Notes
to Unaudited Consolidated Financial Statements
(1)
Background, Basis of Presentation and Liquidity
a)
Background
Ocean
Power Technologies, Inc. (the “Company”, “we”, “us”, “our”) was founded in 1984
in New Jersey, commenced business operations in 1994 and re-incorporated in Delaware in 2007. We are a marine power solutions
provider. We control the design, manufacture, sales, installation, operations and maintenance of our products and solutions while
working closely with partners that provide payloads, integration services, and marine installation capabilities. We believe our
solutions provide persistent and reliable distributed offshore power along with communications for remote surface and subsea applications.
Our mission and purpose are to utilize our proprietary, state-of-the-art technologies to enhance the environment by reducing the
global carbon footprint through clean and renewable solutions for reliable electrical power and, in so doing, drive demand for
our products and services. Before 2015, government agencies had accounted for a significant portion of the Company’s revenues.
These revenues were largely for the support of product development efforts relating to our technology. Today our goal is to generate
the majority of our revenue from the commercialization of products and solutions, and sales of services to support our business
operations. As we continue to develop and commercialize our products and services, we expect to use our cash on hand and cash
from operating activities to support our business until we can achieve positive cash flow from the commercialization of solutions,
products and services.
b) Basis of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) and for interim financial information in accordance with the Securities
and Exchange Commission (“SEC”), instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by GAAP 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 Company’s financial results can be found in the Company’s Annual
Report on Form 10-K for the year ended April 30, 2020 filed with the SEC and elsewhere in this Form 10-Q.
c) Liquidity/Going Concern
Our consolidated financial statements have
been prepared assuming the Company will continue as a going concern. The Company has experienced recurring losses from operations,
and has used net cash in operating activities of approximately $8.5 million through the nine months ended January 31, 2021
and approximately $10.5 million for the fiscal year ending April 30, 2020 all of which have contributed to an accumulated
deficit of $229.7 million as of January 31, 2021. These factors raise substantial doubt about the Company’s ability to continue
as a going concern. As of January 31, 2021, based in large part on the equity raises discussed below, the Company had approximately
$79.8 million in unrestricted cash and cash equivalents on hand. Based on the Company’s current unrestricted
cash and cash equivalents balances, and its ability to raise additional equity under facilities currently in place, the Company
believes that it will be able to finance its capital requirements and operations for at least the next 12 months from
the date of this Report. The Company expects to continue to fund our business with sales of our securities and through generating
revenue with customers. The Company cannot provide assurances that it will be able to secure additional funding when needed or
at all, or, if secured, that such funding would be on favorable terms. The Company also cannot provide assurances that it will
generate sufficient revenue from customers to fund our business.
The
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities
that might result from the outcome of this uncertainty.
Management
continues to evaluate different strategies to obtain the required additional funding for future operations. These strategies may
include, but are not limited to, continued pursuit of business opportunities, additional funding from current and /or new investors,
officers and directors; borrowings of debt; or a public offering of the Company’s equity or debt securities, or the acquisition
of third-party entities that have similar business focuses. There can be no assurance that any of these future-funding efforts
will be successful. The Company currently has committed sources of equity financing through it’s At the Market Offering
Agreement with A.G.P/Alliance Global Partners (“AGP”) and its equity line with Aspire Capital (discussed further below),
but the Company cannot be sure that additional equity and/or debt financing will be available to the Company as needed on acceptable
terms, or at all. Historically, the Company has raised capital through securities sales in the public capital markets. The sale
of additional equity or convertible securities could result in dilution to stockholders. If additional funds are raised through
the issuance of debt securities, these securities could have rights senior to those associated with the Company’s common
stock and could contain covenants that would restrict its operations. Financing may not be available in amounts or on terms acceptable
to the Company, or at all. If the Company is unable to obtain required financing, the Company may be required to curtail
or limit operations, product development costs, and/or selling, general and administrative activities in order to reduce its cash
expenditures, including its planned product development and marketing efforts, which could materially and adversely harm its
financial condition and operating results. If the Company is unable to secure additional financing, it may be unable to execute
its business plan, take advantage of future opportunities or be forced to cease operations.
In
fiscal year 2020 and during the first nine months of fiscal year 2021 ended January 31, 2021, the Company has continued to make
investments in ongoing product development efforts in anticipation of future growth. The Company’s future results of operations
involve significant risks and uncertainties. Factors that could affect the Company’s future operating results and cause
actual results to vary materially from expectations include, but are not limited to, risks from lack of available financing and
insufficient capital, performance of products, its inability to market and commercialize its products and new products that it
may develop, technology development, scalability of technology and production, dependence on skills of key personnel, concentration
of customers and suppliers, deployment risks and laws, regulations and permitting.
At
the Market Offering Agreements
On
January 7, 2019, the Company entered into an At the Market Offering Agreement (“2019 ATM Facility”) with AGP, under
which the Company may issue and sell to or through AGP, acting as agent and/or principal, shares of the Company’s common
stock having an aggregate offering price of up to $25.0 million. From inception of the program through its termination
on December 8, 2020, under the 2019 ATM Facility, the Company sold and issued an aggregate of 17,595,472 shares of its common
stock with an aggregate market value of $23.4 million at an average price of $1.33 per share and paid AGP a sales commission of
approximately $0.8 million related to those shares. The agreement was fully utilized and terminated on December 8, 2020.
On
November 20, 2020, the Company entered into a new At the Market Offering Agreement with AGP (the “2020 ATM Facility”).
The Company on December 4, 2020 filed a prospectus with Securities and Exchange Commission whereby, the Company may issue
and sell to or through AGP, acting as agent and/or principal, shares of the Company’s common stock having an aggregate offering
price of up to $50.0 million. From inception of the 2020 ATM Facility through January 31, 2021, the Company sold and issued an
aggregate of 17,179,883 shares of its common stock with an aggregate market value of $50.0 million at an average price of $2.91
per share and paid AGP a sales commission of approximately $1.6 million related to those shares. The dollar amount reported
in the prospectus filing is fully utilized.
Equity
Line Common Stock Purchase Agreements
On
October 24, 2019, the Company entered into a common stock purchase agreement with Aspire Capital which provided that, subject
to certain terms, conditions and limitations, Aspire Capital is committed to purchase up to an aggregate of $10.0 million of shares
of the Company’s common stock over a 30-month period. Through September 18, 2020, the Company has sold an aggregate of 6,424,205
shares of common stock with an aggregate market value of $4.0 million at an average price of $0.63 per share pursuant to this
common stock purchase agreement. The agreement was fully utilized and terminated on September 18, 2020.
