Notes
to Unaudited Consolidated Financial Statements
(1)
Background, Basis of Presentation and Liquidity
a)
Background
Ocean
Power Technologies, Inc. (the “Company”, “we”, “us”, “our”) was founded in
1984 in New Jersey, commenced business operations in 1994 and re-incorporated in Delaware in 2007. We believe that we are a
marine power solutions provider. We control the design, manufacture, sales, installation, operations and maintenance of our
products and solutions while working closely with partners that provide payloads, integration services, and marine
installation capabilities. We believe our solutions provide persistent and reliable distributed offshore power along with
communications for remote surface and subsea applications. Our mission and purpose are to utilize our proprietary,
state-of-the-art technologies to enhance the environment by reducing the global carbon footprint through clean and renewable
solutions for reliable electrical power and, in so doing, drive demand for our products and services. Before 2015, government
agencies had accounted for a significant portion of the Company’s revenues. These revenues were largely for the support
of product development efforts relating to our technology. Today our goal is to generate the majority of our revenue from the
commercialization 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 until we can achieve positive cash flow from the commercialization of solutions, products 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, 2020 filed with the SEC and elsewhere in this Form 10-Q.
c) Liquidity/Going Concern
Our consolidated financial statements have
been prepared assuming the Company will continue as a going concern. The Company has experienced substantial and recurring losses
from operations, which have contributed to an accumulated deficit of $226.5 million as of October 31, 2020. These factors raise
substantial doubt about the Company’s ability to continue as a going concern. As of October 31, 2020, based in part on our
equity raises discussed below, the Company had approximately $15.8 million in cash, cash equivalents, and restricted cash
on hand. Based on the Company’s current cash, cash equivalents and restricted cash balances, and its ability to raise
additional equity under facilities currently in place, the Company believes that it will be able to finance its capital requirements
and operations for at least the next 12 months. Among other things, the Company is currently evaluating a variety of different
financing alternatives and we expect to continue to fund our business with sales of our securities and through generating revenue
with customers. The Company will require additional equity and/or debt financing to continue its operations into fiscal year 2022.
The Company cannot provide assurances that it will be able to secure additional funding when needed or at all, or, if secured,
that such funding would be on favorable terms.
The
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities
that might result from the outcome of this uncertainty.
Management
is evaluating different strategies to obtain the required additional funding for future operations. These strategies may
include, but are not limited to, continued pursuit of business opportunities, additional funding from current and /or new
investors, officers and directors; borrowings of debt; or a public offering of the Company’s equity or debt securities.
There can be no assurance that any of these future-funding efforts will be successful. The Company currently has committed
sources of equity financing through its At the Market Offering Agreement with A.G.P/Alliance Global Partners
(“AGP”) and its equity line with Aspire Capital (discussed further below), but the Company cannot be sure that
additional equity and/or debt financing will be available to the Company as needed on acceptable terms, or at all.
Historically, the Company has raised capital through securities sales in the public capital markets. The sale of additional
equity or convertible securities could result in dilution to stockholders. If additional funds are raised through the
issuance of debt securities, these securities could have rights senior to those associated with the Company’s common
stock and could contain covenants that would restrict its operations. Financing may not be available in amounts or on terms
acceptable to the Company, or at all. If the Company is unable to obtain required financing, the Company may be required to
further curtail or limit operations, product development costs, and/or selling, general and administrative activities in
order to reduce its cash expenditures, including its planned product development and marketing efforts, which could
materially and adversely harm its financial condition and operating results. If the Company is unable to secure additional
financing, it may be unable to execute its business plan, take advantage of future opportunities or be forced to cease
operations.
In
fiscal year 2020 and during the first six months of fiscal year 2021 ended October 31, 2020, the Company has continued to make
investments in ongoing product development efforts in anticipation of future growth. The Company’s future results of operations
involve significant risks and uncertainties. Factors that could affect the Company’s future operating results and cause
actual results to vary materially from expectations include, but are not limited to, risks from lack of available financing and
insufficient capital, performance of products, its inability 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 laws, regulations and permitting.
On
January 7, 2019, the Company entered into an At the Market Offering Agreement (“2019 ATM Facility”) with AGP, under
which the Company may issue and sell to or through AGP, acting as agent and/or principal, shares of the Company’s common
stock having an aggregate offering price of up to $25 million. From inception of the program through October 31, 2020, under the
2019 ATM Facility, the Company sold and issued an aggregate of 10,942,100 shares of its common stock with an aggregate market
value of $11.1 million at an average price of $1.01 per share and paid AGP a sales commission of approximately $360,095 related
to those shares. On November 20, 2020, the Company entered into a new At the Market Offering Agreement with AGP (the “2020
ATM Facility”). Under the 2020 ATM Facility, the Company may issue and sell to or through AGP, acting as agent and/or principal,
shares of the Company’s common stock having an aggregate offering price of up to $50.0 million. In connection with the effectiveness
of the 2020 ATM Facility, the 2019 ATM Facility was terminated. For more on the 2020 ATM Facility, see Note 19, Subsequent Events.
