UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended October 31, 2014

 

Or

 

☐

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)

 

Delaware		22-2535818
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

1590 REED ROAD, PENNINGTON, NJ 08534

(Address of Principal Executive Offices, Including Zip Code)

 

(609) 730-0400

(Registrant's 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 ☑ No ☐

 

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 ☑ No ☐

 

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):

 

 

Large accelerated filer ☐		Accelerated filer ☐		Non-accelerated filer ☐		Smaller reporting company ☑
				(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

As of November 30, 2014, the number of outstanding shares of common stock of the registrant was 18,066,611.

   

 

OCEAN POWER TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2014

	Page
	Number
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of October 31, 2014 and April 30, 2014		3
Consolidated Statements of Operations for the Three and Six Months Ended October 31, 2014 and 2013		4
Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended October 31, 2014 and 2013		5
Consolidated Statements of Stockholders' Equity for the Six Months Ended October 31, 2014 and 2013		6
Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2014 and 2013		7
Notes to Consolidated Financial Statements		8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		29
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		30
Item 1A. Risk Factors		30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3. Defaults Upon Senior Securities		31
Item 4. Mine Safety Disclosures		31
Item 5. Other Information		31
Item 6. Exhibits		32

 

 

 

 

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", “goal” 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, 2014 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.

  

 

PART I — FINANCIAL INFORMATION

 

 

Item 1.

FINANCIAL STATEMENTS

 

Ocean Power Technologies, Inc. and Subsidiaries

 

Consolidated Balance Sheets

 

 

See accompanying notes to consolidated financial statements (unaudited).

  

  

Ocean Power Technologies, Inc. and Subsidiaries

 

Consolidated Statements of Operations

(Unaudited)

 

 

 

 

See accompanying notes to consolidated financial statements (unaudited).

  

 

Ocean Power Technologies, Inc. and Subsidiaries

 

Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 

 

 

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

Ocean Power Technologies, Inc. and Subsidiaries

 

Consolidated Statements of Stockholders' Equity

(Unaudited)

 

 

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

Ocean Power Technologies, Inc. and Subsidiaries

 

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 See accompanying notes to consolidated financial statements (unaudited).

  

 

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Unaudited)

 

 

 

Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

 

 

 

Ocean Power Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

 

 

 

Item 2.

MANAGEMENT'S 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. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of our Annual Report on Form 10-K for fiscal 2014 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. References to a fiscal year in this Form 10-Q refer to the year ended April 30 of that year (e.g., fiscal 2014 refers to the year ended April 30, 2014).

 

Overview

 

We are developing and are seeking to commercialize proprietary systems that generate electricity by harnessing the renewable energy of ocean waves. Our PowerBuoy^® systems use proprietary technologies that convert the mechanical energy created by the rising and falling of ocean waves into electricity. We currently have and are continuing to develop both larger and smaller PowerBuoy prototypes which can be utilized in autonomous or other applications. Since fiscal 2002, government agencies have accounted for a significant portion of our revenues. These revenues were largely for the support of our product development efforts. Our goal is that an increased portion of our revenues will be from the sale of products and services, as compared to revenue from grants to support our product development efforts. As we continue to advance our proprietary technologies, we expect to have a net use of cash from operating activities unless and until we achieve positive cash flow from the planned commercialization of our products and services.

 

Our PowerBuoy system is based on modular, ocean-going buoys, which we have been periodically ocean testing since 1997. The rising and falling of the waves moves the buoy-like structure, creating mechanical energy that our proprietary technologies convert into electricity. We have tested and developed wave power generation and control technology in novel applications and have deployed and maintained our systems in the ocean for testing. We are developing PowerBuoy technology that has the unique, patented capability to electronically "tune" its performance as wave characteristics change. We expect this will enable the PowerBuoy to optimize its efficiency and resulting power output in dynamic ocean wave conditions. Our two PowerBuoy prototype products are designed for the following applications:

 

●

Our larger scale prototype PowerBuoy product is designed to supply electricity to a stand-alone power user or local or regional electric power grid. Installations may be comprised of a single PowerBuoy or an integrated array of PowerBuoys, plus the remaining components required to deliver electricity to the end user or power grid. In July 2007, our PowerBuoy interface was certified as compliant with international standards. Intertek, an independent laboratory, provided testing and evaluation services to certify that our grid connection systems comply with designated national and international standards. The PowerBuoy grid interface bears the Electrical Testing Laboratories (ETL) listing mark, and can be connected to the utility grid. In September 2010, working in conjunction with the US Navy and Hawaii Electric Company, our 40 kilowatt (kW)-rated PowerBuoy, located at Marine Corps Base Hawaii, became the first-ever grid connected wave energy device in the United States. In January 2011, our larger scale PowerBuoy design (the “150kW PowerBuoy” or “PB150”) structure and mooring system achieved independent certification from Lloyd’s Register. This certification confirmed that the PB150B1 design complies with certain international standards promulgated for floating offshore installations. The Lloyd’s Register (1999 Rules and Regulations for the classification of Floating Offshore Installation at Fixed Locations) process included detailed design analysis and appraisals, addressing the PB150B1 structure, hydrodynamics, mooring and anchoring. This PowerBuoy was deployed off the coast of Scotland from April 2011 through October 2011. While the PowerBuoy did not produce significant or anticipated power during its deployment period, learning from the deployment was incorporated into subsequent PowerBuoy designs. Best practices from the certification have been incorporated into ongoing design improvements. We anticipate deploying the next version of the large PowerBuoy in the first quarter of calendar 2015.

