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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended October 31, 2021

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From ______to______

 

Commission file number: 001-33417

 

OCEAN POWER TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   22-2535818

(State or Other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

28 ENGELHARD DRIVE, SUITE B, MONROE TOWNSHIP, NJ 08831

(Address of Principal Executive Offices, Including Zip Code)

 

(609) 730-0400

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock $0.001 par value   OPTT   NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐   Accelerated filer ☐   Non-accelerated filer   Smaller reporting company
             

Emerging growth company

           

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

As of December 14, 2021, the number of outstanding shares of common stock of the registrant was 55,873,173.

 

 

 

 
 

 

OCEAN POWER TECHNOLOGIES, INC.

INDEX TO FORM 10-Q

 

 

Page

Number

PART I — FINANCIAL INFORMATION  
Item 1. Financial Statements:  
Consolidated Balance Sheets as of October 31, 2021 (unaudited) and April 30, 2021 3
Unaudited Consolidated Statements of Operations for the three and six months ended October 31, 2021 and 2020 4
Unaudited Consolidated Statements of Comprehensive Loss for the three and six months ended October 31, 2021 and 2020 5
Unaudited Consolidated Statement of Shareholders’ Equity for the three and six months ended October 31, 2021 and 2020 6
Unaudited Consolidated Statements of Cash Flows for the six months ended October 31, 2021 and 2020 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 43
Item 4. Controls and Procedures 43
PART II — OTHER INFORMATION 44
Item 1. Legal Proceedings 44
Item 1A. Risk Factors 44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 44
Item 3. Defaults Upon Senior Securities 44
Item 4. Mine Safety Disclosures 44
Item 5. Other Information 44
Item 6. Exhibits 45

 

1

 

Special Note Regarding Forward-Looking Statements

 

We have made statements in this Quarterly Report on Form 10-Q that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements convey our current expectations or forecasts of future events. Forward-looking statements include statements regarding our future financial position, business strategy, pending, threatened, and current litigation, liquidity, budgets, projected costs, plans and objectives of management for future operations. The words “may,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “anticipate”, and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

 

The forward-looking statements contained in or incorporated by reference are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve several risks and uncertainties that are beyond our control, including:

 

  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 several factors, including market conditions, and our operating performance;
     
  the impact of the COVID-19 pandemic and its variants 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, as well as our ability to integrate such acquisitions into our operations;
     
  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, services, and solutions;
     
  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, products and solutions;
     
  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.

 

Any or all of our forward-looking statements in this report may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended April 30, 2021, and in our subsequent reports under the Exchange Act. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur as contemplated and actual results could differ materially from those anticipated or implied by the forward-looking statements.

 

Many of these factors are beyond our ability to control or predict. These factors are not intended to represent a complete list of the general or specific factors that may affect us. You should not unduly rely on these forward-looking statements, which speak only as of the date of this filing. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise.

 

2

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(in $000’s, except share data)

 

    October 31, 2021     April 30, 2021  
    (Unaudited)        
ASSETS                
Current assets:                
Cash and cash equivalents   $ 72,630     $ 83,028  
Restricted cash, short-term     384       384  
Accounts receivable     180       350  
Contract assets     325       190  
Other current assets     560       487  
Total current assets     74,079       84,439  
Property and equipment, net     360       406  
Intangibles, net     262       274  
Right-of-use asset, net     897       1,036  
Restricted cash, long-term     222       222  
Total assets   $ 75,820     $ 86,377  
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 277     $ 687  
Accrued expenses     1,576       1,881  
Contract liabilities     117        
Right-of-use liability, current portion     327       347  
Litigation payable           1,224  
Liability classified stock awards     60       60  
Paycheck protection program loan- current           495  
Total current liabilities     2,357       4,694  
Paycheck protection program loan, less current portion           396  
Right-of-use liability, less current portion     690       819  
Total liabilities     3,047       5,909  
Commitments and contingencies (Note 16)     -        -   
Shareholders’ Equity:                
Preferred stock, $0.001 par value; authorized 5,000,000 shares, none issued or outstanding            
Common stock, $0.001 par value; authorized 100,000,000 shares, issued 52,499,051 and 52,458,011 shares,respectively     52       52  
Treasury stock, at cost; 21,040 shares     (338 )     (338 )
Additional paid-in capital     316,389       315,821  
Accumulated deficit     (243,191 )     (234,896 )
Accumulated other comprehensive loss     (139 )     (171 )
Total shareholders’ equity     72,773       80,468  
Total liabilities and shareholders’ equity   $ 75,820     $ 86,377  

 

See accompanying notes to unaudited consolidated financial statements.

