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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
☒ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For
the fiscal year ended April 30, 2024 |
Or
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For
the transition period from to . |
Commission
File Number 001-33417
Ocean
Power Technologies, Inc.
Delaware
|
|
22-2535818
|
(State
or other jurisdiction of |
|
(I.R.S. Employer |
incorporation
or organization) |
|
Identification No.) |
28
ENGELHARD DRIVE, SUITE B
MONROE
TOWNSHIP, NJ 08831
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (609) 730-0400
Securities
registered pursuant to Section 12(b) of the Act:
Title
of Each Class |
|
Trading
Symbol(s) |
|
Name
of Exchange on Which Registered |
Common
Stock, par value $0.001 |
|
OPTT |
|
NYSE
American |
Series
A Preferred Stock Purchase Rights |
|
n/a |
|
NYSE
American |
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
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 ☐ |
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. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the common stock of the registrant held by non-affiliates as of October 31, 2023, the last business day of
the registrant’s most recently completed second fiscal quarter, was $17.6 million based on the closing sale price of the registrant’s
common stock on that date as reported on the NYSE American.
The
number of shares outstanding of the registrant’s common stock as of July 22, 2024 was 92,708,981.
OCEAN
POWER TECHNOLOGIES, INC.
ANNUAL
REPORT ON FORM 10-K
TABLE
OF CONTENTS
PowerBuoy®,
PB-Vue ®, PowerTower ®, Making Waves in Power ®, Talk on Water ®, WAM-V®
and the Ocean Power Technologies logo are trademarks of Ocean Power Technologies, Inc. All other trademarks appearing in this annual
report are the property of their respective holders.
Special
Note Regarding Forward-Looking Statements
We
have made statements in this Annual Report on Form 10-K (the “Annual Report”) in, among other sections, Item 1 - “Business,”
Item 1A - “Risk Factors,” Item 3 - “Legal Proceedings,” and Item 7 - “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” that are forward-looking statements. Forward-looking statements convey
our current expectations or forecasts of future events. Forward-looking statements include statements regarding our future financial
position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “may,”
“continue,” “estimate,” “intend,” “plan,” “will,” “believe,”
“project,” “expect,” “anticipate” and similar expressions may identify forward-looking statements,
but the absence of these words does not necessarily mean that a statement is not forward-looking.
Any
or all of our forward-looking statements in this Annual Report may turn out to be inaccurate. We have based these forward-looking statements
on our current expectations and projections about future events and financial trends that we believe may affect our financial condition,
results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or unknown
risks and uncertainties, including the risks, uncertainties and assumptions described in Item 1A - “Risk Factors.” In light
of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report may not occur
as contemplated and actual results could differ materially from those anticipated or implied by the forward-looking statements.
You
should not unduly rely on these forward-looking statements, which speak only as of the date of this filing. Unless required by law, we
undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise.
Our
fiscal year begins on May 1 and ends on April 30. When we refer to a particular fiscal year, we are referring to the fiscal year ending
on April 30 of that year. References to fiscal 2024 are to the fiscal year ended April 30, 2024.
Unless
the context indicates otherwise, the terms “Company,” “Ocean Power Technologies,” “OPT,” “we,”
“our” or “us” as used herein refers to Ocean Power Technologies Inc. and its subsidiaries.
PART
I
ITEM
1. BUSINESS
Overview
Our
solutions focus on three major service areas: Data as a Service (“DaaS”), which includes data collected by our Wave Adaptive
Modular Vessel (WAM-V®) autonomous vehicles or our PowerBuoy® PB product lines; Robotics as a Service (“RaaS”),
which provides a lower cost subscription model for our customers to access use of our WAM-V’s®; and Power as a Service (“PaaS”),
which includes our PowerBuoy® products.
Our
mission is to provide intelligent maritime solutions and services that enable more secure and more productive utilization of our oceans
and waterways, provide clean energy power services, and offer sophisticated surface and subsea maritime domain awareness solutions. The
Company achieves this through our proprietary, state-of-the-art technologies that are at the core of our clean and renewable energy platforms,
autonomous systems, solutions and services. The Company is involved in the entire life cycle of product development, from product
design through assembly, testing, deployment, maintenance and upgrades, while working closely with partners across our supply chain.
The Company also works closely with our third-party partners that provide us with, among other things, software, controls, sensors, integration
services, and marine installation services. Our solutions are based on proprietary technologies that enable autonomous, zero or low carbon
emitting, and cost-effective data collection, analysis, transportation and communication. Our solutions are primarily suited to ocean
and other offshore environments, and support generation of actionable intelligence on a standalone basis or working with other data sources.
We channel the information we collect, and other communications, through control equipment linked to edge computing and cloud hosting
environments. The data collected by OPT’s technologies underscores the Company’s unique position as a system of systems provider.
What sets OPT apart is its ability to enhance these data collection capabilities by integrating the WAM-V and PB systems. This integration
enables the use of artificial intelligence and Machine Learning not only to improve data accuracy and operational efficiency but also
delivery of actionable intelligence.
In
November 2023 we announced that we have substantially completed our research and development phase and are primarily focused on commercial
activities. We have built a suite of products (more fully described below) that we believe will be the basis for our current and future
commercial success resulting in meaningful progress in orders, pipeline, and backlog. This pivot to commercial activities has enabled
reallocation of headcount, resulting in approximately $4.5 million in annual run rate savings, and a material reduction in third-party
expenditures. The majority of our employees are now dedicated to customer sales, assembly, delivery and operations support.
We
were incorporated under the laws of the State of New Jersey in April 1984 and began commercial operations in 1994. On April 23, 2007,
we reincorporated in Delaware.
Our
Solutions
Data
as a Service
Our
DaaS solution is at the forefront of our strategic goal to be a leader in offshore data collection, integration, analytics and real time
communication for a variety of important applications. For example, our solutions can track surface vessel movement for maritime border
enforcement and illegal fishing interdiction, provide security for offshore wind farms and oil and gas fields, and provide harbor or
port security as well as logistics support. We have the ability to support aquaculture and gather information on ocean currents, water
quality, wind and other weather metrics, provide photography, and map shorelines or subsurface bathymetry, objects and activity. We also
offer 24/7 monitoring solutions that can provide meaningful real time information, and long-term data collection and analytics for sophisticated
applications across many industries and scientific applications. Additionally, the stability of our WAM-V® platform makes it an ideal
solution to produce high quality sonar data in many sea conditions for subsea surveys. WAM-V’s® can also be outfitted with
various equipment for the performance of marine infrastructure surveys, berth clearance surveys, dredging surveys, and mining pit surveys.
In
October 2020, the Company launched its DaaS offering in support of the U.S. Navy’s Naval Postgraduate School’s (“NPS”)
Field Experimentation (formerly Sea, Land, Air, Military Research Initiative). In February 2024, the Company received additional funding
from the Naval Postgraduate School for the year-long deployment of a PowerBuoy® in Monterey Bay. The PowerBuoy®, integrating
our MDAS along with cutting-edge Satellite communication and AT&T 5G technology, will demonstrate its persistent surveillance and
communications capacities in a maritime environment. This deployment marks a significant milestone in maritime technology, showcasing
the potential of standalone at-sea infrastructure nodes to support diverse operational needs. We have further expanded our DaaS offering
through field demonstration such as ANTX Coastal Trident 2022, as well as the Naval Task Force 59 for the Digital Horizon field exercise
and the International Maritime Exercise (IMX) in Bahrain. Additional DaaS contracts include Sulmara for survey services with our WAM-V®
platform and Phase I funding through National Oceanic and Atmospheric Administration’s (NOAA) Small Business Innovation Research
(SBIR) program.
In
September 2023, the Company received an award of three separate Indefinite Delivery Indefinite Quantity (IDIQ) Multiple-Award Contracts
(MAC) from NOAA. NOAA has selected OPT as one of several Multiple Award IDIQ contract holders to provide Uncrewed Maritime Systems (UMS)
Services to NOAA’s Office of Marine and Aviation Operations (OMAO), Uncrewed Systems Operation Center (UxSOC). Under these contracts,
OPT will bring its expertise to utilize cutting-edge UMS to support NOAA in conducting vital marine resource surveys
and research while also playing a pivotal role in enhancing NOAA’s meteorological and oceanographic observations, further advancing
our understanding of the natural world. Finally, OPT will collaborate with NOAA to explore and characterize the depths of our oceans,
contributing to the discovery and preservation of invaluable marine ecosystems.
Additionally,
the Company was awarded a contract to provide scientific hardware delivery, training, and integration services under a subcontract for
a U.S. government agency. This project seeks to identify and integrate sensors and systems and share data suitable for the full spectrum
of maritime operations. We will provide the required hardware, hardware deployment support, software, software deployment support, integration
services, surveillance and telemetry data, and associated training in support of a legacy PB3 PowerBuoy® equipped with our Maritime
Domain Awareness (MDA) solution. The project will be deployed in support of security efforts to detect illegal, unreported, and unregulated
(“IUU”) fishing, dark vessels, and human/drug trafficking in operation 24/7/365. As further discussed under “Commercial
Activities,” the Company was awarded a contract in support of foreign law enforcement partners. This collaboration aims to protect
vital marine species and combat illegal, unreported, and unregulated (IUU) fishing activities in critical habitats using our state-of-the-art
uncrewed technologies and demonstrates unprecedented, networked surveillance capabilities and evidence collection.
Maritime
Domain Awareness Solution
The
International Maritime Organization defines Maritime Domain Awareness as the effective understanding of any activity that could impact
the security, safety, economy, or environment related to and within our oceans and seas. Since 2002, the U.S. has had an active strategy
to secure the maritime domain, primarily through the U.S. Navy. Furthermore, in 2020 the U.S. Coast Guard elevated IUU fishing, one aspect
of MDA security, as the leading global maritime threat.
We
have designed our solution to provide detailed, localized maritime domain awareness that can be utilized for a wide range of applications
across market segments. Our MDAS base hardware consists of a high-definition radar, a stabilized high-definition optical and thermal
imaging camera, and a vessel Automatic Identification System (“AIS”) detection module. This hardware can be customized or
supplemented by other solutions, depending on the requirements of our customers. These devices can be mounted on our products, such as
our legacy PB3 and NextGen PB or WAM-V®, and then, utilizing integrated command and control software, data would be sent to us and
to our customers via secure communications channels. Multiple sensors can be used on a single unit based on the comprehensiveness of
the needs of our customers.
Our
MDAS processes data onboard our platforms (i.e., edge computing) and transmits the results to our cloud-based analytics platform via
secure Wi-Fi and cellular and satellite communications. We anticipate integrating our MDAS solution into our WAM-V’s® to
add mobile assets for patrols or interdiction and utilizing satellite communication to expand the availability of our data service.
Surveillance data can be integrated with third party marine monitoring software or with our own MDA software solution to provide
command and control features of a multi-platform surveillance network. As an example, one or more WAM-Vs® can be networked to
our self-powered buoy, which acts as a central data and communication hub. These WAM-Vs® can significantly increase the range of
our MDAS network solutions. The data can also be integrated with satellite, weather, bathymetric, and other third-party data feeds
to form a detailed surface and subsea picture of a monitored area. All vessel video, radar, and track data is securely stored in our
cloud, or the customer’s cloud environment and is accessible for as long as required by the customer for further analysis and
reference.
The
Company launched the first commercially ready MDAS on a test buoy off the coast of New Jersey in September 2021. The system includes
our proprietary integration of sensors, hardware and software, supported by cloud infrastructure as well as having a web-based user interface
that displays camera, radar, AIS and live chart data. During the first half of calendar 2024 we successfully demonstrated the system
multiple times for potential customers, including a showcase in San Diego Bay at the U.S. Navy’s Advanced Naval Technology Exercise,
and remote demonstrations using assets deployed off New Jersey for potential customers active in the Mediterranean, South America and
Middle East.
Autonomous
Vehicles
Our
Autonomous Vehicles business incorporates the patented WAM-V® technology, which enables roaming capabilities for unmanned maritime
systems in waters around the world. The first WAM-V® was launched in 2007 as a new vehicle class to deliver reliable autonomous surface
vehicles to customers that could provide robust, real-time data collection and reporting. Our Autonomous Vehicles business also provides
RaaS, allowing customers to lease WAM-V® robotics and access information from our WAM-Vs® while we maintain ownership and maintenance
and repair responsibilities. Today, WAM-Vs® operate in ten countries for commercial, military defense and scientific uses. Our WAM-Vs®
exist in three primary sizes of 8, 16, and 22 feet. However, many of the design components are common across the sizes, allowing for
integration of different payloads and adaptation of the payload platforms for larger equipment. All sizes can be adapted to suit electric
or liquid fuel propulsion methods.
The
WAM-V® product line highly complements the Company’s business strategy and can be used inshore, nearshore, and offshore. This
business continues to grow and is further expanding into core marine survey and maritime security markets in the Middle East, Europe,
Asia, Oceania and the Americas. We continue to find ways to integrate Autonomous Vehicles with the Company’s existing platforms
and service offerings and expect to take advantage of new synergistic opportunities as they arise. In addition, in connection with our
Merrows offering noted below, we are already integrating data streams relating to all aspects of, on, under, adjacent to, or bordering
on a sea, ocean, or other navigable waterway onto the WAM-V® to expand our offering to provide a roaming MDA solution to our customers.
Recent
Technological Advancements
In
August 2023 we successfully demonstrated a WAM-V attaching itself remotely to a buoy and establishing a connection that enabled charging.
This successful electrical connection that enabled charging represents a significant step forward in the integration of renewable energy
sources within the maritime industry and paves the way for a future where electrically propelled autonomous vessels can operate for extended
durations, opening doors to potential new applications within the maritime domain. We are continuing to advance the ability to remotely
charge our WAM-V® from our PowerBuoy® platforms, enabling persistent, resident and roaming capabilities.
The
Company continues to advance its efforts with the WAM-V® in the defense and national security industry. To that end, it has started
working with various U.S. Government agencies to provide its assets on a Contractor Owned Contractor Operated, Government Owned Government
Operated, and Government Owned Contractor Operated basis. These advances are being supported through the hiring of employees that are
U.S. citizens and the Company’s workforce is now approximately 25% veterans. As part of these efforts, the Company is also working
with other Unmanned Surface Vehicle (USV), Unmanned Aerial Vehicle (UAV), and Unmanned Underwater Vehicle (UUV) providers to support
autonomous swarming services for the defense industry.
In
April 2024 the Company announced Merrows, a projected significant step forward to enhance maritime domain awareness and underline
the critical importance of ocean security’s role in national security. Merrows is OPT’s groundbreaking consolidated
solution offering comprehensive ocean surveillance and involves the deployment of sophisticated Command, Control, Communications,
Computers, Cyber, Intelligence, Surveillance, and Reconnaissance systems. These systems are integrated within OPT’s roaming
technologies, such as the Wave Adaptive Modular Vessel, and resident technologies, like the PB, to offer an unparalleled level of
surveillance and data analysis capability. This initiative, which builds on OPT’s recently completed R&D efforts,
demonstrates the company’s commitment to safeguarding the world’s oceans through advanced technology and
innovation.
In
May 2024 the Company announced it is approaching 15MWh of renewable energy production from its family of PB.
The recent launch of its Next Generation PB off the coast of New Jersey has materially accelerated average energy production by combining
solar, wind, and wave energy production capabilities. The energy generation numbers are based on deployments in the Atlantic, Pacific,
Mediterranean, and North Sea. OPT has demonstrated and delivered use cases as a proven solution for Anti-Submarine Warfare, Intelligence,
Surveillance, and Reconnaissance, USV Charging, and Environmental Sensing. These numbers show
that non-grid connected marine energy production is not just for the R&D community but is a commercially available solution.
Robotics
as a Service
During
fiscal 2023 the Company introduced the subscription model for our customers to access our WAM-V’s®. Under this model we lease
our WAM-V’s to our customers over a fixed time period or provide a specified number of use days, typically with a guaranteed minimum.
This model provides a lower cost entry point for our customers to access our products, provides a try before buying opportunity, and
allows our customers increased access during periods of increased need. The Company expects to benefit from the growing RaaS trend, providing
greater visibility into predicting revenue and planning supply for demand, while providing our customers with flexibility and a lower
cost of entry.
Power
as a Service
PaaS
solutions deliver value to customers by utilizing our managed power platforms. We continue to commercialize our proprietary power platforms
that generate electricity primarily by harnessing the renewable energy of ocean waves. In addition to offering our commercial legacy
PB3, we have added solar power options to our next generation PowerBuoy® (the “NextGen PB”) and have the option of adding
small wind turbines to supplement power generation. The NextGen PB includes versions with and without a wave energy converter (WEC),
with the non-WEC version replacing our previous hybrid PB. Our focus for these solutions is on bringing autonomous clean power to our
customers wherever it is required. Moreover, offshore data and communications networks require power to function, and our solution solves
this need without requiring ongoing battery replacement or older technologies such as shore station power cables. Many of the lessons
learned from the deployments of both our legacy PB3 and demonstrator systems have been used to develop the next generation of PowerBuoy®
systems that are based on modularity for WEC and non-WEC applications. The legacy PB3 will continue to be available and supported in
addition to the support provided to the NextGen PB, which was fully commercialized during fiscal 2024.
Next
Generation PowerBuoy® (NextGen PB)
The
NextGen PB is our future platform that integrates the lessons learned from the legacy PB3 and our demonstrator systems. It consists of
two versions, one utilizing solar and wind power and one utilizing solar and wind power plus wave energy conversion capability, to provide
reliable power in remote offshore locations, regardless of ocean wave conditions. Both versions utilize the same spar shape, thus increasing
modularity and decreasing part count and costs. The WEC technology in the NextGen PB is based on our ongoing Mass on Spring Wave Energy
Converter (MOSWEC) development which has the advantages of smaller size, lower cost, environmentally sealed design, and increased energy
generation capability. The prototype of the solar and wind PowerBuoy® and the prototype of the MOSWEC PowerBuoys®
has been tested off the coast of New Jersey and the solar and wind system was used during the MDAS demonstration for ANTX during fiscal
2023.
We
believe this product addresses a broader spectrum of customer deployment needs, including low-wave and nearshore environments, with the
potential for greater product integration within each customer project. The NextGen PB is intended to provide a stable energy platform
for our MDAS solution, and for agile deployment of other intelligence gathering surface and subsea sensors, subsea power applications,
such as a surface communications hub for electric remotely operated vehicles (“eROV”) and autonomous underwater vehicles
used for mine counter measures, unexploded ordinance disposal, subsea acoustic monitoring, underwater inspections and short-term maintenance,
and subsea equipment monitoring and control. The design has a high payload capacity for surveillance and communications equipment, including
subsea acoustics, with the capability of being tethered to subsea payloads such as batteries, or with a conventional anchor mooring system.
Energy is stored in onboard lithium-ion batteries which can power subsea and topside payloads. The control system uses sensors and an
onboard computer to continuously monitor the subsystems. The NextGen PB is designed to be able to operate over a broad range of temperature
and ocean wave conditions. It has a 50kW-hour battery system which can be expanded up to 100 kW-hour energy.
Legacy
PB3 PowerBuoy®
The
legacy PB3 uses proprietary technologies that convert the hydrokinetic energy of ocean waves into electricity. The legacy PB3 generates
a nominal nameplate capacity rating of up to three kilowatts (“kW”) of peak power. Our Energy Storage System (“ESS”)
has a capacity of up to a nominal 150 kW-hours to meet specific application requirements.
The
legacy PB3 is designed to generate power for use independent of the power grid in offshore locations. As ocean waves pass the legacy
PB3, the rising and falling of the waves are converted into mechanical energy, which in turn, drives the electric generator. The power
electronics system then conditions the electrical output which is stored within the ESS.
The
operation of the legacy PB3 is controlled by our customized, proprietary control system. The control system uses sensors and an onboard
computer to continuously monitor the legacy PB3 subsystems. We believe that this ability to optimize and manage the electric power output
of the legacy PB3 is a significant advantage of our technology.
Strategic
Consulting Services
In
November 2023 OPT divested its non-core strategic consulting team so that it can more fully focus its efforts and resources on the commercialization
of its cutting-edge pipeline of products – particularly for the national security and defense markets. Going forward, the focus
of our Strategic Consulting Services will be on delivering value to our customers through services which can be integrated in support
of our broader PaaS, DaaS and/or RaaS solutions.
Strategy
and marketing
Our
strategy includes developing integrated solutions and services, including autonomous and cloud-based delivery systems for ocean intelligence,
ocean data and predictive analytics to provide actionable intelligence including our product offering Merrows. We also have a number
of resellers and strategic alliances, including partnerships recently entered into in the Middle East and USA to 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, data collection, and communications, either by supplying electric
power to payloads that are integrated directly with our products or located in its vicinity, such as on the surface, the seabed, or in
the water column. Our recent projects have been primarily focused on military and government applications.