 

●

Our smaller prototype PowerBuoy system is designed to generate power for use autonomously (independent of an existing power grid) in remote locations. In 2011, we deployed and operated off the coast of New Jersey an autonomous prototype PowerBuoy (the “APB-350”), which we designed and manufactured for the US Navy’s Littoral Expeditionary Autonomous PowerBuoy (LEAP) contract for coastal security and maritime surveillance. The prototype APB-350 PowerBuoy structure, incorporating a unique power take-off and onboard system for energy storage and management, is significantly smaller than our utility scale PowerBuoy. With the partial funding from the US Navy, we were able to continue to improve our prototype PowerBuoy system. The prototype APB-350 Autonomous PowerBuoy aims at potentially providing persistent, off-grid clean energy in remote ocean locations. We believe there are a variety of potential applications for this system, including ocean-based communication and data gathering such as for tsunami warnings and seismic surveys, homeland security, offshore oil and gas platforms and aquaculture. Within the Homeland Security market sector, in 2012, we executed a Cooperative Research and Development Agreement, or CRADA, with the U.S. Department of Homeland Security, which utilized the same prototype APB-350 Autonomous PowerBuoy. An additional 2013 deployment provided critical data to inform the next design iteration of the prototype APB-350, which will incorporate major modifications to address critical operations and reliability improvements. We anticipate deploying the next version of the smaller PowerBuoy in calendar 2015.

  

 

Our product development and engineering efforts are focused primarily on technologies that aim to increase energy output, reliability and scalability of the design of our PowerBuoy system, with the goal of generating electricity at a competitive levelized cost of energy, initially for autonomous applications.

 

During fiscal 2014, we worked on projects with the US Department of Energy (“DOE”), our WavePort project in Spain, our project with Mitsui Engineering & Shipbuilding (“MES”) and continued our efforts to increase the power output and reliability of our prototype PowerBuoy systems.

 

During the six months ended October 31, 2014, we continued work on our projects with MES and the DOE. We also completed our contract with the European Union (EC) for our WavePort project in Spain. We had announced that the next step in this project would be partially funded by a grant that we received from Ente Vasco de la Energia (“EVE”) a Basque regional energy agency. We had anticipated that the PowerBuoy would be deployed at a site off the north coast of Spain, along with other components of the project to be provided by members of the consortium under the EC contract. Due to a variety of factors, rather than deploying the PowerBuoy off of the coast of Spain, we now intend to deploy off the coast of New Jersey in the first quarter of calendar 2015. Since the EVE grant, which is up to Euro 1.13 million ($1.56 million), depends on a deployment in Spain (among other factors) and runs to December 31, 2015, we have removed the EVE grant from our backlog. However, we remain in communication with EVE in regards to utilizing the grant on a future beneficial project, although there can be no assurance that the EVE grant will ever be utilized, and if so, on what terms.

 

The PowerBuoy arrived in Bayonne, NJ from Santander, Spain in mid-November and is currently being re-assembled and undergoing final checkout. We are also engaged in the permitting process and contracting with local sources for ocean deployment. Our intent is to deploy and ocean test the PB40 as quickly as possible in order to achieve the original WavePort project objectives to demonstrate performance of a large scale wave energy converter.

 

On our Reedsport project in Oregon, we had obtained a permit from the Federal Energy Regulatory Commission (“FERC”) for a multi-stage wave power project off the coast of Reedsport, Oregon. In addition, we received two cost-sharing contracts with the (DOE) for approximately $4.4 million to construct and deploy a single PowerBuoy off the coast of Reedsport. We subsequently obtained a license from FERC in August 2012 that authorized installation and operation of a 10-buoy grid connected wave energy array (the “License”). Due to the complexity of the FERC regulations for the single buoy, higher than anticipated project costs, unanticipated technical risks, and uncertainty surrounding permitting, we made the decision not to proceed with the project. Accordingly, we announced in March 2014 our surrender of the permit for one phase of the project and announced in April 2014 that we were taking the steps necessary to close out this project with the DOE. In May 2014, we filed an application to surrender the FERC permit for the remaining phases. In August, we completed the removal of the anchoring and mooring equipment from the seabed off the coast of Oregon. We are in the process of completing the site survey and clearance, and submittal and acceptance of final reports to FERC.

 

We also continued our efforts to increase the output and reliability of our prototype PowerBuoy systems. Our development efforts also remain focused on further optimization of our modular and optimized power takeoff technology.

 

At October 31, 2014, our total negotiated backlog was $1.7 million compared with $5.8 million at October 31, 2013. Some of our backlog at October 31, 2014 and 2013 consisted of cost-sharing contracts as described in the Financial Operations Overview section of Management’s Discussion and Analysis in this Quarterly Report on Form 10-Q. Our backlog can include both funded amounts, which are unfilled firm orders for which funding has been both authorized and appropriated by the customer (Congress, in the case of US Government agencies), and unfunded amounts, which are unfilled firm orders from the DOE for which funding has not been appropriated. If any of our contracts were to be terminated, our backlog would be reduced by the expected value of the remaining terms of such contracts. Our backlog was fully funded at October 31, 2014 and 2013. Further, in September 2013, we were selected for a $1.0 million award from the DOE to enhance the commercial viability of our PowerBuoy system through mechanical component design changes. On September 26, 2014, the DOE notified the Company of DOE’s decision to terminate negotiations with respect to the financial assistance award under the funding opportunity, and the Company accepted DOE’s decision without protest. As previously disclosed, we had not received any funds from DOE with respect to this award and had not included the award in our backlog.

