OCEAN POWER TECHNOLOGIES, INC. The following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Some of the information contained in this management's discussion and analysis is set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business, pending and threatened litigation and our liquidity, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of our Annual Report on Form 10-K for the year endedApril 30, 2020 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. References to a fiscal year in this Form 10-Q refer to the year endedApril 30 of that year (e.g., fiscal 2020 refers to the year endedApril 30, 2020 ).
Business Update Regarding COVID-19
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 and instead extended an existing lease. InApril 2020 , the Company declared force majeure on a contract with a different customer and delayed the deployment of its PB3 PowerBouy® inChile that was scheduled forApril 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 II, Item 1A "Risk Factors" of this report. As a result of the COVID-19 pandemic, inMarch 2020 , the Company put in place a number of protective measures. These measures included the canceling of all 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 production operations. As ofJune 2020 , the Company reoccupied its facilities although individuals can work from home if necessary. 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 and governed by a Loan Agreement with Santander. The interest rate is 1% and the loan is repayable over two years. The loan contains customary events of defaults relating to, among other things, payment defaults or breaches of the terms of the loan. Upon the occurrence of an event of default, the lender may require immediate repayment of all outstanding amounts under the loan. Interest and principal payments are deferred for the first 6 months from the date of the loan. Principal and interest are payable monthly commencing 6 months after the disbursement date and may be repaid by the Company at any time prior to maturity with no prepayment penalties. The Company received the proceeds onMay 5, 2020 . 24
The SBA allows loan forgiveness for eligible costs incurred and paid which include a) payroll costs, b) interest on any real or personal property mortgage 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 . As ofJanuary 31, 2021 , the Company has utilized all of the loan proceeds. The Company currently believes that the use of the loan proceeds will meet the conditions for forgiveness of the loan and has submitted a loan forgiveness application to the SBA asking for 100% forgiveness of the loan. No assurance can be provided that the Company will obtain forgiveness of the loan, in whole
or in part.
OnJune 5, 2020 , the Paycheck Protection Program Flexibility Act ("PPPFA") was signed into law. Among other changes, the PPPFA (a) reduced the amount of the loan required to be spent on payroll costs from 75% to 60%, (b) extended the covered period to 24 weeks from 8 weeks, (c) extended the repayment term of PPP loan from 2 years to 5 years, and (d) increased the deferred payment date from 6 months to 10 months. For the loans disbursed beforeJune 5, 2020 , the PPPFA provides the option to opt for 24 weeks for spending the loan instead of 8 weeks. The Company has opted for 24 weeks to spend the loan. Overview We are a marine power solutions provider. We control the design, manufacture, sales, installation, operations and maintenance of our products and solutions while working closely with partners that provide payloads, integration services, and marine installation capabilities. We believe our solutions provide persistent and reliable distributed offshore power along with communications for remote surface and subsea applications. Our mission and purpose are to utilize our proprietary, state-of-the-art technologies to enhance the environment by reducing the global carbon footprint through clean and renewable solutions for reliable electrical power and, in so doing, drive demand for our products and services.
We also continue to develop and commercialize our proprietary systems that generate electricity by harnessing the renewable energy of ocean waves for our PB3 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 science and research applications. 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. OnFebruary 1, 2021 , the Company acquired all of the outstanding equity interest of 3dent Technology, a limited liability company based inHouston, Texas that offers offshore energy engineering and design services that are complementary to OPT's technology and products. Our achievements during the first nine months of fiscal 2021 included the Company's continued work on EGP and Eni projects. InNovember 2020 , the Company entered into an agreement with the Offshore Operators Committee ("OOC") under which the Company will provide engineering and technical services for a new project under theDeepStar Global Technology Consortium Program. InOctober 2020 , the Company entered into an agreement withAdams Communication & Engineering Technology, Inc. ("ACET") to conduct a feasibility study for the evaluation of a PB3 PowerBuoy® power and 5G communications solution in support of theU.S. Navy's Naval Postgraduate School's Sea , Land, Air, Military Research Initiative ("SLAMR"). We were incorporated inNew Jersey in 1984, began business operations in 1994, and were re-incorporated inDelaware in 2007. We currently have five wholly-owned subsidiaries:Ocean Power Technologies Ltd. , organized under the laws of theUnited Kingdom ,Reedsport OPT Wave Park LLC , organized under the laws ofOregon , andOregon Wave Energy Partners I, LLC , organized under the laws ofDelaware , and as ofFebruary 1, 2021 3dentTechnology, LLC , plusOcean Power Technologies (Australasia) Pty Ltd ("OPTA"), organized under the laws ofAustralia . OPTA owns 100% of Victorian Wave Partners Pty. Ltd. ("VWP"), which is also organized under the laws ofAustralia . 25
Our Products, Solutions and Services
PB3 PowerBuoy®
The PB3 generates electricity by harnessing the renewable energy of ocean waves.