On
October 24, 2019, 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 is committed to purchase up to an aggregate of $10.0 million of shares
of the Company’s common stock over a 30-month period. Through September 18, 2020, the Company has sold an aggregate of 6,424,205
shares of common stock with an aggregate market value of $4.0 million at an average price of $0.63 per share pursuant to this
common stock purchase agreement. The agreement was fully utilized and cancelled 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 is committed to purchase up to an aggregate of $12.5 million of shares
of the Company’s common stock over a 30-month period that does not exceed 19.99% of the outstanding common stock on the
date of the agreement. The number of shares the Company could issue within the 19.99% limit is 3,722,251 shares. Shareholder approval
is needed for sale of common stock over the 19.99% limit of the outstanding common stock on the date of the agreement. Through
October 31, 2020, the Company has sold an aggregate of 500,000 shares of common stock with an aggregate market value of $0.6 million
at an average price of $1.23 per share pursuant to this common stock purchase agreement.
(2)
Summary of Significant Accounting Policies
(a)
Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
(b)
Use of Estimates
The
preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items
subject to such estimates and assumptions include estimated costs to complete projects; and the input method used to measure completion
over time of customer contracts for purposes of revenue recognition. Actual results could differ from those estimates.
(c)
Cash, Cash Equivalents, Restricted Cash and Security Agreements
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
The Company invests excess cash in a money market account.
|
|
October 31, 2020
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Checking and savings accounts
|
|
$
|
2,369
|
|
|
$
|
1,551
|
|
Money market account
|
|
|
12,875
|
|
|
|
8,451
|
|
|
|
$
|
15,244
|
|
|
$
|
10,002
|
|
Restricted
Cash and Security Agreements
The
Company has two agreements with Santander Bank. Cash is on deposit at Santander Bank and serves as security for a letter of credit
issued by Santander Bank for the lease of warehouse/office space in Monroe Township, New Jersey. This agreement cannot be extended
beyond July 31, 2025 and is cancelable at the discretion of the bank. Santander Bank also issued two letters of credit to subsidiaries
of Enel Green Power (“EGP”) pursuant to the Company’s contracts with EGP. The first letter of credit was issued
in the amount of $125,690 that expires in May 2021. The second letter of credit was issued in the amount of $645,467 and reduced
to $322,734 in August 2020. This second letter of credit will be reduced to $64,547 in January 2021. The remaining amount
expires in December 2021.
Restricted
cash includes the following:
|
|
October 31, 2020
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Santander Bank
|
|
|
606
|
|
|
|
928
|
|
|
|
$
|
606
|
|
|
$
|
928
|
|
The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Statement of Financial
Position that sum to the total of the same such amounts shown in the Statement of Cash Flows.
|
|
October 31, 2020
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,244
|
|
|
$
|
10,002
|
|
Restricted cash- short term
|
|
|
384
|
|
|
|
707
|
|
Restricted cash- long term
|
|
|
222
|
|
|
|
221
|
|
|
|
$
|
15,850
|
|
|
$
|
10,930
|
|
(d)
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist principally of accounts receivable and cash and cash equivalents.
The Company believes that its credit risk is limited because the Company’s current contracts are with companies with strong
financial strength. The Company invests its excess cash in a money market account and does not believe that it is exposed to any
significant risks related to its cash and money market accounts. Cash and cash equivalents are also maintained at foreign financial
institutions. Cash and cash equivalents in foreign financial institutions as of October 31, 2020 was $0.3 million.
The
table below shows the percentage of the Company’s revenues derived from customers whose revenues accounted for at least
10% of the Company’s consolidated revenues for at least one of the periods indicated:
|
|
Three months ended October 31,
|
|
|
Six months ended October 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eni S.p.A.
|
|
|
61
|
%
|
|
|
23
|
%
|
|
|
34
|
%
|
|
|
19
|
%
|
Premier Oil UK Limited
|
|
|
0
|
%
|
|
|
13
|
%
|
|
|
9
|
%
|
|
|
30
|
%
|
EGP
|
|
|
36
|
%
|
|
|
47
|
%
|
|
|
55
|
%
|
|
|
24
|
%
|
U.S. Navy
|
|
|
0
|
%
|
|
|
10
|
%
|
|
|
0
|
%
|
|
|
17
|
%
|
Other
|
|
|
3
|
%
|
|
|
7
|
%
|
|
|
2
|
%
|
|
|
10
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
The
loss of or a significant reduction in revenues from a current customer could significantly impact the Company’s financial
position or results of operations. The Company does not require its customers to maintain collateral.
(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, 2020 and 2019:
|
|
Three months ended October 31,
|
|
|
Six months ended October 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and product development
|
|
$
|
22
|
|
|
$
|
20
|
|
|
$
|
59
|
|
|
$
|
40
|
|
Selling, general and administrative
|
|
|
85
|
|
|
|
56
|
|
|
|
164
|
|
|
|
128
|
|
Total share-based compensation expense
|
|
$
|
107
|
|
|
$
|
76
|
|
|
$
|
223
|
|
|
$
|
168
|
|
(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. Accounting Standards Update (“ASU”) 2016-10 provides a practical expedient that permits presentation of shipping
and handling costs, that occur after control of the promised goods or services transfer to the customer, as fulfillment costs
rather than evaluating whether the shipping and handling activities are promised services to the customer. The Company adopted
this practical expedient, but it did not have a material effect on its Consolidated Financial Statements.
