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 onApril 30 . References to fiscal 2020 are to the fiscal year endedApril 30, 2020 .
Business Update Regarding COVID-19
As a result of the COVID-19 pandemic, the Company inMarch 2020 put in place a number of protective measures in response to the COVID-19 outbreak. These measures included the canceling of all commercial air travel and all other non-critical travel, requesting that employees limit non-essential personal travel, eliminating all but essential third-party access to our facilities, enhancing our facility janitorial and sanitary procedures, encouraging employees to work from home to the extent their job function enables them to do so, encouraging the use of virtual employee meetings, and providing staggered shifts and social distancing measures for those employees associated with manufacturing operations.
The current COVID-19 pandemic has presented substantial health and economic risks, uncertainties and challenges to our business, the global economy and financial markets. It is not currently possible to predict how long the pandemic will last or the time it will take for economies to return to prior levels. The extent to which COVID-19 impacts our business, operations, financial results and financial condition, and those of our suppliers and customers will depend on future developments which are highly uncertain and cannot be predicted with certainty or clarity, including the duration and continuing severity of the outbreak and additional government actions to contain COVID-19. The volatility caused in the stock markets by the pandemic may make it difficult for the Company to raise capital. InMarch 2020 , one of the Company's customers cancelled a portion of their contract due to the outbreak of COVID-19. The Company has delayed the deployment of its PB3 PowerBouy® inChile from April, 2020 to September, 2020 due to travel restrictions imposed by theU.S. andChile . For additional information on various uncertainties and risks posed by the COVID-19 pandemic, see Part I, Item 1A "Risk Factors" of this report. As a result of the COVID-19 pandemic, onMarch 27, 2020 , theU.S. Government passed into law the Coronavirus Aid, Relief and Economic Security Act, or the ("CARES Act"). OnMay 3, 2020 , the Company signed a Paycheck Protection Program ("PPP") loan withSantander Bank, N.A . ("Santander") as the lender for$890,347 in support through theSmall Business Association ("SBA") under the PPP Loan. The PPP Loan is unsecured and evidenced by a note in favor of Santander as the lender (the "Note") and governed by a Loan Agreement with Santander (the "Loan Agreement"). The Company received the proceeds onMay 5, 2020 . The SBA allows loan forgiveness for costs incurred and paid for a) payroll costs, b) interest on any real or personal property mortgage incurred prior toFebruary 15, 2020 , c) rent on any lease in force prior toFebruary 15, 2020 , and d) utility payments for which service began beforeFebruary 15, 2020 . Additional information on the Company's liquidity and going concern can be found in Note 1 to the Consolidated Financial Statements and under Part I, Item 1A "Risk Factors" of this report. Overview
We aspire to transform the world through innovative ocean-energy solutions. We are a marine power solutions provider that designs, manufactures, sells and services our products while working closely with partners that provide payloads, integration services, and marine installation capabilities. Our solutions provide distributed offshore power which is persistent, reliable, and economical along with power and communications for remote surface and subsea applications. Our mission and purpose is to utilize our proprietary, state-of-the-art technologies to reduce the global carbon footprint by providing renewable solutions for reliable electrical power and, in so doing, drive demand for our products and services, thus realizing positive stockholder returns. 30
We also continue to develop and commercialize our proprietary systems that
generate electricity by harnessing the renewable energy of ocean waves for our
PowerBuoy, and solar power for our newest product, the hybrid PowerBuoy. The PB3
PowerBuoy® uses proprietary technologies that convert the kinetic energy created
by the heaving motion of ocean waves into electricity. Based on feedback from
our current customers, discussions with potential future customers in the
offshore oil and gas, defense and security, science and research and
communications, as well as government applications in fishery protection,
together with our market research and publicly available data, we believe that
numerous markets have a direct need for our solutions. While our recent projects
have been in the oil and gas industry, we believe there is an increasing need
for our products and solutions in areas such as fishery protection, offshore
windfarm support, marine surveillance, and ocean-based laboratories. We believe
that having demonstrated the capability of our solutions we can advance our
product and services and gain further adoption from our target markets. Our
marketing efforts are focused on offshore locations that require a cost-
efficient solution for renewable, reliable and persistent power and
communications, either by supplying electric power to payloads that are
integrated directly with our product or located in its vicinity, such as on the
seabed and in the water column. We believe we are the leader in offshore
autonomous ocean wave power conversion technology which provides renewable power
for offshore operations that were previously difficult to decarbonize.