On
September 18, 2020, the Company entered into a new common stock purchase agreement with Aspire Capital which provided that, subject
to certain terms, conditions and limitations, Aspire Capital is committed to purchase up to an aggregate of $12.5 million of shares
of the Company’s common stock over a 30-month period that does not exceed 19.99% of the outstanding common stock on the
date of the agreement. The number of shares the Company could issue within the 19.99% limit is 3,722,251 shares without shareholder
approval. Shareholder approval was received at the Company’s annual meeting of stockholders on December 23, 2020 for
the sale of 9,864,706 additional shares of common stock which is over the 19.99% limit of outstanding common stock on the date
of the agreement. Through January 31, 2021, the Company has sold an aggregate of 2,250,000 shares of common stock with an aggregate
market value of $7.4 million at an average price of $3.28 per share pursuant to this common stock purchase agreement.
(2)
Summary of Significant Accounting Policies
(a)
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.
(b)
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 estimated costs to complete projects; and the input method used to measure completion
over time of customer contracts for purposes of revenue recognition. Actual results could differ from those estimates.
(c)
Cash, Cash Equivalents, Restricted Cash and Security Agreements
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
The Company invests excess cash in a money market account.
|
|
January 31, 2021
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Checking and savings accounts
|
|
$
|
2,597
|
|
|
$
|
1,551
|
|
Money market account
|
|
|
77,204
|
|
|
|
8,451
|
|
|
|
$
|
79,801
|
|
|
$
|
10,002
|
|
Restricted
Cash and Security Agreements
The
Company has two agreements with Santander Bank, N.A. (“Santander”). Cash is on deposit at Santander and serves
as security for a letter of credit issued by Santander for the lease of warehouse/office space in Monroe Township, New Jersey.
This agreement cannot be extended beyond July 31, 2025 and is cancellable at the discretion of the bank. Santander also
issued two letters of credit to subsidiaries of Enel Green Power (“EGP”) pursuant to the Company’s contracts
with EGP. The first letter of credit was issued in the amount of $125,690 that expires in May 2021. The second letter of credit
was issued in the amount of $645,467 and reduced to $322,734 in August 2020. The second letter of credit will be
reduced to $64,547 once the PB3 PowerBuoy® is fully deployed and passes final acceptance testing. The remaining
amount expires in December 2021.
Restricted
cash includes the following:
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Santander Bank
|
|
|
606
|
|
|
|
928
|
|
|
|
$
|
606
|
|
|
$
|
928
|
|
The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Statement of Financial
Position that sum to the total of the same such amounts shown in the Statement of Cash Flows.
|
|
January 31, 2021
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
79,801
|
|
|
$
|
10,002
|
|
Restricted cash- short term
|
|
|
384
|
|
|
|
707
|
|
Restricted cash- long term
|
|
|
222
|
|
|
|
221
|
|
|
|
$
|
80,407
|
|
|
$
|
10,930
|
|
(d)
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist principally of accounts receivable and cash and cash equivalents.
The Company believes that its credit risk is limited because the Company’s current contracts are with companies with strong
financial strength. The Company invests its excess cash in a money market account and does not believe that it is exposed to any
significant risks related to its cash and money market accounts. Cash and cash equivalents are also maintained at foreign financial
institutions. Cash and cash equivalents in foreign financial institutions as of January 31, 2021 was $0.3 million.
The
table below shows the percentage of the Company’s revenues derived from customers whose revenues accounted for at least
10% of the Company’s consolidated revenues for at least one of the periods indicated:
|
|
Three months ended January 31,
|
|
|
Nine months ended January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eni S.p.A.
|
|
$
|
34
|
|
|
$
|
42
|
|
|
$
|
135
|
|
|
$
|
118
|
|
Premier Oil UK Limited
|
|
|
-
|
|
|
|
5
|
|
|
|
27
|
|
|
|
126
|
|
EGP
|
|
|
223
|
|
|
|
678
|
|
|
|
379
|
|
|
|
774
|
|
ACET
|
|
|
33
|
|
|
|
-
|
|
|
|
37
|
|
|
|
-
|
|
Other
|
|
|
27
|
|
|
|
-
|
|
|
|
26
|
|
|
|
113
|
|
|
|
$
|
317
|
|
|
$
|
725
|
|
|
$
|
604
|
|
|
$
|
1,131
|
|
(e) Share-Based Compensation
Costs
resulting from all share-based payment transactions are recognized in the consolidated financial statements at their fair values.
The following table summarizes share-based compensation related to the Company’s share-based plans by expense category for
the three and nine months ended January 31, 2021 and 2020:
|
|
Three months ended January 31,
|
|
|
Nine months ended January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and product development
|
|
$
|
32
|
|
|
$
|
12
|
|
|
$
|
91
|
|
|
$
|
52
|
|
Selling, general and administrative
|
|
|
83
|
|
|
|
44
|
|
|
|
247
|
|
|
|
173
|
|
Total share-based compensation expense
|
|
$
|
115
|
|
|
$
|
56
|
|
|
$
|
338
|
|
|
$
|
225
|
|
(f)
Revenue Recognition
A
performance obligation is the unit of account for revenue recognition. The Company assesses the goods or services promised in
a contract with a customer and identifies as a performance obligation either: a) a good or service (or a bundle of goods or services)
that is distinct; or b) a series of distinct goods or services that are substantially the same and that have the same pattern
of transfer to the customer. A contract may contain a single or multiple performance obligations. For contracts with multiple
performance obligations, the Company allocates the contracted transaction price to each performance obligation based upon the
relative standalone selling price, which represents the price the Company would sell a promised good or service separately to
a customer. The Company determines the standalone selling price based upon the facts and circumstances of each obligated good
or service. The majority of the Company’s contracts have no observable standalone selling price since the associated products
and services are customized to customer specifications. As such, the standalone selling price generally reflects the Company’s
forecast of the total cost to satisfy the performance obligation plus an appropriate profit margin.
The
nature of the Company’s contracts may give rise to several types of variable consideration, including unpriced change orders
and liquidated damages and penalties. Variable consideration can also arise from modifications to the scope of services. Variable
consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue
recognized will not occur once the uncertainty associated with the variable consideration is resolved. Our estimates of variable
consideration and determination of whether to include such amounts in the transaction price are based largely on our assessment
of legal enforceability, performance and any other information (historical, current, and forecasted) that is reasonably available
to us. Accounting Standards Update (“ASU”) 2016-10 provides a practical expedient that permits presentation of shipping
and handling costs, that occur after control of the promised goods or services transfer to the customer, as fulfillment costs
rather than evaluating whether the shipping and handling activities are promised services to the customer. The Company adopted
this practical expedient, but it did not have a material effect on its Consolidated Financial Statements.