 

We also reduced our backlog by $1.0 million for the grant that we received from Ente Vasco de la Energia (“EVE”) a Basque regional energy agency that would provide partial funding for the deployment of the PowerBuoy off the coast of Spain. It is our intent to deploy the PowerBuoy off the coast of New Jersey as discussed above and we remain in communication with EVE in regards to utilizing the grant on a future beneficial project.

  

 

For the three months ended October 31, 2014, we generated revenues of $1.7 million and incurred a net loss attributable to Ocean Power Technologies, Inc. of $4.4 million, and for the three months ended October 31, 2013, we generated revenues of $0.5 million and incurred a net loss attributable to Ocean Power Technologies, Inc. of $3.3 million. As of October 31, 2014, our accumulated deficit was $159.3 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.  

 

Currently, the cost of electricity generated from wave energy, without the benefit of subsidies or other economic incentives, substantially exceeds the prevailing price of electricity in all significant markets in the world. As a result, the near-term growth of the market opportunity for our utility PowerBuoy systems, which are designed with the capability to feed electricity into a local or regional power grid, depends significantly on the availability and magnitude of government incentives and subsidies for wave energy. Federal, state and local governmental bodies in many countries have provided subsidies in the form of tariff subsidies, rebates, tax credits and other incentives to utilities, power generators and distributors using renewable energy. However, these incentives and subsidies generally decline over time. Many incentive and subsidy programs have specific expiration dates, and there can be no assurance that our technology will qualify for current or future subsidies. The timing, scope and size of new government programs for renewable energy are uncertain, and there can be no assurances that we or our customers will be successful in obtaining any additional government funding or that projects will be profitable even with available funding.

 

The amount of contract backlog is not necessarily indicative of future revenue because modifications to or terminations of present contracts and delays can provide additional revenue or reduce anticipated revenue. A substantial portion of our revenue is recognized using the percentage-of-completion method, and changes in estimates from time to time may have a significant effect on revenue and backlog. Our backlog is also typically subject to large variations from time to time due to the timing of new awards.

 

Australia

 

In 2009, Leighton Contractors Pty. Ltd. (Leighton) formed Victorian Wave Partners Pty Ltd (“VWP”), a special purpose company for the development of a wave power project off the coast of Victoria, Australia. In 2010, VWP and the Commonwealth of Australia entered into an Energy Demonstration Program Funding Deed (“Funding Deed”), wherein VWP was awarded an A$66.5 million (approximately US$62 million) grant for the wave power project; however, receipt of funds under the grant was subject to certain terms, including achievement of future significant external funding milestones. The grant was expected to be used towards the A$232 million proposed cost of building and deploying a wave power station off the coast of Australia (the “Project”). In March 2012, our Australian subsidiary Ocean Power Technologies (Australasia) Pty. Ltd acquired 100% ownership of VWP from Leighton. In January 2014, VWP signed a Deed of Variation with the Australian Renewable Energy Agency (“ARENA”) that amended the Funding Deed, and, in March 2014, received the initial portion of the grant from ARENA in the amount of approximately A$5.6 million (approximately US$5.2 million) (the “Initial Funding”). The Initial Funding was subject to claw-back provisions if certain contractual requirements, including performance criteria, were not satisfied. In light of the claw-back provisions, the Company determined to classify the Initial Funding as an advance payment, hold the funds as restricted cash and defer recognition of the funds as revenue.

 

In July 2014, VWP’s Board of Directors concluded that the wave power demonstration project contemplated was no longer commercially viable, and VWP delivered a termination notice to ARENA. In August 2014, the Company and ARENA executed the Deed of Variation and Termination of Funding Deed. Under this agreement the Company returned the initial grant funding received of A$5,595,723 ($5,179,960) and interest of A$109,051 ($102,061).

 

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. Some revenue contracts may contain complex criteria or uncertainty surrounding the terms of performance and customer acceptance. These contracts are subject to interpretation, and management may make a judgment as to the amount of revenue earned and recorded. Because we have a small number of contracts, revisions to the percentage-of-completion determination, management interpretation or delays in meeting performance and contractual 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 the percentage-of-completion method based on the maximum awarded contract amount. In certain cases, we may choose to incur costs in excess of the maximum awarded contract amounts 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 the percentage-of-completion method 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 the percentage-of-completion method 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 majority of our revenue for the three and six months ended October 31, 2014 and 2013 was from cost-sharing contracts, however, in the three and six months ended October 31, 2014 our firm fixed price contract with MES recorded under the percentage-of-completion method had an increase in estimated total costs of the project. This increase in estimated project costs resulted in a gross loss, and we recorded an accrual for the future anticipated loss on the contract.

 

The following table provides information regarding the breakdown of our revenues by customer for the three and six months ended October 31, 2014 and 2013:

 

		Three months ended October 31,								Six months ended October 31,
Customer		2014				2013				2014				2013
US Department of Energy		$	1.1			$	0.1			$	1.2			$	0.2
Mitsui Engineering & Shipbuilding			0.6				0.1				1.1				0.1
European Union (WavePort project)		―					0.3				1.0				0.4
UK Government's Technology Strategy Board		―				―				―					0.2
		$	1.7			$	0.5			$	3.3			$	0.9

 

The following table shows the percentage of our revenues by geographical location of our customers for the six months ended October 31, 2014 and 2013:

 

		Six months ended October 31,
Customer Location		2014				2013
United States			38	%			25	%
Europe			29	%			67	%
Asia and Australia			33	%			8	%
			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 may include anticipated losses at completion on certain contracts.

