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 January 31, 2016

 

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 February 29, 2016, the number of outstanding shares of common stock of the registrant was 1,936,801

   

 

 OCEAN POWER TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
FOR THE SIX MONTHS ENDED JANUARY 31, 2016

 

	Page
	Number
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of January 31, 2016 and April 30, 2015		3
Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2016 and 2015		4
Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended January 31, 2016 and 2015		5
Consolidated Statements of Stockholders' Equity for the Nine Months Ended January 31, 2016		6
Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2016 and 2015		7
Notes to Consolidated Financial Statements		8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		32
Item 4. Controls and Procedures		32
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		33
Item 1A. Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3. Defaults Upon Senior Securities		34
Item 4. Mine Safety Disclosures		34
Item 5. Other Information		34
Item 6. Exhibits		35

 

 

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, pending, threatened, and current litigation, liquidity, 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, 2015 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)

 

 

 

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 management’s discussion and analysis (“MD&A”) or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business, pending and threatened litigation and our liquidity includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of our Annual Report on Form 10-K for fiscal 2015 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 2015 refers to the year ended April 30, 2015).

 

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 to convert the mechanical energy created by the rising and falling of ocean waves into electricity. Since fiscal 2002, government agencies have accounted for a significant portion of our revenues, which were largely for the support of our product development efforts. Our goal is to increase the portion of our revenues will be from the sale of products and maintenance 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 in operating activities unless or until we achieve positive cash flow from the planned commercialization of products and services.

 

We plan to market our autonomous PowerBuoy, which is designed to generate power for use independent of the power grid, to customers that require electricity in remote locations. We believe there are a variety of potential applications for our autonomous PowerBuoy, including ocean observing, offshore wind, defense and security, oil and gas, communications and ocean aquaculture, which we refer to collectively as autonomous application markets.

 

The development of our technology has been funded by capital we raised and by development engineering contracts we received starting in fiscal 1995. In fiscal 1996, we received the first of several research contracts with the US Navy to study the feasibility of wave energy conversion technology. As a result of those research contracts, we entered into our first development and construction contract with the US Navy in fiscal 2002 under a project for the development and testing of our wave power systems at the US Marine Corps Base in Oahu, Hawaii. This project included the grid-connection of one of our utility-grade PowerBuoys at the Marine Corps Base. We generated our first revenue relating to our autonomous PowerBuoy from contracts with Lockheed Martin Corporation (“Lockheed Martin”), in fiscal 2003, and in fiscal 2004 we entered into our first development and construction contract with Lockheed Martin for the development and construction of a prototype autonomous PowerBuoy. Subsequently, we received a contract from the US Navy to test our autonomous PowerBuoy as an alternate power source for the Navy’s Deep Water Active Detection System (“DWADS”). In fiscal 2012, an autonomous PowerBuoy was deployed for ocean trials off the coast of New Jersey under a contract from the US Navy under its Littoral Expeditionary Autonomous PowerBuoy (“LEAP”) contract. The LEAP PowerBuoy, or APB350, incorporates a unique power take-off (“PTO”) and on-board energy storage system (“ESS”), and is significantly smaller and more compact than those of our previous PowerBuoy designs. It is designed to provide persistent, grid-independent clean energy in remote ocean locations for a wide variety of maritime security, monitoring and other commercial as well as defense applications. Also, in fiscal 2012, ocean trials of our PB150B1 PowerBuoy were conducted off the northeast coast of Scotland. Our larger-scale PB150B1 PowerBuoy structure and mooring system achieved independent certification from Lloyd’s Register in December 2010. This certification confirmed that the PB150B1 PowerBuoy design complied with the requirements of Lloyd’s 1999 Rules and Regulations for the Classification of Floating Offshore Installations at Fixed Locations.

 

During fiscal 2012 through fiscal 2015, we worked on projects with partners including Mitsui Engineering & Shipbuilding (“MES”) and the US Department of Energy (“DOE”) as well as on our WavePort project in Spain and a project in Oregon. We also continued development of our PowerBuoy technology as well as our next generation PowerBuoy technology. We are continuing to develop, test and refine our technology and our products, but we do not yet have a final commercial product offering.