The
Company recognizes revenue when or as it satisfies a performance obligation by transferring a good or service to a customer, either
(1) at a point in time or (2) over time. A good or service is transferred when or as the customer obtains control of it. The evaluation
of whether control of each performance obligation is transferred at a point in time or over time is made at contract inception.
Input measures such as costs incurred or time elapsed are utilized to assess progress against specific contractual performance
obligations for the Company’s services. The selection of the method to measure progress towards completion requires judgment
and is based on the nature of the services to be provided. For the Company, the input method using costs incurred or time elapsed
best represents the measure of progress against the performance obligations incorporated within the contractual agreements. When
the Company’s estimate of total costs to be incurred to satisfy the performance obligations exceed revenue, the Company
recognizes the loss immediately.
The
Company’s contracts are either cost plus or fixed price contracts. Under cost plus contracts, customers are billed for actual
expenses incurred plus an agreed-upon fee. Under cost plus contracts, a profit or loss on a project is recognized depending on
whether actual costs are more or less than the agreed upon amount.
The
Company has two types of fixed price contracts, firm fixed price and cost-sharing. Under firm fixed price contracts, the Company
receives an agreed-upon amount for providing products and services specified in the contract, a profit or loss is recognized depending
on whether actual costs are more or less than the agreed upon amount. Under cost-sharing contracts, the fixed amount agreed upon
with the customer is only intended to fund a portion of the costs on a specific project. Under cost sharing contracts, an amount
corresponding to the revenue is recorded in cost of revenues, resulting in gross profit on these contracts of zero. The Company’s
share of the costs is recorded as product development expense. The Company reports its disaggregation of revenue by contract type
since this method best represents the Company’s business. For the six-month periods ended October 31, 2020 and 2019, all
of the Company’s contracts were classified as firm fixed price.
As
of October 31, 2020, the Company’s total remaining performance obligations, also referred to as backlog, totaled $0.8 million.
The Company expects to recognize approximately 93%, or $0.7 million, of the remaining performance obligations as revenue over
the next twelve months.
Products
and Solutions Leasing
The
Company enters into lease arrangements with certain customers for their products and solutions. As of October 31, 2020, the Company
has one lease arrangement with a remaining operating lease term of less than 13 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 an operating lease.
The
Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term and is presented
in Revenues in the Consolidated Statement of Operations. The lease income for the three and six months ended October 31, 2020
and 2019 was immaterial.
(g)
Net Loss per Common Share
Basic
and diluted net loss per share for all periods presented is computed by dividing net loss by the weighted average number of shares
of common stock and common stock equivalents outstanding during the period. The pre-funded warrants were determined to be common
stock equivalents and have been included in the weighted average number of shares outstanding for calculation of the basic earnings
per share number. Due to the Company’s net losses, potentially dilutive securities, consisting of options to purchase shares
of common stock, warrants on common stock and non-vested restricted stock issued to employees and non-employee directors, were
excluded from the diluted loss per share calculation due to their anti-dilutive effect.
In
computing diluted net loss per share on the Consolidated Statement of Operations, warrants on common stock, options to purchase
shares of common stock and non-vested restricted stock issued to employees and non-employee directors, totaling 5,540,469 and
5,007,907 for the three and six months ended October 31, 2020 and 2019, respectively, were excluded from each of the computations
as the effect would be anti-dilutive due to the Company’s losses.
(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.” The amendment in this update
replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments
within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful
information about the expected credit losses. 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.
In
August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” The ASU modifies, removes,
and adds several disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments on changes
in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively
to all periods presented upon their effective date. The Company adopted this guidance effective May 1, 2020. The adoption of the
guidance did not have a material effect on its Consolidated Financial Statements.
In
August 2018, the FASB issued ASU No. 2018-15, “Intangibles — Goodwill and Other — Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That is a Service Contract.” The ASU requires a customer in a cloud computing arrangement that is a service
contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which
implementation costs to defer and recognize as an asset. The ASU permits two methods of adoption: prospectively to all
implementation costs incurred after the date of adoption, or retrospectively to each prior reporting period presented. The
Company adopted this guidance on a prospective basis effective May 1, 2020. The adoption of the guidance did not have a
material effect on its Consolidated Financial Statements.
(3)
Account Receivable, Contract Assets, and Contract Liabilities
The
following provides further details on the balance sheet accounts of accounts receivable, contract assets, and contract liabilities
from contracts with customers:
|
|
October 31, 2020
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
$
|
-
|
|
|
$
|
105
|
|
Contract assets
|
|
|
97
|
|
|
|
251
|
|
Contract liabilities
|
|
|
109
|
|
|
|
165
|
|
Accounts
Receivable
The
Company grants credit to its customers, generally without collateral, under normal payment terms (typically 30 to 60 days after
invoicing). Generally, invoicing occurs after the related services are performed or control of good has transferred to the customer.
Accounts receivable represents an unconditional right to consideration arising from the Company’s performance under contracts
with customers. The carrying value of such receivables represent their estimated realizable value.