Our achievements during fiscal 2020 included the Company's first commercial sale
of a PB3 to Enel Green Power ("EGP"). We continued work on projects with Premier
Oil ("PMO") and Eni S.p.A. ("Eni") and commenced work with the U.S. Navy Small
Business Innovation Research ("U.S. SBIR") program, and a leading oil & gas
operator. During the fiscal year, the Company continued development of the
hybrid and its subsea battery solutions. The Company also signed a memorandum of
understanding with Modus Seabed Intervention Ltd. ("Modus") to develop and
deliver innovative solutions including a combined AUV charging station which
will be able to utilize the PowerBuoy® system for topside charging and
communications.
We were incorporated in New Jersey in 1984, began business operations in 1994,
and were re-incorporated in Delaware in 2007. We currently have five
wholly-owned subsidiaries: Ocean Power Technologies Ltd. , organized under the
laws of the United Kingdom , Reedsport OPT Wave Park LLC , organized under the
laws of Oregon , and Oregon Wave Energy Partners I, LLC , organized under the laws
of Delaware , Ocean Power Technologies (Australasia) Pty Ltd ("OPTA"), organized
under the laws of Australia . OPTA owns 100% of Victorian Wave Partners Pty. Ltd.
("VWP"), which is also organized under the laws of Australia .
Our Products
PB3 PowerBuoy®
The PB3 generates electricity by harnessing the renewable energy of ocean waves. In addition to our PB3, we continue to develop our PowerBuoy® product line including our turnkey surveillance system, the hybrid and the subsea battery.
The PB3 features a unique onboard power take-off ("PTO") system, which
incorporates both energy storage and energy management and control systems. The
PB3 generates a nominal name-plated capacity rating of up to a nominal 3
kilowatts of peak power during recharging of the onboard batteries. Power
generation is deployment-site dependent whereby average power generated can
increase substantially at very active sites. Our standard ESS has an energy
capacity of up to a nominal 150 kilowatt-hours to meet specific application
requirements. We believe there is a substantial addressable market for the
current capabilities of our PB3, which we believe could be utilized in a variety
of applications.
The PB3 is designed to generate power for use independent of the power grid in remote offshore locations. The hull consists of a main spar structure loosely moored to the seabed and surrounded by a floating annular-structure that can freely move up and down in response to the passage of the waves. The PTO system includes a mechanical actuating system, an electrical generator, a power electronics system, our control system, and our ESS which are sealed within the hull. As ocean waves pass the PB3, the mechanical stroke action created by the rising and falling of the waves is converted into rotational mechanical energy by the PTO, which in turn, drives the electric generator. The power electronics system then conditions the electrical output which is collected within an ESS. The operation of the PB3 is controlled by our customized, proprietary control system. The control system uses sensors and an onboard computer to continuously monitor the PB3 subsystems. We believe that this ability to optimize and manage the electric power output of the PB3 is a significant advantage of our technology. In the event of large storm waves, the control system automatically locks the PB3 and electricity generation is suspended. However, the load center (either the on-board payload or one in the vicinity of the PB3 may continue to receive power from the ESS. When wave heights return to normal operating conditions, the control system automatically unlocks the PB3 and electricity generation and ESS replenishment recommences. This safety feature helps to prevent the PB3 from being damaged by storms. 31 The PB3 can be transported over land to the deployment port using conventional transportation methods. Once at port, the PB3 can be lifted into the water or onboard a vessel using a readily available crane of appropriate capacity. The PB3 may then be towed to site using a standard vessel (if the location is within an appropriate distance from the port), or the PB3 may be carried aboard a vessel to its offshore location and craned into the water at site. The PB3 is then attached to the mooring system, which is installed during a separate operation, after which a brief commissioning process places the PB3 into operation.
We believe that using wave energy for electricity generation has the following potential benefits, compared to existing incumbent solutions.
? Scalability within a small site area. Due to the dense energy in ocean waves,
we believe that the electricity may be aggregated to supply electricity to
larger payloads as a result of multiple PB3 which are placed in an array,
occupying a relatively small area. We believe the array of a larger number of
PB3 could offer end users a variety of advantages in availability, reliability
and scalability.