  

 

During the nine months ended January 31, 2016, we continued work under our contract with the DOE and continued to seek to implement the strategic pivot in our business plan initiated in fiscal 2015, focusing on the autonomous applications markets. Our contract with the DOE was for development efforts that focused on further optimization of our modular PTO technology. In March 2015, we successfully completed a stage gate review during which the DOE reviewed advancements related to PTO design aspects such as reliability, cost take out, manufacturability and scalability. We completed the final stage of the contract during the quarter ended January 31, 2016. We also deployed the PB40 PowerBuoy off the coast of the New Jersey in late July 2015 and subsequently retrieved it approximately three weeks later. We were permitted to operate the PB40 at this location for a period of up to one year. Although the PB40 produced power throughout its deployment period, it began reporting unexpected performance data. This performance data indicated likely failures of components associated with the float braking system which would be activated during severe storm periods in order to prevent damage to the float. As a result, we decided to proactively retrieve the PB40 earlier than anticipated in order to avoid potential physical damage to the buoy structure in the event of a severe storm. During the limited deployment period, we were able to obtain performance data, which we will use to further understand the PB40’s system performance and power generation in varying wave states. In addition, we were also able to use the deployment and retrieval of the PB40, 30 miles off of the coast of New Jersey, to validate our logistical processes associated with permitting, staging, towing and installation of the PB40 at its moored location. Because the PB40 is a legacy prototype device, we do not consider it to be a critical part of our strategic pivot initiated in fiscal 2015 focusing on the autonomous applications market. Based on the limited information we have received to date, we currently believe that the failed components are unique to the PB40, and therefore, we do not believe that these component failures will materially impact the functionality of any of our other autonomous PowerBuoys currently under development. Costs associated with the retrieval of the PB40 were reflected in our product development expenses in our quarterly results for the quarter ending October 31, 2015. We do not plan to redeploy the PB40; however, we do plan to investigate, analyze and asses the component failures of the PB40.

 

We also deployed our APB350 A1 PowerBuoy off the coast of New Jersey in late August 2015. The APB350 A1 contains an improved PTO system compared to the APB350 that was deployed in 2011 in connection with the U.S. Navy's LEAP Program and then redeployed in 2013 in conjunction with the U.S. Department of Homeland Security. The APB350 A1 features an advanced PTO design with a focus on reliability, manufacturability, cost and efficiency improvement. In its final configuration, the APB350 uses a modular energy storage system (ESS) to provide continuous power to the payload even when the Powerbuoy is not generating new power due to calm sea states. In a calm sea state (i.e., no waves to generate power), we believe the ESS will have enough storage capacity to provide up to 7 days of continuous power to the majority of ocean sensors when starting from a fully charged state. When the APB350 is deployed in the ocean, real-time performance and weather data is collected and transmitted to the Company’s monitoring and analysis center at its corporate headquarters in Pennington, NJ. Subsequent to its initial August deployment, the APB350 A1 was retrieved for maintenance and repairs and redeployed in October 2015. In January 2016, we again retrieved the APB350 for additional maintenance and repair. We intend to redeploy it to continue its sea trials after further inspection, maintenance, and repair. Costs associated with the October 2015 retrieval and redeployment of the APB350 are reflected in our quarterly results for the quarter ending October 31, 2015, and costs associated with the January APB350 retrieval are reflected in our results for the quarter ending January 31, 2016.

 

We also are continuing to work to develop solutions seeking to improve our products’ durability and reliability and to reduce cost. For example, the original APB350 utilized a rack and pinion PTO and successfully powered US Navy and US Homeland Security equipment off the coast of New Jersey for nearly three months. The redesigned APB350 leverages our knowledge base from that design to incorporate new design features which we believe will improve its reliability and efficiency, including a redesigned PTO and a higher efficiency and higher voltage ESS.

 

In January 2013, we filed the 2013 Form S-3 Shelf. The 2013 Form S-3 Shelf was declared effective in February 2013. Under the 2013 Form S-3 Shelf we established an ATM Facility with Ascendiant via an ATM Agreement in June 2013. Under that ATM Agreement, we offered and sold shares of our Common Stock from time to time through the Ascendiant, acting as sales agent, in ordinary brokerage transactions at prevailing market prices. Under the ATM Facility, during fiscal 2014, we issued 330,633 shares of our Common Stock at an average price to the public of $30.20 per share, receiving net proceeds from the ATM Facility of approximately $9,698,000.

