Item 1. Financial Statements
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Balance Sheets
(in
$000’s, except share data)
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statements of Operations
(in
$000’s, except per share data)
Unaudited
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statements of Comprehensive Loss
(in
$000’s)
Unaudited
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statement of Shareholders’ Equity
(in
$000’s, except share data)
Unaudited
| |
Six
Months Ended October 31, 2021 | |
| |
Common
Shares | | |
Treasury
Shares | | |
Additional Paid-In
| | |
Accumulated
| | |
Accumulated
Other
Comprehensive
| | |
Total Shareholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balances
at May 1, 2021 | |
| 52,479,051 | | |
$ | 52 | | |
| (21,040 | ) | |
$ | (338 | ) | |
$ | 315,821 | | |
$ | (234,896 | ) | |
$ | (171 | ) | |
$ | 80,468 | |
Net
loss | |
| | | |
| — | | |
| | | |
| — | | |
| — | | |
| (8,250 | ) | |
| — | | |
| (8,250 | ) |
Share-based
compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 547 | | |
| — | | |
| — | | |
| 547 | |
Proceeds
from stock options exercises | |
| 20,000 | | |
| — | | |
| | | |
| — | | |
| 21 | | |
| | | |
| — | | |
| 21 | |
Other
comprehensive gain | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (45 | ) | |
| 32 | | |
| (13 | ) |
Balances
at October 31, 2021 | |
| 52,499,051 | | |
$ | 52 | | |
| (21,040 | ) | |
$ | (338 | ) | |
$ | 316,389 | | |
$ | (243,191 | ) | |
$ | (139 | ) | |
$ | 72,773 | |
| |
Three
Months Ended October 31, 2022 | |
| |
Common
Shares | | |
Treasury
Shares | | |
Additional Paid-In
| | |
Accumulated
| | |
Accumulated
Other Comprehensive
| | |
Total Shareholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
Balance at July 31, 2022 | |
| 55,921,880 | | |
$ | 56 | | |
| (23,352 | ) | |
$ | (341 | ) | |
$ | 323,265 | | |
$ | (259,622 | ) | |
$ | (46 | ) | |
| 63,312 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,844 | ) | |
| — | | |
| (4,844 | ) |
Share-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 299 | | |
| — | | |
| — | | |
| 299 | |
Balance, October 31, 2022 | |
| 55,921,880 | | |
$ | 56 | | |
| (23,352 | ) | |
$ | (341 | ) | |
$ | 323,564 | | |
$ | (264,466 | ) | |
$ | (46 | ) | |
$ | 58,767 | |
| |
Three
Months Ended October 31, 2021 | |
| |
Common
Shares | | |
Treasury
Shares | | |
Additional Paid-In | | |
Accumulated
| | |
Accumulated Other Comprehensive
| | |
Total Shareholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
Balances at August 1, 2021 | |
| 52,479,051 | | |
$ | 52 | | |
| (21,040 | ) | |
$ | (338 | ) | |
$ | 316,211 | | |
$ | (237,975 | ) | |
$ | (185 | ) | |
$ | 77,765 | |
Net loss | |
| — | | |
$ | — | | |
| — | | |
$ | — | | |
$ | — | | |
$ | (5,171 | ) | |
$ | — | | |
$ | (5,171 | ) |
Share-based compensation | |
| — | | |
$ | — | | |
| — | | |
$ | — | | |
$ | 157 | | |
$ | — | | |
$ | — | | |
$ | 157 | |
Proceeds from stock options exercises | |
| 20,000 | | |
$ | — | | |
| — | | |
$ | — | | |
$ | 21 | | |
$ | — | | |
$ | — | | |
$ | 21 | |
Other comprehensive gain/(loss) | |
| — | | |
$ | — | | |
| — | | |
$ | — | | |
$ | — | | |
$ | (45 | ) | |
$ | 46 | | |
$ | 1 | |
Balances at Balance, October 31, 2021 | |
| 52,499,051 | | |
$ | 52 | | |
| (21,040 | ) | |
$ | (338 | ) | |
$ | 316,389 | | |
$ | (243,191 | ) | |
$ | (139 | ) | |
$ | 72,773 | |
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(in
$000’s)
Unaudited
See
accompanying notes to unaudited consolidated financial statements.
Ocean
Power Technologies, Inc. and Subsidiaries
Notes
to Unaudited Consolidated Financial Statements
(1)
Background, Basis of Presentation and Liquidity
(a)
Background
Ocean
Power Technologies, Inc. (“OPTI”) was founded in 1984 in New Jersey, commenced business operations in 1994 and re-incorporated
in Delaware in 2007. Ocean Power Technologies, Inc. acquired 3dent Technology, LLC (“3Dent”), in February 2021 and Marine
Advanced Robotics, Inc. (“MAR”) in November 2021, both of which are now included as part of OPTI. OPTI, along with its subsidiaries,
(the “Company”) is a complete solutions provider, controlling the design, manufacturing, sales, installation, operations
and maintenance of its products and services. The Company’s solutions provide distributed offshore power and data which is persistent,
reliable, and economical along with power and communications for remote surface and subsea applications. Historically, funding from government
agencies, such as research and development grants, accounted for a significant portion of the Company’s revenues. Today the Company’s
goal is to generate the majority of its revenues from the sale or lease of its products and solutions, and sales of services to support
business operations.
(b)
Basis of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) and for interim financial information in accordance with the Securities and Exchange
Commission (“SEC”), instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information
and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been included. The interim operating results are not necessarily
indicative of the results for a full year or for any other interim period. Further information on potential factors that could affect
the Company’s financial results can be found in the Company’s Annual Report on Form 10-K for the year ended April 30, 2022,
as filed with the SEC and elsewhere in this Form 10-Q. Certain items have been reclassified from prior periods to be consistent with current GAAP presentations.
(c)
Liquidity
For
the six months ended October 31, 2022, the Company incurred net losses of approximately $10.7
million, used cash in operations of approximately $11.0
million and had an accumulated deficit of approximately $264.5
million. The Company has continued to make investments in ongoing product development efforts in anticipation of, and to support,
future growth. The Company has also made investments to build its inventory in anticipation of this future growth. The
Company’s future results of operations involve significant risks and uncertainties. Factors that could affect the
Company’s future operating results and could cause actual results to vary materially from expectations include, but are not
limited to, the risks and uncertainties identified under “Special Note Regarding Forward-Looking Statements” in this
quarterly report on Form 10-Q. The Company previously obtained equity financing through its At the Market Offering Agreement
(“ATM”) with A.G.P/Alliance Global Partners (“AGP”) and through its equity line financing with Aspire
Capital Fund, LLC (“Aspire Capital”), but the Company cannot be sure that additional equity and/or debt financing will
be available to the Company as needed on acceptable terms, or at all. Management believes the Company’s current cash balance
at October 31, 2022 of $10.3 million and
marketable securities balance of $35.9
million is sufficient to fund its planned expenditures through at least December 2023.
On
November 20, 2020, the Company entered into an At the Market Offering Agreement with AGP (the “2020 ATM Facility”), having
capacity up to $100.0 million. On December 4, 2020, the Company filed a prospectus with the Securities and Exchange Commission whereby,
the Company could issue and sell to or through AGP, acting as agent and/or principal, shares of the Company’s common stock having
an aggregate offering price of up to $50.0 million. From inception of the 2020 ATM Facility through July 31, 2021, the Company had sold
and issued an aggregate of 17,179,883 shares of its common stock with an aggregate market value of $50.0 million at an average price
of $2.91 per share and paid AGP a sales commission of approximately $1.6 million related to those shares. A prospectus supplement was
filed on January 10, 2022 to allow the Company to sell an additional $25.0 million (or an aggregate of $75.0 million) under the 2020
ATM Facility, none of which has been sold to date.
On
September 18, 2020, the Company entered into a common stock purchase agreement with Aspire Capital which provided that, subject to certain
terms, conditions and limitations, Aspire Capital was committed to purchase up to an aggregate of $12.5 million shares of the Company’s
common stock over a 30-month period subject to a limit of 19.99% of the outstanding common stock on the date of the agreement if the
price did not exceed a specified price in the agreement. The number of shares the Company could issue within the 19.99% limit was 3,722,251
shares without shareholder approval. Shareholder approval was received at the Company’s annual meeting of shareholders on December
23, 2020 for the sale of 9,864,706 additional shares of common stock which exceeded the 19.99% limit of the outstanding common stock
on the date of the agreement. Through October 31, 2022, the Company had sold an aggregate of 3,722,251 shares of common stock with an
aggregate market value of $11.8 million at an average price of $3.17 per share pursuant to this common stock purchase agreement with
approximately $0.7 million remaining on the facility as of October 31, 2022.
(2)
Summary of Significant Accounting Policies
(a)
Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, Ocean Power Technologies
Ltd. in the United Kingdom, and Ocean Power Technologies (Australasia) Pty Ltd. in Australia (“OPT-A”). OPT-A is in the process
of being liquidated due to inactivity. All documents have been filed with the Australian Tax Organization and the Company expects this
to be completed in the current fiscal year. All significant intercompany accounts and transactions have been eliminated in consolidation.
(b)
Use of Estimates
The
preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions
relating to the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the period. Significant items subject to such estimates and assumptions include, among other items, stock-based
compensation, valuations, purchase price allocations and contingent consideration related to business combinations, expected future cash
flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability
of long-lived assets, goodwill and other intangible assets and the related amortization methods and periods, estimated hours and costs
to complete customer contracts for purposes of revenue recognition. Actual results could differ from those estimates.
(c)
Cash, Cash Equivalents, Restricted Cash and Security Agreements and Marketable Securities
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company
invests excess cash in a money market account or in short term held-to-maturity marketable securities. The Company had cash and cash
equivalents $10.0 million as of October 31, 2022 and $7.9 million as of April 30, 2022.
Restricted
Cash and Security Agreements
The
Company has a letter of credit agreement with Santander Bank, N.A. (“Santander”). Cash of $154,000 is on deposit at Santander
and serves as security for a letter of credit issued by Santander for the lease of warehouse/office space in Monroe Township, New Jersey.
This agreement cannot be extended beyond July 31, 2025 and is cancelable at the discretion of the bank.
Santander
also issued a letter of credit to subsidiaries of Enel Green Power (“EGP”) pursuant to the Company’s contracts with
EGP. This letter of credit was originally issued in the amount of $645,000 and was reduced to $323,000 in August 2020. The letter of
credit will be reduced by an additional $258,000 once the PowerBuoy® (“PB3”) and its accompanying systems pass final
acceptance testing which the Company expects to take place during the third quarter of fiscal year 2023. The remaining restricted amount
of $65,000 will be released 12 months after the buoy is fully deployed.