? Predictability. The generation of power from wave energy can be forecasted
several days in advance. Available wave energy can be calculated with a high
degree of accuracy based on satellite images and meteorological data, even when
the wave field is hundreds of miles away and days from reaching a PB3.
Therefore, we believe end-users relying on PB3 for power may be able to
proactively plan their logistics, payload scheduling and other operational
activities based on such data,
? Constant source of energy. The annual occurrence of waves at certain specific
sites can be relatively constant and defined with relatively high accuracy.
Based on our studies and analyses of various sites of interest, we believe that
we will be able to deploy our PB3 in locations where the waves could produce
usable electricity for the majority of the year.
Based on our market research and publicly available data, including but not limited to theU.S. Department of Energy ("DOE") 2019 Powering the Blue Economy Report, the Westwood Energy World ROV Operations Forecast 2019-2023, and the World Bank Database, we believe that numerous markets have a direct need for our PB3 including offshore oil and gas, defense and security, science and research and communications, as well as government applications in fishery protection. Depending on payload power requirements, sensor types and other considerations, we have found that our PB3 could satisfy several application requirements within these markets. We believe that the PB3 consistently generates sufficient power to meet the requirements of many potential customer applications within our target markets, and that the hybrid could provide ample power in geographies where wave conditions may not be sufficient to allow the PB3 to generate sufficient power on its own for load center requirements. hybrid PowerBuoy® The Company has created a hybrid PowerBuoy® that is a solar powered and liquid-fueled surface buoy, compared to the wave power generating PB3. The hybrid is powered primarily through solar panels with liquid-fueled back-up and is capable of providing reliable power in remote offshore locations, regardless of ocean wave conditions. We believe this product is to be highly complementary to the PB3 by providing the Company the opportunity to address a broader spectrum of customer deployment needs, including low-wave environments, with the potential for greater product integration within each customer project. It is primarily intended for shorter term deployment applications such as electric remotely operated vehicle ("eROV") or ("ROV") and AUV inspections and short-term maintenance, topside surveillance and communications, and subsea equipment and controls. The hybrid is anticipated to be quickly deployable and cost-effective solution. The design has a high payload capacity for communications and surveillance, with the capability of being tethered to subsea payloads such as batteries, or with a conventional anchor mooring system. The hybrid generates power from both an array of solar panels and an efficient, clean burning 1kWStirling engine fueled by liquid propane (or biofuel for Generation 2). This energy is stored in onboard batteries which power the aforementioned subsea and topside payloads. The Company has designed the hybrid with aStirling engine backup system to outperform traditional diesel buoys, which we believe have more frequent service and refueling intervals and higher carbon intensities. We believe the hybrid will be able to operate over a broader range of temperature and ocean wave conditions than existing diesel buoys. 32 The towable, boat-shaped hull design of the hybrid is appropriate for deployment anywhere in the world. Power is generated independent of wave activity, making it a perfect solution for providing power through extreme weather and in heaving seas, or in calm, low wave environments and is complimentary to the PB3. As with the PB3, the control system uses sensors and an onboard computer to continuously monitor the hybriud subsystems. We believe that this ability to optimize and manage the electric power output of the hybrid is a significant advantage of our technology. In the event of extended cloudy periods, the control system automatically switches electricity generation from the solar panels to the backup engine. However, the load center (either the on-board payload or one in the vicinity of the hybrid may continue to receive power from the on-board ESS. When more suitable solar power generation conditions return, the control system automatically stops the backup up engine and ESS replenishment recommences by way of solar electricity generation. The hybrid is designed for use with a single point umbilical and mooring but can be adapted for a 3-point mooring installation for use as a temporary replacement for PB3 installations during planned maintenance or repairs. The hybrid can be transported over land to the deployment port using conventional transportation methods. Once at port, the hybrid can be lifted into the water or onboard a vessel using a readily available crane of appropriate capacity. The hybrid may then