 

Also in fiscal 2014, we entered into an Underwriting Agreement with Roth Capital Partners, LLC on April 4, 2014, with respect to the issuance and sale in the Public Offering of an aggregate of 380,000 shares of our common stock at a price of $31.00 per share (the “Public Offering”) under the 2013 Form S-3 Shelf. 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, which was completed in early April 2014, were approximately $10,828,000.

 

During fiscal 2015, we did not sell any securities under or receive any proceeds from the sale of securities under the 2013 Form S-3 Shelf.

 

In October 2015, the Company entered into the Offering Agreement with the Manager under which the Company may offer and sell shares of our Common Stock having an aggregate offering price of up to $2,906,836 from time to time through or to the Manager, acting as sales agent and/or principal, in reliance on and subject to the limitations of General Instruction I.B.6 of Form S-3 and other applicable laws and regulations. Under the Offering Agreement, during the quarter ended January 31, 2016, we sold 95,024 shares of Common Stock at an average price of $2.13 per share, for net proceeds to the Company of approximately $199,000 and we paid the Manager a sales commission of approximately $3,000 related to those shares. The Company has no obligation to sell shares of Common Stock under the Offering Agreement and may at any time upon notice terminate the Offering Agreement.

 

Form S-3 limits the aggregate market value of securities that we are permitted to offer in any 12-month period under our 2013 S-3 Shelf, whether under the ATM Agreement, the Underwriting Agreement or otherwise, to one third of our public float. In 2014, we fully utilized our available transaction capacity to sell securities using the 2013 Form S-3 Shelf in the ATM offering. However, we regained the ability to utilize Form S-3 as we entered fiscal 2016.

  

 

Under the SEC’s regulations, the securities registered under our 2013 Form S-3 Shelf may only be offered and sold if not more than three years have elapsed from the initial effective date of the Form S-3, except that if a new shelf registration statement is filed then we are permitted to continue to offer and sell securities under the Form S-3 until the earlier of the effective date of the new shelf registration statement or 180 days after the third anniversary of the initial effective date. On February 12, 2016, we filed a new Form S-3 shelf registration statement to register the offering and sale of up to $15 million in securities. The 2016 Form S-3 registration statement has not yet been declared effective by the SEC. Subject to compliance with applicable laws and regulations, we may continue to offer and sell shares of our Common Stock in the 2015 ATM offering with the Manager under the Offering Agreement until the earlier of August 10, 2016 or the date on which the SEC declares effective the 2016 Form S-3.

 

Under the terms of the Offering Agreement with the Manager, we may offer and sell up to $2,906,836 of our Common Stock in the 2015 ATM Offering. However, pursuant to General Instruction I.B.6 of Form S-3, at the time of filing the 2016 Form S-3, we were able to offer and sell only $1,597,102 of our Common Stock under the 2016 Form S-3, and, as of the date of that filing, we had already offered and sold $251,603 in value of our Common Stock under the Offering Agreement. Thus, under the 2016 Form S-3, we are seeking to register the offering and sale of up to $1,345,499 in value of our Common Stock for sale in the 2015 ATM Offering pursuant to the Offering Agreement, which securities are included in the $15 million of securities we are seeking to register for offer and sale on the 2016 Form S-3.

 

The sale of additional equity or convertible securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities or preferred stock, these securities could have rights senior to those associated with our Common Stock and could contain covenants that would restrict our operations. We do not have any committed sources of debt or equity financing and we cannot assure you that financing will be available in amounts or on terms acceptable to us when needed, or at all. If we are unable to obtain required financing when needed, we may be required to reduce the scope of our current projects, and/or our planned product development and marketing efforts, which could materially and adversely affect our financial condition and operating results.

 

At January 31, 2016, our total negotiated backlog was $0.7 million compared with $0.9 million at April 30, 2015. Some of our backlog at January 31, 2016 and April 30, 2015 consisted of cost-sharing contracts as described in the Financial Operations Overview section of the MD&A in this Quarterly Report on Form 10-Q. Our backlog can include both funded amounts, which are unfilled firm orders for our products and services 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. Currently, we expect that our backlog will continue to decline in the near term; however, we continue to focus on obtaining new contracts and customers to fund our further development of our technology. Our backlog was fully funded at January 31, 2016 and April 30, 2015.