The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets
that total to the same amounts shown in the Consolidated Statements of Cash Flows.
Schedule of Cash and Cash Equivalents and Restricted Cash
| |
October
31,
2022 | | |
April
30,
2022 | |
| |
(in thousands) | |
Cash and cash equivalents | |
$ | 10,030 | | |
$ | 7,885 | |
Restricted cash- short term | |
| 258 | | |
| 258 | |
Restricted cash- long
term | |
| 219 | | |
| 219 | |
Cash, cash equivalents,
restricted cash and restricted cash equivalents | |
$ | 10,507 | | |
$ | 8,362 | |
Marketable
Securities
During
fiscal 2022, the Company acquired investment securities through Charles Schwab Bank. As of October 31, 2022 and April 30, 2022, their
value was approximately $35.9 million and $49.4 million, respectively. All marketable securities consist of corporate bonds, government
agency bonds, or U.S. Treasury Notes and Bonds, are investment grade rated or better, and mature within 12 months. The Company has the
ability and the intention to hold all investments to maturity, and as such are classified as held-to-maturity investments and carried
at amortized cost. The total recognized interest expense on the premium we paid for the securities as of October 31, 2022 and 2021 is
approximately $0.2 million and zero, respectively, on an amortized cost basis of approximately $0.3 million and zero, respectively. Additionally,
there has been no impairment on these investments.
The
following table summarizes the Company’s marketable securities as of October 31, 2022:
Schedule of Investments and Unrealized Gains/Losses
Category | |
Amortized
Cost | | |
Unrealized
Gains
(Losses) | | |
Market
Value | |
Corporate Bonds | |
$ | 27,364 | | |
$ | (23 | ) | |
$ | 27,341 | |
Government Bonds & Notes | |
| 5,008 | | |
$ | — | | |
| 5,008 | |
Government Agency | |
| 3,496 | | |
$ | (5 | ) | |
| 3,491 | |
Total Marketable Securities | |
$ | 35,868 | | |
$ | (28 | ) | |
$ | 35,840 | |
(d)
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist principally of trade accounts receivable, marketable securities
and cash. The Company believes that its credit risk is limited because the Company’s current contracts are with companies with
a reliable payment history. The Company invests its excess cash in a money market fund and short term held-to maturity investments and
does not believe that it is exposed to any significant risks related to its cash accounts, money market fund, or held-to maturity investments.
Cash is also maintained at foreign financial institutions. Cash in foreign financial institutions as of October 31, 2022 was approximately
$5,000.
For
the six months ended October 31, 2022 and 2021, the Company had four and three customers whose revenues accounted for at least 10% of
the Company’s consolidated revenues, respectively. These revenues accounted for approximately 69% and 73% of the Company’s
total revenues for the respective periods. For the three months ended October 31, 2022 and 2021, the Company had five and four customers
whose revenues accounted for at least 10% of the Company’s consolidated revenues, respectively. These revenues accounted for approximately
80% and 76% of the Company’s total revenues for the respective periods.
(e)
Share-Based Compensation
Costs
resulting from all share-based payment transactions are recognized in the consolidated financial statements at their fair values.
The aggregate share-based compensation expense recorded in the Consolidated Statements of Operations for the six months ended
October 31, 2022 and 2021 was approximately $0.6
million and $0.5
million, respectively. For the three months ended October 31, 2022 and 2021, share-based compensation expense was $0.3
million and $0.2
million, respectively.
(f)
Revenue Recognition
The
Company accounts for revenues in accordance with Accounting Standards Codification 606 (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 either: a) a good or service (or a bundle of goods or services) that is distinct; or b) a series
of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. A contract
may contain a single or multiple performance obligations. For contracts with multiple performance obligations, the Company allocates
the contracted transaction price to each performance obligation based upon the relative standalone selling price, which represents the
price the Company would sell a promised good or service separately to a customer. The Company determines the standalone selling price
based upon the facts and circumstances of each obligated good or service. The majority of the Company’s contracts have no observable
standalone selling price since the associated products and services are customized to customer specifications. As such, the standalone
selling price generally is 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 October 31, 2022 or 2021. 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 incurred or labor hours 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 projects are re-assessed
for each subsequent reporting period until the project is complete. Such revisions could occur at any time and the effects may be material.
The
Company’s contracts are either cost-plus, 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 revenues, resulting in gross profit on these contracts of zero. The Company’s share of the
costs is recorded as product development expense. The Company reports its disaggregation of revenues by contract type since this method
best represents the Company’s business. For the six-month periods ended October 31, 2022 and 2021, all of the Company’s contracts
were classified as firm fixed-price.
The
Company at times enters into agreements with government agencies through SBIR contract agreements. These are typically fixed-priced
agreements where the Company retains ownership of the data and grants the government a license with unlimited rights to use, disclose,
reproduce, prepare derivative works and publicly distribute the data.
Time
and materials agreements are billed based solely on the cost of time spent working on the contract and the material used.
As
of October 31, 2022, the Company’s total remaining performance obligations, also referred to as backlog, totaled $2.4 million.
The Company expects to recognize approximately 77%, or $1.8 million, for the remaining performance obligations as revenue over the next twelve months.
The
Company also enters into lease arrangements for its PowerBuoys and Wave Adaptive Modular Vessels (“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 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 an option to extend the lease term or purchase the leased PB3 or WAM-V® at some point
during and/or at the end of the lease term.
The
Company classifies leases as either operating or financing in accordance with the authoritative accounting guidance contained within
ASC Topic 842, “Leases”. At inception of the contract, the Company evaluates the lease against the lease classification criteria
within ASC Topic 842. If the direct financing or sales-type classification criteria are met, then the lease is accounted for as a finance
lease. All others are treated as operating leases.
The
Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term which is presented
in Revenues in the Consolidated Statement of Operations. Lease revenues were de minimus for the three and six months ended October 31,
2022 and 2021.
(g)
Other Income – Employee Retention Credit
The
Coronavirus Aid, Relief and Economic Security (“CARES”) Act provides an employee retention credit (“CARES ERC”),
which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit
is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee through December
31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage
caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70% of qualified
wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $10,000 of qualified wages
per quarter. The Company qualifies for the tax credit under the CARES Act.
During
the three-month period ended October 31, 2022, the Company claimed CARES ERC’s of approximately $612,000 and $590,000 for the fiscal
years ended April 30, 2021 and 2022, respectively, and recognized approximately $1,202,000 as other income in the statement of operations
for the three and six-month periods ended October 31, 2022. Claimed CARES ERC’s are expected to be settled during the year ended April
30, 2023 and have been recorded within other current assets in the accompanying balance sheet as of October 31, 2022.
In
November 2022 the company received approximately $200,000 from the IRS related to the receivable.
(h)
Net Loss per Common Share
Basic
and diluted net loss per share for all periods presented is computed by dividing net loss by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. The pre-funded warrants (Note 11) were determined to be common
stock equivalents and were included in the weighted average number of shares outstanding for calculation of the basic earnings per share
number before being exercised.
Due
to the Company’s net losses, potentially dilutive securities, consisting of options to purchase shares of common stock, potential
exercises of warrants on common stock and unvested restricted stock issued to employees and non-employee directors, were excluded from
the diluted loss per share calculation due to their anti-dilutive effect.
In
computing diluted net loss per share on the Consolidated Statement of Operations, potential exercises of warrants on common stock, options
to purchase shares of common stock and non-vested restricted stock issued to employees and non-employee directors, totaling 6,242,465
and 4,928,474 for the six months ended October 31, 2022 and 2021, respectively, were excluded from each of the computations as the effect
would be anti-dilutive.
(i)
Recently Issued Accounting Standards
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments -
Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” This amendment replaces the incurred
loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope,
including trade receivables. This update is intended to provide financial statement users with more decision-useful information about
the expected credit losses. In November 2019, the FASB issued No. 2019-10, Financial Instruments—Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date of ASU 2016-13 for Smaller Reporting
Companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently
evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.
(3)
Account Receivable, Contract Assets and Contract Liabilities
The
following provides further details on the balance sheet accounts of accounts receivable, contract assets and contract liabilities from
contracts with customers:
Schedule of Accounts Receivable, Contract Assets and Contract Liabilities
| |
October
31,
2022 | | |
April
30,
2022 | |
| |
(in thousands) | |
Accounts receivable | |
$ | 587 | | |
$ | 482 | |
Contract assets | |
| 301 | | |
| 386 | |
Contract liabilities | |
| 1,462 | | |
| 129 | |
Accounts
Receivable
The
Company grants credit to its customers, generally without collateral, under normal payment terms (typically 30 to 60 days after invoicing).
Generally, invoicing occurs after the related services are performed or control of goods have transferred to the customer. Accounts receivable
represent an unconditional right to consideration arising from the Company’s performance under contracts with customers. The carrying
value of such receivables represents their estimated realizable value.
Contract
Assets
Contract
assets include unbilled amounts typically resulting from arrangements whereby the right to payment is conditional on completing
additional tasks or services for a performance obligation. The decrease in contract assets is primarily a result of services
performed relating to MAR projects for which revenue was recognized in prior periods but was billed during the six months ended
October 31, 2022.
Significant
changes in the contract assets balances during the period were as follows:
Schedule of Significant Changes in Contract assets and Contract Liabilities
| |
Six
months ended October 31,
2022 | |
| |
(in thousands) | |
Transferred to receivables from
contract assets recognized at the beginning of the period | |
$ | (132 | ) |
Revenue recognized and
not billed as of the end of the period | |
| 47 | |
Net change in contract
assets | |
$ | (85 | ) |
Contract
Liabilities
Contract
liabilities consist of amounts invoiced to customers in excess of revenue recognized. The increase in contract liabilities is primarily
due to payments received for the following: $1.0 million related to future grant revenue and $0.4 million for future sales revenue during
the six months ended October 31, 2022 for which we have not recognized revenue.
(4)
Inventory
The
Company holds inventory related to the production of its WAM-V® and PowerBuoy® products.