be towed to site using a standard vessel (if the location is within an appropriate distance from the port), or the hybrid may be carried aboard a vessel to its offshore location and craned into the water at site. The hybrid is then attached to the single point mooring system, which is installed during a separate operation, after which a brief commissioning process places the hybrid into operation. The hybrid is configured with a nominal 30 kilowatt-hours of battery energy storage and approximately 1 megawatt-hour of stored energy in the propane system. While the batteries are primarily charged through solar power generation, the propane poweredStirling engine system on the hybrid can be considered reserve energy storage, with propane having a much higher energy storage density than lithium-ion batteries. It can be utilized when needed based on load demand and will provide approximately 1megawatt-hour of stored energy capacity. Our research suggests this amount of stored energy offers an attractive local, autonomous energy solution for clients in a range of industries, including but not limited to oil and gas and marine observation, particularly for shorter term deployments. Subsea Battery We are also developing a subsea battery that is complementary to both of our PowerBuoy® products and can be deployed together with our PowerBuoys® or on its own. It offers customers the option of placing additional modular and expandable energy storage on the seabed near existing or to be installed subsea equipment. Our lithium ion subsea batteries supply power that can enable subsea equipment, sensors, communications and AUV and eROV recharge. Our range of PowerBuoys® is complimentary to the subsea batteries by providing a means for recharging during longer term deployments, or the batteries can be used independently for shorter term deployments. Ideal for many remote offshore customer applications, these subsea batteries are anticipated to be high performance, cost-efficient, and quickly deployable. The subsea battery solutions are currently undergoing prototyping. The subsea battery has been designed to provide continuous and/or short-term power supply from its integrated energy storage system, enabling us to supply into a range of industries and applications, from backup power to critical subsea infrastructure to continuous operation of subsea equipment, such as electric valves. The base design of the subsea battery has a nominal 100 kilowatt-hours of energy storage. The subsea battery can be transported over land to the deployment port using conventional transportation methods. Once at port, the subsea battery can be lifted onboard a vessel using a readily available crane of appropriate capacity. The battery can then be carried aboard a vessel to its offshore location and craned into the water at site. It comes installed on a ready deployable subsea skid suitable for installation on the seabed. The battery is then connected to the other components on the seabed
with the use of ROVs or divers.
Our analysis suggests that the growing demand for electrification of subsea infrastructure, and an increased switch to autonomous and renewable solution, offers multiple opportunities for deploying subsea battery powered solutions over the next few years. 33 Capital Raises OnAugust 13, 2018 , the Company entered into a common stock purchase agreement withAspire Capital Fund, LLC ("Aspire Capital ") which provided that, subject to certain terms, conditions and limitations,Aspire Capital was committed to purchase up to an aggregate of$10.0 million of shares of the Company's common stock over a 30-month period that did not exceed 19.99% of the outstanding common stock on the date of the agreement. The number of shares the Company could issue within the 19.99% was 183,591 shares. Shareholder approval was not needed since the number of common stock offered for sale in the common stock purchase agreement did not exceed 19.99% of the outstanding common stock on the date of the agreement. In consideration for entering into the agreement, the Company issued toAspire Capital 21,429 shares of our common stock as a commitment fee. The agreement was cancelled onOctober 24, 2019 , and as of that date, the Company had sold 162,162 shares of common stock with an aggregate market value of$949,259 at an average price of$5.85 per share pursuant to this common stock purchase agreement. OnOctober 24, 2019 , the Company entered into a new common stock purchase agreement withAspire Capital which provides that, subject to certain terms, conditions and limitations,Aspire Capital is committed to purchase up to an aggregate of$10.0 million of shares of the Company's common stock over a 30-month period that does not exceed 19.99% of the outstanding common stock on the date of the agreement. The number of shares the Company can issue within the 19.99% limit is 1,219,010 shares including shares issued as a commitment fee. At the 2019 annual meeting of stockholders, held onDecember 20, 2019 , the Company's stockholders approved an additional 5,400,000 shares to be issued pursuant to the common stock purchase agreement in