The
Company recognizes revenue when or as it satisfies a performance obligation by transferring a good or service to a customer, either
(1) at a point in time or (2) over time. A good or service is transferred when or as the customer obtains control of it. The evaluation
of whether control of each performance obligation is transferred at a point in time or over time is made at contract inception.
Input measures such as costs incurred or time elapsed are utilized to assess progress against specific contractual performance
obligations for the Company’s services. The selection of the method to measure progress towards completion requires judgment
and is based on the nature of the services to be provided. For the Company, the input method using costs incurred or time elapsed
best represents the measure of progress against the performance obligations incorporated within the contractual agreements. When
the Company’s estimate of total costs to be incurred to satisfy the performance obligations exceed revenue, the Company
recognizes the loss immediately.
The
Company’s contracts are either cost plus or fixed price contracts. Under cost plus contracts, customers are billed for actual
expenses incurred plus an agreed-upon fee. Under cost plus contracts, a profit or loss on a project is recognized depending on
whether actual costs are more or less than the agreed upon amount.
The
Company has two types of fixed price contracts, firm fixed price and cost-sharing. Under firm fixed price contracts, the Company
receives an agreed-upon amount for providing products and services specified in the contract, a profit or loss is recognized depending
on whether actual costs are more or less than the agreed upon amount. Under cost-sharing contracts, the fixed amount agreed upon
with the customer is only intended to fund a portion of the costs on a specific project. Under cost sharing contracts, an amount
corresponding to the revenue is recorded in cost of revenues, resulting in gross profit on these contracts of zero. The Company’s
share of the costs is recorded as product development expense. The Company reports its disaggregation of revenue by contract type
since this method best represents the Company’s business. For the nine-month periods ended January 31, 2021 and 2020, all
of the Company’s contracts were classified as firm fixed price.
As
of January 31, 2021, the Company’s total remaining performance obligations, also referred to as backlog, totaled $0.5 million.
The Company expects to recognize approximately 89%, or $0.4 million, of the remaining performance obligations as revenue over
the next twelve months.
Products
and Solutions Leasing
The
Company enters into lease arrangements with certain customers for their products and solutions. As of January 31, 2021, the Company
has one lease arrangement with a remaining operating lease term of less than 10 months. Revenue related to multiple-element arrangements
is allocated to lease and non-lease elements based on their relative standalone selling prices or expected cost plus a margin
approach. Lease elements generally include a PB3 PowerBuoy® (“PB3”) and components, while non-lease
elements generally include engineering, monitoring and support services. In the lease arrangement, the customer is provided an
option to extend the lease term or purchase the leased PB3 at some point during and/or at the end of the lease term.
The
Company classifies leases as either operating or financing in accordance with the authoritative accounting guidance contained
within ASC Topic 842, “Leases”. At inception of the contract, the Company evaluates the lease against the lease
classification criteria within ASC Topic 842. If the direct financing or sales-type classification criteria are met, then the
lease is accounted for as a finance lease. All others are treated as an operating lease.
The
Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term and is presented
in Revenues in the Consolidated Statement of Operations. The lease income for the three and nine months ended January 31, 2021
and 2020 was immaterial.
(g)
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 and common stock equivalents outstanding during the period. Due to the Company’s net losses,
potentially dilutive securities, consisting of options to purchase shares of common stock, warrants on common stock and
non-vested restricted stock issued to employees and non-employee directors, were excluded from the diluted loss per share
calculation due to their anti-dilutive effect.
In
computing diluted net loss per share on the Consolidated Statement of Operations, warrants on common stock, options to purchase
shares of common stock and non-vested restricted stock issued to employees and non-employee directors, totaling 5,221,258 and
5,565,462 for the three and nine months ended January 31, 2021 and 2020, respectively, were excluded from each of the computations
as the effect would be anti-dilutive due to the Company’s net losses.
(h)
Recently Issued Accounting Standards
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments
- Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” The amendment in this update
replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments
within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful
information about the expected credit losses. In November 2019, the FASB issued No. 2019-10, Financial Instruments—Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date of ASU
2016-13 for Smaller Reporting Companies for fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial
statements.
In
August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” The ASU modifies, removes,
and adds several disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments on changes
in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively
to all periods presented upon their effective date. The Company adopted this guidance effective May 1, 2020. The adoption of the
guidance did not have a material effect on its Consolidated Financial Statements.
In
August 2018, the FASB issued ASU No. 2018-15, “Intangibles — Goodwill and Other — Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That
is a Service Contract.” The ASU requires a customer in a cloud computing arrangement that is a service contract to follow
the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer
and recognize as an asset. The ASU permits two methods of adoption: prospectively to all implementation costs incurred after the
date of adoption, or retrospectively to each prior reporting period presented. The Company adopted this guidance on a prospective
basis effective May 1, 2020. The adoption of the guidance did not have a material effect on its Consolidated Financial Statements.
(3)
Account Receivable, Contract Assets, and Contract Liabilities
The
following provides further details on the balance sheet accounts of accounts receivable, contract assets, and contract liabilities
from contracts with customers:
|
|
January 31, 2021
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
-
|
|
|
$
|
105
|
|
Contract assets
|
|
|
63
|
|
|
|
251
|
|
Contract liabilities
|
|
|
75
|
|
|
|
165
|
|
Accounts
Receivable
The
Company grants credit to its customers, generally without collateral, under normal payment terms (typically 30 to 60 days after
invoicing). Generally, invoicing occurs after the related services are performed or control of good has transferred to the customer.
Accounts receivable represents an unconditional right to consideration arising from the Company’s performance under contracts
with customers. The carrying value of such receivables represent their estimated realizable value.
Contract
Assets
Significant
changes in the contract assets balances during the period are as follows:
|
|
Nine months ended
|
|
|
|
January 31, 2021
|
|
|
|
(in thousands)
|
|
|
|
|
|
Transferred to receivables from contract assets recognized at the beginning of the period
|
|
$
|
(251
|
)
|
Revenue recognized and not billed as of the end of the period
|
|
|
63
|
|
Net change in contract assets
|
|
$
|
(188
|
)
|
Contract
assets include unbilled amounts typically resulting from arrangements whereby the right to payment is conditioned on completing
additional tasks or services for a performance obligation. The decrease in contract assets is primarily a result of services performed
relating to our project with EGP that was billed during the nine months ended January 31, 2021.