 

We are also seeking to develop strategic alliances with other companies that have developed or are developing in-ocean applications requiring a persistent source of power to address identified needs of potential customers. As announced in late October, we signed a Memorandum of Understanding (“MOU”) with Gardline Environmental, Ltd. to jointly investigate innovative metocean monitoring and maritime security systems for prospective customers using both companies’ technologies. The MOU can be terminated by either party, and each party will bear its own respective costs associated with the MOU.

 

Currently, our contract with MES is undergoing a stage-gate review process and activity has been suspended until we receive further notification from MES. Stage-gate reviews are used in product development to gather key information needed to advance the project to the next gate or decision point. This process is a generally accepted industry practice and has been utilized by other customers such as the DOE. MES has indicated that work under this contract could resume upon passing the stage-gate review. We billed and have been paid for all eligible costs incurred under the contract in fiscal 2015. Our revenues recorded reflect the total amount paid on the contract. In addition, depending on the outcome of the stage-gate review, the scope of the project may be decreased or increased and other terms, including schedule, of the project may change. A significant reduction in the remaining scope of the project could have a material adverse effect on our future revenue and backlog. We cannot predict whether MES will resume work under this contract, or, if any such work is resumed, when that will occur. Under the terms of the contract, MES has the right to terminate the contract assuming the Japanese Government prime contractor (“NEDO”) concurrence or to continue OPT’s activity until the next scheduled review. In March 2016, we entered into a letter of intent (LOI) with MES to conduct funded pre-work tasks and negotiate a definitive agreement that would also include the lease and deployment of the APB350 and the associated application engineering support.

  

For the three months ended January 31, 2016, we generated revenues of approximately $5,000 and incurred a net loss attributable to Ocean Power Technologies, Inc. of $1.9 million, and for the three months ended January 31, 2015, we generated revenues of $0.3 million and incurred a net loss attributable to Ocean Power Technologies, Inc. of $2.2 million. As of January 31, 2016, our accumulated deficit was $173.9 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 PowerBuoys in the autonomous (grid independent) applications markets.

  

 

As part of our strategic pivot in business operations initiated in fiscal 2015, we are focused on developing the PowerBuoy technology for use in the autonomous applications markets. Such applications require open ocean power sources that operate independently of the utility grid by supplying electric power to payloads that are integrated directly in the PowerBuoy and/or located in its vicinity. Based on market research and available public data, we believe considerable business opportunity exists in six markets that could have a direct need for our autonomous PowerBuoys: ocean observing, offshore wind, defense and security, oil and gas, communications, and ocean aquaculture. Based on power needs, sensor types and other considerations, we believe our APB350 could have the ability to satisfy several application requirements within these six markets. It is designed to offer a substantial amount of persistent power while also providing a simple and stable integration platform that is deployable using readily available vessels and skills.

 

The APB350 is currently undergoing a design iteration focusing on improving its commercial viability, reliability and endurance. The APB350 A1 prototype has undergone significant in-ocean and accelerated life testing and we currently project that in calendar year 2016, the APB350 will achieve a maturity level that will allow us to proceed with a commercial launch of that product for use by early adopters. We anticipate that the APB350 will generate and store sufficient power to address applications needs in markets such as metrological data collection for oil and gas and ocean observing, wind and environmental data collection, and sensors and communications for homeland defense. With additional power available, we believe new applications also will be enabled through the combining of existing sensors, and the development of new sensors and hardware that were not feasible or financially viable with incumbent power sources such as fossil-fueled generators, solar, wind and battery based sources; however, we have only begun to explore opportunities in these markets, and though we believe many more could exist, we have not yet developed any integrated solutions and resulting product offerings in these areas.

 

OPT is partnering with the National Data Buoy Center under a Cooperative Research and Development Agreement (“CRADA”) to conduct ocean demonstrations of its innovative Self-Contained Ocean Observing Payload (“SCOOP”) monitoring system integrated into OPT’s APB350 PowerBuoy®.