excess of the 19.99% limit. In consideration for entering into the agreement, the Company issued toAspire Capital 194,805 shares of our common stock as a commitment fee. As ofApril 30, 2020 , the Company has sold 1,399,205 shares of common stock with an aggregate market value of approximately$1.1 million at an average price of$0.82 per share pursuant to this common stock purchase agreement. OnApril 8, 2019 , the Company sold 1,542,000 shares of common stock, which includes the sale of 642,000 shares of the Company's common stock sold by the Company pursuant to the exercise, in full, of the over-allotment option by the underwriters in a public offering. As part of the public offering, the Company also sold prefunded warrants to purchase up to 3,385,680 shares of common stock and common warrants to purchase up to 4,927,680 shares of our common stock. The net proceeds to the Company from the offering were approximately$15.7 million , after deducting underwriter fees and offering expenses payable by the Company. OnJanuary 7, 2019 , the Company entered into the 2019 ATM Facility with A.G.P./Alliance Global Partners under which the Company may issue and sell to or through AGP, acting as agent and/or principal, shares of the Company's common stock having an aggregate offering price of up to$25 million . As ofApril 30, 2020 , under the 2019 ATM Facility, the Company has issued 5,101,405 shares of its common stock with an aggregate market value of$3.8 million at an average price of$0.74 per share and paid AGP a sales commission of approximately$122,530 related to those shares. 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. We do not have any committed sources of debt or equity financing and we cannot assure you that financing will be available in amounts or on terms acceptable to us when needed, or at all. If we are unable to obtain required financing when needed, we may be required to reduce the scope of our operations, including our planned product development and marketing efforts, which could materially and adversely affect our financial condition and operating results. If we are unable to secure additional financing, we may be forced to cease our operations. Backlog
As ofApril 30, 2020 , our negotiated backlog was$1.0 million . As ofApril 30, 2019 , our negotiated backlog was$0.9 million . Our backlog can include unfilled firm orders for our products and services from commercial and governmental customers. If any of our contracts were to be terminated, our backlog would be reduced by the expected value of the remaining terms of such contract. The amount of contract backlog is not necessarily indicative of future revenue because modifications to, or terminations of present contracts and production delays can provide additional revenue or reduce anticipated revenue. A substantial portion of our revenue 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. 34 Going Concern
Our financial statements have been prepared assuming we will continue as a going concern. We have experienced substantial and recurring losses from operations, which losses have resulted in an accumulated deficit of$220.1 million atApril 30, 2020 . Based on the Company's cash, cash equivalents and restricted cash balances as ofApril 30, 2020 , as well as the$0.9 million of proceeds received from the PPP Loan onMay 5, 2020 , the Company believes that it will be able to finance its capital requirements and operations into the quarter endingApril 30, 2021 . The report of our independent registered public accounting firm on our consolidated financial statements for the year endedApril 30, 2020 , contains an explanatory paragraph regarding our ability to continue as a going concern, based on, among other factors, that our ability to continue as a going concern is dependent upon our ability to raise additional external capital and increase revenues. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We cannot assure you that we will be successful in our efforts to generate revenues, become profitable, raise additional outside capital or to continue as a going concern. If we are not successful in our efforts to raise additional capital sufficient to support our operations, we would be forced to cease operations, in which event investors would lose their entire investment in
our company.
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 withU.S. Generally Accepted Accounting Principles ("U.S. GAAP"). The preparation of financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
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. 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. 35 Financial Operations Overview Over the next several years, it is our goal to fund the majority of our product development efforts with sources from commercial relationships, including cost-sharing agreements. If we are unable to obtain commercial relationships or cost-sharing arrangements, we may be forced to curtail our development expenses and scope to reduce our overall expenses. We recently narrowed our development focus to the PB3 to drive toward commercialization of that product and to reduce our overall expenses.