 

3

 

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations

(in $000’s, except per share data)

Unaudited

 

    2021     2020     2021     2020  
    Three months ended October 31,     Six months ended October 31,  
    2021     2020     2021     2020  
                         
Revenues   $ 247     $ 118     $ 519     $ 287  
Cost of revenues     300       216       723       550  
Gross loss     (53 )     (98 )     (204 )     (263 )
                                 
Operating expenses:                                
Engineering and product development costs     3,082       1,063       5,053       2,315  
Selling, general and administrative costs     2,050       1,841       4,958       3,828  
Total operating expenses     5,132       2,904       10,011       6,143  
Operating loss     (5,185 )     (3,002 )     (10,215 )     (6,406 )
                                 
Interest income, net     19       8       38       20  
Other expense, net           (33 )           (33 )
Gain on extinguishment of PPP loan                 891        
Foreign exchange (loss) gain     (5 )     3       (5 )     10  
Loss before income taxes     (5,171 )     (3,024 )     (9,291 )     (6,409 )
Income tax benefit                 1,041        
Net loss   $ (5,171 )   $ (3,024 )   $ (8,250 )   $ (6,409 )
Basic and diluted net loss per share   $ (0.10 )   $ (0.15 )   $ (0.16 )   $ (0.36 )
Weighted average shares used to compute basic and diluted net loss per share     52,460,233       20,090,000       52,459,122       17,883,666  

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(in $000’s)

Unaudited

 

    2021     2020     2021     2020  
    Three months ended October 31,     Six months ended October 31,  
    2021     2020     2021     2020  
                         
Net loss   $ (5,171 )   $ (3,024 )   $ (8,250 )   $ (6,409 )
Foreign currency translation adjustment     1       (7 )     (13 )     8  
Total comprehensive loss     (5,170 )     (3,031 )     (8,263 )     (6,401 )

 

See accompanying notes to unaudited consolidated financial statements.

 

5

 

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Statement of Shareholders’ Equity

(in $000’s, except share data)

Unaudited

 

    Shares     Amount     Shares     Amount     Capital     Deficit     Loss     Equity  
    Six Months Ended October 31, 2021  
    Common Shares     Treasury Shares     Additional
Paid-In
    Accumulated     Accumulated Other Comprehensive     Total Shareholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Loss     Equity  
                                                 
Balances at May 1, 2021     52,479,051     $ 52       (21,040 )   $ (338 )   $ 315,821     $ (234,896 )   $ (171 )     80,468  
Net loss                                   (8,250 )           (8,250 )
Share-based compensation                             547                   547  
Proceeds from stock options exercises     20,000                         21                   21  
Other comprehensive gain/(loss)                               (45 )     32       (13 )
Balance, October 31, 2021     52,499,051     $ 52       (21,040 )   $ (338 )   $ 316,389     $ (243,191 )   $ (139 )   $ 72,773  

 

    Six Months Ended October 31, 2020  
    Common Shares     Treasury Shares    

Additional

Paid-In

    Accumulated     Accumulated Other Comprehensive     Total Shareholders’  
    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  
Net loss                                   (6,409 )           (6,409 )
Share-based compensation         $           $     $ 223     $     $       223  
Issuance of common stock- Aspire financing, net of issuance costs     5,525,000       5                   3,236                   3,241  
Issuance of common stock- AGP At The Market offering, net of issuance costs     5,689,134     $ 6           $     $ 6,088     $     $       6,094  
Other comprehensive gain                                     8       8  
Balances at October 31, 2020     24,153,554     $ 24       (4,251 )   $ (302 )   $ 240,648     $ (226,545 )   $ (175 )   $ 13,650  