Contract
Liabilities
Significant
changes in the contract liabilities balances during the period are as follows:
|
|
Nine months ended
|
|
|
|
January 31, 2021
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue recognized that was included in the contract liabilities balance as of the beginning of the period
|
|
$
|
(84
|
)
|
Transferred to contract assets from contract liabilities recognized at the beginning of the period
|
|
|
(6
|
)
|
Net change in contract liabilities
|
|
$
|
(90
|
)
|
Contract
liabilities consist of amounts invoiced to customers in excess of revenue recognized. The decrease in contract liabilities is
primarily due to recognition of revenue relating to our Eni S.p.A. (“Eni”) project during the nine months ended January
31, 2021.
(4)
Other Current Assets
Other
current assets consist of the following at January 31, 2021 and April 30, 2020:
|
|
January 31, 2021
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
126
|
|
|
$
|
60
|
|
Other receivables
|
|
|
244
|
|
|
|
2
|
|
Prepaid insurance
|
|
|
411
|
|
|
|
124
|
|
Prepaid offering costs
|
|
|
56
|
|
|
|
275
|
|
Prepaid expenses- other
|
|
|
164
|
|
|
|
127
|
|
|
|
$
|
1,001
|
|
|
$
|
588
|
|
(5)
Property and Equipment, net
The
components of property and equipment, net as of January 31, 2021 and April 30, 2020 consisted of the following:
|
|
January 31, 2021
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
342
|
|
|
|
342
|
|
Computer equipment & software
|
|
|
502
|
|
|
|
486
|
|
Office furniture & equipment
|
|
|
339
|
|
|
|
339
|
|
Leasehold improvements
|
|
|
474
|
|
|
|
474
|
|
Construction in process
|
|
|
15
|
|
|
|
15
|
|
|
|
$
|
1,672
|
|
|
$
|
1,656
|
|
Less: accumulated depreciation
|
|
|
(1,255
|
)
|
|
|
(1,157
|
)
|
|
|
$
|
417
|
|
|
$
|
499
|
|
Depreciation
expense was approximately $33,000 and $40,000 for the three-month periods ended January 31, 2021 and 2020, and approximately $106,000
and $117,000 for the nine-month periods ended January 31, 2021 and 2020, respectively.
(6)
Leases
Lessor
Information
As
of January 31, 2021, the Company has one lease which has been classified as an operating lease per accounting guidance contained
within ASC Topic 842,” Leases”. The Company’s remaining term on this operating lease is less than 10
months. The maturity of lease payments remaining on this lease is immaterial.
Lessee
Information
The
Company has a lease for its facility located in Monroe Township, New Jersey that is used as warehouse/production space and the
Company’s principal offices and corporate headquarters. The initial lease term is for 7 years with an option to extend the
lease for another 5 years. The lease is classified as an operating lease. The operating lease is included in right-of-use assets,
lease liabilities- current and lease liabilities- long-term on the Company’s Consolidated Balance Sheets.
Right-of-use
asset and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease
term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, the Company uses the incremental
borrowing rate based on the information available at the effective date to determine the present value of future payments. Lease
terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise those
options. The renewal options have not been included in the lease term as they are not reasonably certain of exercise. Lease expense
for minimum lease payments is recognized on a straight- line basis over the lease term and consists of interest on the lease liability
and the amortization of the right of use asset. Variable lease expenses, if any, are recorded as incurred.
On
June 10, 2020 the Company signed a 12-month lease for office space in Houston, Texas. The lease can be extended by the Company
by providing the lessor on or before the notice date of the Company’s intent to renew or terminate the lease. ASC Topic
842, “Leases” allows a company an accounting policy election to recognize lease payments to the Consolidated
Statement of Operations on a straight-line basis if the lease term is equal to or less 12 months and not recognize a right-of
use asset and lease liability. The accounting policy election is made on the commencement date of the lease.
The
operating lease cash flow payments for the nine months ended January 31, 2021 and 2020 was $259,000 and $240,000, respectively.
The
components of lease expense in the Consolidated Statement of Operations for both the three and nine months ended January 31, 2021
and 2020 was as follows:
|
|
Three months ended January 31,
|
|
|
Nine months ended January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
79
|
|
|
$
|
79
|
|
|
$
|
238
|
|
|
$
|
238
|
|
Short-term lease cost
|
|
|
7
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
Total lease cost
|
|
$
|
86
|
|
|
$
|
79
|
|
|
$
|
250
|
|
|
$
|
238
|
|
Information
related to the Company’s right-of use assets and lease liabilities as of January 31, 2021 was as follows:
|
|
January 31, 2021
|
|
|
|
(in thousands)
|
|
|
|
|
|
Operating lease:
|
|
|
|
|
Operating right-of-use asset, net
|
|
$
|
1,005
|
|
|
|
|
|
|
Right-of-use liability- current
|
|
|
252
|
|
Right-of-use liability- long term
|
|
|
887
|
|
Total lease liability
|
|
$
|
1,139
|
|
|
|
|
|
|
Weighted average remaining lease term- operating leases
|
|
|
3.72
years
|
|
Weighted average discount rate- operating leases
|
|
|
8.5
|
%
|
Total
remaining lease payments under the Company’s operating leases are as follows:
|
|
January 31, 2021
|
|
|
|
(in thousands)
|
|
|
|
|
|
Remainder of fiscal year 2021
|
|
$
|
84
|
|
2022
|
|
|
341
|
|
2023
|
|
|
352
|
|
2024
|
|
|
362
|
|
2025
|
|
|
184
|
|
Total future minimum lease payments
|
|
$
|
1,323
|
|
Less imputed interest
|
|
|
(184
|
)
|
Total
|
|
$
|
1,139
|
|
(7)
Accrued Expenses
Accrued
expenses consist of the following at January 31, 2021 and April 30, 2020:
|
|
January 31, 2021
|
|
|
April 30, 2020
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Project costs
|
|
$
|
95
|
|
|
$
|
48
|
|
Contract loss reserve
|
|
|
425
|
|
|
|
216
|
|
Employee incentive payments
|
|
|
407
|
|
|
|
-
|
|
Accrued salary and benefits
|
|
|
831
|
|
|
|
483
|
|
Legal and accounting fees
|
|
|
403
|
|
|
|
283
|
|
Accrued taxes payable
|
|
|
-
|
|
|
|
177
|
|
Other
|
|
|
179
|
|
|
|
146
|
|
|
|
$
|
2,340
|
|
|
$
|
1,353
|
|
(8)
Warrants
Liability
Classified Warrants
On
June 2, 2016, the Company entered into a securities purchase agreement, which was amended on June 7, 2016 (as amended, the “June
Purchase Agreement”) with certain institutional purchasers (the “June Purchasers”). Pursuant to the terms of
the June Purchase Agreement, the Company sold an aggregate of 20,850 shares of Common Stock together with warrants to purchase
up to an aggregate of 7,298 shares of Common Stock. The warrants have an exercise price of $121.60 per share, became exercisable
on December 3, 2016 (“Initial Exercise Date”), and will expire five years following the Initial Exercise Date. As
of January 31, 2021, none of the warrants had been exercised.