 

Most of our revenue recorded for the six months ended October 31, 2014 and 2013 was generated from cost-sharing contracts, which result in zero gross profit, however, in the six months ended October 31, 2014 our firm fixed price contract with MES recorded under the percentage-of-completion method had an increase in estimated total costs of the project. This increase in estimated project costs resulted in a gross loss and we recorded an accrual for the future anticipated loss on the contract.

 

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 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 relate primarily to our efforts to increase the power output and reliability of our utility 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. Over the next several years, it is our intent to fund the majority of our research and development expenses, including cost-sharing arrangements, with sources of external funding. If we are unable to obtain external funding, we may curtail our research and development expenses and scope as necessary.

  

 

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 (expense), net

 

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 and interest expense paid on certain obligations to third parties. Total cash, cash equivalents, restricted cash, and marketable securities were $23.4 million as of October 31, 2014, compared to $18.7 million as of October 31, 2013.

 

We anticipate that our interest income reported in fiscal 2015 will continue to be lower than the comparable periods of the prior fiscal year as a result of the decrease in invested cash.

 

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. Due to the macroeconomic pressures in certain European countries, foreign exchange rates may become more volatile in the future.

 

We invest in certificates of deposit and maintain cash accounts that are denominated in British pounds sterling, Euros and Australian dollars. These foreign-denominated certificates of deposit and cash accounts had a balance of $2.1 million as of October 31, 2014 and October 31, 2013, compared to our total cash, cash equivalents, restricted cash, and marketable securities balances of $23.4 million as of October 31, 2014 and $18.7 million as of October 31, 2013. 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. A portion of our international revenues for the six months ended October 31, 2014 and 2013 were recorded in Euros or British pounds sterling.

 

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.

 

 

Results of Operations

 

Three Months Ended October 31, 2014 Compared to Three Months Ended October 31, 2013

 

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 October 31, 2014 and 2013:

 

 

										% Change
		Three Months ended October 31,								2014 Period to
		2014				2013				2013 Period
Revenues		$	1,747,788			$	463,608				277	%
Cost of revenues			1,998,076				462,336				332
Gross (loss) profit			(250,288	)			1,272				(19,777	)
Operating expenses:
Product development costs			1,224,487				1,610,089				(24	)
Selling, general and administrative costs			2,708,878				1,808,892				50
Total operating expenses			3,933,365				3,418,981				15
Operating loss			(4,183,653	)			(3,417,709	)			(22	)
Interest income, net			3,424				2,879				19
Foreign exchange (loss) gain			(216,249	)			107,357				(301	)
Net loss			(4,396,478	)			(3,307,473	)			(33	)
Less: Net loss attributable to the noncontrolling interest in Ocean Power Technologies (Australasia) Pty Ltd.			26,784				36,916				(27	)
Net loss attributable to Ocean Power Technologies, Inc.		$	(4,369,694	)		$	(3,270,557	)			(34	)%

 

Revenues

 

Revenues increased by $1.3 million, or 277%, to $1.7 million in the three months ended October 31, 2014, as compared to $0.5 million in the three months ended October 31, 2013. The increase in revenue is primarily related to increased billable work for the removal of the anchoring and mooring equipment from the seabed off the coast of Oregon and increased billable work under the current phase of our project with MES. These increases were partially offset by decreased revenue on our WavePort contract with EU for our project in Spain that was completed during the three months ended July 31, 2014.

 

Cost of revenues

 

Cost of revenues increased by $1.5 million, or 332%, to $2.0 million in the three months ended October 31, 2014, as compared to $0.5 million in the three months ended October 31, 2013. The increase in cost of revenue is primarily related to costs for increased billable work for the removal of the anchoring and mooring equipment from the seabed off the coast of Oregon and increased billable work under the current phase of our project with MES. Our firm fixed price contract with MES recorded under the percentage-of-completion method had an increase in estimated total costs of the project. This increase in estimated project costs resulted in a gross loss and we recorded an accrual for the future anticipated loss on the contract. These increases were partially offset by decreased cost of revenues on our WavePort contract with the EU for our project in Spain that was completed during the three months ended July 31, 2014.

 

Some of our projects in the three month period ended October 31, 2014 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 primarily as part of our product development efforts. Revenue is typically recorded using the percentage-of-completion method 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 our fixed price contracts.

  

 

Product development costs

 

Product development costs decreased by $0.4 million, or 24%, to $1.2 million in the three months ended October 31, 2014, as compared to $1.6 million in the three months ended October 31, 2013. The decrease in product development costs was related primarily to the substantial completion of our cost-sharing contract with the DOE for our Reedsport project in Oregon and decreased costs associated with other internally funded development projects. This decrease was offset by increased product development costs associated with our PB40 PowerBuoy project that we intend to deploy off the coast of New Jersey in the first quarter of calendar 2015. Over the next several years, it is our intent to fund the majority of our research and development expenses, including cost-sharing arrangements, with sources of external funding. If we are unable to obtain external funding, we may curtail product development expenses and/or scope as necessary.