 

    Three Months Ended October 31, 2021
    Common Shares   Treasury Shares  

Additional

Paid-In

  Accumulated  

Accumulated

Other

Comprehensive

 

Total

Shareholders’

    Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Equity
                                 
Balances at August 1, 2021     52,479,051     $ 52       (21,040 )   $ (338 )   $ 316,211     $ (237,975 )   $ (185 )     77,765  
Net loss     —                  —                           (5,171 )              (5,171 )
Share-based compensation     —                  —                  157                         157  
Proceeds from stock options exercises     20,000       20       —                  21                         21  
Other comprehensive gain/(loss)   —              —                           (45 )     46     1  
Balance, October 31, 2021     52,499,051       52       (21,040 )     (338 )     316,389       (243,191 )     (139 )     72,773  

 

 

    Three Months Ended October 31, 2020  
    Common Shares     Treasury Shares    

Additional

Paid-In

    Accumulated     Accumulated Other Comprehensive     Total Shareholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Loss     Equity  
                                                 
Balances at August 1, 2020     18,624,816     $ 19       (4,251 )   $ (302 )   $ 234,089     $ (223,521 )   $ (168 )   $ 10,117  
Net loss                                   (3,024 )           (3,024 )
Share-based compensation                             107                   107  
Issuance of common stock- Aspire financing, net of issuance costs     500,000                         606                   606  
Issuance of common stock- AGP At The Market offering, net of issuance costs     5,028,738       5                   5,846                   5,851  
Other comprehensive gain                                     (7 )     (7 )
Balances at October 31, 2020     24,153,554     $ 24       (4,251 )   $ (302 )   $ 240,648     $ (226,545 )   $ (175 )   $ 13,650  

 

See accompanying notes to unaudited consolidated financial statements.

 

6

 

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in $000’s)

Unaudited

 

    2021     2020  
    Six months ended October 31,  
    2021     2020  
             
Cash flows from operating activities:                
Net loss   $ (8,250 )   $ (6,409 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Foreign exchange loss (gain)     5       (10 )
Depreciation of fixed assets     70       73  
Amortization of intangible assets     12        
Amortization of right of use asset     139       105  
Loss on disposal of property, plant and equipment           2  
Gain on extinguishment of PPP Loan     (891 )      
Stock-based compensation     547       223  
Changes in operating assets and liabilities:                
Accounts receivable     170       105  
Contract assets     (135 )     154  
Other assets     (73 )     (499 )
Accounts payable     (410 )     (72 )
Accrued expenses     (305 )     812  
Change in lease liability     (147 )     (110 )
Contract liabilities     117       (56 )
Litigation payable     (1,224 )      
Net cash used in operating activities     (10,375 )     (5,682 )
Cash flows from investing activities:                
Purchase of property, plant and equipment     (24 )      
Net cash used in investing activities     (24 )      
Cash flows from financing activities:                
Proceeds from Paycheck Protection Program Loan           890  
Proceeds from loan payable           467  
Payments of loan payable           (117 )
Proceeds from stock option exercises     21        
Proceeds from issuance of common stock- Aspire financing net of issuance costs           3,241  
Proceeds from issuance of common stock- AGP At The Market offering, net of issuance costs           6,094  
Net cash provided by financing activities     21       10,575  
Effect of exchange rate changes on cash, cash equivalents and restricted cash     (20 )     27  
Net (decrease) / increase in cash, cash equivalents and restricted cash     (10,398 )     4,920  
Cash, cash equivalents and restricted cash, beginning of period     83,634       10,930  
Cash, cash equivalents and restricted cash, end of period   $ 73,236     $ 15,850  
                 
Supplemental disclosure of noncash operating activities:                
Prepaid financing costs reported in accrued expenses   $     $ 49  

 

See accompanying notes to unaudited consolidated financial statements.

 

7

 

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

(1) Background, Basis of Presentation and Liquidity

 

(a) Background

 

Ocean Power Technologies, Inc. (the “Company”) was founded in 1984 in New Jersey, commenced business operations in 1994 and re-incorporated in Delaware in 2007. 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.