Our
recent market analysis reveals evolving dynamics within the offshore MDA sector, notably influenced by the technological revolution that
enhances MDA capabilities through advanced, low-cost unmanned systems. This shift, highlighted by the National Plan to achieve MDA by
the Department of Homeland Security (“DHS”) and the Government Accountability Office (“GAO”) in their 2022 ‘Unmanned
Maritime Systems’ report on Maritime Security, is further exemplified by the U.S. Coast Guard’s March 2023 Unmanned System
Strategic Plan. This plan outlines a vision to effectively employ, defend against, and regulate unmanned systems in maritime operations,
underscoring the strategic importance of collaborative international efforts in maritime security. The U.S. is actively encouraging Pacific
allies to bolster their maritime surveillance capabilities to counteract regional coercive behaviors, reflecting a broader trend towards
democratizing technology to enhance global maritime safety, security, and prosperity. This aligns with our company’s positioning,
as our products are well-suited to enable the Coast Guard and other maritime bodies to achieve their mission-critical capabilities in
surveillance, detection, classification, identification, and prosecution, which are essential for executing statutory missions. Moreover,
large defense contractors’ increasing interest in the “ocean data collection” space, through acquisition of small and
mid-size unmanned and autonomous surface vehicle companies, signifies a growing market and application opportunities for our unmanned
system offerings. Within the United States, our MDAS deployed on NextGen PB can also be deployed domestically, enhancing our market size.
Unmanned
systems are increasingly in demand by defense and security and commercial companies to reduce costs and improve safety in offshore operations.
Also, geopolitical developments such as conflict in the Middle East and Eastern Europe demonstrate the need for countries to protect
their borders. In addition, the need to protect exclusive economic zones from illegal fishing activities and protect natural resources
on the seabed are accelerating the adoption of solutions or technologies that collect, transmit, and synthesize data to provide actionable
intelligence and decision-advantage to clients. Our recent operations in Bahrain and in the Asia Pacific region show the broadening geographic
opportunity for our services, especially in the defense and security markets. This includes support for other unmanned assets, such as
aerial drones, deployment of underwater vehicles, that can then communicate via PowerBuoy® deployed communication links,
and as a deployment platform for secure communication networks.
We
are focused on serving defense and security organizations, while also targeting offshore wind, science and research, and ports and harbors.
Our pipeline continues to grow and comprises primarily participants in defense and security markets. In addition, we continue to see
a growing number of commercial opportunities as we witness growing interest from offshore wind companies for autonomous monitoring, surveillance
and survey-related services during various stages of the project development cycle, including initial permitting that can reduce risk
in permit obtainment and legal challenge. Further, we are attracting interest targeted toward subsea applications, using proprietary
sensor payloads for environmental monitoring and subsea intelligence. We believe that our buoys and WAM-Vs® are uniquely able to
deliver these services either as a standalone solution or in combination with other systems. Furthermore, we are becoming a trusted provider
of solutions for the hydrography survey market, especially for shallow water operations.
Competitive
Advantages
We
continue to commercialize our current and future products and solutions by targeting customers in our principal markets (defense and
security, offshore oil and gas, science and research, and offshore wind, as well as government applications in border protection, fishery
protection and marine protected areas) that require resident, semi-resident, or roaming platforms. Our platforms provide stable and reliable
power sources in nearshore and remote maritime locations for short and long-term deployments. We believe that our solutions and our existing
commercial relationships provide the following competitive advantages in our target markets:
● | Numerous
applications within multiple major market segments. We have designed our solutions to
have multiple maritime applications that can be used globally by customers. Our WAM-V®
autonomous vehicles are designed for nearshore and offshore deployments as fully or
semi-autonomous systems and can operate in force multiplier mode. Our vehicles can support
customized subsea and surface payloads, including other remotely operated or autonomous systems
such as aerial drones and ROVs. Multiple applications exist in the hydrographic survey market,
across a range of industries including offshore wind and oceanographic monitoring. Our legacy
PB3 was designed for longer-term deployment in moderate to high ocean wave locations. Our
NextGen PB is a replacement for the legacy PB3 with added capabilities at a lower cost, as
it can also address shorter term deployments as well as meet the needs of customers with
projects in low sea state locations. Our subsea battery enables persistent power to be delivered
from the seabed to support autonomous, all-electric subsea operations. Together, all these
products can be integrated to provide customized power solutions for our customers. Our PowerBuoy®
platforms can also act as persistent or short term self-powered solution platforms
for payloads, such as our MDA package, which can provide real-time perimeter security, vessel
tracking and area surveillance for government defense, fishery protection, and offshore energy
applications. |
● | Considerable
life-cycle cost savings over current solutions for many applications. Our PowerBuoy®
platforms are designed to operate over extended intervals between required maintenance activities.
We believe that our PowerBuoys® will reduce costs over multi-year operations. These cost
savings are mostly due to reduced vessel and personnel servicing activities. For short and
long term deployments, our NextGen PB is a cost-efficient means of providing MDA and subsea
power solutions. Our subsea battery can provide power to seafloor systems when combined with
a PowerBuoy® for power regeneration, thus reducing or, in some cases, eliminating the
need for manned vessels to replace or recharge expended subsea batteries during mission life.
Our WAM-V® vehicles displace carbon and capital-intensive manned vessels,
enabling savings to be realized even during short term deployments. For shorter term deployments
and in nearshore waters, the WAM-V® might replace the need for a manned vessel entirely.
For long term deployments and in offshore waters, the WAM-V® enables material reductions
in costs and carbon emissions from traditional large survey vessels. |
| |
● | Real-time
data communications. Our systems can be equipped with a variety of communications equipment,
such as 5G, 4G LTE, satellite, VHF, and Wi-Fi, which enables the transmission of data on
a frequent or continuous basis. We believe that more frequent data communication could enable
an end-user to more quickly and proactively make data-driven decisions which could result
in economic advantages. Real-time data communications are an essential component of our WAM-V®
operations and our MDAS payload, allowing persistent autonomous remote monitoring of
marine traffic. |
| |
● | Modular
and scalable designs. Our WAM-Vs® exist in three primary sizes of 8, 16, and 22 feet,
and many of the design components are common across the sizes, allowing for integration of
different payloads and adaptation of the payload platforms for larger equipment. All sizes
can be adapted to suit different propulsion methods. In addition, the portability of the
WAM-V allows for quick relocation of the entire system by air, sea or ground. Our PowerBuoy®
platforms are designed with a modular energy storage system which allows us to tailor its
configuration to specific application requirements, including expansion of energy storage
capacity, potentially allowing for a more customized solution and potential cost savings
for our customers. We believe that the modular design of our subsea battery enables clients
to specify larger energy storage than would be possible with just buoys and have this placed
at the seabed and near existing electric subsea equipment. |
| |
● | Integrated
Designs. All our products are designed to operate with each other in mesh or array setups.
Our Merrows suite of solutions enables integration of data streams and supports machine learning
and artificial intelligence model development. We are also commercializing our existing MDA
payload to operate on WAM-Vs® and believe that future integration of docking
and charging stations for WAM-Vs® into our PowerBuoys® will
provide additional solutions for our customers. These stations will enable our WAM-Vs to
charge up using our renewable power generators thus materially increase autonomous mission
duration. The stations will also enable enhanced maritime domain awareness capabilities.
We have also designed our systems to work with other assets being provided into larger projects
and programs. |
| |
● | Flexible
electrical, mechanical and communication interfaces for sensors. The WAM-V®
and PowerBuoy® platforms can be equipped with payloads, either mounted
on or within the platforms, or tethered to the platforms. The PowerBuoys® have mechanical
and electrical interfaces which allow for simplified integration of payloads, creating flexibility
for the end-user. The stable platforms of the WAM-Vs® allow for a broad range
of subsea and surface sensors and assets to be integrated. Flexible interfaces reduce cost
through simplified integration and deployment. |
● | Reduced
carbon emission, environmentally benign system design. Our PowerBuoys® emit no carbon
during operation. We further believe that our PowerBuoys® do not present significant
risks to marine life, nor do they emit pollutants, and therefore have minimal environmental
impact. Our electric WAM-Vs® primary source of energy is from batteries, thus
enabling zero emission operations. WAM-Vs® have been demonstrated as suitable
for sensitive marine area operations due to their shallow draft and zero emission profile. |
| |
● | Ocean
and factory-tested technology. We have deployed more than 80 WAM-Vs® to
date across the world for commercial customers and government agencies. Our WAM-Vs®
are designed to operate in a broad range of oceanic conditions and regions. In the
field maintenance is designed into the WAM-Vs®. Our legacy PB3 and Next Generation
PowerBuoy® are designed to be durable, with a three-year interval between
required maintenance activities. The legacy PB3 has maintained operational performance through
hurricanes, tropical storms and North Sea winter storms and has been successfully deployed
for several clients. The Company maintains access to ocean testing through the use of three
permitted test sites in New Jersey that allow us to perform water testing of new PowerBuoy®
products and payloads. The subsea battery has been pressure-tested to its design depth at
the Deep Ocean Test Facility in Annapolis, Maryland. We sea trial every WAM-V either in the
Bay Area or near our New Jersey locations prior to customer delivery and acceptance. Further,
we continue to focus on standardizing manufacturing and production testing procedures and
work closely with our supply base to ensure production repeatability. |
| |
● | Prior
commercial relationships enabled the development of our technology. Our prior and existing
relationships with a broad range of government agencies, including, inter alia, the U.S.
Navy, U.S. Department of Energy (“DOE”), U.S. DHS, and NOAA, and our prior and
existing relationships with commercial entities have allowed us to further develop our solutions
for a variety of needs in various industries. We believe these relationships have helped
position us within the public and private sectors for future commercial opportunities, which
enhance our market visibility and attractiveness to our prospective customers. |
| |
● | Access
to domestic supply chain. Our strategy is to utilize domestic supply chain sources, which
are generally available, to improve operations and collaboration with our supply partners.
We believe this strategy reduces some of our exposure to global sourcing and supply chain
uncertainties. |
Our
Target Markets
The
Company takes a rigorous approach to market evaluation. Utilizing our deep internal industry knowledge as well as publicly available
and purchased data, we evaluate total addressable market sizes. We apply screening criteria to narrow our focus within these markets
and identify sub-segments and associated service addressable market sizes. These market evaluations are updated on an ongoing basis.
The DOE has identified eight non-grid applications where renewable marine energy could provide consistent, reliable power. The identified
marine energy applications are ocean observation, underwater vehicle charging, marine aquaculture, marine algae, seawater mining, seawater
desalination, coastal resiliency and disaster recovery, and isolated communities. We have been focused on addressing the energy needs
of some of these applications (e.g., ocean observation, underwater vehicle charging), and other offshore applications (e.g., maritime
domain awareness, well monitoring and powering subsea equipment control systems).
Defense
and Security
Our
MDAS provides the ideal understanding of the global maritime domain impacting the defense and security markets by generating actionable
intelligence from the sea. This modular, standalone solution can be deployed across multiple platforms and provides remote, autonomous
monitoring that enables enforcement of maritime law in dangerous and remote ocean environments to improve safety at sea. Applications
include port security, maritime border protection, and IUU fishing protection, among others. Using an integrated suite of monitoring
components and data communications and analysis software, our MDAS can enable 24/7, real-time, unmanned offshore monitoring capabilities.
We
believe that our buoys are uniquely positioned to be used to provide power and communications for multiple applications within the defense
and security markets. The ability of the buoys to power multiple payloads may be an attractive feature for these markets, as their systems
can be easily integrated into other PowerBuoy® applications allowing their operation to be concealed. One example of an application
for domestic and international defense departments and defense contractors includes forward deployed energy and communications outposts
(which is a current U.S. Department of Defense program), both above and below sea surface. Buoys enabled with our MDAS provide actionable
intelligence from 24/7/365 radar and AIS vessel tracking (including “dark vessels”), automatic notifications and vessel warnings,
real-time visual and Infra-Red video surveillance, with an integrated command and control user interface. Other examples of such applications
include perimeter security, early detection and warning systems, remote sensing stations, high frequency radar, sonar, electro-optical
and infrared sensors for maritime security, network communications systems, and unmanned underwater vehicle docking stations.
In
addition, our WAM-V® is an ideal platform servicing multiple applications within the defense and security markets,
including high value asset protection, marine domain awareness, security perimeter, mine counter measures and explosive ordinance
disposal, anti-submarine warfare, and border security. Multiple WAM-V’s® can also autonomously work together to
provide a security perimeter and coordinate to intercept suspicious vessels and provide valuable information before the threat gets
near the protected asset. The portability of the WAM-V® provides quick relocation of the entire system by air, sea or
ground and the scalability of the WAM-V® technology means that a common platform can be used for multiple missions
with varying requirements. Our platforms and systems are designed to be operated in compliance with our customers’ and our
internal cybersecurity standards and integrate with our customers’ command and control systems (“C2”).
Additionally, we actively manage cybersecurity at the corporate level. by taking ongoing steps to protect data and systems from
cyber threats. This continuous cycle of identifying risks, implementing safeguards, monitoring for attacks, and adapting to new
threats reduces the risk of a cyberattack and the potential damage it can cause.
IUU
fishing has become a global issue with both environmental and economic consequences. According to a report published in Science Advances
by the American Association for the Advancement of Science, it is estimated the global economic impact from illegal fishing to be as
high as $50 billion. Most exclusive economic zone monitoring is done by offshore patrol vessels (“OPV”), which is one of
the fastest growing naval product markets. We believe that our autonomous MDAS solution, which can be combined with mobile assets such
as our WAM-V® or satellite imagery, can deliver substantial economic impact to governments over incumbent solutions in securing remote
fisheries and MPAs. In the U.S. specifically, IUU fishing is considered a major maritime threat by the DHS.
Offshore
Oil and Gas
We
believe the offshore oil and gas industry is undergoing a significant transformation as it continues to invest in new technologies that
enable carbon reduction, cost savings, and the electrification and digitization of operations. There are over 10,000 offshore oil and
gas platforms worldwide, including exploration, production, reservoir management, and sites pending decommissioning based on information
from organizations such as the U.S. Bureau of Ocean Energy Management (“BOEM”) and industry organizations and publications.
Driven by the growing demand for electrification, we believe that we have opportunities to implement one or more buoys at some of these
sites to displace current power solutions, or augment existing technologies. Customer feedback obtained through engineering studies with
multiple oil and gas customers has helped identify target applications for our buoys – namely, temporary power and control communications
for subsea fields experiencing umbilical degradation and subsea docking stations for future resident ROV/AUV applications for inspection,
maintenance, and repair. The market for remote and autonomous charging of subsea assets, such as ROVs and AUVs, is rapidly taking shape.
Based on various reports, other applications in the oil and gas market include providing power to unmanned platforms and area surveillance
during decommissioning activities. Although estimates vary in these reports, they generally point towards more than 2,000 platforms (and
corresponding wells) that need to be decommissioned over the next 10 years across the globe. We see this market materializing primarily
in the North Sea and regions such as Brazil and Australia. Furthermore, there is an increasing market demand for providing interim power
and control solutions for tiebacks where control and monitoring umbilicals are exhibiting failures. In addition, we believe the survey
capability afforded by our WAM-V’s® is perfectly suited to serve a broad range of survey needs of the oil and gas industry
often required for permit obtainment. WAM-V® stability produces excellent sonar data quality in higher sea conditions than comparably
sized vessels and can be used as a force multiplier to existing manned assets or as the sole deployment tool. WAM-V’s® can
be outfitted with various sonar solutions depending on requirements and identify any underwater obstacles or hazards.
Marine
Charting
Since
2019, WAM-Vs® have been used in support of nautical charting efforts for NOAA-backed projects in the Great Lakes and Western Alaska.
WAM-V’s® are teamed up with manned assets to provide enhanced capability, improving the project’s production efficiency
and lowering the carbon footprint, when compared to a manned asset.
Science
and Research
The
science and research market provides environmental intelligence to the entire ocean enterprise, which supports ocean measurement, observation
and forecasting, and is an important provider of information to maritime commerce and the entire “blue economy.” Maritime
commerce and the scientific community depend on information in areas such as meteorology, climate change, ocean currents, and biological
processes to inform operations and development. These groups often require a power and communications solution in remote offshore locations.
Additionally, the increased interest in protecting marine habitats offers opportunities to collaborate with governments and NGOs to monitor
marine sanctuaries.
Offshore
Wind and Other Markets
Opportunities
also exist in other markets such as supporting offshore wind farm development and aquaculture. According to the U.S. Department of Energy’s
2023 Offshore Wind Market Report, the U.S. offshore wind energy pipeline has reached 52,687 megawatts (MW) as of May 2023, including
projects at various stages from installed to those in permitting. Investment in the offshore wind sector is accelerating. In 2022, approximately
$2.7 billion was invested in infrastructure to support offshore wind projects, indicating a robust financial commitment to sustainable
energy solutions.
The
offshore wind fleet is forecast to grow 15-fold by 2040 and move further offshore with Europe alone connecting over 500 turbines in
2019. While these turbines develop significant power, there are opportunities pre-installation of the turbines to autonomously
collect ocean data during the early stages and monitor marine habitats during construction. There are also opportunities to support
ongoing survey work once wind farms are operational to mitigate carbon emissions and to provide communication stations for aerial
drones performing maintenance inspection tasks. Furthermore, the U.S. recently approved the permits for the first major utility
scale offshore wind farm. Providing wave power solutions to utility scale renewable developments offers an attractive proposition to
support renewable power and autonomous operations. Our solutions can support aquaculture development with systems such as species
escape tracking, effluent monitoring, and other water quality considerations.
Our
WAM-V’s® are currently used to perform sonar surveys that support the marine infrastructure required for offshore wind development
and installation. They can also assist during the planning and environmental permitting phase including metocean and environmental data
and mammal tracking. We can also protect operations through MDA to monitor operations and vessel traffic and motion data analysis for
predictive maintenance and safety.
We
also provide offshore engineering, consulting, and design services for offshore wind, drilling contractors, defense contractors, construction
yards, engineering firms, and oil and gas, wave energy, and marine construction and service companies including design review, forensic
investigation, and expert witness services.
Business
Strategy
During
the fiscal year ended April 30, 2024, we have continued to advance our marketing programs, products, and solutions (including Merrows
noted above). We have substantially completed our research and development efforts, thus positioning the Company to increase its focus
on delivering intelligent maritime solutions and services, particularly in the national security and defense markets. We intend to build
on these efforts by introducing additional processes and making investments in appropriate human capital, operations, and manufacturing
capabilities. In support of our focus on the national security and defense markets, we have developed a defense specific sales team,
including veterans from the U.S. Navy and Swedish Navy.
In
addition, on November 20, 2023, we retained Rear Admiral Victorino “Vic” G. Mercado (Retired) as a special advisor to the
Company’s Board of Directors. We are leveraging Vic’s experience, expertise, and networks as we build on our momentum in
providing intelligent maritime solutions to the U.S. Government and defense and security sectors, and carefully navigate the challenges
of securing access to and protecting highly sensitive and confidential information.
The
majority of the Company’s potential customers are in areas of defense and security, hydrographic survey, offshore wind, offshore
and coastal communication networks, and MDA, including mitigation of IUU fishing, where the end use may be both domestic and abroad.
Historically,
demonstration projects have been a requisite step towards broad solution deployment and revenue associated with specific applications
such as our New Jersey MDAS test array as part of our DaaS solution and to highlight these capabilities. Customers may want their own
dedicated demonstration depending on customer needs. During a typical demonstration project’s specification, negotiation and evaluation
period, we are often subject to the prospective customer’s vendor qualification process, which entails substantial due diligence
of the Company and its capabilities. Such demonstrations are often a required step prior to leasing and may include negotiation of standard
terms and conditions. Many proposals contain provisions which would provide the option to purchase or lease our PowerBuoy® or WAM-V®
product upon successful conclusion of the demonstration project. The Company maintains a fleet of WAM-Vs® dedicated to demonstrations
and has successfully demonstrated the capabilities of many of its solutions on its own or in customer-sponsored evaluation projects and
remains focused on further demonstrations to build customer awareness and confidence and to drive revenue.
The
Company is pursuing a long-term growth strategy to expand its market value proposition while growing the Company’s revenue base.
This strategy includes partnerships with leading companies and organizations in adjacent and complementary markets. We continue to refine
NextGen PB and WAM-V® products for use in offshore power, data acquisition, and real-time data communications applications, and to
achieve this goal, we are pursuing the following business objectives:
| ● | Provide
integrated turn-key solutions, purchases or leases. We believe our DaaS, RaaS and PaaS solutions,
together with our platforms, are well suited to enable unmanned, autonomous (non-grid connected)
offshore applications, such as intelligence, surveillance, and reconnaissance (ISR), mine
counter measure operations, topside and subsea surveillance and communications, surveying,
subsea equipment monitoring, early warning systems platform, subsea power and buffering,
and weather and climate data collection. We have investigated and realized market demand
for some of these solutions, and we intend to sell and/or lease our products to these markets
as part of these broader integrated solutions. Additionally, we intend to provide services
associated with our solution offerings such as paid engineering studies, value-added engineering,
maintenance, remote monitoring and diagnostics, application engineering, planning, training,
project management, and marine and logistics support required for our solution life cycle.
As our MDAS development continues, we expect that this will also include data and cloud services,
as well as Counter Unmanned Underwater Vehicle (“CUUV”) WAM-V ® capability.