The following table provides information regarding the breakdown of our revenues by customer for fiscal years 2020 and 2019:
Twelve months ended April 30,
2020 2019
Eni S.p.A. $ 173 $ 341
Premier Oil UK Limited 148 206
EGP 1,211 23
Other 150 62
$ 1,682 $ 632
We currently focus our sales and marketing efforts on parts of North and South
America , Europe , and Asia . The following table shows the percentage of our
revenues by geographical location of our customers for fiscal 2020 and 2019:
Twelve months ended April 30,
Customer Location 2020 2019
Europe 22 % 0 %
South America 72 % 92 %
North America 6 % 8 %
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 the British pound 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 accounts had a balance of$0.3 million as ofApril 30, 2020 and$0.7 million as ofApril 30, 2019 , compared to our total cash, cash equivalents, and restricted cash balances of$10.9 million as ofApril 30, 2020 and$17.2 million as ofApril 30, 2019 . 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. In addition, a portion of our operations is conducted through our subsidiaries in countries other thanthe United States , specificallyOcean Power Technologies Ltd. in theUnited Kingdom , the functional currency of which is the British pound sterling, andOcean Power Technologies (Australasia) Pty Ltd. inAustralia , 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. 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. 36 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 endedApril 30, 2020 and 2019: % change Twelve months ended April 30, 2020 period to 2020 2019 2019 period (in thousands) Revenues $ 1,682 $ 632 166 % Cost of revenues 1,787 1,303 37 % Gross loss (105 ) (671 ) Operating expenses: Engineering and product development costs 4,344 4,984 -13 % Selling, general and administrative costs 6,916 7,616 -9 % Total operating expenses 11,260 12,600 Operating loss (11,365 ) (13,271 ) Gain due to the change in fair value of warrant liabilities 6 195 -97 % Interest income, net 124 35 254 % Foreign exchange loss (12 ) (55 ) -78 % Loss before income taxes (11,247 )
(13,096 ) -14 % Income tax benefit 895 850 5 % Net loss$ (10,352 ) $ (12,246 ) -15 % Revenues Revenues for the fiscal years endedApril 30, 2020 and 2019 were approximately$1.7 million and$0.6 million , respectively. The increase of approximately$1.1 million over 2019 was mainly attributable to a new contract signed in fiscal year 2020 with EGP. 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 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 endedApril 30, 2020 and 2019 were approximately$1.8 million and$1.3 million , respectively. The increase of approximately$0.5 million , or 37%, over 2019 was mostly due to higher upfront spending and material costs on the new EGP contract signed in fiscal 2020 as compared to the same period in the fiscal 2019. 37
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 endedApril 30, 2020 were$4.3 million as compared to$5.0 million for fiscal year 2019. The decrease of$0.7 million , or 13%, is due to lower spending on PB3 PowerBuoy® builds for future customer contracts and lower spending on product development compared to the same period in fiscal 2019.
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 endedApril 30, 2020 were$6.9 million as compared to$7.6 million for fiscal year 2019. The decrease of$0.7 million , or 9%, is primarily attributable to lower spending on professional fees of$0.4 million and lower employee related costs of$0.3 million partly offset by higher sales and marketing of$0.2 million .
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. The change in fair value of warrant liabilities during the fiscal year endedApril 30, 2020 was an unrealized gain of$6,000 versus an unrealized gain of$195,000 for the fiscal year endedApril 30, 2019 . The change between periods is mainly due to a lower stock price for the twelve months endedApril 30, 2020 . 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$10.9 million as ofApril 30, 2020 , compared to$17.2 million as ofApril 30, 2019 .
Interest income, net during the fiscal year 2020 was approximately
Foreign exchange gain/(loss) Foreign exchange loss was approximately$12,000 for fiscal year 2020 as compared to a foreign exchange loss of$55,000 for fiscal year 2019. The difference was attributable primarily to the relative change in value of the British pound sterling, Euro and Australian dollar compared to theU.S. dollar during the
two periods. Income tax benefit
During the fiscal years endedApril 30, 2020 and 2019, the Company sold New Jersey State net operating losses and research and development credits in the amount of$10.0 million and$9.1 million , respectively, resulting in the recognition of income tax benefits of$0.9 million in each year. The Company has a full valuation allowance against its deferred tax assets.
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 our business. For the two years endedApril 30, 2020 , our aggregate revenues were$2.3 million , our aggregate net losses were$22.6 million and our aggregate net cash used in operating activities was$22.7 million . 38
Net cash used in operating activities
Net cash flows used in operating activities during the fiscal year endedApril 30, 2020 were$10.6 million , a decrease of$1.5 million , when compared to$12.1 million during the fiscal year endedApril 30, 2019 . The change was the result of a decrease in net loss of$1.9 million offset by an increase in cash outflow related to the changes in operating assets and liabilities of$1.3 million . Fiscal year 2019 includes a deferred credit payment of$0.6 million .
Net cash used in investing activities
Net cash used in investing activities was approximately$65,000 for fiscal year 2020 versus net cash used by investing activities of approximately$29,000 for fiscal year 2019. The change was primarily the result of the Company's increased spending on equipment of$11,000 and the prior period included a net change in the marketable securities of$25,000 .
Net cash provided by financing activities
Net cash provided by financing activities was approximately$4.4 million in fiscal year 2020, and net cash provided by financing activities was approximately$17.2 million for fiscal 2019. The decrease in net cash provided in fiscal year 2020 compared to fiscal year 2019 was due primarily to the Company receiving more proceeds from sales of its common stock in fiscal year 2019.
