e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended April
30,
2011
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File Number
001-33417
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Delaware
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22-2535818
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1590 REED
ROAD
PENNINGTON, NJ 08534
(Address of principal executive
offices, including zip code)
Registrants telephone number, including area code:
(609) 730-0400
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Exchange on Which Registered
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Common Stock, par value $0.001
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The Nasdaq Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common stock of the registrant
held by non-affiliates as of October 31, 2010, the last
business day of the registrants most recently completed
second fiscal quarter, was $63.5 million based on the
closing sale price of the registrants common stock on that
date as reported on the Nasdaq Global Market.
The number of shares outstanding of the registrants common
stock as of June 30, 2011 was 10,402,722.
DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Part of the Form 10-K into Which Incorporated
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Proxy Statement for the registrants 2011 Annual Meeting of
Stockholders
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III
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OCEAN
POWER TECHNOLOGIES, INC.
INDEX TO
REPORT ON
FORM 10-K
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Page
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PART I
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Item 1:
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Business
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4
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Item 1A:
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Risk Factors
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24
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Item 1B:
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Unresolved Staff Comments
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38
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Item 2:
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Properties
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Item 3:
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Legal Proceedings
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Item 4:
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(Removed and Reserved)
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PART II
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Item 5:
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Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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39
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Item 6:
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Selected Financial Data
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41
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Item 7:
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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42
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Item 7A:
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Quantitative and Qualitative Disclosures About Market Risk
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55
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Item 8:
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Financial Statements and Supplementary Data
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56
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Item 9:
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Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
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56
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Item 9A:
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Controls and Procedures
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Item 9B:
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Other Information
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PART III
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Item 10:
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Directors, Executive Officers and Corporate Governance
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56
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Item 11:
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Executive Compensation
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56
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Item 12:
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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57
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Item 13:
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Certain Relationships and Related Transactions, and Director
Independence
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57
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Item 14:
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Principal Accountant Fees and Services
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PART IV
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Item 15:
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Exhibits and Financial Statement Schedules
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PowerBuoy®
is a registered trademark of Ocean Power Technologies, Inc. The
Ocean Power Technologies logo,
CellBuoytm,
Talk on
Watertm
and Making Waves in Power
SM are
trademarks or service marks of Ocean Power Technologies, Inc.
All other trademarks appearing in this annual report are the
property of their respective holders.
2
Special
Note Regarding Forward-Looking Statements
We have made statements in this Annual Report on
Form 10-K
(the Annual Report) in, among other sections,
Item 1 Business,
Item 1A Risk Factors,
Item 3 Legal Proceedings, and
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations
that are forward-looking statements. Forward-looking statements
convey our current expectations or forecasts of future events.
Forward-looking statements include statements regarding our
future financial position, business strategy, budgets, projected
costs, plans and objectives of management for future operations.
The words may, continue,
estimate, intend, plan,
will, believe, project,
expect, anticipate and similar
expressions may identify forward-looking statements, but the
absence of these words does not necessarily mean that a
statement is not forward-looking.
Any or all of our forward-looking statements in this Annual
Report may turn out to be inaccurate. We have based these
forward-looking statements on our current expectations and
projections about future events and financial trends that we
believe may affect our financial condition, results of
operations, business strategy and financial needs. They may be
affected by inaccurate assumptions we might make or unknown
risks and uncertainties, including the risks, uncertainties and
assumptions described in Item 1A Risk
Factors. In light of these risks, uncertainties and
assumptions, the forward-looking events and circumstances
discussed in this report may not occur as contemplated, and
actual results could differ materially from those anticipated or
implied by the forward-looking statements.
You should not unduly rely on these forward-looking statements,
which speak only as of the date of this filing. Unless required
by law, we undertake no obligation to publicly update or revise
any forward-looking statements to reflect new information or
future events or otherwise.
3
PART I
Overview
We develop and are commercializing proprietary systems that
generate electricity by harnessing the renewable energy of ocean
waves. The energy in ocean waves is predictable, and electricity
from wave energy can be produced on a consistent basis at
numerous sites located near major population centers worldwide.
Wave energy is an emerging segment of the renewable energy
market. Based on our proprietary technology, considerable ocean
experience, existing products and expanding commercial
relationships, we believe we are a leading wave energy company.
Our latest PB150 PowerBuoy has been certified by the
Lloyds Register Group, Intertek has certified our grid
connection system, and an independent environmental assessment
of the PB40 PowerBuoy in Hawaii has resulted in the highest
rating.
We currently offer two products as part of our line of
PowerBuoy®
systems: a utility PowerBuoy system and an autonomous PowerBuoy
system. Our PowerBuoy system is based on modular, ocean-going
buoys, which we have been ocean testing for nearly fifteen
years. The rising and falling of the waves moves the buoy-like
structure creating mechanical energy that our proprietary
technologies convert into electricity. We have tested and
developed wave power generation and control technology using
proven equipment and processes in novel applications and have
deployed and maintained our systems in the ocean. The PowerBuoy
technology has the unique, patented capability to electronically
tune itself automatically as wave characteristics
change. This enables the PowerBuoy to optimize its efficiency
and resulting power output in dynamic ocean wave conditions. Our
two PowerBuoy products are designed for the following
applications:
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Our utility PowerBuoy system is capable of supplying
electricity to a local or regional electric power grid. Our wave
power stations will be comprised of a single PowerBuoy system or
an integrated array of PowerBuoy systems, plus the remaining
components required to deliver electricity to a power grid. We
intend to sell our utility PowerBuoy system to utilities and
other electrical power producers seeking to add electricity
generated by wave energy to their existing electricity supply.
In July 2007, our PowerBuoy interface with the electrical
utility power grid was certified as compliant with international
standards. Intertek, an independent laboratory, provided testing
and evaluation services to certify that our grid connection
systems comply with designated national and international
standards. The PowerBuoy grid interface bears the Electrical
Testing Laboratories (ETL) listing mark, and can be connected to
the utility grid. In September 2010, working in conjunction with
the US Navy and Hawaii Electric Company, our 40 kilowatt
(kW)-rated PowerBuoy, located at Marine Corps Base Hawaii,
became the first-ever grid connected wave energy device in the
United States. In January 2011, our utility scale PB150
structure and mooring system achieved independent certification
from Lloyds Register. This certification confirms that the
PB150 design complies with certain international standards
promulgated for floating offshore installations. The
Lloyds Register process included detailed design analysis
and appraisals, addressing the PB150s structure,
hydrodynamics, mooring and anchoring.
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Our autonomous PowerBuoy system is designed to generate
power for use independent of the power grid in remote locations.
We believe there are a variety of potential applications for
this system, including homeland security, off-shore oil and gas
platforms, aquaculture and ocean -based communication and data
gathering such as for tsunami warnings.
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Our product development and engineering efforts currently are
focused on increasing the reliability and peak-rated output of
our utility PowerBuoy system to 150kW, and, to a lesser extent
increasing the peak rated output of the system to 500kW. In
addition, we are researching and developing new products,
product applications and complementary technologies. We believe
that by increasing the maximum rated output of our utility
PowerBuoy system, we will be able to decrease the cost per kW of
our PowerBuoy system and the cost per kilowatt hour of the
energy generated.
We expect to market our undersea substation pod
(USP) and undersea power connection infrastructure
services to other companies in the marine energy sector. We
completed the successful in-ocean trials of our USP in
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2009. The USP, based on our proprietary design, has been
developed to facilitate the collection, networking and
transforming of power and data generated by multiple offshore
energy devices. The USP has been built as an open platform, and
can provide connectivity for the PowerBuoy as well as offshore
energy systems developed by other companies. The required
switching and protection circuits for the individual PowerBuoys
are also included in the USP.
In addition, we are focusing on expanding our key commercial
opportunities for both the utility and the autonomous PowerBuoy
systems. We currently have commercial relationships with the
following:
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The United States Navy:
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To develop and build wave power systems at the US Marine Corps
base in Hawaii.
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To provide our PowerBuoy wave conversion system to the
Navys Littoral Expeditionary Autonomous PowerBuoy (LEAP)
Program.
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To provide PowerBuoy technology to a unique program for ocean
data gathering. Under this program, we have built an autonomous
PowerBuoy as the power source for the Navys Deep Water
Active Detection System.
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Pacific Northwest Generating Cooperative (PNGC Power) and the US
Department of Energy, both of which are providing funding toward
the construction, ocean installation, and ocean trials of a
150kW PowerBuoy near Reedsport, Oregon.
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The Scottish Government, to develop a 150kW PowerBuoy ,which was
deployed off the coast of Invergordon, Scotland in April 2011.
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Iberdrola S.A., or Iberdrola, which is a large electric utility
company located in Spain and one of the largest renewable energy
producers in the world, Total S.A. (Total), which is one of the
worlds largest oil and gas companies, and two Spanish
governmental agencies, for the first phase of the construction
of a wave power station off the coast of Santoña, Spain.
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The US Department of Energy (DOE) and the UK Governments
Technology Strategy Board (TSB) to help fund the
scale-up of
the power output per PowerBuoy from the current level of 150kW
to 500kW.
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Mitsui Engineering and Shipbuilding, with which we are working
to develop a wave power project in Japan.
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Leighton Contractors, a major Australian construction and
infrastructure company, for the development of a wave power
station in Victoria, Australia.
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We were incorporated under the laws of the State of New Jersey
in April 1984 and began commercial operations in 1994. On
April 23, 2007, we reincorporated in Delaware. Our
principal executive offices are located at 1590 Reed Road,
Pennington, New Jersey 08534, and our telephone number is
(609) 730-0400.
Our website address is www.oceanpowertechnologies.com. We
make available free of charge on our website our annual reports
on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports as soon as reasonably
practicable after such material is filed electronically with the
Securities and Exchange Commission, or SEC. The information on
our website is not a part of this Annual Report. Our common
stock was listed on the AIM market of the London Stock Exchange
plc in October 2003. We voluntarily delisted our common shares
from the AIM market effective January 14, 2011. Our common
stock has been listed on the NASDAQ Global Market since
April 24, 2007, the date on which we commenced our initial
public offering in the United States.
Our
Market
Global demand for electric power is expected to increase from
18.8 trillion kilowatt hours in 2007 to 35.2 trillion kilowatt
hours by 2035, according to the Energy Information
Administrations Annual Energy Outlook 2010 (AEO 2010). To
meet this demand, the International Energy Agency, or the IEA,
estimates that investments in new generating capacity will be
$6.8 trillion in the period from 2007 to 2030, of which new
renewable energy generation equipment is expected to account for
approximately half of the total projected investment in
electricity generation.
5
According to the AEO 2010, fossil fuels such as coal, oil and
natural gas generated over 67% of the worlds electricity
in 2007. However, a variety of factors are contributing to the
increasing development of renewable energy systems that capture
energy from replenishable natural resources, including ocean
waves, tides, flowing water, wind and sunlight, and convert it
into electricity.
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Rising cost of fossil fuels. Although subject
to short-term fluctuations, the cost of fossil fuel used to
generate electricity has been generally rising and is likely to
continue to rise in the future.
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Dependence on energy from foreign
sources. Many countries, including the United
States, Japan and much of Europe, depend on foreign resources
for a majority of their domestic energy needs. Concerns over
political and economic instability in some of the leading fossil
fuel producing regions of the world are encouraging consuming
countries to diversify their sources of energy.
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Environmental concerns. Environmental concerns
regarding the contamination, pollution and by-products from
fossil fuels have led many countries and several US states to
agree to reduce emissions of carbon dioxide and other gases
associated with the use of fossil fuels and to adopt policies
promoting the development of cleaner technologies.
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Government incentives. Many countries have
adopted policies to provide incentives for the development and
use of renewable energy sources, such as subsidies to encourage
the commercialization of renewable energy power generation.
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As a result of these and other factors, the AEO 2010 projects
that grid-connected renewable generating capacity will continue
to grow over the next 25 years.
Wave
Energy
The energy in ocean waves is a form of renewable energy that can
be harnessed to generate electricity. Ocean waves are created
when wind moves across the ocean surface. The interaction
between the wind and the ocean surface causes energy to be
exchanged. At first, small waves occur on the ocean surface. As
this process continues, the waves become larger and the distance
between the tops of the waves becomes longer. The size of the
waves, and the amount of energy contained in the waves, depends
on the wind speed, the time the wind blows over the waves and
the distance covered. The rising and falling of the waves move
our PowerBuoy system creating mechanical energy that our
proprietary technologies convert into usable electricity.
There are a variety of benefits to using wave energy for
electricity generation.
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Scalability within a small site area. Due to
the tremendous energy in ocean waves, wave power stations with
high capacity 50 megawatts (MW) and
above can be installed in a relatively small area.
We estimate that, upon completion of the development of our
500kW PowerBuoy system, we would be able to construct a wave
power station that would occupy less of the ocean surface than
an offshore wind power station of equivalent capacity.
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Predictability. The supply of electricity from
wave energy can be forecasted several days in advance. The
amount of energy a wave hundreds of miles away will have when it
arrives at a wave power station days later can be calculated
based on satellite images and meteorological data with a high
degree of accuracy. Power producers can use this information to
develop sourcing plans to meet their short-term electricity
needs.
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Constant source of energy. The annual flow of
waves at specific sites can be relatively constant. Based on our
studies and analysis of our target sites, we believe our wave
power stations will be able to produce usable electricity for
approximately 90% of all hours during a year.
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Close to population centers. The proximity of
large population areas to large bodies of water means that power
transmission infrastructure is often already in place and may be
utilized for wave energy generation projects.
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There are currently several approaches, in different stages of
development, for capturing wave energy and converting it into
electricity. Methods for generating electricity from wave energy
can be divided into two general categories: onshore systems and
offshore systems. Our PowerBuoy system is an offshore system.
Offshore systems
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are typically located one to five miles offshore and in water
depths of between 100 and 200 feet. The system can be
above, on or below the ocean surface. Many offshore systems
utilize a floatation device to harness wave energy. The heaving
or pitching of the floatation device due to the force of the
waves creates mechanical energy, which is converted into
electricity by various technologies. Onshore and nearshore
systems are often located on a shore cliff or a breakwater, or a
short distance at sea from the shore line, and typically must
concentrate the wave energy first before using it to drive an
electrical generator. Although maintenance costs of onshore
systems may be less than those associated with offshore systems,
there are a variety of disadvantages to these systems. As waves
approach the shore, the energy in the waves decreases; onshore
and nearshore wave power stations, therefore, do not take full
advantage of the amount of energy that waves in deeper water
produce. In addition, there are a limited number of suitable
sites for onshore and nearshore systems and there are
environmental and possible aesthetic issues with these wave
power stations due to their size and location at or near the
seashore.
Our
Products
We offer two types of PowerBuoy systems: our utility PowerBuoy
system, which is designed to supply electricity to a local or
regional electric power grid, and our autonomous PowerBuoy
system, which is designed to generate power for use independent
of the power grid in remote locations. Both products use the
same PowerBuoy technology.
Pictured below is our 150kW-rated PowerBuoy system installed
during fiscal year 2011 and in operation off Invergordon,
Scotland:
Our PowerBuoy system consists of a floating buoy-like device
that is loosely moored to the seabed so that it can freely move
up and down in response to the rising and falling of the waves,
as well as a power take-off device, an electrical generator, a
power electronics system and our control system, all of which
are sealed in the unit.
The power take-off device converts the mechanical stroking
created by the movement of the unit caused by ocean waves into
rotational mechanical energy, which, in turn, drives the
electrical generator. The power electronics system then
conditions the output from the generator into grid-ready
electricity. The operation of the PowerBuoy system is controlled
by our customized control system.
The control system uses sophisticated sensors and an onboard
computer to continuously monitor the PowerBuoy subsystems as
well as the height, frequency and shape of the waves interacting
with the PowerBuoy system. The control system collects data from
the sensors and uses proprietary algorithms to electronically
adjust the performance of the PowerBuoy system in real-time and
on a
wave-by-wave
basis. By making these electrical adjustments automatically, the
PowerBuoy system is able to maximize the amount of usable
electricity generated from each wave. We believe that this
ability to optimize the performance of the PowerBuoy system in
real-time is a significant advantage of our product.
In the event of storm waves larger than 23 feet, the
control system for the PowerBuoy automatically locks down the
PowerBuoy system and electricity generation is suspended. When
the wave heights return to a normal operating range of
23 feet or less, the control system automatically unlocks
the PowerBuoy system and electricity
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generation and transmission recommence. This safety feature
prevents the PowerBuoy system from being damaged by the
increased amount of energy in storm waves.
Our 150kW PowerBuoy system has a maximum diameter of
36 feet near the surface, and is 135 feet long, with
approximately 30 feet of the PowerBuoy system protruding
above the surface of the ocean. At anticipated deployment
distances, generally the system has minimal visability from the
shore.
Utility
PowerBuoy System
The utility PowerBuoy system is designed to transmit electricity
to shore by an underwater power cable, which would then be
connected to a power grid. Our current utility PowerBuoy systems
presently being marketed to customers have rated capacities of
40kW and 150kW. The utility PowerBuoy system is designed to be
positioned in water with a depth of 100 to 200 feet, which
can usually be found one to five miles offshore. This depth
allows the system to capture meaningful amounts of energy from
the waves, since decreasing water depth depletes the energy in
the waves.
The mooring system for keeping a utility PowerBuoy system in
position connects it by lines to three floats that, in turn, are
connected by lines to three anchors. This is a well-established
mooring system, referred to as three-point mooring, which we
have improved upon with various techniques that reduce cost and
deployment time.
We refer to the entire utility power generation system at one
location as a wave power station, which can either be comprised
of a single PowerBuoy system or an integrated array of PowerBuoy
systems connected by our USP to an underwater cable to transmit
the electricity to shore. Our system is designed to be scalable,
as multiple PowerBuoy units can be integrated to create a wave
power station with a larger output capacity. An array of
PowerBuoy systems would likely be configured in three staggered
rows parallel to the incoming wave front to form a long
rectangle. This staggered arrangement would maximize the level
of wave energy that the wave power station can capture.
We are also exploring the use of our utility PowerBuoy system
for applications that include generating electricity for
desalination of water, hydrogen production, water treatment and
natural resource processing. In these instances, the power
generated by the utility PowerBuoy system would bypass the grid
and be delivered directly to the point of electricity
consumption for these special applications.
Status of
Utility PowerBuoy System
Ocean trials of our first 150kW PowerBuoy commenced in April
2011. These ocean trials are being conducted at a site
approximately 33 nautical miles from Invergordon, off
Scotlands northeast coast. Since deployment for
preliminary tests, our 150kW rated PowerBuoy has produced power
in excess of our expectations of performance. A second PB150 is
now under construction and is expected to be ready for
deployment off the coast of Reedsport, Oregon in late 2011, with
deployment timing principally dependent on weather conditions.
Our utility scale PB150 structure and mooring system achieved
independent certification from Lloyds Register.
We completed the successful in-ocean trials of our USP in
October 2009. The USP, based on our proprietary design, has been
developed to facilitate the collection, networking and
transforming of power and data generated by multiple offshore
energy devices. The USP has been built as an open platform, and
can provide connectivity for the PowerBuoy as well as other
offshore energy systems developed by other companies.
8
The following is a picture of the USP being lowered into the
water for ocean trials:
In September 2010, working in conjunction with the US Navy, our
40kW-rated PowerBuoy located at Marine Corps Base Hawaii became
the first-ever grid connected wave energy device in the United
States.
We have also initiated product development efforts in connection
with our 500kW PowerBuoy. Concept development of the
PB500s major subsystems is in progress, and wave tank
testing of models has been completed.
Autonomous
PowerBuoy System
The autonomous PowerBuoy system is based on similar technology
to the utility PowerBuoy system, but is designed for electricity
generation of relatively low amounts of power for use
independent of the power grid, in remote deep-ocean locations.
The autonomous PowerBuoy range of products has rated output from
300 Watts to 40kW, depending on the application. In addition,
the PB150 may be utilized in an autonomous mode. Our autonomous
PowerBuoy system is designed to operate anywhere in the ocean
and in any depth of water.
We believe there are a variety of potential applications for
this system, including homeland security, off-shore oil and gas
platforms, aquaculture and ocean -based communication and data
gathering such as for tsunami warnings.
Status of
Autonomous PowerBuoy System
We received a contract from the US Navy to provide our PowerBuoy
to the Navys Littoral Expeditionary Autonomous PowerBuoy
(LEAP) program. The LEAP program has been established to enhance
the US Navys anti-terrorism and force protection
capability by providing persistent power at sea for port
maritime surveillance in near coast, harbor, and offshore areas.
In September 2010, the US Navy appropriated $2.6 million in
additional funding to us for the second stage of this program.
During the first stage of the LEAP program, we successfully
completed delivery of the design and
on-land
testing of a new power take-off system for the autonomous LEAP
PowerBuoy. In the second stage of the program, which is now in
progress, we will build and ocean-test a LEAP PowerBuoy
structure, incorporating that new power take-off system, off the
coast of New Jersey. Deployment of this PowerBuoy is expected to
take place in the second half of calendar year 2011.
We also have received several contracts from the US Navy to
provide our PowerBuoy technology to a unique program for ocean
data gathering. Under this program, the Navy has conducted an
ocean test of our autonomous PowerBuoy as the power source for
the Navys Deep Water Active Detection System, and we have
substantially completed work under a contract for ocean testing
by the Navy of an advanced version of the autonomous PowerBuoy
for the Navys operational requirements.
Our
Competitive Advantages
We believe that our technology for generating electricity from
wave energy and our commercial relationships give us several
potential competitive advantages in the renewable energy market.
9
Our PowerBuoy system uses an ocean-tested technology to
generate electricity.
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We have been conducting ocean tests for nearly 15 years in
order to demonstrate the viability of our technology. We
initiated our first ocean installation in 1997 and have had
several deployments of our systems for testing and operation
since then. Our grid-connected Hawaii system has been operating
since December 2009. Subsequent to its installation in Hawaii,
our 40kW-rated PowerBuoy has produced power consistent with our
predictive models for the incoming wave conditions. Since its
deployment off the coast of Scotland in April 2011 for
preliminary tests, our 150kW-rated PowerBuoy has produced power
in excess of our expectations of performance. Our PowerBuoy
systems have endured hurricanes, winter storms and
tsunami-driven waves while installed in the ocean.
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Our PowerBuoy systems grid connection has been
certified and one of our PowerBuoys has been connected to a
grid.
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In July 2007, we announced that our PowerBuoy grid connection
system had been certified as compliant with designated national
and international standards. This qualifies our technology for
integration into utility grid systems. In September 2010, our
PowerBuoy located at the US Marine Corps Base in Hawaii became
the first-ever grid-connected wave energy device in the United
States.
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Our PowerBuoy system design is efficient in harnessing wave
energy.
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Our PowerBuoy system is designed to efficiently convert wave
energy into electricity by using onboard sensors to detect
actual wave conditions and then to automatically adjust, or
tune, the performance of the generator using our
proprietary electrical and electronics-based control systems in
response to that information.
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One measure of the efficiency of an electric power generation
system is capacity factor. The capacity factor is the percent of
kilowatt hours produced by a specific system in a given period
as compared to the maximum kilowatt hours that could be produced
by the system in that period. A high capacity factor indicates a
high degree of utilization of the capacity of the system and
provides a means to compare the effectiveness of different
energy sources. Based on our research and analysis, and in-ocean
experience to date, we believe the design capacity factor for a
PowerBuoy wave power station located at many of our targeted
sites would be favorably positioned in the range of 30% to 45%.
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Numerous potential sites for our wave power stations are
located near major population centers worldwide.
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Our systems are designed to work in sites with average annual
wave energy of at least 20kW per meter of wave front, which can
be found in many coastal locations around the world. In
particular, we are currently targeting the west coast of North
America, the west coast of Europe, the coasts of Australia and
the east coast of Japan. These potential sites not only have
appropriate natural resources for harnessing wave energy, but
they are also located near large population centers with access
to existing power transmission infrastructure and significant
and increasing electricity requirements.
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We have significant commercial relationships.
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Our current projects with PNGC Power, the US Department of
Energy, the US Navy, Mitsui Engineering and Shipbuilding, the
Scottish Government, and the UK Governments Technology
Strategy Board (TSB), provide us with an initial opportunity to
sell our wave power stations for utility applications. By
collaborating with leaders in renewable energy development, we
believe we are able to accelerate both our in-house knowledge of
the utility power generation market and our reputation as a
credible renewable energy equipment supplier. If these projects
are successful, we intend to leverage our experiences with our
projects to add wave power stations, new customers and
complementary revenue streams from operations and maintenance
contracts.
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With the funding from the US Navy, we have been able to refine
our PowerBuoy system while simultaneously preparing for
commercial deployment to address a particular customer need. We
believe that the successful deployment of our PowerBuoy system
for the US Navy will significantly enhance market visibility.
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Our PowerBuoy system has the potential to offer a cost
competitive renewable energy power generation solution.
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Our product development and engineering efforts are focused on
increasing the maximum rated output and reliability of the
design of our utility PowerBuoy system. Currently we are
marketing PowerBuoys rated at 40kW and 150kW. Assuming we are
able to reach significant manufacturing volume levels of our
500kW PowerBuoy systems per year, we believe, based upon our
research and analysis, that the economies of scale we would have
with our fabricators would allow us to offer a renewable
electricity solution that competes with other existing renewable
energy systems and, in certain cases, with existing fossil fuel
systems in key markets.
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Prior to achieving full production levels of the 500kW PowerBuoy
system, if we achieve economies of scale for our 150kW PowerBuoy
systems, we expect to be able to offer a renewable electricity
solution that competes with the price of electricity in certain
local markets where the current retail price of electricity is
relatively high or where sufficient subsidies are available.
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Our systems are environmentally benign and aesthetically
non-intrusive.
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We believe that our PowerBuoy system does not present
significant risks to marine life and does not emit significant
levels of pollutants. In connection with our project at the US
Marine Corps Base in Hawaii, our customer, the US Navy, obtained
an independent environmental assessment of our PowerBuoy system
prior to installation, as required by the National Environmental
Policy Act. This assessment resulted in a Finding of No
Significant Impact, the highest such level of approval. Although
our project for the US Navy only contemplates an array of up to
six PowerBuoy systems in Hawaii, we believe that PowerBuoy
systems deployed in other geographic locations, including larger
PowerBuoy systems under development and multiple-buoy wave power
stations, would have minimal environmental impact due to the
physical similarities with the tested system.
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Since our PowerBuoy systems are typically located one to five
miles offshore, PowerBuoy wave power stations are usually not
visible from the shore. Visual impact is often cited as one of
the reasons that many communities have opposed plans to develop
power stations, in particular wind power stations. Our PowerBuoy
system has the distinct advantage of having only a minimal
visual profile. Only a small portion of the unit is visible at
close range, with the bulk of the unit hidden below the water.
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Customers/Projects
The table below shows the percentage of our revenue we derived
from significant customers for the periods indicated:
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Years Ended April 30,
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2011
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2010
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2009
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US Navy
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52
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%
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80
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%
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67
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%
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US Department of Energy
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28
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%
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9
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%
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4
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%
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Iberdrola Cantabria
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(4
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4
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%
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15
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%
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UK Governments Technical Strategy Board
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14
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%
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During fiscal 2011, we reduced revenue by approximately
$0.2 million due to a change in estimated revenue to be
recognized in connection with the Spain construction agreement.
We expect an increasing proportion of our future revenues to be
contributed by commercial customers.
Our potential customer base for our utility PowerBuoy systems
consists of public utilities, independent power producers and
other governmental entities and agencies. Our potential customer
base for our autonomous PowerBuoy systems consists of different
public and private entities that use electricity in and near the
ocean. Our efforts to identify new customers are concentrated on
four geographic markets: the west coast of North America,
the west coast of Europe, the coasts of Australia and the east
coast of Japan. Our efforts to identify new customers
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are currently led and coordinated by our Executive Chairman. We
also use consultants and other personnel to assist us in
locating potential customers.
US
Navy
Since September 2001, we have entered into a series of contracts
with the United States Office of Naval Research for the
development and construction of wave power systems at the Marine
Corps base in Oahu, Hawaii. Under the contract for the current
phase of the project, which was entered into in September 2005
and will expire in September 2011, we are reimbursed for costs
and paid a fixed fee, and over this period had been awarded
contracts for total potential revenue of $6.1 million. The
current PowerBuoy now in operation at the Marine Corps base was
deployed in December 2009 and connected to the grid in September
2010. This PowerBuoy has produced power consistent with our
predictive models. We expect to continue operation of this
grid-connected PowerBuoy for the foreseeable future.
Pictured below are views of our 40kW-rated PowerBuoy system
being lowered into the ocean in Oahu, and after deployment.