Schedule of Inventory
| |
October
31,
2022 | | |
April
30,
2022 | |
| |
(in thousands) | |
Raw Materials | |
$ | 748 | | |
$ | 198 | |
Work in Process | |
| 280 | | |
| 244 | |
Inventory, net | |
$ | 1,028 | | |
$ | 442 | |
(5)
Other Current Assets
Other
current assets consisted of the following at October 31, 2022 and April 30, 2022:
Schedule of Other Current Assets
| |
October
31,
2022 | | |
April
30,
2022 | |
| |
(in thousands) | |
Prepaid insurance | |
$ | 660 | | |
$ | 182 | |
Prepaid software & licenses | |
| 189 | | |
| 127 | |
Prepaid project costs | |
| 153 | | |
| — | |
Prepaid sales & marketing | |
| 85 | | |
| 50 | |
Employee retention credit receivable | |
| 1,202 | | |
| — | |
Interest receivable | |
| 195 | | |
| — | |
Other receivables | |
| 17 | | |
| 24 | |
Prepaid expenses- other | |
| 146 | | |
| 84 | |
Total other current assets | |
$ | 2,647 | | |
$ | 467 | |
(6)
Property and Equipment, net
The
components of property and equipment, net as of October 31, 2022 and April 30, 2022 consisted of the following:
Schedule of Components of Property and Equipment
| |
October
31,
2022 | | |
April
30,
2022 | |
| |
(in thousands) | |
Equipment | |
$ | 806 | | |
$ | 615 | |
Computer equipment & software | |
| 596 | | |
| 571 | |
Office furniture & equipment | |
| 61 | | |
| 352 | |
Leasehold improvements | |
| 503 | | |
| 477 | |
Construction in process | |
| 15 | | |
| 15 | |
Property and equipment, gross | |
| 1,981 | | |
| 2,030 | |
Less: accumulated depreciation | |
| (1,475 | ) | |
| (1,585 | ) |
Property and equipment,
net | |
$ | 506 | | |
$ | 445 | |
Depreciation
expenses were approximately $117,000 and $70,000 for the six-month periods ended October 31, 2022 and 2021, respectively. During the six
months ended October 31, 2022, the Company had approximately $227,000 of fully depreciated fixed assets that were no longer in use that
were written off and purchased approximately $179,000 of new equipment.
(7)
Intangible Assets
The
components of intangible assets, net as of October 31, 2022 and April 30, 2022 consisted of the following:
Schedule
of Components of Intangible Assets
| |
October
31,
2022 | | |
April
30,
2022 | |
| |
(in thousands) | |
Patents | |
$ | 2,729 | | |
$ | 2,729 | |
Trademarks | |
$ | 2,769 | | |
$ | 2,769 | |
Tradename | |
$ | 130 | | |
$ | 130 | |
Customer Relationships | |
$ | 150 | | |
$ | 150 | |
Intangible assets, gross | |
$ | 5,778 | | |
$ | 5,778 | |
Accumulated amortization | |
$ | (1,721 | ) | |
$ | (1,642 | ) |
Intangible assets, net | |
$ | 4,057 | | |
$ | 4,136 | |
Amortization expense was approximately
$79,000 and $12,000 for the six-month periods ended October 31, 2022 and 2021, respectively. Amortization expense was approximately
$40,000 and $6,000 for the three-month periods ended October 31, 2022 and 2021, respectively.
(8)
Goodwill
Goodwill
in the amount of $8.5 million was recognized in November 2021 related to the acquisition of MAR. There have been no additions to
or impairment of goodwill during the six-month period ended October 31, 2022.
(9)
Leases
Lessee
Information
Right-of-use
asset and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term
at commencement date. When the implicit rate of the lease is not provided or cannot be determined, the Company uses the incremental borrowing
rate based on the information available at the effective date to determine the present value of future payments. Lease terms may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. The renewal options
have not been included in the lease term as they are not reasonably certain of exercise. The Company’s operating leases consist
of leases for office facilities and warehouse space. Lease expense for minimum lease payments is recognized on a straight- line basis
over the lease term and consists of interest on the lease liability and the amortization of the right of use asset.
The
Company has a lease for its facility located in Monroe Township, New Jersey that is used as warehouse/production space and the Company’s
principal offices and corporate headquarters. The lease reflects an initial lease term of seven years which is set to expire in November
of 2024 and contains an option to extend the lease for another five years. The lease is classified as an operating lease and is included
in right-of-use assets, lease liabilities- current and lease liabilities- long-term on the Company’s Consolidated Balance Sheets.
The
Company also has a lease located in Houston, Texas that was acquired as part of the 3Dent acquisition that is used for office space.
The lease term is for 3
years and is set to expire
in January of 2023 and the Company is evaluating its options with respect to the lease. The lease is classified as an
operating lease and included in the right-of-use assets and lease liabilities- current on the Company’s Consolidated Balance
Sheets.
The
Company also has a lease with the University of California Berkeley in Richmond, California that was acquired as part of the MAR acquisition.
The lease is currently a month-to-month lease in accordance with the lease agreement. In accordance with ASC 842-20-5-2, since the remaining
lease term at the time of the acquisition of MAR was less than 12 months, the lease was not recognized as a right-of-use asset.
The
operating lease cash flow payments for the three months ended October 31, 2022 and 2021 were $108,000 and $102,000, respectively. The
operating lease cash flow payments for the six months ended October 31, 2022 and 2021 were $215,000 and $204,000, respectively.
The
components of lease expense in the Consolidated Statement of Operations for the three and six months ended October 31, 2022 and 2021
were as follows:
Schedule of Operating Lease Costs
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three
months ended
October 31, | | |
Six
months ended
October 31, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
(in thousands) | | |
(in thousands) | |
Operating lease cost | |
$ | 92 | | |
$ | 92 | | |
$ | 184 | | |
$ | 184 | |
Short-term lease cost | |
| 8 | | |
| 5 | | |
| 16 | | |
| — | |
Total lease cost | |
$ | 100 | | |
$ | 97 | | |
$ | 200 | | |
$ | 184 | |
Information
related to the Company’s right-of use assets and lease liabilities as of October 31, 2022 was as follows:
Schedule of Right-of Use Assets and Lease Liabilities
| |
October
31,
2022 | |
| |
(in thousands) | |
| |
| |
Operating lease: | |
| | |
Operating
right-of-use asset, net | |
$ | 600 | |
| |
| | |
Right-of-use liability-
current | |
$ | 324 | |
Right-of-use
liability- long term | |
| 367 | |
Total lease liability | |
$ | 691 | |
| |
| | |
Weighted average remaining lease term- operating
leases | |
| 1.92
years | |
Weighted average discount rate- operating leases | |
| 8.4 | % |
Total
remaining lease payments under the Company’s operating leases are as follows:
Schedule of Future Minimum Lease Payments Under Operating Lease
| |
October
31,
2022 | |
| |
(in thousands) | |
| |
| |
Remainder of fiscal year 2023 | |
$ | 196 | |
2024 | |
| 362 | |
2025 | |
| 184 | |
Total future minimum lease payments | |
$ | 742 | |
Less imputed interest | |
| (51 | ) |
Total | |
$ | 691 | |
(10)
Accrued Expenses
Accrued
expenses consisted of the following at October 31, 2022 and April 30, 2022:
Schedule of Accrued Expenses
| |
October
31,
2022 | | |
April
30,
2022 | |
| |
(in thousands) | | |
| |
Project costs | |
$ | 238 | | |
$ | 59 | |
Contract loss reserve | |
| 435 | | |
| 328 | |
Employee incentive payments | |
| 721 | | |
| 266 | |
Accrued salary and benefits | |
| 1 | | |
| 60 | |
Legal and accounting fees | |
| 68 | | |
| 30 | |
Other | |
| 94 | | |
| 134 | |
Accrued expenses total | |
$ | 1,557 | | |
$ | 877 | |
(11)
Warrants
Equity
Classified Warrants
On
April 8, 2019, the Company issued and sold 1,542,000 shares of common stock and pre-funded warrants to purchase up to 3,385,680 shares
of common stock and common warrants to purchase up to 4,927,680 shares of common stock in an underwritten public offering. The public
offering price for the pre-funded warrants was equal to the public offering price of the common stock, less the $0.01 per share exercise
price of each warrant. The pre-funded warrants have no expiration date. As of October 31, 2022, all of the pre-funded warrants had been
exercised. The common stock warrants have an exercise price of $3.85 per share and expire five years from the issuance date. As of October
31, 2022, warrants to purchase 732,500 shares of the common stock had been exercised.
The
pre-funded and common warrants issued in the Company’s April 8, 2019 public offering did not meet the criteria to be classified
as a liability award and therefore were treated as an equity award and recorded as a component of shareholders’ equity in the Consolidated
Balance Sheets.
(12)
Paycheck Protection Program Loan
On
March 27, 2020, the U.S. Government passed into law the Coronavirus Aid, Relief and Economic Security Act, or the (“CARES Act”).
On May 3, 2020, the Company signed a Paycheck Protection Program (“PPP”) loan with Santander as the lender for $891,000 in
support through the Small Business Association (“SBA”) under the PPP Loan. The PPP Loan was unsecured and evidenced by a
note in favor of Santander and governed by a Loan Agreement with Santander. The Company received the proceeds on May 5, 2020.
The
Company filed its loan forgiveness application at the end of February 2021 asking for 100% forgiveness of the loan. In June 2021, the
Company was informed that its application was approved, and that the loan was fully forgiven. The Company recognized a gain on forgiveness
of PPP loan of approximately $891,000 during the six months ended October 31, 2021.
(13)
Share-Based Compensation
In
2015, upon approval by the Company’s shareholders, the Company’s 2015 Omnibus Incentive Plan (the “2015
Plan”) became effective. A total of 1,332,036
shares were authorized for issuance under the 2015 Omnibus Incentive Plan, including shares available for awards under the 2006
Stock Incentive Plan remaining at the time that plan terminated, or that were subject to awards under the 2006 Stock Incentive Plan
that thereafter terminated by reason of expiration, forfeiture, cancellation or otherwise. If any award under the 2006 Stock
Incentive Plan or 2015 Plan expires, is cancelled, terminates unexercised or is forfeited, those shares become again available for
grant under the 2015 Plan. The 2015 Plan will terminate ten years after its effective date, in October 2025, but is subject to
earlier termination as provided in the 2015 Plan. As of October 31, 2022, the Company had approximately 830,000
shares available for future issuance under the 2015 Plan.
On
January 18, 2018, the Company’s Board of Directors adopted the Company’s Employment Inducement Incentive Award Plan (the
“2018 Inducement Plan”) pursuant to which the Company reserved 25,000
shares of common stock for issuance under the Inducement Plan. In accordance with Rule 711(a) of the NYSE American Company Guide,
awards under the Inducement Plan may only be made to individuals not previously employees of the Company (or following such
individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals’ entry
into employment with the Company. An award is any right to receive the Company’s common stock pursuant to the 2018 Inducement
Plan, consisting of a performance share award, restricted stock award, a restricted stock unit award or a stock payment award. On
February 9, 2022, the 2018 Inducement Plan was amended to increase the authorized shares by 250,000
to 275,000.
As of October 31, 2022, there were approximately 211,000
shares available for grant under the 2018 Inducement Plan. The 2015 Plan and the 2018 Inducement Plan together comprise the
“Stock Incentive Plans”.