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 energy storage system
("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 electric 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.
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,
? Persistent source of energy. The annual occurrence of waves at certain specific
sites can be relatively persistent 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. 26 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 by solar panels with a liquid-fueledStirling engine to provide back-up power and is capable of providing reliable power in remote offshore locations, regardless of ocean wave conditions. We believe this product is 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 autonomous underwater vehicle ("AUV") inspections and short-term maintenance, topside surveillance and communications, and subsea equipment and controls. The hybrid is anticipated to be a 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 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. The towable, boat-shaped hull design of the hybrid is appropriate for deployment around the world. Power is generated independent of wave activity, making it a 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 hybrid 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 1 megawatt-hour of stored energy capacity. We believe that 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 have developed 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 PowerBuoys® are complimentary to the subsea batteries by providing a means for recharging during longer term deployments, or the batteries can be used independently for shorter term deployments. Ideal for many remote offshore customer applications, these subsea batteries are anticipated to be high performance, cost-efficient, and quickly deployable. 27 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. We believe 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. Marine Surveillance Solution Our Marine Surveillance Solution payload consists of a high definition radar, gyro-stabilized high definition optical and thermal imaging cameras, vessel automatic identification system (AIS) detection, and integrated command and control software, paired with our autonomous PB3 PowerBuoy® or hybrid PowerBuoy® as a power and communications platform. Capabilities include 24/7 vessel tracking - including dark vessel detection, which refers to ships that operate primarily at nighttime which do not broadcast an AIS signal - automatic radar plotting, automated vessel warnings, and high definition optical and thermal video surveillance capable of providing evidentiary backup of activity to aid in prosecution. Data from our Marine Surveillance Solution is transmitted to shore-based command stations via Wi-Fi, cellular, and/or satellite systems, depending upon location. Surveillance data can be integrated with readily available marine monitoring software to provide command and control features of a multi-buoy surveillance network. The data can also be integrated with satellite, terrestrial, and other data feeds to form a detailed surface and subsea picture of a monitored area. A single Marine Surveillance Solution can monitor more than 1,600 square nautical miles of ocean territory on a permanent or temporary basis, with the ability to seamlessly link multiple surveillance assets together over large ocean areas giving end-users visibility into potentially damaging environmental or illegal activities. Customized solutions are also available including the addition of subsea sensors to monitor for acoustic signatures, tsunami, and water quality.
3dent Engineering Services
Through its 3dent Technology subsidiary, the Company offers a full range of high-level offshore engineering, providing consulting engineering and design services to offshore wind developers, offshore construction companies, drilling contractors, major oil companies, service companies, and engineering firms. 3dent's team of dedicated consultants/designers has expertise in structural engineering, hydrodynamics and naval architecture. Among its services is a focus on addressing the issues current or would-be owners of offshore floaters, jackups, and liftboats have with their fleet. 3dent Technology services include: simulation engineering, software engineering, concept design and motion monitoring. Commercial Activities We continue to seek new strategic relationships, and further develop our existing partnerships, with other companies that have developed or are developing in-ocean applications requiring, and services supporting a persistent source of power that is also capable of real time data collection, processing and communication, to address potential customer needs. 28
The table below shows the percentage of customer revenues that accounted for at least 10% of our consolidated revenues for at least one of the periods indicated:
Three months ended January 31 ,
Nine months ended
2021 2020 2021 2020
Eni S.p.A. 11 % 6 % 22 % 10 %
Premier Oil UK Limited 0 % 1 % 4 % 11 %
EGP 70 % 93 % 63 % 68 %
ACET 10 % 0 % 6 % 0 %
Other 9 % 0 % 5 % 11 %
100 % 100 % 100 % 100 %
In order to achieve success in commercializing our products, we must expand our customer base and obtain commercial contracts to lease or sell our products, solutions and related services to customers. Our potential customer base for our products and solutions includes various public and private entities, and agencies that require remote offshore power. To date, substantially all of our revenue producing contracts have been with a small number of customers under contracts to fund a portion of the costs of our operational efforts to develop and improve our technology, validate our product through ocean and laboratory testing, and business development activities with potential commercial customers. Our goal in the future is that an increased portion of our revenues will be from the lease or sale of our products and related maintenance and
other services. Customers
? In
which the Company will provide engineering and technical services for a new
project under the DeepStar Global Technology Consortium Program
? In
feasibility study for the evaluation of a PB3 PowerBuoy® power and 5G
communications solution in support of the U.S. Navy Naval Postgraduate
School's SLAMR.