In June 2007, we received a $1.7 million contract from the
US Navy to provide our PowerBuoy technology to a unique program
for data gathering in the ocean. Under this
18-month
program, the US Navy conducted an ocean test in October 2008 of
our autonomous PowerBuoy as the power source for the Navys
Deep Water Active Detection System. In October 2008, we received
a $3.0 million contract from the US Navy to expand the
program and ocean-test an advanced version of our autonomous
PowerBuoy. We have substantially completed performance under
this contract.
In September 2009, we received $2.4 million from the US
Navy for the first stage of a contract to provide our PowerBuoy
to the Navys LEAP program. In September 2010, the US Navy
awarded $2.6 million in additional funding to us for the
second stage of this program. The LEAP program is being
developed to enhance the US Navys anti-terrorism and force
protection capability by providing persistent power at sea for
port maritime surveillance in the near coast, harbor, piers and
offshore areas. This contract expires in September 2011, and we
expect it to be extended.
Reedsport,
Oregon Project
We are evaluating the feasibility of a location off the coast of
Reedsport, Oregon for the proposed construction and operation of
a wave power station with a total potential maximum rated output
of up to 50MW, of which the first 1.5 MW would be a
demonstration wave power station. In February 2007, we signed a
cooperative agreement with PNGC Power, an Oregon-based electric
power cooperative, as a utility partner for the development of
the wave power station. In July 2007, we filed a Pre-Application
Document and Notice of Intent with the US Federal Energy
Regulatory Commission (FERC) for the Reedsport project, which
provides notice of our intent to seek a license for the
Reedsport power station and information regarding the project.
In February 2010, we filed with FERC a full application to
build, deploy and connect to the grid a 10-PowerBuoy array
(1.5 MW). In March 2011, FERC granted us a second
preliminary permit to continue to evaluate the feasibility of
the Reedsport project. We believe these
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filings were the first Pre-Application Document, Notice of
Intent, and full License Application filed by a wave power
company, and is an important step in the full licensing process
for the Reedsport project. We will need additional authorization
from FERC to sell electric power generated from the Reedsport
wave power station into the wholesale or retail markets.
In August 2007, we announced the award of a $0.5 million
contract from PNGC Power, providing funding toward the
fabrication and installation of a 150kW PowerBuoy system for the
Reedsport project. In October 2008, we received a
$2.0 million award from the DOE in support of the project.
This DOE grant is being used to help fund the fabrication and
factory testing of the first PowerBuoy to be installed at the
Reedsport site. This was the first award for the building of
ocean wave energy systems by the DOE. In September 2010, we
announced the award of another grant from the DOE of
$2.4 million. This award will be used for final assembly,
deployment and ocean trials of the first PowerBuoy. We believe
these grants are indicative of the growing recognition and
support of wave energy in the US federal and state governments.
This PowerBuoy is expected to be ready for deployment by the end
of 2011, with deployment timing principally dependent on weather
conditions.
The following photographs show manufacturing activity associated
with our PB150 PowerBuoy being built in Oregon:
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We continue to make progress on the overall permitting and
licensing process while working extensively with interested
stakeholder groups at local, county, state and federal agency
levels. In August 2010, we announced a Settlement Agreement with
11 federal and state agencies and three non-governmental
stakeholders. This first-ever wave energy settlement agreement
was reached after extensive technical, policy, and legal
discussions regarding appropriate prevention, mitigation and
enhancement measures, and study requirements. It covers a broad
array of resource areas including aquatic resources, water
quality, recreation, public safety, crabbing and fishing,
terrestrial resources and cultural resources. The Settlement
Agreement includes an innovative Adaptive Management Plan that
will be used to identify and implement environmental studies
that may be required, and to provide a blueprint for the
application of this new information as the wave power station
develops.
Next
Generation PB500 PowerBuoy
In April 2010, we received a $1.5 million award from the
DOE for the development of our next generation 500kW PowerBuoy
wave power system, the PB500. In the fiscal year ended
April 30, 2011, we received awards of an additional
$4.7 million for development of the PB500,
$2.4 million from the DOE and $2.3 million from the UK
Governments Technology Strategy Board. We intend to use
proceeds from these grants to help fund the
scale-up of
the power output per PowerBuoy from the current level of 150kW
to 500kW. In addition, the technology development effort will
focus on increasing the power extraction efficiency and
reliability. Concept design of the PB500 major subsystems is in
progress, and wave tank testing of the models has been completed.
Scotland
Project
In 2007, we received a $1.8 million contract from the
Scottish Executive toward the construction and testing of a
150kW grid-connected PowerBuoy system. We are now conducting
ocean trials of the buoy at a site
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approximately 33 nautical miles from Invergordon, off
Scotlands northeast coast. Since its deployment off the
coast of Scotland in April 2011 for preliminary tests, our 150kW
rated PowerBuoy has produced power in excess of our expectations
of performance. We are seeking a customer for the commercial
utilization of the buoy after the ocean trial phase is
completed, including its deployment at various potential sites.
The following pictures show manufacturing and deployment
activity in Scotland associated with our PB150 PowerBuoy:
Spain
In July 2006, after exploratory studies were conducted,
Iberdrola Energias Marinas de Cantabria, S.A., or Iberdrola
Cantabria, was formed for the purpose of constructing and
operating a wave power station off the coast of Santoña,
Spain. Iberdrola Energias Renovables II, S.A. (Iberdrola
Energias), an affiliate of Iberdrola, is the largest shareholder
of Iberdrola Cantabria. Minority shareholders include us,
Sociedad para el Desarrollo Regional de Cantabria, S.A., or
SODERCAN, which is the industrial development agency of the
Spanish region of Cantabria, Total Eolica, an affiliate of Total
S.A., and Instituto para la Diversificacion y Ahorro de la
Energia, S.A., (IDAE), a Spanish government agency dedicated to
energy conservation and diversification efforts. Funding is
shared among the shareholders based on
agreed-upon
percentages that reflect the parties anticipated ownership
interest in the wave power station. We own 10% of Iberdrola
Cantabria.
In July 2006, we entered into an agreement for the first phase
of the construction of a wave power station with our customer,
Iberdrola Cantabria. In January 2007, the parties entered into a
corresponding operations and maintenance agreement. Under the
Spain construction agreement, we agreed to manufacture and
deploy one 40kW PowerBuoy system and the ocean-based substation
and infrastructure required to connect nine additional 150kW
PowerBuoy systems by December 31, 2009. The terms of the
construction of the nine additional PowerBuoy units and the
installation of the underwater transmission cable and underwater
substation pod were not covered by the Spain construction
agreement and were to be separately agreed upon.
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The initial PB40 PowerBuoy system for this project was deployed
in September 2008. After a short testing period, the buoy was
removed from the water for work on improvements to the power
take-off and control systems. If no modification to the Spain
construction agreement is agreed to by the parties, the customer
may, subject to certain conditions in the agreement, terminate
the agreement without the obligation to make further milestone
payments and, potentially, collect reimbursement for direct
damages, limited as specified in the Spain construction
agreement, for the failure of the PowerBuoy to meet certain
performance thresholds. While we do not expect the termination
of the Spain construction agreement or potential liability for
damages to materially adversely affect our financial condition,
the new Santoña project does represent a portion of our
anticipated revenue stream. If we are unable to successfully
meet the terms of the existing Spain construction agreement, if
Iberdrola Cantabria were to terminate the agreement, or if we
are not able to successfully negotiate a subsequent contract or
contracts with Iberdrola Cantabria, we may lose that revenue
stream.
In November 2010, we agreed to negotiate with Iberdrola
Cantabria with the goal of cancelling the remaining obligations
between the parties under the Spain construction and operations
and maintenance agreements, transferring ownership of the
equipment manufactured or purchased by us under the construction
agreement to Iberdrola Cantabria, and having Iberdrola Cantabria
pay certain amounts due to us. We further agreed to work toward
a new project with Iberdrola Cantabria. Under this new project,
we would provide project management of the installation and
connection of the
sub-sea
cable and underwater substation pod at Santoña. In
addition, we would provide a proposal to perform maintenance on
the assets transferred to Iberdrola Cantabria. Negotiations are
underway for such efforts.
In March 2010, we announced the award of 2.2 million
under the European Commissions Seventh Framework Programme
(FP7) by the European Commissions Directorate responsible
for new and renewable sources of energy, energy efficiency and
innovation. This grant is part of a total award of
4.5 million to a consortium of companies, including
us, to deliver a PowerBuoy wave energy device under a project
entitled WavePort, with an innovative wave prediction capability
and a
wave-by-wave
tuning system. It is anticipated that the PowerBuoy will be
deployed at the Santoña site in Spain.
Other
Projects
In February 2006, we received approval from the UK
Governments Technology Strategy Board (TSB) to install a
demonstration wave power station off the coast of Cornwall,
England as part of TSBs Wave Hub project, a
planned offshore facility for demonstrating and testing wave
energy generation devices. TSB has obtained the necessary
permits for this Wave Hub project, and the project received over
£40 million of funding for construction of the Wave
Hub infrastructure, which was completed during 2010. We are in
the planning and development stage for our part of the project,
and we are seeking funding for the deployment of our PowerBuoy
systems at this site.
In October 2008, we signed an exclusive agreement with a
consortium of three Japanese companies to develop a
demonstration wave power station in Japan. The Japanese
consortium comprises Idemitsu Kosan Co., Mitsui
Engineering & Shipbuilding Co. (MES), and Japan Wind
Development Co. We are presently working with MES to identify
prospective sites for the wave power station. In 2011, we signed
a $220,000 contract with MES to develop a new mooring system for
our PowerBuoy. We also worked with MES to conduct certain
development engineering in connection with the project, and to
perform tests at MESs wave tank facilities.
In December 2008, we announced a Joint Development Agreement
with Leighton Contractors Pty. Ltd. (Leighton) for the
development of wave power projects off the east and south coasts
of Australia. Over the past 50 years, Leighton has played
an active role in building Australias ports and marine
facilities, transportation infrastructure, and energy projects
including projects within the wind and offshore oil and gas
sectors. In 2009, Leighton formed Victorian Wave Partners Pty.
Ltd. (VWP), a special purpose company for the development of a
19MW power wave power project off the coast of Victoria,
Australia. In November 2009, we announced that VWP was awarded
an A$66.46 million grant from the Federal Government of
Australia for the 19MW wave power project. The grant is
conditional on the Funding Deed which sets out the terms of the
grant, including funding milestones. Victorian Wave Partners is
currently seeking the significant additional funding required to
enable the completion of the 19MW wave power station.
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Over the period October 2005 to December 2009, we operated, at
intervals, a demonstration PowerBuoy system off the coast of New
Jersey, which allowed continuous monitoring of the system and
evaluation of its performance in actual wave conditions.
Periodically, the buoy was removed from the ocean for
maintenance, testing and upgrades, and was redeployed. The buoy
was deployed continuously for 12 months between October
2005 and October 2006, and survived hurricane-generated storm
waves during this period and in a later period of ocean
deployment. We have conducted extensive diagnostic tests on the
system, providing us with information about the effects of ocean
deployments that will help us implement improvements in future
PowerBuoy systems. This system was not designed to supply
electricity to the power grid, but rather to provide us with
operational data and marketing opportunities. We were partially
funded, which funds we recognized as revenue, for the
construction of this PowerBuoy system by the New Jersey Board of
Public Utilities. We do not anticipate any additional funding or
recognizing any additional revenue in connection with this
project.
Backlog
At April 30, 2011, our total negotiated backlog was
$8.9 million compared with $5.7 million at
April 30, 2010. We anticipate that a majority of our
backlog will be recognized as revenue over the next
12 months. Our backlog includes both funded amounts, which
are unfilled firm orders for our products and services for which
funding has been both authorized and appropriated by the
customer (Congress, in the case of US Government agencies) and
unfunded amounts, which are unfilled firm orders from the US
Department of Energy for which funding has not been
appropriated. If any of our contracts were to be terminated, our
backlog would be reduced by the expected value of the remaining
terms of such contracts. Funded backlog was $6.9 million
and $5.2 million at April 30, 2011 and 2010,
respectively.
The amount of contract backlog is not necessarily indicative of
future revenue because modifications to or terminations of
present contracts and production delays can provide additional
revenue or reduce anticipated revenue. A substantial majority of
our revenue is recognized using the
percentage-of-completion
method, 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.
Our
Business Strategy
Our goal is to strengthen our leadership in developing wave
energy technologies and commercializing wave power stations and
related services. In order to achieve this goal, we are pursuing
the following business strategies:
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Sell turn-key power stations and operating and maintenance
contracts. Our fundamental business plan is to
sell turn-key power stations, rather than to take on the capital
requirements of building and owning power stations and selling
the energy generated. In addition, in order to create recurring
revenue streams, we seek to sell operating and maintenance
(O&M) contracts over the life-cycle of the plants.
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Outsource most of the plant construction and
deployment. We outsource all metal fabrication,
anchoring, mooring, cabling supply and deployment in order to
minimize our capital requirements as we scale up production
volumes. The high value-added smart part of the
system is assembled and tested at our facilities and shipped to
project sites for integration into the PowerBuoys.
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Concentrate sales and marketing efforts on four geographic
markets. We are currently focusing our sales and
marketing efforts on the west coast of North America, the west
coast of Europe, the coasts of Australia and the east coast of
Japan. We believe that each of these areas represents a strong
potential market for our PowerBuoy wave power stations because
they combine appropriate wave conditions, political and economic
stability, large population centers, high levels of
industrialization and significant and increasing electricity
requirements.
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Continue to increase PowerBuoy system
output. Our product development and engineering
efforts are focused on increasing the rated output of the design
of our PowerBuoy systems from 40kW to 150kW, and thereafter to
500kW. If we increase the size of a PowerBuoy system or increase
its energy conversion efficiency, we will be able to increase
the amount of wave energy the system can capture and, in turn,
increase the output of the system. We believe that by increasing
system output of the individual PowerBuoy,
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and also by increasing volume production of the PowerBuoys, we
will be able to decrease the cost per kW of our PowerBuoy system
and the cost per kilowatt hour of the energy generated.
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Leverage customer relationships to enhance the commercial
acceptance of our utility PowerBuoy system. We
believe that our project at the US Marine Corps base in Oahu,
Hawaii will serve as a prototype wave power station for the
installation of wave power stations at other US Navy bases. Our
relationship with PNGC Power regarding our Reedsport, Oregon
project is the first such utility relationship on the west coast
of the United States. We intend to build on these existing
commercial relationships both by expanding the number and size
of projects we have with our current customers and by entering
into new alliances and commercial relationships with other
utilities and independent power producers.
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Expand revenue streams from our autonomous PowerBuoy
system. The autonomous PowerBuoy system addresses
specific power generation needs of customers requiring off-grid
electricity generation in remote locations in the open ocean.
Since our PowerBuoy systems are well suited for many of these
uses, we do not expect that they will require subsidies or other
price incentives for commercial acceptance. We believe there are
a variety of potential applications for this system, including
homeland security, off-shore oil and gas platforms, aquaculture
and ocean -based communication and data gathering such as for
tsunami warnings. We have entered into contracts with the US
Navy for the testing of our autonomous PowerBuoy in connection
with a unique program for ocean data gathering, as well as for
the LEAP program for homeland security. We believe that
successful testing of our autonomous PowerBuoy System under
these contracts may result in additional revenues from the US
Navy and other prospective customers.
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Maximize customer funding of technology
development. We actively seek to obtain external
funding for the development of our technology, including
cost-sharing obligations under some of our customer contracts.
In April 2010, we were awarded $1.5 million from the US
Department of Energy for the development of our PB500 product.
In fiscal year 2011, we were awarded an additional
$2.4 million from the US Department of Energy and
$2.3 million from the UK Governments Technology
Strategy Board for PB500 development.
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Expand our partnerships in key market
areas. We believe that an important element of
our business strategy is to collaborate with other organizations
to leverage our combined expertise, market presence and core
competences. We have formed such partnerships more recently with
Leighton Contractors in Australia, Mitsui Engineering and
Shipbuilding in Japan, and Lockheed Martin in the US.
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Marketing
and Sales
We are developing our sales capabilities and have begun
commercial marketing and selling of our PowerBuoy systems.
Because our products use a new commercial technology, the
decision process of a customer requires substantial educational
efforts.
In addition to our own direct sales, we will continue to enter
into development agreements and strategic alliances with
regional utility and energy companies committed to providing
electricity from renewable energy sources. We plan to leverage
these relationships to sell and market our PowerBuoy wave power
stations to these companies and their affiliates and to other
customers in the region. We plan to expand our relationships by
entering into long-term operations and maintenance contracts to
support completed wave power stations. In order to penetrate
certain international markets, we plan to implement marketing
strategies that respond to local market demands. In particular
markets, we may grant licenses to local businesses to sell,
manufacture or operate PowerBuoy wave power stations.
Utility
PowerBuoy System Marketing
We plan to market our utility PowerBuoy systems to utilities and
independent power producers interested in adding electricity
generated from renewable sources to their existing electricity
supply. In addition, we are exploring the use of our utility
PowerBuoy systems for applications that include desalination of
water, hydrogen production, water treatment and natural resource
processing. In these instances, the power generated by the
utility
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PowerBuoy system would bypass the grid and be delivered directly
to the point of electricity consumption for these special
applications.
We expect to be able to use the availability of subsidies and
other incentives to market the electricity generated by wave
power stations as an alternative to fossil fuel generated
electricity. We plan to educate potential customers on the
availability of these incentives and, where appropriate, work
with them to prepare and file the necessary applications, select
sites to meet program requirements and take advantage of these
incentives.
Autonomous
PowerBuoy System Marketing
There are a variety of potential customers, such as companies
within the offshore oil and gas industry, the US Department of
Homeland Security and US Department of Defense, that have
specific needs for off-grid power generation that can be
supplied by our autonomous PowerBuoy system. Potential
applications for off-grid power supply include homeland
security, off-shore oil and gas platforms, aquaculture and
ocean-based communication and data gathering such as for tsunami
warnings.
Manufacturing
and Deployment
Manufacturing
and Raw Materials
We engage in two types of manufacturing activities: the
manufacturing of the high value-added components, or smart
part modules, for systems control, power generation and
power conversion for each PowerBuoy system, and the contracting
to outside companies for the fabrication of the buoy-like
structure, anchoring and mooring, and cabling.
Our core in-house manufacturing activity is the assembly and
testing of the power generation and control modules at our
Pennington, New Jersey facility. The power generation and
control modules include the critical electrical and electronic
systems that convert the mechanical energy into usable
electrical energy. The sensors and control systems use
sophisticated technology to monitor ocean conditions and
automatically optimize the performance of the PowerBuoy system
in response to those changing conditions. We have a portfolio of
patents, including those that cover our power generation, power
conversion and control technologies. Due to the critical and
proprietary nature of these systems, we do not outsource their
assembly and testing. After a generator and control module
passes our rigorous quality control procedures, it is
transported as a
ready-to-install
subsystem to the project site.
We purchase the remaining components of, and raw materials for,
each PowerBuoy system from various vendors. Currently, we
contract for these components on a
project-by-project
basis. We conduct a bidding process to select a supplier with
the optimal combination of price, delivery terms and quality.
Our goal is to develop ongoing relationships with select vendors
centrally located in different regions, which will allow us to
reduce unit costs as our volume increases. We provide
specifications to each vendor, and they are responsible for
performing quality analysis and quality control over the course
of construction, subject to our review of the quality test
procedures and results. After each vendor completes testing of
the component, it is transported
ready-to-install
to the project site.
Upon arrival at the project site, the generator and control
modules are integrated with the balance of the components of the
PowerBuoy system. We are highly dependent on our third-party
suppliers; however, we actively manage key steps in the supply
chain. We act as the general contractor, and retain the ultimate
responsibility for building the PowerBuoy wave power station,
and installing, testing and deploying the complete wave power
station at the project site. This process requires significant
project and contract management by us. We currently employ
individuals who have experience with all aspects of both the
manufacturing and engineering contracting processes, and
demonstrated organizational capabilities in these critical areas.
Deployment
For our existing and currently planned deployments, we purchase
from subcontractors the mooring system and cables needed to
install the PowerBuoy system and connect it to either the power
grid or a remote power site. The vendor usually transports these
components to the project site.
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Each step in the deployment process for our existing and
currently planned deployments is outsourced to subcontractors
located near the project site. First the mooring system,
consisting of floats, anchors and chains, is brought to the wave
power stations ultimate ocean location by workboats or
barges. At the same time, the cable to transmit the generated
electricity is laid by a subcontractor. Next, the PowerBuoy
system is towed to the ocean location and fixed to the mooring
system. The PowerBuoy system would then be connected to the
transmission cable, which would then be connected to the grid or
the distributed power site. At this point, we would have a fully
assembled PowerBuoy wave power station, which, subject to final
testing, would be ready for operation. An array of PowerBuoy
systems would be installed using a similar approach.
We expect that the subcontractor services required for
deployment of a wave power station will be readily available in
the locations where we currently plan to deploy our systems,
although we are dependent on third parties for the entire
process. We actively manage each step with personnel who have
significant project management and deployment experience.
The following are pictures showing the PowerBuoy deployment
process:
Research
and Development
Our research and development team consists of employees with a
broad range of experience in mechanical engineering, electrical
engineering, hydrodynamics and systems engineering. We engage in
extensive research and development efforts to improve PowerBuoy
efficiency, reliability and power output and to reduce
manufacturing cost and complexity. Our research and development
efforts are currently focused on product development, in
particular increasing the output and reliability of our utility
PowerBuoy system including the 150kW PowerBuoy system and to our
research and development of new products, product applications
and complementary technologies. We are also conducting research
on improvements to our current technology.
Research and development expenses are reflected on our
consolidated statements of operations as product development
costs. Research and development expenses were $13.3 million
for fiscal 2011, $13.0 million for fiscal 2010 and
$8.4 million for fiscal 2009.
We are currently working on the design for our 500kW PowerBuoy.
The key to increasing the rated output of the PowerBuoy system
is to increase the systems efficiency as well as its
diameter. If we increase the size and efficiency of the wave
capture portion of the PowerBuoy system, we will be able to
increase the amount of wave energy the system can capture and,
in turn, increase the output of the system. For example, if we
double the floats
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diameter, we will approximately quadruple its power capacity. We
believe that we will be able to further increase the output
capacity of the PowerBuoy system using technology that we have
already developed, so our focus is on the design, manufacture,
testing and deployment of the higher capacity systems. We are
exploring design and construction techniques that will enable
the larger PowerBuoy systems to be deployed cost effectively and
safely without damage. For example, our 40kW PowerBuoy systems
are transported to the onshore deployment sites using standard
flatbed trucks; however, the assembled 150kW PowerBuoy systems
are too large for these trucks and need to be transported in
modules and assembled
on-site. In
addition, we will need to adjust the mooring system to account
for the larger-sized PowerBuoy systems.
We completed the successful in-ocean trials of our USP in
October 2009. The USP, based on our proprietary design, has been
developed to facilitate the collection, networking and
transforming of power and data generated by multiple offshore
energy devices. The USP has been built as an open platform, and
can provide connectivity for the PowerBuoy as well as other
offshore energy systems developed by other companies.
Ocean trials of our first 150kW PowerBuoy commenced in April
2011. The ocean trials are being conducted at a site
approximately 33 nautical miles from Invergordon, off
Scotlands northeast coast. We are seeking a customer for
the commercial utilization of the buoy after the ocean trial
phase is completed, including its deployment at various
potential sites.
We also plan to continue our technology development of specific
applications for our PowerBuoy systems to expand our growth
opportunities. For example, we are exploring applications that
would allow our PowerBuoys to provide power for desalination of
water, hydrogen production, water treatment and natural resource
processing.
It is our intent to fund the majority of our research and
development expenses, including cost sharing obligations under
some of our customer contracts, over the next several years with
sources of external funding. If we are unable to obtain external
funding, we may curtail our research and development expenses or
we may decide to self-fund significant research and development
expenses, in which case our product development costs may
continue to increase.
Intellectual
Property
We believe that our technology differentiates us from other
providers of wave and other renewable energy technologies. As a
result, our success depends in part on our ability to obtain and
maintain proprietary protection for our products, technology and
know-how, to operate without infringing the proprietary rights
of others and to prevent others from infringing our proprietary
rights. Our policy is to seek to protect our proprietary
position by, among other methods, filing United States and
foreign patent applications related to our proprietary
technology, inventions and improvements that are important to
the development of our business. We also rely on trade secrets,
know-how, and continuing technological innovation and may rely
on licensing opportunities to develop and maintain our
proprietary position.
As of April 30, 2011, we owned a total of 46 issued United
States patents and 15 United States patent applications. We have
pending foreign counterparts to 19 of our issued patents and 9
of our pending non-provisional patent applications.
Our patent portfolio includes patents and patent applications
with claims directed to:
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system design;
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control systems;
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power conversion;
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anchoring and mooring; and
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wave farm architecture.
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The expiration dates for our issued United States patents range
from 2015 to 2028. We do not consider any single patent or
patent application that we hold to be material to our business.
The patent positions of companies like ours are generally
uncertain and involve complex legal and factual questions. Our
ability to maintain and solidify
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our proprietary position for our technology will depend on our
success in continuing to obtain effective patent claims and
enforcing those claims once granted. In addition, certain
technologies that we developed with US federal government
funding are subject to certain government rights as described in
Risk Factors Risks Relating to Intellectual
Property.
We use trademarks on nearly all of our products and believe that
having distinctive marks is an important factor in marketing our
products. We have registered our PowerBuoy
®,
Talk on
Watertm
and
CellBuoytm
marks and our Making Waves in
Powersm
service mark, and we have filed applications to register our
PowerTower mark in the United States. Trademark ownership is
generally of indefinite duration when marks are properly
maintained in commercial use.
Competition
We compete and will compete with power generation equipment
suppliers in all segments of the electric power industry,
including wave energy, other forms of renewable energy and
traditional fossil fuel. The renewable energy industry is both
highly competitive and continually evolving as participants
strive to differentiate themselves within their markets and
compete within the larger electric power industry. Many of our
competitors in certain of these segments have established a
stronger market position than ours and have greater resources
and name recognition than we have. In addition, there are many
companies, including some of the largest multinational energy
companies, that are developing or sponsoring innovative
technologies for renewable energy production. Accordingly, our
success depends in part on developing and demonstrating the
commercial viability of wave energy solutions and identifying
markets for and applications of our PowerBuoy systems and
technology.
Although the market for equipment that generates electricity
from wave energy is in its early stage of commercial
development, there are a number of private companies, some with
institutional funding, developing technologies to generate
electricity from wave energy, and we compete or will compete
with them. We believe there are over 75 companies worldwide
developing wave energy technologies. Most of these companies are
located in the United Kingdom, continental Europe, the United
States and Australia, and almost all are focused on offshore
systems. Only a few of these companies, like ourselves, have
conducted ocean testing of their systems, which is the critical
factor in proving the survivability and performance of any wave
energy system.
To compete effectively, we have to demonstrate that our
PowerBuoy systems are attractive, compared to other wave energy
systems and other renewable energy systems, by differentiating
our systems on the basis of performance, survivability in
operation and storm wave conditions, cost effectiveness and the
operations and maintenance services that we provide. We believe
that we compare favorably to our competition with respect to
each of these factors.
Government
Regulation
The electric power industry is subject to extensive regulation,
which varies by jurisdiction. For example, the electricity
industry in the United States is governed by both federal and
state laws and regulations, with the federal government having
jurisdiction over the sale and transmission of electricity at
the wholesale level in interstate commerce, and the states
having jurisdiction over the sale and distribution of
electricity at the retail level. The electricity industry in the
European Union, or the EU, is primarily governed by national
law, but a number of
EU-level
regulations impose obligations on member states, notably with
respect to the liberalization of the electricity markets.
The renewable energy industry has also been subject to
increasing regulation, however none of the countries in which we
are currently marketing our PowerBuoy systems have comprehensive
regulatory schemes tailored to wave energy. As the renewable
energy industry continues to evolve and as the wave energy
industry in particular develops, we anticipate that wave energy
technology and our PowerBuoy systems and their deployment will
be subject to increased oversight and regulation in accordance
with international, national and local regulations relating to
safety, sites, environmental protection, utility interconnection
and metering and related matters.
Our PowerBuoy wave power stations currently face regulation in
the US and in foreign jurisdictions concerning, among other
areas, the sale and transmission of electricity, site approval
and environmental approval
21
and compliance. In order to encourage the adoption of renewable
energy systems, many governments offer subsidies and other
financial incentives and have mandated renewable energy targets.
These subsidies, incentives and targets may not be applicable to
our wave energy technology and therefore may not be available to
us or our customers.
Sale
and Transmission of Electricity
The US government regulates the electricity wholesale and
transmission business through FERC. FERC regulates the rates and
terms for sales of electricity at the wholesale level, and the
organization, governance and financing of the companies engaged
in electricity sales. As a result, FERC regulates the rates
charged for sales of electric power from a wave power station
into the wholesale market, although it is possible to obtain an
exemption from FERC that would allow those sales to occur at
market-based rates. FERC also regulates the construction,
operation and maintenance of any dam, water conduit, reservoir
or powerhouse along or in any of the navigable waters of the
United States for the purpose of generating electric power. As a
result, the construction and operation of a wave power station
in the United States requires the issuance of a license by FERC.