Stock
Options
The
Company estimates the fair value of each stock option award granted with service-based vesting requirements, using the Black-Scholes
option pricing model, assuming no dividends, and using weighted average valuation assumptions. The risk-free rate is based on the
US Treasury yield curve in effect at the time of grant commensurate with the expected life of the award. The expected life (estimated
period of time outstanding) of the stock options granted was estimated using the “simplified” method as permitted by the
SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment. Expected volatility is based on the Company’s historical
volatility over the expected life of the stock option granted. The Company did not grant any stock options during the three and six months
ended October 31, 2022 or 2021.
A
summary of stock options under our Stock Incentive Plans is detailed in the following table.
Schedule of Stock Option Activity
| |
Shares Underlying
Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term (In
Years) | |
Outstanding as of April 30, 2022 | |
| 1,110,356 | | |
$ | 2.34 | | |
| 9.2 | |
Granted | |
| — | | |
$ | — | | |
| | |
Exercised | |
| — | | |
$ | — | | |
| | |
Cancelled/forfeited | |
| (122,324 | ) | |
$ | 1.51 | | |
| | |
Outstanding as of October 31, 2022 | |
| 988,032 | | |
$ | 2.39 | | |
| 8.6 | |
Exercisable as of October 31, 2022 | |
| 291,541 | | |
$ | 4.53 | | |
| 7.3 | |
As
of October 31, 2022, the total intrinsic value of outstanding and exercisable options was approximately zero. As of October 31, 2022,
approximately 696,000 options were unvested, which had an intrinsic value of zero and a weighted average remaining contractual term of
9.2 years. There was approximately $168,000 and $115,000 of total recognized compensation cost related to stock options during each of
the six months ended October 31, 2022 and 2021, respectively. There was approximately $72,000 and $5,000 of total recognized compensation
cost related to stock options during each of the three months ended October 31, 2022 and 2021, respectively. The three month compensation
expense was lower as of October 31, 2021 due to a larger number of forfeitures related to the departure of some of the executive
management team in the prior year. As of October 31, 2022, there was approximately $0.6 million of total unrecognized compensation cost
related to non-vested stock options granted under the plans. This cost is expected to be recognized over a weighted-average period of
2.1 years.
Performance
Stock Options
A
summary of performance stock options under our Stock Incentive Plans is detailed in the following table.
Schedule of Stock Option Activity
| |
Shares Underlying Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term (In
Years) | |
Outstanding as of April 30, 2022 | |
| 210,122 | | |
$ | 2.20 | | |
| 8.8 | |
Granted | |
| — | | |
$ | — | | |
| | |
Exercised | |
| — | | |
$ | — | | |
| | |
Cancelled/forfeited | |
| (8,466 | ) | |
$ | 2.93 | | |
| | |
Outstanding as of October 31, 2022 | |
| 201,656 | | |
$ | 2.17 | | |
| 8.3 | |
Exercisable as of October 31, 2022 | |
| — | | |
$ | — | | |
| | |
As
of October 31, 2022, approximately 202,000 options were unvested, which had an intrinsic value of zero and a weighted average remaining
contractual term of 8.3 years. There was approximately $101,000 and $61,000 of total recognized compensation cost related to stock options
during the six months ended October 31, 2022 and 2021, respectively. There was approximately $48,000 and $(34,000) of total recognized
compensation cost related to stock options during the three months ended October 31, 2022 and 2021, respectively. The three month compensation
expense was negative as of October 31, 2021 due to a larger number of forfeitures related to the departure of some of the
executive management team in the prior year. As of October 31, 2022, there was approximately $0.1 million of total unrecognized compensation
cost related to non-vested stock options granted under the plans. This cost is expected to be recognized over a weighted-average period
of 0.4 years.
Restricted
Stock
Compensation
expense for non-vested restricted stock is generally recorded based on its market value on the date of grant and recognized ratably over
the associated service and performance period. During the six months ended October 31, 2022 and 2021, the Company granted 52,500 and
33,333 shares, respectively, that were subject to service-based vesting requirements.
A
summary of non-vested restricted stock under our Stock Incentive Plans is as follows:
Schedule of Non-vested Restricted Stock Activity
| |
Number of
Shares | | |
Weighted Average
Price
per Share | |
Unvested at April 30, 2022 | |
| 827,764 | | |
$ | 1.41 | |
Granted | |
| 52,500 | | |
$ | 1.12 | |
Vested and issued | |
| (16,667 | ) | |
$ | 2.37 | |
Cancelled/forfeited | |
| (6,000 | ) | |
| | |
Unvested at October 31, 2022 | |
| 857,597 | | |
$ | 1.37 | |
There
was approximately $364,000 and $29,000 of total recognized compensation cost related to restricted stock for the six months ended October
31, 2022 and 2021, respectively. There was approximately $180,000 and $143,000 of total recognized compensation cost related to restricted
stock for the three months ended October 31, 2022 and 2021, respectively. As of October 31, 2022, there was approximately $636,000 of
unrecognized compensation cost remaining related to unvested restricted stock granted under our plans. This cost is expected to be recognized
over a weighted-average period of 1.7 years.
(14)
Fair Value Measurements
ASC
Topic 820, “Fair Value Measurements” states that fair value is an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs
used to measure fair value. This hierarchy maximizes the use of observable input and minimizes the use of unobservable inputs. The following
is a description of the three hierarchy levels.
Level
1 |
Unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
|
|
Level
2 |
Inputs
other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly. |
|
|
Level
3 |
Inputs
that are unobservable for the asset or liability. |
Disclosure
of Fair Values
The
Company’s financial instruments that are not re-measured at fair value include cash, cash equivalents, restricted cash, accounts
receivable, contract assets and liabilities, deposits, accounts payable, and accrued expenses. The Company’s contingent consideration
liability represents the only asset or liability classified financial instrument that is measured at fair value on a recurring basis.
The
total carrying value of our marketable securities approximates fair value due to the short term nature of these investments. As of October
31, 2022 and April 30, 2022, the carrying values were $35.9 million and $49.4 million, respectively.
Additionally,
there is a Level 3 contingent liability related to earnouts as part of the MAR acquisition in the amount of $1.4 million as the inputs
are currently unobservable to determine this fair value. As of October 31, 2022, the fair value of this contingent liability from the
time that it was acquired has decreased by $0.2 million from $1.6 million.
Transfers
into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers
between any hierarchy levels during each of the three and six months ended October 31, 2022 and 2021.
(15)
Commitments and Contingencies
Spain
Income Tax Audit
The
Company underwent an income tax audit in Spain for the period from 2011 to 2014, when its Spanish branch was closed. On July 30, 2018,
the Spanish tax inspector concluded that although there was no tax owed in light of losses reported, the Company’s Spanish branch
owed penalties for failure to properly account for the income associated with the funding grant. During the year ended April 30, 2022,
the Company received notice from the Spanish Central Economic and Administrative Tribunal (“Spanish Tax Administration”)
that it agreed with the inspector and ruled that the Company owes the full amount of the penalty in the amount of €279,870 or approximately
$331,000. On January 25, 2021, the Company paid the Spanish Tax Administration €279,870. Notwithstanding that payment, on April
30, 2022, the Company filed its appeal of the decision of the Central Court to the Spanish National Court. The Company expects a ruling
on the appeal prior to the end of fiscal 2023.
(16)
Income Taxes
Uncertain
Tax Positions
The
Company applies the guidance issued by the FASB for the accounting and reporting of uncertain tax positions. The guidance requires the
Company to recognize in its consolidated financial statements the impact of a tax position if that position is more likely than not to
be sustained upon examination, based on the technical merits of the position. The Company is currently undergoing an income tax audit
in Spain for the period from 2011 to 2014, when the Company’s Spanish branch was closed (see Note 15). At October 31, 2022, the
Company had no unrecognized tax positions. The Company does not expect any material increase or decrease in its income tax expense or
benefit in the next twelve months, related to examinations or uncertain tax positions. Net operating loss and credit carry forwards since
inception remain open to examination by taxing authorities and will continue to remain open for a period of time after utilization.
The
Company does not have any interest or penalties accrued related to uncertain tax positions as it does not have any unrecognized tax benefits.
Income
Tax Benefit
The
Company sold New Jersey State net operating losses and research development credits under the New Jersey Economic Development Authority
Tax Transfer program in the amount of approximately $12.0 million for the year ended April 30, 2021, for net proceeds of approximately
$1.0 million which was received in May 2021 and recorded in the Company’s Statement of Operations in fiscal year 2022. There was
no income tax benefit related to the three and six months ended October 31, 2022.
(17)
Operating Segments and Geographic Information
The
Company’s business consists of one reportable segment as the revenues associated with its different business lines are not material
enough to justify segment reporting or to make it meaningful to investors, and our chief operating decision maker does not view the Company’s
operations on a segment basis. The Company operates worldwide, with its U.S. operations in New Jersey, California and Texas, one operating
subsidiary in the UK and one subsidiary which was discontinued during 2022 in Australia. Revenues and expenses are generally attributed
to the operating unit that bills the customers. During each of the three and six months ended October 31, 2022 and 2021, the Company’s
primary business operations were in North America.
Item
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and
related notes included in this Quarterly Report on Form 10-Q. Some of the information contained in this management’s discussion
and analysis is set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business,
pending and threatened litigation and our liquidity, includes forward-looking statements that involve risks and uncertainties. You should
review the “Risk Factors” section of our Annual Report on Form 10-K for the year ended April 30, 2022 for a discussion of
important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis. References to a fiscal year in this Form 10-Q refer to the year ended
April 30 of that year (e.g., fiscal 2023 refers to the year ended April 30, 2023).
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® product lines; Power as a Service (“PaaS”), which includes
our PowerBuoy® and Subsea battery products; and our Strategic Consulting Services.
We
provide ocean data collection and reporting, marine power, offshore communications, and Maritime Domain Awareness
(“MDA”) products, integrated solutions, and consulting services. We offer 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. We are
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. We also work closely with our third party
partners that provide us with, among other things, software, controls, sensors, integration services, and marine installation
services. Our solutions enable technologies for data collection, analysis, and communication in ocean and other offshore
environments, and generate actionable intelligence via a variety of inputs. We then channel the information we collect, and other
communications, through control equipment linked to edge computing and cloud hosting environments.
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. We
achieve this through our proprietary, state-of-the-art technologies that are at the core of our clean and renewable energy platforms,
and our solutions and services.
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.