CUUV represents emerging technologies designed to detect, track, and neutralize unmanned
underwater vehicles and is an important area of growth in ensuring maritime security. Recent
demonstrations successfully showcased the ability to detect multiple underwater threats,
including, singular and swarming micro–Autonomous Underwater Vehicles (“AUV”). |
| | |
| ● | Expand
customer system solution offerings through new complementary products that enable more cost-efficient
deployments that make shorter missions more feasible. We are continuously innovating new
solutions to deliver enhanced value to our customers, such as enhancing our MDAS and improving
our deployment platforms solutions, such as our PowerBuoys® and WAM-Vs®. We have
substantially completed development of our next generation PowerBuoy® that incorporates
wave, wind, and solar power generation capabilities in a robust yet cost effective system
that supports shorter term missions as well as the ability to operate in near shore and low
wave environments. This effort was partially funded by the DOE SBIR Phase II award. In addition,
we have integrated PowerBuoy® and WAM-V® capabilities, including WAM-V® recharging
from a PowerBuoy®, with future plans to integrate MDAS capabilities into our WAM-Vs®,
thus extending our reach and providing both fixed and mobile MDAS offerings to our customers. |
| ● | Focus
WAM-Vs® on the defense and security, hydrographic survey, and surveillance industries.
We are well positioned to capitalize on the growing demand for unmanned surface vehicles
to provide maritime safety, security, and awareness of what is happening in the maritime
domain, including surveillance, detection, classification, and identification. The ability
of our WAM-Vs® to handle various payloads allows us to target navigation surveys, marine
infrastructure surveys, berth clearance surveys, dredging surveys, and mining pit surveys.
Near-term future markets for our WAM-Vs® include the use of WAM-Vs® for the launch
of aerial drones and underwater survey equipment. WAM-Vs® are easily and economically
shipped via land, air, or sea, and their modular design enables us to quickly reduce their
size for storage or shipment. The ability to disassemble a WAM-V® reduces the footprint
by as much as 75%, and as a result, a 20-foot container can hold four 16-foot WAM-Vs®.
In addition, our 8-foot WAM-V® can be checked as baggage on a standard commercial flight.
To integrate our solutions and add roaming as an option or enhancement to our MDAS, we are
advancing developments to further integrate MDAS into the WAM-V® platform and develop
additional autonomy capabilities. |
| | |
| ● | Focus
sales efforts on key global markets in the U.S., Middle East, Latin America, and Sub Saharan
Africa. These efforts are already yielding success as evidenced by the February 2024 orders
received from a Latin American customer for fully integrated WAM-V Unmanned Surface Vehicles
totaling over $1.25 million. While we are marketing our products and services globally, we
have focused on several key markets and applications, including U.S. and foreign defense
and security applications with our MDAS offering; and the hydrographic survey market with
regard to our WAM-Vs®. We believe that each of these areas has demand for our solutions,
sizable end market opportunities, and high levels of industrialization and economic development.
Our headquarters in Monroe Township, New Jersey and our office in Richmond, California enable
us to support the geographic diversity of our customers and strengthen our dialogue with
our solution partners located on both the east and west coasts of the U.S. |
| | |
| ● | Expand
our relationships in key market areas through strategic partnerships and collaborations.
We believe that strategic partners are an important part of expanding visibility to our products.
Partnerships and collaborations can be used to improve the development of overall integrated
solutions, create new market channels, expand commercial know-how and geographic footprint,
and bolster our product delivery capabilities. We have formed such a relationship with several
well-known groups, and we continue to seek other opportunities to collaborate with application
experts from within our selected markets. These partnerships have helped us source services,
such as installation expertise, and products, such as MDA enabling equipment, to meet our
development and customer obligations. We have been actively pursuing additional opportunities
to bring in-house skills, capabilities, and solutions that are complementary to our strategy
and enable us to scale more quickly. |
| | |
| ● | Partner
with fabrication, deployment and service contractors. In order to minimize our capital requirements
as we scale our business, we intend to optimize and utilize state of the art fabrication,
anchoring, mooring, cabling supply, and in some cases, deployment of our products and solutions.
We believe this domestically distributed manufacturing and assembly approach enables us to
focus on our core competencies and ensure a cost-effective product by leveraging a larger
more established supply base. We continue to seek strategic partnerships regarding servicing
of our products and solutions. |
| ● | Expand
survey and security market applications. Through our WAM-V® products, we can increase
our ability to lease vehicles specifically to support shoreline and offshore survey markets
as well as security applications while integrating MDA into these solutions. |
Marketing
and Sales
We
continue to enhance our marketing capabilities across our target markets, and we are actively marketing our products and solutions. During
fiscal 2024 we significantly streamlined our marketing and sales team to focus on the defense and security markets, both in the U.S.
and internationally, as well as expanded into global regions we believe offer the most opportunity for growth, such as Latin America.
We believe the addition of this deep industry knowledge positions us well for success in these markets in fiscal 2025 and beyond. Because
some of our solutions use technology that is not yet fully adopted by customers within our target markets in every case, we expect that
the customer decision process will continue to include substantial time educating end-users and stakeholders, which may result in the
continuation of a lengthy sales cycle.
One
of the primary ways we showcase our Company’s products, services and expertise is through demonstrations, conferences, and selective
use of trade shows. We utilize our database to select conferences and trade shows where we will have the most effective visibility to
our potential clients. During fiscal 2025, we have plans to continue to attend and present at various demonstrations, conferences, and
trade shows in the U.S., Europe, and the Middle East.
Additionally,
we seek to enter strategic relationships to develop application solutions with commercial and military sensor and equipment manufacturers.
Competition
We
expect to compete with other providers in the DaaS, RaaS, and PaaS industries. Our DaaS solution competes with other data acquisition
companies in a variety of industries, from sensor and measurement equipment providers to other providers of autonomous vehicles.
Our
PaaS solution competes with other offshore autonomous power sources, primarily consisting of subsea batteries, solar and fossil-fuel
power sources, where many of the providers are substantially larger than us and may have access to greater financial resources. Incumbent
sources of offshore power may also represent established and reliable power sources and may have already gained customer acceptance.
Our ability to compete successfully for business from applications seeking offshore power will depend on (a) our ability to produce and
store energy reliably and at a total cost that is competitive with or lower than that of other sources, and (b) the demonstrated reliability
of our products and positive customer perception of our company. We also may have the opportunity to cooperate with other solution providers,
such as other suppliers of subsea batteries where our PowerBuoys® could provide recharging capabilities or other providers of autonomous
surface or underwater vehicles where our PowerBuoys® could provide charging and enhanced communications capabilities.
The
vast majority of the companies in the DOE’s wave energy converter database are small, early-stage companies with a limited number
of employees that do not have our in-ocean validation experience. Only a few of these companies have conducted testing similar to ours,
such as accelerated life testing and extensive wave tank testing on small-scale models of their devices. We believe our in-ocean experience
is critical towards proving the reliability, survivability and performance of any wave energy system, which we believe our future customers
will require before adopting any wave generated energy solution. It is our belief that experience gained through full scale in-ocean
deployments, coupled with other types of factory and laboratory testing, and our resulting understanding of risks and failure modes provides
us with an advantage compared to potential wave energy competitors.
Competition
for the WAM-V® product line and RaaS solution includes companies which market solutions as ASVs and USVs. There are several
established competitors in this space, with the pace of new entrants increasing in-line with the expanding market opportunities. Through
our ongoing product development and building upon our years of commercial deployment data, we believe that we continue to maintain a
first mover advantage in the smaller scale autonomous offshore power market.
We
continuously monitor non-traditional competitive threats, such as multi-domain drones and artificial intelligence tools utilizing satellite
data. We have had discussions with companies in these markets to evaluate synergistic solution development where we believe there may
be a demand for cooperative solutions.
Commercial
Activities
As
noted above, we are now primarily focused on commercial activities. We have built a suite of products that we believe will be the basis
for our current and future commercial success resulting in meaningful progress in orders, pipeline, and backlog. 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. For the fiscal years ended April 30, 2024 and 2023, the Company had four and two customers whose
revenue accounted for at least 10% of the Company’s consolidated revenue, respectively. These revenues accounted for approximately
52% and 32% of the Company’s total revenue for the respective periods.
In
order to achieve success in ongoing commercialization efforts, we must expand our customer base and obtain commercial contracts to lease
or sell our solutions and services to customers. Our potential customer base for our solutions includes various public and private entities,
and agencies that require remote offshore power.
Current
and Recent Contracts
The
following contracts were entered into during fiscal 2024:
| ● | The
Company secured funding from the Naval Postgraduate School (NPS) in Monterey, California,
for the year-long deployment of a PowerBuoy® in Monterey Bay, California. The PowerBuoy®,
integrating MDAS along with cutting-edge Satellite communication and AT&T 5G technology,
will demonstrate its persistent surveillance and communications capacities in a maritime
environment. This deployment marks a significant milestone in maritime technology, showcasing
the potential of standalone at-sea infrastructure nodes to support the Joint Force’s
diverse operational needs. It aims to explore and exploit the value that such autonomous
at-sea infrastructure can provide, particularly in enhancing situational awareness and communication
capabilities for maritime operations. Furthermore, this deployment signifies the first installation
of AT&T cellular technology on one of our commercially proven ocean buoys. This advancement
is a testament to the ongoing collaboration between OPT and AT&T, which began with the
SLAMR initiative at NPS and has now evolved into a focused effort to enable AT&T’s
pioneering 5G At Sea initiative. |
| | |
| ● | The
Company received a volume order from Sulmara, a prominent player in offshore services, of
WAM-V 16 uncrewed surface vehicles, making this the largest single order of WAM-Vs to date.
The order, valued at $1.6 million, underscores our commitment to providing innovative and
sustainable solutions for the offshore industry. Due to demand, production is already underway
and will allow for revenue recognition in fiscal year 2025. |
| | |
| ● | The
Company received a contract in support of foreign law enforcement. This collaboration aims
to protect vital marine species and combat illegal, unreported, and unregulated fishing activities
in critical habitats using our state-of-the-art uncrewed technologies and demonstrates unprecedented,
networked surveillance capabilities and evidence collection, allowing authorities to gather
critical information and support legal actions while keeping personnel safely out of harm’s
way until the precise time and conditions favor interdiction efforts. |
| | |
| ● | The
Company received an award of three separate IDIQ Multiple-Award Contracts from NOAA. NOAA
has selected us as one of several Multiple Award IDIQ contract holders to provide Uncrewed
Maritime Systems Services to NOAA’s Office of Marine and Aviation Operations uncrewed
systems operation center. These contracts have the potential to result in millions of dollars
of revenue for us, and the ordering period is set to span three years, commencing on September
1, 2023, and concluding on August 31, 2026. |
| ● | The
Company received the largest quantity order in the Company’s history, marking a significant
commercial milestone. A valued customer engaged in the offshore energy service industry in
Latin America placed purchase orders for multiple WAM-V USV’s, representing a substantial
investment totaling over $1.6 million and highlighting OPT’s continued expansion in
the region. The WAM-V’s will be deployed in hydrographic applications and by utilizing
their adaptability and reliability will provide unrivaled versatile multi-application solutions.
This landmark order not only underscores the growing demand for OPT’s innovative solutions
but also solidifies the Company’s position as a leader in the marine robotics industry. |
Business
Relationships
We
believe that our solutions are best developed, sold, deployed, and maintained together with subject matter experts in their respective
fields. This enables the Company to protect, maintain, and evolve our various platforms and integrate them with surface and subsea payloads.
The Company has previously entered into business relationships focused on including, but not limited to, deployment and installations,
sourcing of surface payloads, and integration with autonomous vehicles. To augment our own internal software development team and further
develop the MDAS, we maintain ongoing strategic software and robotics partnerships with software companies. We believe the business relationships
with these software companies will further the development, alongside our internal technology resources, of our next-generation MDAS
product for the maritime industrial market and governmental defense and security organizations.
Our
third-party software companies are contributing to the Company’s MDAS by providing integration software, control software, autonomy
and systems integration for the buoy sensor payload. In addition, they are assisting the Company with designing and building a customized
data platform that supports the Company’s MDAS with sensor data feed management, secure communications management, a cloud-based
infrastructure, and web-based user interface. The platform was designed with a flexible architecture that allows the Company to integrate
new sensor technologies and third-party analytics capabilities and share MDAS data with customers and partners. We also keep in contact
with several offshore specialists and marine operations partners globally to support our deployment, maintenance, and recovery operations
and projects.
Backlog
As
of April 30, 2024, the Company’s backlog was $4.9 million. As of April 30, 2023, the backlog was $4.0 million. Our backlog only
includes unfilled firm orders for our products and services from commercial or governmental customers. If any of our contracts were to
be terminated, our backlog would be reduced by the expected value of the remaining terms of such contract.
The
amount of contract backlog is not necessarily indicative of future revenue because modifications to or terminations of present contracts
and production delays can provide additional revenue or reduce anticipated revenue. A substantial portion of our revenue is recognized
using the input method which measures completion over time of customer contracts, and changes in estimates from time to time may have
a significant effect on revenue and backlog. Our backlog is also typically subject to large variations from time to time due to the timing
of new awards.
Product and Solution Development
MDAS
Expanding
on our experience with our own initial prototype Marine Surveillance Solutions (“MSS”) system, we intend to continuously
look for ways to further enhance and develop the next generation MDAS, which will combine radar, marine AIS and camera data with a custom developed command
and control system to provide actionable information for our end users. We believe the sensor suite will be a combination of marine environment
tested off-the-shelf components selected to optimize performance and cost.
This
system could be utilized as a standalone node or in an array, which will provide near real-time information about the marine activity
within a customer’s area of interest.
Legacy
PB3 PowerBuoy®
We
now consider the legacy PB3 to be a mature system and all development activities ceased during fiscal 2024.
During
fiscal 2024, we completed the commercial development of our NextGen PB, which incorporates lessons learned and customer feedback
from various deployments of the legacy PB3, prototype buoys, and test buoys to optimize power generation through hybridization of
renewable energy sources and lower installed cost of the system. As the NextGen PB is now fully commercialized, we have begun to
de-emphasize next generation system fundamental research and development, instead focusing our efforts on ongoing product
development, including continuous improvement and life cycle management. Integration of WEC capabilities into the NextGen PB and
corresponding enhanced power generation capabilities is currently in the final development stages and expected to be completed in the fall of
2024.
WAM-V®
We
will continue to develop the capabilities of the WAM-V® 8, WAM-V® 16, and WAM-V® 22 variants for the marine survey and defense
& security markets. Control systems’ development will continue to provide additional features based on feedback from existing
customers as well as the experience gained from our RaaS offering. Additionally, we will continue to develop and enhance our obstacle
detection and obstacle avoidance capabilities, further advancing our progress towards the full Convention on the International Regulations
for Preventing Collisions at Sea (COLREGS) compliance (an international agreement that sets out the rules of the road for ships and other
vessels at sea). We also see a growing market for launch and recovery systems and are working to integrate such systems into our WAM-Vs®.
Adjacent
Capability Development
We
continue to work with our partners to develop and deploy integration of adjacent technologies, such as aerial drones and underwater vehicles,
into our products and solutions.
Intellectual
Property
We
believe that our experience differentiates us from other providers of DaaS, RaaS, PaaS, and WEC technologies. As a result, our success
depends in part on our ability to obtain and maintain protection of our proprietary products, technology and know-how, to operate without
infringing upon the rights of others, and to prevent others from infringing upon our rights. Our policy is to protect our position by,
among other methods, filing U.S. and foreign patent applications related to our patented technology, inventions and improvements that
are important to the development of our business. We also rely on trade secrets, know-how, and continuous technological innovation and
may rely on licensing opportunities to develop and maintain our competitive position.
As
of April 30, 2024, we have been issued 70 U.S. patents, of which 38 are active, 20 have expired and 12 were abandoned. Outside of the
U.S., we have been issued 280 patents across 25 countries with 26 of the active U.S. patents having at least one corresponding issued
foreign patent. Our patent portfolio includes patents and patent applications with claims directed to
| ● | System
design, including buoy, battery chargers, generators, power take off, printed circuit boards,
and WEC; |
| ● | WEC
control systems; |
| ● | Wave
power and thermal motor power conversion; |
| ● | Buoy
anchoring and mooring design and power cable connection; |
| ● | Wave
WEC farm architecture; |
| ● | Systems
and methods for vehicle charging; |
| ● | WAM-V®
technology; and |
| ● | Buoy
based cellular networks. |
The
expiration dates for our issued U.S. patents range from fiscal year ending 2024 to 2041. We do not consider any single patent or patent
application that we hold to be material to our business, although our ability to maintain and solidify our proprietary position for our
technology will depend on our success in continuing to obtain effective patent claims and enforcing those claims once granted relative
to the whole of our patent portfolio. In addition, certain technologies that we developed with U.S. federal government funding are subject
to certain government rights as described in “Risk Factors - Risks Related to Intellectual Property.”
We
use trademarks on nearly all our products and believe that having distinctive marks is an important factor in marketing our products.
We have registered our PowerBuoy®, PB-Vue ®, PowerTower ®, Making Waves in Power ®,
Talk on Water ®, and WAM-V® trademarks in the U.S. Trademark ownership is generally of indefinite duration
when marks are properly maintained in commercial use.
Regulation
Our
products are subject to regulation in the U.S. and in foreign jurisdictions concerning, among other areas, site approval, use restrictions,
and environmental approval and compliance. These regulations are adopted or updated on a regular basis, especially because our products
include cutting-edge technology that is often changing faster than the regulations can be adopted or amended. WAM-Vs® are subject
to a patchwork of rules and regulations in the U.S. and in foreign jurisdictions concerning the operation of autonomous and unmanned
surface vehicles. Often, rules and regulations specific to autonomous, unmanned, and/or unmanned surface vehicles do not exist or are
not explicitly defined. We advise our customers to always follow the rules and regulations as they apply in the jurisdiction in which
they are operating.
The
renewable energy industry has also been subject to increasing regulation. As both the renewable energy and wave energy industries continue
to evolve, we anticipate that wave energy technology and our PowerBuoys® and their deployment will be subject to increased oversight
and regulation in accordance with international, national and local regulations relating to safety, site approval, and environmental
protection.
Site
Approval. In the U.S., federal agencies regulate the siting of long-term renewable energy projects and related-uses located on the
outer continental shelf (“OCS”), which is generally more than three miles offshore. OCS projects longer than one-year in
duration are regulated by the U.S. Bureau of Ocean Energy Management (“BOEM”). For projects located within three miles of
the U.S. shore, regardless of duration, the adjacent state would be responsible for issuing a lease and other required authorizations
for the location of the project. Generally, the same process applies to foreign sites where site approval is contingent on meeting both
national and local regulatory and environmental requirements. In connection with issuing permits or leases enabling project use, the
respective government agency often requires site restoration or other activities at the conclusion of the permit or lease period.
Environmental
Approval, Compliance, and Health and Safety. We are subject to various foreign, federal, state and local environmental protection
and health and safety laws and regulations governing, among other things: the generation, storage, handling, use and transportation of
hazardous materials; the emission and discharge of hazardous materials into the ground, air or water; and the health and safety of our
employees.
Subsidies
and Incentives. Renewable energy subsidies and incentives are generally applicable only to electric generation and supply to the
utility grid. However, our autonomous applications may result in a reduction of carbon emissions, which our potential customers may be
able to publicize in their environmental stewardship reports upon our review and permission.
Manufacturing
Our
core in-house manufacturing activity includes the assembly, final systems integration and testing of our products and components, which
is conducted at our New Jersey headquarters and at our California facility.
Our
corporate headquarters and most of our manufacturing operations are located in Monroe Township, New Jersey. This facility offers approximately
56,000 square feet of manufacturing and office space and allows for expansion of our manufacturing capabilities and a move toward higher
volume production of our solutions. We believe our current manufacturing facilities are suitable, adequate and provide productive capacity
for the Company. In April 2023, we entered into a lease for a new facility in Richmond, CA, providing improved resources as well as surge
manufacturing and on water testing capability.
Human
Capital
The
Company believes that its future success is dependent in part on its continued ability to attract, hire and retain qualified personnel.
Therefore, investing in, developing and maintaining human capital is critical to our success. None of the Company’s employees are
covered by collective bargaining agreements. The Company is an equal opportunity employer, and as such, provides equal employment opportunities
to all employees and applicants for employment without regard to race, color, creed, ancestry, national origin, citizenship, sex or gender
(including pregnancy, childbirth, and pregnancy-related conditions), gender identity or expression (including transgender status), sexual
orientation, marital status, religion, age, disability, genetic information, service in the military, or any other characteristic protected
by applicable federal, state, or local laws and ordinances. On April 30, 2024, the Company had 43 full-time employees as compared to
72 at the end of fiscal 2023. The year over year decrease was partially the result of a decrease in headcount needed as a result of the
completion of Research and Development activities as well as cost cutting measures on our previously disclosed path to profitability.
The Company is committed to providing its employees with a healthy and safe work environment, which include policies to guide our efforts.