In July 2007, we filed a Pre-Application Document and Notice of
Intent with FERC for the Reedsport project, which provides
notice of our intent to seek a license for the Reedsport power
station and information regarding the project. In February 2010,
we filed with FERC a full application to build, deploy and
connect to the grid a 10-PowerBuoy array (1.5 MW).In March
2011, FERC granted us a second preliminary permit to continue to
evaluate the feasibility of the Reedsport project. We believe
these filings were the first Pre-Application Document, Notice of
Intent, and full License Application filed by a wave power
company, and is an important step in the full licensing process
for the Reedsport project. We will need additional authorization
from FERC to sell electric power generated from the Reedsport
wave power station into the wholesale or retail markets.
Under Spanish law, each of the Spanish Autonomous Regions,
including the Cantabria region, has the power to issue
administrative authorizations for the construction and
exploitation of installations for the production of renewable
energy, including installations that use the energy of waves.
Iberdrola Energias has applied for and received the necessary
authorizations for installation of the first PowerBuoy at our
Santoña, Spain wave power project.
Site
Approval
Generally, we expect that we will deploy our PowerBuoy systems
in the range of one to five miles from the shore, subject to
water depth and overall wave heights. Although regulations
regarding the use of ocean space vary around the world, we
generally do not expect significant delay in obtaining site
approvals, as governments have to date encouraged the use of
renewable energy sources. Our customers for the Spain project,
and the organizers of the Cornwall, England project, are
responsible for obtaining the necessary siting permits for their
projects.
In the United States, federal agencies regulate the siting of
renewable energy and related-uses located on the outer
continental shelf, which is generally more than three miles
offshore. For projects located within three miles of the US
shore, the adjacent state would be responsible for issuing a
lease and other required authorizations for the location of the
project. In either case, an assessment of the potential
environmental impact of the project would be conducted in
addition to other requirements.
Environmental
Approval and Compliance
We are subject to various foreign, federal, state and local
environmental protection and health and safety laws and
regulations governing, among other things: the generation,
storage, handling, use and transportation of hazardous
materials; the emission and discharge of hazardous materials
into the ground, air or water; and the health and safety of our
employees. In addition, in the United States, the construction
and operation of a power system offshore would require permits
and approvals from FERC, the Coast Guard, the Army Corps of
Engineers and other governmental authorities. These required
permits and approvals evaluate, among other things, whether the
proposed project is in the public interest and ensure that the
project would not create a hazard to navigation. Other foreign
and international laws may require similar approvals.
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We believe that a significant advantage of our PowerBuoy systems
is that they do not present significant environmental risks when
compared to traditional power generation technologies, as there
is no significant visual or audible impact and such systems have
not been shown to have a significant negative effect on fish or
sea mammals. We are not aware of any liabilities in connection
with compliance with such laws, regulations, permits and
approvals that would have a material adverse effect on our
financial position, results of operations or cash flows.
Subsidies
and Incentives
Several governments have enacted subsidies and incentives
designed to encourage the development of renewable energy
resources. Because of the relative novelty of wave energy
generation, these government programs often do not apply
specifically to wave energy generation, and so these programs
may not be available to our customers or us in all cases.
Under a tariff subsidy, the government sets price subsidies to
be paid to electricity producers for renewable electricity
generated by them. The prices are set above market rates and may
be differentiated based on system size or application. Under a
renewable portfolio standard, the government requires regulated
utilities to supply a portion of their total electricity in the
form of renewable electricity. Some programs further specify
that a portion of the renewable energy quota must be from a
particular renewable energy source, although none have specific
quotas for wave energy. Several governments also facilitate low
interest loans for renewable energy systems, either through
direct lending, credit enhancement or other programs.
Countries in Europe and Asia and several states in the United
States have adopted a variety of government subsidies to allow
renewable sources of electricity to compete with conventional
sources of electricity, such as fossil fuels. Government
subsidies and incentives generally focus on grid-connected
systems and take several forms, including tariff subsidies,
renewable portfolio standards, rebates, tax incentives and low
interest loans. In addition, the adoption by governments of
limits on carbon dioxide emissions and targets for renewable
energy production has spurred a market for trading of surplus
carbon credits and renewable energy certificates.
In 2008, the US enacted the Energy Improvement and Extension Act
of 2008, which enables owners of wave power projects in the US
to receive federal tax credits, thereby improving the long-term
economics of wave power as a renewable energy source. The Act
expands the definition of qualifying facilities for the
Production Tax Credit (PTC) to include those that generate power
from marine renewables (including wave and tidal sources). As a
result, the PTC is now available for electricity produced and
generated after October 3, 2008 from marine renewable
energy facilities with a nameplate capacity of at
least 150kW, and that are placed in service anytime between
October 3, 2008 and December 31, 2013. The credit rate
for marine renewables is $0.01 per kilowatt hour, and the
duration of the credit will be ten years after the facility is
placed in service.
The American Recovery and Reinvestment Act of 2009 provides
significant grants, tax incentives and policy initiatives to
stimulate investment and innovation in the cleantech
sector. At times, the DOE has also issued requests for proposal
to be funded under programs it has established to further
investment in marine energy technologies. We have devoted
additional resources to develop proposals seeking government
funding to support existing projects and technology
enhancements. Consequently, while our selling, general and
administrative costs related to such efforts may increase over
the next year, we believe that these governmental initiatives
may result in additional revenues for us over the next several
years. Given the uncertainties surrounding the scope and size of
government programs, there can be no assurances as to whether we
will be successful in obtaining significant additional
government funding or as to the terms and conditions of any such
funding.
The State of Oregon has enacted the Business Energy Tax Credit
program that allows companies that invest in renewable energy
capital projects an Oregon State income tax credit of up to 50%
of the first $20.0 million of capital costs. This program
is scheduled to expire on June 30, 2012.
Each of the member states of the EU has a country-specific
target for the level of consumption of electricity from
renewable sources that it should attain by 2020. The United
Kingdom Renewables Obligation of April 2002 included a target of
15% of electricity generation to come from renewable sources by
2015, which will continue until 2027. Electricity suppliers that
are unable to otherwise meet their renewables obligation have to
pay a buy-out
23
price (currently £0.033 per kilowatt hour) or purchase
Renewables Obligation Certificates from companies that generate
electricity from renewable resources.
The UK Department of Energy and Climate Change and Department of
Business Innovation and Skills are examining measures for the
support of the renewable energy market. In 2011, it is expected
that the UK Government will announce new policies on Electricity
Market Reform (EMR) which may include among other measures: a
floor price for carbon for electricity generators; and a
Feed-in-Tariff,
for renewable energy to replace the existing system of Renewable
Obligation Certificates (ROCs). Additionally, it is anticipated
that specific funding will be made available for both capital
and revenue support for marine energy (wave and tidal stream)
projects. These measures will supersede the earlier Marine
Renewables Deployment Fund.
Many countries and other local jurisdictions have established
limits on carbon dioxide emissions. In particular, a key
component of the Kyoto Protocol is the commitments made by
certain countries to reduce carbon dioxide emissions. The
country, locality or companies within the jurisdiction are given
carbon emission allowances, or carbon credits, which represent
the right to emit a specific amount of carbon dioxide. A
country, locality or company having emissions that exceed its
allocated carbon credits may purchase unused carbon credits from
a country, locality or company that has reduced its emissions
beyond its requirements to do so. The carbon dioxide emissions
from a PowerBuoy wave power station are zero, and, therefore, a
PowerBuoy wave power station may generate carbon credits that
could be used and sold.
Employees
As of April 30, 2011, we had 51 employees, including
18 employees in manufacturing, 16 in research, development
and engineering functions and 17 in selling, general and
administrative functions. Of these employees, 42 are located in
Pennington, New Jersey and 9 are located in Warwick, UK. We
believe that our future success will depend in part on our
continued ability to attract, hire and retain qualified
personnel. None of our employees is represented by a labor
union, and we believe our employee relations are good.
Product
Insurance
We currently have a property and liability insurance policy
underwritten by Lloyds Underwriters that covers our
PowerBuoy systems currently deployed, and that can be expanded
to cover our PowerBuoy systems to be deployed in the future. We
have not claimed any losses under this policy.
You should carefully consider the risks described below with all
of the other information included in this Annual Report before
deciding to invest in our common stock. If any of the following
risks actually occur, they may materially harm our business and
our financial condition and results of operations. In this
event, the market price of our common stock could decline and
your investment could be lost.
Risks
Relating to Our Business
We
have a history of operating losses and may never achieve or
maintain profitability.
We have incurred net losses since we began operations in 1994,
including net losses attributable to Ocean Power Technologies,
Inc. of $20.4 million in fiscal 2011, $19.2 million in
fiscal 2010, and $18.3 million in fiscal 2009. As of
April 30, 2011, we had an accumulated deficit of
$110.8 million. These losses have resulted primarily from
costs incurred in our research and development programs and from
our selling, general and administrative costs. We expect to
increase certain of our operating expenses significantly as we
continue to expand our infrastructure and commercialization
activities. As a result, we will need to generate significant
revenues to cover these costs and achieve profitability.
We do not know whether or when we will become profitable because
of the significant uncertainties with respect to our ability to
successfully commercialize our PowerBuoy systems in the emerging
renewable energy market. Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a
quarterly or
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annual basis. If we are unable to achieve and then maintain
profitability, the market value of our common stock may decline.
Wave
energy technology may not gain broad commercial acceptance, and
therefore our revenues may not increase, and we may be unable to
achieve and then sustain profitability.
Wave energy technology is at an early stage of development, and
the extent to which wave energy power generation will be
commercially viable is uncertain. Many factors may affect the
commercial acceptance of wave energy technology, including the
following:
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performance, reliability and cost-effectiveness of wave energy
technology compared to conventional and other renewable energy
sources and products;
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developments relating to other renewable energy generation
technologies;
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fluctuations in economic and market conditions that affect the
cost or viability of conventional and renewable energy sources,
such as increases or decreases in the prices of oil and other
fossil fuels;
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overall growth in the renewable energy equipment market;
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availability and terms of government subsidies and incentives to
support the development of renewable energy sources, including
wave energy;
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fluctuations in capital expenditures by utilities and
independent power producers, which tend to decrease when the
economy slows and interest rates increase; and
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the development of new and profitable applications requiring the
type of remote electric power provided by our autonomous wave
energy systems.
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If wave energy technology does not gain broad commercial
acceptance, our business will be materially harmed and we may
need to curtail or cease operations.
If
sufficient demand for our PowerBuoy systems does not develop or
takes longer to develop than we anticipate, our revenues may
decline, and we may be unable to achieve and then sustain
profitability.
Even if wave energy technology achieves broad commercial
acceptance, our PowerBuoy systems may not prove to be a
commercially viable technology for generating electricity from
ocean waves. We have invested a significant portion of our time
and financial resources since our inception in the development
of our PowerBuoy systems. As we begin to manufacture, market,
sell and deploy our PowerBuoy systems in greater quantities, we
may encounter unforeseen hurdles that would limit the commercial
viability of our PowerBuoy systems, including unanticipated
manufacturing, deployment, operating, maintenance and other
costs. Our target customers and we may also encounter technical
obstacles to deploying, operating and maintaining PowerBuoy
systems in quantities necessary to generate competitively-priced
electricity.
If demand for our PowerBuoy systems fails to develop
sufficiently, we may be unable to grow our business or generate
sufficient revenues to achieve and then sustain profitability.
In addition, demand for PowerBuoy systems in our presently
targeted markets, including coastal North America, the west
coast of Europe, the coasts of Australia and the east coast of
Japan, may not develop or may develop to a lesser extent than we
anticipate.
If we are not successful in commercializing our PowerBuoy
system, or are significantly delayed in doing so, our business,
financial condition and results of operations could be adversely
affected.
The
reduction or elimination of government subsidies and economic
incentives for renewable energy sources could prevent demand for
our PowerBuoy systems from developing, which in turn would
adversely affect our business, financial condition and results
of operations.
Federal, state and local governmental bodies in many countries,
most notably Spain, the United Kingdom, Australia, Japan and the
United States, have provided subsidies in the form of tariff
subsidies, rebates, tax credits and other incentives to
utilities, power generators and distributors using renewable
energy. However, these
25
incentives and subsidies generally decline over time, and many
incentive and subsidy programs have specific expiration dates.
Moreover, because the market for electricity generated from wave
energy is at an early stage of development, some of the programs
may not include wave energy as a renewable energy source
eligible for the incentives and subsidies.
Currently, the cost of electricity generated from wave energy,
without the benefit of subsidies or other economic incentives,
substantially exceeds the price of electricity in most
significant markets in the world. As a result, the near-term
growth of the market for our utility PowerBuoy systems, which
are designed to feed electricity into a local or regional power
grid, depends significantly on the availability and size of
government incentives and subsidies for wave energy. As
renewable energy becomes more of a competitive threat to
conventional energy providers, companies active in the
conventional energy business may increase their lobbying efforts
in order to encourage governments to stop providing subsidies
for renewable energy, including wave energy. We cannot predict
the level of any such efforts, or how governments may react to
such efforts. The reduction, elimination or expiration of
government incentives and subsidies, or the exclusion of wave
energy technology from those incentives and subsidies, may
result in the diminished competitiveness of wave energy relative
to conventional and non-wave energy renewable sources of energy.
Such diminished competitiveness could materially and adversely
affect the growth of the wave energy industry, which could in
turn adversely affect our business, financial condition and
results of operations.
Our
product development costs have increased and may continue to
increase.
Our product development costs primarily relate to our efforts to
increase the maximum rated output of our utility PowerBuoy
system to 150kW and to 500kW. Our product development costs were
$13.3 million in fiscal 2011 compared to $13.0 million
in fiscal 2010 and $8.4 million in fiscal 2009. It is our
intent to fund the majority of our research and development
expenses, including cost sharing obligations under some of our
customer contracts, over the next several years with sources of
external funding. If we are unable to obtain external funding,
we may curtail our research and development expenses or we may
decide to self-fund research and development expenses, in which
case our product development costs may continue to increase.
We
have invested, and will continue to invest, funds to construct
demonstration wave power stations that may generate little or no
direct revenue.
We have constructed, and may construct in the future,
demonstration wave power stations to establish the feasibility
of wave energy technology and to encourage the market adoption
of our wave power stations. Demonstration wave power stations
allow potential customers to see first-hand the viability of
wave energy technology as a source of electricity. We incur
significant costs in constructing and maintaining these
demonstration wave power stations, and we may generate little or
no direct revenue from them.
Our
PowerBuoy systems do not have a sufficient operating history to
confirm how they will perform over their estimated
30-year
useful life.
We began developing and testing wave energy technology nearly
15 years ago. However, to date we have only manufactured 14
PowerBuoy systems for use in ocean testing and development. The
longest continuous in-ocean deployment of our PowerBuoy system
has been from December 2009 to the present. As a result, our
PowerBuoy systems do not have a sufficient operating history to
confirm how they will perform over their estimated
30-year
useful life. Our technology has not yet demonstrated that our
engineering and test results can be duplicated in volume
commercial production. We have conducted and plan to continue to
conduct practical testing of our PowerBuoy system. If our
PowerBuoy system ultimately proves ineffective or unfeasible, we
may not be able to engage in commercial production of our
products or we may become liable to our customers for quantities
we are obligated but are unable to produce. If our PowerBuoy
systems perform below expectations, we could lose customers and
face substantial repair and replacement expense which could in
turn adversely affect our business, financial condition and
results of operations.
26
Our
future success in the utility power markets depends on our
ability to increase the maximum rated power output of our
utility PowerBuoy system. If we are unable to increase the
maximum rated output of our utility PowerBuoy system, the
commercial prospects for our utility PowerBuoy system would be
adversely affected.
One of our goals is to increase the maximum rated output of our
utility PowerBuoy system, which is currently 150kW to 500kW. Our
success in meeting this objective depends on our ability to
significantly increase the power output of our PowerBuoy system
in a cost-effective and timely manner and our ability to
overcome the engineering and deployment hurdles that we face,
including developing design and construction techniques that
will enable the larger PowerBuoy systems to be deployed cost
effectively and without damage, and developing adjustments to
the mooring system to account for the larger-sized PowerBuoy
systems. We have experienced problems and delays in the
development and deployment of our PowerBuoy system in the past,
and could experience similar delays or other difficulties in the
future. If we cannot increase the power output of the utility
PowerBuoy system, or if it takes us longer to do so than we
anticipate, we may be unable to expand our utility business,
maintain our competitive position, satisfy our contractual
obligations or become profitable. In addition, if the cost
associated with these development efforts exceeds our
projections, our results of operations will be adversely
affected.
If we
do not reach full commercial scale, we may not be able to offer
a cost competitive power station and the commercial prospects of
our utility PowerBuoy system would be adversely
affected.
Unless we reach full commercial scale, we may not be able to
offer an electricity solution that competes on a non-subsidized
basis with todays price of wholesale electricity in key
markets in certain parts in the world. If we do not reach full
commercial scale, the commercial prospects for our utility
PowerBuoy system would be adversely affected.
We
have not yet deployed a wave power station consisting of an
array of two or more PowerBuoy systems. If we are unable to
deploy a multiple-system wave power station, our revenues may
not increase, and we may be unable to achieve and then maintain
profitability.
We have not yet deployed a wave power station consisting of an
array of two or more PowerBuoy systems. Our success in
developing and deploying a wave power station consisting of an
array of two or more PowerBuoy systems is contingent upon, among
other things, receipt of required governmental permits,
obtaining adequate financing, successful array design
implementation and finally, successful deployment and connection
of the PowerBuoy systems.
We have not conducted ocean testing or otherwise installed in
the ocean a multiple-system wave power station. In particular,
unlike single-system wave power stations, multiple-system wave
power stations require use of an underwater substation to
connect the power transmission cables from, and collect the
electricity generated by, each PowerBuoy system in the array. If
our underwater substation does not work as we anticipate, we
will need to design an alternative system, which could delay our
business plans. In addition, unanticipated issues may arise with
the logistics and mechanics of deploying and maintaining
multiple PowerBuoy systems at a single site and the additional
equipment associated with these multiple-system wave power
stations.
We may be unsuccessful in accomplishing any of these tasks or
doing so on a timely basis. The development and deployment of an
array of PowerBuoy systems may require us to incur significant
expenses for preliminary engineering, permitting and legal and
other expenses before we can determine whether a project is
feasible, economically attractive or capable of being financed.
If we
are unable to deploy larger PowerBuoy systems cost effectively
and without damage to the systems, we may be unable to compete
effectively.
We will need to build larger buoys in order to increase the
output of our current PowerBuoy systems. The larger buoys will
be more difficult than our current buoys to deploy cost
effectively and without damage. Our current deployment
methodologies, including transportation to the installation site
and the mooring of the PowerBuoy systems, will need to be
revised as PowerBuoy systems achieve greater output. If we
cannot develop cost effective methodologies for deployment of
the larger PowerBuoy systems, or if it takes us longer to do so
than we anticipate,
27
we may not be able to deploy such systems in the time we
anticipate or at all. Therefore, even if we succeed in
increasing the output of our PowerBuoy systems to 500kW, if we
are unable to deploy these larger PowerBuoy systems or encounter
problems in doing so, we may be unable to expand our business,
maintain our competitive position, satisfy our contractual
obligations or become profitable.
If we
are not successful in completing the development of wave power
stations in Spain, it could adversely affect our business,
financial condition and results of operations.
The initial PB40 PowerBuoy system for our Spain project was
deployed in September 2008. After a short testing period, the
buoy was removed from the water for work on improvements to the
power take-off and control systems. In November 2010, we agreed
to negotiate with Iberdrola Cantabria with the goal of
cancelling the remaining obligations between the parties under
the Spain construction and operations and maintenance
agreements, transferring ownership of the equipment manufactured
or purchased by us under the construction agreement to Iberdrola
Cantabria, and having Iberdrola Cantabria pay certain amounts
due to us. We further agreed to work toward a new project with
Iberdrola Cantabria. Under this new project, we would provide
project management of the installation and connection of the
sub-sea
cable and underwater substation pod at Santoña. In
addition, we would provide a proposal to maintain the assets
transferred to Iberdrola Cantabria. Negotiations are underway
for such efforts. If negotiations are unsuccessful and no
modification to the existing Spain construction agreement is
agreed to by the parties, the customer may, subject to certain
conditions in the agreement, terminate the agreement without the
obligation to make further milestone payments and, potentially,
collect reimbursement for direct damages, limited as specified
in the Spain construction agreement, for failure of the
PowerBuoy to meet certain performance thresholds. While we do
not expect the termination of the Spain construction agreement
or potential liability for damages to materially adversely
affect our financial condition, the new Santoña project
does represent a portion of our anticipated revenue stream. If
we are unable to successfully meet the terms of the existing
Spain construction agreement, if Iberdrola Cantabria were to
terminate the agreement, or if we are not able to successfully
negotiate a subsequent contract or contracts with Iberdrola
Cantabria, we may lose that revenue stream.
If the Spain project were cancelled or otherwise interrupted, it
could adversely affect our business, financial condition and
results of operations.
If we
are unable to successfully negotiate and enter into operations
and maintenance contracts with our customers on terms that are
acceptable to us, our ability to diversify our revenue stream
will be impaired.
An important element of our business strategy is to maximize our
revenue opportunities with our existing and future customers by
seeking to enter into operations and maintenance contracts with
them under which we would be paid fees for operating and
maintaining wave power stations that they have purchased from
us. Even if customers purchase our PowerBuoy systems, they may
not enter into operations and maintenance contracts with us. We
may not be able to negotiate operations and maintenance
contracts that provide us with any profit opportunities. Even if
we successfully negotiate and enter into such operations and
maintenance contracts, our customers may terminate them
prematurely or they may not be profitable for a variety of
reasons, including the presence of unforeseen hurdles or costs.
In addition, our inability to perform adequately under such
operations and maintenance contracts could impair our efforts to
successfully market the PowerBuoy systems. Any one of these
outcomes could have a material adverse effect on our business,
financial condition and results of operations.
Our
inability to effectively manage our growth could adversely
affect our business and operations.
The scope of our operations to date has been limited, and we do
not have experience operating on the scale that we believe will
be necessary to achieve profitable operations. Our current
personnel, facilities, systems and internal procedures and
controls are not adequate to support our projected future
growth. We plan to add sales, marketing and engineering offices
in additional locations, including Australia, Japan, continental
Europe and the west coast of the United States.
To manage the expansion of our operations, we will be required
to improve our operational and financial systems, procedures and
controls, increase our manufacturing capacity and throughput and
expand, train and manage our employee base, which must increase
significantly if we are to be able to fulfill our current
28
manufacturing and growth plans. Our management will also be
required to maintain and expand our relationships with
customers, suppliers and other third parties, as well as attract
new customers and suppliers. If we do not meet these challenges,
we may be unable to take advantage of market opportunities,
execute our business strategies or respond to competitive
pressures.
Problems
with the quality or performance of our PowerBuoy systems could
adversely affect our business, financial condition and results
of operations.
Our agreements with customers will generally include guarantees
with respect to the quality and performance of our PowerBuoy
systems. Because of the limited operating history of our
PowerBuoy systems, we have been required to make assumptions
regarding the durability, reliability and performance of the
systems, and we cannot predict whether and to what extent we may
be required to perform under the guarantees that we expect to
give our customers. Our assumptions could prove to be materially
different from the actual performance of our PowerBuoy systems,
causing us to incur substantial expense to repair or replace
defective systems in the future. We will bear the risk of claims
long after we have sold our PowerBuoy systems and recognized
revenue. Moreover, any widespread product failures could
adversely affect our business, financial condition and results
of operations.
We
currently depend on a limited number of customers for
substantially all of our revenues. The loss of, or a significant
reduction in revenues from, any of these customers could
significantly reduce our revenues and harm our operating
results.
The US Navy, our largest customer, accounted for 52% of our
revenues and the DOE accounted for 28% of our revenues, during
fiscal 2011. In fiscal 2010, revenues from the US Navy accounted
for 80% of our total revenues. Our current contract for our LEAP
project with the US Navy expires in September 2011. We will be
required to enter into additional contracts with the US Navy for
this project, which will require appropriation by the US
Congress and the US Navy in order to receive additional funding.
Additional funding for our project with the US Navy may not be
approved or we may not be able to negotiate future agreements
with the US Navy on acceptable terms, if at all.
Generally, we recognize revenue using the
percentage-of-completion
method based on the ratio of costs incurred to total estimated
costs at completion. In certain circumstances, revenue under
contracts that have specified milestones or other performance
criteria may be recognized only when our customer acknowledges
that such criteria have been satisfied. In addition, recognition
of revenue (and the related costs) may be deferred for
fixed-price contracts until contract completion if we are unable
to reasonably estimate the total costs of the project prior to
completion. Because we currently have a small number of
customers and contracts, problems with a single contract can
adversely affect our business, financial condition and results
of operations.
Historically, we have relied on a small group of customers for
substantially all of our revenue, and such concentration will
continue for the foreseeable future. The loss of any of our
customers or their default in payment could adversely affect our
business, financial condition and results of operations.
Our
relationships with our alliance partners may not be successful
and we may not be successful in establishing additional
relationships, which could adversely affect our ability to
commercialize our products and services.
An important element of our business strategy is to enter into
development agreements and strategic alliances with regional
utilities, and energy and other companies committed to providing
electricity from renewable energy sources. If we are unable to
reach agreements with suitable alliance partners, we may fail to
meet our business objectives for the commercialization of our
PowerBuoy system. We may face significant competition in seeking
appropriate alliance partners. Moreover, these development
agreements and strategic alliances are complex to negotiate and
time consuming to document. We may not be successful in our
efforts to establish additional strategic relationships or other
alternative arrangements. The terms of any additional strategic
relationships or other arrangements that we establish may not be
favorable to us. Furthermore, even if we are able to find,
negotiate and enter into these relationships, such arrangements
may be conditional upon our receipt of additional funding. For
example, our projects with Leighton and the European Commission
are conditional upon our receipt of significant
29
additional funds. There can be no assurance that we will receive
such additional funding. In addition, these relationships may
not be successful, and we may be unable to sell and market our
PowerBuoy systems to these companies and their affiliates and
customers in the future, or growth opportunities may not
materialize, any of which could adversely affect our business,
financial condition and results of operations.
Our
investments in joint ventures could be adversely affected by our
lack of sole decision-making authority, our reliance on a
co-venturers financial condition and disputes between us
and our
co-venturers.
It is part of our strategy to co-invest in some of our wave
power projects with third parties through joint ventures by
acquiring non-controlling interests in special purpose entities.
In these situations, we will not be in a position to exercise
sole decision-making authority regarding the joint venture.
Investments in joint ventures involve risks that would not be
present were a third party not involved, including the
possibility that our co-venturers might become bankrupt or fail
to fund their share of required capital contributions. Our
co-venturers may have economic or other business interests or
goals that are inconsistent with our business interests or
goals, and may be in a position to take actions that are
contrary to our policies or objectives. Disputes between us and
our co-venturers may result in litigation or arbitration that
would increase our expenses and prevent our officers
and/or
directors from focusing their time and effort on our business.
Consequently, actions by, or disputes with, partners or
co-venturers might result in additional risk to wave power
projects undertaken by the joint venture.
Our
targeted markets are highly competitive. We compete with other
renewable energy companies and may have to compete with larger
companies that enter into the renewable energy business. If we
are unable to compete effectively, we may be unable to increase
our revenues and achieve or maintain
profitability.
The renewable energy industry, particularly in our targeted
markets of the west coast of North America, the west coast of
Europe, the coasts of Australia and the east coast of Japan, is
highly competitive and continually evolving as participants
strive to distinguish themselves and compete with the larger
electric power industry. Competition in the renewable energy
industry is likely to continue to increase with the advent of
several renewable energy technologies, including tidal and ocean
current technologies. Competition may arise from other companies
manufacturing similar products, developing different products
that produce energy more efficiently than our products, or
making improvements to traditional energy-producing methods or
technologies, any of which could make our products less
attractive or render them obsolete. If we are not successful in
manufacturing systems that generate competitively priced
electricity, we will not be able to respond effectively to
competitive pressures from other renewable energy technologies
or improvements to existing technologies.
Moreover, the success of renewable energy generation
technologies may cause larger electric utility and other energy
companies with substantial financial resources to enter into the
renewable energy industry. These companies, due to their greater
capital resources and substantial technical expertise, may be
better positioned than us to develop new or improve existing
technologies.
Our inability to respond effectively to such competition could
adversely affect our business, financial condition and results
of operations.