Effect of exchange rates on cash and cash equivalents
The effect of exchange rates on cash and cash equivalents was a reduction of approximately$32,000 in fiscal year 2020, a decrease of$48,000 from fiscal year 2019, respectively. The effect of exchange rates on cash and cash equivalents results primarily from gains or losses on consolidation of foreign subsidiaries and foreign denominated cash and cash equivalents. Liquidity Outlook
Our financial statements have been prepared assuming we will continue as a going concern. We have experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of$220.1 million atApril 30, 2020 . We generated revenues of only$1.7 million in fiscal year 2020, and$0.6 million in fiscal year 2019. Based on the Company's cash, cash equivalents and restricted cash balances as ofApril 30, 2020 , as well as the$0.9 million of proceeds received from the PPP Loan onMay 5, 2020 , the Company believes that it will be able to finance its capital requirements and operations into the quarter endingApril 30, 2021 . These conditions raise substantial doubt about our ability to continue as a going concern. 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, such as subsea
battery solutions;
? 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; 39
? 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
Market;
? 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, to date, we have been funding our business principally through sales of our securities, and we expect to continue to fund our business with sales of our securities and, to a limited extent, with our revenues until, if ever, we generate sufficient cash flow to internally fund our business. This is largely a result of the high engineering and product development costs associated with our product development. We anticipate that our operating expenses will be approximately$14.0 million in fiscal year 2021 including product development spending of more than$6.9 million . We may choose to reduce our operating expenses through personnel reductions, and reductions in our research and development and other operating costs during the fiscal year 2021, if we are not successful in our efforts to raise additional capital. We cannot assure you that we will be able to increase our revenues and cash flow to a level which would support our operations and provide sufficient funds to pay our obligations for the foreseeable future. Further, we cannot assure you that we will be able to secure additional financing or raise additional capital or, if we are successful in our efforts to raise additional capital, of the terms and conditions upon which any such financing would be extended. If we are unable to raise additional capital when needed or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet financing activities.
Recent Accounting Pronouncements
InFebruary 2016 , theFinancial Accounting Standards Board ("FASB") issued ASU No. 2016-02, "Leases (Topic 842)." which amends the existing guidance on accounting for leases. Topic 842 was further clarified and amended within ASU 2017-13, ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months or leases that contain a purchase option that is reasonably certain to be exercised. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 was effective for annual periods beginning afterDecember 15, 2018 , including interim periods within those annual periods, with early adoption permitted. The guidance permits the Company to utilize the package of practical expedients that, upon adoption of Topic 842, allows entities to (1) not reassess whether any expired or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as of the date of adoption and (3) not reassess initial direct costs for any existing leases. Additionally, the Company elected to exclude short-term leases having initial terms of 12 months or less and recognizes rent expense on a straight-line basis over the lease term. The Company adopted Topic 842 onMay 1, 2019 using the modified retrospective approach. Under this approach, comparative periods presented in the financial statements in which the new lease standard is adopted will continue to be presented in accordance with prior GAAP. The adoption of this standard resulted in the Company recognizing a ROU and a lease liability of approximately$1.4 million and$1.5 million , respectively, and eliminating deferred rent of$39,000 and an unamortized lease incentive receivable of$108,000 . Refer to Note 6 to the Consolidated Financial Statements for disclosure requirements related to the adoption of this standard. 40 InJune 2016 , the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments." The amendment in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. This ASU is effective for annual periods and interim periods beginning afterDecember 15, 2019 . The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements. InAugust 2018 , the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820)." The ASU modifies, removes, and adds several disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019 . The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is evaluating the effect ASU 2018-13 will have on its Consolidated Financial Statements and disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time. InAugust 2018 , the FASB issued ASU No. 2018-15, "Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40)." The ASU provides for the recognition of an intangible asset for the costs of internal-use software licenses included in a cloud computing arrangement. Costs of arrangements that do not include a software license should be accounted for as a service contract and expensed as incurred. This ASU is effective for fiscal years beginning afterDecember 15, 2019 , with early adoption permitted. The ASU permits two methods of adoption: prospectively to all implementation costs incurred after the date of adoption, or retrospectively to each prior reporting period presented. The Company is evaluating the effect ASU 2018-15 will have on its Consolidated Financial Statements and disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time.
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