 

Selling, general and administrative costs

 

Selling, general and administrative costs increased by approximately $0.9 million, or 50%, to $2.7 million for the three months ended October 31, 2014 as compared to $1.8 million for the three months ended October 31, 2013. The increase was related primarily to legal fees to address the shareholder litigation and related matters. In addition, costs increased related to third party consultant fees and patent costs due to shortening the estimated useful lives for recording amortization expense. These increases were offset by decreased site development expenses related to our terminated project in Australia.

 

Interest income, net

 

Interest income was approximately $3,000 for the three months ended October 31, 2014, and the three months ended October 31, 2013.

 

Foreign exchange (loss) gain

 

Foreign exchange loss was $216,000 for the three months ended October 31, 2014, compared to a foreign exchange gain of $107,000 for the three months ended October 31, 2013. The difference was attributable primarily to the relative change in value of the British pound sterling, Euro and Australian dollar compared to the US dollar during the two periods.

 

Six Months Ended October 31, 2014 Compared to Six Months Ended October 31, 2013

 

The following table contains selected statement of operations information, which serves as the basis of the discussion of our results of operations for the six months ended October 31, 2014 and 2013:

 

 

										% Change
		Six Months ended October 31,								2014 Period to
		2014				2013				2013 Period
Revenues		$	3,288,316			$	924,535				256	%
Cost of revenues			3,965,240				922,712				330
Gross (loss) profit			(676,924	)			1,823				(37,232	)
Operating expenses:
Product development costs			1,144,432				2,881,034				(60	)
Selling, general and administrative costs			5,831,850				4,356,651				34
Total operating expenses			6,976,282				7,237,685				(4	)
Operating loss			(7,653,206	)			(7,235,862	)			(6	)
Interest (expense) income, net			(55,196	)			3,237				(1,805	)
Other income			185,000				—				100
Foreign exchange (loss) gain			(221,907	)			129,127				(272	)
Net loss			(7,745,309	)			(7,103,498	)			(9	)
Less: Net loss attributable to the noncontrolling interest in Ocean Power Technologies (Australasia) Pty Ltd.			92,863				82,971				12
Net loss attributable to Ocean Power Technologies, Inc.		$	(7,652,446	)		$	(7,020,527	)			(9	)%

 

Revenues

 

Revenues increased by $2.4 million, or 256%, to $3.3 million in the six months ended October 31, 2014, as compared to $0.9 million in the six months ended October 31, 2013. The increase in revenue is primarily related to increased billable work for the removal of the anchoring and mooring equipment from the seabed off the coast of Oregon and increased billable work under the current phase of our project with MES and revenue related to the completion of our WavePort contract with the EU. These increases were partially offset by decreased revenue on our development project for our modular power take-off technology.

  

 

Cost of revenues

 

Cost of revenues increased by $3.0 million, or 330%, to $4.0 million in the six months ended October 31, 2014, as compared to $0.9 million in the six months ended October 31, 2013. The increase in cost of revenue is primarily related to costs for increased billable work for the removal of the anchoring and mooring equipment from the seabed off the coast of Oregon and increased billable work under the current phase of our project with MES and cost of revenue related to the completion of our WavePort contract with the EU. Our firm fixed price contract with MES recorded under the percentage-of-completion method had an increase in estimated total costs of the project. This increase in estimated project costs resulted in a gross loss and we recorded an accrual for the future anticipated loss on the contract. These increases were partially offset by decreased cost of revenues on our development project for our modular power take-off technology.

 

Some of our projects in the six month period ended October 31, 2014 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 primarily as part of our product development efforts. Revenue is typically recorded using the percentage-of-completion method 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 our fixed price contracts.

 

Product development costs

 

Product development costs decreased by $1.7 million, or 60%, to $1.1 million in the six months ended October 31, 2014, as compared to $2.9 million in the six months ended October 31, 2013. The decrease in product development costs was related primarily to the substantial completion of our cost-sharing contract with the DOE for our Reedsport project in Oregon and decreased costs associated with other internally funded development projects. Over the next several years, it is our intent to fund the majority of our research and development expenses, including cost-sharing arrangements, with sources of external funding. If we are unable to obtain external funding, we may curtail product development expenses and/or scope as necessary.

 

Selling, general and administrative costs

 

Selling, general and administrative costs increased by approximately $1.5 million, or 34%, to $5.8 million for the six months ended October 31, 2014 as compared to $4.4 million for the six months ended October 31, 2013. The increase was related primarily to legal fees to address the shareholder litigation and related matters. In addition, costs increased related to third party consultant fees and patent costs due to shortening the estimated useful lives for recording amortization expense. These increases were offset by decreased accounting fees and decreased employee related costs.

 

Interest (expense) income, net

 

Interest income (expense) decreased to ($55,000) for the six months ended October 31, 2014, as compared to $3,237 in the six months ended October 31, 2013. This change was related primarily to interest expense recorded for the repayment of funds received in March 2014 from ARENA of $5.2 million.

 

Foreign exchange (loss) gain

 

Foreign exchange loss was $222,000 for the six months ended October 31, 2014, compared to a foreign exchange gain of $129,000 for the six months ended October 31, 2013. The difference was attributable primarily to the relative change in value of the British pound sterling, Euro and Australian dollar compared to the US dollar during the two periods.