We
have limited manufacturing experience. If we are unable to
increase our manufacturing capacity in a cost-effective manner,
our business will be materially harmed.
We plan to manufacture key components of our PowerBuoy systems,
including the advanced control and generation systems. However,
we have only manufactured our PowerBuoy systems in limited
quantities for use in development and testing and have limited
commercial manufacturing experience. Our future success depends
on our ability to significantly increase both our manufacturing
capacity and production throughput in a cost-effective and
efficient manner. In order to meet our growth objectives, we
will need to increase our engineering and manufacturing staff.
There is intense competition for hiring qualified technical and
engineering personnel, and we may not be able to hire a
sufficient number of qualified personnel to allow us to meet our
growth objectives.
30
We may be unable to develop efficient, low-cost manufacturing
capabilities and processes that will enable us to meet the
quality, price, engineering, design and production standards or
production volumes necessary to successfully commercialize our
PowerBuoy systems. If we cannot do so, we may be unable to
expand our business, satisfy our contractual obligations or
become profitable. Even if we are successful in developing our
manufacturing capabilities and processes, we may not be able to
do so in time to meet our commercialization schedule or satisfy
the requirements of our customers.
Failure
by third parties to supply or manufacture components of our
products or to deploy our systems timely or properly could
adversely affect our business, financial condition and results
of operations.
We are highly dependent on third parties to supply or
manufacture components of our PowerBuoy systems. If, for any
reason, our third-party manufacturers or vendors are not willing
or able to provide us with components or supplies in a timely
fashion, or at all, our ability to manufacture and sell many of
our products could be impaired.
We do not have long-term contracts with our third-party
manufacturers or vendors. If we do not develop ongoing
relationships with vendors located in different regions, we may
not be successful at controlling unit costs as our manufacturing
volume increases. We may not be able to negotiate new
arrangements with these third parties on acceptable terms, or at
all.
In addition, we rely on third parties, under our oversight, for
the deployment and mooring of our PowerBuoy systems. We have
utilized several different deployment methods, including towing
the PowerBuoy system to the deployment location, and
transporting the PowerBuoy system to the deployment location by
barge or ocean workboat. If these third parties do not properly
deploy our systems, cannot effectively deploy the PowerBuoy
system on a large, commercial scale or otherwise do not perform
adequately, or if we fail to recruit and retain third parties to
deploy our systems in particular geographic areas, our business,
financial condition and results of operations could be adversely
affected.
Business
activities conducted by our third-party contractors and us
involve the use of hazardous materials, which require compliance
with environmental and occupational safety laws regulating the
use of such materials. If we violate these laws, we could be
subject to significant fines, liabilities or other adverse
consequences.
Our manufacturing operations, in particular some of the
activities undertaken by our third-party suppliers and
manufacturers, involve the controlled use of hazardous
materials. Accordingly, our third-party contractors and we are
subject to foreign, federal, state and local laws governing the
protection of the environment and human health and safety,
including those relating to the use, handling and disposal of
these materials. We cannot completely eliminate the risk of
accidental contamination or injury from these hazardous
materials. In the event of an accident or failure to comply with
environmental or health and safety laws and regulations, we
could be held liable for resulting damages, including damages to
natural resources, fines and penalties, and any such liability
could adversely affect our business, financial condition and
results of operations.
Environmental laws and regulations are complex, change
frequently and have tended to become more stringent over time.
While we have budgeted for future capital and operating
expenditures to maintain compliance, we cannot assure you that
environmental laws and regulations will not change or become
more stringent in the future. Therefore, we cannot assure you
that our costs of complying with current and future
environmental and health and safety laws, and any liabilities
arising from past or future releases of, or exposure to,
hazardous substances will not adversely affect our business,
financial condition or results of operations.
If we
become ineligible for or are otherwise unable to replace any
contract with the US federal government that is not extended or
is terminated, our business, financial condition and results of
operations will be adversely affected.
We derive a significant portion of our revenue from US federal
government contracts, which are subject to special funding
restrictions, regulatory requirements and eligibility standards
and which the government may terminate at any time or determine
not to extend after their scheduled expiration. During fiscal
2011 and fiscal 2010, we derived 52% and 80%, respectively, of
our total revenue from contracts with the US Navy.
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US federal government contracts are also subject to contractual
and regulatory requirements that may increase our costs of doing
business and could expose us to substantial contractual damages,
civil fines and criminal penalties for noncompliance. These
requirements include business ethics, equal employment
opportunity, environmental, foreign purchasing, most-favored
pricing and accounting provisions, among others. Payments that
we receive under US federal government contracts are subject to
audit and potential refunds for at least three years after the
final contract payment is received.
We
market and plan to market our products in numerous international
markets. If we are unable to manage our international operations
effectively, our business, financial condition and results of
operations could be adversely affected.
We market and plan to market our products in a number of foreign
countries, including the United Kingdom, Spain, Australia and
Japan, and we are therefore subject to risks associated with
having international operations. International customers
accounted for, 16% of our revenues in fiscal 2011, 11% of our
revenues in fiscal 2010, and 27% of our revenues in fiscal 2009.
Risks inherent in international operations include, but are not
limited to, the following:
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changes in general economic and political conditions in the
countries in which we operate;
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unexpected adverse changes in foreign laws or regulatory
requirements, including those with respect to renewable energy,
environmental protection, permitting, export duties and quotas;
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trade barriers such as export requirements, tariffs, taxes and
other restrictions and expenses, which could increase the prices
of our PowerBuoy systems and make us less competitive in some
countries;
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fluctuations in exchange rates may affect demand for our
PowerBuoy systems and may adversely affect our profitability in
US dollars to the extent the price of our PowerBuoy systems and
cost of raw materials and labor are denominated in a foreign
currency;
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difficulty with staffing and managing widespread operations;
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complexity of, and costs relating to compliance with, the
different commercial and legal requirements of the overseas
markets in which we offer and sell our PowerBuoy systems;
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inability to obtain, maintain or enforce intellectual property
rights; and
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difficulty in enforcing agreements in foreign legal systems.
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Our business in foreign markets requires us to respond to rapid
changes in market conditions in these countries. Our overall
success as a global business depends, in part, on our ability to
succeed in differing legal, regulatory, economic, social and
political conditions. We may not be able to develop and
implement policies and strategies that will be effective in each
location where we do business, which in turn could adversely
affect our business, financial condition and results of
operations.
We may
not be able to raise sufficient capital to grow our
business.
We have in the past needed to raise funds to operate our
business, and we may need to raise additional funds to support
development of our products or to manufacture our PowerBuoy
systems in commercial quantities. If we are unable to raise
additional funds when needed, our ability to operate and grow
our business could be impaired. We do not know whether we will
be able to secure additional funding or funding on terms
favorable to us. Our ability to obtain additional funding will
be subject to a number of factors, including market conditions,
our operating performance and investor sentiment. These factors
may make the timing, amount, terms and conditions of additional
funding unattractive. If we issue additional equity securities,
our existing stockholders would experience dilution or may be
subordinated to any rights, preferences or privileges granted to
the new equity holders.
32
Our
financial results may fluctuate from quarter to quarter, which
may make it difficult to predict our future
performance.
Our financial results may fluctuate as a result of a number of
factors, many of which are outside of our control. For these
reasons, comparing our financial results on a
period-to-period
basis may not be meaningful, and our past results should not be
relied on as an indication of our future performance. Our future
quarterly and annual expenses as a percentage of our revenues
may be significantly different from those we have recorded in
the past or which we expect for the future. Our financial
results in some quarters may fall below expectations. Any of
these events could cause our stock price to fall. Each of the
risk factors listed in this Risk Factors section,
including the following factors, may adversely affect our
business, financial condition and results of operations:
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delays in permitting or acquiring necessary regulatory consents;
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delays in the timing of contract awards and determinations of
work scope;
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delays in funding for or deployment of wave energy projects;
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changes in cost estimates relating to wave energy project
completion, which under percentage of completion accounting
principles could lead to significant fluctuations in revenue or
to changes in the timing of our recognition of revenue from
those projects;
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delays in meeting specified contractual milestones or other
performance criteria under project contracts or in completing
project contracts that could delay the recognition of revenue
that would otherwise be earned;
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reductions in the availability or level of subsidies and
incentives for renewable energy sources;
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decisions made by parties with whom we have commercial
relationships not to proceed with anticipated projects;
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increases in the length of our sales cycle; and
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reductions in the efficiency of our manufacturing processes.
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Currency
translation and transaction risk may adversely affect our
business, financial condition and results of
operations.
Our reporting currency is the US dollar, and we conduct our
business and incur costs in the local currency of most countries
in which we operate. As a result, we are subject to currency
translation risk. A large percentage of our revenues may be
generated outside the United States and denominated in foreign
currencies in the future. Changes in exchange rates between
foreign currencies and the US dollar could affect our revenues
and cost of revenues, and could result in exchange losses. In
addition, we incur currency transaction risk whenever one of our
operating subsidiaries enters into either a purchase or a sales
transaction using a different currency from our reporting
currency. We cannot accurately predict the impact of future
exchange rate fluctuations on our results of operations.
Currently, we do not engage in any exchange rate hedging
activities and, as a result, any volatility in currency exchange
rates may have an immediate adverse effect on our business,
results of operations and financial condition.
Existing
regulations and policies and changes to these or new regulations
and policies may present technical, regulatory and economic
barriers to the use of wave energy technology, which may
significantly reduce demand for our PowerBuoy
systems.
The market for electricity generation equipment is heavily
influenced by foreign, federal, state and local government
regulations and policies concerning the electric utility
industry, as well as policies promulgated by electric utilities.
These regulations and policies often relate to electricity
pricing and connection to the power grid. In the United States
and in a number of other countries, these regulations and
policies currently are being modified and may be modified again
in the future. Utility company and independent power producer
purchases of, or further investment in the research and
development of, alternative energy sources, including wave
energy technology, could be deterred by these regulations and
policies, which could result in a significant reduction in the
potential demand for our PowerBuoy systems.
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As the renewable energy industry continues to develop and as the
generation of power from wave energy in particular achieves
commercial acceptance, we anticipate that wave energy technology
and our PowerBuoy systems and their deployment will be subject
to increased oversight and regulation. We are unable to predict
the nature or extent of regulations that may be imposed or
adopted. Any new government regulations or utility policies
pertaining to wave energy or our PowerBuoy systems may result in
significant additional expenses to us and our customers and, as
a result, could adversely affect our business, financial
condition and results of operations.
If we
are unable to obtain all necessary regulatory permits and
approvals, we will not be able to implement our planned
projects.
Offshore development of electric power generating facilities is
heavily regulated. Each of our planned projects is subject to
multiple permitting and approval requirements. With respect to
our projects in Spain, we are dependent upon our customer to
obtain any necessary permits and approvals, and with respect to
our projects in Oregon and Cornwall, England, we are dependent
on state, federal and regional government agencies for such
permits and approvals. Due to the unique nature of large scale
commercial wave power stations, we would expect our projects to
receive close scrutiny by permitting agencies, approval
authorities and the public, which could result in substantial
delay in the permitting process. Successful challenges by any
parties opposed to our planned projects could result in
conditions limiting the project size or in the denial of
necessary permits and approvals.
If we are unable to obtain necessary permits and approvals in
connection with any or all of our projects, those projects would
not be implemented and our business, financial condition and
results of operations would be adversely affected. Further, we
cannot assure you that we have been or will be at all times in
complete compliance with all such permits and approvals. If we
violate or fail to comply with these permits and approvals, we
could be fined or otherwise sanctioned by regulators.
We
face hurricane- and storm-related risks and other risks typical
of a marine environment which could adversely affect our
business, financial condition and results of
operations.
Our PowerBuoy systems are deployed in the ocean where they are
subject to many hazards including severe storms and hurricanes,
which could damage them and result in service interruptions. Our
systems are also subject to more frequent lock-downs caused by
higher waves during winter storm and hurricane seasons, which
will reduce annual energy output. We cannot predict whether we
will be able to recover from our insurance providers the
additional costs that we may incur due to damage caused to our
PowerBuoy systems, or whether we will continue to be able to
obtain insurance for hurricane- and storm-related damages or, if
obtainable and carried, whether this insurance will be adequate
to cover our liabilities. Any future hurricane-or storm-related
costs could adversely affect our business, financial condition
and results of operations.
Since
our PowerBuoy systems can only be deployed in certain geographic
locations, our ability to grow our business could be adversely
affected.
Our systems are designed to work in sites with average annual
wave energy of at least 20kW per meter of wave front. Not all
coastal areas worldwide have appropriate natural resources for
our PowerBuoy systems to harness wave energy. Seasonal and local
variations, water depth and the effect of particular locations
of islands and other geographical features may limit our ability
to deploy our PowerBuoy systems in coastal areas. If we are
unable to identify and deploy PowerBuoy systems at sufficient
sites near major population centers, our ability to grow our
business could be adversely affected.
We
face numerous accident and safety risks and hazards that are
inherent in offshore energy operations.
Portions of our operations are subject to many hazards and risks
inherent in the building, testing, deploying and maintenance of
our PowerBuoy systems. These hazards and risks could result in
personal injuries, loss of life, and other damages, which may
include damage to our properties and the properties of others
and other consequential damages, and could lead to the
suspension of certain of our operations, large damage claims,
damage to our safety reputation and a loss of business. Some of
these risks may be uninsurable and some claims may exceed our
insurance coverage. Therefore, the occurrence of a significant
accident or other risk event or hazard that is not fully
34
covered by insurance could materially and adversely affect our
business and financial results and, even if fully covered by
insurance, could materially and adversely affect our business
due to the impact on our reputation for safety. In addition, the
risks inherent in our business are such that we cannot assure
you that we will be able to maintain adequate insurance in the
future at reasonable rates.
If we
are unable to attract and retain management and other qualified
personnel, we may not be able to achieve our business
objectives.
Our success depends on the skills, experience and efforts of our
senior management and other key product development,
manufacturing, and sales and marketing employees. We cannot be
certain that we will be able to attract, retain and motivate
such employees. The loss of the services of one or more of these
employees could have a material adverse effect on our business.
There is a risk that we will not be able to retain or replace
these key employees. We have entered into employment agreements
with Dr. George Taylor, our executive chairman, and Charles
Dunleavy, our chief executive officer; however, the agreements
permit the employees to terminate their employment with little
notice. Implementation of our expansion plans will be highly
dependent upon our ability to hire and retain senior executives
as well as talented staff in various fields of expertise.
In addition, our anticipated growth will require us to hire a
significant number of qualified technical, commercial and
administrative personnel. The majority of our new hires will be
engineers with varying levels and areas of expertise, project
managers and manufacturing personnel. There is intense
competition from other companies and research and academic
institutions for qualified personnel in the areas of our
activities. If we cannot continue to attract and retain, on
acceptable terms, the qualified personnel necessary for the
continued development of our business, we may not be able to
sustain our operations or grow at a competitive pace.
Any
acquisitions that we make or joint venture agreements that we
enter into, or any failure to identify appropriate acquisition
or joint venture candidates, could adversely affect our
business, financial condition and results of
operations.
From time to time, we evaluate potential strategic acquisitions
of complementary businesses, products or technologies, as well
as consider joint ventures and other collaborative projects. We
may not be able to identify appropriate acquisition candidates
or strategic partners, or successfully negotiate, finance or
integrate any businesses, products or technologies that we
acquire. We do not have any experience with acquiring companies
or products. Any acquisition we pursue could diminish the
capital resources otherwise available to us for other uses or be
dilutive to our stockholders, and could divert managements
time and resources from our core operations.
Strategic acquisitions, investments and alliances with third
parties could subject us to a number of risks, including risks
associated with sharing proprietary information and loss of
control of operations that are material to our business. In
addition, strategic acquisitions, investments and alliances may
be expensive to implement. Moreover, strategic acquisitions,
investments and alliances subject us to the risk of
non-performance by a counterparty, which may in turn lead to
monetary losses that materially and adversely affect our
business, financial condition and results of operations.
In the
event we are unable to satisfy regulatory requirements relating
to internal control over financial reporting, or if our internal
controls are not effective, our business and financial results
may suffer.
Effective internal controls are necessary for us to provide
reasonable assurance with respect to our financial reports and
to effectively prevent fraud. If we cannot provide reasonable
assurance with respect to our financial reports and effectively
prevent fraud, our business and operating results could be
harmed. Pursuant to the Sarbanes-Oxley Act of 2002, we are
required to furnish a report by management on internal control
over financial reporting, including managements assessment
of the effectiveness of such control. Internal control over
financial reporting may not prevent or detect misstatements
because of its inherent limitations, including the possibility
of human error, the circumvention or overriding of controls, or
fraud. Therefore, even effective internal controls can provide
only reasonable assurance with respect to the preparation and
fair presentation of financial statements. In addition,
projections of any evaluation of the effectiveness of internal
control over financial reporting to future periods are subject
to the risk that the control may become inadequate because of
changes in conditions, or that the degree of
35
compliance with the policies or procedures may deteriorate. If
we fail to maintain the adequacy of our internal controls,
including any failure to implement new or improved controls, or
if we experience difficulties in their implementation, our
business and operating results could be harmed, we could fail to
meet our reporting obligations, and there could also be a
material adverse effect on our stock price.
Risks
Related to Intellectual Property
If we
are unable to obtain or maintain intellectual property rights
relating to our technology and products, the commercial value of
our technology and products may be adversely affected, which
could in turn adversely affect our business, financial condition
and results of operations.
Our success and ability to compete depends in part upon our
ability to obtain protection in the United States and other
countries for our products by establishing and maintaining
intellectual property rights relating to or incorporated into
our technology and products. We own a variety of patents and
patent applications in the United States and corresponding
patents and patent applications in several foreign
jurisdictions. However, we have not obtained patent protection
in each market in which we plan to compete. In addition, we do
not know how successful we would be should we choose to assert
our patents against suspected infringers. Our pending and future
patent applications may not issue as patents or, if issued, may
not issue in a form that will be advantageous to us. Even if
issued, patents may be challenged, narrowed, invalidated or
circumvented, which could limit our ability to stop competitors
from marketing similar products or limit the length of term of
patent protection we may have for our products. Changes in
either patent laws or in interpretations of patent laws in the
United States and other countries may diminish the value of our
intellectual property or narrow the scope of our patent
protection, which could in turn adversely affect our business,
financial condition and results of operations.
Our
contracts with the government could negatively affect our
intellectual property rights, and our ability to commercialize
our products could be impaired.
Our agreements with the US Navy and US Department of Energy help
fund research and development of our PowerBuoy system. When new
technologies are developed with US federal government funding,
the government obtains certain rights in any resulting patents,
technical data and software, generally including, at a minimum,
a nonexclusive license authorizing the government to use the
invention, technical data or software for
non-commercial
purposes. These rights may permit the government to disclose our
confidential information to third parties and to exercise
march-in rights. March-in rights refer to the right
of the US government to require us to grant a license to the
technology to a responsible applicant or, if we refuse, the
government may grant the license itself. US government-funded
inventions must be reported to the government. US government
funding must be disclosed in any resulting patent applications,
and our rights in such inventions will normally be subject to
government license rights, periodic post-contract utilization
reporting, foreign manufacturing restrictions and march-in
rights.
The government can exercise its march-in rights if it determines
that action is necessary because we fail to achieve practical
application of the technology or because action is necessary to
alleviate health or safety needs, to meet requirements of
federal regulations or to give preference to US industry. Our
government-sponsored research contracts are subject to audit and
require that we provide regular written technical updates on a
monthly, quarterly or annual basis, and, at the conclusion of
the research contract, a final report on the results of our
technical research. Because these reports are generally
available to the public, third parties may obtain some aspects
of our sensitive confidential information. Moreover, if we fail
to provide these reports or to provide accurate or complete
reports, the government may obtain rights to any intellectual
property arising from the related research. Funding from
government contracts also may limit when and how we can deploy
our technology developed under those contracts.
If we
are unable to protect the confidentiality of our proprietary
information and know-how, the value of our technology and
products could be adversely affected, which could in turn
adversely affect our business, financial condition and results
of operations.
In addition to patented technology, we rely upon unpatented
proprietary technology, processes and know-how, particularly
with respect to our PowerBuoy control and electricity generating
systems. We generally seek to protect
36
this information in part by confidentiality agreements with our
employees, consultants and third parties. These agreements may
be breached, and we may not have adequate remedies for any such
breach. In addition, our trade secrets may otherwise become
known or be independently developed by competitors.
If we
infringe or are alleged to infringe intellectual property rights
of third parties, our business, financial condition and results
of operations could be adversely affected.
Our products may infringe, or be claimed to infringe, patents or
patent applications under which we do not hold licenses or other
rights. Third parties may own or control these patents and
patent applications in the United States and abroad. From time
to time, we receive correspondence from third parties offering
to license patents to us. Correspondence of this nature might be
used to establish that we received notice of certain patents in
the event of subsequent patent infringement litigation. Third
parties could bring claims against us that would cause us to
incur substantial expenses and, if successfully asserted against
us, could cause us to pay substantial damages. Further, if a
patent infringement suit were brought against us, we could be
forced to stop or delay manufacturing or sales of the product or
component that is the subject of the suit.
As a result of patent infringement claims, or in order to avoid
potential claims, we may choose or be required to seek a license
from the third party and be required to pay license fees,
royalties or both. These licenses may not be available on
acceptable terms, or at all. Even if we were able to obtain a
license, the rights may be nonexclusive, which could result in
our competitors gaining access to the same intellectual
property. Ultimately, we could be forced to cease some aspect of
our business operations if, as a result of actual or threatened
patent infringement claims, we are unable to enter into licenses
on acceptable terms. This could significantly and adversely
affect our business, financial condition and results of
operations.
In addition to infringement claims against us, we may become a
party to other types of patent litigation and other proceedings,
including interference proceedings declared by the United States
Patent and Trademark Office and opposition proceedings in the
European Patent Office, regarding intellectual property rights
with respect to our products and technology. The cost to us of
any patent litigation or other proceeding, even if resolved in
our favor, could be substantial. In addition, if we were to
license our intellectual property to others, we may be required
to indemnify our licensee if the licensed intellectual property
is found to be infringing on a third partys rights. Some
of our competitors may be able to sustain the costs of such
litigation or proceedings more effectively than we can because
of their greater financial resources. Uncertainties resulting
from the initiation and continuation of patent litigation or
other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and
other proceedings may also absorb significant management time.
Risks
Related to our Common Stock
Provisions
in our corporate charter documents and under Delaware law may
delay or prevent attempts by our stockholders to change our
management and hinder efforts to acquire a controlling interest
in us.
As a result of our reincorporation in Delaware in April 2007,
provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger, acquisition or other
change in control that stockholders may consider favorable,
including transactions in which our stockholders might otherwise
receive a premium for their shares. These provisions may also
prevent or frustrate attempts by our stockholders to replace or
remove our management. These provisions include:
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advance notice requirements for stockholder proposals and
nominations;
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the inability of stockholders to act by written consent or to
call special meetings; and
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the ability of our board of directors to designate the terms of
and issue new series of preferred stock without stockholder
approval, which could be used to institute a poison
pill that would work to dilute the stock ownership of a
potential hostile acquirer, effectively preventing acquisitions
that have not been approved by our board of directors.
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The affirmative vote of the holders of at least 75% of our
shares of capital stock entitled to vote is necessary to amend
or repeal the above provisions of our certificate of
incorporation. In addition, absent approval of our board of
37
directors, our bylaws may only be amended or repealed by the
affirmative vote of the holders of at least 75% of our shares of
capital stock entitled to vote.
In addition, Section 203 of the Delaware General
Corporation Law prohibits a publicly held Delaware corporation
from engaging in a business combination with an interested
stockholder, which is generally a person who together with its
affiliates owns or within the last three years has owned 15% of
our voting stock, for a period of three years after the date of
the transaction in which the person became an interested
stockholder, unless the business combination is approved in a
prescribed manner. Accordingly, Section 203 may discourage,
delay or prevent a change in control of our company.
We
have never paid cash dividends on our common stock, and we do
not anticipate paying any cash dividends in the foreseeable
future.
We have not paid any cash dividends on our common stock to date.
We currently intend to retain our future earnings, if any, to
fund the development and growth of our business. In addition,
the terms of any future debt agreements may preclude us from
paying dividends. As a result, capital appreciation, if any, of
our common stock will be the sole source of gain for our
stockholders for the foreseeable future.
Our
stock price is likely to be volatile, and purchasers of our
common stock could incur substantial losses.
The market price of our common stock may fluctuate significantly
in response to factors that are beyond our control. For the
period ended April 30, 2011, the 52-week high and low
prices for our common stock were $7.20 and $4.55, respectively.
The stock market in general has recently experienced extreme
volatility that has often been unrelated or disproportionate to
the operating performance of particular companies. These broad
market fluctuations could result in fluctuations in the price of
our common stock, which could cause purchasers of our common
stock to incur substantial losses. The market price for our
common stock may be influenced by many factors, including:
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the success of competitive products or technologies;
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regulatory developments in the United States and foreign
countries;
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developments or disputes concerning patents or other proprietary
rights;
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the recruitment or departure of key personnel;
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quarterly or annual variations in our financial results or those
of companies that are perceived to be similar to us;
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market conditions in the conventional and renewable energy
industries and issuance of new or changed securities
analysts reports or recommendations;
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the failure of securities analysts to cover our common stock or
changes in financial estimates by analysts;
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the inability to meet the financial estimates of analysts who
follow our common stock;
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investor perception of our company and of the renewable energy
industry; and
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general economic, political and market conditions.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
Our corporate headquarters are located in Pennington, New
Jersey, where we occupy approximately 22,000 square feet
under a lease expiring on April 30, 2013. We use these
facilities for administration, research and development, as well
as assembly and testing of the generators and control models for
our PowerBuoy systems.
38
We also have an office and warehouse facilities in Warwick,
United Kingdom, where we occupy 3,840 square feet under
leases expiring on January 1, 2012 and December 18,
2011, respectively. Nine employees, all members of the
executive, engineering, administration and business development
teams, operate out of this office, which serves as a hub for our
European presence.
We also have warehouse facilities in Santander, Spain, where we
occupy 1,350 square feet under a lease expiring on
August 6, 2011. We use these facilities for storage related
to our project in Spain.
In the future, we may add sales, marketing and engineering
offices in additional locations, including Australia, Japan,
continental Europe and the west coast of the United States.
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ITEM 3.
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LEGAL
PROCEEDINGS
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We are subject to legal proceedings, claims and litigation
arising in the ordinary course of business. While the outcome of
these matters is currently not determinable, we do not expect
that the ultimate costs to resolve these matters will have a
material adverse effect on our financial position, results of
operations or cash flows.
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ITEM 4. |
(REMOVED AND RESERVED)
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PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Stock
Price Information and Stockholders
Our common stock has been listed on the Nasdaq Global Market
since April 24, 2007 under the symbol OPTT. For
a portion of fiscal 2011, our stock was listed on the AIM market
of the London Stock Exchange under the symbol OPT.
We voluntarily delisted from AIM on January 14, 2011. As of
June 30, 2011, there were 309 holders of record for shares
of our common stock. Since a portion of our common stock is held
in street or nominee name, we are unable to
determine the exact number of beneficial holders.
The following table sets forth the high and the low sale prices
of our common stock as quoted by the Nasdaq Global Market for
the period indicated.
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Nasdaq Global Market
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High
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Low
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Year Ended April 30, 2011
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First quarter
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$
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7.20
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$
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4.82
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Second quarter
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6.85
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4.55
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Third quarter
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6.80
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5.12
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Fourth quarter
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5.73
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4.70
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Year Ended April 30, 2010
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First quarter
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$
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7.72
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$
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4.73
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Second quarter
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9.50
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3.81
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Third quarter
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11.22
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6.00
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Fourth quarter
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7.69
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6.00
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Dividend
Policy
We have never declared or paid any cash dividends on our common
stock, and we do not currently anticipate declaring or paying
cash dividends on our common stock in the foreseeable future. We
currently intend to retain all of our future earnings, if any,
to finance the growth and development of our business. Any
future determination relating to our dividend policy will be
made at the discretion of our board of directors and will depend
on a number
39
of factors, including future earnings, capital requirements,
financial conditions, future prospects, contractual restrictions
and covenants and other factors that our board of directors may
deem relevant.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Use of
Proceeds
On April 30, 2007, we sold 5,000,000 shares of our
common stock in our initial public offering in the
United States at a price of $20.00 per share, pursuant to a
registration statement on
Form S-1
(File
No. 333-138595),
which was declared effective by the SEC on April 24, 2007.
The net proceeds to us resulting from the offering were
$89.9 million. From the effective date of the registration
statement through April 30, 2011, we used $7.8 million
to construct demonstration PowerBuoys, $27.4 million to
fund the continued development and commercialization of our
PowerBuoy system, $5.4 million to expand our sales and
marketing capabilities, and $1.0 million to fund the
expansion of assembly, test and field service facilities. We
have invested the balance of the net proceeds from the offering
in marketable securities, in accordance with our investment
policy. We intend to allocate the remaining $48.3 million
of proceeds towards working capital and general corporate
purposes, which we believe will give us needed flexibility in
responding to opportunities for future growth.
