Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended January 31, 2011
Or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From to
Commission file number: 001-33417
OCEAN POWER TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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22-2535818 |
(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
1590 REED ROAD, PENNINGTON, NJ 08534
(Address of Principal Executive Offices, Including Zip Code)
(609) 730-0400
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of February 28, 2011, the number of outstanding shares of common stock of the registrant was
10,411,498.
OCEAN POWER TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED January 31, 2011
PowerBuoy® is a registered trademark of Ocean Power Technologies, Inc. and the
Ocean Power Technologies logo is a trademark of Ocean Power Technologies, Inc. All other trademarks
appearing in this report are the property of their respective holders.
Special Note Regarding Forward-Looking Statements
We have made statements in this Quarterly Report on Form 10-Q that are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements convey our current expectations or forecasts of future events. Forward-looking
statements include statements regarding our future financial position, business strategy, budgets,
projected costs, plans and objectives of management for future operations. The words may,
continue, estimate, intend, plan, will, believe, project, expect, anticipate and
similar expressions may identify forward-looking statements, but the absence of these words does
not necessarily mean that a statement is not forward-looking.
Any or all of our forward-looking statements in this report may turn out to be inaccurate. We have
based these forward-looking statements largely on our current expectations and projections about
future events and financial trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs. They may be affected by inaccurate assumptions
we might make or unknown risks and uncertainties, including the risks, uncertainties and
assumptions described in Item 1A Risk Factors of our Annual Report on Form 10-K for the year
ended April 30, 2010 and elsewhere in this report. In light of these risks, uncertainties and
assumptions, the forward-looking events and circumstances discussed in this report may not occur as
contemplated and actual results could differ materially from those anticipated or implied by the
forward-looking statements.
You should not unduly rely on these forward-looking statements, which speak only as of the date of
this filing. Unless required by law, we undertake no obligation to publicly update or revise any
forward-looking statements to reflect new information or future events or otherwise.
2
PART I FINANCIAL INFORMATION
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Item 1. |
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FINANCIAL STATEMENTS |
Ocean Power Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
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January 31, 2011 |
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April 30, 2010 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
9,502,624 |
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4,236,597 |
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Marketable securities |
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25,538,538 |
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32,536,001 |
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Accounts receivable, net |
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720,699 |
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1,474,600 |
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Unbilled receivables |
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649,863 |
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448,686 |
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Other current assets |
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693,291 |
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1,005,885 |
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Total current assets |
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37,105,015 |
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39,701,769 |
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Property and equipment, net |
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543,486 |
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710,563 |
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Patents, net |
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1,132,542 |
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1,036,881 |
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Restricted cash |
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1,480,136 |
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1,205,288 |
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Marketable securities |
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16,324,661 |
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28,865,046 |
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Other noncurrent assets |
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726,010 |
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1,458,646 |
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Total assets |
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$ |
57,311,850 |
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72,978,193 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
1,126,407 |
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1,843,378 |
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Accrued expenses |
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3,306,877 |
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4,092,113 |
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Unearned revenues |
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752,038 |
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1,101,541 |
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Current portion of long-term debt |
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114,378 |
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95,386 |
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Total current liabilities |
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5,299,700 |
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7,132,418 |
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Long-term debt |
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475,000 |
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250,000 |
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Deferred credits |
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600,000 |
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600,000 |
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Other noncurrent liabilities |
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140,685 |
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Total liabilities |
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6,374,700 |
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8,123,103 |
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Commitments and contingencies (note 9) |
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Ocean Power Technologies, Inc. Stockholders equity: |
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Preferred stock, $0.001 par value; authorized 5,000,000 shares,
none issued or outstanding |
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Common stock, $0.001 par value; authorized 105,000,000 shares,
issued 10,419,183 and 10,390,563 shares, respectively |
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10,419 |
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10,391 |
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Treasury stock, at cost; 6,673 and 1,072 shares, respectively |
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(37,302 |
) |
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(6,443 |
) |
Additional paid-in capital |
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156,680,382 |
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155,726,672 |
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Accumulated deficit |
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(105,541,701 |
) |
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(90,413,098 |
) |
Accumulated other comprehensive loss |
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(202,736 |
) |
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(503,322 |
) |
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Total Ocean Power Technologies, Inc. stockholders equity |
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50,909,062 |
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64,814,200 |
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Noncontrolling interest in Ocean Power Technologies (Australasia) Pty Ltd |
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28,088 |
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40,890 |
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Total equity |
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50,937,150 |
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64,855,090 |
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Total liabilities and stockholders equity |
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$ |
57,311,850 |
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72,978,193 |
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See accompanying notes to consolidated financial statements (unaudited).
3
Ocean Power Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended January 31, |
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Nine Months Ended January 31, |
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2011 |
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2010 |
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2011 |
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2010 |
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Revenues |
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$ |
1,523,601 |
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856,482 |
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4,762,415 |
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2,749,294 |
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Cost of revenues |
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1,453,397 |
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691,090 |
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4,818,623 |
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2,243,465 |
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Gross profit (loss) |
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70,204 |
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165,392 |
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(56,208 |
) |
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505,829 |
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Operating expenses: |
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Product development costs |
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2,026,336 |
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3,681,118 |
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9,731,592 |
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8,467,866 |
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Selling, general and administrative costs |
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1,884,950 |
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2,557,931 |
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6,060,705 |
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6,915,435 |
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Total operating expenses |
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3,911,286 |
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6,239,049 |
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15,792,297 |
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15,383,301 |
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Operating loss |
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(3,841,082 |
) |
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(6,073,657 |
) |
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(15,848,505 |
) |
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(14,877,472 |
) |
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Interest income, net |
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148,480 |
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231,683 |
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546,829 |
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764,504 |
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Other income |
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17,668 |
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549,258 |
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Foreign exchange (loss) gain |
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(38,014 |
) |
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172,128 |
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(205,824 |
) |
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674,517 |
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Loss before income taxes |
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(3,730,616 |
) |
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(5,652,178 |
) |
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(15,507,500 |
) |
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(12,889,193 |
) |
Income tax benefit |
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364,105 |
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364,105 |
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Net loss |
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(3,366,511 |
) |
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(5,652,178 |
) |
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(15,143,395 |
) |
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(12,889,193 |
) |
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Less: Net loss (income) attributable to the noncontrolling interest
in Ocean Power Technologies (Australasia) Pty Ltd. |
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3,693 |
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2,682 |
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14,792 |
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(50,551 |
) |
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Net loss attributable to Ocean Power Technologies, Inc. |
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$ |
(3,362,818 |
) |
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(5,649,496 |
) |
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(15,128,603 |
) |
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(12,939,744 |
) |
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Basic and diluted net loss per share |
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$ |
(0.33 |
) |
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(0.55 |
) |
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(1.48 |
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(1.27 |
) |
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Weighted average shares used to compute basic and
diluted net loss per share |
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10,248,092 |
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10,213,900 |
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10,242,528 |
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10,211,536 |
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See accompanying notes to consolidated financial statements (unaudited).
4
Ocean Power Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
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Nine Months Ended January 31, |
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2011 |
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2010 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(15,143,395 |
) |
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(12,889,193 |
) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Foreign exchange loss (gain) |
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205,824 |
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(674,517 |
) |
Depreciation and amortization |
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270,209 |
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274,226 |
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Loss on disposals of property, plant and equipment |
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933 |
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Treasury note premium amortization |
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57,752 |
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135,325 |
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Compensation expense related to stock option grants and restricted stock |
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953,738 |
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872,109 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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776,316 |
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64,961 |
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Unbilled receivables |
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(192,577 |
) |
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76,224 |
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Other current assets |
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325,440 |
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12,858 |
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Other noncurrent assets |
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756,172 |
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(191,505 |
) |
Accounts payable |
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(715,927 |
) |
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|
423,534 |
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Accrued expenses |
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(787,537 |
) |
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(553,942 |
) |
Unearned revenues |
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(351,625 |
) |
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|
549,983 |
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Other noncurrent liabilities |
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(142,586 |
) |
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133,505 |
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Net cash used in operating activities |
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(13,987,263 |
) |
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(11,766,432 |
) |
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Cash flows from investing activities: |
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Purchases of marketable securities |
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(7,528,436 |
) |
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(34,048,490 |
) |
Maturities of marketable securities |
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27,011,971 |
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41,838,886 |
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Restricted cash |
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(250,000 |
) |
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(250,000 |
) |
Purchases of equipment |
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(67,356 |
) |
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|
(199,089 |
) |
Payments of patent costs |
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(190,547 |
) |
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(119,017 |
) |
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Net cash provided by investing activities |
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|
18,975,632 |
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|
7,222,290 |
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Cash flows from financing activities: |
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Proceeds from long-term debt |
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250,000 |
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Repayment of debt |
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(6,008 |
) |
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|
(93,398 |
) |
Acquisition of treasury stock |
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(30,859 |
) |
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Net cash provided by (used in) financing activities |
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|
213,133 |
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(93,398 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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|
64,525 |
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|
837,636 |
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Net increase (decrease) in cash and cash equivalents |
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5,266,027 |
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(3,799,904 |
) |
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Cash and cash equivalents, beginning of period |
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|
4,236,597 |
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|
12,267,830 |
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Cash and cash equivalents, end of period |
|
$ |
9,502,624 |
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|
8,467,926 |
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Supplemental disclosure of noncash investing and financing activities: |
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Capitalized patent costs financed through accounts payable and accrued espenses |
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$ |
6,429 |
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|
13,419 |
|
Capitalized purchases of equipment financed through accounts payable and
accrued expenses |
|
|
1,956 |
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|
|
6,894 |
|
See accompanying notes to consolidated financial statements (unaudited).