We take a proactive approach to the identification and control of environment, health and safety hazards and risks. We work to continuously
improve our Quality, Health, Safety, and Environment (“QHSE”) performance through methodologies that aim to prevent workplace
injuries and illness, emphasize quality production, and provide ongoing safety education to employees. On June 2, 2021, the Company achieved
ISO 45001 certification from Bureau Veritas (BV) for a 3-year term for its New Jersey location. On May 31, 2024 the Company again achieved
ISO 45001 certification from BV for another 3-year term for its New Jersey location. During fiscal 2025, we plan to expand this certification
to include our new Richmond, CA facility. ISO 45001 is an international occupation health and safety certification. We also recently
passed our annual external audit from BV related to this certification. The safety management system provides procedures to enhance our
safety profile and reduce incidents, so that all our employees go home safely every day. During fiscal 2023 the Company began work to
become ISO 9001 certified for all our locations and expects to obtain this certification during fiscal 2025. Our focus during fiscal
2025 will be on implementing stop work authority, identification of hazards and risks whether at sea or in the shop, identification of
lagging and leading indicators, and performance of quality investigations. Our long-term goal is to become a generative QHSE culture.
ESG
The
Company recognizes the importance of Environmental, Social and Governance (ESG) as essential elements to its success, delivering products
that help reduce our customers’ carbon emission and preserve our oceans’ natural resources. As such, our Board of Directors
has established an Environmental and Sustainability Committee (ES), which assists the Board of Directors in fulfilling its oversight
responsibilities by assessing the effectiveness of the Company’s programs and initiatives that support environmental stewardship,
social responsibility, and sustainability policies, programs, and practices of the Company. The Company is committed to delivering innovative
products and solutions while simultaneously working with high integrity, quality, a strong governance culture and respect for our employees,
customers, vendors and the people in the communities where we do business.
In
line with this commitment, the Company’s products and solutions support Sustainable Development Goal 14 (Goal 14 or SDG 14) which
aims to protect and ensure “life below water” and is one of the 17 Sustainable Development Goals established by the United
Nations in 2015. OPT’s products and services align with this goal by offering a means to mitigate IUU fishing, collecting ocean
data to support climate science, and removing carbon emitting energy sources from our oceans.
The
Company believes that consideration of ESG matters is important to how it, and its solutions and services affect the environments, communities
and societies in which it operates around the world. By adhering to international, national, and local customs, we believe we meet our
governance obligations from the environment to personnel to safety as well as an ability to enable responsible development. The Company
views itself as a responsible corporate citizen throughout the execution of its operations, as emphasized by its goal to provide low-carbon
power and data solutions for offshore industries, scientific research, and territorial security. It is the Company’s goal that
all products have a minimal environmental impact footprint compared to alternative solutions. This includes minimizing the emissions
for both our facilities and products, implementing and deploying a database to track our carbon savings, utilizing renewable energy to
power offshore data solutions, and providing products and solutions that monitor sensitive ecological areas.
Each
deployed legacy PB3 operating in place of fossil fuel-based power in PaaS applications can directly displace four tons of carbon annually,
or roughly the amount of carbon produced by two average automobiles. When combined with our MDAS for applications typically serviced
by a manned guard vessel powered by diesel fuel, this can indirectly displace more than 300 tons of carbon for every 10 vessel days replaced,
or the equivalent of removing more than 125 cars from the road. The WAM-Vs® are used in many applications, as described in previous
sections, with one of the most common being hydrographic surveys. WAM-Vs® can either replace a manned vessel for near shore surveys
or serve as a force multiplier to expand the range and speed of offshore surveys for a manned survey vessel. Each survey vessel day replaced
by a WAM-V® can displace over 14 tons of carbon. Over a full survey season, this could exceed 1300 tons of carbon displacement, the
equivalent of more than 500 cars worth of annual emissions.
During
fiscal 2023, the Company worked with the NJ Clean Energy Program to conduct an energy audit and benchmarking report to compare our
NJ facility’s energy usage to other commercial buildings in similar industries and provide recommendations to improve
efficiencies. The Company also performed an audit of the carbon footprint for all Company business travel. Carbon offsets were
purchased which exceeded the total carbon footprint of the annual NJ facility energy usage and Company wide business travel. In
parallel, the Company has initiated an environmental impact assessment on our products, starting with the legacy PB3, with a focus
on the potential of any environmental hazards of materials. Further data has been gathered around the legacy PB3 to determine the
risk to marine life associated with our batteries. For recent deployments, we received a permit from the US Army Corps of Engineers
and confirmation from the U.S. Department of Commerce National Oceanic and Atmospheric Administration that the PowerBuoy®
installation poses no material risk to marine life. Our batteries contain no toxic or rare earth metals and have a minimal risk of
fires or explosions. In the unlikely event that water comes into contract with live batteries, wireless remote operation allows for
the immediate discharge of energy to mitigate the risk of electrolysis that could create an explosive mixture of hydrogen and oxygen
within the buoy. Further research is being performed into hazardous materials and any other risks related to our WAM-V® product
line, including risk associated with the batteries we use in this product.
Available
Information
Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are made
available free of charge through the Investor Relations section of the Company’s website (www.oceanpowertechnologies.com) as soon
as practicable after such material is electronically filed with, or furnished to, the SEC. Material contained on our website is not incorporated
by reference in this report. Our executive offices are located at 28 Engelhard Drive, Suite B, Monroe Township, New Jersey, 08831, and
our telephone number is (609) 730-0400. Since June 2021, our common stock has traded on the NYSE American exchange under the symbol “OPTT”,
and previously, it traded on Nasdaq under the same symbol. The public may also read and copy any materials that we file with the Securities
and Exchange Commission (“SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
an Internet website that contains reports and other information regarding issuers that file electronically with the SEC located at http://www.sec.gov.
ITEM
1A. RISK FACTORS
You
should carefully consider the following risk factors together with the other information contained in this Annual Report, and in prior
periodic and current reports. If any of the following risks occur, they may materially harm our business and our financial condition
and results of operations. In this event, the market price of our common stock could decline, and your investment could be lost.
Risks
Related to Our Financial Condition
We
have a history of operating losses and may not achieve or maintain profitability and positive cash flow.
We
have incurred net losses since we began operations in 1994, including net losses of $27.5 million and $26.3 million in fiscal 2024 and
2023, respectively. As of April 30, 2024, we had an accumulated deficit of $307.6 million. Our losses to date have resulted primarily
from costs incurred in our research and development programs and from our selling, general and administrative costs. As we continue to
develop our proprietary technologies, we expect to continue to have a net loss and use of cash from operating activities unless or until
we achieve positive cash flow from the commercialization of our products and services.
We
do not know whether we will be able to successfully commercialize our products and services or whether we can achieve profitability.
There is significant uncertainty about our ability to successfully commercialize our products in our targeted markets. Even if we do
achieve commercialization of our products and services and become profitable, we may not be able to achieve or, if achieved, sustain
profitability on a quarterly or annual basis.
We
may not be able to raise sufficient capital to continue to operate our business.
Historically,
we have funded our business operations through sales of equity securities. We have raised approximately $0.5 million during fiscal 2024,
and had an unrestricted cash balance of $3.2 million as of April 30, 2024. We do not know whether we will be able to secure additional
funding if needed in the future or, if secured, whether the terms will be favorable to us or our investors. Our ability to obtain additional
funding will be subject to several factors, including market conditions, our operating performance, litigation and investor sentiment.
These factors may make additional funding unavailable, or the timing, dollar amount, and terms and conditions of additional funding unattractive.
If
we issue additional securities to raise capital, our existing shareholders could experience dilution or may be subordinated to any rights,
preferences or privileges granted to the new security holders. Any new securities issued could have rights senior to those associated
with our common stock and could contain covenants that could restrict our operations. Should the financing we require to sustain our
working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition
and prospects could be materially and adversely affected.
There
are doubts about our ability to continue as a going concern.
Our
current cash balance may not be sufficient to fund our planned expenditures through twelve months from the filing date of this Form
10-K. These conditions raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going
concern is dependent upon our operations in the future and/or obtaining the necessary financing to meet our obligations and repay
our liabilities arising from normal business operations when they become due. The accompanying consolidated financial statements
have been prepared on a basis which assumes we are a going concern and do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from
any uncertainty related to our ability to continue as a going concern. Such adjustments could be material. There can be no assurance
that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available
from external sources, such as debt or equity financings or other potential sources. The lack of additional capital resulting from
the inability to generate cash flow from operations, or to raise capital from external sources would have a material adverse effect
on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive
terms or that they will not have a significant dilutive effect on our existing stockholders.
Our
business could be affected by macroeconomic risks.
The
Company’s operations and performance depend significantly on global and regional economic conditions. Macroeconomic conditions,
including inflation, slower growth or recession, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment
and currency fluctuations can materially and adversely affect demand for the Company’s products and services. In addition, confidence
and spending can be materially adversely affected in response to financial market volatility, negative financial news, declines in income
or asset values, energy market dislocations and cost increases, labor and healthcare costs and other economic factors. An adverse impact
on demand for the Company’s products, uncertainty about, or a decline in, global or regional economic conditions can have a significant
impact on the Company’s suppliers and other partners. Potential effects include financial instability; inability to obtain credit
to finance operations and purchases of the Company’s products; and insolvency. We cannot predict the timing or scale of these various
macroeconomic conditions, but they could have a material adverse effect on our business, results of operations and financial condition.
Adverse
developments affecting the financial services industry, including events or concerns involving liquidity, defaults, or non-performance
by financial institutions, could adversely affect our business, financial condition, or results of operations.
We
currently maintain cash balances in accounts at U.S. financial institutions that we believe are high quality. These accounts are in non-interest-bearing
and interest-bearing operating accounts and may, from time to time, exceed the Federal Deposit Insurance Corporation (“FDIC”)
insurance limits. If such banking institutions were to fail, we could lose all or a portion of those amounts held more than such insurance
limitations. In addition, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect
financial institutions, our third-party vendors and counterparties or other companies in the financial services industry or the financial
services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in
the future lead to market-wide liquidity problems, which could adversely affect our business, financial condition, results of operations
and liquidity.
Although
we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements
in amounts adequate to finance or capitalize our respective current and projected future business operations could be significantly impaired
by factors that affect us, the financial institutions with which we have arrangements directly, or the financial services industry or
economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform
obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial
services industry or financial markets or concerns or negative expectations about the prospects for companies in the financial services
industry. These factors could involve financial institutions or financial services industry companies with which we have financial or
business relationships but could also include factors involving financial markets or the financial services industry generally.
In
addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing
terms, including higher interest rates or costs, and tighter financial and operating covenants, or systemic limitations on access to
credit and liquidity sources, thereby making it more difficult for us to acquire future financing or access to capital on acceptable
terms or at all. As the ability to access capital has historically been, and is expected to continue to be, one of our primary sources
of liquidity, any adverse impacts on our ability to access such credit and liquidity sources as a result of adverse developments affecting
the financial services industry could adversely affect our business, financial condition, results of operations.
Currency
translation and transaction risk may adversely affect our business, financial condition and results of operations.
Our
reporting currency is the U.S. dollar, however sometimes we incur costs in the local currency of countries in which our customers and
suppliers are located. As a result, we are subject to currency translation risk. A percentage of our revenue has historically been generated
outside the U.S. and can be denominated in foreign currencies of our customers. Changes in exchange rates between foreign currencies
and the U.S. dollar could affect our revenue and cost of revenue and could result in exchange losses. We cannot accurately predict the
impact of future exchange rate fluctuations on the results of our operations. Currently, we do not engage in any exchange rate hedging
activities and, as a result, any volatility in currency exchange rates may have an immediate adverse effect on our business, financial
condition and results of operations.
Risks
Related to Growth of Our Business
If
sufficient demand for our solutions and services or new products does not develop or takes longer to develop than we anticipate, our
revenue generation will be limited, and it is unlikely that we will be able to achieve and, if achieved, then sustain profitability.
Even
if wave energy and maritime domain awareness technology achieve broad commercial acceptance, our products, including our MDAS offering,
NextGen PB and Legacy PB and WAM-V® autonomous surface vessels may not prove to be commercially viable technologies. We
have invested a significant portion of our time and financial resources since our inception in the development of our PowerBuoys®
but have not yet achieved successful large scale or profitable commercialization of our PowerBuoys®. We have also added
the WAM-V® product line, but we have not achieved profitability with this product line. As we seek to manufacture, market,
sell and deploy our PowerBuoys® and WAM-Vs® in greater quantities, we may encounter unforeseen hurdles that would
limit the commercial viability of these products, including unanticipated manufacturing, deployment, operating, maintenance and other
costs. We may also encounter technical obstacles to deploying, operating and maintaining PowerBuoys®, WAM-Vs®, or
other products.
If
demand for our solutions and products fails to develop sufficiently, it is unlikely that we will be able to grow our business or generate
sufficient revenue.
In
addition, if we are not successful in commercializing our new solutions and products, or are significantly delayed in doing so, our business,
financial condition and results of operations will be adversely affected.
If
we are unable to attract and retain management and other qualified personnel, we may not be able to achieve our business objectives.
Our
success depends on the skills, experience and efforts of our management and other key product development, manufacturing, and sales and
marketing employees. We cannot be certain that we will be able to attract, retain and motivate such employees. The loss of the services
of one or more of these employees could have a material adverse effect on our business. There is a risk that we will not be able to retain
or replace these key employees. Implementation of our business plans will be highly dependent upon our ability to hire and retain senior
executives as well as talented staff in various fields of expertise.
Changes
in senior management are inherently disruptive, and efforts to implement any new strategic or operating goals may not succeed in the
absence of a long-term management team. Changes to strategic or operating goals stemming from the appointment of new executives may themselves
prove to be disruptive. Periods of transition in senior management leadership are often difficult as new executives gain detailed knowledge
of our operations. Cultural differences may also impact changes in strategy and style. Without consistent and experienced leadership,
customers, employees, suppliers, creditors, shareholders and others may lose confidence in us.
To
be successful, we need to attract and retain key personnel. Qualified individuals, including engineers, software developers, project
managers and sales leadership, are in high demand, and we may incur significant costs to attract and retain them. All our employees are
at-will employees, which means they can terminate their employment relationship with us at any time, and their knowledge of our business
and industry would be difficult to replace. If we lose key personnel, or do not hire or retain other personnel for key positions, this
could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Our
non-U.S. sales and operations are subject to risks inherent in conducting business outside the U.S., many of which are beyond our control
including:
●
political and social attitudes, laws, rules, regulations, and policies within countries that favor local companies over US companies,
including government-supported efforts to promote local competitors;
●
global trade issues and uncertainties with respect to trade policies, including tariffs, trade sanctions, and international trade disputes,
and the ability to obtain required import and export licenses;
●
differing legal systems and standards of trade which may not honor our intellectual property rights, and which may place us at a competitive
disadvantage;
●
pressures from foreign customers and foreign governments for us to increase our operations in the foreign country, which may necessitate
the sharing of sensitive information and intellectual property rights;
●
multiple conflicting and changing governmental laws and regulations, including varying labor laws and tax regulations;
●
reliance on various information systems and information technology to conduct our business, making us vulnerable to cyberattacks by third
parties or breaches due to employee error, misuse, or other causes, that could result in business disruptions, loss of or damage to our
intellectual property and confidential information (and that of our customers and other business partners), reputational harm, transaction
errors, processing inefficiencies, or other adverse consequences;
●
regional or global economic downturns or recessions, varying foreign government support, unstable political environments, and other changes
in foreign economic conditions;
●
the impact of public health epidemics, such as the COVID-19 pandemic, on employees, suppliers, customers and the global economy;
●
difficulties in managing a global enterprise, including staffing, managing distributors and representatives, and repatriating cash;
●
longer sales cycles and difficulties in collecting accounts receivable; and
●
different customs and ways of doing business.
To
date, our operations have not been materially adversely affected by global conflicts including Russia’s invasion of Ukraine, the
current Israel/Palestine conflict, or the recent attacks on merchant ships in the Red Sea. However, further escalation of these or other
conflicts could result in, among other negative consequences, a disruption to the global economy and supply chain leading to a shortage
of parts, materials and services needed to manufacture and timely deliver our products. Any such shortages could negatively impact our
suppliers’ ability to meet our demand requirements and, in turn, our ability to satisfy our customer demand. These challenges,
together with other challenges associated with operating an international business, may adversely affect our ability to recognize revenue
and our other operating results.
If
we are unable to effectively manage our growth, this could adversely affect our business and operations.
The
scope of our operations to date has been limited, and we do not have experience operating on the scale that we believe may be necessary
to achieve profitable operations. We added two acquisition over the last three fiscal years (one of which was subsequently divested in
November 2023), and now have operations in New Jersey and California, without significantly increasing our support staff. Our current
personnel, facilities, systems and internal procedures and controls may not be adequate to support our future growth plans, which we
expect to include organic growth as well as additional acquisitions and partnerships. This factor, when combined with the technical complexity
of some of our development efforts, may result in our inability to meet certain customer expectations or deadlines and could result in
an amendment to, or termination of, customer contracts or relationships. To realize our desired growth, we may need to add sales, marketing
and engineering offices in our existing and/or additional locations nationally or internationally, which may result in additional organizational
complexity and cost.
To
manage the expansion of our operations, we may be required to improve our operational and financial systems, procedures and controls,
increase our manufacturing capacity and expand, train and manage our employee base, which may need to increase significantly if we are
to be able to fulfill our current manufacturing and growth plans. Our management may also be required to maintain and expand our relationships
with customers, suppliers and other third parties, as well as attract new customers and suppliers. If we do not meet these challenges,
we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.
If
we are unable to successfully negotiate and enter into service contracts with our customers on terms that are acceptable to us, our ability
to diversify our revenue stream will be impaired.
An
important element of our business strategy is to enter into service contracts with our customers under which we would be paid fees for
services related to the maintenance and operation of our products purchased from us. In addition, we may offer to lease our products,
sell power generated by our products or sell data gathered by sensors on our products. Even if customers purchase or lease our products,
they may not enter into service contracts with us. We may not be able to negotiate services or other contracts that provide us with any
additional profit opportunities. Even if we successfully negotiate and enter into such service contracts, our customers may terminate
them prematurely, or they may not be profitable for a variety of reasons, including the presence of unforeseen hurdles or costs. In addition,
if we were unable to perform adequately under such service contracts, our efforts to successfully market our products could be impaired.
Any one of these outcomes could have an adverse effect on our business, financial condition and results of operations.
Actions
of activist shareholders could be disruptive and costly and the possibility that activist shareholders may gain representation on or
control of our board of directors could adversely affect our results of operations, financial condition, or share price.
While
we strive to maintain constructive communications with our stockholders, we have been, and may in the future be, subject to actions initiated
by activist shareholders, including without limitation three different lawsuits filed by Paragon Technologies, Inc. in Delaware. While
the Company has successfully defended against these lawsuits, these efforts resulted in significant expense and management distraction.
See below for further information regarding the Paragon lawsuits. Any activist campaign against OPT that contests, conflicts with, or
seeks to change, our board composition, leadership, strategic direction, or business mix could have an adverse effect on us because:
(i) responding to actions by activist shareholders could disrupt our operations, be costly or time-consuming, or divert the attention
of our board of directors and senior management from their regular duties, which could adversely affect our results of operations or
financial condition; (ii) perceived uncertainties, including as a result of possible changes to the composition of our board, as to our
future direction may lead to the perception of a change in the direction of the business or lack of continuity, any of which may be exploited
by our competitors, cause concern to our customers and/or employees and result in the loss of potential business opportunities, or make
it more difficult to attract and retain qualified personnel and business partners, and may affect our relationships with vendors, customers
and other third parties; (iii) these types of actions could cause significant fluctuations in our share price based on temporary or speculative
market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business; and (iv)
if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively implement
our business strategy and create additional value for our shareholders.
Failure
by third parties to supply or manufacture components of our products or to deploy our systems timely or properly could adversely affect
our business, financial condition, and results of operation.
We
have been, and expect to continue to be, highly dependent on third parties to supply or manufacture components for our products, including
for pre-fabrication elements. If, for any reason, our third-party manufacturers or vendors are not willing or able to provide us with
components or supplies in a timely fashion, or at all, our ability to manufacture and sell many of our products could be impaired. Specifically,
we have concerns about the delivery of semiconductors and specialty metals, which are necessary to produce our products, as well as our
ability to find vendors for pre-fabrication elements of our products. Other global supply chain issues have caused our vendors to delay
orders, or to request increased pricing that we may not always be able to pass on to our customers.
We
do not have long-term contracts with our third-party manufacturers or vendors. If we do not develop ongoing relationships with vendors
located in different regions, we may not be successful at controlling unit costs as our manufacturing volume increases. Additionally,
we may not be able to negotiate new arrangements with these third parties on acceptable terms, or at all.
In
addition, we rely on third parties, under our oversight, for the deployment and mooring for products. We have utilized several different
deployment methods, including towing our products to the deployment location and transporting our products to the deployment location
by barge or offshore workboat. If these third parties do not properly deploy our systems, cannot effectively deploy the products on a
large, commercial scale, or otherwise do not perform adequately, or if we fail to recruit and retain third parties to deploy our systems
in particular geographic areas, our business, financial condition, and results of operations could be adversely affected.
Our
targeted markets are competitive and highly complex. We compete against incumbent solutions already being utilized by our customers and
potential customers. If we are unable to compete effectively, we may be unable to increase our revenue and achieve or maintain profitability.
Our
principal targeted markets include defense and security, offshore oil and gas, science and research, marine charter, and offshore wind.
