|
|
|
0
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost
of revenues
Our
cost of revenues consists primarily of subcontracts, incurred material, labor and manufacturing overhead expenses, such as engineering
expense, equipment depreciation and maintenance and facility related expenses, and includes the cost of equipment to customize the PowerBuoy®
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.
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 product development costs relate primarily
to our efforts to increase the power output and reliability of our PowerBuoy® system, to enhance and optimize data monitoring
and controls systems, and to the development of new products, product applications and complementary technologies. We expense all
of our engineering and product development costs as incurred.
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 products and costs for executive, accounting and administrative personnel,
professional fees and other general corporate expenses.
Interest
income, net
Interest
income, net consists of interest received on cash, cash equivalents and money market fund and interest paid on certain obligations to
third parties.
Foreign
exchange gain (loss)
We
transact business in various countries and have exposure to fluctuations in foreign currency exchange rates. Foreign exchange gains and
losses arise in the translation of foreign-denominated assets and liabilities, which may result in realized and unrealized gains or losses
from exchange rate fluctuations. Since we conduct our business in U.S. dollars and our functional currency is the U.S.
dollar, our main foreign exchange exposure, if any, results from changes in the exchange rate between the U.S. dollar and the
British pound sterling, the Euro and the Australian dollar.
We
maintain cash accounts that are denominated in British pounds sterling, Euros and Australian dollars. These foreign-denominated accounts
had a balance of $0.3 million as of July 31, 2021 and July 31, 2020, compared to our total cash, cash equivalents and restricted
cash balances of $78.3 million as of July 31, 2021 and $12.0 million as of July 31, 2020. These foreign currency balances are translated
each month into our functional currency, 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.”
Three
months ended July 31, 2021 compared to the three months ended July 31, 2020
The
following table contains selected statement of operations information, which serves as the basis of the discussion of our results of
operations for the three months ended July 31, 2021 and 2020.
|
|
Three
months ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in
thousands)
|
Revenues
|
|
$
|
272
|
|
|
$
|
169
|
|
Cost
of revenues
|
|
|
423
|
|
|
|
334
|
|
Gross
profit/(loss)
|
|
|
(151
|
)
|
|
|
(165
|
)
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Engineering
and product development costs
|
|
|
1,971
|
|
|
|
1,252
|
|
Selling,
general and administrative costs
|
|
|
2,909
|
|
|
|
1,987
|
|
Total
operating expenses
|
|
|
4,880
|
|
|
|
3,239
|
|
Operating
loss
|
|
|
(5,031
|
)
|
|
|
(3,404
|
)
|
Interest
income, net
|
|
|
20
|
|
|
|
11
|
|
Gain
on extiguishment of PPP loan
|
|
|
891
|
|
|
|
-
|
|
Foreign
exchange gain/(loss)
|
|
|
-
|
|
|
|
8
|
|
Loss before income taxes
|
|
|
(4,120
|
)
|
|
|
(3,385
|
)
|
Income tax benefit
|
|
|
1,041
|
|
|
|
-
|
|
Net
loss
|
|
$
|
(3,079
|
)
|
|
$
|
(3,385
|
)
|
Revenues
Revenues
for the three months ended July 31, 2021 and 2020 were $0.3 million and $0.2 million, respectively. The year-over-year
increase was primarily due to higher levels of revenue derived from our EGP contract and new work with 3Dent projects
as compared to the same period in the prior year.
Cost
of revenues
Cost
of revenues for the three months ended July 31, 2021 and 2020 were $0.4 million and $0.3 million, respectively. The increase of
approximately $0.1 million over 2020 was mostly due to higher deployment and material costs incurred on the EGP contract for the
three months ended July 31, 2021 as compared to the three months ended July 31, 2020.
Engineering
and product development costs
Engineering
and product development costs for the three months ended July 31, 2021 and 2020 were $2.0 million and $1.3 million, respectively.
The increase of approximately $0.7 million is the result of higher spending on new product development projects of $0.5 million as compared
to the same period in the prior year and increases in employee payroll of $0.6 million driven by higher headcount in the current
year with the addition of 3Dent. These increases were partially offset by a decrease in overhead and penalties incurred during the
first quarter of fiscal 2021, of $0.4 million.