5
Ocean Power Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity and
Comprehensive Loss
(Unaudited)
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Accumulated |
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|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total Ocean Power |
|
|
|
|
|
|
|
|
|
Common Shares |
|
|
Treasury Shares |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Technologies, Inc, |
|
|
Noncontrolling |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Stockholders Equity |
|
|
Interest |
|
|
Total Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2009 |
|
|
10,210,354 |
|
|
$ |
10,210 |
|
|
|
|
|
|
$ |
|
|
|
|
154,568,931 |
|
|
|
(71,242,791 |
) |
|
|
(553,323 |
) |
|
|
82,783,027 |
|
|
|
|
|
|
|
82,783,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,939,744 |
) |
|
|
|
|
|
|
(12,939,744 |
) |
|
|
50,551 |
|
|
|
(12,889,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292,180 |
|
|
|
292,180 |
|
|
|
1,699 |
|
|
|
293,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,647,564 |
) |
|
|
52,250 |
|
|
|
(12,595,314 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation related to stock option grants and
restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
872,109 |
|
|
|
|
|
|
|
|
|
|
|
872,109 |
|
|
|
|
|
|
|
872,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of vested and unvested restricted stock |
|
|
180,209 |
|
|
|
181 |
|
|
|
|
|
|
|
|
|
|
|
39,806 |
|
|
|
|
|
|
|
|
|
|
|
39,987 |
|
|
|
|
|
|
|
39,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2010 |
|
|
10,390,563 |
|
|
$ |
10,391 |
|
|
|
|
|
|
$ |
|
|
|
|
155,480,846 |
|
|
|
(84,182,535 |
) |
|
|
(261,143 |
) |
|
|
71,047,559 |
|
|
|
52,250 |
|
|
|
71,099,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2010 |
|
|
10,390,563 |
|
|
$ |
10,391 |
|
|
|
(1,072 |
) |
|
$ |
(6,443 |
) |
|
|
155,726,672 |
|
|
|
(90,413,098 |
) |
|
|
(503,322 |
) |
|
|
64,814,200 |
|
|
|
40,890 |
|
|
|
64,855,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,128,603 |
) |
|
|
|
|
|
|
(15,128,603 |
) |
|
|
(14,792 |
) |
|
|
(15,143,395 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,586 |
|
|
|
300,586 |
|
|
|
1,990 |
|
|
|
302,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,828,017 |
) |
|
|
(12,802 |
) |
|
|
(14,840,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation related to stock option grants and
restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
953,738 |
|
|
|
|
|
|
|
|
|
|
|
953,738 |
|
|
|
|
|
|
|
953,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of vested and unvested restricted stock |
|
|
28,620 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of treasury stock |
|
|
|
|
|
|
|
|
|
|
(5,601 |
) |
|
|
(30,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,859 |
) |
|
|
|
|
|
|
(30,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2011 |
|
|
10,419,183 |
|
|
$ |
10,419 |
|
|
|
(6,673 |
) |
|
$ |
(37,302 |
) |
|
|
156,680,382 |
|
|
|
(105,541,701 |
) |
|
|
(202,736 |
) |
|
|
50,909,062 |
|
|
|
28,088 |
|
|
|
50,937,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements (unaudited).
6
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Background and Basis of Presentation
Ocean Power Technologies, Inc. (the Company) was incorporated on April 19, 1984 in New Jersey,
commenced commercial operations in 1994 and re-incorporated in Delaware in April 2007. The Company
develops and is commercializing proprietary systems that generate electricity by harnessing the
renewable energy of ocean waves. The Company markets and sells its products in the United States
and internationally.
The accompanying unaudited consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included. The interim operating
results are not necessarily indicative of the results for a full year or for any other interim
period. Further information on potential factors that could affect the Companys financial results
can be found in the Companys Annual Report on Form 10-K for the year ended April 30, 2010 filed
with the Securities and Exchange Commission (SEC) and elsewhere in this Form 10-Q.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Participation of stockholders other than the Company in the net assets
and in the earnings or losses of a consolidated subsidiary is reflected as a noncontrolling
interest in the Companys Consolidated Balance Sheets and Statements of Operations, which adjusts
the Companys consolidated results of operations to reflect only the Companys share of the
earnings or losses of the consolidated subsidiary. As of January 31, 2011, there was one
noncontrolling interest, consisting of 11.8% of the Companys Australian subsidiary, Ocean Power
Technologies (Australasia) Pty. Ltd.
In addition, the Company evaluates its relationships with other entities to identify whether they
are variable interest entities, and to assess whether it is the primary beneficiary of such
entities. If the determination is made that the Company is the primary beneficiary, then that
entity is included in the consolidated financial statements. As of January 31, 2011, there were no
such entities.
The Company has a 10% investment in Iberdrola Energias Renovables, S.A. (Iberdrola Energias).
Revenues from Iberdrola Energias for the nine months ended January 31, 2011 and 2010 were
$(240,000) and $181,000, respectively. Additionally, accounts receivable from Iberdrola Energias
aggregated $313,000 and $556,000 as of January 31, 2011 and April 30, 2010, respectively. See Note
2 (a) and Note 9.
Use of Estimates
The preparation of the consolidated financial statements requires management of the Company to make
a number of estimates and assumptions relating to the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period. Significant items
subject to such estimates and assumptions include the recoverability of the carrying amount of
property and equipment and patents; valuation allowances for receivables and deferred income tax
assets; and percentage of completion of customer contracts for purposes of revenue recognition.
Actual results could differ from those estimates. The current economic environment has increased
the degree of uncertainty inherent in those estimates and assumptions.
7
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(2) Summary of Significant Accounting Policies
(a) Revenue Recognition
The Company primarily recognizes revenue under the percentage-of-completion method. The percentage
of completion is determined by relating the costs incurred to date to the estimated total costs.
The cumulative effects resulting from revisions of estimated total contract costs and revenues are
recorded in the period in which the facts requiring revision become known. Upon anticipating a loss
on a contract, the Company recognizes the full amount of the anticipated loss in the current
period. Accruals related to losses on contracts in the amount of approximately $785,000 are
included in accrued expenses in the accompanying consolidated balance sheets as of January 31,
2011 and April 30, 2010. Modifications to contract provisions, such as those currently being
discussed in connection with the Companys Spain construction agreement (see Note 9), as well as
modifications in contract loss estimates, may require changes in accruals established for
anticipated contract losses. During the nine months ended January 31, 2011, the Companys revenue
was reduced by approximately $240,000 due to a change in estimated revenue to be recognized in
connection with the Spain construction agreement.
Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet
billed. Unbilled receivables are normally billed and collected within one year. Billings made on
contracts are recorded as a reduction of unbilled receivables, and to the extent that such billings
exceed costs incurred plus applicable profit margin, they are recorded as unearned revenues.
(b) Cash and Cash Equivalents
Cash equivalents consist of investments in short-term financial instruments with initial maturities
of three months or less from the date of purchase. Cash and cash equivalents include the following:
$4,471,000 and $1,590,000 of certificates of deposit with an initial term of less than three months
at January 31, 2011 and April 30, 2010, respectively and $3,238,000 and $192,000 invested in money
market funds as of January 31, 2011 and April 30, 2010, respectively.
(c) Restricted Cash and Credit Facility
The Company had $1,480,136 and $1,205,288 of restricted cash as of January 31, 2011 and April 30,
2010, respectively. The cash is restricted under the terms of two security agreements.
One agreement is between Ocean Power Technologies, Inc. and Barclays Bank. Under this agreement,
the cash is on deposit at Barclays Bank and serves as security for letters of credit that are
expected to be issued by Barclays Bank on behalf of Ocean Power Technologies Ltd., one of the
Companys wholly-owned subsidiaries, under a 800,000 credit facility established by Barclays Bank
for Ocean Power Technologies Ltd. The credit facility is for the issuance of letters of credit and
bank guarantees, and carries a fee of 1% per annum of the amount of any such obligations issued by
Barclays Bank. As of January 31, 2011 there were 266,000 in letters of credit outstanding under
this agreement. The credit facility does not have an expiration date, but is cancelable at the
discretion of the bank. As of January 31, 2011, approximately 720,000 is included in restricted
cash.