 

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

 

 

Australia

 

In 2008, we announced a Joint Development Agreement with Leighton Contractors Pty. Ltd. (“Leighton”) for the development of wave power projects off the coast of Australia. In 2009, Leighton formed 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 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, the VWP Board of Directors determined that the project contemplated by the Funding Deed was no longer commercially viable and terminated the Funding Deed and returned the Initial Funding to ARENA.

 

Financial Operations Overview

 

The following describes certain line items in our statement of operations and some of the factors that affect our operating results.

 

Revenues

 

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 product development 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. Some of our revenue for the three and nine months ended January 31, 2016 and 2015 was from cost-sharing contracts.

 

 

The following table provides information regarding the breakdown of our revenues by customer for the three and nine months ended January 31, 2016 and 2015:

 

		Three Months Ended January 31,								Nine Months Ended January 31,
		($ millions)								($ millions)
		2016				2015				2016				2015
US Department of Energy		$	—			$	0.1			$	0.2			$	1.3
European Union (WavePort project			—				—				0.4				1.0
Mitsui Engineering & Shipbuilding			—				0.2				—				1.3
		$	—			$	0.3			$	0.6			$	3.6

 

We currently focus our sales and marketing efforts on North America, Europe, Australia and Japan. The following table shows the percentage of our revenues by geographical location of our customers for the nine months ended January 31, 2016 and 2015:

 

		Nine months ended January 31,
Customer Location		2016				2015
United States			33	%			37	%
Europe			67	%			26	%
Asia and Australia			—				37	%
			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.

 

Some of our revenue recorded for the nine months ended January 31, 2016 and 2015 was generated from cost-sharing contracts, which result in zero gross profit. In the nine months ended January 31, 2015, our 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 generating revenues through sales of our PowerBuoy systems, the nature of our contracts generating revenues to fund our product development efforts, and our ability to manage costs incurred on fixed price commercial contracts.

 

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 PowerBuoy system, and to 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 product development efforts with sources from commercial relationships, including cost-sharing arrangements. If we are unable to obtain commercial relationships or cost-sharing arrangements, we may curtail our development expenses and scope as necessary. We recently narrowed our development focus to the APB350 to drive toward commercialization of that product. We may continue development of the PB10 if we determine that future relationships warrant incurring the costs associated with such product development.

 

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 $9.8 million as of January 31, 2016, compared to $20.5 million as of January 31, 2015.

 

We anticipate that our interest income reported in fiscal 2016 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 may invest our foreign cash reserves in certificates of deposit and we 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 $1.3 million as of January 31, 2016 and $1.2 million as of January 31, 2015, compared to our total cash, cash equivalents, restricted cash, and marketable securities balances of $9.8 million as of January 31, 2016, and $20.5 million as of January 31, 2015. These foreign currency balances are translated at each month end to our functional currency, the US dollar, and any resulting gain or loss is recognized in our results of operations.

 

In addition, a portion of our operations is conducted through our subsidiaries in countries other than the United States, specifically Ocean Power Technologies Ltd. in the United Kingdom, the functional currency of which is the British pound sterling, and Ocean Power Technologies (Australasia) Pty. Ltd. in Australia, the functional currency of which is the Australian dollar. Both of these subsidiaries have foreign exchange exposure that results from changes in the exchange rate between their functional currency and other foreign currencies in which they conduct business. All of our international revenues for the nine months ended January 31, 2016 and 2015, were recorded in Euros.

 

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.

 

Income tax benefit

 

During the three and nine months ended January 31, 2016 and 2015, we sold New Jersey net operating tax loss carryforwards and research and development credits resulting in income tax benefits of $1.7 million and $1.1 million, respectively. Previously, these carryforward amounts were subject to valuation allowances.