Contract
Assets
Significant
changes in the contract assets balances during the period are as follows:
|
|
Six months ended
|
|
|
|
October 31, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
Transferred to receivables from contract assets recognized at the beginning of the period
|
|
$
|
(251
|
)
|
Revenue recognized and not billed as of the end of the period
|
|
|
97
|
|
Net change in contract assets
|
|
$
|
(154
|
)
|
Contract
assets include unbilled amounts typically resulting from arrangements whereby the right to payment is conditioned on completing
additional tasks or services for a performance obligation. The decrease in contract assets is primarily a result of services performed
relating to our project with Enel Green Power that was billed during the six months ended October 31, 2020.
Contract
Liabilities
Significant
changes in the contract liabilities balances during the period are as follows:
|
|
Six months ended
|
|
|
|
October 31, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue recognized that was included in the contract liabilities balance as of the beginning of the period
|
|
$
|
49
|
|
Transferred to contract assets from contract liabilities recognized at the beginning of the period
|
|
|
7
|
|
Net change in contract liabilities
|
|
$
|
56
|
|
Contract
liabilities consist of amounts invoiced to customers in excess of revenue recognized. The decrease in contract liabilities is
primarily due to recognition of revenue relating to our Eni project during the six months ended October 31, 2020.
(4)
Other Current Assets
Other
current assets consist of the following at October 31, 2020 and April 30, 2020:
|
|
October 31, 2020
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
154
|
|
|
$
|
60
|
|
Other receivables
|
|
|
5
|
|
|
|
2
|
|
Prepaid insurance
|
|
|
666
|
|
|
|
124
|
|
Prepaid offering costs
|
|
|
102
|
|
|
|
275
|
|
Prepaid expenses- other
|
|
|
202
|
|
|
|
127
|
|
|
|
$
|
1,129
|
|
|
$
|
588
|
|
(5)
Property and Equipment, net
The
components of property and equipment, net as of October 31, 2020 and April 30, 2020 consisted of the following:
|
|
October 31, 2020
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
342
|
|
|
|
342
|
|
Computer equipment & software
|
|
|
476
|
|
|
|
486
|
|
Office furniture & equipment
|
|
|
339
|
|
|
|
339
|
|
Leasehold improvements
|
|
|
474
|
|
|
|
474
|
|
Construction in process
|
|
|
15
|
|
|
|
15
|
|
|
|
$
|
1,646
|
|
|
$
|
1,656
|
|
Less: accumulated depreciation
|
|
|
(1,221
|
)
|
|
|
(1,157
|
)
|
|
|
$
|
425
|
|
|
$
|
499
|
|
Depreciation
expense was approximately $36,000 and $39,000 for the three-month periods ended October 31, 2020 and 2019, and approximately $73,000
and $77,000 for the six-month periods ended October 31, 2020 and 2019, respectively.
(6)
Leases
Lessor
Information
As
of October 31, 2020, 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 13
months. The maturity of lease payments remaining on this lease is immaterial.
Lessee
Information
The
Company has a lease for its facility located in Monroe Township, New Jersey that is used as warehouse/production space and the
Company’s principal offices and corporate headquarters. The initial lease term is for 7 years with an option to extend the
lease for another 5 years. The lease is classified as an operating lease. The operating lease is included in right-of-use assets,
lease liabilities- current and lease liabilities- long-term on the Company’s Consolidated Balance Sheets.
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.
On
June 10, 2020 the Company signed a 12-month lease for office space in Houston, Texas. The lease can be extended by the Company
by providing the lessor on or before the notice date of the Company’s intent to renew or terminate the lease. ASC Topic
842, “Leases” allows a company an accounting policy election to recognize lease payments to the Consolidated
Statement of Operations on a straight-line basis if the lease term is equal to or less 12 months and not recognize a right-of
use asset and lease liability. The accounting policy is made on the commencement date of the lease.
The
operating lease cash flow payments for the six months ended October 31, 2020 and 2019 was $168,000 and $159,000, respectively.
The components of lease expense
in the Consolidated Statement of Operations for both the three and six months ended October 31, 2020 and 2019 was as follows:
|
|
Three months ended October 31,
|
|
|
Six months ended October 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
80
|
|
|
$
|
79
|
|
|
$
|
159
|
|
|
$
|
159
|
|
Short-term lease cost
|
|
|
3
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
Total lease cost
|
|
$
|
83
|
|
|
$
|
79
|
|
|
$
|
164
|
|
|
$
|
159
|
|
Information related to the Company’s
right-of use assets and lease liabilities as of October 31, 2020 was as follows:
|
|
October 31, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
Operating lease:
|
|
|
|
|
Operating right-of-use asset, net
|
|
$
|
1,060
|
|
|
|
|
|
|
Right-of-use liability- current
|
|
|
244
|
|
Right-of-use liability- long term
|
|
|
954
|
|
Total lease liability
|
|
$
|
1,198
|
|
|
|
|
|
|
Weighted average remaining lease term- operating leases
|
|
|
3.98 years
|
|
Weighted average discount rate- operating leases
|
|
|
8.5
|
%
|
Total remaining lease payments under
the Company’s operating leases are as follows:
|
|
October 31, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
Remainder of fiscal year 2021
|
|
$
|
168
|
|
2022
|
|
|
341
|
|
2023
|
|
|
352
|
|
2024
|
|
|
362
|
|
2025
|
|
|
184
|
|
Total future minimum lease payments
|
|
$
|
1,407
|
|
Less imputed interest
|
|
|
(209
|
)
|
Total
|
|
$
|
1,198
|
|
(7) Accrued Expenses
Accrued expenses consist of the following at
October 31, 2020 and April 30, 2020:
|
|
October 31, 2020
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Project costs
|
|
$
|
142
|
|
|
$
|
48
|
|
Contract loss reserve
|
|
|
280
|
|
|
|
216
|
|
Employee incentive payments
|
|
|
526
|
|
|
|
-
|
|
Accrued salary and benefits
|
|
|
499
|
|
|
|
483
|
|
Legal and accounting fees
|
|
|
324
|
|
|
|
283
|
|
Accrued taxes payable
|
|
|
326
|
|
|
|
177
|
|
Other
|
|
|
118
|
|
|
|
146
|
|
|
|
$
|
2,215
|
|
|
$
|
1,353
|
|
(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. The warrants have an exercise price of $121.60 per share, became exercisable on December 3, 2016 (“Initial
Exercise Date”), and will expire five years following the Initial Exercise Date. As of October 31, 2020, none of the warrants
have been exercised.