The other agreement is between Ocean Power Technologies, Inc. and the New Jersey Board of Public
Utilities (NJBPU). The Company received a $500,000 recoverable grant award from the NJBPU. Under
this agreement, the Company is required to assign to the NJBPU a certificate of deposit in an
amount equal to the outstanding grant balance. The Company has assigned certificates of deposit in
the amount of $500,000 to the NJBPU, which are outstanding as of January 31, 2011. See Note 6.
8
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(d) Other Income
Other income consists of transactions that the Company considers to be outside the normal scope of
its operations and operating activities. The Company recognized other income of $17,668 and
$549,258 during the three and nine months ended January 31, 2010, respectively, primarily in
connection with the settlement of a claim that it had against a supplier that provided engineering
services to the Company.
(e) Foreign Exchange Gains and Losses
The Company has invested in certain certificates of deposit and has maintained cash accounts that
are denominated in British pounds sterling, Euros and Australian dollars. Such certificates of
deposit and cash accounts had a balance of approximately $6,806,000 and $4,131,000 as of January
31, 2011 and April 30, 2010, respectively. These amounts are included in cash, cash equivalents,
restricted cash and marketable securities on the accompanying balance sheets. Such positions may
result in realized and unrealized foreign exchange gains or losses from exchange rate fluctuations,
which are included in foreign exchange (loss) gain in the accompanying consolidated statements of
operations. Foreign exchange (loss) gain was $(38,014) and $172,128 for the three months ended
January 31, 2011 and 2010, respectively, and $(205,824) and $674,517 for the nine months ended
January 31, 2011 and 2010, respectively.
(f) Long-Lived Assets
Long-lived assets, such as property and equipment and purchased intangible assets subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of the asset
exceeds its estimated future cash flows, then an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. The Company reviewed
its long-lived assets for impairment and determined there was no impairment for the nine months
ended January 31, 2011.
(g) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist
principally of cash balances, bank certificates of deposit and trade receivables. The Company
invests its excess cash in highly liquid investments (principally, short-term bank deposits,
Treasury bills, Treasury notes and money market funds) and does not believe that it is exposed to
any significant risks.
The table below shows the percentage of the Companys revenues derived from customers whose
revenues accounted for at least 10% of the Companys consolidated revenues for at least one of the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
|
|
Nine months ended January 31, |
|
Customer |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Navy |
|
|
33 |
% |
|
|
79 |
% |
|
|
53 |
% |
|
|
82 |
% |
US Department of Energy |
|
|
39 |
% |
|
|
10 |
% |
|
|
31 |
% |
|
|
2 |
% |
South West of England Regional Development Authority |
|
|
22 |
% |
|
|
|
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94 |
% |
|
|
89 |
% |
|
|
97 |
% |
|
|
84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss of, or a significant reduction in revenues from, any of the current customers could
significantly impact the Companys financial position or results of operations. The Company does
not require collateral from its customers.
9
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(h) Net Loss per Common Share
Basic and diluted net loss per share for all periods presented is computed by dividing net loss by
the weighted average number of shares of common stock outstanding during the period. Due to the
Companys net losses, potentially dilutive securities, consisting of outstanding stock options and
non-vested performance-based shares, were excluded from the diluted loss per share calculation due
to their anti-dilutive effect.
In computing diluted net loss per share, options to purchase shares of common stock and non-vested
restricted stock issued to employees and non-employee directors, totaling 1,691,900 for the three
and nine months ended January 31, 2011 and 1,703,796 for the three and nine months ended January
31, 2010, were excluded from the computations as the effect would be anti-dilutive due to the
Companys losses.
10
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(3) Marketable Securities
Marketable securities with initial maturities longer than three months but that mature in less than
one year from the balance sheet date are classified as current assets and are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Certificates of deposit denominated in AUD |
|
$ |
|
|
|
|
519,232 |
|
|
|
|
|
|
|
|
|
|
US Treasury obligations |
|
|
25,538,538 |
|
|
|
32,016,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,538,538 |
|
|
|
32,536,001 |
|
|
|
|
|
|
|
|
The Companys marketable securities that mature more than one year from the balance sheet date
are classified as noncurrent assets. These marketable securities all mature in less than three
years, are all classified as held-to-maturity, are carried at amortized cost and are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Market |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury obligations |
|
$ |
12,517,853 |
|
|
|
162,462 |
|
|
|
|
|
|
|
12,680,315 |
|
Certificate of deposit |
|
|
3,806,808 |
|
|
|
|
|
|
|
|
|
|
|
3,806,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,324,661 |
|
|
|
162,462 |
|
|
|
|
|
|
|
16,487,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury obligations |
|
$ |
25,058,238 |
|
|
|
158,672 |
|
|
|
|
|
|
|
25,216,910 |
|
Certificate of deposit |
|
|
3,806,808 |
|
|
|
|
|
|
|
|
|
|
|
3,806,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,865,046 |
|
|
|
158,672 |
|
|
|
|
|
|
|
29,023,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(4) Balance Sheet Detail
|
|
|
|
|
|
|
|
|
|
|
January 31, 2011 |
|
|
April 30, 2010 |
|
|
|
|
|
|
|
|
|
|
Property and Equipment |
|
|
|
|
|
|
|
|
Property and Equipment |
|
$ |
1,846,910 |
|
|
|
1,767,078 |
|
Accumulated depreciation and amortization |
|
|
(1,303,424 |
) |
|
|
(1,056,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
543,486 |
|
|
|
710,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
|
|
|
|
|
|
|
Patents |
|
$ |
1,452,799 |
|
|
|
1,322,335 |
|
Accumulated amortization |
|
|
(320,257 |
) |
|
|
(285,454 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,132,542 |
|
|
|
1,036,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses |
|
|
|
|
|
|
|
|
Project costs |
|
$ |
738,333 |
|
|
|
1,072,635 |
|
Contract loss reserves |
|
|
785,000 |
|
|
|
785,000 |
|
Employee incentive payments |
|
|
564,752 |
|
|
|
682,400 |
|
Other |
|
|
209,826 |
|
|
|
308,514 |
|
Payroll-related costs |
|
|
608,054 |
|
|
|
865,829 |
|
Investment in joint venture |
|
|
181,152 |
|
|
|
176,121 |
|
Legal and accounting fees |
|
|
181,880 |
|
|
|
154,567 |
|
Value-added tax |
|
|
37,880 |
|
|
|
47,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,306,877 |
|
|
|
4,092,113 |
|
|
|
|
|
|
|
|
(5) Related Party Transactions
In August 1999, the Company entered into a consulting agreement with an individual for marketing
services. Currently, this agreement is at a rate of $950 per day of services provided. The
individual became a member of the board of directors in June 2006. Under this consulting agreement,
the Company expensed approximately $21,000 during each of the three month periods ended January 31,
2011 and 2010, and $63,000 and $51,000 during the nine months ended January 31, 2011 and 2010,
respectively. In addition, this individual is also the chief executive officer of a company that
provided engineering and technical services to the Company. The Company incurred expenses of
approximately $146,000 and $129,000 for such services during the nine months ended January 31, 2011
and 2010, respectively.
12
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(6) Debt
During the year ended April 30, 2000, the Company received an award of $250,000 from the State of
New Jersey Commission on Science and Technology for the development of a wave power system that was
deployed off the coast of New Jersey. The award contract was assigned to the New Jersey Economic
Development Authority in fiscal 2008. Under the terms of this award, the Company must repay the
amount funded, without interest, by January 15, 2012. The amounts to be repaid each year are
determined as a percentage of revenues (as defined in the loan agreement) the Company receives that
year from its customer contracts that meet criteria specified in the loan agreement. Based upon the
terms of the award, the Company has repaid approximately $161,000. As of January 31, 2011, the
remaining amount due of $89,000 was included in current portion of long-term debt on the
accompanying consolidated balance sheet.
The Company was awarded a recoverable grant totaling $500,000 from the NJBPU under the Renewable
Energy Business Venture Assistance Program. Under the terms of this agreement, the amount to be
repaid is a fixed monthly amount of principal only, repayable over a five-year period beginning in
November 2011. As of January 31, 2011, $25,000 was included in current portion of long-term debt on
the accompanying consolidated balance sheet. The terms also required the Company to assign to the
NJBPU a certificate of deposit in an amount equal to the outstanding grant balance. The Company
received $250,000, representing the first half of the grant, during the year ended April 30, 2010,
and the remaining $250,000 was received in June 2010. See Note 2(c).
(7) Deferred Credits
During the year ended April 30, 2001, in connection with the sale of common stock to an investor,
the Company received $600,000 from the investor in exchange for an option to purchase up to 500,000
metric tons of carbon emissions credits generated by the Company during the years 2008 through
2012, at a 30% discount from the then-prevailing market rate. This amount has been recorded as
deferred credits in the accompanying consolidated balance sheets as of January 31, 2011 and April
30, 2010. If the Company does not become entitled under applicable laws to the full amount of
emission credits covered by the option by December 31, 2012, the Company is obligated to return the
option fee of $600,000, less the aggregate discount on any emission credits sold to the investor
prior to such date. If the Company receives emission credits under applicable laws and fails to
sell to the investor the credits up to the full amount of emission credits covered by the option,
the investor is entitled to liquidated damages equal to 30% of the aggregate market value of the
shortfall in emission credits (subject to a limit on the market price of emission credits).