On
July 22, 2016, the Company entered into a Second Amendment to the Purchase Agreement (the “Second Amended Purchase Agreement”)
with certain institutional purchasers (the “July Purchasers”). Pursuant to the terms of the Second Amended Purchase
Agreement, the Company sold an aggregate of 29,750 shares of Common Stock together with warrants to purchase up to an aggregate
of 8,925 shares of Common Stock. The Warrants were exercisable immediately at an exercise price of $187.20 per share. The Warrants
will expire on the fifth (5th) anniversary of the initial date of issuance. As of January 31, 2021, none of the warrants had
been exercised.
Equity
Classified Warrants
On
April 8, 2019, the Company issued and sold 1,542,000 shares of common stock and pre-funded warrants to purchase up to 3,385,680
shares of common stock and common warrants to purchase up to 4,927,680 shares of our common stock in an underwritten public offering.
The public offering price for the pre-funded warrants was equal to the public offering price of the common stock, less the $0.01
per share exercise price of each warrant. As of January 31, 2021, all of the pre-funded warrants had been exercised. The
common stock warrants have an exercise price of $3.85 per share and expire five years from the issuance date. From the issuance
to January 31, 2021, warrants to purchase 677,500 shares of the common stock had been exercised.
The
Company accounted for the warrants issued in connection with its June and July 2016 public offerings in accordance with the guidance
in Topic 480 which provides that the Company classify the warrant instruments as a liability at its fair value. The warrant liabilities
are subject to re-measurement at each balance sheet date using the Black-Scholes option pricing model. The June and July 2016
warrants contain a feature whereby they could require the transfer of assets and therefore are classified as a liability award
in accordance with the guidance in Topic 480. The warrants have a value close to zero at January 31, 2021 and April 30, 2020 and
are reflected within “Warrant liabilities” in the Consolidated Balance Sheets. The pre-funded and common warrants
issued in the Company’s April 8, 2019 public offering did not meet the criteria to be classified as a liability award and
therefore were treated as an equity award and recorded as a component of stockholders’ equity in the Consolidated Balance
Sheets.
(9)
Paycheck Protection Program Loan
As
a result of the COVID-19 pandemic, on March 27, 2020, the U.S. Government passed into law the Coronavirus Aid, Relief and Economic
Security Act, or the (“CARES Act”) which included the ability to secure loans under the Paycheck Protection Program
(“PPP”). On May 3, 2020, after its application was submitted and approved, the Company signed a PPP loan with Santander as the lender for $890,347 pursuant to the PPP under the CARES Act, as implemented by the
U.S. Small Business Association (“SBA”). The PPP loan is an unsecured note with Santander as the lender and governed
by a loan agreement with Santander. The interest rate is 1% and the loan is repayable over two years. The loan contains customary
events of defaults relating to, among other things, payment defaults or breaches of the terms of the loan. Upon the occurrence
of an event of default, the lender may require immediate repayment of all outstanding amounts under the loan. Interest and principal
payments are deferred for the first 6 months from the date of the loan. Principal and interest of approximately $49,000 are payable
monthly commencing 6 months after the disbursement date and may be repaid by the Company at any time prior to maturity with no
prepayment penalties. The Company received the proceeds on May 5, 2020.
The
SBA allows loan forgiveness for eligible costs incurred and paid which include (a) payroll costs, (b) interest on any real or
personal property mortgage prior to February 15, 2020, (c) rent on any lease in force prior to February 15, 2020, and (d) utility
payments for which service began before February 15, 2020. As of January 31, 2021, the Company has utilized all of the loan proceeds.
The Company currently believes that the use of the loan proceeds will meet the conditions for forgiveness of the loan and has
submitted a loan forgiveness application to the SBA asking for 100% forgiveness of the loan. No assurance can be provided that
the Company will obtain forgiveness of the loan, in whole or in part.
On
June 5, 2020, the Paycheck Protection Program Flexibility Act (“PPPFA”) was signed into law. Among other changes,
the PPPFA (a) reduced the amount of the loan required to be spent on payroll costs from 75% to 60%, (b) extended the covered period
to 24 weeks from 8 weeks, (c) extended the repayment term of the PPP loan from 2 years to 5 years, and (d) increased the deferred
payment date from 6 months to 10 months. For the loans disbursed before June 5, 2020, the PPPFA provides the option to opt for
24 weeks for spending the loan instead of 8 weeks. The Company opted for 24 weeks to spend the loan.
The
Company is accruing interest expense until the loan is forgiven or repaid. If the loan were not forgiven by the SBA and the Company
decided to repay the loan over 2 years, the interest expense for this loan period would be immaterial.
(10)
Loan Payable
In
August 2020 the Company signed a commercial premium finance agreement in the amount of $466,622 with First Insurance Funding whereas
First Insurance Funding prepaid a portion of the Company insurance premiums including principally the Directors and Officers insurance.
The Company will make eight monthly payments of $58,957, inclusive of interest charges, to repay First Insurance Funding the
amount. Interest expense for the loan period is immaterial.
(11)
Preferred Stock
The
Company has authorized 5,000,000 shares of undesignated preferred stock with a par value of $0.001 per share. As of January 31,
2021, no shares of preferred stock had been issued.
(12)
Common Stock
At
the Market Offering Agreements
On
January 7, 2019, the Company entered into the 2019 ATM Facility with AGP, under which the Company may issue and sell to or through
A.G.P./Alliance Global Partners, acting as agent and/or principal, shares of the Company’s common stock having an aggregate
offering price of up to $25.0 million. From inception of the program through its termination on December 8, 2020,
under the 2019 ATM Facility the Company had sold and issued an aggregate of 17,595,472 shares of its common stock with an
aggregate market value of $23.4 million at an average price of $1.33 per share, including 12,342,506 shares in fiscal year 2021
with an aggregate market value of $18.7 million at an average price of $1.51 per share and paid AGP a sales commission of approximately
$0.8 million related to those shares. The agreement was fully utilized and terminated on December 8, 2020.
On
November 20, 2020, the Company entered into a new At the Market Offering Agreement with AGP (the “2020 ATM Facility”).
