OCEAN POWER TECHNOLOGIES, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes and other financial information included elsewhere in this
Annual Report. Some of the information contained in this discussion and analysis
or set forth elsewhere in this Annual Report, including information with respect
to our plans and strategy for our business and related financing, includes
forward-looking statements that involve risks and uncertainties. You should
review the "Risk Factors" section of this Annual Report, and elsewhere in this
report, for a discussion of important factors that could cause actual results to
differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
Our fiscal year ends on
Business Overview
We are a marine power, data solutions and service provider. We control the design, manufacture, sales, installation, operations and maintenance of our solutions and services while working closely with commercial, technical, and other development partners that provide software, controls, mechatronics, sensors, integration services, and marine installation services. We believe our renewable autonomous ocean solutions deliver power and data collection, analysis and communication in remote ocean environments, allowing users to connect with their ocean environment. Our mission and purpose are to provide intelligent maritime solutions and services that enable safer and more productive ocean operations for the defense and security, offshore oil and gas, science and research, and offshore wind markets. We achieve this through our proprietary, state-of-the-art technologies that are at the core of our clean and renewable energy platforms upon which we develop and deploy our solutions and services.
Business Update Regarding COVID-19
The COVID-19 pandemic presented substantial health and economic risks,
uncertainties and challenges to our business, the global economy and financial
markets. In
On
The Company filed its loan forgiveness application at the end of
Capital Raises
At the Market Offering Agreements
On
On
Equity Line Common Stock Purchase Agreements
On
On
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 or preferred stock, these securities could have rights senior to
those associated with our common stock and could contain covenants that would
restrict our operations. The Company currently has committed sources of equity
financing through its At the Market Offering Agreement with A.G.
Backlog
As of
The amount of contract backlog is not necessarily indicative of future revenue because modifications to, or terminations of present contracts and production delays can provide additional revenue or reduce anticipated revenue. A substantial portion of our revenue has been for the support of our product development efforts. These revenues are 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.
Critical Accounting Policies and Estimates
To understand our financial statements, it is important to understand our
critical accounting policies and estimates. We prepare our financial statements
in accordance with
We believe the following accounting policies require significant judgment and estimates by us in the preparation of our consolidated financial statements.
Revenue recognition
A performance obligation is the unit of account for revenue recognition. The Company assesses the goods or services promised in a contract with a customer and identifies as a performance obligation either: a) a good or service (or a bundle of goods or services) that is distinct; or b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. A contract may contain a single or multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contracted transaction price to each performance obligation based upon the relative standalone selling price, which represents the price the Company would sell a promised good or service separately to a customer. The Company determines the standalone selling price based upon the facts and circumstances of each obligated good or service. The majority of the Company's contracts have no observable standalone selling price since the associated products and services are customized to customer specifications. As such, the standalone selling price generally reflects the Company's forecast of the total cost to satisfy the performance obligation plus an appropriate profit margin.
The nature of the Company's contracts may give rise to several types of variable
considerations, including unpriced change orders and liquidated damages and
penalties. Variable consideration can also arise from modifications to the scope
of services. Variable consideration is included in the transaction price to the
extent it is probable that a significant reversal of cumulative revenue
recognized will not occur once the uncertainty associated with the variable
consideration is resolved. Our estimates of variable consideration and
determination of whether to include such amounts in the transaction price are
based largely on our assessment of legal enforceability, performance and any
other information (historical, current, and forecasted) that is reasonably
available to us. There was no variable consideration as of
The Company recognizes revenue when or as it satisfies a performance obligation by transferring a good or service to a customer, either (1) at a point in time or (2) over time. A good or service is transferred when or as the customer obtains control of it. The evaluation of whether control of each performance obligation is transferred at a point in time or over time is made at contract inception. Input measures such as costs incurred or time elapsed are utilized to assess progress against specific contractual performance obligations for the Company's services. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. For the Company, the input method using costs incurred or time elapsed best represents the measure of progress against the performance obligations incorporated within the contractual agreements. When the Company's estimate of total costs to be incurred to satisfy the performance obligations exceed revenue, the Company recognizes the loss immediately.
Financial Operations Overview
The following table provides information regarding the breakdown of our revenues by customer for fiscal years 2021 and 2020:
Twelve months ended April 30,
2021 2020
(in thousands)
Eni S.p.A. $ 271 $ 173
Premier Oil UK Limited 27 148
EGP 740 1,211
ACET 53 -
Deepstar 80 -
Other 35 150
$ 1,206 $ 1,682
We currently focus our sales and marketing efforts globally. The following table shows the percentage of our revenues by geographical location of our customers for fiscal 2021 and 2020:
Twelve months ended April 30,
Customer Location 2021 2020
Europe 25 % 22 %
South America 61 % 72 %
North America 14 % 6 %
100 % 100 %
Foreign exchange loss
We transact business in various countries and have exposure to fluctuations in foreign currency exchange rates. Foreign exchange gains and losses arise in the translation of foreign-denominated assets and liabilities, which may result in realized and unrealized gains or losses from exchange rate fluctuations. Since we conduct our business in 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 other foreign currencies.