Business
Update Regarding COVID-19 Supply Chain Issues and Macroeconomic Conditions
The
COVID-19 pandemic presented substantial health and economic risks, uncertainties and challenges to our business, the global economy,
supply chain, and financial markets. During 2020 we started to experience some delays related to the impact of COVID-19 on the international
supply chain, and we are still experiencing some component shortages, delivery delays and price increases related to these supply chain
issues. We were able to mitigate the impact of these issues by not only consuming internal inventory but also by expanding our supply
base. While our supply chain is primarily domestically oriented with the majority of our products domestically sourced, we obtain some
components from Asia and Europe. We use a combination of off-the-shelf components and equipment as well as custom developed parts. Although
we have been able to find alternatives for many component shortages without compromising our product standards or integrity, we experienced,
and continue to experience, some delays and cost increases with respect to container shortages, ocean shipping and air freight. Like
others in the industry, we continue to have concerns over component shortages, particularly for semiconductors, lithium-based batteries
and specialty metals. In addition, our key suppliers have experienced longer lead times and cost increases for raw materials.
In
addition, adverse macroeconomic conditions, including inflation, slower growth or recession, policy changes, higher interest rates, and
currency fluctuations may have a negative impact on our business. Ongoing labor pool shortages are continuing and are impacting some
of our delivery deadlines. 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.
Our
Solutions
Data
as a Service
Our
DaaS solution is at the forefront of our strategic plan 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 movement for maritime border enforcement,
illegal fishing interdiction, provide security for offshore wind farms and oil and gas fields, or 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, and map shorelines or subsurface areas. Additionally, we 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.
As
part of our DaaS offering, in October 2020, the Company entered into an agreement with Adams Communication
& Engineering Technology, Inc. (“ACET”) to conduct a feasibility study for the evaluation of a PB3 PowerBuoy®
(“PB3”) power and 5G communications solution in support of the U.S. Navy’s Naval
Postgraduate School’s Sea, Land, Air, Military Research Initiative (“SLAMR”). As of October 31, 2022, the Company
continues to work with the Naval Postgraduate School and SLAMR to explore how 5G technologies can be used to connect ships, all-domain
autonomous systems, and sensors in the domain where the U.S. Navy and U.S. Marine Corps operate.
Maritime
Domain Awareness Solution (“MDAS”)
The
International Maritime Organization defines Maritime Domain Awareness (“MDA”) 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 United States
of America 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 Illegal, Unreported and Unregulated (“IUU”) fisheries, 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 our customer’s requirements. These devices can be mounted on our products, such as
our PB3 or WAM-V®, and then utilizing integrated command and control software, data is 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 customer needs. Capabilities
of our MDAS include 24/7 vessel tracking, automatic radar plotting, and high-definition optical and thermal video surveillance capable
of providing actionable intelligence day or night, in real time.
Our
MDAS processes data onboard our buoys using edge computing and transmits the results to our cloud-based analytics platform via secure
Wi-Fi, and cellular communications. We anticipate integrating MDAS into our WAM-Vs® 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 developed together with leading partners in the technology industry to provide command and control features of
a multi-buoy surveillance network. This network can be coordinated with the use of our WAM-Vs® so that customers can have mobile
sensor networks linked to our self-powered buoy data and communication hubs. 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.
In
May 2022, OPT launched the first commercially-ready MDAS on a test buoy off the coast of New Jersey. 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. We had successfully demonstrated the system multiple times for potential customers, and it was
showcased in San Diego Bay at the U.S. Navy’s Advanced Naval Technology Exercise in August 2022. All vessel video, radar, and track
data are securely stored in our cloud environment and is accessible indefinitely for further analysis and reference. We continue to develop our
MDAS with hardware optimization and feature enhancements.
Autonomous
Vehicles (“WAM-V®”)
On
November 15, 2021, the Company acquired all of the outstanding equity interest of Marine Advanced Robotics, Inc. (“MAR”).
Founded in 2004, MAR is the developer of the patented Wave Adaptive Modular Vessel (WAM-V®) technology, which enables roaming capabilities
for unmanned maritime systems in waters around the world. MAR launched the first WAM-V® in 2007 as a new vessel class to deliver
to customers reliable autonomous surface vehicles that could provide robust, real-time data collection and reporting. MAR also provides
RaaS (Robotics as a Service) 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 11 countries for commercial, military and scientific
uses. Our WAM-Vs® exist in three primary sizes, 8, 16, and 22 feet, however, many of the design components are common across the
sizes, allowing for integration of different payloads and adaption of the payload platforms for larger equipment. All sizes can be adapted
to suit different propulsion methods.
This
acquisition immediately provided the Company with an established product line that highly complements the Company’s business strategy
and can be used inshore, nearshore, and offshore. Since the acquisition, the business of MAR has continued to grow and is further expanding
into its core marine survey and maritime security markets in Europe, Asia, Oceania and the Americas. We continue to find ways to integrate
MAR technology with the Company’s existing platforms and service offerings and expect to take advantage of new synergistic opportunities
as they arise. For example, we plan to integrate the MDAS platform onto the WAM-V® to expand our MDA offering to provide a roaming
MDA solution to our customers.
Power
as a Service
PaaS
solutions deliver value to customers by utilizing our managed power platforms. We continue to develop and commercialize our proprietary
power platforms that generate electricity primarily by harnessing the renewable energy of ocean waves for our PB3, solar power for our
hybrid PowerBuoy® (the “hybrid PB”) and have the option of adding small wind turbines to supplement power generation.
We also continue to commercialize our subsea battery for subsea power applications and as additional storage when combined with our buoy
platforms. 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 for this need without requiring ongoing battery replacement
or older technologies such as shore to station power cables. Lessons learned from the deployments of both our PB3 and hybrid PB are being
used to develop the next generation of PowerBuoy® systems that is based on modularity for Wave Energy Converter (“WEC”)
and non-WEC applications. The PB3 and hybrid PB will continue to be available and supported.
PB3
PowerBuoy®
The
PB3 uses proprietary technologies that convert the hydrokinetic energy of ocean waves into electricity. The PB3 features a unique onboard
power take-off (“PTO”) system, which incorporates both energy storage and energy management and control systems. The PB3
generates a nominal nameplate capacity rating of up to 3 kilowatts (“kW”) of peak power. Power generation is deployment-site
dependent, as wave activity impacts power generation. Our energy storage system (“ESS”) has a capacity of up to a nominal
150 kW-hours to meet specific application requirements.
The
PB3 is designed to generate power for use independent of the power grid in offshore locations. The hull consists of a main spar structure
compliantly moored to the seabed and surrounded by a floating annular structure that can freely move up and down in response to the passage
of the waves. The PTO system includes a mechanical actuating system, an electrical generator, a power electronics system, our control
system, and our ESS which is sealed within the hull. As ocean waves pass the PB3, the mechanical stroke action created by the rising
and falling of the waves is converted into rotational mechanical energy by the PTO, which in turn, drives the electric generator. The
power electronics system then conditions the electrical output which is collected within the ESS.
The
operation of the PB3 is controlled by our customized, proprietary control system. The control system uses sensors and an onboard computer
to continuously monitor the PB3 subsystems. We believe that this ability to optimize and manage the electric power output of the PB3
is a significant advantage of our technology. In the event of large storm waves, the control system automatically locks the PB3, and
electricity generation is suspended. However, the load center (either the on-board payload or one in the vicinity of the PB3) may continue
to receive power from the ESS. When wave heights return to normal operating conditions, the control system automatically unlocks the
PB3 and electricity generation and ESS replenishment recommences. This safety feature helps to protect the PB3 from being damaged by
storms.
Our
PB3 can be equipped with MDAS, which can, among other functions, monitor vessel traffic across a specific offshore area of interest,
with the ability to utilize multiple surveillance assets together over large ocean areas giving end-users visibility into potentially
damaging environmental or illegal activities. Customized solutions are also available including the addition of subsea sensors to monitor
for acoustic signatures, tsunami activity, and water quality.
hybrid
PowerBuoy®
The
hybrid PB is an alternative platform to the PB3 and is capable of utilizing solar and wind power and providing reliable power in remote
offshore locations, regardless of ocean wave conditions. 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 hybrid PB is intended to provide a stable energy platform for our MDAS solution, and for agile deployment of subsea power applications,
such as a surface communications hub for electric remotely operated vehicles (“eROV”) and autonomous underwater vehicles
(“AUV”) used for underwater inspections and short-term maintenance, and subsea equipment monitoring and control. The design
has a high payload capacity for surveillance and communications equipment, 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 hybrid PB subsystems. The hybrid
PB is designed to be able to operate over a broad range of temperature and ocean wave conditions. It has a 30kW-hour battery system and
carries up to 1.2MW-hour energy when combined with the current onboard propane storage system.
Subsea
Battery
Our
subsea battery is complementary to both the PB3 and hybrid PB products and can be deployed together with our PowerBuoys® or as a
standalone unit. It offers customers the option of placing additional modular and expandable energy storage on the seabed near existing,
or to be installed, subsea equipment. Our pressure-tested lithium-iron phosphate subsea batteries supply power that can enable subsea
equipment, sensors, communications and AUV and eROV recharge. Our PB3 and hybrid PB are complimentary to the subsea batteries by providing
a means for recharging during longer term deployments, or the batteries can be used independently for shorter term deployments.
The
subsea battery provides both long or short-term power supply from its integrated energy storage system, enabling us to supply into a
range of industries and applications, from backup power to critical subsea infrastructure to continuous operation of subsea equipment,
such as electric valves. The base design of the subsea battery has a nominal 100kW-hours of available energy storage and is designed
to operate in water depths of up to 500 meters. It comes installed on a readily deployable subsea skid suitable for installation on the
seabed. The subsea battery can be integrated into other subsea equipment on land prior to deployment.
Strategic
Consulting Services
The
focus of our Strategic Consulting Services is on delivering value to our customers in the areas of ocean engineering, structural and
dynamic analysis, Front End Engineering and Design (“FEED”) studies, and motion simulation. These services can be integrated
in support of our broader PaaS and/or DaaS solutions, utilizing our products or on an independent basis for third party clients. In the
near term, we will focus on increasing our market share in the offshore wind market, the broader floating foundation design market, as
well as with our offshore energy customers.
We
intend to continue to grow our service sectors and strengthen our solutions through internal developments, partnerships, and potential
acquisitions. Our Strategic Consulting Services were materially expanded with the acquisition of 3dent Technology, LLC (“3Dent”),
in February 2021. Our team of dedicated consultants/designers has expertise in structural engineering, hydrodynamics and naval architecture.
Consulting services include simulation engineering, developing purpose specific software, concept design and motion analysis. We also
offer a full range of high-level offshore engineering to offshore wind developers, offshore construction companies, drilling contractors,
major oil companies, service companies, shipyards, and engineering firms. For example, we advise offshore drill rig owners, including
owners of floaters, jackups, and lift boats. The Company has seen an increase in consulting services activity for conventional offshore
energy and for offshore wind projects over the last year
Strategy
and Marketing
Our
strategy includes developing integrated solutions and services, including autonomous and cloud-based delivery systems for ocean data
and predictive analytics to provide actionable intelligence for our clients. We believe that having demonstrated the capability of our
solutions, we can advance our product and services and gain further adoption from our target markets. Our marketing efforts are focused
on offshore locations that require a cost-efficient solution for renewable, reliable, and persistent power, 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 in the offshore energy, military and government, and science
and research industries.