(8) Share-Based Compensation
Costs resulting from all share-based payment transactions are recognized in the consolidated
financial statements at their fair values. Compensation cost for the portion of the awards for
which the requisite service had not been rendered that were outstanding as of May 1, 2006 is being
recognized in the consolidated statements of operations over the remaining service period after
such date based on the awards original estimated fair value. The aggregate share-based
compensation expense related to all share-based transactions recorded in the consolidated
statements of operations was approximately $954,000 and $872,000 for the nine months ended January
31, 2011 and 2010, respectively.
13
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(a) Stock Options
Valuation Assumptions for Options Granted During the Nine Months Ended January 31, 2011 and 2010
The fair value of each stock option granted during the nine months ended January 31, 2011 and 2010
were estimated at the date of grant using the Black-Scholes option pricing model, assuming no
dividends and using the weighted average valuation assumptions noted in the following table. The
risk-free rate is based on the US Treasury yield curve in effect at the time of grant. The expected
life (estimated period of time outstanding) of the stock options granted was estimated using the
simplified method as permitted by the SECs Staff Accounting Bulletin No. 107, Share-Based
Payment. Expected volatility was based on historical volatility for a peer group of companies for a
period equal to the stock options expected life, calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended January 31, |
|
|
|
2011 |
|
|
2010 |
|
Risk-free interest rate |
|
|
2.3 |
% |
|
|
3.0 |
% |
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected life |
|
6.4 years |
|
|
6.4 years |
|
Expected volatility |
|
|
93.8 |
% |
|
|
81.7 |
% |
The above assumptions were used to determine the weighted average per share fair value of $5.36 and
$4.42 for stock options granted during the nine months ended January 31, 2011 and 2010,
respectively.
A summary of stock options under the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
Shares |
|
|
Average |
|
|
Remaining |
|
|
|
Underlying |
|
|
Exercise |
|
|
Contractual |
|
|
|
Options |
|
|
Price |
|
|
Term |
|
|
|
|
|
|
|
|
|
|
|
(In Years) |
|
Outstanding April 30, 2010 |
|
|
1,375,453 |
|
|
|
11.87 |
|
|
|
|
|
Forfeited |
|
|
(121,211 |
) |
|
|
11.16 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
283,705 |
|
|
|
5.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 31, 2011 |
|
|
1,537,947 |
|
|
|
10.73 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable January 31, 2011 |
|
|
978,265 |
|
|
|
12.91 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of outstanding and exercisable options as of January 31, 2011 was
$13,000. As of January 31, 2011, approximately 560,000 additional options are expected to vest,
which have $32,000 intrinsic value and a weighted average remaining contractual term of 8.7 years.
There was approximately $753,000 of total recognized compensation cost for the nine months ended
January 31, 2011 related to stock options. As of January 31, 2011, there was approximately
$2,090,000 of total unrecognized compensation cost related to non-vested stock options granted
under the plans. This cost is expected to be recognized over a weighted-average period of 3.4
years. The Company normally issues new shares to satisfy option exercises under these plans.
(b) Restricted Stock
Compensation expense for non-vested restricted stock was historically recorded based on its market
value on the date of grant and recognized over the associated service and performance period.
During the nine months ended January 31, 2011, there were 33,620 shares of non-vested restricted
stock granted to employees and non-employee board members with service and/or performance-based
vesting requirements.
14
A summary of non-vested restricted stock under the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Number |
|
|
Price per |
|
|
|
of Shares |
|
|
Share |
|
|
|
|
|
|
|
|
|
|
Issued and unvested at April 30, 2010 |
|
|
157,124 |
|
|
$ |
6.35 |
|
Granted |
|
|
33,620 |
|
|
|
5.32 |
|
Forfeited |
|
|
(5,000 |
) |
|
|
6.40 |
|
Vested |
|
|
(31,791 |
) |
|
|
6.14 |
|
|
|
|
|
|
|
|
|
Issued and unvested at January 31, 2011 |
|
|
153,953 |
|
|
|
6.17 |
|
|
|
|
|
|
|
|
|
There was approximately $201,000 of total recognized compensation cost for the nine months
ended January 31, 2011 related to restricted stock. As of January 31, 2011, there was approximately
$801,000 of total unrecognized compensation cost related to non-vested restricted stock granted
under the plans. This cost is expected to be recognized over a weighted average period of 2.2
years.
(c)Treasury Stock
During the three months ended January 31, 2011, 5,601 shares of common stock were purchased by the
Company.
(9) Commitments and Contingencies
Litigation
The Company is involved from time to time in certain legal actions arising in the ordinary course
of business. Management believes that the outcome of such actions will not have a material adverse
effect on the Companys financial position or results of operations.
Spain Construction Agreement
The Company is currently engaged with Iberdrola Energias in discussions regarding modifications to
its agreement for the first phase of the construction of a wave power project off the coast of
Spain. This first phase was due to be completed by December 31, 2009. If no modification is agreed
to by the parties, the customer may, subject to certain conditions in the agreement, terminate the
agreement and would not be obligated to make any more milestone payments. The agreement also
provides that the customer may seek reimbursement for direct damages only, limited to amounts
specified in the agreement, if the Company is in default of its obligations under the agreement. As
of January 31, 2011, the Company does not believe that the outcome of this matter will have a
material adverse effect on the Companys financial position or results of operations.
15
Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(10) Income Taxes
During the three months ended January 31, 2011, the Company recorded an income tax benefit of
$364,105, representing the proceeds from the sale of $4,446,000 of New Jersey net operating loss
carryforwards.
Other than as a result of the sale of New Jersey net operating loss carryforwards, the Company did
not recognize any consolidated income tax benefit (expense) for the three and nine month periods
ended January 31, 2011 and 2010. The Company has recorded a valuation allowance to reduce its net
deferred tax asset to an amount that is more likely than not to be realized in future years.
Accordingly, the benefit of the net operating loss that would have been recognized was offset by
changes in the valuation allowance.
During the nine months ended January 31, 2011, the Company had no material changes in uncertain tax
positions.
(11) Operating Segments and Geographic Information
The Company views its business as one segment, which is the development and sale of its PowerBuoy
product for wave energy applications. The Company operates on a worldwide basis with one operating
company in the US, one operating subsidiary in the UK and one operating subsidiary in Australia,
which are categorized below as North America, Europe and Australia, respectively. Revenues are
generally attributed to the operating unit that bills the customers.
Geographic information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
Europe |
|
|
Australia |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
1,194,094 |
|
|
|
329,208 |
|
|
|
299 |
|
|
|
1,523,601 |
|
Operating loss |
|
|
(3,422,876 |
) |
|
|
(374,869 |
) |
|
|
(43,337 |
) |
|
|
(3,841,082 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
|
807,091 |
|
|
|
46,857 |
|
|
|
2,534 |
|
|
|
856,482 |
|
Operating loss |
|
|
(5,831,992 |
) |
|
|
(193,985 |
) |
|
|
(47,680 |
) |
|
|
(6,073,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
|
4,224,222 |
|
|
|
528,860 |
|
|
|
9,333 |
|
|
|
4,762,415 |
|
Operating loss |
|
|
(14,477,206 |
) |
|
|
(1,215,246 |
) |
|
|
(156,053 |
) |
|
|
(15,848,505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
|
2,324,319 |
|
|
|
346,209 |
|
|
|
78,766 |
|
|
|
2,749,294 |
|
Operating loss |
|
|
(14,081,449 |
) |
|
|
(655,730 |
) |
|
|
(140,293 |
) |
|
|
(14,877,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
|
351,205 |
|
|
|
192,281 |
|
|
|
|
|
|
|
543,486 |
|
Total assets |
|
|
49,707,581 |
|
|
|
6,744,156 |
|
|
|
860,113 |
|
|
|
57,311,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
|
448,022 |
|
|
|
262,541 |
|
|
|
|
|
|
|
710,563 |
|
Total assets |
|
$ |
67,424,387 |
|
|
|
4,684,104 |
|
|
|
869,702 |
|
|
|
72,978,193 |
|
16
|
|
|
Item 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with the accompanying unaudited
consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.
References to a fiscal year in this Form 10-Q refer to the year ended April 30 of that year (e.g.,
fiscal 2011 refers to the year ending April 30, 2011).
Overview
We develop and are commercializing proprietary systems that generate electricity by harnessing the
renewable energy of ocean waves. Our PowerBuoy ® systems use proprietary
technologies to convert the mechanical energy created by the rising and falling of ocean waves into
electricity. We currently offer two PowerBuoy products, which consist of our utility PowerBuoy
system and our autonomous PowerBuoy system. We also offer our customers operations and maintenance
services for our PowerBuoy systems, which are expected to provide a source of recurring revenues.
In addition, we market our undersea substation pod and undersea power connection infrastructure
services to other companies in the marine energy sector.