On July 22, 2016, the Company entered into
a Second Amendment to the Purchase Agreement (the “Second Amended Purchase Agreement”) with certain institutional
purchasers (the “July Purchasers”). Pursuant to the terms of the Second Amended Purchase Agreement, the Company sold
an aggregate of 29,750 shares of Common Stock together with warrants to purchase up to an aggregate of 8,925 shares of Common
Stock. The Warrants were exercisable immediately at an exercise price of $187.20 per share. The Warrants will expire on
the fifth (5th) anniversary of the initial date of issuance. As of October 31, 2020, none of the warrants have been exercised.
Equity Classified Warrants
On April 8, 2019, the Company issued
and sold 1,542,000 shares of common stock and pre-funded warrants to purchase up to 3,385,680 shares of common stock and common
warrants to purchase up to 4,927,680 shares of our common stock in an underwritten public offering. The public offering price for
the pre-funded warrants was equal to the public offering price of the common stock, less the $0.01 per share exercise price of
each warrant. As of October 31, 2020, all of the pre-funded warrants have been exercised. The common stock warrants have an exercise
price of $3.85 per share and expire five years from the issuance date. As of October 31, 2020, none of the common stock warrants
have been exercised.
The Company accounted for the warrants issued
in connection with its June and July 2016 public offerings in accordance with the guidance in Topic 480 which provides that the
Company classify the warrant instruments as a liability at its fair value. The warrant liabilities are subject to re-measurement
at each balance sheet date using the Black-Scholes option pricing model. The June and July 2016 warrants contain a feature whereby
they could require the transfer of assets and therefore are classified as a liability award in accordance with the guidance in
Topic 480. The warrants have a value close to zero at October 31, 2020 and April 30, 2020 and are reflected within “Warrant
liabilities” in the Consolidated Balance Sheets. The pre-funded and common warrants issued in the Company’s April 8,
2019 public offering did not meet the criteria to be classified as a liability award and therefore were treated as an equity award
and recorded as a component of stockholders’ equity in the Consolidated Balance Sheets.
(9) Paycheck Protection Program Loan
As a result of the COVID-19 pandemic, on March
27, 2020, the U.S. Government passed into law the Coronavirus Aid, Relief and Economic Security Act, or the (“CARES Act”)
which included the ability to secure loans under the Paycheck Protection Program (“PPP”). On May 3, 2020, after its
application was submitted and approved, the Company signed a PPP loan with Santander Bank, N.A. (“Santander”) as the
lender for $890,347 pursuant to the PPP under the CARES Act, as implemented by the U.S. Small Business Association (“SBA”).
The PPP loan is an unsecured note with Santander as the lender and governed by a loan agreement with Santander. The interest rate
is 1% and the loan is repayable over two years. The loan contains 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 may require immediate
repayment of all outstanding under the loan. Interest and principal payments are deferred for the first 6 months from the date
of the loan. Principal and interest of approximately $49,000 are payable monthly commencing 6 months after the disbursement date
and may 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 SBA allows loan forgiveness for eligible
costs incurred and paid which include (a) payroll costs, (b) interest on any real or personal property mortgage prior to February
15, 2020, (c) rent on any lease in force prior to February 15, 2020, and (d) utility payments for which service began before February
15, 2020. As of October 31, 2020, the Company has utilized all of the loan proceeds. While the Company currently believes that
the use of the loan proceeds will meet the conditions for forgiveness of the loan and is in the process of preparing the SBA’s
forgiveness application, no assurance can be provided that the Company will obtain forgiveness of the loan, in whole or in part.
On June 5, 2020, the Paycheck Protection Program
Flexibility Act (“PPPFA”) was signed into law. Among other changes, the PPPFA (a) reduced the amount of the loan required
to be spent on payroll costs from 75% to 60%, (b) extended the covered period to 24 weeks from 8 weeks, (c) extended the repayment
term of the PPP loan from 2 years to 5 years, and (d) increased the deferred payment date from 6 months to 10 months. For the loans
disbursed before June 5, 2020, the PPPFA provides the option to opt for 24 weeks for spending the loan instead of 8 weeks. The
Company opted for 24 weeks to spend the loan.