? In
extend their lease of the PB3 for an additional 18 months. The initial
provision in the
that included an 18-month PB3 lease and associated project management. In
issue. The Company is working with Eni to address a variety of possible next
steps with the contract.
? In
which include the sale of a PB3 PowerBuoy® and the development and supply of a
turn-key integrated
off the coast of
force majeure in
amendment to delay the deployment of its PB3 PowerBouy® in
to
response to COVID-19 pandemic. In
contract amendment to delay the deployment of its PB3 PowerBouy® in
and
establish a new deployment date. The contract is a result of a detailed
feasibility study of the PowerBuoy® as an offshore autonomous platform hosting
oceanographic sensor systems conducted in September 2018 .
? In April 2019 , we entered into an agreement with a leading oil and gas
operator to conduct a detailed feasibility study of using the Company's
technology to monitor subsea wells.
? In
the first phase of a project to design and develop a buoy mooring system which
incorporates fiber optics for the transmission of subsea sensor data to
airplanes, ships, and satellites.
? In
lease of a PB3 to be deployed in one of PMO's offshore fields in the North
Sea. In
decommissioned and returned to
prepare for another deployment.
29
Partnerships
? In
government agency contract pursuits for policing territorial waters.
? In
commercial market solutions that offer a step-change in innovation and market
value against conventional methodologies, specifically through development and
marketing of a combined Hybrid AUV charging station which will be able to
utilize the PowerBuoy® system for topside charging and communications.
? In
in the global oil and gas and renewable markets.
? In
Marketing Agreement with
a preliminary focus on AUV and eROV charging and communications systems.
Business Strategy In fiscal 2021, we have continued progress in marketing our products and solutions. We have made progress in transitioning from R&D to a commercialization focus with SELL, BUILD, SHIP as our motto and we intend to build on our success by implementing processes and solutions that cover the entire life cycle, from demand generation to close of contract, and from channel strategies to customer care. A majority of the Company's opportunities with potential customers have been for projects inWestern Europe , including theNorth Sea , as well asNorth America andAsia . Nearly two-thirds of these opportunities have progressed past the initial feasibility and non-disclosure agreement stage to more detailed, confidential discussions around specific customer applications. Many of these discussions occur at the executive, decision-making level, as well as the implementation level. Many proposal requests are for projects where one of our PowerBuoys® products, either the PB3, the hybrid, or our subsea battery solution is part of a larger solution deployment, and typically include the potential lease or sale of one or more PowerBuoys®, as well as required services and maintenance support. A majority of hybrid inquiries are for shorter term deployments and in calmer waters. Historically, demonstration projects have been a necessary step toward broad solution deployment and revenues associated with specific applications. A proposal phase typically lasts from three months to more than one year. During the demonstration project specification, negotiation and evaluation period, we are often subject to the prospective customer's vendor qualification process, which entails substantial due diligence of our company and capabilities and may include negotiation of standard terms and conditions. Many proposals contain provisions which would mandate the sale or lease of our PowerBuoy® product upon successful conclusion of the demonstration project. We believe this is an accurate depiction of the overall sales cycle for new technology in each of our target markets, including our products and solutions. Cycle times for each step of the sales cycle will vary depending on several customer factors, including, but not limited to, technical evaluation, project priorities, project funding approval process, and alignment of new technology integration with the customer's broader operational strategy. We believe that potential demand, vis-à-vis specific application proposal requests, is indicative of significant progress in our commercialization strategy. We believe in the potential for growth as a result of our positioning for higher volume production of our products and solutions and their initial indications of demand for our products and solutions in multiple customer applications. 30
We continue to commercialize our products and solutions for use in remote offshore power and real-time data communications applications, and in order to achieve this goal, we are pursuing the following business objectives:
? Integrated turn-key solutions sales or leases incorporating our products and
services. We believe our PB3, hybrid PowerBuoys® and our subsea battery
solutions, as well as our Marine Surveillance Solution are well suited to
enable many unmanned, autonomous (non-grid connected) offshore applications,
such as topside and subsea surveillance and communications, subsea equipment
monitoring, early warning systems platform and subsea power and buffering, and
weather and climate data collection. We have investigated and realized market
demand for some of these solutions as sales and leases within our selected
markets, and we intend to sell and lease our products to these markets as part
of these broader integrated solutions. Additionally, we intend to provide
services associated with our solution offerings such as paid engineering
studies, value-added engineering, maintenance, remote monitoring and
diagnostics, application engineering, planning, training, project management,
and marine and logistics support required for our solution life-cycle. We also
intend to pursue turn-key projects where we take on a prime contractor role to
capture broader revenue opportunities while ensuring that solutions
effectively address customer needs. We continue to increase our commercial
capabilities through new hires in sales and application support, and through
engagement of expert market consultants in various geographies.