The following table contains information about our purchases of
our equity securities during February, March and April 2011.
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Approximate
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Total Number of
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Dollar Value that
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Total Number
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Average
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Shares Purchased
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May Yet Be
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of Shares
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Price Paid
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as Part of A
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Purchased Under
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Period
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Purchased(1)
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per Share
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Announced Plan
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the Plan
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February 1-28, 2011
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1,012
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5.37
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March 1-31, 2011
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April 1-30, 2011
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(1) |
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Represents shares delivered back to the Company by employees to
pay taxes related to the vesting of restricted shares, at an
average of $5.37 per share. |
40
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ITEM 6.
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SELECTED
FINANCIAL DATA
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You should read the following selected consolidated financial
data in conjunction with our consolidated financial statements
and the related notes appearing at the end of this Annual Report
and the Managements Discussion and Analysis of
Financial Condition and Results of Operations section of
this Annual Report. The selected consolidated financial data
have been derived from our audited consolidated financial
statements which are included elsewhere in this Annual Report,
or from audited consolidated financial statements not included
in this Annual Report.
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Fiscal Years Ended April 30,
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2011
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2010
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2009
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2008
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2007
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Consolidated Statement of Operations Data:
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Revenues
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$
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6,691,082
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$
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5,101,311
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$
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4,049,445
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$
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4,772,017
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$
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2,531,315
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Cost of revenues
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6,255,437
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4,298,955
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4,840,403
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7,960,042
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3,983,742
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Gross profit (loss)
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435,645
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802,356
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(790,958
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)
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(3,188,025
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)
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(1,452,427
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)
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Operating expenses:
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Product development costs
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13,319,110
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13,001,550
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8,372,244
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8,255,123
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6,219,893
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Selling, general and administrative costs
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8,399,325
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9,063,482
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9,529,071
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7,732,577
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4,893,580
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Total operating expenses
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21,718,435
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22,065,032
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17,901,315
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15,987,700
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|
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11,113,473
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Operating loss
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|
(21,282,790
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)
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|
(21,262,676
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)
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(18,692,273
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)
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|
|
(19,175,725
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)
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(12,565,900
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)
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Interest income, net
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|
|
689,276
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|
|
|
1,032,484
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|
|
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1,672,350
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|
|
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4,434,844
|
|
|
|
1,389,702
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Other income
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|
|
|
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|
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557,540
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|
|
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|
|
|
|
|
|
|
|
13,906
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Foreign exchange (loss) gain
|
|
|
(229,415
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)
|
|
|
540,644
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|
|
|
(1,295,227
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)
|
|
|
84,158
|
|
|
|
1,523,527
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|
|
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|
|
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|
|
|
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Loss before income taxes
|
|
|
(20,822,929
|
)
|
|
|
(19,132,008
|
)
|
|
|
(18,315,150
|
)
|
|
|
(14,656,723
|
)
|
|
|
(9,638,765
|
)
|
Income tax benefit
|
|
|
364,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(20,458,824
|
)
|
|
|
(19,132,008
|
)
|
|
|
(18,315,150
|
)
|
|
|
(14,656,723
|
)
|
|
|
(9,638,765
|
)
|
Less: Net loss (income) attributable to the noncontrolling
interest in Ocean Power Technologies (Australasia) Pty Ltd.
|
|
|
22,950
|
|
|
|
(38,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Ocean Power Technologies, Inc.
|
|
$
|
(20,435,874
|
)
|
|
$
|
(19,170,307
|
)
|
|
$
|
(18,315,150
|
)
|
|
$
|
(14,656,723
|
)
|
|
$
|
(9,638,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(1.99
|
)
|
|
$
|
(1.88
|
)
|
|
$
|
(1.79
|
)
|
|
$
|
(1.44
|
)
|
|
$
|
(1.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
10,246,921
|
|
|
|
10,217,003
|
|
|
|
10,210,354
|
|
|
|
10,200,729
|
|
|
|
5,260,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30,
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
30,394,730
|
|
|
$
|
36,772,598
|
|
|
$
|
53,117,566
|
|
|
$
|
88,836,304
|
|
|
$
|
115,895,619
|
(1)
|
Working capital
|
|
|
26,957,108
|
|
|
|
32,569,351
|
|
|
|
51,129,985
|
|
|
|
85,870,307
|
|
|
|
111,187,195
|
|
Long-term investments
|
|
|
16,323,016
|
|
|
|
28,865,046
|
|
|
|
28,619,528
|
|
|
|
12,233,437
|
|
|
|
|
|
Total assets
|
|
|
53,552,578
|
|
|
|
72,978,193
|
|
|
|
88,793,906
|
|
|
|
107,550,965
|
|
|
|
119,711,546
|
|
Long-term debt, net of current portion
|
|
|
450,000
|
|
|
|
250,000
|
|
|
|
345,386
|
|
|
|
188,784
|
|
|
|
231,585
|
|
Accumulated deficit
|
|
|
(110,848,972
|
)
|
|
|
(90,413,098
|
)
|
|
|
(71,242,791
|
)
|
|
|
(52,927,641
|
)
|
|
|
(38,270,918
|
)
|
Total Ocean Power Technologies, Inc. stockholders equity
|
|
|
46,469,550
|
|
|
|
64,814,200
|
|
|
|
82,783,027
|
|
|
|
100,098,609
|
|
|
|
112,541,209
|
|
|
|
|
(1) |
|
On April 30, 2007, we completed our initial public offering
in the United States resulting in net proceeds to us of
$89.9 million. |
41
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
You should read the following discussion and analysis of our
financial condition and results of operations together with our
consolidated financial statements and the related notes and
other financial information included elsewhere in this Annual
Report. Some of the information contained in this discussion and
analysis or set forth elsewhere in this Annual Report, including
information with respect to our plans and strategy for our
business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should
review the Risk Factors section of this Annual
Report 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.
Overview
We develop and are commercializing proprietary systems that
generate electricity by harnessing the renewable energy of ocean
waves. Our PowerBuoy
®
systems use proprietary technologies to convert the mechanical
energy created by the rising and falling of ocean waves into
electricity. We currently market two PowerBuoy products, which
consist of our utility PowerBuoy system and our autonomous
PowerBuoy system. We also market operations and maintenance
services for our PowerBuoy systems to our customers, which are
expected to provide a source of recurring revenues. In addition,
we expect to market our undersea substation pod and undersea
power connection infrastructure services to other companies in
the marine energy sector.
We market our utility PowerBuoy system, which is designed to
supply electricity to a local or regional power grid, to
utilities and other electrical power producers seeking to add
electricity generated by wave energy to their existing
electricity supply. We market our autonomous PowerBuoy system,
which is designed to generate power for use independent of the
power grid, to customers that require electricity in remote
locations. We believe there are a variety of potential
applications for our autonomous PowerBuoy system, including
sonar and radar surveillance, tsunami warning, oceanographic
data collection, offshore platforms and offshore aquaculture.
We were incorporated in New Jersey in April 1984, began
commercial operations in 1994, and were re-incorporated in
Delaware in 2007. We currently have three wholly-owned
subsidiaries, which include Ocean Power Technologies Ltd.,
Reedsport OPT Wave Park LLC, and Oregon Wave Energy
Partners I, LLC, and we own approximately 88% of the
ordinary shares of Ocean Power Technologies (Australasia) Pty
Ltd.
The development of our technology has been funded by capital we
raised and by development engineering contracts we received
starting in fiscal 1995. In fiscal 1996, we received the first
of several research contracts with the US Navy to study the
feasibility of wave energy. As a result of those research
contracts, we entered into our first development and
construction contract with the US Navy in fiscal 2002 under a
still on-going project for the development and testing of our
wave power systems at the US Marine Corps base in Oahu, Hawaii.
We generated our first revenue relating to our autonomous
PowerBuoy system from contracts with Lockheed Martin Corporation
in fiscal 2003, and we entered into our first development and
construction contract with Lockheed Martin in fiscal 2004 for
the development and construction of a prototype demonstration
autonomous PowerBuoy system.
At April 30, 2011, our total negotiated backlog was
$8.9 million compared with $5.7 million at
April 30, 2010. We anticipate that a majority of our
backlog will be recognized as revenue over the next
12 months. Our backlog includes both funded amounts, which
are unfilled firm orders for our products and services for which
funding has been both authorized and appropriated by the
customer (Congress, in the case of US Government agencies) and
unfunded amounts, which are unfilled firm orders from the US
Department of Energy for which funding has not been
appropriated. If any of our contracts were to be terminated, our
backlog would be reduced by the expected value of the remaining
terms of such contracts. Funded backlog was $6.9 million
and $5.2 million at April 30, 2011 and 2010,
respectively.
Our fiscal year ends on April 30. For fiscal 2011, we
generated revenues of $6.7 million and incurred a net loss
attributable to Ocean Power Technologies, Inc. of
$20.4 million, and for fiscal 2010, we generated revenues
of $5.1 million and incurred a net loss attributable to
Ocean Power Technologies, Inc. of $19.2 million. As of
April 30, 2011, our accumulated deficit was
$110.8 million. We have not been profitable since
inception, and we do not know
42
whether or when we will become profitable because of the
significant uncertainties with respect to our ability to
successfully commercialize our PowerBuoy systems in the emerging
renewable energy market. Since fiscal 2002, the US Navy has
accounted for a significant portion of our revenues. We expect
that over time, revenues derived from utilities and other
non-government commercial customers will increase more rapidly
than sales to government customers and may, in the future,
represent the majority of our revenues.
The marine energy industry, including wave, tidal and ocean
current energy technologies, is expected to benefit from various
legislative initiatives that have been undertaken or are planned
by state and federal agencies. For example, the production tax
credit was expanded to include marine energy, as part of the
Energy Improvement and Extension Act of 2008, signed into law in
October 2008. Production tax credit provisions that were
previously in place served only to benefit other renewable
energy sources such as wind and solar. This new legislation
will, for the first time, enable owners of wave power projects
in the US to receive federal production tax credits, which, by
their prospective effect of lowering income taxes for our
customers based on energy produced, should improve the
comparative economics of wave power as a renewable energy source.
Further, it is expected that the US federal and state
governments will increase their investments in the renewable
energy sector under various economic stimulus measures. The
American Recovery and Reinvestment Act of 2009 provides
significant grants, tax incentives and policy initiatives to
stimulate investment and innovation in the cleantech
sector. At times, the Department of Energy (DOE) has also issued
requests for proposal to be funded under programs it has
established to further investment in marine energy technologies.
We have devoted additional resources to develop proposals
seeking government funding to support existing projects and
technology enhancements. Consequently, while our selling,
general and administrative costs related to such efforts may
increase over the next year, we believe that these governmental
initiatives may result in additional revenues for us over the
next several years. Given the uncertainties surrounding the
scope and size of the government programs, there can be no
assurances as to whether we will be successful in obtaining
significant additional government funding or as to the terms and
conditions of any such funding.
The recent global economic uncertainty may have a negative
effect on our business, financial condition and results of
operations because the utility companies with which we contract
or propose to contract may decrease their investment in new
power generation equipment in response to the uncertainty.
However, the various legislative initiatives described above may
diminish the effect of any decrease in such capital expenditures
by these utility companies insofar as they may relate to
renewable energy generation equipment. As discussed above, the
timing, scope and size of these new government programs for
renewable energy is uncertain, and there can be no assurances
that we or our customers will be successful in obtaining any
additional government funding. We do not believe the recent
global economic uncertainty will have a material negative impact
on our sources of supply, as our products incorporate what are
substantially non-custom, standard parts found in many regions
of the world.
According to the International Energy Agency, $3.4 trillion is
expected to be spent for new renewable energy generation
equipment in the period from 2007 to 2030. This equates to
annual global expenditures of approximately $150 billion.
We plan to take advantage of these global drivers of demand for
renewable energy, as we continue to refine and expand our
proprietary technology.
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
Generally, we recognize revenue using the
percentage-of-completion
method based on the ratio of costs incurred to total estimated
costs at completion. In certain circumstances, revenue under
contracts that have specified milestones or other performance
criteria may be recognized only when our customer acknowledges
that such criteria have been satisfied. In addition, recognition
of revenue (and the related costs) may be deferred for
fixed-price contracts until contract completion if we are unable
to reasonably estimate the total costs of the project prior to
completion. Because we have a small number of contracts,
revisions to the percentage of completion determination or
delays in meeting performance criteria or in completing projects
may have a significant effect on our revenue for
43
the periods involved. Upon anticipating a loss on a contract, we
recognize the full amount of the anticipated loss in the current
period.
Generally our contracts are either cost plus or fixed price
contracts. Under cost plus contracts, we bill the customer for
actual expenses incurred plus an
agreed-upon
fee. Revenue is typically recorded using
percentage-of-completion
based on the maximum awarded contract amount. In certain cases
we may choose to incur costs in excess of the maximum awarded
contract amount resulting in a loss on the contract. Currently,
we have two types of fixed price contracts, firm fixed price and
cost sharing. Under firm fixed price contracts we receive an
agreed upon amount for providing products and services which are
specified in the contract. Revenue is typically recorded using
percentage-of-completion
based on the contract amount. Depending on whether actual costs
are more or less than the agreed upon amount, there is a profit
or loss on the project. 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. We fund the
remainder of the costs as part of our product development
efforts. Revenue is typically recorded using
percentage-of-completion
based on the amount agreed upon with the customer. An amount
corresponding to the revenue is recorded in cost of revenues
resulting in gross profit on these contracts of zero. Our share
of the costs is recorded as product development expense.
The following table provides information regarding the breakdown
of our revenues by customer for fiscal years 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
($ millions)
|
|
|
US Navy
|
|
$
|
3.5
|
|
|
$
|
4.1
|
|
|
$
|
2.7
|
|
US Department of Energy
|
|
|
1.9
|
|
|
|
0.4
|
|
|
|
0.2
|
|
Iberdrola Cantabria
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
|
|
0.7
|
|
UK Governments Technical Strategy Board
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.7
|
|
|
$
|
5.1
|
|
|
$
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2011, the Company reduced revenue by approximately
$0.2 million due to a change in estimated revenue to be
recognized in connection with the Spain construction agreement.
The revenue increase for fiscal 2011 reflected significant
increase in revenue from the DOE related to our project off the
coast of Reedsport, Oregon and revenue from the DOE and the UK
Governments Technology Strategy Board (TSB) in connection
with development of our PB500 PowerBuoy. In addition, revenue
attributable to the US Navys Littoral Expeditionary
Autonomous PowerBuoy or LEAP, program contributed to the
increase. The increased revenue was partially offset by a
decrease in revenue from the US Navy related to the Hawaii
project and the Deep Water Active Detection System (DWADS)
project.
The revenue increase for fiscal 2010 reflected a significant
increase in revenue from the US Navy related to autonomous
PowerBuoy projects and also an increase in revenue related to
our project off the coast of Reedsport, Oregon. The increased
revenue was partially offset by a decrease in revenue from our
construction project in Spain and our Hawaii project for the US
Navy.
The US Navy has been our largest customer since fiscal 2002. The
US Navy accounted for 52% of our revenues in fiscal 2011, 80% of
our revenues in fiscal 2010 and 67% of our revenues in fiscal
2009. We anticipate that, if our commercialization efforts are
successful, the relative contribution of the US Navy to our
revenue may decline in the future.
44
We currently focus our sales and marketing efforts on North
America, the west coast of Europe, Australia and the east coast
of Japan. The following table shows the percentage of our
revenues by geographical location of our customers for fiscal
years 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
|
84
|
%
|
|
|
89
|
%
|
|
|
73
|
%
|
Europe
|
|
|
13
|
%
|
|
|
9
|
%
|
|
|
25
|
%
|
Asia and Australia
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
Our cost of revenues consists primarily of incurred material,
labor and manufacturing overhead expenses, such as engineering
expense, equipment depreciation and maintenance and facility
related expenses, and includes the cost of PowerBuoy parts and
services supplied by third-party suppliers. Cost of revenues
also includes PowerBuoy system delivery and deployment expenses
and may include anticipated losses at completion on some
contracts.
We operated at a gross profit of $0.4 million in fiscal
2011, a gross profit of $0.8 million in fiscal 2010 and a
gross loss of $0.8 million in fiscal 2009. Our ability to
generate a gross profit will depend on the nature of future
contracts, our success at increasing sales of our PowerBuoy
systems and on our ability to manage costs incurred on fixed
price commercial contracts. During fiscal 2011, we reduced
revenue by approximately $0.2 million due to a change in
estimated revenue to be recognized in connection with the Spain
construction agreement, and there was no corresponding reduction
in cost of revenues. Additionally, approximately
$0.4 million of costs related to revenue activity during
fiscal 2009 had been previously anticipated and accrued as
contract loss reserves as of April 30, 2009. These loss
reserves were no longer necessary and, accordingly, reversed in
fiscal year 2010, contributing to the increase in gross profit.
Product
development costs
Our 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 primarily
relate to our efforts to increase the output and reliability of
our utility PowerBuoy system, including the 150kW PowerBuoy
system and to our research and development of new products,
product applications and complementary technologies. We expense
all of our product development costs as incurred, except for
external patent costs, which we capitalize and amortize over a
17-year
period commencing with the issuance date of each patent. Patents
are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the patent
may not be recoverable.
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 PowerBuoy systems and costs for executive,
accounting and administrative personnel, professional fees and
other general corporate expenses.
Interest
income, net
Interest income consists of interest received on cash and cash
equivalents, investments in commercial bank-issued certificates
of deposit and US Treasury bills and notes. Total cash, cash
equivalents, restricted cash, and marketable securities were
$48.3 million as of April 30, 2011, $66.8 million
as of April 30, 2010 and $82.7 million as of
April 30, 2009. Interest income decreased due to a decline
in interest rates and a decline in cash, cash equivalents and
marketable securities.
45
Foreign
exchange (loss) gain
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 US dollars and
our functional currency is the US dollar, our main foreign
exchange exposure, if any, results from changes in the exchange
rate between the US dollar and the British pounds sterling, the
Euro and the Australian dollar.
We invest in certificates of deposit and maintain cash accounts
that are denominated in British pounds sterling, Euros and
Australian dollars. These foreign denominated certificates of
deposit and cash accounts had a balance of $4.8 million as
of April 30, 2011 and $4.1 million as of
April 30, 2010, compared to our total cash, cash
equivalents, restricted cash, and marketable securities balances
of $48.3 million as of April 30, 2011 and
$66.8 million as of April 30, 2010.
In addition, a portion of our operations is conducted through
our subsidiaries in countries other than the United States,
specifically Ocean Power Technologies Ltd. in the United
Kingdom, the functional currency of which is the British pounds
sterling, and Ocean Power Technologies (Australasia) Pty Ltd. in
Australia, the functional currency of which is the Australian
dollar. Both of these subsidiaries have foreign exchange
exposure that results from changes in the exchange rate between
their functional currency and other foreign currencies in which
they conduct business. Our international revenues for the years
ended April 30, 2011, 2010, and 2009 were recorded in
Euros, British pounds sterling, Australian dollars or Japanese
yen.
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.
Income
taxes
As of April 30, 2011, we had federal and foreign net
operating loss carryforwards of $70.5 million and
$17.5 million, respectively, and federal and foreign
research and development tax credits of $1.9 million and
$0.7 million, respectively, which may be used to offset
future taxable income. As of April 30, 2011, we had state
net operating loss carryforwards of $58.1 million. If not
utilized, the net operating loss carryforwards and credit
carryforwards will expire at various dates through 2031. We may
not achieve profitability in time to utilize the tax credit and
net operating loss carryforwards in full or at all. In addition,
we have determined that the future utilization of our net
operating loss carryforwards is subject to limitations based
upon changes in ownership including changes resulting from our
initial public offering in April 2007, pursuant to regulations
promulgated under the Internal Revenue Code. As discussed in
Note 12 to our consolidated financial statements included
in this Annual Report, we have established a valuation allowance
for our net deferred tax assets, which were $39.9 million
as of April 30, 2011 and $33.1 million as of
April 30, 2010.
During the year ended April 30, 2011, we sold $4,446,000 of
our New Jersey State net operating losses resulting in the
recognition of an income tax benefit of $364,105 recorded in our
Statement of Operations.
Outlook
We have incurred net losses since we began operations in 1994,
including net losses attributable to Ocean Power Technologies,
Inc. of $20.4 million in fiscal 2011, $19.2 million in
fiscal 2010 and $18.3 million in fiscal 2009. As of
April 30, 2011, we had an accumulated deficit of
$110.8 million. These losses have resulted primarily from
costs incurred in our research and development programs and from
our selling, general and administrative costs. We expect to
increase certain of our operating expenses as we continue to
expand our commercialization activities. To achieve
profitability, we believe we will need to increase revenues,
control our fixed costs and reduce our unfunded research and
development expenditures.
46
We do not know whether or when we will become profitable because
of the significant uncertainties with respect to our ability to
successfully commercialize our PowerBuoy systems in the emerging
renewable energy market. Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a
quarterly or annual basis.
Results
of Operations
Fiscal
Years Ended April 30, 2011 and 2010
The following table contains statement of operations
information, which serves as the basis of the discussion of our
results of operations for the years ended April 30, 2011
and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
April 30, 2011
|
|
|
April 30, 2010
|
|
|
|
|
|
|
|
|
|
As a % of
|
|
|
|
|
|
As a % of
|
|
|
|
|
|
|
Amount
|
|
|
Revenues(1)
|
|
|
Amount
|
|
|
Revenues
|
|
|
|
|
|
Revenues
|
|
$
|
6,691,082
|
|
|
|
100
|
%
|
|
$
|
5,101,311
|
|
|
|
100
|
%
|
|
|
|
|
Cost of revenues
|
|
|
6,255,437
|
|
|
|
93
|
|
|
|
4,298,955
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
435,645
|
|
|
|
7
|
|
|
|
802,356
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development costs
|
|
|
13,319,110
|
|
|
|
199
|
|
|
|
13,001,550
|
|
|
|
255
|
|
|
|
|
|
Selling, general and administrative costs
|
|
|
8,399,325
|
|
|
|
126
|
|
|
|
9,063,482
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
21,718,435
|
|
|
|
325
|
|
|
|
22,065,032
|
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,282,790
|
)
|
|
|
(318
|
)
|
|
|
(21,262,676
|
)
|
|
|
(417
|
)
|
|
|
|
|
Interest income, net
|
|
|
689,276
|
|
|
|
10
|
|
|
|
1,032,484
|
|
|
|
20
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
557,540
|
|
|
|
11
|
|
|
|
|
|
Foreign exchange (loss) gain
|
|
|
(229,415
|
)
|
|
|
(3
|
)
|
|
|
540,644
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(20,822,929
|
)
|
|
|
(311
|
)
|
|
|
(19,132,008
|
)
|
|
|
(375
|
)
|
|
|
|
|
Income tax benefit
|
|
|
364,105
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(20,458,824
|
)
|
|
|
(306
|
)
|
|
|
(19,132,008
|
)
|
|
|
(375
|
)
|
|
|
|
|
Less: Net loss (income) attributable to the noncontrolling
interest
|
|
|
22,950
|
|
|
|
|
|
|
|
(38,299
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Ocean Power Technologies, Inc.
|
|
$
|
(20,435,874
|
)
|
|
|
(305
|
)%
|
|
$
|
(19,170,307
|
)
|
|
|
(376
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain subtotals may not add due to rounding. |
Revenues
Revenues increased by $1.6 million in fiscal 2011, or 31%,
to $6.7 million as compared to $5.1 million in fiscal
2010. The change in revenues was attributable primarily to the
following factors:
|
|
|
|
|
Revenues relating to our utility PowerBuoy system increased by
$1.1 million due primarily to an increase in billable work
on our PB500 PowerBuoy development project and our 150kW
PowerBuoy project off the coast of Reedsport, Oregon. This was
partially offset by a decrease in revenue related to our Hawaii
project for the US Navy and our wave power project off the coast
of Spain, as these projects were completed. Also, during fiscal
2011, there was a reduction in revenue of approximately
$0.2 million due to a change in estimated revenue to be
recognized in connection with the Spain construction agreement.
|
|
|
|
Revenues relating to our autonomous PowerBuoy system increased
by $0.5 million as a result of an increase in billable work
on our project to provide our PowerBuoy technology to the US
Navys LEAP program. This was partially offset by a
decrease in billable work on the US Navys DWADS project.
|
47
Cost of
revenues
Cost of revenues increased by $2.0 million, or 46%, to
$6.3 million in fiscal 2011, as compared to
$4.3 million in fiscal 2010. This increase in the cost of
revenues reflected the increased activity related to the LEAP
program, the 150kW PowerBuoy project off the coast of Reedsport,
Oregon, and our PB500 PowerBuoy development project. This was
partially offset by a lower level of activity on our Hawaii
project for the US Navy, the US Navys DWADS project and
our wave power project off the coast of Spain. During fiscal
2010, there was a reduction in cost of revenues resulting from
the reversal of $0.4 million in the provision for loss
reserves related to our project off the coast of Spain as the
reserve was no longer considered necessary.
We operated at a gross profit of $0.4 million and
$0.8 million in fiscal 2011 and 2010, respectively. Certain
of our projects in fiscal 2011 and 2010 were under cost sharing
contracts. Under cost sharing contracts, we receive a fixed
amount agreed upon with the customer that is only intended to
fund a portion of the costs on a specific project. We fund the
remainder of the costs as part of our product development
efforts. Revenue is typically recorded using
percentage-of-completion
applied to the contractual amount agreed upon with the customer.
An equal amount corresponding to the revenue is recorded in cost
of revenues resulting in gross profit on these contracts of
zero. Our share of the costs is considered to be product
development expense. During fiscal 2011, we reduced revenue by
approximately $0.2 million due to a change in estimated
revenue to be recognized in connection with the Spain
construction agreement, and there was no corresponding reduction
in cost of revenues. During fiscal 2010, there was a reduction
in cost of revenues resulting from the reversal of
$0.4 million in the provision for loss reserves related to
our project off the coast of Spain as the reserve was no longer
considered necessary. Our ability to generate a gross profit
will depend on the nature of future contracts, our success at
increasing sales of our PowerBuoy systems and on our ability to
manage costs incurred on fixed price commercial contracts.
Product
development costs
Product development costs increased by $0.3 million, or 2%
to $13.3 million in fiscal 2011, as compared to
$13.0 million in fiscal 2010. Product development costs
were primarily attributable to our efforts to increase the power
output and reliability of our utility PowerBuoy system,
especially the 150kW PowerBuoy system. It is our intent to fund
the majority of our research and development expenses, including
cost-sharing obligations under some of our customer contracts,
over the next several years with sources of external funding. If
we are unable to obtain external funding, we may curtail our
research and development expenses or we may decide to self-fund
research and development expenses, in which case our product
development costs may continue to increase.
Selling,
general and administrative costs
Selling, general and administrative costs decreased
$0.7 million, or 7%, to $8.4 million in fiscal 2011,
as compared to $9.1 million in fiscal 2010. The decrease
was attributable primarily to a decrease in compensation and
recruiting expenses.
Interest
income
Interest income decreased by $0.3 million, or 33%, to
$0.7 million in fiscal 2011, compared to $1.0 million
in fiscal 2010, due to a decrease in cash, cash equivalents and
marketable securities and a decrease in interest rates. The
average interest yield was approximately 1.20% during fiscal
2011 and approximately 1.40% during fiscal 2010.
Other
income
Other income was $0.6 million in fiscal 2010. During the
first quarter of fiscal 2010, we settled a claim which we had
against a supplier of engineering services, which resulted in a
settlement in our favor. There was no other income in fiscal
2011.
48
Foreign
exchange (loss) gain
Foreign exchange loss was $0.2 million in fiscal 2011,
compared to a foreign exchange gains of $0.5 million in
fiscal 2010. The difference was attributable primarily to the
relative change in value of the British pound sterling, Euro and
Australian dollar compared to the US dollar during the two
periods.
Income
tax benefit
During fiscal 2011, we sold New Jersey net operating tax loss
carryforwards of $4.4 million for cash of $0.4 million
which resulted in an income tax benefit of the same amount.