We market our utility PowerBuoy system, which is designed to supply electricity to a local or
regional power grid, to utilities and other electrical power producers seeking to add electricity
generated by wave energy to their existing electricity supply. We market our autonomous PowerBuoy
system, which is designed to generate power for use independent of the power grid, to customers
that require electricity in remote locations. We believe there are a variety of potential
applications for our autonomous PowerBuoy system, including sonar and radar surveillance, tsunami
warning, oceanographic data collection, offshore platforms and offshore aquaculture.
We were incorporated in New Jersey in April 1984, began commercial operations in 1994, and were
re-incorporated in Delaware in 2007. We currently have three wholly-owned subsidiaries, which
include Ocean Power Technologies Ltd., Reedsport OPT Wave Park LLC, and Oregon Wave Energy Partners
I, LLC, and we own approximately 88% of the ordinary shares of Ocean Power Technologies
(Australasia) Pty Ltd.
The development of our technology has been funded by capital we raised and by development
engineering contracts we received starting in fiscal 1995. In fiscal 1996, we received the first of
several research contracts with the US Navy to study the feasibility of wave energy. As a result of
those research contracts, we entered into our first development and construction contract with the
US Navy in fiscal 2002 under a still on-going project for the development and testing of our wave
power systems at the US Marine Corps Base in Oahu, Hawaii. We generated our first revenue relating
to our autonomous PowerBuoy system from contracts with Lockheed Martin Corporation, or Lockheed
Martin, in fiscal 2003, and we entered into our first development and construction contract with
Lockheed Martin in fiscal 2004 for the development and construction of a prototype demonstration
autonomous PowerBuoy system.
As of January 31, 2011, our backlog was $5.8 million, a decrease of $1.7 million from October 31,
2010.
For the three months ended January 31, 2011, we generated revenues of $1.5 million and incurred a
net loss attributable to Ocean Power Technologies, Inc. of $3.4 million, compared to revenues of
$0.9 million and a net loss attributable to Ocean Power Technologies, Inc. of $5.6 million for the
three months ended January 31, 2010. For the nine months ended January 31, 2011, we generated
revenues of $4.8 million and incurred a net loss attributable to Ocean Power Technologies, Inc. of
$15.1 million, compared to revenues of $2.7 million and a net loss attributable to Ocean Power
Technologies, Inc. of $12.9 million for the nine months ended January 31, 2010. As of January 31,
2011, our accumulated deficit was $105.5 million. We have not been profitable since inception, and
we do not know whether or when we will become profitable because of the significant uncertainties
with respect to our ability to successfully commercialize our PowerBuoy systems in the emerging
renewable energy market. Since fiscal 2002, the US Navy has accounted for a significant portion of
our revenues. We expect that, over time, revenues derived from utilities and other non-government
commercial customers will increase more rapidly than sales to government customers and may, over
time, represent the majority of our revenues.
The marine energy industry, including wave, tidal and ocean current energy technologies, is
expected to benefit from various legislative initiatives that have been undertaken or are planned
by state and federal agencies. For example, the US production tax credit was expanded to include
marine energy, as part of the Energy Improvement and Extension Act of 2008, signed into law in
October 2008. Production tax credit provisions, that were previously in place, served only to
benefit other renewable energy sources such as wind and solar. This legislation enables owners of
wave power projects in the US to receive federal production tax credits, which, by their
prospective effect of lowering income taxes for our customers based on energy produced, should
improve the comparative economics of wave power as a renewable energy source.
17
Further, it is expected that the US federal and state governments will continue to increase
their investments in the renewable energy sector
under various economic stimulus measures. The American Recovery and Reinvestment Act of 2009
provides significant grants, tax incentives and policy initiatives to stimulate investment and
innovation in the cleantech sector. The US Department of Energy (DOE) has also accepted proposals
to be funded under government programs to further investment in marine energy technologies. We have
devoted additional resources to develop proposals seeking government funding to support existing
projects and technology enhancements. Consequently, while our selling, general and administrative
costs related to such efforts may increase over the next year, we believe that these governmental
initiatives may result in additional revenues for us over the next several years. Given the
uncertainties surrounding the scope and size of these government programs, there can be no
assurances as to whether we will be successful in obtaining significant additional government
funding or as to the terms and conditions of any such funding.
The recent global economic downturn may have a negative effect on our business, financial condition
and results of operations because the utility companies with which we contract or propose to
contract may decrease their investment in new power generation equipment in response to the
downturn. However, the various legislative initiatives described above may diminish the effect of
any decrease in such capital expenditures by these utility companies insofar as they may relate to
renewable energy generation equipment. As discussed above, the timing, scope and size of these new
government programs for renewable energy is uncertain, and there can be no assurances that we or
our customers will be successful in obtaining any additional government funding. In addition, we do
not believe the recent global economic downturn will have a material negative impact on our sources
of supply, as our products incorporate what are substantially non-custom, standard parts found in
many regions of the world.
According to the International Energy Agency, $3.4 trillion is expected to be spent for new
renewable energy generation equipment in the period from 2007 to 2030. This equates to annual
global expenditures of approximately $150 billion. We plan to take advantage of these global
drivers of demand for renewable energy, as we continue to refine and expand our proprietary
technology.
18
Financial Operations Overview
The following describes certain line items in our consolidated statements of operations and some of
the factors that affect our operating results.
Revenues
Generally, we recognize revenue using the percentage-of-completion method based on the ratio of
costs incurred to total estimated costs at completion. In certain circumstances, revenue under
contracts that have specified milestones or other performance criteria may be recognized only when
our customer acknowledges that such criteria have been satisfied. In addition, recognition of
revenue (and the related costs) may be deferred for fixed-price contracts until contract completion
if we are unable to reasonably estimate the total costs of the project prior to completion. Because
we have a small number of contracts, revisions to the percentage of completion determination or
delays in meeting performance criteria or in completing projects may have a significant effect on
our revenue for the periods involved. Upon anticipating a loss on a contract, we recognize the full
amount of the anticipated loss in the current period.
Generally our contracts are either cost plus or fixed price contracts. Under cost plus contracts,
we bill the customer for actual expenses incurred plus an agreed upon fee. Revenue is typically
recorded using percentage-of-completion based on the maximum awarded contract amount. In certain
cases, we may choose to incur costs in excess of the maximum awarded contract amount resulting in a
loss on the contract. Currently, we have two types of fixed price contracts, firm fixed price and
cost sharing. Under firm fixed price contracts, we receive an agreed upon amount for providing
products and services that are specified in the contract. Revenue is typically recorded using
percentage-of-completion based on the contract amount. Depending on whether actual costs are more
or less than the agreed upon amount, there is a profit or loss on the project. Under cost sharing
contracts, the fixed amount agreed upon with the customer is only intended to fund a portion of the
costs on a specific project. We fund the remainder of the costs as part of our product development
efforts. Revenue is typically recorded using percentage-of-completion based on the amount agreed
upon with the customer. An amount corresponding to the revenue is recorded in cost of revenues
resulting in gross profit on these contracts of zero. Our share of the costs is recorded as product
development expense.
The US Navy has been our largest customer since fiscal 2002. The US Navy accounted for
approximately 33% and 53% of our revenues for the three and nine months ended January 31, 2011,
respectively, and approximately 79% and 82% of our revenues for the three and nine months ended
January 31, 2010, respectively. We anticipate that, if our commercialization efforts are
successful, the relative contribution of the US Navy to our revenue may decline in the future.
The following table provides information regarding the breakdown of our revenues by customer for
the nine months ended January 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
|
|
Nine months ended January 31, |
|
|
|
($ millions) |
|
|
($ millions) |
|
Customer |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Navy |
|
$ |
0.5 |
|
|
$ |
0.7 |
|
|
$ |
2.5 |
|
|
$ |
2.2 |
|
US Department of Energy |
|
|
0.6 |
|
|
|
0.1 |
|
|
|
1.5 |
|
|
|
0.1 |
|
South West of England Regional Development Authority |
|
|
0.3 |
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
Iberdrola |
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
0.2 |
|
Scottish Government |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
Other |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.5 |
|
|
$ |
0.9 |
|
|
$ |
4.8 |
|
|
$ |
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended January 31, 2011, the Company reduced revenue by approximately $0.2
million due to a change in estimated revenue to be recognized in connection with the Spain
construction agreement.
19
We currently focus our sales and marketing efforts on North America, the west coast of Europe,
Australia and Japan. The following table provides information regarding the breakdown of our
revenues by geographical location of our customers for the nine months ended January 31, 2011 and
2010:
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
United States |
|
|
89 |
% |
|
|
84 |
% |
Europe |
|
|
11 |
% |
|
|
13 |
% |
Australia |
|
|
|
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
Cost of revenues
Our cost of revenues consists primarily of incurred material, labor and manufacturing overhead
expenses, such as engineering expense, equipment depreciation and maintenance and facility related
expenses, and includes the cost of PowerBuoy parts and services supplied by third-party suppliers.
Cost of revenues also includes PowerBuoy system delivery and deployment expenses and anticipated
losses at completion on certain contracts.