Based
on our market research and publicly available data, including but not limited to the 2019 DOE Report: Exploring Opportunities for Marine
Renewable Energy in Maritime Markets Report (the “Powering the Blue Economy Report”), and the Westwood Global Energy World
ROV Operations Forecast 2019-2023, we believe there is an increasing need for our products and services in maritime domain awareness
applications and numerous other markets.
Potential
customers include, but are not limited to, defense and security, offshore oil and gas, science and research, and offshore wind markets,
as well as government applications in border security, vessel tracking, fishery protection, aquaculture, hydrographic survey, and monitoring
of marine protected areas. For example, autonomously monitoring and surveying offshore wind farm lease areas would enable developers
to collect data needed to support environmental impact studies with low carbon emissions. This could be done with buoys and vehicles.
Commercial
Activities
We
continue to seek new strategic relationships and further develop our existing partnerships. We collaborate with companies that have developed
or are developing in-ocean applications requiring a persistent source of power that is also capable of real time data collection, processing
and communication, to address potential customer needs. For the six months ended October 31, 2022 and 2021, the Company had four and
three customers whose revenues accounted for at least 10% of the Company’s consolidated revenues, respectively. These revenues
accounted for approximately 69% and 73% of the Company’s total revenue for the respective periods. For the three months ended October
31, 2022 and 2021, the Company had five and four customers whose revenues accounted for at least 10% of the Company’s consolidated
revenues, respectively. These revenues accounted for approximately 80% and 76% of the Company’s total revenue for the respective
periods.
In
order to achieve success in ongoing efforts to commercialize our products, we must expand our customer base and obtain commercial contracts
to lease or sell our solutions and services to customers. Our potential customer base for our solutions includes various public and private
entities, and agencies that require remote offshore power.
Current
and Recent Contracts
| ● | Our
November 2021 MAR acquisition has led to contracts to build WAM-Vs® for Brigham Young
University, Nippon Kaiyo, Australian Defense, S.T. Hudson, and Applied Research Lab at University
of Hawaii, and has resulted in leased WAM-Vs® to Sulmara and other commercial customers
and universities. |
| | |
| ● | In
October 2022, we entered into a contract with WildAid to further develop capabilities to
combat IUU fishing. This is the third consecutive year that MAR has been selected for this
work. |
| ● | In
fiscal year 2022, the Company completed a Phase I study for the Department of Energy (DOE)
Small Business Innovation Research (SBIR) program, evaluating the feasibility of the next
generation wave energy conversion technology. In Q2 fiscal year 2023, the Company was awarded
a Phase II contract, providing funding for the detailed design, construction, and in-water
testing of the initial prototype for this next generation wave energy system. The program
commenced in Q3 fiscal year 2023 and is planned to extend through Q4 fiscal year 2024. |
| ● | For
the six months ended October 31, 2022, our Strategic Consulting Services continued to generate
revenues from both existing and new customers of approximately $532,000. Notably, we advanced
several large projects in the pipeline with larger oil and gas operators and offshore wind
developers. |
| ● | In
May 2022, the Company entered into a contract with a major oil and gas operator to evaluate
the use of wave energy conversion systems to help decarbonize their offshore operations.
The feasibility study was completed in the second quarter of fiscal year 2023 and discussions
continue to identify opportunities to demonstrate wave conversion technology in support of
various applications supporting offshore oil and gas operations. |
| ● | In
September 2022, the Company entered into a contract with a major US government services contractor
to demonstrate our MDAS capabilities. The scope includes supply of a PB3 equipped with MDAS
and a deepwater mooring system, as well as technical support for offshore installation of
the system. The system will be deployed for a 9-month demonstration, scheduled to begin in
Q1 fiscal year 2024. |
| ● | In
August 2022, we received a NOAA Phase I SBIR Grant for research related to dynamic swarming
of USVs for hydrographic survey in post disaster recovery efforts. |
| ● | In
September 2022, the Company was part of a group awarded funding by the U.S. DOE to develop
advanced autonomous robotic technology for environmental monitoring of marine ecosystems,
at and below the waterline, at offshore wind power sites on the West Coast of the United
States. |
| ● | In
September 2019, we entered into two contracts with subsidiaries of Enel Green Power Chile,
LTDA (“EGP”), which included the sale of a PB3 and the development and supply
of a turn-key integrated Open Sea Lab (“OSL”) which was the Company’s first
deployment off the coast of Chile. Due to the COVID-19 pandemic and other factors, force
majeure was declared in April 2020 and delayed the deployment. In April 2021, the Company
resumed the deployment process and placed the PB3 in the water. During fiscal 2022, deployment
of the PB3 was completed. Ongoing installation and commissioning activities of the OSL subsea
equipment have continued into fiscal 2023. |
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 further develop the MDAS, we recently entered into strategic
software and robotics partnerships with two software companies, Greensea Systems, Inc. and Fathom5. We believe the business relationships
with Greensea and Fathom5 will further the development of our next-generation MDAS product for the maritime industrial market and governmental
defense and security organizations.
Greensea
Systems, Inc. is contributing to the Company’s MDAS by providing integration software, control software, autonomy and systems integration
for the buoy sensor payload.
Fathom5
designed and is 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 maintain an active dialogue with several offshore specialist and marine operations partners in the North Sea and North America to
support our deployment, maintenance, and recovery operations and projects.
Business
Strategy
During
fiscal 2022, we advanced our marketing programs, products, and solutions. We have made progress in transitioning from an R&D focused
organization to more robust commercialization efforts and we are moving further into the ocean DaaS market. We intend to build on these
efforts by introducing additional processes and making investments in appropriate human capital to more effectively target potential
customers from demand generation to close of contract. In addition we are focusing on customer care and service efforts to increase repeat
business opportunities. This strategy was further enhanced by our acquisition of MAR in November 2021.
The
majority of the Company’s potential customers are in areas of defense and security, hydrographic survey, offshore and coastal communication
networks, and maritime domain awareness, including mitigation of IUU fishing. These are largely for customers in the United States, where
the end use may be both domestic or abroad. Further, the Company’s acquisition of MAR provides an unmanned surface vehicle platform
for use in oil & gas, renewable energy, hydrographic survey, and security and defense markets largely in North America and Europe.
Historically,
demonstration projects have been a requisite step towards broad solution deployment and revenues 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 the demonstration project specification, negotiation and evaluation period,
we are often subject to the prospective customer’s vendor qualification process, which entails substantial due diligence of the
Company and 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 of our PowerBuoy® or
WAM-V® product upon successful conclusion of the demonstration project. The Company 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 sales.
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 develop
our PowerBuoy® and WAM-V® products for use in offshore power, data acquisition, and real-time data communications applications,
and in order to achieve this goal, we are pursuing the following business objectives:
| ● | Integrated
turn-key solutions, purchases or leases. We believe our DaaS and PaaS solutions, together
with our platforms, are well suited to enable unmanned, autonomous (non-grid connected) offshore
applications, such as topside and subsea surveillance and communications, 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. We continue to increase
our commercial capabilities through new hires in sales, engineering, product development,
safety, and application support, and through engagement of expert market consultants in various
geographies. As our MDAS development continues, we expect that this will also include data
and cloud services. |
| ● | Expand
customer system solution offerings through new complementary products that enable shorter
and more cost-efficient deployments. We are continuously improving our technology solutions.
The hybrid PB is highly complementary to the PB3 by providing the Company with additional
ways to address a broader spectrum of customer deployment needs, including operating in low-wave
environments, with the potential for greater system integration within each customer project.
The hybrid PB is intended for deployments for which the PB3 is not optimal, including shorter
term missions and low wave environments. In addition, we have future plans to integrate PB3
and WAM-V® capabilities, including the possibility of adding recharging capabilities
to our PB3’s, and MDAS capabilities to our WAM-Vs®, thus extending our reach and
providing both fixed and mobile MDAS offerings to our customers. |
The
Company has a subsea battery system available to commercial clients that is complementary to the Company’s PowerBuoy® products.
The subsea battery system offers the possibility of creating a sea floor energy storage solution for remote offshore operations. These
subsea battery systems contain lithium-ion batteries, which provide high power density to supply power to subsea equipment, sensors,
communications, and the recharging of AUVs and eROVs. Ideal for many remote offshore customer applications, these subsea battery systems
are designed to be safe, high performance, cost-efficient, and quickly deployable.
Our
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 optional folding features further reduces the footprint by as much as 75%, and as a result, a 20 foot container
can hold four 16 foot WAM-Vs®. 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 and marketing efforts in global markets. 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; subsea power for oil and gas; and
the hydrographic survey market in the U.S., Europe, Canada and Australia 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. We have
an office in Houston, Texas that enables us to further support our customers and strengthen
our dialogue with our solution partners. During fiscal 2022, we added an office in Richmond,
California through our acquisition of MAR. During fiscal 2022, we also further streamlined
our global operation by selecting to work with partners in active offshore markets, such
as the North Sea. We are in active discussions with potential partners in North and South
America, the Caribbean, Southeast Asia and West Africa. |
| ● | 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, including, for example, our acquisition of 3Dent and
MAR. |
| ● | Partner
with fabrication, deployment and service support. In order to minimize our capital requirements
as we scale our business, we intend to optimize and utilize state of the art fabrication,
anchoring, mooring, cabling supply, and in some cases, deployment of our products and solutions.
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. |
| ● | Survey
and security market applications. With the addition of our WAM-V® products, we are able
to 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. |
Liquidity
During
the first six months ending October 31, 2022, the Company incurred a net loss of approximately $10.7 million and used cash in operations
of approximately $11.0 million. The Company has continued to make investments in ongoing product development efforts in anticipation
of, and in support of, future growth. The Company has also made an investment to build its inventory in anticipation of this future growth.
The Company’s future results of operations involve significant risks and uncertainties. Factors that could affect the Company’s
future operating results and could cause actual results to vary materially from expectations include, but are not limited to, performance
of its products, its ability to market and commercialize its products and new products that it may develop, technology development, scalability
of technology and production, ability to attract and retain key personnel, concentration of customers and suppliers, deployment risks
and integration of acquisitions, and the impact of COVID-19 and any variants on its business. The Company previously obtained equity
financing through its At the Market Offering Agreement (“ATM”) with A.G.P/Alliance Global Partners (“AGP”) and
through its equity line financing with Aspire Capital Fund, LLC (“Aspire Capital”), but the Company cannot be sure that additional
equity and/or debt financing will be available to the Company as needed on acceptable terms, or at all. Management believes the Company’s
cash balance at October 31, 2022 of $10.3 million and marketable securities balance of $35.9 million is sufficient to fund its planned
operations through at least December 2023.