Fiscal
Years Ended April 30, 2010 and 2009
The following table contains statement of operations
information, which serves as the basis of the discussion of our
results of operations for the years ended April 30, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
April 30, 2010
|
|
|
April 30, 2009
|
|
|
% Change
|
|
|
|
|
|
|
As a % of
|
|
|
|
|
|
As a % of
|
|
|
2010 Period to
|
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Revenues(1)
|
|
|
2009 Period
|
|
|
Revenues
|
|
$
|
5,101,311
|
|
|
|
100
|
%
|
|
$
|
4,049,445
|
|
|
|
100
|
%
|
|
|
26
|
%
|
Cost of revenues
|
|
|
4,298,955
|
|
|
|
84
|
|
|
|
4,840,403
|
|
|
|
120
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
802,356
|
|
|
|
16
|
|
|
|
(790,958
|
)
|
|
|
(20
|
)
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development costs
|
|
|
13,001,550
|
|
|
|
255
|
|
|
|
8,372,244
|
|
|
|
207
|
|
|
|
55
|
|
Selling, general and administrative costs
|
|
|
9,063,482
|
|
|
|
178
|
|
|
|
9,529,071
|
|
|
|
235
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,065,032
|
|
|
|
433
|
|
|
|
17,901,315
|
|
|
|
442
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,262,676
|
)
|
|
|
(417
|
)
|
|
|
(18,692,273
|
)
|
|
|
(462
|
)
|
|
|
14
|
|
Interest income, net
|
|
|
1,032,484
|
|
|
|
20
|
|
|
|
1,672,350
|
|
|
|
41
|
|
|
|
(38
|
)
|
Other income
|
|
|
557,540
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss)
|
|
|
540,644
|
|
|
|
11
|
|
|
|
(1,295,227
|
)
|
|
|
(32
|
)
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(19,132,008
|
)
|
|
|
(375
|
)
|
|
|
(18,315,150
|
)
|
|
|
(452
|
)
|
|
|
4
|
|
Less: Net income attributable to the noncontrolling interest in
Ocean Power Technologies (Australasia) Pty Ltd.
|
|
|
(38,299
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Ocean Power Technologies, Inc.
|
|
$
|
(19,170,307
|
)
|
|
|
(376
|
)%
|
|
$
|
(18,315,150
|
)
|
|
|
(452
|
)%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain subtotals may not add due to rounding. |
Revenues
Revenues increased by $1.1 million in fiscal 2010, or 26%,
to $5.1 million as compared to $4.0 million in fiscal
2009. The change in revenues was attributable primarily to the
following factors:
|
|
|
|
|
Revenues relating to our autonomous PowerBuoy system increased
by $1.8 million as a result of work on projects with the US
Navy to provide our PowerBuoy technology to the US Navys
DWADS and LEAP programs.
|
|
|
|
Revenues relating to our utility PowerBuoy system decreased by
$0.7 million due primarily to a decrease in billable work
on our wave power station off the coast of Spain, as work under
this phase of the project neared completion, coupled with a
reduction in the expected contract value of this project in late
fiscal 2009. There
|
49
|
|
|
|
|
was also a decrease in revenue related to our Hawaii project for
the US Navy, partially offset by an increase in revenue related
to our project off the coast of Reedsport, Oregon.
|
Cost of
revenues
Cost of revenues decreased by $0.5 million, or 11%, to
$4.3 million in fiscal 2010, as compared to
$4.8 million in fiscal 2009. This decrease in cost of
revenues reflected the lower level of activity on our project
off the coast of Spain, offset by increased activity related to
our autonomous PowerBuoy projects for the US Navy.
We operated at a gross profit of $0.8 million in fiscal
2010 and a gross loss of $0.8 million in fiscal 2009.
Certain of our projects in fiscal 2010 and 2009 were under cost
sharing contracts. Under cost sharing contracts we receive a
fixed amount agreed upon with the customer that is only intended
to fund a portion of the costs on a specific project. We fund
the remainder of the costs as part of our product development
efforts. Revenue is typically recorded using
percentage-of-completion
based on the amount agreed upon with the customer. An equal
amount corresponding to the revenue is recorded in cost of
revenues resulting in gross profit on these contracts of zero.
Our share of the costs is considered to be product development
expense. Approximately $0.4 million of costs related to
revenue activity during fiscal 2009 had been previously
anticipated and accrued as contract loss reserves as of
April 30, 2009. These loss reserves were no longer
necessary and, accordingly, reversed in fiscal year 2010
contributing to the increase in a gross profit. Our ability to
generate a gross profit will depend on the nature of future
contracts, our success at increasing sales of our PowerBuoy
systems and on our ability to manage costs incurred on fixed
price commercial contracts.
Product
development costs
Product development costs increased by $4.6 million, or 55%
to $13.0 million in fiscal 2010, as compared to
$8.4 million in fiscal 2009. Product development costs were
attributable primarily to our efforts to increase the power
output and reliability of our utility PowerBuoy system,
especially the 150kW PowerBuoy system. It is our intent to fund
the majority of our research and development expenses, including
cost-sharing obligations under some of our customer contracts,
over the next several years with sources of external funding. If
we are unable to obtain external funding, we may curtail our
research and development expenses or we may decide to self-fund
research and development expenses, in which case our product
development costs may continue to increase.
Selling,
general and administrative costs
Selling, general and administrative costs decreased
$0.4 million, or 5%, to $9.1 million in fiscal 2010,
as compared to $9.5 million in fiscal 2009. The decrease
was attributable primarily to a decrease in consulting, legal,
accounting and investor relations expenses partially offset by
increased personnel-related expenses.
Interest
income
Interest income decreased by $0.7 million, or 38%, to
$1.0 million in fiscal 2010, compared to $1.7 million
in fiscal 2009, due to a decrease in cash, cash equivalents and
marketable securities. In addition, the average yield decreased
to approximately 1.40% during fiscal 2010 from approximately
1.86% during fiscal 2009.
Other
income
Other income was $0.6 million in fiscal 2010, compared to
none for fiscal 2009. During the first quarter of fiscal 2010,
we settled a claim which we had against a supplier of
engineering services, which resulted in a settlement in our
favor.
Foreign
exchange gain (loss)
Foreign exchange gain was $0.5 million in fiscal 2010,
compared to a foreign exchange loss of $1.3 million in
fiscal 2009. The difference was attributable primarily to the
relative change in value of the British pound sterling, Euro and
Australian dollar compared to the US dollar during the two
periods.
50
Liquidity
and Capital Resources
Since our inception, the cash flows from customer revenues have
not been sufficient to fund our operations and provide the
capital resources for the planned growth of our business. For
the three years ended April 30, 2011, our revenues were
$15.8 million, our net losses were $57.9 million and
our net cash used in operating activities was $51.2 million.
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Net loss
|
|
$
|
(20,458,824
|
)
|
|
$
|
(19,132,008
|
)
|
Adjustments for noncash operating items
|
|
|
2,112,952
|
|
|
|
1,181,318
|
|
|
|
|
|
|
|
|
|
|
Net cash operating loss
|
|
|
(18,345,872
|
)
|
|
|
(17,950,690
|
)
|
Net change in assets and liabilities
|
|
|
(424,230
|
)
|
|
|
2,180,006
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(18,770,102
|
)
|
|
$
|
(15,770,684
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
$
|
18,431,358
|
|
|
$
|
7,309,086
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
$
|
207,701
|
|
|
$
|
(99,841
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
$
|
270,582
|
|
|
$
|
530,206
|
|
|
|
|
|
|
|
|
|
|
Net cash
used in operating activities
Net cash used in operating activities was $18.8 million for
fiscal 2011 and $15.8 million for fiscal 2010. The change
was the result of an increase in net loss of $1.3 million
and a decrease in cash provided by operating assets and
liabilities of $2.6 million, offset by an increase in cash
provided by non-cash charges of $0.9 million.
The change in non-cash charges was due primarily to a change in
foreign exchange gains (losses) of $0.8 million due to the
relative change in the value of the British pound against the US
dollar, an increase in stock compensation expense of
$0.3 million, a decrease in loss on disposal of equipment
of $0.1 million and a decrease in Treasury note
amortization of $0.1 million.
The decrease in cash provided by operating assets and
liabilities was primarily the result of a decrease in cash
provided by accounts payable of $1.9 million, a decrease in
cash provided by unearned revenues of $1.6 million, a
decrease in cash provided by unbilled receivables of
$0.6 million and a decrease in cash provided by other
noncurrent liabilities of $0.3 million, partially offset by
an increase in cash provided by other non-current assets of
$1.1 million and an increase in cash provided by accounts
receivable of $0.8 million. The change in accounts payable
reflects a decrease in payables to the steel fabricator for our
Reedsport, Oregon project. The changes in unearned revenue and
receivables were primarily due to the timing of billings to
customers.
Net cash
provided by investing activities
Net cash provided by investing activities was $18.4 million
and $7.3 million for fiscal 2011 and 2010, respectively.
The change was primarily the result of a net decrease in
purchases of marketable securities during fiscal 2011.
Net cash
provided by (used in) financing activities
Net cash provided by financing activities was $0.2 million
in fiscal 2011 and net cash used in financing activities was
$0.1 million in fiscal 2010, reflecting a net change in our
loans from the State of New Jersey. During fiscal 2011, we
received a $0.25 million loan under the New Jersey Board of
Public Utilities Renewable Energy Business Venture Assistance
Program.
51
Effect of
exchange rates on cash and cash equivalents
Effect of exchange rates on cash and cash equivalents was an
increase in cash of $0.3 million and $0.5 million in
fiscal 2011 and 2010, respectively. The change was primarily the
result of gains on consolidation of foreign subsidiaries and
foreign denominated cash and cash equivalents.
Liquidity
Outlook
We expect to devote substantial resources to continue our
development efforts for our PowerBuoy systems and to expand our
sales, marketing and manufacturing programs associated with the
commercialization of the PowerBuoy system. Our future capital
requirements will depend on a number of factors, including:
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the cost of development efforts for our PowerBuoy systems;
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the success of our commercial relationships with major customers;
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the cost of manufacturing activities;
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the cost of commercialization activities, including
demonstration projects, product marketing and sales;
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our ability to establish and maintain additional commercial
relationships;
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the implementation of our expansion plans, including the hiring
of new employees;
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potential acquisitions of other products or
technologies; and
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the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other patent-related
costs.
|
We believe that our current cash, cash equivalents and
investments will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures at least
through fiscal 2013. If existing resources are insufficient to
satisfy our liquidity requirements or if we acquire or license
rights to additional product technologies, we may seek to sell
additional equity or debt securities or obtain a credit
facility. The sale of additional equity or convertible
securities could result in dilution to our stockholders. If
additional funds are raised through the issuance of debt
securities, these securities could have rights senior to those
associated with our common stock and could contain covenants
that would restrict our operations. Financing may not be
available in amounts or on terms acceptable to us, or at all. If
we are unable to obtain necessary financing, we may be required
to reduce the scope of our planned product development and
marketing efforts, which could harm our financial condition and
operating results.
Contractual
Obligations
Our major outstanding contractual obligations relate primarily
to our facilities leases. We have summarized in the table below
our fixed contractual cash obligations as of April 30, 2011.
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Payments Due by Period
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Less than
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One to
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Three to
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More than
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Total
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One Year
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Three Years
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Five Years
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Five Years
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Long-term debt
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$
|
589,000
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$
|
139,000
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$
|
200,000
|
|
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$
|
200,000
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|
$
|
50,000
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Operating leases
|
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574,000
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|
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|
326,000
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|
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248,000
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Total
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$
|
1,163,000
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|
|
$
|
465,000
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|
$
|
448,000
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|
$
|
200,000
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|
$
|
50,000
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Our long-term debt consists of a recoverable grant award from
the New Jersey Board of Public Utilities. Under the recoverable
grant award, the amount to be repaid is a fixed monthly amount
of principal only, repayable over a five-year period beginning
in November 2011.
Off-Balance
Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet
financing activities.
52
Critical
Accounting Policies and Estimates
The discussion and analysis of our financial condition and
results of operations set forth above are based on our
consolidated financial statements, which have been prepared in
accordance with US generally accepted accounting principles. The
preparation of these consolidated financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. On an
ongoing basis, we evaluate our estimates and judgments,
including those described below. We base our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. These
estimates and assumptions form the basis for making judgments
about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
We believe the following accounting policies require significant
judgment and estimates by us in the preparation of our
consolidated financial statements.
Revenue
recognition and unearned revenues
Generally, we recognize revenue using the
percentage-of-completion
method based on the ratio of costs incurred to total estimated
costs at completion. In certain circumstances, revenue under
contracts that have specified milestones or other performance
criteria may be recognized only when our customer acknowledges
that such criteria have been satisfied. In addition, recognition
of revenue (and the related costs) may be deferred for
fixed-price contracts until contract completion if we are unable
to reasonably estimate the total costs of the project prior to
completion. Because we have a small number of contracts,
revisions to the percentage of completion estimate or delays in
meeting performance criteria or in completing projects may have
a significant effect on our revenue for the periods involved.
Upon anticipating a loss on a contract, we recognize the full
amount of the anticipated loss in the current period. We had
loss reserves of $0.8 million as of April 30, 2011 and
2010 related to one contract. In fiscal 2009, we recognized a
loss of $0.8 million on our contract for a wave power
station off the coast of Spain. The additional anticipated loss
in 2009 was recognized based on changes in estimated costs
associated with this contract, a reduction in the expected
contract value, and our decision in the fourth quarter of fiscal
2008 to absorb an additional $1.9 million in costs beyond
our obligation for initial cost overruns and certain other costs
as set forth in the agreement. Approximately $0.4 million
of loss reserves related to the Spanish contract were no longer
necessary and, accordingly, were reversed in fiscal 2010,
contributing to the increase in gross profit. In fiscal 2011, we
reduced revenues by approximately $0.2 million due to a
change in estimated revenue to be recognized in connection with
the Spain construction agreement, and there was no corresponding
reduction in cost of revenues. Modifications to contract
provisions, such as those in connection with the Companys
Spain construction agreement, as well as modifications in
contract loss estimates, may require changes in reserves
established for anticipated contract losses.
Unbilled receivables represent expenditures on contracts, plus
applicable profit margin, not yet billed. Unbilled receivables
are normally billed and collected within one year. Billings made
on contracts are recorded as a reduction in unbilled
receivables, and to the extent that those billings exceed costs
incurred plus applicable profit margin, they are recorded as
unearned revenues.
Stock-based
compensation
Costs resulting from all share-based payment transactions are
recognized in the consolidated financial statements at their
fair values. Compensation cost for the portion of the awards for
which the requisite service had not been rendered that were
outstanding as of May 1, 2006 is being recognized in the
consolidated statements of operations over the remaining service
period after such date based on the awards original
estimated fair value.
Determining the appropriate fair-value model and calculating the
fair value of stock-based awards at the date of grant using any
valuation model requires judgment. We use the Black-Scholes
option pricing model to estimate the fair value of employee
stock options. Option pricing models, including the
Black-Scholes model, require the use of input assumptions,
including expected volatility, expected term and the expected
dividend rate. Because our stock has been publicly traded in the
United States only since April 2007, we do not have a
significant observable
53
share-price volatility for the United States capital markets;
therefore, we estimate our expected volatility based on that of
what we consider to be similar publicly-traded companies and
expect to continue to do so until such time as we have adequate
historical data from our traded share price in the United
States. We did not estimate our expected volatility based on the
price of our common stock on the AIM market of the London Stock
Exchange on which our shares traded from October 2003 to January
2011, because we do not believe, based on the historically low
trading volume of our shares on that market, that the volatility
of our common stock on the AIM market is an appropriate
indicator of the expected volatility of our common stock. We
voluntarily delisted from the AIM market effective
January 14, 2011. Prior to fiscal 2007, we estimated the
expected term of our options using our best estimate of the
period of time from the grant date that we expect the options to
remain outstanding. Beginning in fiscal 2007, we estimate the
expected term using the average midpoint between the vesting
terms and the contractual terms of our options as permitted by
the Securities and Exchange Commissions Staff Accounting
Bulletin No. 107, Share-Based Payment. If we
determine another method to estimate expected volatility or
expected term is more reasonable than our current methods, or if
another method for calculating these input assumptions is
prescribed by authoritative guidance, the fair value calculated
for future stock-based awards could change significantly. Higher
volatility and longer expected terms have a significant impact
on the value of stock-based compensation determined at the date
of grant. The expected dividend rate is not as significant to
the calculation of the fair value of our stock-based awards.
In addition, we are required to develop an estimate of the
number of stock-based awards that will be forfeited due to
employee turnover. Quarterly changes in the estimated forfeiture
rate can have a significant effect on reported stock-based
compensation. If the actual forfeiture rate is higher than the
estimated forfeiture rate, then an adjustment is made to
increase the estimated forfeiture rate, which will result in a
decrease to the expense recognized in the consolidated financial
statements during the quarter of the change. If the actual
forfeiture rate is lower than the estimated forfeiture rate,
then an adjustment is made to decrease the estimated forfeiture
rate, which will result in an increase to the expense recognized
in the consolidated financial statements. These adjustments
affect our cost of revenues, product development costs and
selling, general and administrative costs. To date, the effect
of forfeiture adjustments on our consolidated financial
statements has been insignificant. The expense we recognize in
future periods could differ significantly from the current
period
and/or our
forecasts due to adjustments in the assumed forfeiture rates.
The aggregate share-based compensation expense, related to all
share-based transactions related to employees was approximately
$1.4 million, $1.1 million and $1.5 million in
fiscal 2011, 2010 and 2009, respectively.
Income
taxes
We account for income taxes under the asset and liability
method. Under this method, we determine deferred tax assets and
liabilities based upon the differences between the financial
statement carrying amounts and the tax bases of assets and
liabilities, as well as net operating loss and tax credit
carryforwards, using enacted tax rates in effect for the year in
which such items are expected to affect taxable income. The tax
consequences of most events recognized in the current
years financial statements are included in determining
income taxes currently payable. However, because tax laws and
financial accounting standards differ in their recognition and
measurement of assets, liabilities, equity, revenues, expenses,
gains and losses, differences arise between the amount of
taxable income and pretax financial income for a year and
between the tax bases of assets or liabilities and their
reported amounts in the financial statements. Because we assume
that the reported amounts of assets and liabilities will be
recovered and settled, respectively, a difference between the
tax basis of an asset or a liability and its reported amount in
the balance sheet will result in a taxable or a deductible
amount in some future years when the related liabilities are
settled or the reported amounts of the assets are recovered,
giving rise to a deferred tax asset or deferred tax liability.
We then assess the likelihood that our deferred tax assets will
be recovered from future taxable income and, to the extent we
believe that recovery is not likely, we establish a valuation
allowance. As discussed in Note 12 to our consolidated
financial statements included in this Annual Report, we have
established a valuation allowance for our net deferred tax
assets, which was $39.9 million as of April 30, 2011
and $33.1 million as of April 30, 2010. We recognized
a tax benefit in fiscal 2011 of $0.4 million related to the
sale of $4.4 million of New Jersey state net operating
losses.
54
Recent
Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB)
issued further additional authoritative guidance related to fair
value measurements and disclosures. The new guidance results in
a consistent definition of fair value and common requirements
for measurement of and disclosure about fair value between
accounting principles generally accepted in the United States
(U.S. GAAP) and International Financial Reporting Standards
(IFRS). The guidance is effective for fiscal years and interim
periods within those years beginning after December 15,
2011. We are currently assessing the impact of the guidance.
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ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We generally place our investments in money market funds,
Treasury notes, Treasury bills and certificates of deposit with
maturities of less than one year. We actively manage our
portfolio of cash equivalents and investments, but in order to
ensure liquidity, we will only invest in instruments with high
credit quality where a secondary market exists. We have not held
and do not hold any derivatives related to our interest rate
exposure. Due to the average maturity and conservative nature of
our investment portfolio, a change in interest rates would not
have a material effect on the value of the portfolio. We do not
have market risk exposure on our long-term debt because it
consists of an interest-free loan from the New Jersey Board of
Public Utilities.
Management estimates that had the average yield on our cash,
cash equivalents, and investments decreased by 100 basis
points, our interest income for the year ended April 30,
2011 would have decreased by $0.6 million. This estimate
assumes that the decrease occurred on the first day of fiscal
2011 and reduced the yield of each investment by 100 basis
points. The impact on our future interest income of future
changes in investment yields will depend largely on the gross
amount of our cash, cash equivalents, and investments.
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 US dollars and
our functional currency is the US dollar, our main foreign
exchange exposure, if any, results from changes in the exchange
rate between the US dollar and the British pounds sterling, the
Euro and the Australian dollar.
We maintain cash accounts that are denominated in British pounds
sterling, Euros and Australian dollars. These
foreign-denominated cash accounts had a balance of
$4.8 million as of April 30, 2011 and
$4.1 million as of April 30, 2010, compared to our
total cash, cash equivalents, marketable securities and
restricted cash account balances of $48.3 million as of
April 30, 2011 and $66.8 million as of April 30,
2010. These foreign currency balances are translated at each
month end to our functional currency, the US dollar, and any
resulting gain or loss is recognized in our results of
operations. If the foreign currency exchange rates had
fluctuated by 10% as of April 30, 2011, the impact on our
foreign exchange gains and losses would have been
$0.5 million.
In addition, a portion of our operations is conducted through
our subsidiaries in countries other than the United States,
specifically Ocean Power Technologies Ltd. in the United
Kingdom, the functional currency of which is the British pounds
sterling, and Ocean Power Technologies (Australasia) Pty Ltd. in
Australia, the functional currency of which is the Australian
dollar. Both of these subsidiaries have foreign exchange
exposure that results from changes in the exchange rate between
their functional currency and other foreign currencies in which
they conduct business. All of our international revenues for the
year ended April 30, 2011 were recorded in Euros, British
pounds sterling or Australian dollars.
We currently do not hedge 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.
We have limited potential exposure to fluctuations in prices of
commodities used in the production of our buoys, such as steel.
Currently, we believe our exposure is minimal since we contract
for the components of our
55
buoys on a
project-by-project
basis and do not yet produce in large unit volumes. We do not
use long-term supply agreements nor do we use derivative
instruments to hedge any potential exposure.
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ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements and supplementary data required by this
item are listed in Item 15 Exhibits and
Financial Statement Schedules of this Annual Report.
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ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
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|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
An evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures was performed as of
the end of the period covered by this report. This evaluation
was performed under the supervision and with the participation
of management, including our Chief Executive Officer and Chief
Financial Officer. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in providing
reasonable assurance that information required to be disclosed
by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is accumulated and
communicated to management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure and are effective
in providing reasonable assurance that such information is
recorded, processed, summarized and reported within the time
periods specified by the rules and forms of the US Securities
and Exchange Commission (SEC).
The annual report of management on the Companys internal
control over financial reporting is provided under Reports
of Management on
page F-2.
The attestation report of KPMG LLP, the Companys
independent registered public accounting firm, regarding the
Companys internal control over financial reporting is
provided under Report of Independent Registered Public
Accounting Firm on
page F-3.
During the quarter ended April 30, 2011, there were no
changes in the Companys internal control over financial
reporting that materially affected, or are reasonably likely to
materially affect, such internal control over financial
reporting.
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ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information with respect to this item is set forth in the Proxy
Statement for the 2011 Annual Meeting of Stockholders (the
Proxy Statement) under the headings Election
of Directors, Executive Officers,
Section 16(a) Beneficial Ownership Reporting
Compliance, Code of Ethics and Corporate
Governance and is incorporated herein by reference. The
Proxy Statement will be filed with the SEC within 120 days
after the end of the fiscal year covered by this
Form 10-K.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information with respect to this item is set forth in the Proxy
Statement under the headings Executive Compensation
and Director Compensation, and is incorporated
herein by reference. The Proxy Statement will be filed with the
SEC within 120 days after the end of the fiscal year
covered by this
Form 10-K.
56
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information with respect to this item is set forth in the Proxy
Statement under the headings Security Ownership of Certain
Beneficial Owners and Management and Executive
Compensation, and is incorporated herein by reference. The
Proxy Statement will be filed with the SEC within 120 days
after the end of the fiscal year covered by this
Form 10-K.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information with respect to this item is set forth in the Proxy
Statement under the headings Certain Relationships and
Related Party Transactions and Corporate Governance
and Board Matters, and is incorporated herein by
reference. The Proxy Statement will be filed with the SEC within
120 days after the end of the fiscal year covered by this
Form 10-K.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information with respect to this item is set forth in the Proxy
Statement under the heading Ratification of the Selection
of Independent Registered Public Accounting Firm, and is
incorporated herein by reference. The Proxy Statement will be
filed with the SEC within 120 days after the end of the
fiscal year covered by this
Form 10-K.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) (1) Financial Statements: See Index to
Consolidated Financial Statements on
page F-1.
(3) Exhibits: See Exhibits Index on pages 59 to 60.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OCEAN POWER TECHNOLOGIES, INC.
Date: July 14, 2011
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By:
|
/s/ Charles
F. Dunleavy
|
Charles F. Dunleavy
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
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|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Charles
F. Dunleavy
Charles
F. Dunleavy
|
|
Director, Chief Executive Officer
(Principal Executive Officer)
|
|
July 14, 2011
|
|
|
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|
|
/s/ George
W. Taylor
George
W. Taylor
|
|
Executive Chairman of the Board of Directors
|
|
July 14, 2011
|
|
|
|
|
|
/s/ Brian
M. Posner
Brian
M. Posner
|
|
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
|
|
July 14, 2011
|
|
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|
|
|
/s/ Seymour
S. Preston III
Seymour
S. Preston III
|
|
Director
|
|
July 14, 2011
|
|
|
|
|
|
/s/ Thomas
J. Meaney
Thomas
J. Meaney
|
|
Director
|
|
July 14, 2011
|
|
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|
|
/s/ Paul
F. Lozier
Paul
F. Lozier
|
|
Director
|
|
July 14, 2011
|
|
|
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|
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/s/ J.
Victor Chatigny
J.
Victor Chatigny
|
|
Director
|
|
July 14, 2011
|
58
Exhibits Index
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the registrant
(incorporated by reference from Exhibit 3.1 to
Form 10-Q
filed September 14, 2007)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the registrant (incorporated by
reference from Exhibit 3.2 to
Form 10-Q
filed September 14, 2007)
|
|
4
|
.1
|
|
Specimen certificate of common stock (incorporated by reference
from Exhibit 4.1 to
Form S-1/A
filed March 19, 2007)
|
|
10
|
.1
|
|
Engineering, Procurement and Construction of a Wave Energy Power
Plant at Punta del Pescador (Santoña, Spain),
dated July 27, 2006, between Iberdrola Energias Marinas de
Cantabria, S.A. and Ocean Power Technologies Limited
(incorporated by reference from Exhibit 10.1 to
Form S-1
filed November 13, 2006)
|
|
10
|
.2
|
|
Option Agreement for Purchase of Emissions Credits, dated
November 24, 2000 between Ocean Power Technologies, Inc.
and its affiliates and Woodside Sustainable Energy Solutions
Pty. Ltd. (incorporated by reference from Exhibit 10.4 to
Form S-1
filed November 13, 2006)
|
|
10
|
.3
|
|
1994 Stock Option Plan (incorporated by reference from
Exhibit 10.5 to
Form S-1
filed November 13, 2006)*
|
|
10
|
.4
|
|
Incentive Stock Option Plan (incorporated by reference from
Exhibit 10.6 to
Form S-1
filed November 13, 2006)*
|
|
10
|
.5
|
|
2001 Stock Plan (incorporated by reference from
Exhibit 10.7 to
Form S-1
filed November 13, 2006)*
|
|
10
|
.6
|
|
2006 Stock Incentive Plan (incorporated by reference from
Exhibit 10.8 to
Form S-1/A
filed March 19, 2007)*
|
|
10
|
.7
|
|
Amended and Restated Voting and Right of First Refusal
Agreement, dated April 18, 2005, between Ocean Power
Technologies, Inc., George W. Taylor and JoAnne E. Burns
(incorporated by reference from Exhibit 10.9 to
Form S-1
filed November 13, 2006)
|
|
10
|
.8
|
|
Agreement to Refinance, dated November 14, 1993 between
Joseph R. Burns, Michael Y. Epstein, George W. Taylor and Ocean
Power Technologies, Inc. (incorporated by reference from
Exhibit 10.10 to
Form S-1
filed November 13, 2006)
|
|
10
|
.9
|
|
Amended and Restated Employment Agreement, dated April 8,
2009, between Charles F. Dunleavy and Ocean Power Technologies,
Inc. (incorporated by reference from Exhibit 10.2 to
Form 8-K
filed April 13, 2009)*
|
|
10
|
.10
|
|
Amended and Restated Employment Agreement, dated April 8,
2009, between George W. Taylor and Ocean Power Technologies,
Inc. (incorporated by reference from Exhibit 10.1 to
Form 8-K
filed April 13, 2009)*
|
|
10
|
.11
|
|
Consultant Agreement, dated August 1, 1999, between Thomas
J. Meaney and Ocean Power Technologies, Inc. (incorporated by
reference from Exhibit 10.13 to
Form S-1
filed November 13, 2006)
|
|
10
|
.12
|
|
Employment Agreement, dated September 9, 2004, between Mark
R. Draper and Ocean Power Technologies Ltd. (incorporated by
reference from Exhibit 10.14 to
Form S-1
filed November 13, 2006)*
|
|
10
|
.13
|
|
Lease Agreement, dated August 30, 2005 between Ocean Power
Technologies, Inc. and Reed Road Industrial Park LLC #1, as
amended on January 27, 2006 (incorporated by reference from
Exhibit 10.16 to
Form S-1
filed November 13, 2006)
|
|
10
|
.14
|
|
Lease, dated January 15, 2007, between University of
Warwick Science Park Innovation Centre Limited and Ocean Power
Technologies Ltd. (incorporated by reference from
Exhibit 10.17 to
Form S-1/A
filed March 19, 2007)
|
|
10
|
.15
|
|
Agreement for Renewable Energy Economic Development Grants,
dated November 3, 2003, between State of New Jersey Board
of Public Utilities and Ocean Power Technologies, Inc.