The Company is accruing interest expense until
the loan is forgiven or repaid. If the loan were not forgiven by the SBA and the Company decided to repay the loan over 2 years,
the interest expense for this loan period would be immaterial.
(10) Loan Payable
In August 2020 the Company signed a commercial
premium finance agreement in the amount of $466,622 with First Insurance Funding whereas First Insurance Funding prepaid a portion
of the Company insurance premiums including principally the Directors and Officers insurance. The Company will make eight monthly
payments of $58,957.25, inclusive of interest charges, to repay First Insurance Funding the amount. Interest expense for the loan
period is immaterial.
(11) 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, 2020, no shares of preferred stock
had been issued.
(12) Common Stock
On January 7, 2019, the Company entered into
the 2019 ATM Facility with AGP, under which the Company may issue and sell to or through A.G.P./Alliance Global Partners, acting
as agent and/or principal, shares of the Company’s common stock having an aggregate offering price of up to $25 million.
Since inception of the program through October 31, 2020, under the 2019 ATM Facility the Company had sold and issued an aggregate
of 10,942,100 shares of its common stock with an aggregate market value of $11.1 million at an average price of $1.01 per share,
including 5,689,134 shares in fiscal year 2021 with an aggregate market value of $6.4 million at an average price of $1.12 per
share and paid AGP a sales commission of approximately $360,095 related to those shares. On November 20, 2020, the Company entered
into a new At the Market Offering Agreement with AGP (the “2020 ATM Facility”). Under the 2020 ATM Facility, the Company
may issue and sell to or through AGP, acting as agent and/or principal, shares of the Company’s common stock having an aggregate
offering price of up to $50.0 million. In connection with the effectiveness of the 2020 ATM Facility, the 2019 ATM Facility was
terminated. For more on the 2020 ATM Facility, see Note 19, Subsequent Events.
On October 24, 2019, 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 is committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock over
a 30-month period. Through September 18, 2020, the Company has 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 cancelled 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 is committed to purchase up to an aggregate of $12.5 million of shares of the Company’s common stock over
a 30-month period that does not exceed 19.99% of the outstanding common stock on the date of the agreement. The number of shares
the Company could issue within the 19.99% limit is 3,722,251 shares. Shareholder approval is needed for sale of common stock over
the 19.99% limit of the outstanding common stock on the date of the agreement. Through October 31, 2020, the Company has sold an
aggregate of 500,000 shares of common stock with an aggregate market value of $0.6 million at an average price of $1.23 per share
pursuant to this common stock purchase agreement.
(13) Treasury Shares
During each of the six months ended October
31, 2020 and 2019, no shares and 481 shares of common stock were purchased by the Company from employees to pay taxes related to
the vesting of restricted stock.
(14) Stock-Based Compensation
In 2015, upon approval by the Company’s
stockholders, the Company’s 2015 Omnibus Incentive Plan (the “2015 Plan”) became effective. A total of 732,036
shares are 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, 2020, the Company has 192,777 shares available for future
issuance under the 2015 Plan.
On January 18, 2018, the Company’s Board
of Directors adopted the Company’s Employment Inducement Incentive Award Plan (the “2018 Inducement Plan”) pursuant
to which the Company reserved 25,000 shares of common stock for issuance under the Inducement Plan. In accordance with Rule 5635(c)(4)
and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously
employees of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement
material to the individuals’ entry into employment with the Company. An award is any right to receive the Company’s
common stock pursuant to the 2018 Inducement Plan, consisting of a performance share award, restricted stock award, a restricted
stock unit award or a stock payment award. As of October 31, 2020, there were 11,487 shares available for grant under the 2018
Inducement Plan.
Stock Options
The Company estimates the fair value of each
stock option award granted with service-based vesting requirements, using the Black-Scholes option pricing model, assuming no dividends,
and using the weighted average valuation assumptions noted in the following table. The risk-free rate is based on the US Treasury
yield curve in effect at the time of grant. The expected life (estimated period of time outstanding) of the stock options granted
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. There were no options granted during the six months ended October 31, 2020 or 2019.
Performance Stock Options
In January of 2020, the Company issued 81,334
performance-based stock options to two of its executives. The awards can vest over 2 years if there is positive total shareholder
return (e.g. share price increase) as measured to the 5-day (January 11-15, 2021) and (January 10-14, 2022) share price Volume
Weighted Average Price (“VWAP”). The Company determined these awards contain a market- based condition and
estimated the fair value using the Monte Carlo simulation model. There were 81,334 shares unvested and outstanding as of October
31, 2020.
A summary of stock options under our stock
incentive plans is detailed in the following table.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Term
|
|
|
|
Options
|
|
|
Price
|
|
|
(In Years)
|
|
Outstanding as of April 30, 2020
|
|
|
555,475
|
|
|
$
|
3.19
|
|
|
|
9.5
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(23,969
|
)
|
|
$
|
7.11
|
|
|
|
|
|
Outstanding as of October 31, 2020
|
|
|
531,506
|
|
|
$
|
3.02
|
|
|
|
9.0
|
|
Exercisable as of October 31, 2020
|
|
|
60,506
|
|
|
$
|
18.32
|
|
|
|
7.6
|
|
As of October 31, 2020, the total intrinsic
value of both outstanding and exercisable options was approximately $301,000 and zero, respectively. As of October 31, 2020, approximately
471,000 additional options were unvested, which had an intrinsic value of $301,000 and a weighted average remaining contractual
term of 9.2 years. There was approximately $187,000 and $163,000 of total recognized compensation cost related to stock options
during each of the six months ended October 31, 2020 and 2019, respectively. As of October 31, 2020, there was approximately $123,000
of total unrecognized compensation cost related to non-vested stock options granted under the plans. This cost is expected to be
recognized over a weighted-average period of 0.7 years. The Company typically issues newly authorized but unissued shares to satisfy
option exercises under these plans.