 

(b) Basis of Presentation

 

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.

 

(c) Liquidity

 

For the six months ended October 31, 2021, and the fiscal year ended April 30, 2021, the Company incurred net losses of approximately $8.3 million and $14.8 million, respectively, and used cash in operations of approximately $10.4 million and $11.7 million, respectively. The Company has continued to make investments in ongoing product development efforts in anticipation of future growth, including its recent acquisition of Marine Advanced Robotics, Inc., as described in Note 19. 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 and any variants on its business. The Company previously obtained equity financing through its At the Market Offering Agreement (“ATM”) 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. For fiscal year 2022 to date, management has not obtained any additional capital financing. Management believes the Company’s current cash balance of $72.6 million is sufficient to fund its planned expenditures through at least December 2022.

 

On January 7, 2019, the Company entered into an At the Market Offering Agreement with AGP (the “2019 ATM Facility”), under which 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 $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.

 

8

 

On November 20, 2020, the Company entered into another 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 October 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 shareholders 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 October 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 October 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.

 

9

 

(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 October 31, 2021 and April 30, 2021:

 

    October 31, 2021     April 30, 2021  
    (in thousands)  
Checking and savings accounts   $ 713     $ 1,850  
Money market account     71,917       81,178  
    $ 72,630     $ 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 cancellable at the discretion of Santander.

 

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 was 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.

 

    October 31, 2021     April 30, 2021  
    (in thousands)  
Cash and cash equivalents   $ 72,630     $ 83,028  
Restricted cash- short term     384       384  
Restricted cash- long term     222       222  
    $ 73,236     $ 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 current contracts do not represent a risk of collectability on its receivables. 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 October 31, 2021 was $32,000.

 

10

 

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:

 

    2021     2020     2021     2020  
    Three months ended October 31,     Six months ended October 31,  
    2021     2020     2021     2020  
    (in thousands)     (in thousands)  
Eni S.p.A.   $ 14     $ 72     $ 14     $ 99  
Department of Energy     81             81        
EGP     14       42       163       157  
Clark Hill     30             37        
Matthews     30             30        
Valaris     47             135        
Other (no customer over 10%)     31       4       59       31  
Revenues      247       118       519       287  

 

(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 and six months ended October 31, 2021 and 2020:

 

    2021     2020     2021     2020  
    Three months ended October 31,     Six months ended October 31,  
    2021     2020     2021     2020  
    (in thousands)        
Engineering and product development   $ 125     $ 22     $ 342     $ 59  
Selling, general and administrative     32       85       205       164  
Total share-based compensation expense   $ 157     $ 107     $ 547     $ 223  

 

(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 October 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.

 

11

 

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, and 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 six-month periods ended October 31, 2021 and 2020, all of the Company’s contracts were classified as firm fixed price.

 

As of October 31, 2021, the Company’s total remaining performance obligations, also referred to as backlog, totaled $0.3 million. The Company expects to recognize 100%, or $0.3 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 October 31, 2021, the Company had one lease arrangement with a remaining operating lease term of less than 7 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.

 

12

 

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 Statements of Operations. The lease income for the six months ended October 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 periods. 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 Statements of Operations, warrants exercisable for common stock, options to purchase shares of common stock and non-vested restricted stock issued to employees and non-employee directors, totaling 4,928,474 and 5,540,469 for the six months ended October 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:

 

    October 31, 2021     April 30, 2021  
    (in thousands)  
Accounts receivable   $ 180     $ 350  
Contract assets     325       190  
Contract liabilities   $ 117     $  

 

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.

 

13

 

Contract Assets

 

Significant changes in the contract assets balances during the period were as follows:

 

    Six months ended
October 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     325  
Net change in contract assets   $ 135  

 

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 October 31, 2021 and April 30, 2021:

 

    October 31, 2021     April 30, 2021  
    (in thousands)  
Deposits   $ 37     $ 68  
Other receivables     17       21  
Prepaid insurance     130       194  
Prepaid recruiting     135       12  
Prepaid expenses- other     241       192  
Other current assets   $ 560     $ 487  

 

(5) Property and Equipment, net

 

The components of property and equipment, net as of October 31, 2021 and April 30, 2021 consisted of the following:

 

    October 31, 2021     April 30, 2021  
    (in thousands)  
Equipment   $ 313     $ 291  
Computer equipment & software     501       498  
Office furniture & equipment     339       341  
Leasehold improvements     474       474  
Construction in process     15       15  
Property and equipment, gross      1,642       1,619  
Less: accumulated depreciation     (1,282 )     (1,213 )
Property and equipment, net    $ 360     $ 406  

 

Depreciation expense was approximately $70,000 and $73,000 for the six month periods ended October 31, 2021 and 2020, respectively.