In our targeted markets, which are highly competitive, we compete against incumbent power and maritime domain awareness solutions already
being utilized by our customers and potential customers. If we are unable to demonstrate to our customers and our potential customers
that our products and services are competitive and reliable to alternative solutions, or if it takes us longer to do so than we anticipate,
we may be unable to expand our business, maintain our competitive position, satisfy our contractual obligations, continue to commercialize
our products, or become profitable. In addition, if the cost associated with these development efforts exceeds our projections, our results
of operations could be materially and adversely affected.
In
addition, competition may arise from other companies manufacturing similar products, developing different products that produce energy
more efficiently than our products, or developing autonomous vehicles that perform better or have other characteristics that customers
prefer, could make our products less attractive or render them obsolete. If we are not successful in manufacturing systems and solutions
required for the application, we may not be able to respond effectively to competitive pressures from competing technologies or improvements
to existing technologies. If we are unable to respond effectively to such competitive forces, our business, financial condition and results
of operations could be adversely affected. Our targeted markets are subject to their own inherent risks, and if those risks should materialize,
then our business, financial condition and results of operations could be adversely affected.
We
market and plan to market our services and products in multiple international regions. If we are unable to manage our international operations
effectively, our business, financial condition and results of operations could be adversely affected.
We
market and plan to market our services and products in multiple global regions, including parts of North and South America, Europe, Sub-Saharan
Africa, Middle East, and Asia, and we are therefore subject to risks associated with having international operations. Revenue from customers
who are based outside of the U.S. accounted for 4% of our revenue in fiscal 2024 and 12% of our revenue in fiscal 2023. Risks inherent
in international operations include, but are not limited to, the following:
● | changes
in general economic and political conditions in the countries in which we operate; |
| |
● | unexpected
adverse changes in foreign laws or regulatory requirements, including those with respect
to renewable energy, environmental protection, permitting, export duties and quotas; |
| |
● | trade
barriers such as export requirements, tariffs, taxes and other restrictions and expenses,
which could increase the prices of our products and make us less competitive in some countries; |
| |
● | fluctuations
in exchange rates that may affect demand for our products and may adversely affect our profitability
in U.S. dollars to the extent the price of our products and cost of raw materials and labor
are denominated in a foreign currency; |
| |
● | difficulty
with staffing and managing widespread operations, including managing the complexity of international
labor laws as we send staff and hire consultants to support our international deployments; |
| |
● | complexity
of, and costs relating to compliance with, the different commercial and legal requirements
of the overseas markets in which we offer and sell our products; |
| |
● | inability
to obtain, maintain or enforce intellectual property rights; and |
| |
● | difficulty
in enforcing agreements in foreign legal systems. |
Our
business in foreign markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a
global business depends, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions.
We may not be able to develop and implement policies and strategies that will be effective in each location where we do business, which
in turn could adversely affect our business, financial condition and results of operations. The current economic environment, particularly
the macroeconomic pressures in certain European countries, may increase these risks.
Failure
of our information systems or those of third parties or breaches of data security could cause significant harm to our business.
Our
systems and processes involve the storage and transmission of proprietary information and sensitive or confidential data, including personal
information of employees, and possibly customers and others. In addition, we rely on information systems controlled by third parties.
Information system failures, network disruptions, and system and data security breaches, manipulation, destruction, ransom, or leakage,
whether intentional or accidental, could impair our ability to provide services to our customers or otherwise harm our ability to conduct
our business. Any such failures, disruptions or breaches could also impede the development, manufacture or shipment of products, interrupt
or delay processing of transactions and reporting financial results, result in theft or misuse of our intellectual property or other
assets, or result in the unintentional disclosure of personal, proprietary, sensitive, or confidential information of employees, customers,
and others. Our development and use of our MDAS platforms, cloud-based offerings, as well as our evolution toward DaaS, PaaS and RaaS
models, require us to host increasing amounts of our own data as well as customer data, and increases the risk that our and our customers’
data and financial and proprietary information could be more susceptible to such failures and data breaches.
Cyber-security
breaches of our systems and information technology could adversely impact our ability to operate or meet contractual obligations.
We
utilize, develop, install and maintain a number of information technology systems. Various privacy and security laws require us to protect
sensitive and confidential information from disclosure. In addition, we are bound by our customers and other contracts, as well as our
own business practices, to protect confidential and proprietary information (whether it be ours or a third party’s information
entrusted to us) from disclosure. Our computer systems, as well as those of our customers, contractors and other vendors, face the threat
of unauthorized access, computer hackers, viruses, malicious code, cyber-attacks, phishing and other security incursions and system disruptions,
including attempts to improperly access our confidential and proprietary information, as well as the confidential and proprietary information
of our customers and other business partners. Industry-accepted security measures and technology to secure computer systems, and the
information stored by cloud vendors on these systems are subject to threats. For example, as we plan to receive projects from the U.S.
Department of Defense (“DoD”), we will have to meet their framework for establishing cyber security standards and best practices,
what they call Cybersecurity Maturity Model Certification at various levels as we grow our business with DoD. There can be no assurance
that our efforts will prevent these threats, or that we will be able to secure appropriate certifications in this area. Further, as these
security threats continue to evolve, we may be required to devote additional resources to protect, prevent, detect and respond against
such threats. A party who circumvents our security measures, or those of our customers, contractors or other vendors, could misappropriate
confidential or proprietary information, improperly manipulate data, or cause damage or interruptions to systems. If we are unable to
protect sensitive information, our customers or governmental authorities could question the adequacy of our security processes and procedures
and our compliance with applicable laws and regulations, including evolving government cyber security requirements for government contractors.
Any of these events could damage our reputation, result in litigation and regulatory fines and penalties, or have a material adverse
effect on our business, financial condition, results of operations or cash flows.
Our
ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes may be limited.
We
have federal net operating loss (“NOL”) carryforwards that are available to offset future taxable income. We may recognize
additional NOLs in the future. Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) imposes an annual
limitation on the amount of taxable income that may be offset by a corporation’s NOLs if the corporation experiences an “ownership
change” as defined in Section 382 of the Code. An ownership change occurs when our “five-percent shareholders” (as
defined in Section 382 of the Code) collectively increase their ownership in OPT by more than 50 percentage points (by value) over a
rolling three-year period. Additionally, various states have similar limitations on the use of state NOLs following an ownership change.
If
an ownership change occurs, the amount of the taxable income for any post-change year that may be offset by a pre-change loss is subject
to an annual limitation that is cumulative to the extent it is not all utilized in a year. This limitation is derived by multiplying
the fair market value of our stock as of the ownership change by the applicable federal long-term tax-exempt rate. To the extent that
a company has a net unrealized built-in gain at the time of an ownership change, which is realized or deemed recognized during the five-year
period following the ownership change, there is an increase in the annual limitation for each of the first five-years that is cumulative
to the extent it is not all utilized in a year. If an ownership change should occur in the future, our ability to use the NOL to offset
future taxable income will be subject to an annual limitation and will depend on the amount of taxable income generated by us in future
periods. There is no assurance that we will be able to fully utilize the NOL and we may be required to record an additional valuation
allowance related to the amount of the NOL that may not be realized, which could impact our results of operations.
As
noted, we believe that these NOL carryforwards are a valuable asset for us. Consequently, we have a Section 382 Tax Benefits Preservation
Plan in place, to protect our NOLs during the effective period of the rights plan. Although the Tax Benefits Preservation Plan is intended
to reduce the likelihood of an “ownership change” that could adversely affect us, there is no assurance that the restrictions
on transferability in the rights plan will prevent all transfers that could result in such an “ownership change”. The Tax
Benefits Preservation Plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring,
us or a large block of our common stock. A third party that acquires 4.9% or more of our common stock could suffer substantial dilution
of its ownership interest under the terms of the Tax Benefits Preservation Plan through the issuance of common stock or common stock
equivalents to all shareholders other than the acquiring person. The foregoing provisions may adversely affect the marketability of our
common stock by discouraging potential investors from acquiring our stock. In addition, these provisions could delay or frustrate the
removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, or impede an attempt
to acquire a significant or controlling interest in us, even if such events might be beneficial to us and our shareholders. Pursuant
to the terms of the Tax Benefits Preservation Plan, the Board of Directors has authority to grant an exception to the 4.9% ownership
threshold which could potentially limit the utilization of our NOLs.
Risks
Related to Product Development and Commercialization
We
have only manufactured a limited number of PowerBuoys®, and to date we have not produced these products in any significant quantity
for commercial production. These products do not have a sufficient operating history to accurately predict how they will perform over
their estimated useful life.
To
date, we have only manufactured a limited number of PowerBuoys®. As a result, our products may not have a sufficient operating history
to confirm how they will perform over their estimated useful life. Our technology may not yet have demonstrated that our engineering
and test results can be duplicated in volume or in commercial production. If our products are ultimately proven ineffective or unfeasible,
we may not be able to expand the commercial production of our products or we may become liable to our customers for quantities we are
obligated to produce but are unable to produce. If our products perform below expectations, we could lose customers and face substantial
repair and replacement expenses which could in turn adversely affect our business, financial condition and results of operations.
We
face the possibility of a range of potential accident and safety risks and hazards, including hazards associated with extreme weather,
wind and other environmental conditions, which are inherent in offshore operations.
Portions
of our operations are subject to hazards and risks inherent in the building, testing, deploying and maintenance of our products, particularly
offshore operations. These hazards and risks could result in personal injuries or loss of life. The unintentional release of a PowerBuoy®
product from its mooring, for example, due to extreme environmental conditions and damage caused by its drifting, and other damages which
may include damage to our properties, including our products, and the properties of others, or other consequential damages. Certain weather
events could increase in frequency or severity requiring potential design changes or limiting the windows available for offshore operations.
Our
autonomous vessels could cause other types of damage, including collisions with other vessels, property of others, or even swimmers or
other persons or property utilizing a body of water where the WAM-V® is operating. This could also lead to the suspension of certain
of our operations, large damage claims, damage to our safety reputation and a loss of business. Some of these risks may be uninsurable,
and some claims may exceed our insurance coverage. Therefore, the occurrence of a significant accident or other risk event or hazard
that is not fully covered by insurance could materially and adversely affect our business and financial results and, even if fully covered
by insurance, could materially and adversely affect our business due to the impact on our reputation for safety.
Our
relationships with our strategic partners may not be successful, and we may not be successful in establishing additional relationships,
either of which could adversely affect our ability to commercialize our products and services.
We
have a number of critical relationships with strategic partners, specifically our software development partners. Generally, these types
of relationships obligate a party to provide certain services or perform certain tasks in connection with the relationship with the alliance
partner, and we are generally responsible for paying the costs we incur relating to such services or tasks. These relationships generally
are not expected to provide us with any revenue or sources of financing. If we are unable to reach agreements with additional suitable
alliance partners, we may fail to meet our business objectives for the commercialization of our products. We may face significant competition
in seeking appropriate alliance partners. Moreover, these development agreements and strategic alliances are complex to negotiate and
time consuming to document. We may not be successful in our efforts to establish additional strategic relationships or other alternative
arrangements. The terms of any additional strategic relationships or other arrangements that we establish may not be favorable to us.
Furthermore, even if we can find, negotiate and enter these relationships, such arrangements may be conditional upon our receipt of additional
funding. There can be no assurance that we will receive such additional funding. In addition, strategic relationships may not be successful,
and we may be unable to sell and market our products to these companies, their affiliates and customers in the future, or growth opportunities
may not materialize.
We
have limited manufacturing, deployment and internal software development experience. If we are unable to increase our software development
and manufacturing capacity in a cost-effective manner, our business may be materially harmed.
We
manufacture key components of our products, while outsourcing the manufacturing for other components of our products. We have only manufactured
our products in limited quantities for use in development and testing and have limited commercial manufacturing and deployment experience,
and our work with our vendors has not included work on multiple orders on time-critical deadlines. Our future success depends on our
ability to significantly increase both our manufacturing capacity and production and service throughput in a cost-effective and efficient
manner, and to manage multiple vendors with several orders that have specific deadlines. In order to meet our growth objectives, we will
need to increase our engineering, contract management, and manufacturing staff. There is intense competition for hiring qualified technical
and engineering personnel. Therefore, we may not be able to hire a sufficient number of qualified personnel to allow us to meet our growth
objectives.
We
may be unable to develop efficient, low-cost manufacturing capabilities and processes that enable us to meet the quality, price, engineering,
design and production standards or production volumes necessary to successfully commercialize our products. If we cannot do so, we may
be unable to expand our business, satisfy our contractual obligations or become profitable. Even if we are successful in developing our
manufacturing capabilities and processes, we may not be able to do so in time to meet our commercialization schedule or satisfy the requirements
of our customers.
In
addition, historically we have outsourced the majority of our software development activities. We may be unable to hire appropriate outsourced
resources to enable us to meet the software development needs of our products and solutions. If we cannot do so, we may be unable to
expand our business and become profitable or do so in time to meet the needs of our customers.
Problems
with the quality or performance of our products would adversely affect our business, financial condition and results of operations.
Our
agreements with customers will generally include guarantees and warranties with respect to the quality and performance of our products.
Because of the limited operating history of our products, we have been required to make analytical assumptions regarding the durability,
reliability and performance of the systems, and we may not be able to predict whether and to what extent we may be required to perform
under the guarantees that we expect to give our customers. Our assumptions could prove to be materially different from the actual performance
of our products, causing us to incur substantial expense to repair or replace defective systems in the future. We could bear the risk
of claims long after we have sold our products and recognized revenue. Moreover, any widespread product failures could adversely affect
our business, financial condition and results of operations.
We
must continually improve existing services and products, design and sell new products and improve reliability in order to compete
effectively.
The
markets for our services and products are characterized by rapid technological change, evolving industry standards and continuous improvements
of products. Due to constant changes in our markets, our future success depends on our ability to develop new technologies, products,
processes and product applications. New product development and commercialization efforts, including efforts to enter markets or product
categories in which we have limited, or no prior experience, have inherent risks. These risks include the costs involved, such as development
and commercialization, product development or launch delays, and the failure of new products and line extensions to achieve anticipated
levels of market acceptance or growth in sales or operating income. We also face the risk that our competitors will introduce innovative
new products that compete with our products. If new product development and commercialization efforts are not successful, our financial
results could be adversely affected. Our financial condition and results of operations may be materially and adversely affected if:
● | Product
improvements are not completed on a timely basis; |
| |
● | New
products are not introduced on a timely basis or do not achieve sufficient market penetration;
or |
| |
● | New
products experience reliability or quality problems, or otherwise do not meet customer preferences
or requirements. |
Risks
Related to Intellectual Property
If
we are unable to obtain or maintain intellectual property rights relating to our technology and products, the commercial value of our
technology and products may be adversely affected, which could in turn adversely affect our business, financial condition and results
of operations.
Our
success and ability to compete depends in part upon our ability to obtain protection in the U.S. and other countries for our products
by establishing and maintaining intellectual property rights relating to or incorporated into our technology and products. We own a variety
of patents and patent applications in the U.S. and corresponding patents and patent applications in several foreign jurisdictions. However,
we have not obtained patent protection in each market in which we plan to compete. In addition, we do not know how successful we would
be should we choose to assert our patents against suspected infringement, and we do not know what the cost to do so would be. Our pending
and future patent applications may not be issue as patents or, if issued, may not be issued in a form that will be advantageous to us.
Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from
marketing similar products or limit the length of term of patent protection we may have for our products. Changes in either patent laws
or in interpretations of patent laws in the U.S. and other countries may diminish the value of our intellectual property or narrow the
scope of our patent protection, which could in turn adversely affect our business, financial condition and results of operations.
If
we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could
be adversely affected, which could in turn adversely affect our business, financial condition and results of operations.
In
addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how, particularly with respect to
our PowerBuoy® control and electricity generating systems and our WAM-V® systems. We generally seek to protect this
information in part by confidentiality agreements with our employees, consultants and third parties. These agreements may be breached,
and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently
developed by competitors.
Foreign
laws may not afford us sufficient protections for our intellectual property, and we may not be able to obtain patent protection outside
of the U.S.
Intellectual
property rights protection continues to present significant challenges to U.S. companies operating around the world. The body of law
is often relatively undeveloped compared to the commercial law in the U.S. and only limited protection of intellectual property may be
available in those jurisdictions. Although we have taken precautions to protect our intellectual property, any local design or manufacture
of products that we undertake in a foreign jurisdiction could subject us to an increased risk that unauthorized parties will be able
to copy or otherwise obtain or use our intellectual property, which could harm our business. We may also have limited legal recourse
in the event we encounter patent or trademark infringement. If we are unable to manage our intellectual property rights, our business
and operating results may be seriously harmed.
If
we infringe or are alleged to have infringed upon intellectual property rights of third parties, our business, financial condition and
results of operations could be adversely affected.
Our
products or use of our trademarks may infringe, or be claimed to infringe, upon patents, patent applications or trademarks under which
we do not hold licenses or other rights. Third parties may own or control these patents, patent applications or trademarks in the U.S.
and abroad. Third parties could bring claims against us that would cause us to incur substantial expenses and, if successfully asserted
against us, could cause us to pay substantial damages. Further, if a patent or trademark infringement suit were brought against us, we
could be forced to stop or delay manufacturing or sales of the product or component that is the subject of the suit.
As
a result of patent or trademark infringement claims, or in order to avoid potential claims, we may choose or be required to seek a license
from a third party and be required to pay license fees, royalties or both. These licenses may not be available on acceptable terms, or
at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could result in our competitors gaining access
to the same intellectual property. Ultimately, we could be forced to cease some aspect of our business operations if, as a result of
actual or threatened patent or trademark infringement claims, we are unable to enter into licenses on acceptable terms. This could significantly
and adversely affect our business, financial condition and results of operations.
In
addition to infringement claims against us, we may become a party to other types of patent or trademark litigation and other proceedings,
including proceedings declared by the U.S. Patent and Trademark Office and proceedings in the European Patent Office, regarding intellectual
property rights with respect to our products and technology. The cost to us of any patent or trademark litigation or other proceeding,
even if resolved in our favor, could be substantial. In addition, if we were to license our intellectual property to others, we may be
required to indemnify our licensee if the licensed intellectual property is found to be infringing on a third party’s rights. Some
of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater
financial resources.
Our
contracts with governmental entities could negatively affect our intellectual property rights, and our ability to commercialize our products
could be impaired.
Our
prior agreements with government agencies in large part funded the research and development of our PowerBuoy®. When new technologies
are developed with U.S. government funding, the government obtains certain rights in any resulting patents, technical data and software,
generally including, at a minimum, a non-exclusive license authorizing the government to use the invention, technical data or software
for non-commercial purposes. These rights may permit the government to disclose our confidential information to third parties and to
exercise “march-in” rights. March-in rights refer to the right of the U.S. government to require us to grant a license to
the technology to a responsible applicant or, if we refuse, the government may grant the license itself. U.S. government-funded inventions
must be reported to the government and U.S. government funding must be disclosed in any resulting patent applications; our rights in
such inventions will normally be subject to government license rights, periodic post-contract utilization reporting, foreign manufacturing
restrictions and march-in rights.
The
government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application
of the technology or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or
to give preference to U.S. industry. Our government-sponsored research contracts are subject to audit and require that we provide regular
written technical updates on a monthly, quarterly or annual basis, and, at the conclusion of the research contract, a final report on
the results of our technical research. Because these reports are generally available to the public, third parties may obtain some aspects
of our sensitive confidential information. Moreover, if we fail to provide these reports or to provide accurate or complete reports,
the government may obtain rights to any intellectual property arising from the related research. Funding from government contracts may
also limit when and how we can deploy our technology developed under those contracts. Foreign governments with which we contract to provide
funding for our research and development may seek similar rights.
Risks
Related to Regulatory and Compliance Matters
If
we are unable to obtain all necessary regulatory permits and approvals, it is possible that we will not be able to implement our planned
projects or business plan.
Offshore
deployment of our products is heavily regulated. Each of our deployments is subject to multiple permitting and approval requirements.
We and our customers are dependent on state, federal and regional government agencies for such permits and approvals. Due to the unique
nature of in-ocean power generation and the associated potential for environmental hazards stemming from deployment of our products,
we expect our projects to receive close scrutiny by permitting agencies, approval authorities and the public, which could result in substantial
delay in the permitting process. New regulations surrounding the deployment of autonomous vessels could restrict or limit our ability
to deploy WAM-Vs® in certain jurisdictions. Successful challenges by parties opposed to our deployments could result in
increased costs, or in the denial of necessary permits and approvals.
If
we or our clients are unable to obtain necessary permits and approvals in connection with any or all our projects, those projects would
not be implemented, and our business, financial condition and results of operations would be adversely affected. If we violate or fail
to comply with these permits and approvals, we could be fined or otherwise sanctioned by regulators.
In
the event we are unable to satisfy regulatory requirements relating to internal control over financial reporting, or if our internal
controls are not effective, our business, reputation and financial results may suffer.
Effective
internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent
fraud. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a report by management on internal control over financial
reporting, including management’s assessment of the effectiveness of such control. Internal control over financial reporting may
not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention
or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to
the preparation and fair presentation of financial statements. In addition, projections of any evaluation of the effectiveness of internal
control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If we fail to maintain the adequacy
of our internal controls, including any failure to implement new or improved controls, or if we experience difficulties in their implementation,
our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could also be a material
adverse effect on our stock price.
Environmental
and other regulation of our business, including potential climate change regulation, could adversely impact us by increasing our production
cost or restricting our ability to deliver products to our customers.