(incorporated by reference from Exhibit 10.18 to
Form S-1/A
filed March 19, 2007)
|
|
10
|
.16
|
|
Contract Number DM259735, dated September 17, 2005 between
Lockheed Martin Corporation Maritime Systems and Sensors (MS2)
and Ocean Power Technologies, Inc., as modified (incorporated by
reference from Exhibit 10.20 to
Form S-1/A
filed March 19, 2007)
|
59
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.17
|
|
Marketing Cooperation Agreement, dated September 9, 2006,
between Ocean Power Technologies, Inc. and Lockheed Martin
Corporation through its Maritime Systems and Sensors business
unit (incorporated by reference from Exhibit 10.21 to
Form S-1/A
filed April 10, 2007)
|
|
10
|
.18
|
|
Contract Number N00014-07-C-0617, dated May 24, 2007,
between the Office of Naval Research, U.S. Navy and Ocean Power
Technologies, Inc. (incorporated by reference from
Exhibit 99.1 to
Form 8-K
filed June 8, 2007)
|
|
10
|
.19
|
|
Addendum to the Agreement for the Engineering, Procurement and
Construction of a Wave Energy Power Plant at Punta del
Pescador (Santoña, Spain), between Iberdrola Energias
Marinas de Cantabria, S.A. and Ocean Power Technologies Limited,
dated February 18, 2008 (incorporated by reference from
Exhibit 10.27 to
Form 10-K
filed July 14, 2008)
|
|
10
|
.20
|
|
Lease, dated February 1, 2008, between KUC Properties
Limited and Ocean Power Technologies Ltd. (incorporated by
reference from Exhibit 10.28 to
Form 10-K
filed July 14, 2008)
|
|
10
|
.21
|
|
Financial Assistance Award agreement between Ocean Power
Technologies, Inc. and US Department of Energy date
September 23, 2008 (incorporated by reference from
Exhibit 10.1 to
Form 10-Q
filed December 10, 2008)
|
|
10
|
.22
|
|
Modification of Financial Assistance Award agreement between
Ocean Power Technologies, Inc. and US Department of Energy dated
October 16, 2008 (incorporated by reference from
Exhibit 10.2 to
Form 10-Q
filed December 10, 2008)
|
|
10
|
.23
|
|
Agreement between Ocean Power Technologies, Inc. and the Office
of Naval Research of the US Navy dated October 31, 2008
(incorporated by reference from Exhibit 10.3 to
Form 10-Q
filed December 10, 2008)
|
|
10
|
.24
|
|
Employment Agreement, dated May 19, 2010, between Brian M.
Posner and Ocean Power Technologies, Inc. (incorporated by
reference from Exhibit 10.28 to
Form 10-K
filed July 14, 2010)*
|
|
10
|
.25
|
|
Form of Restricted Stock Agreement (incorporated by reference
from Exhibit 10.1 to
Form 10-Q
filed March 14, 2011)*
|
|
21
|
.1
|
|
Subsidiaries of the registrant
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
31
|
.1
|
|
Certification of Chief Executive Officer
|
|
31
|
.2
|
|
Certification of Chief Financial Officer
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement |
60
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Index to
Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
Reports of Management
|
|
|
F-2
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
F-3
|
|
Consolidated Balance Sheets, April 30, 2011 and 2010
|
|
|
F-5
|
|
Consolidated Statements of Operations, Years ended
April 30, 2011, 2010 and 2009
|
|
|
F-6
|
|
Consolidated Statements of Stockholders Equity and
Comprehensive Loss, Years ended April 30, 2011, 2010 and
2009
|
|
|
F-7
|
|
Consolidated Statements of Cash Flows, Years ended
April 30, 2011, 2010 and 2009
|
|
|
F-8
|
|
Notes to Consolidated Financial Statements
|
|
|
F-9
|
|
F-1
Reports
of Management
Managements
Report on Consolidated Financial Statements
The accompanying consolidated financial statements have been
prepared by the management of Ocean Power Technologies, Inc.
(the Company) in conformity with generally accepted accounting
principles to reflect the financial position of the Company and
its operating results. The financial information appearing
throughout this Annual Report is consistent with the
consolidated financial statements. Management is responsible for
the information and representations in such consolidated
financial statements, including the estimates and judgments
required for their preparation. The consolidated financial
statements have been audited by KPMG LLP, an independent
registered public accounting firm, as stated in their report,
which appears herein.
The Audit Committee of the Board of Directors, which is composed
entirely of directors who are not officers or employees of the
Company, meets regularly with management and the independent
registered public accounting firm. The independent registered
public accounting firm has had, and continues to have, direct
access to the Audit Committee without the presence of other
management personnel, and have been directed to discuss the
results of their audit work and any matters they believe should
be brought to the Committees attention. The independent
registered public accounting firm reports directly to the Audit
Committee.
Managements
Annual Report on Internal Control Over Financial
Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles in the United States.
The Companys internal control over financial reporting
includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and
directors of the Company; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
April 30, 2011. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Based on this
assessment using those criteria, management concluded that the
Companys internal control over financial reporting was
effective as of April 30, 2011.
The effectiveness of the Companys internal control over
financial reporting as of April 30, 2011 has been audited
by KPMG LLP, an independent registered public accounting firm,
as stated in their report, which appears herein.
Charles F. Dunleavy
Chief Executive Officer
Brian M. Posner
Chief Financial Officer
F-2
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ocean Power Technologies, Inc.:
We have audited Ocean Power Technologies, Inc.s internal
control over financial reporting as of April 30, 2011,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Ocean Power
Technologies, Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Ocean Power Technologies, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of April 30, 2011, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Ocean Power Technologies, Inc.
and subsidiaries as of April 30, 2011 and 2010, and the
related consolidated statements of operations,
stockholders equity and comprehensive loss, and cash flows
for each of the years in the three-year period ended
April 30, 2011, and our report dated July 14, 2011
expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Philadelphia, Pennsylvania
July 14, 2011
F-3
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ocean Power Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of
Ocean Power Technologies, Inc. and subsidiaries as of
April 30, 2011 and 2010, and the related consolidated
statements of operations, stockholders equity and
comprehensive loss, and cash flows for each of the years in the
three-year period ended April 30, 2011. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Ocean Power Technologies, Inc. and subsidiaries as
of April 30, 2011 and 2010, and the results of their
operations and their cash flows for each of the years in the
three-year period ended April 30, 2011, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Ocean
Power Technologies, Inc.s internal control over financial
reporting as of April 30, 2011, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated July 14, 2011 expressed an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
/s/ KPMG LLP
Philadelphia, Pennsylvania
July 14, 2011
F-4
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,376,136
|
|
|
|
4,236,597
|
|
Marketable securities
|
|
|
26,018,594
|
|
|
|
32,536,001
|
|
Accounts receivable
|
|
|
1,285,000
|
|
|
|
1,474,600
|
|
Unbilled receivables
|
|
|
456,316
|
|
|
|
448,686
|
|
Other current assets
|
|
|
832,142
|
|
|
|
1,005,885
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
32,968,188
|
|
|
|
39,701,769
|
|
Property and equipment, net
|
|
|
792,092
|
|
|
|
710,563
|
|
Patents, net
|
|
|
1,222,368
|
|
|
|
1,036,881
|
|
Restricted cash
|
|
|
1,624,669
|
|
|
|
1,205,288
|
|
Marketable securities
|
|
|
16,323,016
|
|
|
|
28,865,046
|
|
Other noncurrent assets
|
|
|
622,245
|
|
|
|
1,458,646
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
53,552,578
|
|
|
|
72,978,193
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,224,728
|
|
|
|
1,843,378
|
|
Accrued expenses
|
|
|
4,302,952
|
|
|
|
4,092,113
|
|
Unearned revenues
|
|
|
344,022
|
|
|
|
1,101,541
|
|
Current portion of long-term debt
|
|
|
139,378
|
|
|
|
95,386
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,011,080
|
|
|
|
7,132,418
|
|
Long-term debt
|
|
|
450,000
|
|
|
|
250,000
|
|
Deferred credits
|
|
|
600,000
|
|
|
|
600,000
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
140,685
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,061,080
|
|
|
|
8,123,103
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 13)
|
|
|
|
|
|
|
|
|
Ocean Power Technologies, Inc. Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; authorized
5,000,000 shares, none issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; authorized
105,000,000 shares, issued 10,419,183 and
10,390,563 shares, respectively
|
|
|
10,419
|
|
|
|
10,391
|
|
Treasury stock, at cost; 7,685 and 1,072 shares,
respectively
|
|
|
(42,734
|
)
|
|
|
(6,443
|
)
|
Additional paid-in capital
|
|
|
157,174,930
|
|
|
|
155,726,672
|
|
Accumulated deficit
|
|
|
(110,848,972
|
)
|
|
|
(90,413,098
|
)
|
Accumulated other comprehensive loss
|
|
|
175,907
|
|
|
|
(503,322
|
)
|
|
|
|
|
|
|
|
|
|
Total Ocean Power Technologies, Inc. stockholders equity
|
|
|
46,469,550
|
|
|
|
64,814,200
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in Ocean Power Technologies
(Australasia) Pty Ltd
|
|
|
21,948
|
|
|
|
40,890
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
46,491,498
|
|
|
|
64,855,090
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
53,552,578
|
|
|
|
72,978,193
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
$
|
6,691,082
|
|
|
|
5,101,311
|
|
|
|
4,049,445
|
|
Cost of revenues
|
|
|
6,255,437
|
|
|
|
4,298,955
|
|
|
|
4,840,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
435,645
|
|
|
|
802,356
|
|
|
|
(790,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development costs
|
|
|
13,319,110
|
|
|
|
13,001,550
|
|
|
|
8,372,244
|
|
Selling, general and administrative costs
|
|
|
8,399,325
|
|
|
|
9,063,482
|
|
|
|
9,529,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
21,718,435
|
|
|
|
22,065,032
|
|
|
|
17,901,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,282,790
|
)
|
|
|
(21,262,676
|
)
|
|
|
(18,692,273
|
)
|
Interest income, net
|
|
|
689,276
|
|
|
|
1,032,484
|
|
|
|
1,672,350
|
|
Other income
|
|
|
|
|
|
|
557,540
|
|
|
|
|
|
Foreign exchange (loss) gain
|
|
|
(229,415
|
)
|
|
|
540,644
|
|
|
|
(1,295,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(20,822,929
|
)
|
|
|
(19,132,008
|
)
|
|
|
(18,315,150
|
)
|
Income tax benefit
|
|
|
364,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(20,458,824
|
)
|
|
|
(19,132,008
|
)
|
|
|
(18,315,150
|
)
|
Less: Net loss (income) attributable to the noncontrolling
interest in Ocean Power Technologies (Australasia) Pty Ltd.
|
|
|
22,950
|
|
|
|
(38,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Ocean Power Technologies, Inc.
|
|
$
|
(20,435,874
|
)
|
|
|
(19,170,307
|
)
|
|
|
(18,315,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(1.99
|
)
|
|
|
(1.88
|
)
|
|
|
(1.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic and diluted net
loss per share
|
|
|
10,246,921
|
|
|
|
10,217,003
|
|
|
|
10,210,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ocean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Technologies, Inc,
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Treasury Shares
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 1, 2008
|
|
|
10,210,354
|
|
|
$
|
10,210
|
|
|
|
|
|
|
$
|
|
|
|
|
153,057,265
|
|
|
|
(52,927,641
|
)
|
|
|
(41,225
|
)
|
|
|
100,098,609
|
|
|
|
|
|
|
|
100,098,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,315,150
|
)
|
|
|
|
|
|
|
(18,315,150
|
)
|
|
|
|
|
|
|
(18,315,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(512,098
|
)
|
|
|
(512,098
|
)
|
|
|
|
|
|
|
(512,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,827,248
|
)
|
|
|
|
|
|
|
(18,827,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,453,350
|
|
|
|
|
|
|
|
|
|
|
|
1,453,350
|
|
|
|
|
|
|
|
1,453,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,316
|
|
|
|
|
|
|
|
|
|
|
|
58,316
|
|
|
|
|
|
|
|
58,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2009
|
|
|
10,210,354
|
|
|
$
|
10,210
|
|
|
|
|
|
|
|
|
|
|
|
154,568,931
|
|
|
|
(71,242,791
|
)
|
|
|
(553,323
|
)
|
|
|
82,783,027
|
|
|
|
|
|
|
|
82,783,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,170,307
|
)
|
|
|
|
|
|
|
(19,170,307
|
)
|
|
|
38,299
|
|
|
|
(19,132,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,001
|
|
|
|
50,001
|
|
|
|
2,591
|
|
|
|
52,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,120,306
|
)
|
|
|
40,890
|
|
|
|
(19,079,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
918,235
|
|
|
|
|
|
|
|
|
|
|
|
918,235
|
|
|
|
|
|
|
|
918,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
180,209
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
239,506
|
|
|
|
|
|
|
|
|
|
|
|
239,687
|
|
|
|
|
|
|
|
239,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(1,072
|
)
|
|
|
(6,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,443
|
)
|
|
|
|
|
|
|
(6,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2010
|
|
|
10,390,563
|
|
|
|
10,391
|
|
|
|
(1,072
|
)
|
|
|
(6,443
|
)
|
|
|
155,726,672
|
|
|
|
(90,413,098
|
)
|
|
|
(503,322
|
)
|
|
|
64,814,200
|
|
|
|
40,890
|
|
|
|
64,855,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,435,874
|
)
|
|
|
|
|
|
|
(20,435,874
|
)
|
|
|
(22,950
|
)
|
|
|
(20,458,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679,229
|
|
|
|
679,229
|
|
|
|
4,009
|
|
|
|
683,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,756,645
|
)
|
|
|
(18,942
|
)
|
|
|
(19,775,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
964,000
|
|
|
|
|
|
|
|
|
|
|
|
964,000
|
|
|
|
|
|
|
|
964,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
28,620
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
484,258
|
|
|
|
|
|
|
|
|
|
|
|
484,286
|
|
|
|
|
|
|
|
484,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(6,613
|
)
|
|
|
(36,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,291
|
)
|
|
|
|
|
|
|
(36,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2011
|
|
|
10,419,183
|
|
|
$
|
10,419
|
|
|
|
(7,685
|
)
|
|
$
|
(42,734
|
)
|
|
|
157,174,930
|
|
|
|
(110,848,972
|
)
|
|
|
175,907
|
|
|
|
46,469,550
|
|
|
|
21,948
|
|
|
|
46,491,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,458,824
|
)
|
|
|
(19,132,008
|
)
|
|
|
(18,315,150
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss (gain)
|
|
|
229,415
|
|
|
|
(540,644
|
)
|
|
|
1,295,227
|
|
Depreciation and amortization
|
|
|
358,722
|
|
|
|
365,755
|
|
|
|
299,405
|
|
Loss on disposal of equipment
|
|
|
5,293
|
|
|
|
113,087
|
|
|
|
268,976
|
|
Treasury note premium amortization
|
|
|
71,236
|
|
|
|
146,834
|
|
|
|
288,331
|
|
Compensation expense related to stock option grants and
restricted stock
|
|
|
1,448,286
|
|
|
|
1,117,935
|
|
|
|
1,511,666
|
|
Deferred rent
|
|
|
|
|
|
|
(21,649
|
)
|
|
|
5,412
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
277,115
|
|
|
|
(474,407
|
)
|
|
|
472,422
|
|
Unbilled receivables
|
|
|
1,396
|
|
|
|
603,765
|
|
|
|
(589,970
|
)
|
Other current assets
|
|
|
198,569
|
|
|
|
77,278
|
|
|
|
140,418
|
|
Other noncurrent assets
|
|
|
903,729
|
|
|
|
(202,731
|
)
|
|
|
(857,060
|
)
|
Accounts payable
|
|
|
(891,417
|
)
|
|
|
1,047,213
|
|
|
|
(448,138
|
)
|
Accrued expenses
|
|
|
(7,923
|
)
|
|
|
153,418
|
|
|
|
(361,284
|
)
|
Unearned revenues
|
|
|
(761,473
|
)
|
|
|
827,786
|
|
|
|
(418,182
|
)
|
Other noncurrent liabilities
|
|
|
(144,226
|
)
|
|
|
147,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(18,770,102
|
)
|
|
|
(15,770,684
|
)
|
|
|
(16,707,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(7,993,642
|
)
|
|
|
(33,884,604
|
)
|
|
|
(124,675,859
|
)
|
Maturities of marketable securities
|
|
|
27,059,601
|
|
|
|
41,838,886
|
|
|
|
67,151,702
|
|
Restricted cash
|
|
|
(302,871
|
)
|
|
|
(252,080
|
)
|
|
|
|
|
Purchases of equipment
|
|
|
(72,998
|
)
|
|
|
(239,449
|
)
|
|
|
(811,493
|
)
|
Payments of patent costs
|
|
|
(258,732
|
)
|
|
|
(153,667
|
)
|
|
|
(243,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
18,431,358
|
|
|
|
7,309,086
|
|
|
|
(58,579,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
250,000
|
|
|
|
|
|
|
|
250,000
|
|
Repayment of long-term debt
|
|
|
(6,008
|
)
|
|
|
(93,398
|
)
|
|
|
(42,801
|
)
|
Acquisition of treasury stock
|
|
|
(36,291
|
)
|
|
|
(6,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
207,701
|
|
|
|
(99,841
|
)
|
|
|
207,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
270,582
|
|
|
|
530,206
|
|
|
|
(1,488,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
139,539
|
|
|
|
(8,031,233
|
)
|
|
|
(76,568,474
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
4,236,597
|
|
|
|
12,267,830
|
|
|
|
88,836,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
4,376,136
|
|
|
|
4,236,597
|
|
|
|
12,267,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized patent costs financed through accounts payable and
accrued expenses
|
|
$
|
41,722
|
|
|
|
66,513
|
|
|
|
23,255
|
|
Capitalized purchases of equipment financed through accounts
payable
|
|
|
314,824
|
|
|
|
6,360
|
|
|
|
96,304
|
|
Investment in joint ventures financed through accrued expenses
|
|
|
|
|
|
|
|
|
|
|
175,803
|
|
See accompanying notes to consolidated financial statements.
F-8
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Ocean Power Technologies, Inc. (the Company) was incorporated on
April 19, 1984 in the State of New Jersey, commenced active
operations in 1994 and re-incorporated in the State of Delaware
in April 2007. The Company develops and is commercializing
proprietary systems that generate electricity by harnessing the
renewable energy of ocean waves. The Company markets and sells
its products in the United States and internationally.
|
|
(2)
|
Summary
of Significant Accounting Policies
|
|
|
(a)
|
Consolidation
and Cost Method Investment
|
The accompanying consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation. Participation of stockholders other
than the Company in the net assets and in the earnings or losses
of a consolidated subsidiary is reflected in the caption
Noncontrolling interest in the Companys
Consolidated Balance Sheets and Statements of Operations.
Noncontrolling interest adjusts the Companys consolidated
results of operations to reflect only the Companys share
of the earnings or losses of the consolidated subsidiary. For
the years presented in the accompanying consolidated financial
statements, there was one noncontrolling interest, consisting of
11.8% of the Companys Australian subsidiary.
In addition, the Company evaluates its relationships with other
entities to identify whether they are variable interest
entities, and to assess whether it is the primary beneficiary of
such entities. If the determination is made that the Company is
the primary beneficiary, then that entity is included in the
consolidated financial statements. For the years presented in
the accompanying consolidated financial statements, there were
no such entities.
The Company has a 10% investment in Iberdrola Energias Marinas
de Cantabria, S.A. (Iberdrola Cantabria). Revenues from
Iberdrola Cantabria for the years ended April 30, 2011,
2010 and 2009 were ($242,614), $178,215, and $601,736,
respectively. Additionally, aggregate accounts receivable and
unbilled receivables from Iberdrola Cantabria were $341,286 and
$556,491 as of April 30, 2011 and 2010, respectively. See
Note 13(c).
The preparation of the consolidated financial statements
requires management of the Company to make a number of estimates
and assumptions relating to the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
period. Significant items subject to such estimates and
assumptions include the recoverability of the carrying amount of
property and equipment and patents; valuation allowances for
receivables and deferred income tax assets; and percentage of
completion of customer contracts for purposes of revenue
recognition. Actual results could differ from those estimates.
The current economic environment has increased the degree of
uncertainty inherent in those estimates and assumptions.
The Company primarily recognizes revenue under the
percentage-of-completion
method. The percentage of completion is determined by relating
the costs incurred to date to the estimated total costs. The
cumulative effects resulting from revisions of estimated total
contract costs and revenues are recorded in the period in which
the facts requiring revision become known. Upon anticipating a
loss on a contract, the Company recognizes the full amount of
the anticipated loss in the current period. During the year
ended April 30, 2011, the Company reduced revenue by
approximately $243,000 due to a change in estimated revenue to
be recognized in connection with the Companys construction
agreement relating to development of a PowerBuoy system off
Santoña, Spain. During the year ended April 30, 2009,
the Company recorded provisions of approximately $810,000,
related to anticipated losses on contracts. During the year
ended April 30, 2010, the Company reversed approximately
$400,000 of the loss reserves established in fiscal year 2009 as
these loss reserves were no longer necessary as of
April 30, 2010. During the year
F-9
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
ended April 30, 2009, the Company recorded reductions in
the contract loss reserves of $1,728,000. Reserves related to
loss contracts in the amount of approximately $785,000 are
included in accrued expenses in the accompanying consolidated
balance sheets as of April 30, 2011 and 2010. Modifications
to contract provisions, such as those currently being discussed
in connection with the Companys Spain construction
agreement (see Note 13), as well as modifications in
contract loss estimates, may require changes in reserves
established for anticipated contract losses.
Generally, we recognize revenue using the
percentage-of-completion
method based on the ratio of costs incurred to total estimated
costs at completion. In certain circumstances, revenue under
contracts that have specified milestones or other performance
criteria may be recognized only when our customer acknowledges
that such criteria have been satisfied. In addition, recognition
of revenue (and the related costs) may be deferred for
fixed-price contracts until contract completion if we are unable
to reasonably estimate the total costs of the project prior to
completion. Because we have a small number of contracts,
revisions to the percentage of completion determination or
delays in meeting performance criteria or in completing projects
may have a significant effect on our revenue for the periods
involved. Upon anticipating a loss on a contract, we recognize
the full amount of the anticipated loss in the current period.
Generally our contracts are either cost plus or fixed price
contracts. Under cost plus contracts, we bill the customer for
actual expenses incurred plus an
agreed-upon
fee. Revenue is typically recorded using
percentage-of-completion
based on the maximum awarded contract amount. In certain cases
we may choose to incur costs in excess of the maximum awarded
contract amount resulting in a loss on the contract. Currently,
we have two types of fixed price contracts, firm fixed price and
cost-sharing. Under firm fixed price contracts we receive an
agreed-upon
amount for providing products and services specified in the
contract. Revenue is typically recorded using
percentage-of-completion
based on the contract amount. Depending on whether actual costs
are more or less than the
agreed-upon
amount, there is a profit or loss on the project. 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. We fund the remainder of the costs as part of
our product development efforts. Revenue is typically recorded
using
percentage-of-completion
based on the amount agreed upon with the customer. An amount
corresponding to the revenue is recorded in cost of revenues,
resulting in gross profit on these contracts of zero. Our share
of the costs is recorded as product development expense.
Unbilled receivables represent expenditures on contracts, plus
applicable profit margin, not yet billed. Unbilled receivables
are normally billed and collected within one year. Billings made
on contracts are recorded as a reduction of unbilled
receivables, and to the extent that such billings exceed costs
incurred plus applicable profit margin, they are recorded as
unearned revenues.
|
|
(d)
|
Cash
and Cash Equivalents
|
Cash equivalents consist of investments in short-term financial
instruments with original maturities of three months or less
from the date of purchase. Cash and cash equivalents include
$273,000 and $1,590,000 of certificates of deposit with initial
maturities of less than three months at April 30, 2011 and
2010, respectively, and $482,000 and $192,000 invested in a
money market fund as of April 30, 2011 and 2010,
respectively.
|
|
(e)
|
Marketable
Securities
|
Marketable securities with original maturities longer than three
months but that mature in less than one year from the balance
sheet date are classified as current assets. Marketable
securities that mature more than one year from the balance sheet
date are classified as noncurrent assets. Marketable securities
that the Company has the intent and ability to hold to maturity
are classified as investments
held-to-maturity
and are reported at amortized cost. The difference between the
acquisition cost and face values of
held-to-maturity
investments is amortized over the remaining term of the
investments and added to or subtracted from the acquisition cost
and interest income. As of April 30, 2011 and 2010, all of
the Companys investments were classified as
held-to-maturity.
F-10
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
(f)
|
Restricted
Cash and Credit Facility
|
The Company had $1,624,669 and $1,205,288 of restricted cash as
of April 30, 2011 and April 30, 2010, respectively.
The cash is restricted under the terms of two security
agreements.
One agreement is between Ocean Power Technologies, Inc. and
Barclays Bank. Under this agreement, the cash is on deposit at
Barclays Bank and serves as security for letters of credit that
are expected to be issued by Barclays Bank on behalf of Ocean
Power Technologies Ltd., one of the Companys subsidiaries,
under a 800,000 ($1,187,000 at April 30,
2011) credit facility established by Barclays Bank for
Ocean Power Technologies Ltd. The credit facility is for the
issuance of letters of credit and bank guarantees, and carries a
fee of 1% per annum of the amount of any such obligations issued
by Barclays Bank. As of April 30, 2011, there were
266,000 ($395,000) in letters of credit outstanding under
this agreement. The credit facility does not have an expiration
date, but is cancelable at the discretion of the bank. As of
April 30, 2011 and 2010, approximately 720,000
($1,068,000 and $953,000 at April 30, 2011 and 2010,
respectively) is included in restricted cash.
The other agreement is between Ocean Power Technologies, Inc.
and the New Jersey Board of Public Utilities (NJBPU). The
Company received a $500,000 recoverable grant award from the
NJBPU in two installments in fiscal year 2011 and 2010. Under
this agreement, the Company is required to assign to the NJBPU a
certificate of deposit in an amount equal to the outstanding
grant balance. As of April 30, 2011 and 2010, the Company
has assigned certificates of deposit in the amount of $500,000
and $250,000, respectively, to the NJBPU. See Note 7.
|
|
(g)
|
Property
and Equipment
|
Property and equipment is stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization is
calculated using the straight-line method over the estimated
useful lives (three to seven years) of the assets. Leasehold
improvements are amortized using the straight-line method over
the shorter of the estimated useful life of the asset or the
remaining lease term. Expenses for maintenance and repairs are
charged to operations as incurred. Depreciation was $310,268,
$324,596 and $259,696 for the years ended April 30, 2011,
2010 and 2009, respectively.
Other income consists of transactions that the Company considers
to be outside the normal scope of its operations and operating
activities. The Company recognized other income of $557,540
during the year ended April 30, 2010, primarily in
connection with the settlement of a claim that it had against a
supplier that provided engineering services to the Company.
|
|
(i)
|
Foreign
Exchange Gains and Losses
|
The Company has invested in certain certificates of deposit and
has maintained cash accounts that are denominated in British
pounds sterling, Euros and Australian dollars. Such certificates
of deposit and cash accounts had a balance of approximately
$4,793,000 and $4,131,000 as of April 30, 2011 and 2010,
respectively. These amounts are included in cash, cash
equivalents, restricted cash and marketable securities on the
accompanying consolidated balance sheets. Such positions may
result in realized and unrealized foreign exchange gains or
losses from exchange rate fluctuations, which are included in
foreign exchange (loss) gain in the accompanying consolidated
statements of operations. Foreign exchange (loss) gain was
($229,415), $540,644 and ($1,295,227) for the years ended
April 30, 2011, 2010 and 2009, respectively.
External costs related to the filing of patents, including legal
and filing fees, are capitalized. Amortization is calculated
using the straight-line method over the life of the patents
(17 years, beginning upon issuance of the patent). Expenses
for the development of technology are charged to operations as
incurred. Amortization expense
F-11
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
was $47,877, $41,064, and $39,613 for the years ended
April 30, 2011, 2010 and 2009, respectively. Amortization
expense for the next five fiscal years related to amounts
capitalized for patents as of April 30, 2011 is estimated
to be approximately $70,000 per year. Accumulated amortization
was $333,909 and $285,454 at April 30, 2011 and 2010,
respectively.