 

14

 

(6) Leases

 

Lessor Information

 

As of October 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 seven years which expires in November of 2024 with an option to extend the lease for another five 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 (see Note 18) that is used as office space. The lease term is for 3 years andis 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. In accordance with ASC 842-20-5-2, since the lease term is 12 months, the asset was recognized directly to the profit and loss statement on a straight-line basis 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 October 31, 2021 and 2020 were $102,000 and $85,000, respectively. The operating lease cash flow payments for the six months ended October 31, 2021 and 2020 were $204,000 and $168,000, respectively.

 

The components of lease expense in the Consolidated Statements of Operations for the three and six months ended October 31, 2021 and 2020 were as follows:

 

 

    2021     2020     2021     2020  
    Three months ended October 31,     Six months ended October 31,  
    2021     2020     2021     2020  
    (in thousands)              
Operating lease cost   $ 92     $ 80     $ 184     $ 159  
Short-term lease cost     5       3       10       5  
Total lease cost   $ 97     $ 83     $ 194     $ 164  

 

15

 

Information related to the Company’s right-of use assets and lease liabilities as of October 31, 2021 was as follows:

 

    October 31, 2021  
      (in thousands)  
         
Operating lease:        
Operating right-of-use asset, net   $ 897  
         
Right-of-use liability- current   $ 327  
Right-of-use liability- long term     690  
Total lease liability   $ 1,017  
         
Weighted average remaining lease term- operating leases     2.86 years  
Weighted average discount rate- operating leases     8.2 %

 

Total remaining lease payments under the Company’s operating leases are as follows:

 

    October 31, 2021  
      (in thousands)  
         
Remainder of fiscal year 2022   $ 199  
2023     391  
2024     362  
2025     182  
Total future minimum lease payments   $ 1,134  
Less imputed interest     (117 )
Total   $ 1,017  

 

(7) Accrued Expenses

 

Accrued expenses consisted of the following at October 31, 2021 and April 30, 2021:

 

 

    October 31, 2021     April 30, 2021  
      (in thousands)          
Project costs   $ 257     $ 368  
Contract loss reserve     328       328  
Employee incentive payments     275       283  
Accrued salary and benefits     426       631  
Professional fees     241       200  
Other     49       71  
Accrued expenses total    $ 1,576     $ 1,881  

 

16

 

(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 October 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 October 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 October 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 October 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 October 31, 2021 and April 30, 2021. 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 shareholders’ 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.

 

17

 

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 during the six months ended October 31, 2021 as reflected on the 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 October 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 October 31, 2021, 52,499,051 shares had been issued and are outstanding.

 

(12) Treasury Shares

 

During each of the six months ended October 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 shareholders, 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 October 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 October 31, 2021, there were 11,487 shares available for grant under the 2018 Inducement Plan.

 

18

 

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 and six months ended October 31, 2021 and 2020. A summary of stock options under our stock incentive plans is detailed in the following table.

 

 

   

Shares

Underlying

Options

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Term

(In Years)

 
Outstanding as of April 30, 2021     516,827     $ 3.89       9.0  
Granted         $          
Exercised     (6,666 )   $ 1.05          
Expired     (1,806 )   $ 32.62          
Cancelled/forfeited     (110,382 )   $ 2.58          
Outstanding as of October 31, 2021     397,973     $ 4.16       8.4  
Exercisable as of October 31, 2021     239,780     $ 4.98       7.8  

 

As of October 31, 2021, the total intrinsic value of outstanding and exercisable options was approximately $0.2 million. As of October 31, 2021, approximately 158,000 additional options were unvested, which had an intrinsic value of zero and a weighted average remaining contractual term of 9.2 years. There was approximately $115,000 and $188,000 of total recognized compensation cost related to stock options during each of the six months ended October 31, 2021 and 2020, respectively. As of October 31, 2021, there was approximately $0.2 million of total unrecognized compensation cost related to non-vested stock options granted under the plans. This cost is expected to be recognized over a weighted-average period of 1.0 year.