Climate
change serves as a risk multiplier increasing both the frequency and severity of natural disasters that may affect our business operations.
Moreover, there has been a broad range of proposed and promulgated state, national and international regulation aimed at reducing the
effects of climate change. In the U.S., there is a significant possibility that some form of regulation will be enacted at the federal
level to address the effects of climate change. Such regulation could take several forms that could result in additional costs in the
form of taxes, consultant costs, the restriction of output, investments of capital to maintain compliance with laws and regulations or
required acquisition or trading of emission allowances. Climate change regulation continues to evolve, and it is not possible to accurately
estimate either a timetable for implementation or our future compliance costs relating to implementation.
A
portion of products we acquire from our suppliers are manufactured in foreign countries, making the price and availability of these products
subject to international trade risks and other international conditions.
A
portion of our parts for our products are sourced from foreign countries, some of which in the future are, or could become subject to
trade restrictions, including increased tariffs or quotas, embargoes and customs restrictions, which would increase the cost or could
reduce the supply of products available to us, and could have a material adverse effect on our business, financial condition and results
of operations. Tariffs on imports from foreign countries, as well as changes in tax and trade policies, such as a border adjustment tax
or disallowance of certain tax deductions for imported product, could materially increase our manufacturing costs, the costs of our imported
products or our income tax expense, which would have a material adverse effect on our financial condition and results of operations.
Tariffs imposed by foreign countries on imports of our products could also adversely affect our international sales. Any increase in
manufacturing costs, the cost of our products or limitation on the amount of products we can purchase, could have a material adverse
effect on our financial condition and results of operations.
Our
business involves the use of hazardous materials, which require compliance with environmental and occupational safety laws regulating
the use of such materials. If we violate these laws, we could be subject to significant fines, liabilities or other adverse consequences.
Our
manufacturing operations, particularly some of the activities undertaken by our third-party suppliers and manufacturers, involve the
controlled use of hazardous materials. These include batteries, various lubricants and oils. Accordingly, our third-party contractors
and we are subject to foreign, federal, state and local laws governing the protection of the environment and human health and safety,
including those relating to the use, handling and disposal of these materials. We cannot eliminate the risk of accidental contamination
or injury from these hazardous materials. In the event of an accident or failure to comply with environmental or health and safety laws
and regulations, we could be held liable for resulting damages, including damages to natural resources, fines and penalties, and any
such liability could adversely affect our business, financial condition and results of operations.
Environmental
laws and regulations are complex, change frequently and have tended to become more stringent over time. While we have planned for future
capital and operating expenditures to maintain compliance, we cannot assure you that environmental laws and regulations will not change
or become more stringent in the future. Therefore, we cannot assure you that our costs of complying with current and future environmental
and health and safety laws, and any liabilities arising from past or future releases of, or exposure to, hazardous substances will not
adversely affect our business, financial condition or results of operations.
Risks
Related to Litigation
Litigation
is costly and time-consuming to defend, and if decided against us, could require us to pay substantial judgments or settlements. We may
be the subject of future securities or other litigation, which could adversely affect our company, our business and our liquidity.
Any
litigation is costly, and time consuming to defend and may distract our management from the daily operations of our business. We may
be the subject of additional future litigation, which could have a material adverse effect on our business, financial condition, results
of operations or cash flows. Although we maintain insurance coverage, we cannot assure you that this insurance coverage will be sufficient
to cover the substantial fees of lawyers and other professional advisors relating to these pending lawsuits or any future litigation,
our obligations to indemnify our officers and directors who may become parties to such pending and future actions, or the amount of any
judgments or settlements that we may be obligated to pay in connection with these lawsuits. In addition, prior judgements and settlements
have caused our insurance premiums and retention amounts to increase, and we may be subject to additional increases in the future or
be subjected to other changes in our insurance coverage. Further, given the volatility of the market price of our common stock, we may
be subject to future class action securities and other litigation. Accordingly, we have incurred and may continue to incur substantial
legal expenses, judgments and/or settlements relating to pending and future litigation and our management’s time and attention
may be diverted from the operation of our business, which could materially and adversely affect the Company.
We
may become the target of securities litigation, which is costly and time-consuming to defend.
In
the past, companies that experienced significant volatility in the market price of their publicly traded securities have become subject
to class action securities litigation. Our stock price has been volatile, and class action securities litigation and derivative lawsuits
have been filed against us, and it is possible that additional lawsuits could be brought against us in the future. The results of complex
legal proceedings are difficult to predict. These lawsuits assert types of claims that, if resolved against us, could give rise to substantial
damages, and an unfavorable outcome or settlement of these lawsuits, or any future lawsuits, could have a material adverse effect on
our business, financial condition, results of operations and/or stock price. Even if any future lawsuits are not resolved against us,
the costs of defending such lawsuits may be material to our business and our operations. Moreover, these lawsuits may divert our management’s
attention from the operation of our business. For more information on our legal proceedings, see Item 3 “Legal Proceedings”
of this Annual Report and Note 16 “Commitments and Contingencies - Litigation” in the accompanying consolidated financial
statements for the fiscal year ended April 30, 2024.
Risks
Related to Our Common Stock
If
we issue additional shares of our equity securities in the future, our shareholders may experience substantial dilution in the value
of their investment or their ownership interest.
Our
certificate of incorporation currently authorizes us to issue up to 100,000,000 shares of our common stock and to issue and designate
the rights of, without shareholder approval, up to 5,000,000 shares of preferred stock. In the future, if we were required to raise additional
capital, we may offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock
at prices that may not be the same as the price per share paid by other investors, and dilution to our shareholders in the value of their
investment and their ownership and voting interest in the Company could result. We may sell shares or other securities in any other offering
at a price per share that is less than the price per share paid by existing investors, and investors purchasing shares or other securities
in the future could have rights superior to existing shareholders.
In
addition, we have a significant number of stock options and restricted stock units outstanding. To the extent that outstanding stock
options, warrants or restricted stock units have been or may be exercised or other shares issued, current shareholders and future investors
who have purchased our common stock will experience further dilution. In addition, we may choose to raise additional capital due to market
conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the
extent that we issue new securities or raise additional capital through the sale of equity or convertible debt securities, the issuance
of these securities could result in further dilution to our shareholders or result in downward pressure on the price of our common stock.
Historically,
our stock price has been volatile, and this is likely to continue; purchasers of our common stock could incur substantial losses as a
result.
Historically,
the market price of our common stock has fluctuated significantly, and we expect that this will continue. Purchasers of our common stock
could incur substantial losses relating to their investment in our stock as a result. Also, the stock market, particularly microcap stocks,
experiences volatility that has often been unrelated or disproportionate to the operating performance of particular companies. These
broad market fluctuations could result in fluctuations in the price of our common stock, which could cause purchasers of our common stock
to incur substantial losses. The market price for our common stock may be influenced by many factors, including the items identified
within these Risk Factors and the other information included within this annual report.
Provisions
in our corporate charter documents and under Delaware law may delay or prevent attempts by our shareholders to change our management
or our Board of Directors and hinder efforts to acquire a controlling interest in us.
As
a result of our reincorporation in Delaware in April 2007, provisions of our certificate of incorporation and bylaws may discourage,
delay or prevent a merger, acquisition or other change in control that shareholders may consider favorable, including transactions in
which our shareholders might otherwise receive a premium for their shares. These provisions may also prevent or frustrate attempts by
our shareholders to replace or remove our management. These provisions include:
● | advance
notice requirements for shareholder proposals and nominations; |
| |
● | the
inability of shareholders to act by written consent or to call special meetings; and |
| |
● | the
ability of our Board of Directors to designate the terms of and issue new series of preferred
stock without shareholder approval, which could be used to institute a “poison pill”
that would work to dilute the stock ownership of a potential hostile acquirer, effectively
preventing acquisitions that have not been approved by our Board of Directors. |
In
June 2023, our Board of Directors adopted a Section 382 Tax Benefits Preservation Plan in an effort to diminish the risk that the Company’s
ability to utilize its net operating loss carryovers to reduce potential future federal income tax obligations may become substantially
limited. The Section 382 Tax Benefits Preservation Plan is also intended to act as a deterrent to any person or group acquiring beneficial
ownership of 4.99% or more of the outstanding common stock without the approval of our Board of Directors.
The
affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote is necessary to amend or repeal the above
provisions of our certificate of incorporation. In addition, absent the approval of our Board of Directors, our bylaws may only be amended
or repealed by the affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.
In
addition, Section 203 of the Delaware General Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business
combination with an interested shareholder, which is generally a person who together with its affiliates owns or within the last three
years has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an
interested shareholder, unless the business combination is approved in a prescribed manner. Accordingly, Section 203 may discourage,
delay or prevent a change in control of our company.
If
securities or industry analysts fail to cover us, or do not publish research or publish unfavorable or inaccurate research about our
business, our stock price and trading volume could decline.
Currently
we do not have significant analyst coverage, however, the trading market for our common stock could be influenced by the research and
reports that industry or securities analysts may publish about us, our business, or our industry from time to time. If no analyst covers
us, or ultimately one or more of these analysts cease coverage or fail to publish reports on the Company regularly, we could lose visibility
in the financial markets, which in turn could cause the price or trading volume of our common stock to decline.
We have never paid
cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We
have not paid any cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the
development and growth of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. Also,
there can be no assurance that the Company will have the liquidity necessary to pay dividends in the future if we want to do so. As a
result, prospective investors and shareholders should make or maintain an investment in our common stock solely on the basis that potential
future capital appreciation, if any, of our common stock will be the sole only source of gain for our shareholders for
the foreseeable future and there can be no assurance that any such future capital appreciation will occur.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
1C. CYBERSECURITY
We
depend on information technology and systems for various operations and for capturing accounting, technical and regulatory data for
reporting, analysis, and archiving. Our primary business systems mostly consist of purchased and licensed software programs that
integrate with our internal solutions. As of the filing date of this report, our risk assessment process related to cybersecurity
includes conducting vulnerability assessments using a combination of internal and third-party capabilities to perform technical
assessments, vulnerability scanning, and incident and event monitoring. With the oversight of our Board of Directors, our management
team is responsible for implementing a thorough, risk-based cybersecurity program aimed at safeguarding our data, along with the
data of our customers and partners, and based on well-organized cybersecurity frameworks under a central control figure. Risks from
cybersecurity threats did not materially impact our business strategy, operations, or financial condition for the twelve months
ended April 30, 2024 and 2023 and are not reasonably likely to do so in the future, but no assurances can be made along those
lines.
Additional
information about cybersecurity risks we face is discussed in Item 1A of Part I, “Risk Factors,” under the headings “Failure
of our information systems or those of third parties or breaches of data security could cause significant harm to our business”
and “Cybersecurity breaches of our systems and information technology could adversely impact our ability to operate or meet contractual
obligations,” which should be read in conjunction with the information above.
ITEM
2. PROPERTIES
Our
headquarters are currently located in Monroe Township, New Jersey, where we occupy approximately 56,000 square feet under a lease expiring
on April 30, 2026. We use this facility for administration, research and development, as well as manufacturing, assembly and testing
of our products.
Additionally,
we have a property located on the University of California Berkeley in Berkeley, California, where we occupy 1,220 square feet under
a lease which is currently operating month-to-month. Additionally, we have begun leasing a property located in Richmond, California where
we will occupy approximately 11,500 square feet under a lease expiring on June 18, 2028. We believe that our facilities are sufficient
for our current needs and are in good condition in all material respects.
ITEM
3. LEGAL PROCEEDINGS
On
June 16, 2023, Paragon Technologies, Inc., a Delaware corporation that is a shareholder of the Company (“Paragon”), informed
the Company that Paragon was planning a proxy contest against the Company and intended to nominate candidates for election to the Company
Board of Directors (the “OPT Board”) at the Company’s 2023 Annual Meeting (the “2023 Annual Meeting”).
Subsequently, Paragon disclosed its intention to replace a majority of the six-member OPT Board with initially five purported nominees,
including three members of the Paragon Board of Directors, and, thereby, seek control of the Company. In furtherance of Paragon’s
threatened agenda, Paragon brought three litigation matters against the Company in the Delaware Court of Chancery.
(a) | (Del.
Code §220 Complaint) On July 27, 2023, Paragon filed a complaint in the Court of
Chancery of the State of Delaware against the Company seeking to compel the inspection of
certain books and records of the Company pursuant to 8 Del. Code § 220. On January 31,
2024, the Court issued a ruling for the Company to deliver certain books and records to Paragon,
and the books and records that were subject to the Court’s final order were produced
to Paragon on April 8, 2024. No additional activity has occurred. |
(b) | Breach
of Fiduciary Duties Complaint) On October 10, 2023, Paragon filed an additional complaint
in the Court of Chancery of the State of Delaware against the Company, and the members of
its Board of Directors, claiming certain breaches of their fiduciary duties. The complaint
sought only injunctive relief against the Company, and not monetary damages, and therefore
the financial exposure derived therein was limited to applicable legal fee and costs at that
stage, which was material to FY 24. On November 2, 2023, Paragon sought leave to amend
its complaint to add additional claims. The Court granted this motion for leave to amend,
provided that the Court would not delay the hearing on the matters raised in the initial
complaint, which was set for November 28, 2023. This hearing on the initial complaint was
held and on November 30, 2023, the Court ruled in favor of the Company and denied Paragon’s
motion for injunctive relief. The status of the in the amended complaint is still pending.
On February 28, 2024, the Company successfully finalized its 2023 annual meeting of stockholders
in spite of Paragon’s repeated attempts to contest the meeting. On July 10, 2024, the
Company requested Paragon’s counsel to dismiss this litigation, given there has been
no activity for 6 months. We are awaiting a response. |
| |
(c) | l
(Del. Code §225 Complaint) On April 11, 2024, Paragon filed an action in the
Delaware Court of Chancery against the Company, and the members of its Board of Directors,
challenging the results of the 2023 Annual Meeting (concluded on February 28, 2024), alleging
that a quorum was not present for the meeting. On May 7, 2024, the Company filed its answer,
including that the Final Report of the Inspector of Election (which Paragon selected) confirmed
that a quorum was present. On June 20, 2024, Paragon filed a Motion to Dismiss the case “without
prejudice.” On June 28, 2024, the Company responded to Paragon’s Motion to Dismiss,
claiming that the case should be dismissed: (a) “with prejudice”; or (b) “without
prejudice,” but in such event Paragon should reimburse OPT’s fees and costs for
defending the case. |
As
clearly evidenced by the above, Paragon has filed three lawsuits against the OPT Board and the Company in an effort to seek control of
the Company, without following appropriate governance standards and without offering fair value to the stockholders.
In
addition, Sham Gad, the CEO of Paragon has also maintained in public that the nature of Paragon’s proposed investment in the Company
was “non-dilutive.” To that point, on April 24, 2024, Paragon made the following “non-dilutive $3MM preferred stock”
offer to the Company: “...The preferred would have the option to be convertible to common stock, at $0.05 a share, or 25% of the
30-day average trading price, whichever is higher...”. After the Board correctly rejected the $3MM preferred stock offer, on June
7, 2024, Paragon issued a press release that proclaimed its offer was non-dilutive. In fact, Paragon’s offer was highly dilutive
because the offer stipulated that the proposed OPT preferred stock to be issued to Paragon would be convertible to OPT common stock at
a 75% discount to the fair market value of the common stock. The Paragon offer thus essentially amounted to a change in control of the
Company at 25% of its fair market value.
In
order to defend the best interests of the Company’s shareholders against Paragon’s lawsuits and public statements, the Company
has spent approximately $3.9 million in fees and costs.
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. In the quarter ended October 31, 2020, the Company recorded an additional reserve of €117,145.81
(or approximately $154,000) to Selling, general and administrative costs in the Statement of Operations making the total reserve €279,869.81,
which amount was paid by the Company to the Spanish Tax Administration on January 25, 2021. As of April 30, 2024, the Company had no
reserve related to this audit. The Company has appealed the decision of the Tribunal tax assessment to the Spanish National Court. The
Company expects a ruling on the appeal prior to the end of fiscal 2025.
Item
4. MINE SAFETY DISCLOSURES
None.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shareholders
Our
common stock was listed on the Nasdaq Capital Market, under the symbol “OPTT” until June 2021 when the listing was transferred
to the NYSE American under the same symbol. As of July 22, 2024, there were 119 holders of record for shares of our common stock. Since
a portion of our common stock is held in “street” or nominee name, we are unable to determine the exact number of beneficial
holders.
We
adopted a Section 382 Tax Benefits Preservation Plan on June 30, 2023 to diminish the risk we could experience an “ownership change”
as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which could substantially limit or permanently eliminate
our ability to utilize its net operating loss carryovers to reduce potential future income tax obligations. Under this plan, a person
who acquires, without the approval of our Board of Directors, beneficial ownership of 4.99% or more of the outstanding common stock could
be subject to significant dilution. See Note 19 to the consolidated financial statements included herein for more.
Dividend
Policy
We
have never declared or paid any cash dividends on our common stock, and we do not currently anticipate declaring or paying cash dividends
on our common stock in the foreseeable future. At this time, we intend to retain all of our future earnings, if any, to finance the growth
and development of our business. Any future determination relating to our dividend policy will be made at the discretion of our Board
of Directors, and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects,
contractual restrictions and covenants, and other factors that our Board of Directors may deem relevant.
Transfer
Agent Information
Our
transfer agent is Computershare Trust Company, N.A. Computershare is located at 250 Royal Street, Canton, MA 02021-1011. Its contact
information is: U.S. and Canada: (800) 662 - 7232, International (781) 575–4238, and its website is located at www.computershare.com.
Purchases
of Equity Securities by the Issuer
There
were no purchases of equity securities by the Company for the year ended April 30, 2024.
Equity
Compensation Plan Information
The
following table sets forth the indicated information as of April 30, 2024, with respect to our equity compensation plans:
Plan Category | |
Number of Shares to be Issued Upon Exercise of Outstanding Options and Restricted Stock | | |
Weighted-Average Exercise Price of Outstanding Options | | |
Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in First Column) | |
| |
| | |
| | |
| |
Equity compensation plans approved by shareholders: | |
| | | |
| | | |
| | |
Stock Options | |
| 734,543 | | |
$ | 2.12 | | |
| — | (1) |
Restricted Stock Units | |
| 5,124,529 | | |
| N/A | | |
| | |
| |
| | | |
| | | |
| | |
Equity compensation plans not approved by shareholders: | |
| | | |
| | | |
| | |
Stock Options | |
| — | | |
| — | | |
| — | |
Restricted Stock Units | |
| — | | |
| N/A | | |
| 161,487 | (2) |
(1)
Consists of shares of our common stock available for issuance under the 2015 Omnibus Incentive Plan.
(2)
Consists of shares of our common stock available for issuance under the 2018 Employee Inducement Incentive Award Plan.
Our
equity compensation plans consist of a 2006 Stock Incentive Plan and a 2015 Omnibus Incentive Plan which were approved by our shareholders.
Once the 2015 Omnibus Incentive Plan was approved by the shareholders on October 22, 2015, no further stock options or other awards were
awarded under the 2006 Stock Incentive Plan and it was terminated. Shares that are forfeited under the 2006 Stock Incentive Plan on or
after October 22, 2015, will become available for issuance under the 2015 Omnibus Incentive Plan.
The
equity compensation plan that has not been approved by our shareholders is our 2018 Employee Inducement Incentive Award Plan.
Unregistered
Sales of Equity Securities and Use of Proceeds
Not
Applicable.
ITEM
6. [Reserved]
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis of our financial condition and results of operations together with our consolidated
financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information
contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans
and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should
review the “Risk Factors” section of this Annual Report, and elsewhere in this report, for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis. Our fiscal year ends on April 30. References to fiscal 2024 are to the fiscal year ended April
30, 2024.
Business
Overview
Our
mission is to provide intelligent maritime solutions and services that enable more secure and more productive utilization of our oceans
and waterways, provide clean energy power services, and offer sophisticated surface and subsea maritime domain awareness solutions. The
Company achieves this through our proprietary, state-of-the-art technologies that are at the core of our clean and renewable energy platforms,
autonomous systems, solutions and services.
The
Company provides ocean data collection and reporting, marine power, offshore communications, and Maritime Domain Awareness System (“MDA”
or “MDAS”) products, integrated solutions, and consulting services. In April 2024 the Company announced Merrows, a groundbreaking
consolidated solution offering for comprehensive ocean surveillance. Merrows encompasses the collection and transmission of data relating
to all aspects of, on, under, adjacent to, or bordering on a sea, ocean, or other navigable waterway. OPT’s approach to addressing
this challenge involves the deployment of sophisticated Command, Control, Communications, Computers, Cyber, Intelligence, Surveillance,
and Reconnaissance (C5ISR) systems. These systems are integrated within OPT’s roaming technologies, such as the Wave Adaptive Modular
Vessel (WAM-V), and resident technologies, like the PowerBuoys® (PB), to offer an unparalleled level of surveillance and
data analysis capability.
The
Company offers our products and services to a wide range of customers, including those in government and offshore energy, oil and gas,
construction, wind power and other industries. The Company is involved in the entire life cycle of product development, from product
design through manufacturing, testing, deployment, maintenance and upgrades, while working closely with partners across our supply chain.