? Expand customer system solution offerings through new complimentary products
that enable shorter and more cost-efficient deployments. We completed the
design and construction of the hybrid PowerBuoy® in 2020. This product builds
on our existing expertise in offshore power systems. The hybrid PowerBuoy® is
a solar powered buoy with a liquid-fueled
hybrid is to be highly complementary to the PB3 PowerBuoy® by providing the
Company the opportunity to address a broader spectrum of customer deployment
needs, including low-wave environments, with the potential for greater system
integration within each customer project. The hybrid is primarily intended for
shorter term deployment applications such as eROV and AUV inspections and
short-term maintenance, topside surveillance and communications, and subsea
equipment and controls. The Company has also developed a subsea battery system
that is complimentary to the Company's PowerBuoy® products. The subsea battery
system offers the possibility of creating a sea floor energy storage solution
for remote offshore operations. These subsea battery systems contain lithium
ion batteries, which provide high power density to supply power to subsea
equipment, sensors, communications, and recharging of AUVs and eROV. Ideal for
many remote offshore customer applications, these subsea battery systems are
anticipated to be safe, high performance, cost-efficient, and quickly
deployable.
? Concentrate sales and marketing efforts in specific geographic markets. We are
currently focusing our marketing efforts on parts of
demand for our solutions, sizable end market opportunities, political and
economic stability, and high levels of industrialization and economic
development.We have opened an office in
customers and strengthen our dialogue with our solution partners.
? Expand our relationships in key market areas through strategic partnerships
and collaborations. We believe that strategic partners are an important part
of commercializing a new product. Partnerships and collaborations can be used
to improve the development of overall integrated solutions, create new market
channels, expand commercial know-how and geographic footprint, and bolster our
product delivery capabilities. We believe that offering a turn-key solution,
and not just power, is key to securing long term success. We have formed such
a relationship with several well-known groups, including Mackay, BAP, Modus,
Saab and
application experts from within our selected markets.
? Outsourcing of fabrication, deployment and service support. We outsource all
fabrication, anchoring, mooring, cabling supply, and in most cases deployment
of our products and solutions in order to minimize our capital requirements as
we scale our business. Our PTO is a proprietary subsystem and is assembled and
tested at our facility. We believe this distributed manufacturing and assembly
approach enables us to focus on our core competencies to ensure a
cost-effective offering by leveraging a larger more established supply base.
We also continue to seek strategic partnerships with regard to servicing of
our products and solutions.
? Cost reduction and solution development. Our engineering efforts are mainly
focused on addressing customer solutions; product and solution sales; reducing
costs associated with production, installation and product life-cycle costs;
and improving the energy output, reliability, maintenance interval and
expected operating life of our products and solutions. We continue to optimize
manufacturability of our designs with a focus on cost competitiveness, and we
believe we will be able to address new applications by developing new payloads
and solutions that address customer needs.
Through its 3dent Technology subsidiary, the Company plans to expand its
customer base by providing consulting engineering and design services to
offshore wind developers, offshore construction companies, drilling contractors,
major oil companies, service companies, and engineering firms with the intention
of increasing the Company's revenue base.