 

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 making the adjusted fair value $1,161,267. Additionally, as the sellers must be employed for 12 months from the date of acquisition to retain all of their shares, 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.

 

 

         
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 of February 2, 2022.

 

Performance Stock Options

 

In January of 2020, the Company issued 81,337 performance-based stock options to two of its executives. There were 40,668 shares that were unvested and outstanding at October 31, 2021 which expire on December 15, 2021, 40,000 of which were exercised in December 2021.

 

19

 

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 257,356 shares unvested and outstanding at October 31, 2021. None of the shares granted to our former President and CEO under this issuance vested and lapsed as of June 18, 2021. A summary of performance stock options under our stock incentive plans is detailed in the following table.

 

 

   

Shares

Underlying

Options

    Weighted
Average
Exercise
Price
   

Weighted

Average

Remaining

Contractual

Term

(In Years)

 
Outstanding as of April 30, 2021     424,790     $ 2.57       9.5  
Granted     66,667     $ 0.62          
Exercised     (13,334 )   $ 1.05          
Cancelled/forfeited     (193,433 )   $ 2.80          
Outstanding as of October 31, 2021     284,690     $ 2.03       9.1  
Exercisable as of October 31, 2021     27,334     $ 1.05       8.2  

 

As of October 31, 2021, the total intrinsic value of both outstanding and exercisable options was approximately $30,000 and zero, respectively. As of October 31, 2021, approximately 257,000 additional options were unvested, which had an intrinsic value of $30,000 and a weighted average remaining contractual term of 9.1 years. There was approximately $61,000 and $187,000 of total recognized compensation cost related to stock options during each of the six months ended October 31, 2021 and 2020, respectively. As of October 31, 2021, there was approximately $0.3 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 1.3 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 six months ended October 31, 2021 and 2020, the Company granted 33,333 shares that were subject to service-based vesting requirements.

 

A summary of non-vested restricted stock under our stock incentive plans is as follows:

 

 

   

Number

of Shares

   

Weighted

Average Price
per Share

 
Issued and unvested at April 30, 2021     10,000     $ 2.93  
Granted     33,333     $ 2.37  
Vested         $  
Cancelled/forfeited         $  
Issued and unvested at October 31, 2021     43,333     $ 2.50  

 

There was approximately $29,000 and $10,000 of total recognized compensation cost related to restricted stock for the six months ended October 31, 2021 and 2020, respectively. As of October 31, 2021, there is approximately $70,000 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 1.5 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 October 31, 2021 and 2020, respectively. As of October 31, 2021, there was no unrecognized compensation cost remaining related to this award.

 

20

 

(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 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 October 31, 2021 and April 30, 2021 was near zero.

 

There were no unrealized gains or losses for the three and six months ended October 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 pricing model with the following assumptions:

 

 

    October 31, 2021     October 31, 2020  
             
Dividend rate     0.0 %     0.0 %
Risk-free rate     0.06% - 0.08 %     0.12% - 0.13 %
Expected life (years)     0.1       0.8 - 1.1  
Expected volatility     122.2 %     139.1 %

 

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 and six months ended October 31, 2021 and 2020.