We operated at a gross profit of $0.1 million and a gross loss of $0.1 million for the three and
nine months ended January 31, 2011, respectively, and a gross profit of $0.2 million and $0.5
million for the three and nine months ended January 31, 2010, respectively. Our ability to generate
a gross profit will depend on the nature of future contracts, our success at increasing sales of
our PowerBuoy systems and on our ability to manage costs incurred on fixed price commercial
contracts.
Product development costs
Our product development costs consist of salaries and other personnel-related costs and the costs
of products, materials and outside services used in our product development and unfunded research
activities. Our product development costs primarily relate to our efforts to increase the output of
our utility PowerBuoy system, primarily the 150kW PowerBuoy system, and to our research and
development of new products, product applications and complementary technologies. We expense all of
our product development costs as incurred, except for external patent costs, which we capitalize
and amortize over a 17-year period commencing with the issuance date of each patent. Patents are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the patent may not be recoverable.
Selling, general and administrative costs
Our selling, general and administrative costs consist primarily of professional fees, salaries and
other personnel-related costs for employees and consultants engaged in sales and marketing and
support of our PowerBuoy systems and costs for executive, accounting and administrative personnel,
professional fees and other general corporate expenses.
Interest income
Interest income consists of interest received on cash and cash equivalents, investments in
commercial bank-issued certificates of deposit and US Treasury bills and notes. Total cash, cash
equivalents, restricted cash, and marketable securities were $52.8 million as of January 31, 2011,
compared to $71.3 million as of January 31, 2010. Interest income in the nine months ended January
31, 2011 decreased compared to the nine months ended January 31, 2010 due to a decline in interest
rates and a decline in cash, cash equivalents and marketable securities.
We anticipate that our interest income reported in fiscal 2011 will continue to be lower than the
comparable periods of the prior fiscal year as a result of the decrease in invested cash.
Other income
Other income consists of transactions that we consider to be outside the normal scope of our
operations and operating activities. In the nine months ended January 31, 2010, we recognized other
income of $0.5 million in connection with the settlement of a claim which we had against a supplier
that provided engineering services to us.
20
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 invest in certificates of deposit and maintain cash accounts that are denominated in British
pounds, Euros and Australian dollars. These foreign-denominated certificates of deposit and cash
accounts had a balance of $6.8 million as of January 31, 2011 and $5.6 million as of January 31,
2010, compared to our total cash, cash equivalents, restricted cash, and marketable security
balances of $52.8 million as of January 31, 2011 and $71.3 million as of January 31, 2010. These
foreign currency balances are translated at each month end to our functional currency, the US
dollar, and any resulting gain or loss is recognized in our results of operations.
In addition, a portion of our operations is conducted through our subsidiaries in countries other
than the United States, specifically Ocean Power Technologies Ltd. in the United Kingdom, the
functional currency of which is the British pound sterling, and Ocean Power Technologies
(Australasia) Pty Ltd. in Australia, the functional currency of which is the Australian dollar.
Both of these subsidiaries have foreign exchange exposure that results from changes in the exchange
rate between their functional currency and other foreign currencies in which they conduct business.
All of our international revenues for the three and nine months ended January 31, 2011 and 2010
were recorded in Euros, British pounds sterling or Australian dollars.
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, cash equivalents and marketable securities 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.
21
Results of Operations
Three Months Ended January 31, 2011 Compared to Three Months Ended January 31, 2010
The following table contains selected statement of operations information, which serves as the
basis of the discussion of our results of operations for the three months ended January 31, 2011
and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
January 31, 2011 |
|
|
January 31, 2010 |
|
|
% Change |
|
|
|
|
|
|
|
As a % of |
|
|
|
|
|
|
As a % of |
|
|
2011 Period to |
|
|
|
Amount |
|
|
Revenues (1) |
|
|
Amount |
|
|
Revenues (1) |
|
|
2010 Period |
|
Revenues |
|
$ |
1,523,601 |
|
|
|
100 |
% |
|
$ |
856,482 |
|
|
|
100 |
% |
|
|
78 |
% |
Cost of revenues |
|
|
1,453,397 |
|
|
|
95 |
|
|
|
691,090 |
|
|
|
81 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
70,204 |
|
|
|
5 |
|
|
|
165,392 |
|
|
|
19 |
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development costs |
|
|
2,026,336 |
|
|
|
133 |
|
|
|
3,681,118 |
|
|
|
430 |
|
|
|
(45 |
) |
Selling, general and administrative costs |
|
|
1,884,950 |
|
|
|
124 |
|
|
|
2,557,931 |
|
|
|
299 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
3,911,286 |
|
|
|
257 |
|
|
|
6,239,049 |
|
|
|
728 |
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(3,841,082 |
) |
|
|
(252 |
) |
|
|
(6,073,657 |
) |
|
|
(709 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
Interest income, net |
|
|
148,480 |
|
|
|
10 |
|
|
|
231,683 |
|
|
|
27 |
|
|
|
(36 |
) |
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
17,668 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange (loss) gain |
|
|
(38,014 |
) |
|
|
(2 |
) |
|
|
172,128 |
|
|
|
20 |
|
|
|
(122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(3,730,616 |
) |
|
|
(245 |
) |
|
|
(5,652,178 |
) |
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
364,105 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(3,366,511 |
) |
|
|
(221 |
) |
|
|
(5,652,178 |
) |
|
|
(660 |
) |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to
the noncontrolling interest in
Ocean Power Technologies
(Australasia) Pty Ltd |
|
|
3,693 |
|
|
|
|
|
|
|
2,682 |
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Ocean Power Technologies, Inc |
|
$ |
(3,362,818 |
) |
|
|
(221 |
)% |
|
$ |
(5,649,496 |
) |
|
|
(660 |
)% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain subtotals may not add due to rounding. |
Revenues
Revenues increased by $0.6 million in the three months ended January 31, 2011, or 78%, to $1.5
million, as compared to $0.9 million in the three months ended January 31, 2010. The change in
revenues was attributable to the following factors:
|
|
Revenues relating to our utility PowerBuoy system increased by $0.7
million due primarily to an increase in billable work on our PB500
PowerBuoy development project and the 150kW PowerBuoy project off
the coast of Reedsport, Oregon. This was partially offset by a
decrease in revenue related to our Hawaii project for the US Navy. |
|
|
|
Revenues relating to our autonomous PowerBuoy system decreased by
$0.1 million as a result of a decrease in billable work on the US
Navys Deep Water Active Detection System or DWADS, as this project
neared completion. |
Cost of revenues
Cost of revenues increased by $0.8 million, or 110%, to $1.5 million in the three months ended
January 31, 2011, as compared to $0.7 million in the three months ended January 31, 2010. This
increase in the cost of revenues reflected the increased activity related to our PB500 PowerBuoy
development project and the 150kW PowerBuoy project off the coast of Reedsport, Oregon. This was
partially offset by a lower
level of activity on our Hawaii project for the US Navy.
22
We operated at a gross profit of $0.1 million and $0.2 million in the three months ended
January 31, 2011 and 2010, respectively. Certain of our projects in the three months ended January
31, 2011 and 2010 were under cost sharing contracts. Under cost sharing contracts, we receive a
fixed amount agreed upon with the customer that is only intended to fund a portion of the costs on
a specific project. We fund the remainder of the costs as part of our product development efforts.
Revenue is typically recorded using percentage-of-completion applied to the contractual amount
agreed upon with the customer. An equal amount corresponding to the revenue is recorded in cost of
revenues resulting in gross profit on these contracts of zero. Our share of the costs is considered
to be product development expense. Our ability to generate a gross profit will depend on the nature
of future contracts, our success at increasing sales of our PowerBuoy systems and on our ability to
manage costs incurred on fixed price commercial contracts.
Product development costs
Product development costs decreased by $1.7 million, or 45%, to $2.0 million in the three months
ended January 31, 2011, as compared to $3.7 million in the three months ended January 31, 2010.
Product development costs were primarily attributable to our efforts to increase the power output
and reliability of our utility PowerBuoy system, especially the 150kW PowerBuoy system. The
decrease in product development costs is primarily related to a decrease in spending related to our
150kW PowerBuoy project off the coast of Scotland, as the construction phase of the project neared
completion. It is our intent to fund the majority of our research and development expenses over the
next several years with sources of external funding. If we are unable to obtain external funding,
we may curtail our research and development expenses or we may decide to self-fund significant
research and development expenses, in which case our product development costs may continue to
increase. During the three months ended January 31, 2011, the majority of funding for our PB500
PowerBuoy development project was from external sources.
Selling, general and administrative costs
Selling, general and administrative costs decreased $0.7 million, or 26%, to $1.9 million for the
three months ended January 31, 2011, as compared to $2.6 million for the three months ended January
31, 2010. The decrease was primarily attributable to a decrease in compensation and recruiting
fees.
Interest income
Interest income decreased approximately $0.1 million, or 36%, to $0.1 million for the three months
ended January 31, 2011, due to a decrease in cash, cash equivalents and marketable securities and
average yield. The average yield was approximately 1.07% during the three months ended January 31,
2011 and 1.25% during the three months ended January 31, 2010.