We maintain cash accounts that are denominated in British pounds sterling, Euros
and Australian dollars. These foreign denominated accounts had a balance of
In addition, a portion of our operations is conducted through our subsidiaries
in countries other than the
We currently do not hedge our exchange rate exposure. However, we assess the anticipated foreign currency working capital requirements and capital asset acquisitions of our foreign operations and attempt to maintain a portion of our cash and cash equivalents denominated in foreign currencies sufficient to satisfy these anticipated requirements. We also assess the need and cost to utilize financial instruments to hedge currency exposures on an ongoing basis and may hedge against exchange rate exposure in the future.
Results of Operations
This section should be read in conjunction with the discussion below under "- Liquidity and Capital Resources."
Fiscal Years Ended
The following table contains selected statement of operations information, which
serves as the basis of the discussion of our results of operations for the years
ended
Twelve months ended April 30,
2021 2020
(in thousands)
Revenues $ 1,206 $ 1,682
Cost of revenues 2,279 1,787
Gross loss (1,073 ) (105 )
Operating expenses:
Engineering and product development costs 4,747 4,344
Selling, general and administrative costs 7,772 6,916
Total operating expenses 12,519 11,260
Operating loss (13,592 ) (11,365 )
Gain due to the change in fair value of warrant
liabilities - 6
Litigation settlement (1,224 ) -
Interest income, net 124 124
Other expense, net (83 ) -
Foreign exchange gain/(loss) 15 (12 )
Loss before income taxes (14,760 ) (11,247 )
Income tax benefit - 895
Net loss $ (14,760 ) $ (10,352 )
Revenues
Revenues for the fiscal years ended
Cost of revenues
Our cost of revenues consists primarily of subcontracts, incurred material, labor and manufacturing overhead expenses, such as engineering expense, equipment depreciation and maintenance and facility related expenses, and includes the cost of equipment to customize the PowerBuoy® supplied by third-party suppliers. Cost of revenues also includes PowerBuoy® system delivery and deployment expenses and may include anticipated losses at completion on certain contracts.
Cost of revenues for the fiscal years ended
Engineering and product development costs
Our engineering and product development costs consist of salaries and other personnel-related costs and the costs of products, materials and outside services used in our product development and unfunded research activities. Our product development costs relate primarily to our efforts to increase the power output and reliability of our PowerBuoy® system, and to the development of new products, product applications and complementary technologies. We expense all of our engineering and product development costs as incurred.
Engineering and product development costs during the fiscal year ended
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, and other general corporate expenses.
Selling, general and administrative costs during the fiscal year months ended
Gain due to the change in fair value of warrant liabilities
The fair value of our financial instruments reflects the amounts that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value of our warrant liabilities is subject to remeasurement each financial statement reporting period, as such, changes in this fair value are reflected in the statement of operations.
There was no unrealized gain or loss related to a change in fair value of
warrant liabilities during the fiscal year ended
Litigation settlement
On
Interest income, net
Interest income, net consists of interest received on cash and cash equivalents,
investments in money market accounts and interest expense paid on certain
obligations to third parties. Total cash, cash equivalents, and restricted cash
was
Interest income, net was approximately
Foreign exchange gain/(loss)
Foreign exchange gain was approximately
Income tax benefit
During the fiscal years ended
Net cash used in operating activities
During the twelve months ended
Net cash used in investing activities
Net cash provided in investing activities during the twelve months ended
Net cash provided by financing activities
Net cash provided by financing activities during the twelve months ended
Effect of exchange rates on cash and cash equivalents
The effect of exchange rates on cash and cash equivalents was an increase of
approximately
Liquidity Outlook
Since our inception, the cash flows from customer revenues have not been
sufficient to fund our operations and provide the capital resources for our
business. For the two years ended
We expect to devote substantial resources to continue our development efforts for our products and to expand our sales, marketing and manufacturing programs associated with the continued commercialization of our products. Our future capital requirements will depend on a number of factors, including but not limited to:
? our ability to commercialize our products, and achieve and sustain
profitability;
? our continued development of our proprietary technologies, and expected
continued use of cash from operating activities unless or until we achieve
positive cash flow from the commercialization of our products and services;
? our ability to obtain additional funding, as and if needed which will be
subject to a number of factors, including market conditions, and our operating
performance;
? the impact of COVID-19 pandemic on our business, operations, customers,
suppliers and manufacturers;
? our estimates regarding expenses, future revenues and capital requirements;
? the adequacy of our cash balances and our need for additional financings;
? our ability to develop and manufacture commercially viable products;
? our ability to successfully develop and market new products;
? that we will be successful in our efforts to commercialize our products or the
timetable upon which commercialization can be achieved, if at all;
? our ability to identify and penetrate markets for our products and our wave
energy technology;
our ability to implement our commercialization strategy as planned, or at all;
? our relationships with our strategic partners may not be successful and we may
not be successful in establishing additional relationships;
? our ability to maintain the listing of our common stock on the NYSE American;
? the reliability of our technology and our products;
? our ability to improve the power output, survivability and reliability of our
products;
? the impact of pending and threatened litigation on our business, financial
condition and liquidity;
? changes in current legislation, regulations and economic conditions that affect
the demand for renewable energy;
? our ability to compete effectively in our target markets;
? our limited operating history and history of operating losses;
? our sales and marketing capabilities and strategy in
internationally; and
? our ability to protect our intellectual property portfolio.
Our business is capital intensive, and up through fiscal 2021, we have been
funding our business principally through sales of our securities. As of
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet financing activities.
Recent Accounting Pronouncements
In
In
In
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