Long-lived assets, such as property and equipment and purchased
intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of the asset exceeds its estimated
future cash flows, then an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the
fair value of the asset. The Company reviewed its long-lived
assets for impairment and determined there was no impairment for
the years ended April 30, 2011, 2010 or 2009.
|
|
(l)
|
Concentration
of Credit Risk
|
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash
balances, bank certificates of deposit and trade receivables.
The Company invests its excess cash in highly liquid investments
(principally short-term bank deposits, Treasury bills, Treasury
notes and a money market fund) and does not believe that it is
exposed to any significant risks related to its cash accounts,
money market fund or certificates of deposit.
The table below shows the percentage of the Companys
revenues derived from customers whose revenues accounted for at
least 10% of the Companys consolidated revenues for at
least one of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
2011
|
|
2010
|
|
2009
|
|
US Navy
|
|
|
52
|
%
|
|
|
80
|
%
|
|
|
67
|
%
|
US Department of Energy
|
|
|
28
|
%
|
|
|
9
|
%
|
|
|
4
|
%
|
Iberdrola Cantabria
|
|
|
(4
|
)%
|
|
|
4
|
%
|
|
|
15
|
%
|
UK Governments Technical Strategy Board
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
During fiscal 2011, the Company reduced revenue by approximately
$243,000 due to a change in estimated revenue to be recognized
in connection with the Spain construction agreement.
The loss of, or a significant reduction in revenues from, any of
the current customers could significantly impact the
Companys financial position or results of operations. The
Company does not require collateral from its customers.
|
|
(m)
|
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 outstanding during the period. Due to
the Companys net losses, potentially dilutive securities,
consisting of outstanding stock options and non-vested
performance-based shares, were excluded from the diluted loss
per share calculation due to their anti-dilutive effect.
In computing diluted net loss per share, 1,504,888, 1,532,577
and 1,676,631 options to purchase shares of common stock,
non-vested restricted stock and shares to be issued to
non-employee directors were excluded from the computations for
the years ended April 30, 2011, 2010 and 2009, respectively.
F-12
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
(n)
|
Stock-Based
Compensation
|
Costs resulting from all share-based payment transactions are
recognized in the consolidated financial statements at their
fair values. Compensation cost for the portion of the awards for
which the requisite service had not been rendered that were
outstanding as of May 1, 2006 is being recognized in the
consolidated statements of operations over the remaining service
period after such date based on the awards original
estimated fair value. The aggregate share-based compensation
expense recorded in the consolidated statements of operations
for the years ended April 30, 2011, 2010 and 2009 was
approximately $1,448,000, $1,118,000 and $1,512,000 respectively.
Valuation
Assumptions for Options Granted During the Years Ended
April 30, 2011, 2010 and 2009
The fair value of each stock option granted during the years
ended April 30, 2011, 2010 and 2009 were estimated at the
date of grant using the Black-Scholes option pricing model,
assuming no dividends and using the weighted average valuation
assumptions noted in the following table. The risk-free rate is
based on the US Treasury yield curve in effect at the time of
grant. The expected life (estimated period of time outstanding)
of the stock options granted was estimated using the
simplified method as permitted by the Securities and
Exchange Commissions Staff Accounting
Bulletin No. 107, Share-Based Payment. Expected
volatility was based on historical volatility for a peer group
of companies for a period equal to the stock options
expected life, calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
2011
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
|
2.29
|
%
|
|
|
2.98
|
%
|
|
|
3.36
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life
|
|
|
6.39 years
|
|
|
|
6.42 years
|
|
|
|
6.29 years
|
|
Expected volatility
|
|
|
93.8
|
%
|
|
|
81.8
|
%
|
|
|
79.3
|
%
|
The above assumptions were used to determine the weighted
average per share fair value of $4.18, $4.42 and $6.33 for stock
options granted during the years ended April 30, 2011, 2010
and 2009, respectively.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences and operating loss and tax credit carryforwards are
expected to be recovered, settled or utilized. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
The Company recognizes the effect of income tax positions only
if those positions are more likely than not of being sustained
upon examination. Recognized income tax positions are measured
at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in
the period in which the change in judgment occurs. The Company
records interest related to unrecognized tax benefits in
interest expense and penalties in selling, general, and
administrative expenses, to the extent incurred.
|
|
(p)
|
Accumulated
Other Comprehensive Loss
|
The functional currency for the Companys foreign
operations is the applicable local currency. The translation
from the applicable foreign currencies to US dollars is
performed for balance sheet accounts using the exchange rates in
effect at the balance sheet date and for revenue and expense
accounts using an average exchange rate during
F-13
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
the period. The unrealized gains or losses resulting from such
translation are included in accumulated other comprehensive loss
within stockholders equity.
|
|
(q)
|
Recent
Accounting Pronouncements
|
In May 2011, the FASB issued further additional authoritative
guidance related to fair value measurements and disclosures. The
new guidance results in a consistent definition of fair value
and common requirements for measurement of and disclosure about
fair value between accounting principles generally accepted in
the United States (U.S. GAAP) and International Financial
Reporting Standards (IFRS). The guidance is effective for fiscal
years and interim periods within those years beginning after
December 15, 2011. The Company is currently assessing the
impact of the guidance.
Certain prior year amounts have been reclassified to conform to
the current year presentation.
|
|
(3)
|
Marketable
Securities
|
Marketable securities with original maturities longer than three
months but that mature in less than one year from the balance
sheet date are classified as current assets and are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Certificates of deposit denominated in AUD
|
|
$
|
491,895
|
|
|
|
519,232
|
|
US Treasury obligations
|
|
|
25,526,699
|
|
|
|
32,016,769
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,018,594
|
|
|
|
32,536,001
|
|
|
|
|
|
|
|
|
|
|
The Companys marketable securities that mature more than
one year from the balance sheet date are classified as
noncurrent assets and are all classified as
held-to-maturity,
carried at amortized cost and are summarized as follows. All
non-current marketable securities mature within two years from
April 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
April 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury obligations
|
|
$
|
12,516,208
|
|
|
|
164,107
|
|
|
|
|
|
|
|
12,680,315
|
|
Certificate of deposit
|
|
|
3,806,808
|
|
|
|
|
|
|
|
|
|
|
|
3,806,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,323,016
|
|
|
|
164,107
|
|
|
|
|
|
|
|
16,487,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury obligations
|
|
$
|
25,058,238
|
|
|
|
158,672
|
|
|
|
|
|
|
|
25,216,910
|
|
Certificate of deposit
|
|
|
3,806,808
|
|
|
|
|
|
|
|
|
|
|
|
3,806,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,865,046
|
|
|
|
158,672
|
|
|
|
|
|
|
|
29,023,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
(4)
|
Property
and Equipment
|
The components of property and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
Life
|
|
|
2011
|
|
|
2010
|
|
|
Computers and software
|
|
|
3 years
|
|
|
$
|
713,779
|
|
|
|
654,400
|
|
Equipment
|
|
|
3 to 7 years
|
|
|
|
990,283
|
|
|
|
661,120
|
|
Office furniture and equipment
|
|
|
3 to 7 years
|
|
|
|
297,612
|
|
|
|
303,918
|
|
Leasehold improvements
|
|
|
3 to 8 years
|
|
|
|
149,505
|
|
|
|
147,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,151,179
|
|
|
|
1,767,078
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(1,359,087
|
)
|
|
|
(1,056,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
792,092
|
|
|
|
710,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accrued expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Project costs
|
|
$
|
1,505,981
|
|
|
|
1,072,635
|
|
Contract loss reserves
|
|
|
785,000
|
|
|
|
785,000
|
|
Employee incentive payments
|
|
|
749,464
|
|
|
|
682,400
|
|
Other
|
|
|
282,999
|
|
|
|
308,514
|
|
Employee-related costs
|
|
|
364,799
|
|
|
|
491,621
|
|
Payroll tax withholdings
|
|
|
219,632
|
|
|
|
374,208
|
|
Investment in joint venture
|
|
|
197,318
|
|
|
|
176,121
|
|
Legal and accounting fees
|
|
|
157,616
|
|
|
|
154,567
|
|
Value-added tax
|
|
|
40,143
|
|
|
|
47,047
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,302,952
|
|
|
|
4,092,113
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Related
Party Transactions
|
In August 1999, the Company entered into a consulting agreement
with an individual for marketing services. Currently, this
agreement is at a rate of $950 per day of services provided. The
individual became a member of the board of directors in June
2006. Under this consulting agreement, the Company expensed
approximately $85,000, $72,000 and $61,000 during the years
ended April 30, 2011, 2010 and 2009, respectively. The
amount of these consulting fees payable at April 30, 2011,
2010 and 2009 was $7,000, $7,000 and $5,000, respectively. In
addition, this individual is also the chief executive officer of
a company that provided engineering and technical services to
the Company. The Company incurred expenses of approximately
$207,000 and $213,000 for such services during the years ended
April 30, 2011 and 2010, respectively, of which $56,000 and
$65,000 was payable at April 30, 2011 and 2010,
respectively. There was no such expense incurred for the year
ended April 30, 2009. The Company also provided services to
the company where this individual is the chief executive
officer. The Company recorded revenue of approximately $77,000
and $15,000 for such services during the years ended
April 30, 2011 and 2009, respectively, of which $27,000 and
$6,000 was receivable at April 30, 2011 and 2010,
respectively. There was no revenue earned during the year ended
April 30, 2010.
F-15
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
During the year ended April 30, 2000, the Company received
an award of $250,000 from the State of New Jersey Commission on
Science and Technology for the development of a wave power
system that was deployed off the coast of New Jersey. The award
contract was assigned to the New Jersey Economic Development
Authority in fiscal 2008. Under the terms of this award, the
Company must repay the amount funded, without interest, by
January 15, 2012. The amounts to be repaid each year are
determined as a percentage of revenues (as defined in the loan
agreement) the Company receives that year from its customer
contracts that meet criteria specified in the loan agreement,
with any remaining amount due on January 15, 2012. Based
upon the terms of the award, the Company has repaid
approximately $161,000, and the remaining $89,000 due has been
classified as current portion of long-term debt on the
accompanying balance sheet as of April 30, 2011.
The Company was awarded a recoverable grant totaling $500,000
from the NJBPU under the Renewable Energy Business Venture
Assistance Program. Under the terms of this agreement, the
amount to be repaid is a fixed monthly amount of principal only,
repayable over a five-year period beginning in November 2011. As
of April 30, 2011, $50,000 was included in current portion
of long-term debt and $450,000 was included in long-term debt on
the accompanying consolidated balance sheet. The terms also
require the Company to assign to the NJBPU a certificate of
deposit in an amount equal to the outstanding grant balance. The
Company received $250,000, representing the first half of the
grant during the year ended April 30, 2010 and the
remaining $250,000 was received during the year ended
April 30, 2011. See Note 2(f).
During the year ended April 30, 2001, in connection with
the sale of common stock to an investor, the Company received
$600,000 from the investor in exchange for an option to purchase
up to 500,000 metric tons of carbon emissions credits generated
by the Company during the years 2008 through 2012, at a 30%
discount from the then-prevailing market rate. This amount has
been recorded as deferred credits in the accompanying
consolidated balance sheets as of April 30, 2011 and 2010.
If the Company does not become entitled under applicable laws to
the full amount of emission credits covered by the option by
December 31, 2012, the Company is obligated to return the
option fee of $600,000, less the aggregate discount on any
emission credits sold to the investor prior to such date. If the
Company receives emission credits under applicable laws and
fails to sell to the investor the credits up to the full amount
of emission credits covered by the option, the investor is
entitled to liquidated damages equal to 30% of the aggregate
market value of the shortfall in emission credits (subject to a
limit on the market price of emission credits).
On April 30, 2007, the Company completed an initial public
offering in the United States on the NASDAQ Global Market by
issuing 5,000,000 shares of its common stock for a purchase
price of $20.00 per share, resulting in net proceeds to the
Company of approximately $89,900,000.
The Company has authorized 5,000,000 shares of undesignated
preferred stock with a par value of $0.001 per share. At
April 30, 2011 and 2010, no shares of preferred stock had
been issued.
|
|
(11)
|
Share-Based
Compensation
|
Prior to August 2001, the Company maintained qualified and
nonqualified stock option plans. As of April 30, 2011, the
Company had 90,000 shares remaining of common stock for
issuance under these plans. There are no options available for
future grant under these plans as of April 30, 2011.
F-16
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
In August 2001, the Company approved the 2001 Stock Plan, which
provides for the grant of incentive stock options and
nonqualified stock options. A total of 1,000,000 shares
were authorized for issuance under the 2001 Stock Plan. As of
April 30, 2011, the Company had issued or reserved
430,675 shares for issuance under the 2001 Stock Plan.
After the effectiveness of the 2006 Stock Incentive Plan, no
further options or other awards have been or will be granted
under the 2001 Stock Plan.
On April 24, 2007, the Companys 2006 Stock Incentive
Plan became effective. A total of 803,215 shares were
authorized for issuance under the 2006 Stock Incentive Plan. On
October 2, 2009, an amendment to the 2006 Stock Incentive
Plan was approved, increasing the aggregate number of shares
authorized for issuance by 850,000 shares to 1,653,215. As
of April 30, 2011, the Company had issued share-based
awards for 1,042,089 shares of common stock and had
reserved an additional 611,126 shares of common stock for
future issuance under the 2006 Stock Incentive Plan. The
Companys employees, officers, directors, consultants and
advisors are eligible to receive awards under the 2006 Stock
Incentive Plan; however, incentive stock options may only be
granted to employees. The maximum number of shares of common
stock with respect to which awards may be granted to any
participant under the 2006 Stock Incentive Plan is 200,000 per
calendar year. Members of the board of directors who are not
full-time employees receive, as part of their annual
compensation, a choice of either (a) shares of common stock
worth $20,000, which vest proportionately over three years,
starting on the first anniversary of the grant, or (b) an
equivalent amount of options based on the Black-Scholes formula,
to purchase shares of common stock that is fully vested at the
time of grant. Vesting provisions of stock options are
determined by the board of directors. The contractual term of
these stock options is up to ten years. The 2006 Stock Incentive
Plan is administered by the Companys board of directors
who may delegate authority to one or more committees or
subcommittees of the board of directors or to the Companys
officers. If the board of directors delegates authority to an
officer, the officer has the power to make awards to all of the
Companys employees, except to executive officers. The
board of directors will fix the terms of the awards to be
granted by such officer. No award may be granted under the 2006
Stock Incentive Plan after December 7, 2016, but the
vesting and effectiveness of awards granted before that date may
extend beyond that date.
A summary of stock options under the plans described above is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Shares Under
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Option
|
|
|
Exercise Price
|
|
|
Term
|
|
|
|
|
|
|
|
|
|
(In Years)
|
|
|
Outstanding May 1, 2008
|
|
|
1,445,302
|
|
|
$
|
14.61
|
|
|
|
|
|
Forfeited
|
|
|
(130,510
|
)
|
|
|
15.40
|
|
|
|
|
|
Granted
|
|
|
317,471
|
|
|
|
8.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding April 30, 2009
|
|
|
1,632,263
|
|
|
|
13.43
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(588,018
|
)
|
|
|
13.21
|
|
|
|
|
|
Granted
|
|
|
331,208
|
|
|
|
6.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding April 30, 2010
|
|
|
1,375,453
|
|
|
|
11.87
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(305,223
|
)
|
|
|
12.79
|
|
|
|
|
|
Granted
|
|
|
283,705
|
|
|
|
5.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding April 30, 2011
|
|
|
1,353,935
|
|
|
|
10.30
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable April 30, 2011
|
|
|
795,163
|
|
|
|
12.68
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The total intrinsic value of outstanding and exercisable options
as of April 30, 2011 was $453. As of April 30, 2011,
approximately 559,000 additional options were expected to vest,
which had $792 of intrinsic value and a weighted average
remaining contractual term of 8.4 years. There was
$940,309, $913,233 and $1,416,899 of total recognized
compensation cost related to employees for stock options during
the years ended April 30, 2011, 2010 and 2009,
respectively. As of April 30, 2011, there was approximately
$1,842,000 of total unrecognized compensation cost related to
non-vested stock options granted under the plans. This cost is
expected to be recognized over a weighted-average period of
3.2 years. The Company normally issues new shares to
satisfy option exercises under these plans.
Certain options were granted to consultants during the years
ended April 30, 2011, 2010 and 2009. The Company has
charged compensation expense of $23,691, $5,002 and $36,451
related to these option grants, which has been included in
selling, general and administrative costs in the accompanying
consolidated statements of operations for the years ended
April 30, 2011, 2010 and 2009, respectively.
Compensation expense for 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.
There were 33,620, 157,217 and 44,992 shares of restricted
stock granted to employees and non-employee board members with
service
and/or
performance-based vesting requirements during the years ended
April 30, 2011, 2010 and 2009, respectively.
A summary of non-vested restricted stock under the plans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Price per
|
|
|
|
of Shares
|
|
|
Share
|
|
|
Issued and unvested at May 1, 2008
|
|
|
|
|
|
|
|
|
Granted
|
|
|
44,992
|
|
|
|
6.65
|
|
Forfeited
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(624
|
)
|
|
|
8.01
|
|
|
|
|
|
|
|
|
|
|
Issued and unvested at April 30, 2009
|
|
|
44,368
|
|
|
|
6.63
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
157,217
|
|
|
|
6.29
|
|
Forfeited
|
|
|
(22,000
|
)
|
|
|
6.27
|
|
Vested
|
|
|
(22,461
|
)
|
|
|
6.55
|
|
|
|
|
|
|
|
|
|
|
Issued and unvested at April 30, 2010
|
|
|
157,124
|
|
|
|
6.35
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
33,620
|
|
|
|
5.32
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
6.40
|
|
Vested
|
|
|
(34,791
|
)
|
|
|
6.17
|
|
|
|
|
|
|
|
|
|
|
Issued and unvested at April 30, 2011
|
|
|
150,953
|
|
|
|
6.16
|
|
|
|
|
|
|
|
|
|
|
There was $476,789, $159,700 and $58,316 of total recognized
compensation cost relating to restricted stock granted to
employees during the years ended April 30, 2011, 2010 and
2009, respectively. Certain shares of restricted stock were
granted to non-employee directors during the years ended
April 30, 2011, 2010 and 2009, respectively. The Company
recorded compensation expenses of $7,497, $40,000 and $39,987 in
2011, 2010 and 2009, respectively. In 2009, the shares were not
issued as of April 30, 2009, and accordingly the liability
was included in accrued expense. As of April 30, 2011,
there was approximately $508,000 of total unrecognized
compensation cost related to non-vested restricted stock granted
under the plans. This cost is expected to be recognized over a
weighted average period of 1.9 years.
F-18
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
During the years ended April 30, 2011 and 2010, 6,613 and
1,072 shares of common stock, respectively, were purchased
by the Company from employees to pay taxes related to the
vesting of restricted stock.
Tax
Rate Reconciliation
The effective income tax rate differed from the percentages
computed by applying the US federal income tax rate of 34% to
loss before income taxes as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Computed expected tax benefit
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Stock-based compensation expense
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Federal research and development tax credits
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Foreign rate differential
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Other non-deductible expenses
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
Other
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
4
|
|
Increase in valuation allowance
|
|
|
33
|
|
|
|
39
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(2
|
)%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
Components of Deferred Taxes
The tax effects of temporary differences and carryforwards that
give rise to the Companys deferred tax assets and deferred
tax liabilities are presented below.
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Federal net operating loss carryforwards
|
|
$
|
23,978,000
|
|
|
|
20,818,000
|
|
Foreign net operating loss carryforwards
|
|
|
4,905,000
|
|
|
|
3,777,000
|
|
New Jersey state net operating loss carryforwards
|
|
|
3,587,000
|
|
|
|
3,035,000
|
|
Federal research and development tax credits
|
|
|
1,914,000
|
|
|
|
1,562,000
|
|
Foreign research and development tax credits
|
|
|
731,000
|
|
|
|
670,000
|
|
Stock based compensation
|
|
|
2,548,000
|
|
|
|
2,307,000
|
|
Capitalized research and development costs, net of amortization
|
|
|
766,000
|
|
|
|
|
|
Unrealized foreign exchange loss
|
|
|
333,000
|
|
|
|
231,000
|
|
Accrued expenses
|
|
|
737,000
|
|
|
|
428,000
|
|
Other
|
|
|
407,000
|
|
|
|
271,000
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
39,906,000
|
|
|
|
33,099,000
|
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(39,906,000
|
)
|
|
|
(33,099,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences and
carryforwards become deductible or are utilized. As of
April 30, 2011 and 2010, based upon the level of historical
taxable losses, valuation allowances of $39,906,000 and
$33,099,000, respectively, were recorded to fully offset
deferred tax assets. The valuation allowance increased
$6,807,000, $7,550,000 and $6,097,000 during the years ended
April 30, 2011, 2010 and 2009, respectively.
As of April 30, 2011, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$70,500,000, which begin to expire in 2012. The Company also had
federal research and experimental tax credit carryforwards of
approximately $1,914,000 as of April 30, 2011, which begin
to expire in 2012. The Tax Reform Act of 1986 contains
provisions that limit the utilization of net operating loss and
tax credit carryforwards if there has been an ownership change,
as defined. The Company has determined that such an ownership
change, as described in Section 382 of the Internal Revenue
Code, occurred in conjunction with the Companys US initial
public offering in April 2007. The Companys annual
Section 382 limitation is approximately $3,300,000. The
Section 382 limitation is cumulative from year to year, and
thus, to the extent net operating loss or other credit
carryforwards are not utilized up to the amount of the available
annual limitation, the limitation is carried forward and added
to the following years available limitation. The Company
has not performed additional analysis on ownership changes that
may have occurred subsequently to further limit the ability to
utilize net tax attributes. As of April 30, 2011, the
Company had state net operating loss carryforwards of
approximately $58,100,000, which begin to expire in 2026, which
also may be limited to utilization limitations. As of
April 30, 2011, the Company had foreign net operating loss
carryforwards of approximately $17,500,000, which begin to
expire in 2024. The ability to utilize these carryforwards may
also be limited in the event of a historic ownership change.
During the year ended April 30, 2011, the Company sold
$4,446,000 of its New Jersey State net operating losses
resulting in the recognition of an income tax benefit of
$364,105 recorded in the Companys Statement of Operations.
The Company applies the guidance issued by the FASB for the
accounting and reporting of uncertain tax positions. The
guidance requires the Company to recognize in its consolidated
financial statements the impact of a tax position if that
position is more likely than not to be sustained upon
examination, based on the technical merits of the position. At
April 30, 2011, 2010 and 2009, the Company had no
unrecognized tax positions. The Company does not expect any
material increase or decrease in its income tax expense in the
next twelve months, related to examinations or uncertain tax
positions. US federal and state income tax returns were audited
through fiscal 2007. Net operating loss and credit carryforwards
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.
|
|
(13)
|
Commitments
and Contingencies
|
|
|
(a)
|
Operating
Lease Commitments
|
The Company leases office, laboratory, manufacturing and other
space in Pennington, New Jersey, Warwick, United Kingdom and
Santander, Spain under operating leases that expire on various
dates through April 30, 2013. Rent expense under operating
leases was approximately $525,000, $579,000 and $606,000 for the
years ended
F-20
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
April 30, 2011, 2010 and 2009, respectively. Future minimum
lease payments under operating leases as of April 30, 2011
are as follows:
|
|
|
|
|
Year ending April 30:
|
|
|
|
|
2012
|
|
$
|
326,000
|
|
2013
|
|
|
248,000
|
|
|
|
|
|
|
|
|
$
|
574,000
|
|
|
|
|
|
|
|
|
|
|
|
The Company is involved from time to time in certain legal
actions arising in the ordinary course of business. Management
believes that the outcome of such actions will not have a
material adverse effect on the Companys financial position
or results of operations.
|
|
(c)
|
Spain
Construction Agreement
|
The Company is currently engaged in discussions with Iberdrola
Cantabria (see Note 2(a)) regarding modifications to its
agreement for the first phase of the construction of a wave
power station off the coast of Spain. This phase was due to be
completed by December 31, 2009. If no modification is
agreed to by the parties, the customer may, subject to certain
conditions in the agreement, terminate the agreement and would
not be obligated to make any more milestone payments. The
agreement also provides that the customer may seek reimbursement
for direct damages only, limited to amounts specified in the
agreement, if the Company is in default of its obligations under
the agreement. As of April 30, 2011, the Company does not
believe that the outcome of this matter will have a material
adverse effect on the Companys financial position or
results of operations.
|
|
(14)
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Fiscal Year 2011
|
|
Jul 31
|
|
Oct 31
|
|
Jan 31
|
|
Apr 30
|
|
Revenues
|
|
$
|
1,374,407
|
|
|
|
1,864,407
|
|
|
|
1,523,601
|
|
|
|
1,928,667
|
|
Gross (loss) profit
|
|
|
(213,839
|
)
|
|
|
87,427
|
|
|
|
70,204
|
|
|
|
491,853
|
|
Operating loss
|
|
|
(6,268,535
|
)
|
|
|
(5,738,888
|
)
|
|
|
(3,841,082
|
)
|
|
|
(5,434,285
|
)
|
Net loss attributable to Ocean Power Technologies, Inc.
|
|
|
(6,266,593
|
)
|
|
|
(5,499,192
|
)
|
|
|
(3,362,818
|
)
|
|
|
(5,307,271
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.61
|
)
|
|
|
(0.54
|
)
|
|
|
(0.33
|
)
|
|
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Fiscal Year 2010
|
|
Jul 31
|
|
Oct 31
|
|
Jan 31
|
|
Apr 30
|
|
Revenues
|
|
$
|
1,310,937
|
|
|
|
581,875
|
|
|
|
856,482
|
|
|
|
2,352,017
|
|
Gross profit
|
|
|
286,710
|
|
|
|
53,727
|
|
|
|
165,392
|
|
|
|
296,527
|
|
Operating loss
|
|
|
(3,240,961
|
)
|
|
|
(5,562,854
|
)
|
|
|
(6,073,657
|
)
|
|
|
(6,385,204
|
)
|
Net loss attributable to Ocean Power Technologies, Inc.
|
|
|
(2,098,477
|
)
|
|
|
(5,191,771
|
)
|
|
|
(5,649,496
|
)
|
|
|
(6,230,563
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.21
|
)
|
|
|
(0.51
|
)
|
|
|
(0.55
|
)
|
|
|
(0.61
|
)
|
F-21
OCEAN
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
(15)
|
Operating
Segments and Geographic Information
|
The Companys business consists of one segment as this
represents managements view of the Companys
operations. The Company operates on a worldwide basis with one
operating company in the US, one subsidiary in the UK and one
subsidiary in Australia.
Geographic information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2011
|
|
|
|
|
|
|
Asia and
|
|
|
|
|
North America
|
|
Europe
|
|
Australia
|
|
Total
|
|
Revenues from external customers
|
|
$
|
5,609,789
|
|
|
|
853,939
|
|
|
|
227,354
|
|
|
|
6,691,082
|
|
Operating loss
|
|
|
(19,443,565
|
)
|
|
|
(1,676,354
|
)
|
|
|
(162,871
|
)
|
|
|
(21,282,790
|
)
|
Long-lived assets
|
|
|
619,861
|
|
|
|
172,231
|
|
|
|
|
|
|
|
792,092
|
|
Total assets
|
|
$
|
47,697,028
|
|
|
|
4,935,922
|
|
|
|
919,628
|
|
|
|
53,552,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2010
|
|
|
|
|
|
|
Asia and
|
|
|
|
|
North America
|
|
Europe
|
|
Australia
|
|
Total
|
|
Revenues from external customers
|
|
$
|
4,580,872
|
|
|
|
431,801
|
|
|
|
88,638
|
|
|
|
5,101,311
|
|
Operating loss
|
|
|
(20,068,920
|
)
|
|
|
(934,638
|
)
|
|
|
(259,118
|
)
|
|
|
(21,262,676
|
)
|
Long-lived assets
|
|
|
448,022
|
|
|
|
262,541
|
|
|
|
|
|
|
|
710,563
|
|
Total assets
|
|
$
|
67,424,387
|
|
|
|
4,684,104
|
|
|
|
869,702
|
|
|
|
72,978,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2009
|
|
|
|
|
|
|
Asia and
|
|
|
|
|
North America
|
|
Europe
|
|
Australia
|
|
Total
|
|
Revenues from external customers
|
|
$
|
2,944,361
|
|
|
|
1,016,223
|
|
|
|
88,861
|
|
|
|
4,049,445
|
|
Operating loss
|
|
|