Restricted Stock
Compensation expense for non-vested restricted
stock is generally recorded based on its market value on the date of grant and recognized ratably over the associated service and
performance period. During the six months ended October 31, 2020, the Company granted no shares subject to service-based vesting
requirements.
A summary of non-vested restricted stock under
our stock incentive plans is as follows:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average Price per
|
|
|
|
of Shares
|
|
|
Share
|
|
|
|
|
|
|
|
|
Issued and unvested at April 30, 2020
|
|
|
13,513
|
|
|
$
|
1.48
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Vested
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled/forfeited
|
|
|
-
|
|
|
$
|
-
|
|
Issued and unvested at October 31, 2020
|
|
|
13,513
|
|
|
$
|
1.48
|
|
There was approximately $10,000 and $5,000
of total recognized compensation cost related to restricted stock for the six months ended October 31, 2020 and 2019, respectively.
As of October 31, 2020, there is $200 unrecognized compensation cost remaining related to unvested restricted stock granted under
our plans. This cost is expected to be recognized over a weighted-average period of 0.1 years.
In December 2019, the Company granted 51,547
shares, subject to service-based vesting requirements, to an employee that were outside the Company stock incentive plans. There
was approximately $25,000 and zero of total recognized compensation cost related to this award for the six months ended October
31, 2020 and 2019, respectively. As of October 31, 2020, there is $5,000 unrecognized compensation cost remaining related to this
award. This cost is expected to be recognized over a weighted-average period of 0.1 years.
(15) Fair Value Measurements
ASC Topic 820, “Fair Value Measurements”
states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured
at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This
hierarchy maximizes the use of observable input and minimizes the use of unobservable inputs. The following is a description of
the three hierarchy levels.
Level 1
|
Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
|
Level 2
|
Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
|
|
|
Level 3
|
Inputs that are unobservable for the asset or liability.
|
Disclosure of Fair Values
The Company’s financial instruments that
are not re-measured at fair value include cash, cash equivalents, restricted cash, accounts receivable, contract assets and liabilities,
deposits, accounts payable, and accrued expenses. The carrying values of these financial instruments approximate their fair values
and are viewed as Level 1 items. The Company’s warrant liabilities represent the only asset or liability classified financial
instrument that is measured at fair value on a recurring basis.
The fair value of the Company’s warrant
liabilities (refer to Note 8) is based on the Black-Scholes option pricing model which is based on Level 3 unobservable inputs
for which there is little or no market data, requiring the Company to develop its own assumptions. The assumptions used by the
Company are the quoted price of the Company’s common stock in an active market, risk-free interest rate, volatility and expected
life, and assumes no dividends. Volatility is based on the actual market activity of the Company’s stock. The expected life
is based on the remaining contractual term of the warrants and the risk-free interest rate is based on the implied yield available
on U.S. Treasury Securities with a maturity equivalent to the warrants’ expected life. The fair value on a recurring basis
as of October 31, 2020 and April 30, 2020 was near zero.
Unrealized gains of approximately zero for
the three months ended October 31, 2020 and 2019, respectively, and zero and $6,000 for the six months ended October 31, 2020 and
2019, respectively, were included within “Gain due to change in fair value of warrant liabilities” in the Consolidated
Statements of Operations. The Company determined the fair value using the Black-Scholes option pricing model with the following
assumptions:
|
|
October 31, 2020
|
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
Dividend rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free rate
|
|
|
0.12% - 0.13
|
%
|
|
|
1.5
|
%
|
Expected life (years)
|
|
|
0.8 - 1.1
|
|
|
|
1.7 - 2.1
|
|
Expected volatility
|
|
|
139.1
|
%
|
|
|
105.9
|
%
|
Besides the unrealized gain in fair value,
there was no other activity to the balances in warrant liabilities during the six months ended October 31, 2020 and 2019, respectively.
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 six months ended October 31, 2020 and 2019.
(16) Commitments and Contingencies
Employment Litigation
On June 10, 2014, the Company announced that
it had terminated Charles Dunleavy as its Chief Executive Officer and as an employee of the Company for cause, effective June 9,
2014, and that Mr. Dunleavy had also been removed from his position as Chairman of the Board of Directors. On June 17, 2014, Mr.
Dunleavy wrote to the Company stating that he had retained counsel to represent him in connection with an alleged wrongful termination
of his employment. On July 28, 2014, Mr. Dunleavy resigned from the Board and the boards of directors of the Company’s subsidiaries.