Foreign exchange (loss) gain
Foreign exchange loss was $38,000 for the three months ended January 31, 2011, compared to a
foreign exchange gain of $0.2 million for the three months ended January 31, 2010. The difference
was primarily attributable to the relative change in value of the British pound sterling, Euro and
Australian dollar compared to the US dollar during the two periods.
Income tax benefit
During the three months ended January 31, 2011, we sold New Jersey net operating tax loss
carryforwards resulting in an income tax benefit of $0.4 million.
23
Nine Months Ended January 31, 2011 Compared to Nine Months Ended January 31, 2010
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 ended January 31, 2011 and
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
|
|
|
January 31, 2011 |
|
|
January 31, 2010 |
|
|
% Change |
|
|
|
|
|
|
|
As a % of |
|
|
|
|
|
|
As a % of |
|
|
2011 Period to |
|
|
|
Amount |
|
|
Revenues (1) |
|
|
Amount |
|
|
Revenues (1) |
|
|
2010 Period |
|
Revenues |
|
$ |
4,762,415 |
|
|
|
100 |
% |
|
$ |
2,749,294 |
|
|
|
100 |
% |
|
|
73 |
% |
Cost of revenues |
|
|
4,818,623 |
|
|
|
101 |
|
|
|
2,243,465 |
|
|
|
82 |
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit |
|
|
(56,208 |
) |
|
|
(1 |
) |
|
|
505,829 |
|
|
|
18 |
|
|
|
(111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development costs |
|
|
9,731,592 |
|
|
|
204 |
|
|
|
8,467,866 |
|
|
|
308 |
|
|
|
15 |
|
Selling, general and administrative costs |
|
|
6,060,705 |
|
|
|
127 |
|
|
|
6,915,435 |
|
|
|
252 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
15,792,297 |
|
|
|
332 |
|
|
|
15,383,301 |
|
|
|
560 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(15,848,505 |
) |
|
|
(333 |
) |
|
|
(14,877,472 |
) |
|
|
(541 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
546,829 |
|
|
|
11 |
|
|
|
764,504 |
|
|
|
28 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
549,258 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange (loss) gain |
|
|
(205,824 |
) |
|
|
(4 |
) |
|
|
674,517 |
|
|
|
25 |
|
|
|
(131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(15,507,500 |
) |
|
|
(326 |
) |
|
|
(12,889,193 |
) |
|
|
(469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
364,105 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(15,143,395 |
) |
|
|
(318 |
) |
|
|
(12,889,193 |
) |
|
|
(469 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
Less: Net loss (income) attributable to
the noncontrolling interest in
Ocean Power Technologies
(Australasia) Pty Ltd |
|
|
14,792 |
|
|
|
|
|
|
|
(50,551 |
) |
|
|
(2 |
) |
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Ocean Power Technologies, Inc |
|
$ |
(15,128,603 |
) |
|
|
(318 |
)% |
|
$ |
(12,939,744 |
) |
|
|
(471 |
)% |
|
|
(17 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain subtotals may not add due to rounding. |
Revenues
Revenues increased by $2.1 million in the nine months ended January 31, 2011, or 73%, to $4.8
million, as compared to $2.7 million in the nine months ended January 31, 2010. The change in
revenues was attributable to the following factors:
|
|
Revenues relating to our autonomous PowerBuoy system increased by
$1.2 million as a result of an increase in billable work on our
project to provide our PowerBuoy technology to the US Navys
Littoral Expeditionary Autonomous PowerBuoy or LEAP program. This
was partially offset by a decrease in billable work on the US
Navys DWADS project. |
|
|
|
Revenues relating to our utility PowerBuoy system increased by $0.9
million due primarily to an increase in billable work on our PB500
PowerBuoy development project and our 150kW PowerBuoy project off
the coast of Reedsport, Oregon. This was partially offset by a
decrease in revenue related to our Hawaii project for the US Navy
and our wave power project off the coast of Spain, as these
projects neared completion. Also, during the nine months ended
January 31, 2011, there was a reduction in revenue of approximately
$0.2 million due to a change in estimated revenue to be recognized
in connection with the Spain construction agreement. |
Cost of revenues
Cost of revenues increased by $2.6 million, or 115%, to $4.8 million in the nine months ended
January 31, 2011, as compared to $2.2 million in the nine months ended January 31, 2010. This
increase in the cost of revenue reflected the increased activity related to the LEAP program, the
150kW PowerBuoy project off the coast of Reedsport, Oregon, and our PB500 PowerBuoy development
project. This was partially offset by a lower level of activity on our Hawaii project for the US
Navy and our wave power project off the coast of Spain. During the nine months ended January 31,
2010, there was a reduction in cost of revenues resulting from the reversal of $0.4 million in the
provision for loss reserves related to our project off the coast of Spain as the reserve was no
longer considered necessary as of January 31, 2010.
24
We operated at a gross loss of $56,000 in the nine months ended January 31, 2011 and a gross
profit of $0.5 million in the nine months ended January 31, 2010. Certain of our projects in the
nine months ended January 31, 2011 and 2010 were under cost sharing contracts. Under cost sharing
contracts, we receive a fixed amount agreed upon with the customer that is only intended to fund a
portion of the costs on a specific project. We fund the remainder of the costs as part of our
product development efforts. Revenue is typically recorded using percentage-of-completion applied
to the contractual amount agreed upon with the customer. An equal amount corresponding to the
revenue is recorded in cost of revenues resulting in gross profit on these contracts of zero. Our
share of the costs is considered to be product development expense. During the nine months ended
January 31, 2011, we reduced revenue by approximately $0.2 million due to a change in estimated
revenue to be recognized in connection with the Spain construction agreement, and there was no
corresponding reduction in cost of revenues. During the nine months ended January 31, 2010, there
was a reduction in cost of revenues resulting from the reversal of $0.4 million in the provision
for loss reserves related to our project off the coast of Spain as the reserve was no longer
considered necessary. Our ability to generate a gross profit will depend on the nature of future
contracts, our success at increasing sales of our PowerBuoy systems and on our ability to manage
costs incurred on fixed price commercial contracts.
Product development costs
Product development costs increased by $1.2 million, or 15%, to $9.7 million in the nine months
ended January 31, 2011, as compared to $8.5 million in the nine months ended January 31, 2010.
Product development costs were primarily attributable to our efforts to increase the power output
and reliability of our utility PowerBuoy system, especially the 150kW PowerBuoy system. It is our
intent to fund the majority of our research and development expenses over the next several years
with sources of external funding. If we are unable to obtain external funding, we may curtail our
research and development expenses or we may decide to self-fund significant research and
development expenses, in which case our product development costs may continue to increase.
Selling, general and administrative costs
Selling, general and administrative costs decreased $0.8 million, or 12%, to $6.1 million for the
nine months ended January 31, 2011, as compared to $6.9 million for the nine months ended January
31, 2010. The decrease was primarily attributable to a decrease in compensation and recruiting
expenses.
Interest income
Interest income decreased approximately $0.3 million, or 28%, to $0.5 million for the nine months
ended January 31, 2011, compared to $0.8 million for the nine months ended January 31, 2010,
primarily due to a decrease in cash, cash equivalents and marketable securities. The average yield
was approximately 1.28% during the nine months ended January 31, 2011 and 1.30% during the nine
months ended January 31, 2010.
Other income
We recognized no other income for the nine months ended January 31, 2011, compared to $0.5 million
for the nine months ended January 31, 2010. During the nine months ended January 31, 2010, we
settled a claim which we had against a supplier of engineering services, which resulted in a
settlement in our favor.
Foreign exchange (loss) gain
Foreign exchange loss was $0.2 million for the nine months ended January 31, 2011, compared to a
foreign exchange gain of $0.7 million for the nine months ended January 31, 2010. The difference
was primarily attributable to the relative change in value of the British pound sterling, Euro and
Australian dollar compared to the US dollar during the two periods.
Income tax benefit
During the nine months ended January 31, 2011, we sold New Jersey net operating tax loss
carryforwards resulting in an income tax benefit of $0.4 million.
25
Liquidity and Capital Resources
Since our inception, the cash flows from customer revenues have not been sufficient to fund our
operations and provide the capital resources for the planned growth of our business. For the three
years ended April 30, 2010, our revenues were $13.9 million, our net losses were $52.1 million and
our net cash used in operating activities was $46.1 million.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended January 31, |
|
|
|
2011 |
|
|
2010 |
|
Net loss |
|
$ |
(15,143,395 |
) |
|
$ |
(12,889,193 |
) |
|
|
|
|
|
|
|
|
|
Adjustments for noncash operating items |
|
|
1,488,456 |
|
|
|
607,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash operating loss |
|
|
(13,654,939 |
) |
|
|
(12,282,050 |
) |
|
|
|
|
|
|
|
|
|
Net change in operating assets and liabilities |
|
|
(332,324 |
) |
|
|
515,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
$ |
(13,987,263 |
) |
|
$ |
(11,766,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
$ |
18,975,632 |
|
|
$ |
7,222,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) by financing activities |
|
$ |
213,133 |
|
|
$ |
(93,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents |
|
$ |
64,525 |
|
|
$ |
837,636 |
|
|
|
|
|
|
|
|
Net cash used in operating activities
Net cash used in operating activities was $14.0 million and $11.8 million for the nine months ended
January 31, 2011 and 2010, respectively. The change was the result of an increase in net loss of
$2.2 million and in cash used by operating assets and liabilities of $0.8 million, offset by
increases in non-cash charges of $0.9 million.