 

 

Results of Operations

 

Three Months Ended January 31, 2016 Compared to Three Months Ended January 31, 2015

 

The following table contains selected statement of operations information, which serves as the basis of the discussion of our results of operations for the three months ended January 31, 2016 and 2015:

 

		Three Months ended January 31,								% Change 2016 Period to
		2016				2015				2015 Period				$ Change
Revenues		$	5,203			$	328,511				(98	)%			323,308
Cost of revenues			5,203				379,106				(99	)			373,903
Gross loss			—				(50,595	)			(100	)			(50,595	)
Operating expenses:
Product development costs			1,752,001				1,082,628				62				(669,373	)
Selling, general and administrative costs			1,690,420				1,956,702				(14	)			266,282
Total operating expenses			3,442,421				3,039,330				13				(403,091	)
Operating loss			(3,442,421	)			(3,089,925	)			11				352,496
Interest income (expense), net			1,128				6,793				(83	)			5,665
Other expense			(3,114	)			—				100				3,114
Foreign exchange loss			(188,424	)			(246,002	)			(23	)			(57,578	)
Loss before income taxes			(3,632,831	)			(3,329,134	)			9				303,697
Income tax benefit			1,674,862				1,137,872				47				(536,990	)
Net loss			(1,957,969	)			(2,191,262	)			(11	)			(233,293	)
Less: Net (gain) loss attributable to
the noncontrolling interest in
Ocean Power Technologies
(Australasia) Pty Ltd			—				5,291				(100	)			5,291
Net loss attributable to Ocean Power Technologies, Inc		$	(1,957,969	)		$	(2,185,971	)			(10	)%			(228,002	)

 

Revenues

 

Revenues decreased by $0.3 million, or 98%, to $5,000 in the three months ended January 31, 2016, as compared to $0.3 million in the three months ended January 31, 2015. The decrease in revenue is the result of the completion of the billable work on contracts under which we performed in the 2015 period with no associated billable work in the 2016 period and a decrease in billable work under the current phase of our project with MES in the 2015 period.

 

Cost of revenues

 

Cost of revenues decreased by $0.3 million, or 99%, to $5,000 in the three months ended January 31, 2016, as compared to $0.3 million in the three months ended January 31, 2015. The decrease in cost of revenues is the result of the completion of billable work under certain contracts under which we performed in the 2015 period and the decrease in billable work under the current phase of our project with MES.

 

Some of our projects in the three month periods ended January 31, 2016 and 2015 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 generating revenues through sales of our PowerBuoy systems, the nature of contracts relating for our development efforts, and on our ability to manage costs incurred on our fixed price contracts.

 

 

Product development costs

 

Product development costs were $1.8 million and $1.1 million in the three months ended January 31, 2016 and 2015, respectively. Product development costs for the three months ended January 31, 2016, increased principally as a result of the inclusion of the costs associated with the deployment, retrieval and continued sea trials of the APB350 A1 PowerBuoy during the 2016 period, in addition to the continued application development costs associated with the investigation of the use of our PowerBuoys in the autonomous applications markets. Over the next several years, it is our goal 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 commercial relationships or cost-sharing arrangements, we may curtail our development expenses and scope as necessary. We recently narrowed our focus to the APB350 to drive toward commercialization. We may continue development of the PB10 if we determine that future relationships warrant incurring the costs associated with such product development.

 

Selling, general and administrative costs

 

Selling, general and administrative costs decreased by approximately $0.3 million, or 14%, to $1.7 million for the three months ended January 31, 2016 as compared to $2.0 million for the three months ended January 31, 2015. The decrease was related to decreased patent amortization costs, lower third party consultant fees and certain employee related costs, offset by an increase of legal fees.

 

Interest income (expense), net

 

Interest income (expense) net decreased to $1,000 for the three months ended January 31, 2016, as compared to $7,000 in the three months ended January 31, 2015.

 

Foreign exchange loss

 

Foreign exchange loss was $188,000 for the three months ended January 31, 2016, compared to a foreign exchange loss of $246,000 for the three months ended January 31, 2015. 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.

 

Income tax benefit

 

During the three months ended January 31, 2016 and 2015, we sold New Jersey net operating tax loss carryforwards and research and development credits resulting in income tax benefits of $1.7 million and $1.1 million, respectively. Previously, these amounts were subject to valuation allowances. 