Selling,
general and administrative costs
Selling,
general and administrative costs for the three months ended July 31, 2021 and 2020 were $2.9 million and $2.0 million, respectively.
The increase of $0.9 million for the three months ended July 31, 2021 was primarily due to higher consulting costs of $0.3 million,
increases in equity compensation of $0.2 million, professional fees of $0.2 million, and risk management insurance cost increases
of $0.2 million.
Extinguishment
of Debt
The
Company filed its loan forgiveness application at the end of February 2021 asking for 100% forgiveness of the loan. In June 2021, the
Company was informed that its application was approved, the loan is now fully forgiven and the Company recognized a gain on extinguishment
of PPP loan of $0.9 million.
Liquidity
and Capital Resources
Our
cash requirements relate primarily to working capital needed to operate and grow our business including funding operating expenses. We
have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses of $3.1
million and $3.4 million for the three months ended July 31, 2021 and 2020, respectively. Refer to “Liquidity Outlook”
below for additional information.
Net
cash used in operating activities
During
the three months ended July 31, 2021, net cash flows used in operating activities was $5.3 million, an increase of $2.6 million compared
to net cash used in operating activities during the three months ended July 31, 2020. This increase is primarily due to higher project
and employee related costs and the settlement of litigation of approximately $1.2 million.
Net
cash used in investing activities
Net
cash used in investing activities during the three months ended July 31, 2021 was $7,325, compared to no cash used for
investing activities during the three months ended July 31, 2020. The increase in net cash used in investing activities was due to
higher spending on the purchase of property, plant and equipment.
Net
cash provided by financing activities
Net
cash provided by financing activities during the three months ended July 31, 2021 was zero compared to net cash provided by financing
activities during the three months ended July 31, 2020 of $3.8 million. The decrease in net cash provided by financing activities during
the three months ended July 31, 2021 reflects the combination of no capital raises during the first quarter of fiscal
2022 in addition to proceeds related to the PPP loan and capital raises related to Aspire and AGP in the prior year.
Effect
of exchange rates on cash and cash equivalents
The
effect of exchange rates on cash and cash equivalents was an increase of approximately $14,000 during the three months ended July
31, 2021. 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
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, 2021 and 2020, our aggregate revenues were $2.9 million, our aggregate net
losses were $25.1 million and our aggregate net cash used in operating activities was $22.3 million.
Our
business is capital intensive, and up through July 31, 2021, we have been funding our business principally through sales of our securities.
As of July 31, 2021, cash and cash equivalents was $78.1 million and we expect to fund our business with this amount and, to a limited
extent, with our revenues until, we generate sufficient cash flow to internally fund our business. Management believes the Company’s
current cash and cash equivalent is sufficient to fund its planned expenditures through at least September, 2022. In addition
to the acquisition of 3Dent in the prior year, the Company is looking at further organic and inorganic growth opportunities to advance
our data and power services and solutions.
We
expect to devote substantial resources to continue our development efforts for our products and to expand our sales, marketing and manufacturing
programs associated with the continued commercialization of our products. Our future capital requirements will depend on a number of
factors, including but not limited to:
|
●
|
our
ability to commercialize our products, 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;
|
|
|
|
|
●
|
the
impact of COVID-19 pandemic on our business, operations, customers, suppliers and manufacturers, and personnel;
|
|
|
|
|
●
|
future
acquisitions, which may use significant resources, may be unsuccessful or may expose us to
unforeseen liabilities;
|
|
|
|
|
●
|
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 commercially viable products;
|
|
|
|
|
●
|
our
ability to successfully develop and market new products;
|
|
●
|
that
we will be successful in our efforts to commercialize our products or the timetable upon which commercialization can be achieved,
if at all;
|
|
|
|
|
●
|
our
ability to identify and penetrate markets for our products 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;
|
|
|
|
|
●
|
our
ability to maintain the listing of our common stock on the NYSE American;
|
|
|
|
|
●
|
the
reliability of our technology and our products;
|
|
|
|
|
●
|
our
ability to improve the power output, survivability and reliability of our products;
|
|
|
|
|
●
|
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.
Off-Balance
Sheet Arrangements
Since
inception, we have not engaged in any off-balance sheet financing activities.