The Company on December 4, 2020 filed a prospectus with Securities and Exchange Commission whereby, the Company may issue
and sell to or through AGP, acting as agent and/or principal, shares of the Company’s common stock having an aggregate offering
price of up to $50.0 million. From inception of the 2020 ATM Facility through January 31, 2021, the Company had sold and
issued an aggregate of 17,179,883 shares of its common stock with an aggregate market value of $50.0 million at an average price
of $2.91 per share and paid AGP a sales commission of approximately $1.6 million related to those shares. The dollar amount reported
in the prospectus filing is fully utilized.
Equity
Line Common Stock Purchase Agreements
On
October 24, 2019, the Company entered into a common stock purchase agreement with Aspire Capital which provided that, subject
to certain terms, conditions and limitations, Aspire Capital is committed to purchase up to an aggregate of $10.0 million of shares
of the Company’s common stock over a 30-month period. Through September 18, 2020, the Company has sold an aggregate of 6,424,205
shares of common stock with an aggregate market value of $4.0 million at an average price of $0.63 per share pursuant to this
common stock purchase agreement, including 5,025,000 shares in fiscal year 2021 with an aggregate market value of $2.9 million
at an average price of $0.57 per share. The agreement was fully utilized and terminated on September 18, 2020.
On
September 18, 2020, the Company entered into a new common stock purchase agreement with Aspire Capital which provided that, subject
to certain terms, conditions and limitations, Aspire Capital is committed to purchase up to an aggregate of $12.5 million of shares
of the Company’s common stock over a 30-month period that does not exceed 19.99% of the outstanding common stock on the
date of the agreement. The number of shares the Company could issue within the 19.99% limit is 3,722,251 shares without shareholder
approval. Shareholder approval was received at the Company’s annual meeting of stockholders on December 23, 2020 for
the sale of 9,864,706 additional shares of common stock which is over the 19.99% limit of the outstanding common stock on the
date of the agreement. Through January 31, 2021, the Company has sold an aggregate of 2,250,000 shares of common stock with an
aggregate market value of $7.4 million at an average price of $3.28 per share pursuant to this common stock purchase agreement.
(13)
Treasury Shares
During each of the three months ended January
31, 2021 and 2020, 16,789 shares and zero shares of common stock were purchased by the Company from employees to pay taxes related
to the vesting of restricted stock. During each
of the nine months ended January 31, 2021 and 2020, 16,789 shares and 481 shares of common stock were purchased by the Company
from employees to pay taxes related to the vesting of restricted stock.
(14)
Share-Based Compensation
In
2015, upon approval by the Company’s stockholders, the Company’s 2015 Omnibus Incentive Plan (the “2015 Plan”)
became effective. A total of 1,332,036 shares are authorized for issuance under the 2015 Omnibus Incentive Plan, including shares
available for awards under the 2006 Stock Incentive Plan remaining at the time that plan terminated, or that were subject to awards
under the 2006 Stock Incentive Plan that thereafter terminated by reason of expiration, forfeiture, cancellation or otherwise.
If any award under the 2006 Stock Incentive Plan or 2015 Plan expires, is cancelled, terminates unexercised or is forfeited, those
shares become again available for grant under the 2015 Plan. The 2015 Plan will terminate ten years after its effective date,
in October 2025, but is subject to earlier termination as provided in the 2015 Plan. As of January 31, 2021, the Company has 193,928
shares available for future issuance under the 2015 Plan.
On
January 18, 2018, the Company’s Board of Directors adopted the Company’s Employment Inducement Incentive Award Plan
(the “2018 Inducement Plan”) pursuant to which the Company reserved 25,000 shares of common stock for issuance under
the Inducement Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement
Plan may only be made to individuals not previously employees of the Company (or following such individuals’ bona fide period
of non-employment with the Company), as an inducement material to the individuals’ entry into employment with the Company.
An award is any right to receive the Company’s common stock pursuant to the 2018 Inducement Plan, consisting of a performance
share award, restricted stock award, a restricted stock unit award or a stock payment award. As of January 31, 2021, there were
11,487 shares available for grant under the 2018 Inducement Plan.
Stock
Options
The
Company estimates the fair value of each stock option award granted with service-based vesting requirements, 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 is estimated using the “simplified” method as permitted by the SEC’s
Staff Accounting Bulletin No. 110, Share-Based Payment. Expected volatility is based on the Company’s historical
volatility over the expected life of the stock option granted. The Company granted options to acquire 248,876 and 411,666 shares
of common stock during the three and nine months ended January 31, 2021 and 2020. The following assumptions were used to
value the awards:
|
|
Three months ended January 31,
|
|
|
Nine months ended January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.6
|
%
|
|
|
1.7
|
%
|
|
|
0.6
|
%
|
|
|
1.7
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life (in years)
|
|
|
5.5 - 5.7
|
|
|
|
5.5 - 5.7
|
|
|
|
5.5 - 5.7
|
|
|
|
5.5 - 5.7
|
|
Expected volatility
|
|
|
136.5
|
%
|
|
|
127.6% - 128.2
|
%
|
|
|
136.5
|
%
|
|
|
127.6% - 128.2
|
%
|
A
summary of stock options under our stock incentive plans is detailed in the following table.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Term
|
|
|
|
Options
|
|
|
Price
|
|
|
(In Years)
|
|
Outstanding as of April 30, 2020
|
|
|
474,128
|
|
|
$
|
3.56
|
|
|
|
9.4
|
|
Granted
|
|
|
248,876
|
|
|
$
|
2.93
|
|
|
|
|
|
Exercised
|
|
|
(175,500
|
)
|
|
$
|
1.05
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(28,719
|
)
|
|
$
|
6.29
|
|
|
|
|
|
Outstanding as of January 31, 2021
|
|
|
518,785
|
|
|
$
|
3.96
|
|
|
|
9.2
|
|
Exercisable as of January 31, 2021
|
|
|
249,577
|
|
|
$
|
5.21
|
|
|
|
8.5
|
|
As
of January 31, 2021, the total intrinsic value of outstanding and exercisable options was approximately $0.9 million and $0.6
million, respectively. As of January 31, 2021, approximately 269,208 additional options were unvested, which had an intrinsic
value of $0.3 million and a weighted average remaining contractual term of 9.9 years. There was approximately $82,000 and $44,000
of total recognized compensation cost related to stock options during each of the three months ended January 31, 2021 and 2020,
respectively. There was approximately $0.3 million and $0.2 million of total recognized compensation cost related to stock
options during each of the nine months ended January 31, 2021 and 2020, respectively. As of January 31, 2021, there was approximately
$0.7 million 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 1.9 years.