 

Other income

 

During the six months ended October 31, 2014, we reached a favorable settlement with a vendor regarding a disputed transaction, which comprises the amount of $185,000 recorded within Other income.

 

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 two years ended April 30, 2014, our net losses were $26.0 million and our net cash used in operating activities was $17.3 million.

 

 

Cash flows for the six months ended October 31, 2014 and 2013 were as follows:

 

		Six Months Ended October 31,
		2014				2013
Net loss		$	(7,745,309	)		$	(7,103,498	)
Adjustments for noncash operating items			861,700				462,846
Net cash operating loss			(6,883,609	)			(6,640,652	)
Net change in operating assets and liabilities			(5,227,368	)			157,192
Net cash used in operating activities		$	(12,110,977	)		$	(6,483,460	)
Net cash provided by investing activities		$	4,700,266			$	6,726,952
Net cash (used in) provided by financing activities		$	(50,154	)		$	3,380,985
Effect of exchange rates on cash and cash equivalents		$	(159,086	)		$	35,019

  

Net cash used in operating activities

 

Net cash used in operating activities was $12.1 million and $6.5 million for the six months ended October 31, 2014 and 2013, respectively. The change was the result of an increase in net loss of $0.6 million and an increase in cash used by the net change in operating assets and liabilities of $5.4 million primarily due to the return of the advance payment of $4.7 million related to the former ARENA contract, offset by an increase in noncash operating items of $0.4 million.

 

The increase in net loss for the six months ended October 31, 2014 compared to the six months ended October 31, 2013 reflects a gross loss of $0.7 million relating to our project with MES, an increase in selling, general and administrative costs of $1.5 million, offset by a decrease in product development costs of $1.7 million relating primarily to our project in Reedsport, Oregon and a decrease in the net change of $0.1 million in other income and foreign exchange differences.

 

The increase in noncash operating items reflects an increase in amortization expense for patents and foreign exchange losses of $0.6 million offset by a decrease in equity compensation of $0.2 million.

 

The decrease in operating assets and liabilities reflects the decrease advanced payment received from customers of $4.7 million, a net decrease of $0.9 million in unearned revenues and other net changes in operating assets and liabilities of $0.2 million. These decreases are offset by the collection of $0.3 million in accounts receivable and a net increase in other assets of $0.3 million.

 

Net cash provided by investing activities

 

Net cash provided by investing activities was $4.7 million for the six months ended October 31, 2014 and net cash provided by investing activities was $6.7 million for the six months ended October 31, 2013. The change was primarily the result of a net increase of $2.0 million in purchases of marketable securities during the six months ended October 31, 2014 offset by a decrease in restricted cash of $6.7 million.

 

Net cash used in (provided by) financing activities

 

Net cash used in financing activities was $50,000 and net cash provided by was $3,380,000 for the six months ended October 31, 2014 and 2013, respectively. The net cash used was primarily for repayment of long-term debt in the six months ended October 31, 2014 and net cash provided in the six months ended October 31, 2013 was primarily from the sale of common stock, net of issuance costs.

 

Effect of exchange rates on cash and cash equivalents

 

The effect of exchange rates on cash and cash equivalents was a decrease of $159,000 and an increase of $35,000 in the six months ended October 31, 2014 and 2013, respectively. The effect of exchange rates on cash and cash equivalents results primarily from gains or losses on consolidation of foreign subsidiaries and foreign denominated cash and cash equivalents.

  

 

Liquidity Outlook

 

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 planned commercialization of the PowerBuoy systems. Our future capital requirements will depend on a number of factors, including: 

 

•	the cost of development efforts for our PowerBuoy systems;
•	our success in developing commercial relationships with major customers;
•	the ability to obtain project-specific financing, grants, subsidies and other sources of funding for some of our projects;
•	the cost of manufacturing activities;
•	the cost and success rate of commercialization activities, including demonstration projects, product marketing and sales;
•	our ability to establish and maintain additional customer relationships;
•	the implementation of our expansion plans, including the hiring of new employees as our business increases;
•	the cost of potential acquisitions of other products or technologies;
•	the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs; and
•	the cost of shareholder litigation and regulatory inquiries.

 

 

We have incurred negative operating cash flows since our inception. As of October 31, 2014, our cash and cash equivalents and marketable securities balance was approximately $22.8 million. Based upon our cash and cash equivalents and marketable securities balance as of October 31, 2014, we believe that we will be able to finance our capital requirements and operations through at least the fourth calendar quarter of 2015. In addition, as of October 31, 2014, our restricted cash balance was approximately $0.6 million, which reflects a significant decrease from our restricted cash balance of approximately $7.3 million as of April 30, 2014. See Note 2(f).

 

During fiscal 2014 and 2013, we have continued to make investments in ongoing product development efforts in anticipation of future growth. Our future results of operations involve significant risks and uncertainties. Factors that could adversely affect our future operating results and cause actual results to vary materially from expectations include, but are not limited to, risks from competition, new products, technological change, recent economic activity and dependence on key personnel. In order to complete our future growth strategy, we will require additional equity and/or debt financing. There is no assurance that additional equity and/or debt financing will be available to us as needed. If sufficient financing is not obtained, we may be required to further curtail or limit certain product development costs, and/or selling, general and administrative activities in order to reduce our cash expenditures.

 

In January 2013, we filed an S-3 Shelf. The S-3 Shelf was declared effective in February 2013.