31
The Company is pursuing a long-term growth strategy to expand its market value
proposition while building the Company's revenue base. This strategy includes
partnerships with leading companies in adjacent and complementary markets.Liquidity Our consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced recurring losses from operations, and has used net cash in operating activities of approximately$8.5 million through nine months endedJanuary 31, 2021 and approximately$10.5 million for the fiscal year endedApril 30, 2020 , all of which have contributed to an accumulated deficit of$229.7 million as ofJanuary 31, 2021 . These factors raise substantial doubt about the Company's ability to continue as a going concern. As ofJanuary 31, 2021 , based in large part on the equity raises discussed below, the Company had approximately$79.8 million in unrestricted cash and cash equivalents on hand. Based on the Company's current unrestricted cash and cash equivalents, the Company believes that it will be able to finance its capital requirements and operations for at least the next 12 months from the date of this Report. The Company expects to continue to fund our business with sales of our securities and through generating revenue with customers. The Company cannot provide assurances that it will be able to secure additional funding when needed or at all, or, if secured, that such funding would be on favorable terms. The Company also cannot provide assurances that it will generate sufficient revenue from customers to fund our business. A key goal for the Company this year was to bolster its financial position, improve its liquidity and reduce its capital risk. During the fiscal year, the Company has generated$76.1 million in net proceeds through utilization of the 2019 ATM Facility (as defined below), the 2020 ATM Facility (as defined below) and the purchase agreement withAspire Capital , including$66.7 in net proceeds raised during the third quarter. Additionally, the Company's liquidity position has improved due to cost cutting measures that were put in place at the beginning of the year. The Company believes that its unrestricted cash balance of approximately$79.8 million as ofJanuary 31, 2021 , in addition to continued prudent cost management, will provide it with the capital necessary to fund ongoing operations as well as the financial flexibility to execute on its growth strategy, consisting of market expansion, sales cycle acceleration, development of new products and solutions, and strategic acquisitions. Capital Raises
At the Market Offering Agreements
OnJanuary 7, 2019 , the Company entered into an At the Market Offering Agreement with AGP (" the 2019 ATM Facility") 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$25.0 million . From inception of the program through its termination onDecember 8, 2020 , under the 2019 ATM Facility, the Company sold and issued 17,595,472 shares of its common stock with an aggregate market value of$23.4 million at an average price of$1.33 per share, including 12,342,506 shares in fiscal year 2021 with an aggregate market value of$18.7 million at an average price of$1.51 per share and paid AGP a sales commission of approximately$0.8 million related to those shares. OnNovember 20, 2020 , the Company entry into a new At the Market Offering Agreement with AGP (the "2020 ATM Facility"). The Company onDecember 4, 2020 filed a prospectus with theSecurities and Exchange Commission whereby, 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$50.0 million . From inception of the 2020 ATM Facility throughJanuary 31, 2021 , the Company sold and issued 17,179,883 shares of its common stock with an aggregate market value of$50.0 million at an average price of$2.91 per share and paid AGP a sales commission of approximately$1.6 million related to those shares. The dollar amount reported in the prospectus filing is fully utilized.
Equity Line Common Stock Purchase Agreements
OnOctober 24, 2019 , the Company entered into a common stock purchase agreement withAspire Capital which provided 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. ThroughSeptember 18, 2020 , the Company has sold 6,424,205 shares of common stock with an aggregate market value of$4.0 million at an average price of$0.63 per share pursuant to this common stock purchase agreement, including 5,025,000 shares in fiscal year 2021 with an aggregate market value of$2.9 million at an average price of$0.57 per share. The agreement was fully utilized and terminated onSeptember 18, 2020 . OnSeptember 18, 2020 , the Company entered into a new common stock purchase agreement withAspire Capital which provided that, subject to certain terms, conditions and limitations,Aspire Capital is committed to purchase up to an aggregate of$12.5 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 could issue within the 19.99% limit is 3,722,251 shares without shareholder approval. Shareholder approval was received at the Company's annual meeting of shareholders onDecember 23, 2020 for the sale of 9,864,706 additional shares of common stock which is over the 19.99% limit of the outstanding common stock. ThroughJanuary 31, 2021 , the Company has sold an aggregate of 2,250,000 shares of common stock with an aggregate market value of$7.4 million at an average price of$3.28 per share pursuant to this common stock purchase agreement. 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 ofJanuary 31, 2021 , the Company's backlog was$0.5 million . As ofApril 30, 2020 , backlog was$1.0 million . Our backlog can include unfilled firm orders for our products and services from commercial or governmental customers. If any of our contracts were to be terminated, our backlog would be reduced by the expected value of the remaining terms of such contract. The amount of contract backlog is not necessarily indicative of future revenue because modifications to or terminations of present contracts and production delays can provide additional revenue or reduce anticipated revenue. A substantial portion of our revenue is recognized using the input method used to measure completion over time of customer contracts, and changes in estimates from time to time may have a significant effect on revenue and backlog. Our backlog is also typically subject to large variations from time to time due
to the timing of new awards. 32
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 GAAP. The preparation of financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
For a discussion of our critical accounting estimates, see the section entitled
Item 7.- "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended
Recently Issued Accounting Standards
See Note 2 of the Notes to Consolidated Financial Statements.
Financial Operations Overview
The following describes certain line items in our statement of operations and some of the factors that affect our operating results.