The Company also works closely with our third-party partners that provide us with, among other things, software, controls, sensors, integration
services, and marine installation services. Our solutions are based on proprietary technologies that enable autonomous, zero or low carbon
emitting, and cost-effective data collection, analysis, transportation and communication. Our solutions are primarily suited to ocean
and other offshore environments, and support generation of actionable intelligence on a standalone basis or working with other data sources.
We channel the information we collect, and other communications, through control equipment linked to edge computing and cloud hosting
environments.
Business
Update Regarding Macroeconomic Condition
Adverse
macroeconomic conditions, including inflation, political instability, regional conflicts, slower growth or recession, policy changes,
higher interest rates, and currency fluctuations may have a negative impact on our business. These adverse conditions could impact the
spending budgets of our customers, and therefore could adversely affect the sales of our products and services.
We
will continue to monitor these conditions, and, if necessary, adjust our operations in response to these conditions such as scaling back,
changing direction, or pausing certain planned expenditures.
Capital
Raises
On
November 20, 2020, the Company entered into an At-the-Market Offering Agreement with Alliance Global Partners (AGP) (the “2020
ATM Facility”). The 2020 ATM Facility was terminated by the Company effective June 2, 2023.
On
August 7, 2023, the Company entered into a Controlled Equity Offering Sales Agreement (the “2023 ATM”) with Cantor Fitzgerald
& Co. (“Cantor”), as sales agent, which was terminated effective December 2, 2023.
On
March 21, 2024, the Company entered into an At-the-Market Offering Agreement with AGP with an aggregate offering price of up to $7,000,000
(the “2023 ATM Facility”). As of April 30, 2024, the Company had received proceeds of approximately $0.5 million under the
2023 ATM Facility.
The
sale of additional equity under new facilities could result in dilution to our shareholders. If additional funds are raised through the
issuance of debt securities or preferred stock, these securities could have rights senior to those associated with our common stock and
could contain covenants that would restrict our operations. The Company cannot be certain that additional equity and/or debt financing
will be available to the Company as needed on acceptable terms, or at all. If we are unable to obtain required financing when needed,
we may be required to reduce the scope of our operations, including our planned incremental product development and marketing efforts,
which could materially and adversely affect our financial condition and operating results. If we are unable to secure additional financing,
we may be forced to cease our operations.
Backlog
As
of April 30, 2024 and 2023, the Company’s backlog was $4.9 million and $4.0 million, respectively. Our backlog includes unfilled
firm orders for our products and services from commercial or governmental customers. If any of our contracts were to be terminated, our
backlog would be reduced by the expected value of the remaining terms of such contract.
The
amount of contract backlog is not necessarily indicative of future revenue because modifications to or terminations of present contracts
and production delays can provide additional revenue or reduce anticipated revenue. A portion of our revenue is recognized using the
input method used to measure completion over time of customer contracts, and changes in estimates from time to time may have a significant
effect on revenue and backlog. Our backlog is also typically subject to large variations from time to time due to the timing of new awards.
Critical
Accounting Policies and Estimates
To
understand our financial statements, it is important to understand our critical accounting policies and estimates. We prepare our financial
statements in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The preparation of financial statements
also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related
disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences
between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and
cash flows will be affected. We believe that accounting policies are critical to understanding our historical and future performance,
as these policies relate to the more significant areas involving management’s judgments and estimates.
We
believe the following accounting policy requires significant judgment and estimates by us in the preparation of our consolidated financial
statements.
Revenue
recognition
The
Company accounts for revenue in accordance with Accounting Standards Codification 606 (ASC 606) for contracts with customers and Accounting
Standards Codification 842 (ASC 842) for leasing arrangements. In relation to ASC 606, which states that 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 as 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 performance obligation 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. When no observable standalone selling price is available, the
standalone selling price is generally estimated based upon 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, 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 April 30, 2024 or 2023. The Company presents shipping and handling costs, that occur after control of the promised goods or services
transfer to the customer, as fulfillment costs in costs of goods sold and regular shipping and handling activities charged to operating
expenses.
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 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 or labor hours incurred 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, 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 projections 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.
During the fiscal year ended April 30, 2024 the Company recognized approximately $3.6 million in revenue related to performance obligations
satisfied at a point in time and approximately $1.9 million in revenue related to performance obligations satisfied over time.
The
Company’s contracts are either cost-plus contracts, fixed-price contracts, time and material agreements, lease or service agreements.
Under cost plus contracts, customers are billed for actual expenses incurred plus an agreed-upon fee.
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 revenue, 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 fiscal years ended April 30, 2024 and 2023, the majority of the Company’s
contracts were classified as firm fixed-price and the balance were cost-sharing.
The
Company’s revenue also includes revenue from certain contracts which do not fall within the scope of ASC 606, but under the scope
of ASC 842. At inception of a contract for those classified under ASC 842, the Company classifies leases as either operating or financing
in accordance with the authoritative accounting guidance contained within ASC Topic 842, “Leases”. If the direct financing
or sales-type classification criteria are met, then the lease is accounted for as a finance lease. All others are treated as operating
leases. The Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term, or as
agreed upon in-use days are utilized, which is presented in Revenue in the Consolidated Statement of Operations. The Company also enters
into lease arrangements for its PowerBuoys® and WAM-V® 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 PowerBuoy®, WAM-V®, and components, while non-lease elements, which the Company expects to
become more prevalent, generally include engineering, monitoring and support services. In the lease arrangement, the customer may be
provided with an option to extend the lease term or purchase the leased buoy or WAM-V® at some point during and/or at the end of
the lease term.
Financial
Operations Overview
As
of the years ended April 30, 2024 and 2023, the Company had four and two customers, respectively, whose revenue accounted for at least
10% of the Company’s consolidated revenue. These customers accounted for approximately 52% and 32% of the Company’s total
revenue for the respective periods.
We
currently focus our sales efforts in key global markets in North America, South America, Europe and Asia. The following table shows the
percentage of our revenue by geographical location of our customers for fiscal 2024 and 2023:
| |
Fiscal year ended April 30, | |
Customer Location | |
2024 | | |
2023 | |
North America & South America | |
| 96 | % | |
| 88 | % |
Europe | |
| 4 | % | |
| 3 | % |
Asia and Australia | |
| — | % | |
| 9 | % |
Total | |
| 100 | % | |
| 100 | % |
Cost
of revenue
Our
cost of revenue consists primarily of subcontracts, incurred material, labor and manufacturing overhead expenses, such as engineering
expense, equipment depreciation, maintenance, and facility related expenses, and includes the cost of equipment to customize the PowerBuoy®,
WAM-V® and our other products supplied by third-party suppliers. Cost of revenue also includes PowerBuoy® and other product system
delivery and deployment expenses and may include losses recorded at the time a loss is forecasted to be incurred on a contract.
Operating
Expenses
Engineering
and product enhancement costs
Our
engineering and product enhancement costs consist of salaries and other personnel-related costs and the costs of products, materials
and outside services used in our product enhancement and unfunded research activities. Our product enhancement costs relate primarily
to our efforts to increase the power output and reliability of our PowerBuoy® system and other products, to enhance and optimize
data monitoring and controls systems, and the development of new products, product applications and complementary technologies. We expense
all of these costs as incurred.
Selling,
general and administrative costs
Our
selling, general and administrative costs consist primarily of professional fees, salaries and other personnel-related costs for employees
and consultants engaged in sales and marketing of our products, and costs for executive, accounting and administrative personnel, professional
fees and other general corporate expenses.
Interest
income, net
Interest
income, net consists of interest received on cash, cash equivalents, and short term investments and interest paid on certain obligations
to third parties as well as amortization expense related to the premiums on the purchase of short term investments.
Foreign
exchange gain (loss)
We
transact business in various countries and have exposure to fluctuations in foreign currency exchange rates. Since we conduct our business
in U.S. dollars and our functional currency is the U.S. dollar, our main foreign exchange exposure, if any, results from changes in the
exchange rate between the U.S. dollar and transactions settled in foreign currencies.
The
Company completed the process of winding down its Australian subsidiary during fiscal 2024. The Company began the process of winding
down its UK subsidiary during fiscal 2024 and expects this to be completed during fiscal 2025. The unrealized gains or losses resulting
from foreign currency balances translation are included in Accumulated Other Comprehensive Loss within Shareholders’ Equity. Foreign
currency transaction gains and losses are recognized within our Consolidated Statements of Operations.
We
currently do not hedge our exchange rate exposure. However, we assess the anticipated foreign currency working capital requirements and
capital asset acquisitions of our foreign operations and assess the need and cost to utilize financial instruments to hedge currency
exposures on an ongoing basis and may hedge against exchange rate exposure in the future.
Results
of Operations
This
section should be read in conjunction with the discussion below under “Liquidity Outlook”.
Fiscal
Years Ended April 30, 2024 and 2023
The
following table contains selected Consolidated Statements of Operations information, which serves as the basis of the discussion of our
results of operations for the fiscal years ended April 30, 2024 and 2023:
| |
Fiscal years ended April 30, | |
| |
2024 | | |
2023 | |
| |
(in thousands) | |
Revenue | |
$ | 5,525 | | |
$ | 2,732 | |
Cost of revenue | |
| 2,699 | | |
| 2,496 | |
Gross (loss) profit | |
| 2,826 | | |
| 236 | |
Change in fair value of contingent consideration | |
| (72 | ) | |
| 1,112 | |
Other operating expenses | |
| 32,229 | | |
| 28,340 | |
Total operating expenses | |
| 32,157 | | |
| 29,452 | |
Operating loss | |
| (29,331 | ) | |
| (29,216 | ) |
Interest income, net | |
| 800 | | |
| 902 | |
Other income, employee retention credit | |
| — | | |
| 1,251 | |
Other income, proceeds from insurance claim | |
| — | | |
| 458 | |
Other income | |
| 2 | | |
| — | |
Loss on disposition of assets | |
| (210 | ) | |
| — | |
Foreign exchange gain | |
| 2 | | |
| 1 | |
Loss before income taxes | |
| (28,737 | ) | |
| (26,604 | ) |
Income tax benefit | |
| 1,254 | | |
| 278 | |
Net loss | |
$ | (27,483 | ) | |
$ | (26,326 | ) |
Revenue
Revenue
for the fiscal years ended April 30, 2024 and 2023 were approximately $5.5 million and $2.7 million, respectively, representing an increase
of approximately $2.8 million, or 102%, from 2023. The $2.8 million increase in revenue for the full year was mainly attributable to
increases from sales and/or leases of USV products of $1.7 million and buoy products of $1.5 million, partially offset by decreases in
consulting and other revenue of $0.4 million.
Change
in fair value of contingent consideration
The
change in fair value of contingent consideration for the fiscal year ended April 30, 2024, and 2023 was a loss of $0.1 million and a
gain of $1.1 million respectively. This reflects the remeasurement of fair value upon the completion of the second and first earn out
period as defined in the purchase and sale agreement related to the MAR acquisition.
Operating
Expenses
Our
operating expenses include both product development costs (substantially completed during fiscal year 2024) as well as administrative
costs, including the costs of products, materials and outside services used in our product development and unfunded research activities.
Also included are professional fees, salaries and other personnel-related costs for employees and consultants engaged in sales and marketing
and costs for executive, accounting and administrative personnel, and other general corporate expenses. Operating expenses during the
fiscal year ended April 30, 2024 were $32.2 million as compared to $28.3 million for fiscal year 2023. The increase of $3.9 million is
primarily due to expenses related to the activist shareholder activities noted above.
Interest
income, net
Interest
income, net consists of interest received on cash and cash equivalents, investments in money market accounts and short-term investments
and is net of interest expense paid on certain obligations to third parties. Total cash, cash equivalents, restricted cash, and short-term
investments was $3.3 million as of April 30, 2024, compared to $34.9 million as of April 30, 2023. Interest income, net was approximately
$0.8 million and $0.9 million for fiscal 2024 and 2023, respectively, and reflects the decreased balance of our short term investments
throughout the year, offset by rising interest rate environment experienced during fiscal 2024.
Other
income
Other
income for the fiscal year ended April 30, 2024 and 2023 was zero and $1.7 million, respectively. The amount in the prior year relates
to employee retention credits applied for previously filed payroll tax returns with the Internal Revenue Service and proceeds received
for an insurance claim.
Foreign
exchange gain/(loss)
Foreign
exchange gain was approximately $2,000 for fiscal year 2024 as compared to a foreign exchange gain of $1,000 for fiscal year 2023. The
difference was attributable to the relative change in value of the British pound sterling dollar compared to the U.S. dollar.
Income
tax benefit
Income
tax benefit reflects the sale by the Company of New Jersey State net operating losses and research development credits under the New
Jersey Economic Development Authority Tax Transfer programs, resulting in $1.3 million and $0.3 million of tax benefit related to the
fiscal year ended April 30, 2024 and 2023, respectively.
Net
cash used in operating activities
During
the fiscal year ended April 30, 2024, net cash flows used in operating activities was $29.8 million, an increase of $8.1 million compared
to net cash used in operating activities during the fiscal year ended April 30, 2023. This increase is mainly driven by increased inventory
purchases to satisfy backlog and pipeline of $3.2 million, increased contract liabilities of $2.3 million, increased accrued expenses
of $1.8 million, as well as increased net operating losses of $1.2 million.
Net
cash provided by investing activities
Net
cash provided by investing activities was approximately $25.5 million for fiscal year 2024 versus net cash provided by investing activities
of approximately $20.5 million for fiscal year 2023. During fiscal 2024 many investments made during fiscal 2023 matured, resulting in
cash inflows at maturity, which were then used to fund operating expenses.
Net
cash provided by financing activities
Net
cash provided by financing activities during the fiscal year ended April 30, 2024 was approximately $469,000 compared to net cash used
in financing activities during the fiscal year ended April 30, 2023 of $14,000. The increase in net cash provided by financing activities
during the fiscal year ended April 30, 2024 was due to the proceeds received through issuance of stock under our At the Market offering.
Effect
of exchange rates on cash and cash equivalents
The
effect of exchange rates on cash and cash equivalents was not material during fiscal 2024 or fiscal 2023.
Liquidity
Outlook
Since
our inception, the cash flows from customer revenue have not been sufficient to fund our operations and provide the capital resources
for our business. For the two-year period ended April 30, 2024 our aggregate revenue was $8.3 million, our aggregate net losses were
$53.8 million and our aggregate net cash used in operating activities was $51.5 million.
Subsequent
to fiscal year end 2024 and through the date of filing management obtained additional capital financing of approximately $6.2
million under the 2023 ATM Facility. The Company’s current cash balance may not be sufficient to fund its planned expenditures
through twelve months from the filing date of the Form 10-K. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s operations in the future
and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when
they become due. The accompanying consolidated financial statements have been prepared on a basis which assumes the Company is a going
concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from any uncertainty related to the Company’s ability to continue
as a going concern. Such adjustments could be material.
We
expect to devote substantial resources to continue our enhancement efforts for our products and to expand our sales, marketing and manufacturing
programs associated with the continued commercialization of our products. Our future capital requirements will depend on several factors,
including but not limited to:
|
● |
Our
ability to improve, market and commercialize our products, and achieve and sustain profitability; |
|
● |
our
continued improvement 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; |
|
● |
our
history of operating losses, which we expect to continue for at least the short term and possibly longer; |
|
● |
our
ability to manage challenges and expenses associated with communications and disputes with activist shareholders, including litigation; |
|
● |
our
ability to manage and mitigate risks associated with our internal cyber security protocols and protection of the data we collect
and distribute; |
|
● |
our
ability to protect our intellectual property portfolio; |
|
● |
the
impact of inflation related to the U.S. dollar on our business, operations, customers, suppliers, manufacturers, and personnel; |
|
● |
our
ability to meet product enhancement, manufacturing and customer delivery deadlines and the potential impact due to disruptions to
our supply chain or our ability to identify vendors that can assist with the prefabrication elements of our products, as a result
of, among other things, staff shortages, order delays, and increased pricing from vendors and manufacturers; |
|
● |
our
estimates regarding future expenses, revenue, and capital requirements; |
|
● |
our
ability to identify and penetrate markets for our products, services, and solutions; |
|
● |
our
ability to effectively respond to competition in our targeted markets; |
|
● |
our
ability to establish relationships with our existing and future strategic partners which may not be successful; |
|
● |
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 increase or more efficiently utilize the synergies available from our product lines: |
|
● |
changes
in current legislation, regulations and economic conditions that affect the demand for, or restrict the use of our products; |
|
● |
our
ability to expand markets across geographic boundaries; |
|
● |
our
ability to be successful with Federal government work which is complex due to various statutes and regulations applicable to doing
business with the Federal government; |
|
● |
our
ability to be successful doing business internationally which requires strict compliance with applicable import, export, ITAR, anti-bribery
and related statutes and regulations; |
|
● |
the
current geopolitical world uncertainty, including Russia’s invasion of Ukraine, the Israel/Palestine conflict and recent attacks
on merchant ships in the Red Sea; |
|
● |
our
ability to hire and retain key personnel, including senior management, to achieve our business objectives; and |
|
● |
our
ability to establish and maintain commercial profit margin |
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 this report. 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.
Off-Balance
Sheet Arrangements
Since
inception, we have not engaged in any off-balance sheet financing activities.
Recent
Accounting Pronouncements
The
Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material
effect on the Company’s consolidated financial position, results of operations, or cash flows.
In
December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which improves the transparency
of income tax disclosures by requiring companies to (1) disclose consistent categories and greater disaggregation of information in the
effective rate reconciliation and (2) provide information on income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective
for fiscal years beginning after December 15, 2024, although early adoption is permitted. The guidance should be applied on a prospective
basis with the option to apply the standard retrospectively. We are currently evaluating the impact of adopting this ASU 2023-09 on our
consolidated financial statements and disclosures.
In
November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.”
This ASU improves financial reporting by requiring disclosure of incremental segment information. The new guidance is effective for fiscal
years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is
permitted. We are currently evaluating the impact of adopting this ASU 2023-07 on our consolidated financial statements and disclosures.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements and supplementary data required by this item are listed in Item 15 - “Exhibits and Financial Statement Schedules”
of this Annual Report.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)
(our principal executive officer and principal financial officer, respectively), has evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered
by this Annual Report on Form 10-K. The Company’s disclosure controls and procedures are designed to provide reasonable assurance
that information we disclose in reports that we file or submit under the Securities Exchange Act of 1934 is gathered and communicated
to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure and that such
information is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s
rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues, if any, have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake.
Based on their evaluation, our CEO and CFO concluded that, as of April 30, 2024, our internal control over financial reporting and the
Company’s disclosure controls and procedures were not effective.
Management’s
report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The
Company’s management assessed the effectiveness of internal control over financial reporting as of April 30, 2024, based upon the
framework presented in “Internal Control-Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). A material weakness is a deficiency, or combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim
financial statements will not be prevented or detected on a timely basis. Based on its assessment, Management concluded that that our
internal control over financial reporting was not effective as of April 30, 2024 due to the following:
|
● |
Deficiencies related to control activities around
stock-based compensation. Specifically, management review controls over the completeness and accuracy of stock-based compensation were
not designed or operating effectively.
|
|
● |
Deficiency
in risk assessment and design of controls related to inventory account balances and related disclosures. Management concluded that
it did not design and implement sufficient controls related to inventory to prevent or detect material misstatements timely. |
When
the deficiencies identified within each of the above areas are considered in aggregate, these deficiencies rise to the level of material
weaknesses.
These
material weaknesses did not result in a material misstatement to our annual or interim financial statements. As the business grows, new
processes and procedures will need to be implemented. We are continuing our remediation plan and are in the process of implementing measures
designed to improve internal control over financial reporting to remediate the control deficiencies that led to our material weaknesses.
This includes, among other things, reviewing the need for additional resources as well as ensuring personnel possess or obtain appropriate
expertise to perform specific reviews of technical areas, and designing and implementing improved processes.
Notwithstanding
the identified material weaknesses, management believes that the financial statements and related financial information included in this
Form 10-K fairly present, in all material respects, our balance sheets, statements of operations, statements of changes in stockholders’
equity (deficit) and statements of cash flows as of and for the periods presented. We are committed to establishing and maintaining a
strong internal control environment. We will continue to assess the effectiveness of our internal control over financial reporting and
implement measures designed to help ensure that control deficiencies contributing to the material weaknesses are remediated as soon as
possible.
Changes
in Internal Control over Financial Reporting
Other
than as described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation
required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended April 30, 2024 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
ITEM
9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not
applicable.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement relating to our
2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our
fiscal year covered by this report.
ITEM
11. EXECUTIVE COMPENSATION
The
information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement relating to our
2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our
fiscal year covered by this report.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The
information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement relating to our
2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our
fiscal year covered by this report.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement relating to our
2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our
fiscal year covered by this report.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement relating to our
2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our
fiscal year covered by this report.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
(1) Financial Statements: See Index to Consolidated Financial Statements on page F-1.
(3)
Exhibits: See Exhibit Index on pages 53 to 54.