Performance
Stock Options
In
January of 2020, the Company issued 81,334 performance-based stock options to two of its executives. The awards can vest over
2 years if there is positive total shareholder return (e.g. share price increase) as measured to the 5-day (January 11-15, 2021)
and (January 10-14, 2022) share price Volume Weighted Average Price (“VWAP”).
In
January of 2021, the Company issued 344,723 performance-based stock options to employees and executives. The awards vest over
2 years provided there is positive total shareholder return (e.g. share price increase) as measured to the closing share price
on January 14, 2022 and January 14, 2023.
The
Company determined these awards contain a market- based condition and estimated the fair value using the Monte Carlo simulation
model with the following assumptions:
|
|
Three months ended January 31,
|
|
|
Nine months ended January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
1.2
|
%
|
|
|
2.3
|
%
|
|
|
1.2
|
%
|
|
|
2.3
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life (in years)
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
10.0
|
|
Expected volatility
|
|
|
76.0%- 136.5
|
%
|
|
|
115.0
|
%
|
|
|
76.0%- 136.5
|
%
|
|
|
115.0
|
%
|
A
summary of performance stock options under our stock incentive plans is detailed in the following table.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Term
|
|
|
|
Options
|
|
|
Price
|
|
|
(In Years)
|
|
Outstanding as of April 30, 2020
|
|
|
81,347
|
|
|
$
|
1.05
|
|
|
|
9.7
|
|
Granted
|
|
|
344,723
|
|
|
$
|
2.93
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Outstanding as of January 31, 2021
|
|
|
426,070
|
|
|
$
|
2.57
|
|
|
|
9.8
|
|
Exercisable as of January 31, 2021
|
|
|
40,681
|
|
|
$
|
1.05
|
|
|
|
9.0
|
|
As
of January 31, 2021, the total intrinsic value of both outstanding and exercisable options was approximately $0.6 million and
zero, respectively. As of January 31, 2021, approximately 385,389 additional options were unvested, which had an intrinsic
value of $0.5 million and a weighted average remaining contractual term of 9.8 years. There was approximately $26,000 and
$1,600 of total recognized compensation cost related to stock options during each of the three months ended January 31, 2021
and 2020, respectively. There was approximately $43,000 and $1,600 of total recognized compensation cost related to stock
options during each of the nine months ended January 31, 2021 and 2020, respectively. As of January 31, 2021, there was
approximately $0.7 million 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 1.8 years.
Restricted
Stock
Compensation
expense for non-vested restricted stock is generally recorded based on its market value on the date of grant and recognized ratably
over the associated service and performance period. During the three and nine months ended January 31, 2021 and 2020, the
Company granted 10,000 and 13,513 shares subject to service-based vesting requirements.
A
summary of non-vested restricted stock under our stock incentive plans is as follows:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average Price per
|
|
|
|
of Shares
|
|
|
Share
|
|
|
|
|
|
|
|
|
Issued and unvested at April 30, 2020
|
|
|
13,513
|
|
|
$
|
1.48
|
|
Granted
|
|
|
10,000
|
|
|
$
|
2.93
|
|
Vested
|
|
|
(13,513
|
)
|
|
$
|
1.48
|
|
Cancelled/forfeited
|
|
|
-
|
|
|
$
|
-
|
|
Issued and unvested at January 31, 2021
|
|
|
10,000
|
|
|
$
|
2.93
|
|
There was approximately $2,000 and $5,000
of total recognized compensation cost related to restricted stock for the three months ended January 31, 2021 and 2020, respectively.
There was approximately $12,000 and $10,000 of total
recognized compensation cost related to restricted stock for the nine months ended January 31, 2021 and 2020, respectively. As
of January 31, 2021, there is $28,000 of unrecognized compensation cost remaining related to unvested restricted stock granted
under our plans. This cost is expected to be recognized over a weighted-average period of 1.0 years.
In
December 2019, the Company granted 51,547 shares, subject to service-based vesting requirements, to an employee that were outside
the Company stock incentive plans. There was approximately $5,000 and $7,000 of total recognized compensation cost related
to this award for the three months ended January 31, 2021 and 2020, respectively. There was approximately $30,000 and $8,000
of total recognized compensation cost related to this award for the nine months ended January 31, 2021 and 2020, respectively.
As of January 31, 2021, there is no unrecognized compensation cost remaining related to this award.
(15)
Fair Value Measurements
ASC
Topic 820,”Fair Value Measurements” states that fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes
the inputs used to measure fair value. This hierarchy maximizes the use of observable input and minimizes the use of unobservable
inputs. The following is a description of the three hierarchy levels.
Level
1
|
Unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement
date.
|
|
|
Level
2
|
Inputs
other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
|
|
|
Level
3
|
Inputs
that are unobservable for the asset or liability.
|
Disclosure
of Fair Values
The
Company’s financial instruments that are not re-measured at fair value include cash, cash equivalents, restricted cash,
accounts receivable, contract assets and liabilities, deposits, accounts payable, and accrued expenses. The carrying values of
these financial instruments approximate their fair values and are viewed as Level 1 items. The Company’s warrant liabilities
represent the only asset or liability classified financial instrument that is measured at fair value on a recurring basis.
The
fair value of the Company’s warrant liabilities (refer to Note 8) is based on the Black-Scholes option pricing model which
is based on Level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own
assumptions. The assumptions used by the Company are the quoted price of the Company’s common stock in an active market,
risk-free interest rate, volatility and expected life, and assumes no dividends. Volatility is based on the actual market activity
of the Company’s stock. The expected life is based on the remaining contractual term of the warrants and the risk-free interest
rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ expected
life. The fair value on a recurring basis as of January 31, 2021 and April 30, 2020 was near zero.
Unrealized
gains of approximately zero for the three months ended January 31, 2021 and 2020, respectively, and zero and $6,000 for the nine
months ended January 31, 2021 and 2020, respectively, were included within “Gain due to change in fair value of warrant
liabilities” in the Consolidated Statements of Operations. The Company determined the fair value using the Black-Scholes
option pricing model with the following assumptions:
|
|
January 31, 2021
|
|
|
January 31, 2020
|
|
|
|
|
|
|
|
|
Dividend rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free rate
|
|
|
0.07% - 0.08
|
%
|
|
|
1.5
|
%
|
Expected life (years)
|
|
|
0.5 - 0.8
|
|
|
|
1.3 - 1.4
|
|
Expected volatility
|
|
|
146.1
|
%
|
|
|
109.8% - 130.1
|
%
|
Besides
the unrealized gain in fair value, there was no other activity to the balances in warrant liabilities during the nine months ended
January 31, 2021 and 2020, respectively.