 

 

Nine Months Ended January 31, 2016 Compared to Nine Months Ended January 31, 2015

 

The following table contains selected statement of operations information, which serves as the basis of the discussion of our results of operations for the nine months ended January 31, 2016 and 2015:

 

		Nine Months ended January 31,									% Change 2016 Period to
		2016					2015				2015 Period
Revenues		$	605,281				$	3,616,827				(83	)%
Cost of revenues			605,281					4,344,346				(86	)
Gross loss			—					(727,519	)			(100	)
Operating expenses:
Product development costs			5,412,445					2,227,060				143
Selling, general and administrative costs			5,419,358					7,788,552				(30	)
Total operating expenses			10,831,803					10,015,612				8
Operating loss			(10,831,803	)				(10,743,131	)			1
Interest income (expense), net			9,963					(48,403	)			(121	)
Other income			239,813					185,000				30
Foreign exchange loss			(194,266	)				(467,909	)			(58	)
Loss before income taxes			(10,776,293	)				(11,074,443	)			(3	)
Income tax benefit			1,674,862					1,137,872				47
Net loss			(9,101,431	)				(9,936,571	)			(8	)
Less: Net (gain) loss attributable to
the noncontrolling interest in
Ocean Power Technologies
(Australasia) Pty Ltd			(45,340	)				98,154				(146	)
Net loss attributable to Ocean Power Technologies, Inc		$	(9,146,771	)			$	(9,838,417	)			(7	)%

 

 

Revenues

 

Revenues decreased by $3.0 million, or 83%, to $0.6 million in the nine months ended January 31, 2016, as compared to $3.6 million in the nine months ended January 31, 2015. The decrease in revenue is related to decreased revenue as a result of the completion of billable work on contracts under which we performed in the prior year with no associated work in the current year, decreased billable work related to the completion of our WavePort contract with the EU in fiscal 2015 and the decrease in billable work under the current phase of our project with MES. This is discussed more fully in the Overview section of the MD&A.

 

Cost of revenues

 

Cost of revenues decreased by $3.7 million, or 86%, to $0.6 million in the nine months ended January 31, 2016, as compared to $4.3 million in the nine months ended January 31, 2015. The decrease in cost of revenue is related to decreased revenue as a result of the billable work on contracts under which we performed in the 2015 period with no corresponding work performed in the 2016 period, decreased billable work related to the completion of our WavePort contract with the EU in fiscal 2015 and the decrease in billable work under the project with MES. This is discussed more fully in the Overview section of the MD&A. During the nine months ended January 31, 2015, 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.

 

Some of our projects in the nine-month periods ended January 31, 2016 and 2015 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 generating revenues through sales of our PowerBuoy systems, the nature of contracts relating to our development efforts and on our ability to manage costs incurred on our fixed price contracts.

 

Product development costs

 

Product development costs increased by $3.2 million, or 143%, to $5.4 million in the nine months ended January 31, 2016, as compared to $2.2 million in the nine months ended January 31, 2015. The increase in product development costs was related primarily to increased costs associated with the deployment and retrieval costs of our legacy PB40 and APB350 A1 PowerBuoys, in addition to the continued application development costs associated with the investigation of the use of our PowerBuoys in autonomous market applications. Over the next several years, it is our intent to fund the majority of our product development efforts with sources from commercial relationships, including cost-sharing arrangements. If we are unable to obtain commercial relationships or cost-sharing arrangements, we may curtail our development expenses and scope as necessary. We recently narrowed our focus to the APB350 to drive toward commercialization. We may continue development of the PB10 if we determine that future relationships warrant incurring the costs associated with such product development.

 

Selling, general and administrative costs

 

Selling, general and administrative costs decreased by approximately $2.4 million, or 30%, to $5.4 million for the nine months ended January 31, 2016 as compared to $7.8 million for the nine months ended January 31, 2015. The decrease was related to site development expenses related to our project in Australia which was terminated in the 2015 period, and we incurred lower patent amortization costs and third party consultant fees in the 2016 period. These decreases were partially offset by increased employee related costs.

 

Interest income (expense), net

 

Interest income (expense), net increased to $10,000 for the nine months ended January 31, 2016, as compared to interest expense, net of $(48,403) in the nine months ended January 31, 2015. During the nine months ended January 31, 2015, we recorded interest expense related to the repayment of funds received in March 2014 from ARENA of $5.2 million.

 

Foreign exchange loss

 

Foreign exchange loss was $194,000 for the nine months ended January 31, 2016, compared to a foreign exchange loss of $468,000 for the nine months ended January 31, 2015. 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 nine months ended January 31, 2016, we received a refund of $240,000 related to research and development expenditures in Australia. During the nine months ended January 31, 2015, we reached a favorable settlement with a vendor regarding a disputed transaction, in the amount of $185,000.