ITEM
16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
|
OCEAN
POWER TECHNOLOGIES, INC. |
|
|
|
Date:
July 25, 2024 |
|
|
|
|
/s/
Philipp Stratmann |
|
By: |
Philipp
Stratmann |
|
|
President
and Chief Executive Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE |
|
TITLE |
|
DATE |
|
|
|
|
|
/s/
Philipp Stratmann |
|
President,
Chief Executive Officer and Director
|
|
July
25, 2024 |
Philipp
Stratmann |
|
(Principal
Executive Officer) |
|
|
|
|
|
|
|
/s/
Robert Powers |
|
Senior
Vice President and Chief Financial Officer |
|
July
25, 2024 |
Robert
Powers |
|
(Principal
Financial Officer and Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/
Terence J. Cryan |
|
Chairman
of the Board and Director |
|
July
25, 2024 |
Terence
J. Cryan |
|
|
|
|
|
|
|
|
|
/s/
Clyde W. Hewlett |
|
Director |
|
July
25, 2024 |
Clyde
W. Hewlett |
|
|
|
|
|
|
|
|
|
/s/
Diana G. Purcel |
|
Director |
|
July
25, 2024 |
Diana
G. Purcel |
|
|
|
|
|
|
|
|
|
/s/
Peter E. Slaiby |
|
Director |
|
July
25, 2024 |
Peter
E. Slaiby |
|
|
|
|
|
|
|
|
|
/s/
Natalie Lorenz-Anderson |
|
Director |
|
July
25, 2024 |
Natalie
Lorenz-Anderson |
|
|
|
|
Exhibits
Index
|
|
Description |
|
|
|
3.1 |
|
Restated Certificate of Incorporation of the registrant (incorporated by reference from Exhibit 3.1 to our Quarterly Report on Form 10-Q filed September 14, 2007). |
3.2 |
|
Certificate of Amendment of Certificate of Incorporation of Ocean Power Technologies, Inc. dated October 27, 2015 (incorporated by reference from Exhibit 3.1 to Current Report on Form 8-K filed on October 28, 2015). |
3.3 |
|
Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on October 21, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 21, 2016). |
3.4 |
|
Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on December 7, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 7, 2018). |
3.5 |
|
Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on March 8, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 8, 2019). |
3.6 |
|
Certificate of Designations of Series A Preferred Stock of the Company, filed with the Secretary of State of the State of Delaware on June 30, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 30, 2023). |
3.7 |
|
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 5, 2024). |
4.1 |
|
Specimen certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K filed on July 28, 2023). |
4.2 |
|
Form of Warrant to Purchase Common Stock (incorporated by reference from Exhibit 4.1 to Current Report on Form 8-K/A filed on June 7, 2016). |
4.3 |
|
Description of Company Securities.++ |
4.4 |
|
Section 382 Tax Benefits Preservation Plan, dated as of June 29, 2023, by and between the Company and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 30, 2023). |
10.1 |
|
Amended and Restated 2006 Stock Incentive Plan (incorporated by reference from Exhibit A to Proxy Statement filed August 28, 2013).* |
10.2 |
|
Form of Restricted Stock Agreement Unit (incorporated by reference from Exhibit 10.1 to Form 10-Q filed March 14, 2011).* |
10.3 |
|
2015 Omnibus Incentive Plan* (incorporated by reference to Annex A to Proxy Statement filed on September 3, 2015). |
10.4 |
|
Ocean Power Technologies, Inc. Employment Inducement Incentive Award Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on January 19, 2018).* |
10.5 |
|
Form of Restricted Stock Unit Agreement for Employment Inducement Incentive Award Plan (incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on January 19, 2018).* |
10.6 |
|
Contract between Eni S.p.A. and the Company dated March 14, 2018 (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on March 19, 2018). + |
10.7 |
|
Contract between Harbour Energy UK Limited and the Company dated June 27, 2018 (incorporated by reference to Exhibit 10.27 to Form 10-K filed with the SEC on July 17, 2018).+ |
10.8 |
|
Amendment to the Employment Agreement of George H. Kirby III (incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on July 18, 2018). * |
10.9 |
|
Contract between U.S. Navy and the Company dated February 11, 2019 (incorporated by reference to Exhibit 10.2 to Form 10-Q filed with the SEC on March 11, 2019). |
10.10 |
|
Contract amendment between Harbour Energy UK Limited and the Company dated June 24, 2019 (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on June 25, 2019).+ |
10.11 |
|
Lease Agreement dated March 31, 2017 between Ocean Power Technologies, Inc. and PPH Industrial 28 Engelhard, LLC (incorporated by reference from Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed with the SEC on July 22, 2019). |
10.12 |
|
Supply and Service Contract between the Company and Empresa Electrica Panguipulli S.A. dated September 19, 2019 (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on September 23, 2019). + |
10.13 |
|
Supply and Service Contract between the Company and Enel Green Power Chile LTDA dated September 19, 2019 (incorporated by reference from Exhibit 10.2 to Current Report on Form 8-K filed on September 23, 2019). + |
10.14 |
|
Contract amendment between Eni s.P.a. and the Company dated February 28, 2020 (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on March 9, 2020). |
10.15 |
|
U.S. Small Business Administration Note dated May 3, 2020 of Ocean Power Technologies, Inc. in favor of Santander Bank, N.A. as the Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 7, 2020). |
10.16 |
|
Loan Agreement dated May 3, 2020 between Santander Bank, N.A. and Ocean Power Technologies, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 7, 2020). |
10.17 |
|
Common Stock Purchase Agreement, dated September 18, 2020, between Ocean Power Technologies, Inc. and Aspire Capital Fund, LLC (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 18, 2020). |
10.18 |
|
Subcontract between Ocean Power Technologies, Inc. and Adams Communication & Engineering Technology Inc. dated effective October 20, 2020 (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 27, 2020). |
10.19 |
|
Stock Purchase Agreement among Ocean Power Technologies, Inc. and the sellers named therein dated November 15, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 16, 2021). |
10.20 |
|
Employment Letter between the Company and Robert P. Powers dated effective December 13, 2021* (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 13, 2021). |
10.21 |
|
Fifth Amendment to 2015 Omnibus Incentive Plan (incorporated by reference to Annex A to Proxy Statement filed on October 15, 2021). |
10.22 |
|
First Amendment to the Employment Inducement Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 11, 2022). |
10.23 |
|
Sixth Amendment to the 2015 Omnibus Incentive Plan (incorporated by reference to Annex A to Proxy Statement filed on October 19, 2022). |
10.24 |
|
Form of Restricted Stock Unit Agreement for Non-Directors (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on March 13, 2023). |
10.25 |
|
Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on March 13, 2023). |
10.26 |
|
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on March 13, 2023). |
10.27 |
|
Contract for Commercial Items between the Company and the National Oceanic and Atmospheric Administration dated September 1, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on December 13, 2023). |
10.28 |
|
Contract for Commercial Items between the Company and the National Oceanic and Atmospheric Administration dated September 1, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on December 13, 2023). |
10.29 |
|
Contract for Commercial Items between the Company and the National Oceanic and Atmospheric Administration dated September 1, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on December 13, 2023). |
10.30 |
|
Sales Agreement between the Company and A.G.P./Alliance Global Partners dated March 21, 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 21, 2024). |
21.1 |
|
Subsidiaries of the registrant ++ |
23.1 |
|
Consent of EisnerAmper LLP. ++ |
31.1 |
|
Certification of Chief Executive Officer ++ |
31.2 |
|
Certification of Chief Financial Officer ++ |
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002** ++ |
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002** ++ |
101 |
|
The
following financial information from Ocean Power Technologies, Inc.’s Annual Report on Form 10-K for the annual period ended
April 30, 2024 and 2023, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets - as of April
30, 2024 and 2023, (ii) Consolidated Statements of Operations - for the years ended April 30, 2024 and 2023, (iii) Consolidated Statements
of Comprehensive Loss - for the years ended April 30, 2024 and 2023, (iv) Consolidated Statements of Shareholders’ Equity
- for the years ended April 30, 2024 and 2023 (v) Consolidated Statements of Cash Flows - for the years ended April 30, 2024 and
2023, (vi) Notes to Consolidated Financial Statements.*** |
+
Indicates that confidential treatment has been requested for this exhibit.
++
Filed herewith.
*
Management contract or compensatory plan or arrangement.
**
As provided in Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed to be “filed” or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and shall not be deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability under those sections.
***
As provided in Rule 406T of Regulation S-T, this exhibit shall not be deemed “filed” or a part of a registration statement
or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and shall not be deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability under those sections.
OCEAN
POWER TECHNOLOGIES, INC., AND SUBSIDIARIES
Index
to Consolidated Financial Statements
|
Page |
|
|
Report of Independent Registered Public Accounting Firm PCAOB ID: 274 |
F-2 |
Consolidated Balance Sheets, as of April 30, 2024 and 2023 |
F-4 |
Consolidated Statements of Operations, for the fiscal years ended April 30, 2024 and 2023 |
F-5 |
Consolidated Statements of Comprehensive Loss, fiscal years ended April 30, 2024 and 2023 |
F-6 |
Consolidated Statements of Shareholders’ Equity, fiscal years ended April 30, 2024 and 2023 |
F-7 |
Consolidated Statements of Cash Flows, fiscal years ended April 30, 2024 and 2023 |
F-8 |
Notes to Consolidated Financial Statements |
F-9 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and Board of Directors
Ocean
Power Technologies, Inc.:
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Ocean Power Technologies, Inc. and Subsidiaries (the “Company”)
as of April 30, 2024 and 2023, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity,
and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company
as of April 30, 2024 and 2023, and the consolidated results of their operations and their cash flows for each of the years then ended,
in conformity with accounting principles generally accepted in the United States of America.
Going
Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
1(b) to the financial statements, the Company has recurring net losses and net cash flow used in operations that raise substantial doubt
about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1(b).
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matter
The
critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue
Recognition
As
described in Note 2 of the consolidated financial statements, a significant portion of the Company’s revenue is generated pursuant
to nonstandard written contractual arrangements to design, develop, and manufacture products, and to provide related technical and other
services according to the specifications of the customers. Because of the uniqueness of the terms and conditions in the customer contracts,
there is significant analysis, and at times significant judgments, that are made by management when evaluating the contracts for proper
revenue recognition. The Company’s performance obligations under these contractual agreements are satisfied over time. For performance
obligations satisfied over time, revenue is generally recognized by measuring progress through costs incurred to date relative to total
estimated costs at completion, which requires management to estimate both total expected project costs and expected gross margin, including
evaluating customer change orders, to determine the appropriate amount of revenue to recognize, which can require significant management
judgment.
We
identified revenue recognition pertaining to customer contracts satisfied over time as a critical audit matter as there are significant
judgments exercised by management evaluating their revenue contracts and in the estimate of the progress towards completion of its projects
and determining the timing of revenue recognition. Given the high degree of management judgment involved in analyzing the terms and conditions
of the Company’s unique customer contracts and the various management estimates that are used in the revenue calculations, the
audit effort required to evaluate management’s judgments in determining revenue recognition for the Company’s contracts was
extensive and required a high degree of auditor judgment.
Addressing
the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. We obtained an understanding of the relevant controls related to revenue recognition specific to management’s
analysis of customer contract terms and application of relevant accounting guidance as well as determination of significant assumptions
used in computing revenue. We selected a sample of contracts with customers and performed the following audit procedures: Obtained the
customer contract, related invoices, purchase orders, and management revenue recognition analysis for a sample of revenue transactions
to evaluate if relevant contractual terms and transaction price were appropriately considered by management and conclusions on revenue
recognition method were in accordance with the relevant accounting guidance; and evaluated management’s estimations of total contract
cost and contract profit by assessing actual costs to date against projections made throughout the course of the contract term.
We
have served as the Company’s auditor since 2020.
/s/
EisnerAmper LLP |
|
EISNERAMPER
LLP |
|
Iselin,
New Jersey |
|
July
25, 2024 |
|
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Balance Sheets
(in
thousands, except share data)
| |
April 30, 2024 | | |
April 30, 2023 | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 3,151 | | |
$ | 6,883 | |
Short-term investments | |
| — | | |
| 27,790 | |
Restricted cash, short-term | |
| — | | |
| 65 | |
Accounts receivable | |
| 796 | | |
| 745 | |
Contract assets | |
| 18 | | |
| 152 | |
Inventory | |
| 4,831 | | |
| 1,044 | |
Other current assets | |
| 1,747 | | |
| 994 | |
Total current assets | |
$ | 10,543 | | |
$ | 37,673 | |
Property and equipment, net | |
| 3,443 | | |
| 1,280 | |
Intangibles, net | |
| 3,622 | | |
| 3,978 | |
Right-of-use assets, net | |
| 2,405 | | |
| 1,751 | |
Restricted cash, long-term | |
| 154 | | |
| 155 | |
Goodwill | |
| 8,537 | | |
| 8,537 | |
Total assets | |
$ | 28,704 | | |
$ | 53,374 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 3,366 | | |
$ | 952 | |
Earn out payable | |
| 1,130 | | |
| 1,500 | |
Accrued expenses | |
| 1,787 | | |
| 2,346 | |
Contract liabilities | |
| 302 | | |
| 1,378 | |
Right-of-use liabilities, current portion | |
| 774 | | |
| 529 | |
Contingent liabilities, current portion | |
| — | | |
| 1,202 | |
Total current liabilities | |
$ | 7,359 | | |
$ | 7,907 | |
Deferred tax liability | |
| 203 | | |
| 203 | |
Right-of-use liabilities, less current portion | |
| 1,798 | | |
| 1,311 | |
Total liabilities | |
$ | 9,360 | | |
$ | 9,421 | |
Commitments and contingencies (Note 15) | |
| - | | |
| | |
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 61,352,731 and 56,304,642 shares, respectively, and outstanding 61,264,714 and 56,263,728 shares, respectively | |
| 61 | | |
| 56 | |
Treasury stock, at cost; 88,017 and 40,914 shares, respectively | |
| (369 | ) | |
| (355 | ) |
Additional paid-in capital | |
| 327,276 | | |
| 324,393 | |
Accumulated deficit | |
| (307,579 | ) | |
| (280,096 | ) |
Accumulated other comprehensive loss | |
| (45 | ) | |
| (45 | ) |
Total shareholders’ equity | |
| 19,344 | | |
| 43,953 | |
Total liabilities and shareholders’ equity | |
$ | 28,704 | | |
$ | 53,374 | |
See
accompanying notes to consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statements of Operations
(in
thousands, except per share data)
| |
2024 | | |
2023 | |
| |
Fiscal year ended April 30, | |
| |
2024 | | |
2023 | |
Revenue | |
$ | 5,525 | | |
$ | 2,732 | |
Cost of revenue | |
| 2,699 | | |
| 2,496 | |
Gross profit | |
| 2,826 | | |
| 236 | |
Loss/(Gain) from change in fair value of consideration | |
| (72 | ) | |
| 1,112 | |
Operating expenses | |
| 32,229 | | |
| 28,340 | |
Total operating expenses | |
| 32,157 | | |
| 29,452 | |
Operating loss | |
$ | (29,331 | ) | |
$ | (29,216 | ) |
Interest income, net | |
| 800 | | |
| 902 | |
Other income, employee retention credit | |
| — | | |
| 1,251 | |
Other income, proceeds from insurance claim | |
| — | | |
| 458 | |
Other income | |
| 2 | | |
| — | |
Loss on disposition of assets (Note 7) | |
| (210 | ) | |
| — | |
Foreign exchange gain | |
| 2 | | |
| 1 | |
Income tax benefit | |
| 1,254 | | |
| 278 | |
Net loss | |
$ | (27,483 | ) | |
$ | (26,326 | ) |
Basic and diluted net loss per share | |
$ | (0.47 | ) | |
$ | (0.47 | ) |
Weighted average shares used to compute basic and diluted net loss per share | |
| 59,031,736 | | |
| 55,998,543 | |
See
accompanying notes to consolidated financial statements.
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Loss
(in
thousands)
| |
2024 | | |
2023 | |
| |
Fiscal year ended April 30, | |
| |
2024 | | |
2023 | |
Net loss | |
$ | (27,483 | ) | |
$ | (26,326 | ) |
Foreign currency translation adjustment | |
| — | | |
| — | |
Total comprehensive loss | |
$ | (27,483 | ) | |
$ | (26,326 | ) |
See
accompanying notes to consolidated financial statements.
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Shareholders’ Equity
(in
thousands, except share data)
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
| |
Common Shares | | |
Treasury Shares | | |
Additional Paid-In
| | |
Accumulated | | |
Accumulated Other Comprehensive | | |
Total Shareholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
Balances at Balances at May 1, 2022 | |
| 55,905,213 | | |
$ | 56 | | |
| (23,352 | ) | |
$ | (341 | ) | |
$ | 322,932 | | |
$ | (253,770 | ) | |
$ | (46 | ) | |
$ | 68,831 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (26,326 | ) | |
| — | | |
| (26,326 | ) |
Share based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,461 | | |
| — | | |
| — | | |
| 1,461 | |
Common stock issued upon vesting of restricted stock units | |
| 399,429 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Shares withheld for tax withholdings | |
| — | | |
| — | | |
| (17,562 | ) | |
| (14 | ) | |
| — | | |
| — | | |
| — | | |
| (14 | ) |
Other comprehensive gain/(loss) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1 | | |
| 1 | |
Balances at April 30, 2023 | |
| 56,304,642 | | |
$ | 56 | | |
| (40,914 | ) | |
$ | (355 | ) | |
$ | 324,393 | | |
$ | (280,096 | ) | |
$ | (45 | ) | |
$ | 43,953 | |
Balance | |
| 56,304,642 | | |
$ | 56 | | |
| (40,914 | ) | |
$ | (355 | ) | |
$ | 324,393 | | |
$ | (280,096 | ) | |
$ | (45 | ) | |
$ | 43,953 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (27,483 | ) | |
| — | | |
| (27,483 | ) |
Share-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,155 | | |
| — | | |
| — | | |
| 1,155 | |
Common stock issued related to bonus and earnout payments | |
| 2,403,846 | | |
| 3 | | |
| — | | |
| — | | |
| 1,247 | | |
| — | | |
| — | | |
| 1,250 | |
Common stock issued upon vesting of restricted stock units | |
| 787,498 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Issuance of common stock - Cantor At The Market offering, net of issuance costs | |
| 55,604 | | |
| — | | |
| — | | |
| — | | |
| 29 | | |
| — | | |
| — | | |
| 29 | |
Issuance of common stock - AGP At The Market offering, net of issuance costs | |
| 1,801,141 | | |
| 2 | | |
| — | | |
| — | | |
| 452 | | |
| — | | |
| — | | |
| 454 | |
Shares withheld for tax withholdings | |
| — | | |
| — | | |
| (47,103 | ) | |
| (14 | ) | |
| — | | |
| — | | |
| — | | |
| (14 | ) |
Balances, April 30, 2024 | |
| 61,352,731 | | |
$ | 61 | | |
| (88,017 | ) | |
$ | (369 | ) | |
$ | 327,276 | | |
$ | (307,579 | ) | |
$ | (45 | ) | |
$ | 19,344 | |
Balance | |
| 61,352,731 | | |
$ | 61 | | |
| (88,017 | ) | |
$ | (369 | ) | |
$ | 327,276 | | |
$ | (307,579 | ) | |
$ | (45 | ) | |
$ | 19,344 | |
See
accompanying notes to consolidated financial statements
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(in
thousands)
| |
2024 | | |
2023 | |
| |
Fiscal year ended April 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (27,483 | ) | |
$ | (26,326 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Foreign exchange gain | |
| (2 | ) | |
| (1 | ) |
Depreciation of fixed assets | |
| 420 | | |
| 183 | |
Amortization of intangible assets | |
| 148 | | |
| 158 | |
Amortization of right-of-use assets | |
| 593 | | |
| 296 | |
(Accretion of discount)/amortization of premium on investments | |
| (290 | ) | |
| 113 | |
Change in contingent consideration liability | |
| (72 | ) | |
| 1,112 | |
Loss on disposal of assets | |
| 210 | | |
| — | |
Stock based compensation | |
| 1,155 | | |
| 1,461 | |
Changes in operating assets and liabilities, net of acquisitions: | |
| | | |
| | |
Accounts receivable | |
| (51 | ) | |
| (262 | ) |
Contract assets | |
| 134 | | |
| 234 | |
Inventory | |
| (3,787 | ) | |
| (602 | ) |
Other assets | |
| (753 | ) | |
| (527 | ) |
Accounts payable | |
| 2,414 | | |
| 47 | |
Accrued expenses | |
| (309 | ) | |
| 1,469 | |
Earn out payable | |
| (500 | ) | |
| — | |
Right-of-use liabilities | |
| (514 | ) | |
| (311 | ) |
Contract liabilities | |
| (1,076 | ) | |
| 1,249 | |
Net cash used in operating activities | |
$ | (29,763 | ) | |
$ | (21,707 | ) |
Cash flows from investing activities: | |
| | | |
| | |
Redemptions of short term investments | |
$ | 35,975 | | |
$ | 64,923 | |
Purchases of short term investments | |
| (7,894 | ) | |
| (43,442 | ) |
Purchases of property and equipment | |
| (2,585 | ) | |
| (648 | ) |
Leased WAM-Vs built and capitalized | |
| — | | |
| (371 | ) |
Net cash provided by investing activities | |
$ | 25,496 | | |
$ | 20,462 | |
Cash flows from financing activities: | |
| | | |
| |