Revenues A performance obligation is the unit of account for revenue recognition. The Company assesses the goods or services promised in a contract with a customer and identifies as a performance obligation either: a) a good or service (or a bundle of goods or services) that is distinct; or b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. A contract may contain 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. 33 The nature of the Company's contracts may give rise to several types of variable consideration, 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. The Company's contracts are either cost plus or fixed price contracts. Under cost plus contracts, customers are billed for actual expenses incurred plus an agreed-upon fee. Under cost plus contracts, a profit or loss on a project is recognized depending on whether actual costs are more or less than the agreed upon amount. The Company has two types of fixed price contracts, firm fixed price and cost-sharing. Under firm fixed price contracts, the Company receives an agreed-upon amount for providing products and services specified in the contract, a profit or loss is recognized depending on whether actual costs are more or less than the agreed upon amount. Under cost-sharing contracts, the fixed amount agreed upon with the customer is only intended to fund a portion of the costs on a specific project. Under cost sharing contracts, an amount corresponding to the revenue is recorded in cost of revenues, resulting in gross profit on these contracts of zero. The Company's share of the costs is recorded as product development expense. The Company reports its disaggregation of revenue by contract type since this method best represents the Company's business. For each of the nine-month periods endedJanuary 31, 2021 and 2020, all of the Company's contracts were classified as firm fixed price.
The following table provides information regarding the breakdown of our revenues
by customer for the three and nine months ended
Three months ended January 31 ,
Nine months ended
2021 2020 2021 2020
(in thousands)
Eni S.p.A. $ 34 $ 42 $ 135 $ 118
Premier Oil UK Limited - 5 27 126
EGP 223 678 379 774
ACET 33 - 37 -
Other 27 - 26 113
$ 317 $ 725 $ 604 $ 1,131
34
We currently focus our sales and marketing efforts on parts of North and South
America , Europe , Asia and Western Africa . The following table shows the
percentage of our revenues by geographical location of our customers for the
nine months ended January 31, 2021 and 2020.
Nine months ended January 31,
Customer Location 2021 2019
Europe 27 % 25 %
South America 63 % 69 %
North America 10 % 6 %
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 equipment to customize the products supplied by third-party suppliers.
Cost of revenues also includes product system delivery and deployment expenses
and may include anticipated losses at completion on certain contracts.
Our ability to generate a gross profit will depend on the nature of future
contracts, our success at generating revenues through sales or leases of our
products, the nature of our contracts generating revenues to fund our product
development efforts, and our ability to manage costs incurred on fixed price
commercial contracts.
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.
Selling, general and administrative costs
Our selling, general and administrative costs consist primarily of professional fees, salaries and other personnel-related costs for employees and consultants engaged in sales and marketing and support of our products and costs for executive, accounting and administrative personnel, professional fees and other general corporate expenses. Interest income, net
Interest income, net consists of interest received on cash, cash equivalents and money market fund and interest paid on certain obligations to third parties.
Foreign exchange gain (loss) We transact business in various countries and have exposure to fluctuations in foreign currency exchange rates. Foreign exchange gains and losses arise in the translation of foreign-denominated assets and liabilities, which may result in realized and unrealized gains or losses from exchange rate fluctuations. Since we conduct our business in 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 ofJanuary 31, 2021 and as ofJanuary 31, 2020 , compared to our total cash, cash equivalents and restricted cash balances of$80.4 million as ofJanuary 31, 2021 and$10.8 million as ofJanuary 31, 2020 . These foreign currency balances are translated each month into 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. 35 We currently do not hedge our exchange rate exposure. However, we assess the anticipated foreign currency working capital requirements and capital asset acquisitions of our foreign operations and attempt to maintain a portion of our cash and cash equivalents denominated in foreign currencies sufficient to satisfy these anticipated requirements. We also assess the need and cost to utilize financial instruments to hedge currency exposures on an ongoing basis and may hedge against exchange rate exposure in the future. Results of Operations
This section should be read in conjunction with the discussion below under "Liquidity and Capital Resources."
Three months ended
The following table contains selected statement of operations information, which serves as the basis of the discussion of our results of operations for the three months endedJanuary 31, 2021 and 2020. % change Three months ended January 31, 2021 period to 2021 2020 2020 period (in thousands) Revenues $ 317 $ 725 -56 % Cost of revenues 698 681 2 % Gross profit/(loss) (381 ) 44 Operating expenses: Engineering and product development costs 1,019 896 14 % Selling, general and administrative costs 1,763 2,093 -16 % Total operating expenses 2,782 2,989 Operating loss (3,163 ) (2,945 ) Interest income, net 25 27 -7 % Other expense, net (16 ) - -100 %
Foreign exchange gain/(loss) 3
(1 ) -400 % Net loss$ (3,151 ) $ (2,919 ) 8 % Revenues Revenues for the three months endedJanuary 31, 2021 and 2020 were$0.3 million and$0.7 million , respectively. The decrease of$0.4 million of revenue for the three months endedJanuary 31, 2021 was primarily due to lower revenue derived from our EGP project as compared to the same period in the prior year. Cost of revenues
Cost of revenues for the three months endedJanuary 31, 2021 and 2020 were$0.7 million and$.0.7 million , respectively. Spending was lower for the three months endedJanuary 31, 2021 mostly offset by an increase in reserve for future loss on contracts as compared to the same period in the prior year.