 

Under the S-3 Shelf, we established the ATM Facility with Ascendiant Capital Markets, LLC via the ATM Agreement in June 2013. Under the ATM Agreement, we offered and sold shares of our common stock from time to time through the Manager, acting as sales agent, in ordinary brokerage transactions at prevailing market prices. Under the ATM Facility, we issued 3,306,334 shares for net proceeds of approximately $9,698,000 during fiscal 2014.

 

We also entered into an Underwriting Agreement with Roth Capital Partners, LLC on April 4, 2014, with respect to an underwritten Public Offering of an aggregate of 3,800,000 shares of our common stock. The Underwriting Agreement contained customary representations, warranties and agreements by us, customary conditions to closing, indemnification obligations, and a 90 day lock-up period that limited transactions in our common stock by us. Net proceeds from the Public Offering were approximately $10,828,000.

 

Form S-3 limits the aggregate market value of securities that we are permitted to offer in any 12-month period under Form S-3, whether under the Offering Agreement or otherwise, to one third of our public float. Given the fiscal 2014 share sales, we fully utilized the ATM Agreement and reached the applicable limit under Form S-3. Of the $40 million authorized under the S-3 shelf, approximately $18.2 million remains available for issuance. During the six months ended October 31, 2014, there were no proceeds from the sale of stock under the S-3 Shelf.

 

 

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, or at all. If we are unable to obtain required financing, we may be required to reduce the scope of our current projects, planned product development and marketing efforts, which could harm our financial condition and operating results.

 

During the three months ended April 30, 2014, our subsidiary VWP received approximately A$5.2 million in initial grant funding from ARENA. The Company recorded this payment as an advance payment within the consolidated balance sheet. We classified the initial grant funding received from ARENA, of A$5,595,723 ($5,179,960), which includes GST, as restricted cash. In July 2014, the VWP Board of Directors determined that the project contemplated by the grant was no longer commercially viable and tendered a notice of its intent to terminate the Funding Deed and return to ARENA the grant funds received.

 

During the six months ended October 31, 2014, the Company remitted the GST in the amount of A$508,702 ($470,905) to the Australian Tax Office (ATO) in accordance with local tax laws and reclaimed this amount from the ATO during such six month period. In August 2014, the Company returned the initial grant funding received of A$5,595,723 ($5,179,960) and interest of A$109,051 ($102,061) to ARENA in accordance with the Deed Of Variation and Termination of Funding Deed executed between the parties in August 2014.

 

Off-Balance Sheet Arrangements

 

Since inception, we have not engaged in any off-balance sheet financing activities.

 

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

Item 4.

CONTROLS AND PROCEDURES

 

 

Evaluation of Disclosure Controls and Procedures

 

Management, under the supervision and with the participation of our Interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2014 pursuant to Rules 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s 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 under the Exchange Act is accumulated and communicated to our management, as appropriate, to timely allow decisions regarding required disclosure. Based on such evaluation, management concluded that our disclosure controls and procedures were effective as of October 31, 2014 to ensure that non-financial statement and related disclosure information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

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 October 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

 

PART II — OTHER INFORMATION

 

 

Item1.

LEGAL PROCEEDINGS

 

Shareholder Litigation: 

 

The Company is a defendant in four putative securities class actions pending in the United States District Court for the District of New Jersey.  See Roby v. Ocean Power Technologies, Inc., et al., Case No. 3:14-cv-03799-FLW-LHG; Chew, et al. v. Ocean Power Technologies, Inc. et. al., Case No 3:14-cv-03815-MAS-DEA; Konstantinidis v. Ocean Power Technologies, Inc., et al., Case No. 3:14-cv-04015-FLW-DEA; Turner v. Ocean Power Technologies, Inc., et al., Case No. 3:14-cv-04592.  The Company’s former Chief Executive Officer is named as a defendant in each of the lawsuits and the Company’s Chief Financial Officer is named as a defendant in two of the lawsuits.  The complaints allege claims for violations of §10(b) and §20(a) of the Securities Exchange Act of 1934 arising out of public statements relating to a now terminated agreement between Victorian Wave Partners Pty. Ltd. and the Australian Renewable Energy Agency for the development of a wave power station (the “VWP Project”).  All four complaints seek unspecified monetary damages and other relief.  On August 12, 2014, five motions for appointment of lead plaintiff were filed.  The motions also seek to consolidate the actions.  The Court has not ruled on the motions.  The cases are still in their preliminary stages and defendants have not yet responded to the complaints.

 

On July 10, 2014, the Company received a demand letter (“Demand Letter”) from an attorney claiming to represent a shareholder demanding that the Company’s Board of Directors establish an independent committee to investigate and remedy alleged breaches of fiduciary duties by the Board of Directors and management relating to the VWP Project.  The Company is continuing to evaluate the Demand Letter but has also invited the attorney to participate in the Section 220 Demand process discussed below.

 

The Company also received a letter, dated August 19, 2014, (the “Section 220 Demand”) from another attorney claiming to represent a shareholder demanding, pursuant to 8 Del. C. § 220, to inspect certain books and records of the Company relating to the VWP Project and the termination of Charles Dunleavy as the Company’s Chief Executive Officer.  The Company has received an additional Section 220 Demand relating to the same subject matter from an attorney claiming to represent a different shareholder. The Company has responded in writing to both Section 220 Demands and is working with the attorneys to address relevant issues.