 

21

 

(15) Commitments and Contingencies

 

Employment Litigation

 

On August 28, 2018, counsel for Charles Dunleavy, the Company’s former President & Chief Executive Officer who was terminated for cause effective June 9, 2014, 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 alleged various claims relating to Mr. Dunleavy’s termination. After the hearings in the proceeding were conducted, on December 11, 2020, the arbitration panel issued an interim award finding, among other things, that the termination for cause of Mr. Dunleavy was in breach of his employment contract and awarded him compensatory damages in the amount of $438,254.54. On May 3, 2021, the panel issued a second interim award and therein awarded Mr. Dunleavy attorneys’ fees, costs and pre-judgment interest. The Company agreed, on May 24, 2021, to pay Mr. Dunleavy $1,223,963.14, representing the total compensatory damages, attorneys’ fees, costs and pre-judgment interest, which is the full amount awarded by the arbitration panel. The Company made the required payment 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. On July 30, 2018, the Spanish tax 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. During the six months ended October 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. On January 25, 2021, the Company paid to the Spanish Tax Administration €279,870. Notwithstanding that payment, 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 October 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.

 

22

 

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 how our Chief Operating Decision Maker views the Company’s operations and financial position. 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 six months ended October 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 the Company’s technology and products. As consideration for the purchase, the Company issued 361,991 shares of its common stock to the sellers, 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 and six months ended October 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.

 

(19) Subsequent Events

 

On November 15, 2021, the Company acquired all of the outstanding equity interest of Marine Advanced Robotics, Inc. (“MAR”), a Richmond (San Francisco Bay Area), California-based developer and manufacturer of autonomous surface vehicles (ASVs).

 

The Company paid $11.0 million at closing, consisting of $4.0 million in cash and $7.0 million in common stock (3,330,162 shares). Additional earn-out opportunities for the selling shareholders of MAR exist based on revenue performance through April 2023. The MAR management team and employees have joined the Company and MAR continues to operate under its current brand name as a wholly owned subsidiary of the Company.

 

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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 as well as through working with select partners.

 

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 can become a 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 that 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 through internal developments, partnerships, and potential acquisitions. On November 15, 2021, the Company acquired all of the outstanding equity interest of MAR. This acquisition immediately provided the Company with an established, innovative offshore product line that features roaming capability that highly complements the Company’s business strategy.

 

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Founded in 2004, MAR is the developer of Wave Adaptive Modular Vessel (WAM-V®) technology, which enables roaming capabilities for uncrewed equipment in waters around the world. MAR launched the first WAM-V in 2007 as a new vessel class with a mission to manufacture and deliver to customers the most reliable and robust ASVs available on the market.

 

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 these solutions is on bringing autonomous clean power to our customers wherever it is required. On our project with Eni S.p.A. (“Eni”), we utilized a PB3 PowerBuoy®, which operated in the Adriatic Sea for over 700 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, initially based on the work we did for Harbour Energy (formerly known as Premier Oil) in 2019 in the North Sea, has further evolved based on feedback from participants in the government, defense, and security markets. 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 will focus on increasing our market share in the 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 initiated 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. This project completed in July 2021, and we have used the findings of the study to advance marketing activities for our Power as a Service solution.

 

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. The project sponsor released an update to the market on November 1, 2021, which showcased the concept of operations for the vehicles and buoy system under consideration.

 

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.

 

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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 Consolidated Statement of Operations for the six months ending October 31, 2021.

 

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.

 

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  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. The Company believes 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.

 

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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 can be fitted with additional stabilizing outriggers if required for the specific solution, 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 six months 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. During the second quarter of fiscal 2022, these efforts were largely completed together with our manufacturing partners.

 

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.

 

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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 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 equipped 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 launched the first offshore system supporting the demonstration of the newly developed system in October 2021. We also installed the mooring systems to deploy additional demonstration units during the second quarter of fiscal 2022 and intend to demonstrate the MDA-S on additional systems during third and fourth quarter of fiscal 2022.

 

Strategic Consulting Services

 

In addition to work being performed by the Company 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. During the second quarter of fiscal 2022, the Company saw an increase in consulting services activity for oil and gas and offshore wind projects.

 

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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 October 31,     Six months ended October 31,  
    2021     2020     2021     2020  
Eni S.p.A.     6 %     61 %     3 %     34 %
Department of Energy     33 %     %     16 %     %
EGP     6 %     36 %     31 %     55 %
Clark Hill     12 %     %     7 %     %
Matthews     12 %     %     6 %     %
Valaris     19 %     %     26 %     %
Other (no customer over 10%)     12 %     3 %     11 %     11 %
      100 %     100 %     100 %     109 %