Engineering and product development costs
Engineering and product development costs for the three months endedJanuary 31, 2021 and 2020 were$1.0 million and$0.9 million , respectively. The increase of approximately$0.1 million is the result of higher spending on new product development projects as compared to the same period in the prior year. 36
Selling, general and administrative costs
Selling, general and administrative costs for the three months endedJanuary 31, 2021 and 2020 were$1.8 million and$2.1 million , respectively. The decrease of$0.3 million of spending for the three months endedJanuary 31, 2021 was primarily due to lower employee related costs and selling and marketing costs. Interest income, net Interest income, net during the three months endedJanuary 31, 2021 was$25,000 , compared to$27,000 during the three months endedJanuary 31, 2020 . The decrease of$2,000 is due to a lower interest rate earned on investments in the three months endedJanuary 31, 2021 as compared to the three months ended January
31, 2020. Other expense, net Other expense, net during the three months endedJanuary 31, 2021 was$16,000 as compared to zero during the nine months endedJanuary 31, 2020 . The increase of$16,000 is due to the write-off of unused expense related to potential capital raises as compared to the three months endedJanuary 31, 2020 . Foreign exchange gain/(loss)
Foreign exchange gain during the three months ended
Nine months 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 nine months endedJanuary 31, 2021 and 2020. % change Nine months ended January 31, 2021 period to 2021 2020 2020 period (in thousands) Revenues $ 604$ 1,131 -47 % Cost of revenues 1,248 1,335 -7 % Gross loss (644 ) (204 ) Operating expenses: Engineering and product development costs 3,334 3,403 -2 % Selling, general and administrative costs 5,591 5,629 -1 % Total operating expenses 8,925 9,032 Operating loss (9,569 ) (9,236 ) Gain due to the change in fair value of warrant liabilities - 6 -100 % Interest income, net 45 102 -56 % Other expense, net (49 ) - -100 %
Foreign exchange gain/(loss) 13
(5 ) -360 % Net loss$ (9,560 ) $ (9,133 ) 5 % Revenues Revenues for the nine months endedJanuary 31, 2021 and 2020 were$0.6 million and$1.1 million , respectively. The decrease of$0.5 million of revenue for the nine months endedJanuary 31, 2021 was primarily due to lower revenue derived from projects with EGP, Premier Oil andU.S. Navy . 37 Cost of revenues Cost of revenues for the nine months endedJanuary 31, 2021 and 2020 were$1.2 million and$1.3 million , respectively. The decrease of$0.1 million in cost of revenue is due to more costs incurred on our Premier Oil andU.S. Navy projects in the prior year mostly offset by costs incurred on our EGP project in the current year.
Engineering and product development costs
Engineering and product development costs for the nine months endedJanuary 31, 2021 and 2020 were$3.3 million and$3.4 million , respectively. The decrease of approximately$0.1 million is the result of lower spending on new product development projects as compared to the same period in the prior year.
Selling, general and administrative costs
Selling, general and administrative costs for the nine months endedJanuary 31, 2021 and 2020 were$5.6 million and$5.6 million , respectively. Spending was essentially flat for the three months endedJanuary 31, 2021 versus the same period in the prior year as the increase in the estimated penalty payment of$0.2 million relating to the Spanish tax audit was offset by lower spending
for sales and marketing.
Gain due to the change in fair value of warrant liabilities
The change in fair value of warrant liabilities during the nine months ended
Interest income, net Interest income, net during the nine months endedJanuary 31, 2021 was$45,000 as compared to$102,000 during the nine months endedJanuary 31, 2020 . The decrease of$57,000 is due to a lower interest rate earned on investments in the nine months endedJanuary 31, 2021 as compared to the nine months endedJanuary 31, 2020 . Other expense, net Other expense, net during the nine months endedJanuary 31, 2021 was$49,000 as compared to zero during the nine months endedJanuary 31, 2020 . The increase of$49,000 is due to the write-off of unused expense related to potential capital raises as compared to the nine months endedJanuary 31, 2020 .
Foreign exchange gain/(loss)
Foreign exchange gain during the nine months ended
Liquidity and Capital Resources
Our cash requirements relate primarily to working capital needed to operate and grow our business including funding operating expenses. We have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses of$9.6 million and$9.1 million for the nine months endedJanuary 31, 2021 and 2020, respectively. Refer to "Liquidity Outlook" below for additional information.