Capital
Raises
At
the Market Offering Agreement: On November 20, 2020, the Company entered into an At the Market Offering Agreement with AGP (the
“2020 ATM Facility”), pursuant to which the Company may issue and sell, from time to time, shares of the Company’s
common stock having an aggregate offering price of up to $100.0 million. The Company’s common stock will be sold at prevailing
market prices at the time of sale, and, as a result, prices will vary.
Although
the Company initially only had filed to sell up to $50.0 million, a prospectus supplement was filed on January 10, 2022 to allow
the Company to sell an additional $25.0 million of common stock under the 2020 ATM Facility. As of October 31, 2022, an aggregate of
$50.0 million remained available under this facility, subject to the filing of a prospectus supplement for
an additional $25.0 million.
Equity
Line Common Stock Purchase Agreement: On September 18, 2020, the Company entered into a common stock purchase agreement with Aspire
Capital which provided that, subject to certain terms, conditions and limitations, Aspire Capital was committed to purchase up to an
aggregate of $12.5 million shares of the Company’s common stock over a 30-month period subject to a limit of 19.99% of the outstanding
common stock on the date of the agreement if the price did not exceed a specified price in the agreement. The number of shares the Company
could issue within the 19.99% limit was 3,722,251 shares without shareholder approval. Shareholder approval was received at the Company’s
annual meeting of shareholders on December 23, 2020 for the sale of 9,864,706 additional shares of common stock which exceeded the 19.99%
limit of the outstanding common stock on the date of the agreement. Through October 31, 2022, the Company had sold an aggregate of 3,722,251
shares of common stock with an aggregate market value of $11.8 million at an average price of $3.17 per share pursuant to this common
stock purchase agreement with approximately $0.7 million remaining on the facility as of October 31, 2022.
The
sale of additional equity or convertible securities 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 has obtained equity financing through its At the Market Offering
Agreement with AGP and the Aspire Capital financing, but the Company cannot be sure that additional equity and/or debt financing will
be available to the Company as needed on acceptable terms, or at all. If we are unable to obtain required financing when needed, we may
be required to reduce the scope of our operations, including our planned product development and marketing efforts, which could materially
and adversely affect our financial condition and operating results. If we are unable to secure additional financing, we may be forced
to cease our operations.
Backlog
As
of October 31, 2022, the Company’s backlog was $2.4 million. 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 progress towards completion of our customer contracts over time, and changes in estimates from time to time
may have a significant effect on revenue and backlog. Our backlog is also typically subject to large variations from time to time due
to the timing of new awards.
Critical
Accounting Policies and Estimates
To
understand our financial statements, it is important to understand our critical accounting policies and estimates. We prepare our financial
statements in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The preparation of financial statements
also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related
disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences
between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and
cash flows will be affected. We believe that the accounting policies are critical to understanding our historical and future performance,
as these policies relate to the more significant areas involving management’s judgments and estimates.
For
a discussion of our critical accounting estimates, see the section entitled Item 7.- “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended April 30, 2022. There were
no material changes to our critical accounting estimates or accounting policies during the six months ended October 31, 2022.
Recently
Issued Accounting Standards
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments -
Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” This amendment replaces the incurred
loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope,
including trade receivables. This update is intended to provide financial statement users with more decision-useful information about
the expected credit losses. In November 2019, the FASB issued No. 2019-10, Financial Instruments—Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date of ASU 2016-13 for Smaller Reporting
Companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently
evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.
Financial
Operations Overview
The
following describes certain line items in our statement of operations and some of the factors that affect our operating results.
Revenues
A
performance obligation is the unit of account for revenue recognition. The Company assesses the goods or services promised in a contract
with a customer and identifies as a performance obligation either: a) a good or service (or a bundle of goods or services) that is distinct;
or b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.
A contract may contain single or multiple performance obligations. For contracts with multiple performance obligations, the Company
allocates the contracted transaction price to each performance obligation based upon the relative standalone selling price, which represents
the price the Company would sell a promised good or service separately to a customer. The Company determines the standalone selling price
based upon the facts and circumstances of each obligated good or service. The majority of the Company’s contracts have no observable
standalone selling price since the associated products and services are customized to customer specifications. As such, the standalone
selling price generally reflects the Company’s forecast of the total cost to satisfy the performance obligation plus an appropriate
profit margin.
The
nature of the Company’s contracts may give rise to several types of variable considerations, including unpriced change orders and
liquidated damages and penalties. Variable considerations 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
related to open contracts as of October 31, 2022 and 2021.
The
Company recognizes revenue when or as it satisfies a performance obligation by transferring a good or service to a customer, either (1)
at a point in time or (2) over time. A good or service is transferred when or as the customer obtains control of it. The evaluation of
whether control of each performance obligation is transferred at a point in time or over time is made at contract inception. Input measures
such as costs incurred or time elapsed are utilized to assess progress against specific contractual performance obligations for the Company’s
services. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services
to be provided. For the Company, the input method using costs or labor hour incurred best represents the measure of progress against
the performance obligations incorporated within the contractual agreements. When the Company’s estimate of total costs to be incurred
to satisfy the performance obligations exceeds revenues, the Company recognizes the loss immediately.
The
Company’s contracts are either cost plus or fixed price contracts. Under cost plus contracts, customers are billed for actual expenses
incurred plus an agreed-upon fee. Under cost plus contracts, a profit or loss on a project is recognized depending on whether actual
costs are more or less than the agreed upon amount.
The
Company has two types of fixed price contracts, firm fixed price and cost-sharing. Under firm fixed price contracts, the Company receives
an agreed-upon amount for providing products and services specified in the contract, a profit or loss is recognized depending on whether
actual costs are more or less than the agreed upon amount. Under cost-sharing contracts, the fixed amount agreed upon with the customer
is only intended to fund a portion of the costs on a specific project. Under cost sharing contracts, an amount corresponding to the revenue
is recorded in cost of revenues, resulting in gross profit on these contracts of zero. The Company’s share of the costs is recorded
as product development expense. The Company reports its disaggregation of revenues by contract type since this method best represents
the Company’s business. For the six-month periods ended October 31, 2022 and 2021, all of the Company’s contracts were classified
as firm fixed price.
As
of October 31, 2022, the Company’s total remaining performance obligations, also referred to as backlog, totaled $2.4 million.
The Company expects to recognize approximately 77%, or $1.8 million, of the remaining performance obligations as revenue over the next
twelve months.
The
Company also enters into lease arrangements for its PB3 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 PB3 or WAM-V® and components, while non-lease elements generally include engineering, monitoring
and support services. In the lease arrangement, the customer is provided an option to extend the lease term or purchase the leased PB3
at some point during and/or at the end of the lease term.
The
Company classifies leases as either operating or financing in accordance with the authoritative accounting guidance contained within
ASC Topic 842, “Leases”. At inception of the contract, the Company evaluates the lease against the lease classification
criteria within ASC Topic 842. If the direct financing or sales-type classification criteria are met, then the lease is accounted for
as a finance lease. All others are treated as an operating lease.
The
Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term and is presented
in Revenues in the Consolidated Statement of Operations. The lease income for the three months ended October 31, 2022 and 2021 was immaterial.
For
the six months ended October 31, 2022 and 2021, the Company had four and three customers whose revenues accounted for at least 10% of
the Company’s consolidated revenues, respectively. These revenues accounted for approximately 69% and 73% of the Company’s
total revenue for the respective periods. For the three months ended October 31, 2022 and 2021, the Company had five and four customers
whose revenues accounted for at least 10% of the Company’s consolidated revenues, respectively. These revenues accounted for approximately
80% and 76% of the Company’s total revenue for the respective periods.
We
currently focus our sales and marketing efforts globally. The following table shows the percentage of our revenues by geographical location
of our customers for the six months ended October 31, 2022 and 2021.
| |
Six
months ended October 31, | |
Customer Location | |
2022 | | |
2021 | |
| |
| | |
| |
North America | |
| 77 | % | |
| 66 | % |
South America | |
| — | % | |
| 31 | % |
Europe | |
| — | % | |
| 3 | % |
Asia and Australia | |
| 23 | % | |
| — | % |
| |
| 100 | % | |
| 100 | % |
Cost
of revenues
Our
cost of revenues consists primarily of subcontracts, incurred material, labor and manufacturing overhead expenses, such as engineering
expense, equipment depreciation and maintenance and facility related expenses, and includes the cost of equipment to customize the PowerBuoy®
and our other products supplied by third-party suppliers. Cost of revenues also includes PowerBuoy® and other product system delivery
and deployment expenses and may include anticipated losses at completion on certain contracts.
Operating
Expenses
Engineering
and product development costs
Our
engineering and product development costs consist of salaries and other personnel-related costs and the costs of products, materials
and outside services used in our product development and unfunded research activities. Our product development costs relate primarily
to our efforts to increase the power output and reliability of our PowerBuoy® system and other products, to enhance and optimize
data monitoring and controls systems, and to the development of new products, product applications and complementary technologies. We
expense all of our product development costs, including engineering product development costs as incurred.
Selling,
general and administrative costs
Our
selling, general and administrative costs consist primarily of professional fees, salaries and other personnel-related costs for employees
and consultants engaged in sales and marketing and support of our products and costs for executive, accounting and administrative personnel,
professional fees and other general corporate expenses.
Interest
income, net
Interest
income, net consists of interest received on cash, cash equivalents, and marketable securities and interest paid on certain obligations
to third parties.
Foreign
exchange gain (loss)
We
transact business in various countries and have exposure to fluctuations in foreign currency exchange rates. Foreign exchange gains and
losses arise in the translation of foreign-denominated assets and liabilities, which may result in realized and unrealized gains or losses
from exchange rate fluctuations. Since we conduct our business in U.S. dollars and our functional currency is the U.S. dollar, our main
foreign exchange exposure, if any, results from changes in the exchange rate between the U.S. dollar and the British pound sterling,
and the Euro.
We
maintain cash accounts that are denominated in British pounds sterling in addition to U.S. dollars. These foreign-denominated accounts
had an aggregate balance of $13,000 as of October 31, 2022 and $28,000 as of April 30, 2022, compared to our total cash, cash equivalents,
marketable securities, and restricted cash balances of $46.4 million as of October 31, 2022 and $57.7 million as of April 30, 2022.