Transfers
into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were
no transfers between any hierarchy levels during each of the nine months ended January 31, 2021 and 2020.
(16)
Commitments and Contingencies
Employment
Litigation
On
June 10, 2014, the Company announced that it had terminated Charles Dunleavy as its Chief Executive Officer and as an employee
of the Company for cause, effective June 9, 2014, and that Mr. Dunleavy had also been removed from his position as Chairman of
the Board of Directors. On June 17, 2014, Mr. Dunleavy wrote to the Company stating that he had retained counsel to represent
him in connection with an alleged wrongful termination of his employment. On July 28, 2014, Mr. Dunleavy resigned from the Board
and the boards of directors of the Company’s subsidiaries.
On
August 28, 2018, counsel for Mr. Dunleavy filed a demand for arbitration, captioned Charles F. Dunleavy v. Ocean Power Technologies,
Inc., Case No. 01-18-0003-2374, before the American Arbitration Association in New Jersey. The demand names Ocean Power Technologies,
Inc. as the respondent and alleges various claims and seeks declaratory relief and permanent injunction. The demand seeks damages
in the amount of $5.0 million for compensatory and punitive damages, plus interest and attorneys’ fees as well as
certain equitable relief. On November 8, 2018, the Company through counsel responded to the demand for arbitration, denied all
allegations, and asserted various affirmative defenses. The final day of hearing occurred in Princeton, New Jersey on July 15,
2020. Post-hearing briefs were filed on September 22, 2020. On December 10, 2020, the panel issued an interim award that, by its
express terms, is not a final award, is strictly confidential, and shall not be publicly disclosed. The parties are considering
next steps. As of January 31, 2021, the Company has not accrued any provision related to this matter since any possible loss cannot
be reasonably estimated. Depending on the nature of the loss, the Company believes it may be covered by insurance.
Nasdaq
Delisting Notification
On
March 3, 2020, the Company received a notification from the Nasdaq indicating that the minimum bid price of the Company’s
common stock had been below $1.00 per share for 30 consecutive business days and as a result, the Company was not
in compliance with the minimum bid price requirement for continued listing. The Nasdaq notice had no immediate effect on
the listing or trading of the Company’s common stock. Under the Nasdaq Listing Rules, the Company had a grace period
of 180 calendar days, or until August 31, 2020, in which to regain compliance with the minimum bid price rule. To regain compliance,
the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive
business days during this grace period. On August 21, 2020, the Company received notification from Nasdaq that, as a result of
the closing bid price of the Company’s common stock being over $1.00 for 10 consecutive trading days, the Company had
regained compliance with Listing Rule 5550(a)(2) to maintain the listing of its common stock on Nasdaq and Nasdaq considers
the matter closed.
Spain
Income Tax Audit
The
Company underwent an income tax audit in Spain for the period from 2011 to 2014, when our Spanish branch was closed. In connection
with the tax audit, the Spanish tax inspector challenged the Company’s recognition of grant funds received in 2011 to 2014
from the European Commission in connection with the Company’s Waveport project. On July 30, 2018, the inspector concluded
that although there was no tax owed in light of losses reported, the Company’s Spanish branch owed penalties for failure
to properly account for the income associated with the funding grant. On August 30, 2018, the Company filed an administrative
appeal of the penalty and its underlying conclusions. During the three months ended July 31, 2020, the Company received notice
from the Spanish Central Economic and Administrative Tribunal that it agreed with the inspector and ruled that the Company owes
the full amount of the penalty in the amount of €279,869.81 or approximately $331,000. In the quarter ended October 31, 2020,
the Company recorded an additional reserve of €117,145.81 (or approximately $154,000) to Selling, general and administrative
costs in the Statement of Operations making the total reserve €279,869.81, which amount was paid by the Company to the Spanish
Tax Administration on January 25, 2021. At this time, the Company plans to continue appealing the decision of the Tribunal tax
assessment to the Spanish National Court. As of January 31, 2021, and April 30, 2020, the Company has reserved zero and
€162,724 (or approximately $177,000), respectively. The penalty was recorded in Accrued expenses in the Consolidated Balance
Sheets.
(17)
Income Taxes
Uncertain
Tax Positions
The
Company applies the guidance issued by the FASB for the accounting and reporting of uncertain tax positions. The guidance requires
the Company to recognize in its consolidated financial statements the impact of a tax position if that position is more likely
than not to be sustained upon examination, based on the technical merits of the position. The Company is currently undergoing
an income tax audit in Spain, as discussed above. At January 31, 2021, the Company had no other unrecognized tax positions. The
Company does not expect any material increase or decrease in its income tax expense in the next twelve months, related to examinations
or uncertain tax positions. U.S. federal and state income tax returns were audited through fiscal 2014 and fiscal 2010 respectively.
Net operating loss and credit carry forwards since inception remain open to examination by taxing authorities and will continue
to remain open for a period of time after utilization.
(18)
Operating Segments and Geographic Information
The
Company’s business consists of one segment as this represents management’s view of the Company’s operations.
The Company operates on a worldwide basis with one operating company in the US and subsidiaries in the UK and in Australia. Revenues
and expenses are generally attributed to the operating unit that bills the customers. During each of the nine months ended January
31, 2021 and 2020, the Company’s primary business operations were in North America.
(19) Subsequent
Events
On February 1, 2021, the Company entered into
a unit purchase agreement (the “3dent Agreement”), pursuant to which the Company acquired all of the outstanding equity
interest of 3dent Technology, LLC (“3dent”), a Houston, Texas based company that offers offshore energy engineering
and design services that are complementary to OPT’s technology and products. In consideration for the purchase, the Company
issued 361,991 shares of its common stock to the sellers with an agreed value of $800,000 based on the closing price of the Company’s
common stock on the date that the Company agreed to terms with 3dent. In addition, the former owners of 3dent will be eligible
for awards of performance stock with a potential value of $360,000 if certain revenue targets are achieved over the next 12 months.
The 3dent Agreement includes a number of other standard representations, warranties, covenants and indemnifications.
The Company is accounting for the transaction
as a business combination under ASC 805, “Business Combinations.” Accordingly, the assets acquired and the
liabilities assumed will be recorded at their estimated fair value on the date of acquisition. Goodwill from the acquisition principally
relates to excess value of the purchase price over the fair value of identified net assets and liabilities. Under ASC 805, acquisition-related
transaction costs (such as advisory, legal, valuation, other professional fees) have been expensed in the statement of operations
in the period incurred.