Net cash used in operating activities
During the nine months endedJanuary 31, 2021 , net cash flows used in operating activities was$8.5 million , a decrease of$0.1 million compared to net cash used in operating activities during the nine months endedJanuary 31, 2020 . This decrease is mainly the result of a higher net loss, offset by lower cash spending on customer projects and product development and lower selling, general and administration costs in the nine months endedJanuary 31, 2021 as compared to the same period in the prior fiscal year.
Net cash used in investing activities
Net cash used in investing activities during the nine months endedJanuary 31, 2021 was$17,000 , a decrease of$44,000 compared to net cash used by investing activities during the nine months endedJanuary 31, 2020 . The decrease in net cash used in investing activities was due to lower spending on the purchase of property, plant and equipment. 38
Net cash provided by financing activities
Net cash provided by financing activities during the nine months endedJanuary 31, 2021 was approximately$78.0 million compared to net cash provided by financing activities during the nine months endedJanuary 31, 2020 of$2.4 million . The increase in net cash provided by financing activities during the nine months endedJanuary 31, 2021 is primarily due to increased proceeds from capital raises of$76.1 million ,$0.8 million from proceeds associated with warrant and stock option exercises,$0.9 million received from the PPP loan and$0.2 million in a financing loan payable.
Effect of exchange rates on cash and cash equivalents
The effect of exchange rates on cash and cash equivalents was an increase of$33,000 in the nine months endedJanuary 31, 2021 and a decrease of$15,000 in the nine months ended forJanuary 31, 2020 . 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 consolidated financial statements have been prepared assuming we will continue as a going concern. The Company has experienced recurring losses from operations, and has used net cash in operating activities of approximately$8.5 million through nine months endedJanuary 31, 2021 and approximately$10.5 million for the fiscal year endedApril 30, 2020 , all of which have contributed to an accumulated deficit of$229.7 million atJanuary 31, 2021 . As ofJanuary 31, 2021 , based in large part on the equity raises described under "- Capital Raises", the Company had approximately$79.8 million in unrestricted cash and cash equivalents on hand. Based on the Company's current unrestricted cash and cash equivalents and its ability to raise additional equity under facilities currently in place, the Company believes that it will be able to finance its capital requirements and operations for at least the next 12 months. Among other things, the Company is currently evaluating a variety of different financing alternatives and we expect to continue to fund our business with sales of our securities and through generating revenue with customers. These conditions raise substantial doubt about our ability to continue as a going concern. A key goal for the Company this year was to bolster its financial position, improve its liquidity and reduce its capital risk. During the fiscal year, the Company has generated$76.1 million in net proceeds through utilization of the 2019 ATM Facility as defined under "-Capital Raises" above, 2020 ATM Facility as defined under "-Capital Raises" above, and the purchase agreement withAspire Capital , including$66.7 in net proceeds raised during the third quarter. Additionally, the Company's liquidity position has improved due to cost cutting measures that were put in place at the beginning of the year. The Company believes that its unrestricted cash balance of approximately$79.8 million as ofJanuary 31, 2021 , in addition to continued prudent cost management, will provide it with the capital necessary to fund ongoing operations as well as the financial flexibility to execute on its growth strategy, consisting of market expansion, sales cycle acceleration, development of new products and solutions, and strategic acquisitions. We expect to devote substantial resources to continue our development efforts of our products and to expand our sales, marketing and manufacturing programs associated with the continued commercialization of the PowerBuoys®. Our future capital requirements will depend on a number of factors, including but not limited to: ? the impact of COVID-19 pandemic on our business, operations, customers, suppliers and manufacturers; ? 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;
? our ability to continue as a going concern;
? our ability to successfully integrate acquisitions, including our recent
acquisition of 3dent
? 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; 39
? our ability to successfully develop and market new products and solutions,
such as the subsea battery and Marine Surveillance Solution;
? 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 solutions;
? our ability to implement our commercialization strategy as planned, or at all;
? our ability to improve the power output, survivability and reliability of our
products;
? our relationships with our strategic partners may not be successful and we may
not be successful in establishing additional relationships;
? the reliability of our technology and our products and solutions;
? our ability to improve the power output, survivability and reliability of our
products;
? our ability to raise capital through our current equity facilities;
? 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 product development costs
associated with our product development. We anticipate that our operating
expenses will be approximately $14.0 million in fiscal 2021 including expected
savings from cost reduction initiatives and engineering and product development
spending of more than $6.9 million . We cannot assure you that we will be able to
increase our revenues and cash flow to a level which would support our
operations. 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.
40
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