On August 28, 2018,
counsel for Mr. Dunleavy filed a demand for arbitration, captioned Charles F. Dunleavy v. Ocean Power Technologies, Inc.,
Case No. 01-18-0003-2374, before the American Arbitration Association in New Jersey. The demand names Ocean Power Technologies,
Inc. as the respondent and alleges various claims and seeks declaratory relief and permanent injunction. The demand seeks damages
in the amount of $5 million for compensatory and punitive damages, plus interest and attorneys’ fees as well as certain equitable
relief. On November 8, 2018, the Company through counsel responded to the demand for arbitration, denied all allegations, and asserted
various affirmative defenses. The final day of hearing occurred in Princeton, New Jersey on July 15, 2020. Post-hearing briefs
were filed on September 22, 2020. As of October 31, 2020, the Company has not accrued any provision related to this matter as we
believe a loss is not probable and any possible loss cannot be reasonably estimated.
Nasdaq Delisting Notification
On March 3, 2020, the Company received a notification
from the Nasdaq indicating that the minimum bid price of the Company’s common stock has been below $1.00 per share for 30
consecutive business days and as a result, the Company is not in compliance with the minimum bid price requirement for continued
listing. The Nasdaq notice has no immediate effect on the listing or trading of the Company’s common stock. Under the Nasdaq
Listing Rules, the Company has a grace period of 180 calendar days, or until August 31, 2020, in which to regain compliance with
the minimum bid price rule. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed
$1.00 per share for a minimum of ten consecutive business days during this grace period. On August 21, 2020, the Company
received notification from Nasdaq that, as a result of the closing bid price of the Company’s common stock being over $1.00
for 10 consecutive trading days, the Company has regained compliance with Listing Rule 5550(a)(2) to maintain the listing of its
common stock on Nasdaq and Nasdaq considers the matter closed.
Spain Income Tax Audit
The Company underwent an income tax audit
in Spain for the period from 2011 to 2014, when our Spanish branch was closed. In connection with the tax audit, the Spanish tax
inspector challenged the Company’s recognition of grant funds received in 2011 to 2014 from the European Commission in connection
with the Company’s Waveport project. On July 30, 2018, the inspector concluded that although there was no tax owed in light
of losses reported, the Company’s Spanish branch owed penalties for failure to properly account for the income associated
with the funding grant. On August 30, 2018, the Company filed an administrative appeal of the penalty and its underlying conclusions.
During the three months ended July 31, 2020, the Company received notice from the Spanish Central Economic and Administrative
Tribunal that it agreed with the inspector and ruled that the Company owes the full amount of the penalty in the amount of €279,869.81
or approximately $331,000. The Company is appealing the decision of the Tribunal tax assessment to the Spanish National Court.
Per the Company’s accounting policy, the Company recorded the additional penalty of €117,145.81 to Selling, general
and administrative costs in the Statement of Operations. As of October 31, 2020 and April 30, 2020, the Company has reserved
€279,869.81 (or approximately $326,000) and €162,724 (or approximately $177,000), respectively, for the penalty in Accrued
expenses in the Consolidated Balance Sheets.
(17) 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. The Company is currently undergoing an income tax audit in Spain, as discussed above.
At October 31, 2020 the Company had no other unrecognized tax positions. The Company does not expect any material increase
or decrease in its income tax expense in the next twelve months, related to examinations or uncertain tax positions. U.S. federal
and state income tax returns were audited through fiscal 2014 and fiscal 2010 respectively. Net operating loss and credit carry
forwards since inception remain open to examination by taxing authorities and will continue to remain open for a period of time
after utilization.
(18) Operating Segments and Geographic Information
The Company’s business consists of one
segment as this represents management’s view of the Company’s operations. The Company operates on a worldwide basis
with one operating company in the US and subsidiaries in the UK and in Australia. Revenues and expenses are generally attributed
to the operating unit that bills the customers. During each of the six months ended October 31, 2020 and 2019, the Company’s
primary business operations were in North America.
(19) Subsequent
Events
On November 20, 2020, the Company filed a shelf
registration statement on Form S-3 with the U.S. Securities and Exchange Commission (the “SEC”), pursuant to which
the Company may offer and sell, at its option, securities having an aggregate offering price of up to $100,000,000. On the same
date, the Company entered into the 2020 ATM Facility pursuant to which the Company may offer and sell shares of its common stock,
par value $0.001 per share, having an aggregate offering price of up to $50,000,000 to or through AGP, as sales agent, from time
to time, in an “At The Market Offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended)
of the shares. The $50,000,000 of common stock that may be offered, issued and sold under the ATM Prospectus is included in the
$100,000,000 of securities that may be offered, issued and sold by us under the Base Prospectus. Shares may be sold by any method
deemed to be an “At The Market Offering.” Under the 2020 ATM Facility, AGP will also be able to sell shares of common
stock by any other method permitted by law, including in negotiated transactions with the Company’s prior written consent.
The Company will pay AGP commissions for its services in acting as its sales agent in the sale of the shares pursuant to the sales
agreement. AGP is entitled to compensation at a fixed commission rate of the aggregate gross proceeds from the sale of the shares
on the Company’s behalf. The sales agreement for the 2020 ATM Facility contains representations, warranties and covenants
that are customary for transactions of this type.
As
of December 7, 2020 the balance of total cash, cash equivalents, and restricted cash is approximately $26.3 million mainly as
a result of sales of approximately $11.9 million of the Company’s securities through its 2019 ATM Facility which occurred
subsequent to October 31, 2020.