In
addition, a portion of our operations is conducted through our subsidiaries in countries other than the U.S., and specifically Ocean
Power Technologies Ltd. in the United Kingdom, the functional currency of which is the British pound sterling. This subsidiary has foreign
exchange exposure that results from changes in the exchange rate between their functional currency and other foreign currencies in which
they conduct business. The Company is in the process of winding down its Australian subsidiary, which is expected to be completed during
fiscal 2023. The unrealized gains or losses resulting from foreign currency balances translation are included in Accumulated Other Comprehensive
Loss within Shareholders’ Equity. Foreign currency translation gains and losses are recognized within our Consolidated Statement
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 attempt to maintain a portion of our cash and cash equivalents denominated in
foreign currencies sufficient to satisfy these anticipated requirements. We also assess the need and cost to utilize financial instruments
to hedge currency exposures on an ongoing basis and may hedge against exchange rate exposure in the future.
Results
of Operations
This
section should be read in conjunction with the discussion below under “Liquidity and Capital Resources.”
Three
months ended October 31, 2022 compared to the three months ended October 31, 2021
The
following table contains selected statement of operations information, which serves as the basis of the discussion of our results of
operations for the three months ended October 31, 2022 and 2021.
| |
Three
months ended October 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Revenues | |
$ | 303 | | |
$ | 247 | |
Cost of revenues | |
| 264 | | |
| 300 | |
Gross margin (loss) | |
| 39 | | |
| (53 | ) |
Change in fair value of contingent consideration | |
| (90 | ) | |
| — | |
Operating expenses | |
| 6,409 | | |
| 5,132 | |
Operating
loss | |
| (6,280 | ) | |
| (5,185 | ) |
Interest income, net | |
| 234 | | |
| 19 | |
Gain on extinguishment of PPP loan | |
| — | | |
| — | |
Other income (expense), net | |
| 1,202 | | |
| — | |
Foreign exchange loss | |
| — | | |
| (5 | ) |
Loss
before income taxes | |
| (4,844 | ) | |
| (5,171 | ) |
Income tax benefit | |
| — | | |
| — | |
Net
loss | |
$ | (4,844 | ) | |
$ | (5,171 | ) |
Revenues
Revenues
for the three months ended October 31, 2022 and 2021 were $0.3 million and $0.2 million, respectively. The year-over-year increase
was primarily due to higher levels of revenue stemming from the acquisition of MAR which produced $0.1 million in revenue for the
three month ended October 31, 2022. The MAR acquisition took place in November 2021 so there was no revenue for the three months
ended October 31, 2021.
Cost
of revenues
Cost
of revenues for the three months ended October 31, 2022 and 2021 were $0.3 million and $0.3 million, respectively. The decrease is related
to better margins on our strategic consulting services in the current year.
Change
in fair value of contingent consideration
The
change in fair value of contingent consideration for the three months ended October 31, 2022 was $0.2 million relating to an adjustment
of the contingent consideration liability based on actual and forecasted revenues relating to the MAR acquisition.
Operating
expenses
Operating
expenses for the three months ended October 31, 2022 and 2021 were $6.4 million and $5.1 million, respectively. The increase of approximately
$1.3 million was the result of an increase in employee related costs of $0.2 million and an increase in overhead related costs of $1.0
million.
Interest
income
Interest
income for the three months ended October 31, 2022 and 2021 was $0.2 million and $19,000, respectively. The increase was directly
related to the marketable securities that we acquired during the fourth quarter of fiscal 2022.
Other income
Other income for the three months ended
October 31, 2022 and 2021 was $1.2 million and zero, respectively. The amount in the current year relates to employee retention credits
applied for previously filed payroll tax returns with the IRS.
Six
months ended October 31, 2022 compared to the six months ended October 31, 2021
The
following table contains selected statement of operations information, which serves as the basis of the discussion of our results of
operations for the six months ended October 31, 2022 and 2021.
| |
Six
months ended October 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Revenues | |
$ | 1,017 | | |
$ | 519 | |
Cost of revenues | |
| 784 | | |
| 723 | |
Gross margin (loss) | |
| 233 | | |
| (204 | ) |
Change in fair value of contingent consideration | |
| (221 | ) | |
| — | |
Operating expenses | |
| 12,727 | | |
| 10,011 | |
Operating
loss | |
| (12,273 | ) | |
| (10,215 | ) |
Interest income, net | |
| 375 | | |
| 38 | |
Gain on extinguishment of PPP loan | |
| — | | |
| 891 | |
Other income (expense), net | |
| 1,202 | | |
| — | |
Foreign exchange loss | |
| — | | |
| (5 | ) |
Loss
before income taxes | |
| (10,696 | ) | |
| (9,291 | ) |
Income tax benefit | |
| — | | |
| 1,041 | |
Net
loss | |
$ | (10,696 | ) | |
$ | (8,250 | ) |
Revenues
Revenues
for the six months ended October 31, 2022 and 2021 were $1.0 million and $0.5 million, respectively. The year-over-year increase was
primarily due to higher levels of revenue stemming from the acquisition of MAR which produced $0.4 million in revenue as of October 31,
2022. The MAR acquisition took place in November 2021 so there was no revenue for the six months ended October 31, 2021.
Cost
of revenues
Cost
of revenues for the six months ended October 31, 2022 and 2021 were $0.8 million and $0.7 million, respectively. The increase of approximately
$0.1 million over 2021 was mostly due to the acquisition of MAR and their related projects for the six months ended October 31, 2022
which were not part of the Company during the six months ended October 31, 2021.
Change
in fair value of contingent consideration
The
change in fair value of contingent consideration for the six months ended October 31, 2022 was $0.2 million relating to an adjustment
of the contingent consideration liability based on actual and forecasted revenues relating to the MAR acquisition.
Operating
expenses
Operating
expenses for the six months ended October 31, 2022 and 2021 were $12.7 million and $10.0 million, respectively. The increase of approximately
$2.7 million was the result of an increase in employee related costs of $1.1 million, an increase in overhead related costs of $1.6 million,
an increase in sales and marketing related expenses of $0.3 million and an increase in insurance cost of $0.1 million related to the
acquisition of MAR.
Interest
Income
Interest
income for six months ended October 31, 2022 and 2021 was $0.4 million and $38,000, respectively. The increase was directly related to
the marketable securities we acquired during the fourth quarter of fiscal 2022.
Extinguishment
of Debt
The
Company filed its loan forgiveness application for the PPP loan at the end of February 2021 asking for 100% forgiveness of the loan.
In June 2021, the Company was informed that its application was approved, the loan was fully forgiven, and the Company recognized a gain
on extinguishment of PPP loan of $0.9 million.
Other income
Other income for the six months ended
October 31, 2022 and 2021 was $1.2 million and zero, respectively. The amount in the current year relates to employee retention credits
applied for previously filed payroll tax returns with the IRS.
Liquidity
and Capital Resources
Our
cash requirements relate primarily to working capital needed to operate and grow our business including funding operating expenses. We
have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses of $10.7
million and $8.3 million for the six months ended October 31, 2022 and 2021, respectively. Refer to “Liquidity Outlook” below
for additional information.
Net
cash used in operating activities
During
the six months ended October 31, 2022, net cash flows used in operating activities was $11.0 million, an increase of $0.6 million compared
to net cash used in operating activities during the six months ended October 31, 2021 of $10.4 million. This reflects an increase in
net loss of $2.4 million and an increase in inventory of $0.6 million, primarily offset by a gain on extinguishment of the PPP loan of
$0.9 million, an increase in contract liabilities of $1.2 million and the payment of litigation payable in the prior year of $1.2 million.
Net
cash provided by (used in) investing activities
Net
cash provided by investing activities during the six months ended October 31, 2022 was $13.1 million, compared to $24,000 cash used in
investing activities during the six months ended October 31, 2021. The increase in net cash provided by investing activities was primarily
due to the redemption of marketable securities of $33.0 million and dividends on investments of $0.7 million, partially offset by the
purchase of marketable securities of $20.1 million during the six months ended October 31, 2022.
Net
cash provided by financing activities
Net
cash provided by financing activities during the six months ended October 31, 2022 and October 31, 2021 was zero and $21,000 respectively.
The difference relates to the number of stock option exercises in the prior year while no options were exercised in the current year.
Effect
of exchange rates on cash and cash equivalents
The
effect of exchange rates on cash and cash equivalents was a decrease of approximately $20,000 during the six months ended October 31,
2021. The effect of exchange rates on cash and cash equivalents results primarily from gains or losses on consolidation of foreign subsidiaries
and foreign denominated cash and cash equivalents.
Liquidity
Outlook
Since
our inception, the cash flows from customer revenues have not been sufficient to fund our operations and provide the capital resources
for our business. As of October 31, 2022, our aggregate revenues were $1.0 million, our aggregate net losses were $10.7 million, our
aggregate net cash used in operating activities was $11.0 million and our accumulated deficit was $264.5 million.
We
expect to devote substantial resources to continue our development efforts for our products and to expand our sales, marketing and manufacturing
programs associated with the continued commercialization of our products. Our future capital requirements will depend on a number of
factors, including but not limited to:
| ● | our
ability to develop, market and commercialize our products, and achieve and sustain profitability; |
| ● | our
continued development of our proprietary technologies, and expected continued use of cash
from operating activities unless or until we achieve positive cash flow from the commercialization
of our products and services; |
| ● | our
ability to obtain additional funding, as and if needed which will be subject to several factors,
including market conditions, and our operating performance; |
| ● | the
continued impact of COVID-19 and its variants on our business, operations, customers, suppliers
and manufacturers and personnel; |
| ● | our
ability to meet product development, manufacturing and customer delivery deadlines may be
impacted by disruptions to our supply chain, primarily related to labor shortages and manufacturing
and transportation delays both here in the U.S. and abroad; |
| ● | our
acquisitions and our ability to integrate them into our operations may use significant resources,
be unsuccessful or expose us to unforeseen liabilities; |
| ● | our
estimates regarding future expenses, revenues, and capital requirements; |
| ● | our
ability to identify and penetrate markets for our products, services, and solutions; |
| ● | our
ability to establish relationships with our existing and future strategic partners 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 improve the power output and survivability of our products; |
| ● | changes
in current legislation, regulations and economic conditions that affect the demand for, or
restrict the use of our products; |
| ● | our
ability to hire and retain key personnel, including senior management, to achieve our business
objectives; |
| ● | our
history of operating losses, which we expect to continue for at least the short term and
possibly longer; and |
| ● | our
ability to protect our intellectual property portfolio. |
Our
business is capital intensive, and through October 31, 2022, we have been funding our business principally through sales of our securities.
As of October 31, 2022, our cash and cash equivalents, restricted cash, and marketable securities balance was $46.4 million and we expect
to fund our business with this amount and, to a lesser extent, with our revenues. Management believes the Company’s current cash
and cash equivalents, and marketable securities, are sufficient to fund its planned expenditures through at least December 2023.
Off-Balance
Sheet Arrangements
Since
inception, we have not engaged in any off-balance sheet financing activities.