The change in non-cash charges was primarily due to a change in foreign exchange gains (losses) of
$0.9 million resulting from the relative change in the value of the British pound sterling against
the US dollar.
Net cash provided by investing activities
Net cash provided by investing activities was $19.0 million and $7.2 million for the nine months
ended January 31, 2011 and 2010, respectively. The change was primarily the result of a net
decrease in purchases of securities during the nine months ended January 31, 2011.
Net cash provided by (used in) financing activities
Net cash provided by financing activities was $0.2 million in the nine months ended January 31,
2011 and net cash used in financing activities was $0.1 million in the nine months ended January
31, 2010. During the nine months ended January 31, 2011, we received a $0.25 million loan under the
New Jersey Board of Public Utilities Renewable Energy Business Venture Assistance Program.
Effect of exchange rates on cash and cash equivalents
The effect of exchange rates on cash and cash equivalents was a gain of $0.1 million in the nine
months ended January 31, 2011 and a gain of $0.9 million in the nine months ended January 31, 2010.
The change was primarily the result of gains or losses on consolidation of foreign subsidiaries and
foreign denominated cash and cash equivalents.
26
Liquidity and Capital Resources Outlook
We expect to devote substantial resources to continue our development efforts for our PowerBuoy
systems and to expand our sales, marketing and manufacturing programs associated with the
commercialization of the PowerBuoy system. Our future capital requirements will depend on a number
of factors, including:
|
|
the cost of development efforts for our PowerBuoy systems; |
|
|
|
the success of our commercial relationships with major customers; |
|
|
|
the cost of manufacturing activities; |
|
|
|
the cost of commercialization activities, including demonstration projects, product marketing and sales; |
|
|
|
our ability to establish and maintain additional commercial relationships; |
|
|
|
the implementation of our expansion plans, including the hiring of new employees; |
|
|
|
potential acquisitions of other products or technologies; and |
|
|
|
the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other
patent-related costs. |
We expect the rate of cash used in the fourth quarter of fiscal 2011 to be consistent with the
first three quarters. We expect the rate of cash outflows to decrease in fiscal 2012, reflecting
completion of significant milestones associated with the construction of our two PB150 systems for
Oregon and Scotland.
We believe that our current cash, cash equivalents and investments will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures at least through fiscal 2012.
If existing resources are insufficient to satisfy our liquidity requirements or if we acquire or
license rights to additional product technologies, we may seek to sell additional equity or debt
securities or obtain a credit facility. The sale of additional equity or convertible securities
could result in dilution to our stockholders. If additional funds are raised through the issuance
of debt securities, these securities could have rights senior to those associated with our common
stock and could contain covenants that would restrict our operations. Financing may not be
available in amounts or on terms acceptable to us. If we are unable to obtain required financing,
we may be required to reduce the scope of our planned product development and marketing efforts,
which could harm our financial condition and operating results.
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet financing activities.
27
|
|
|
Item 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We generally place our investments in money market funds, Treasury notes, Treasury bills and
certificates of deposit with maturities of less than one year. We actively manage our portfolio of
cash equivalents and marketable securities, but in order to ensure liquidity, we will only invest
in instruments with high credit quality where a secondary market exists. We have not held and do
not hold any derivatives related to our interest rate exposure. Due to the average maturity and
conservative nature of our investment portfolio, a change in interest rates would not have a
material effect on the value of the portfolio. We do not have market risk exposure on our long-term
debt because it consists of an interest-free loan from the New Jersey Board of Public Utilities.
We estimate that if the average yield on our cash, cash equivalents and marketable securities had
decreased by 100 basis points, during the nine months ended January 31, 2011, our interest income
for the period would have decreased by approximately $0.4 million. This estimate assumes that the
decrease occurred on the first day of the fiscal period and reduced the yield of each investment by
100 basis points. The impact on our future interest income of future changes in investment yields
will depend largely on the gross amount of our cash, cash equivalents and marketable securities.
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 cash accounts had a balance of $6.8 million as of January 31,
2011 compared to our total cash, cash equivalents, marketable securities and restricted cash
account balances of $52.8 million as of January 31, 2011. These foreign currency balances are
translated at each month end to our functional currency, the US dollar, and any resulting gain or
loss is recognized in our results of operations. If foreign currency exchange rates had fluctuated
by 10% as of January 31, 2011, the impact on our foreign exchange gains and losses would have been
$0.7 million.
In addition, a portion of our operations is conducted through our subsidiaries in countries other
than the United States, specifically Ocean Power Technologies Ltd. in the United Kingdom, the
functional currency of which is the British pound sterling, and Ocean Power Technologies
(Australasia) Pty Ltd. in Australia, the functional currency of which is the Australian dollar.
Both of these subsidiaries have foreign exchange exposure that results from changes in the exchange
rate between their functional currency and other foreign currencies in which they conduct business.
All of our international revenues for the nine months ended January 31, 2011 were recorded in
Euros, British pounds sterling or Australian dollars.
We currently do not hedge exchange rate exposure. However, we assess the anticipated foreign
currency working capital requirements and capital asset acquisitions of our foreign operations and
attempt to maintain a portion of our cash, cash equivalents and certificates of deposit denominated
in foreign currencies sufficient to satisfy these anticipated requirements. We also assess the need
and cost to utilize financial instruments to hedge currency exposures on an ongoing basis and may
hedge against exchange rate exposure in the future.
We have limited potential exposure to fluctuations in prices of commodities used in the production
of our buoys, such as steel. Currently, we believe our exposure is minimal since we contract for
the components of our buoys on a project-by-project basis and do not yet produce in large unit
volumes. We do not use long-term supply agreements nor do we use derivative instruments to hedge
any potential exposure.
28
|
|
|
Item 4. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are our controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we file or submit under
the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, as of
January 31, 2011, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended January 31, 2011 that
has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
LEGAL PROCEEDINGS |
We are subject to legal proceedings, claims and litigation arising in the ordinary course of
business. While the outcome of these matters is currently not determinable, we do not expect that
the ultimate costs to resolve these matters will have a material adverse effect on our financial
position, results of operations or cash flows.
The discussion of our business and operations should be read together with the risk factors
contained in Item 1A of our Annual Report on Form 10-K for the year ended April 30, 2010. These
risk factors describe various risks and uncertainties to which we are or may become subject. These
risks and uncertainties have the potential to affect our business, financial condition, results of
operations, cash flows, strategies or prospects in a material and adverse manner. There have been
no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K
filed with the SEC on July 14, 2010.
29
|
|
|
Item 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Use of Proceeds
On April 30, 2007, we sold 5,000,000 shares of our common stock in our initial public offering in
the United States at a price of $20.00 per share, pursuant to a registration statement on Form S-1
(File No. 333-138595), which was declared effective by the SEC on April 24, 2007. The managing
underwriters in the offering were UBS Securities LLC, Banc of America Securities LLC, and Bear,
Stearns & Co., Inc. The underwriting discounts and commissions and offering expenses payable by us
aggregated $10.1 million, resulting in net proceeds to us of $89.9 million. None of the
underwriting discounts and commissions or offering costs were incurred or paid to directors or
officers of ours or their associates or to persons owning ten percent or more of our common stock
or to any affiliates of ours.
From the effective date of the registration statement through January 31, 2011, we used $6.6
million to construct demonstration PowerBuoys, $24.8 million to fund the continued development and
commercialization of our PowerBuoy system, $5.0 million to expand our sales and marketing
capabilities and $0.7 million to fund the expansion of assembly, test and field service facilities.
We have invested the balance of the net proceeds from the offering in marketable securities, in
accordance with our investment policy. We have not used any of the net proceeds from the offering
to make payments, directly or indirectly, to any director or officer of ours, or any of their
associates, to any person owning ten percent or more of our common stock or to any affiliate of
ours. There has been no material change in our planned use of the balance of the net proceeds from
the offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under
the Securities Act of 1933.
|
|
|
Item 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
None.
|
|
|
Item 5. |
|
OTHER INFORMATION |
None.
30
|
|
|
|
|
|
10.1 |
|
|
Form of Restricted Stock Agreement |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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|
32.2 |
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|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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By:
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/s/ Charles F. Dunleavy
Charles F. Dunleavy
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: March 14, 2011 |
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By:
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/s/ Brian M. Posner
Brian M. Posner
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Chief Financial Officer |
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(Principal Financial Officer) |
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Date: March 14, 2011
32
EXHIBITS INDEX
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10.1 |
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Form of Restricted Stock Agreement |
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|
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31.1 |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.2 |
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|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
33