 

Employment Litigation: 

 

On June 10, 2014, the Company announced that it had terminated Charles Dunleavy as Chief Executive Officer and as an employee of the Company, 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.  To the Company’s knowledge, as of the date of filing of this Quarterly Report on Form 10-Q, Mr. Dunleavy has not filed any claims against the Company.   

 

FINRA Inquiry:

 

In August 2014, the Company provided documents to the Financial Industry Regulatory Authority (FINRA) in response to a July 9, 2014 request under NASDAQ Listing Rule 5250(a)(1) seeking information related to the internal investigation of the Special Committee of the Board of Directors.  On November 6, 2014, FINRA sent a letter to the Company advising the Company that it had concluded its review of the matter and, as the Company believes is generally routine, that is was referring the matter to the SEC for whatever action, if any, it deems appropriate. There are no outstanding requests to the Company from FINRA or any other regulators at this time.

 

In addition, the Company is involved from time to time in certain legal actions arising in the ordinary course of business. 

 

 

Item 1A.

RISK FACTORS

 

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, 2014. 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 for the year ended April 30, 2014.

  

 

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There have been no unregistered sales of equity securities or purchases of equity securities by the Company that are required to be disclosed.

 

 

Item 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

 

Item 4.

MINE SAFETY DISCLOSURES

 

None.

 

 

Item 5.

OTHER INFORMATION

 

Public Statement of the Special Committee coincident with the completion of its investigation

 

 On September 9, 2014, the Special Committee of the Board of Directors of Ocean Power Technologies, Inc. (OPT) completed its internal investigation into the commercial agreement between Victorian Wave Partners Ltd., an indirect consolidated subsidiary of OPT, and the Australian Renewable Energy Agency, including related public statements concerning a proposed wave power demonstration project off the coast of Victoria, Australia. The findings of the Special Committee are contained in the Form 8-K disclosure made on July 29, 2014, and no additional findings have been made.

 

The Special Committee was dissolved in October 2014.

 

 

Item 6.

EXHIBITS

 

	31.1					Certification of Interim 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
	32.1					Certification of Interim Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2					Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101					The following materials formatted in eXtensible Business Reporting Language (XBRL) from Ocean Power Technologies, Inc Quarterly Report on Form 10-Q for the quarter ended October 31, 2014, filed December 10, 2014: (i) Consolidated Balance Sheets – October 31, 2014 (unaudited) and April 30, 2014, (ii) Consolidated Statements of Operations (unaudited) – Three and Six Months Ended October 31, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Loss (unaudited) – Three and Six Months Ended October 31, 2014 and 2013, (iv) Consolidated Statements of Cash Flows (unaudited) – Three and Six Months Ended October 31, 2014 and 2013, (v) Consolidated Statements of Stockholders’ Equity (unaudited) – Three and Six Months Ended October 31, 2014 and 2013 and (vi) Notes to Consolidated Financial Statements.*
						* As provided in Rule 406T of Regulation S-T, this exhibit shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability under those sections.

  

 

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.

 

 

 

By:		/s/ David L. Keller
		David L. Keller
		Interim Chief Executive Officer
By:		/s/ Mark A. Featherstone
		Mark A. Featherstone
		Chief Financial Officer

 

 

Date: December 10, 2014

  

 

EXHIBITS INDEX

 

	31.1			Certification of Interim 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
	32.1			Certification of Interim Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	101			The following materials formatted in eXtensible Business Reporting Language (XBRL) from Ocean Power Technologies, Inc Quarterly Report on Form 10-Q for the quarter ended October 31, 2014, filed December 10, 2014: (i) Consolidated Balance Sheets – October 31, 2014 (unaudited) and April 30, 2014, (ii) Consolidated Statements of Operations (unaudited) – Three and Six Months Ended October 31, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Loss (unaudited) – Three and Six Months Ended October 31, 2014 and 2013, (iv) Consolidated Statements of Cash Flows (unaudited) – Three and Six Months Ended October 31, 2014 and 2013, (v) Consolidated Statements of Stockholders’ Equity (unaudited) – Three and Six Months Ended October 31, 2014 and 2013 and (vi) Notes to Consolidated Financial Statements.*
				* As provided in Rule 406T of Regulation S-T, this exhibit shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability under those sections.

 

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

 

I, David L. Keller, certify that:

 

1.		I have reviewed this Quarterly Report on Form 10-Q of Ocean Power Technologies, Inc.;
2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.		The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)		Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)		Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or other persons performing the equivalent functions):

 

(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
/s/ David L. Keller
David L. Keller
Interim Chief Executive Officer

 

Date: December 10, 2014

 

Exhbit 31.2

 

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

 

I, Mark A. Featherstone, certify that:

 

1.		I have reviewed this Quarterly Report on Form 10-Q of Ocean Power Technologies, Inc.;
2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.		The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)		Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)		Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or other persons performing the equivalent functions):

 

(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
/s/ Mark A. Featherstone
Mark A. Featherstone
Chief Financial Officer

 

Date: December 10, 2014

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Ocean Power Technologies, Inc. (the "Company") for the period ended October 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, David L. Keller, Interim Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ David L. Keller
David L. Keller
Interim Chief Executive Officer

 

Date: December 10, 2014

 

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Ocean Power Technologies, Inc. (the "Company") for the period ended October 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Mark A. Featherstone, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Mark A. Featherstone
Mark A. Featherstone
Chief Financial Officer

 

Date: December 10, 2014

 

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.