 

Income tax benefit

 

During the nine months ended January 31, 2016 and 2015, we sold New Jersey net operating tax loss carryforwards and research and development credits resulting in income tax benefits of $1.7 million and $1.1 million, respectively. Previously, these amounts were subject to valuation allowances.

 

Liquidity and Capital Resources

 

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 to convert the mechanical energy created by the rising and falling of ocean waves into electricity. Since fiscal 2002, government agencies have accounted for a significant portion of our revenues, which 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 maintenance 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 in operating activities unless or until we achieve positive cash flow from the planned commercialization of products and services.

 

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, 2015, our net losses were $24.4 million and our net cash used in operating activities was $23.7 million.

 

 

Cash flows for the nine months ended January 31, 2016 and 2015 were as follows:

 

		Nine Months Ended January 31,
		2016				2015
Net loss		$	(9,101,431	)		$	(9,936,571	)
Adjustments for noncash operating items			576,309				1,437,525
Net cash operating loss			(8,525,122	)			(8,499,046	)
Net change in operating assets and liabilities			449,101				(6,252,578	)
Net cash used in operating activities		$	(8,076,021	)		$	(14,751,624	)
Net cash provided by investing activities		$	112,936			$	21,176,744
Net cash provided by (used in) financing activities		$	126,001			$	(75,659	)
Effect of exchange rates on cash and cash equivalents		$	(85,392	)		$	(339,214	)

 

Net cash used in operating activities

 

Net cash used in operating activities was $8.1 million and $14.8 million for the nine months ended January 31, 2016 and 2015, respectively. The change was the result of a decrease in net loss of $0.8 million and the net change in operating assets and liabilities of $6.7 million, partially offset by a decrease in cash provided by noncash operating items of $0.9 million.

 

The decrease in net loss for the nine months ended January 31, 2016 compared to the nine months ended January 31, 2015 reflects an increase in product development costs of $3.2 million relating primarily to multiple deployments and retrievals of PowerBuoys, offset by a decrease in SG&A costs of $2.4 million relating primarily to decreased legal fees to address the shareholder litigation and related matters, decreased site development expenses related to our terminated project in Australia, a decrease in the net change of other income and foreign exchange loss of $0.3 million and an increase of $0.6 million in income tax benefits. In addition, the nine months ended January 31, 2015 reflects a gross loss of $0.7 million relating to our project with MES.

 

The decrease in noncash operating items reflects a decrease in amortization expense for patents of $0.6 million and a decrease in foreign exchange loss of $0.3 million, offset by an increase in equity compensation of $0.1 million.

 

The increase in operating assets and liabilities reflects the advanced payment received from customers of $4.7 million and the change in unearned revenue of $1.0 million, the change in accrued expenses of $0.7 million, the change in unbilled receivables of $0.2 million, the change in other noncurrent assets of $0.2 million and the change in accounts payable of $0.4 million for the nine months ended January 31, 2015, offset by the change in accounts receivable of $0.2 million, and the change in other assets of $0.3 million during the nine months ended January 31, 2016.

 

Net cash provided by investing activities

 

Net cash provided by investing activities was $0.1 million and $21.2 million for the nine months ended January 31, 2016 and 2015, respectively. The change was primarily the result of a decrease in restricted cash of $0.1 million during the nine months ended January 31, 2016. The change for the nine months ended January 31, 2015 was primarily the result of a net increase of $11.9 million in maturities of marketable securities during the nine months ended January 31, 2015 and an increase from restricted cash of $7.6 million.

 

Net cash provided by (used in) financing activities

 

Net cash provided by (used in) financing activities was $126,000 and $(75,000), respectively, for the nine months ended January 31, 2016 and 2015. The net cash provided by financing activities in the nine months ended January 31, 2016 was primarily from the sale of our Common Stock in the 2016 ATM Offering of $205,000 offset by $75,000 of debt repayment and $4,000 of treasury stock purchases. During the nine months ended January 31, 2015, the net cash used was primarily for repayment of long-term debt.

  

 

Effect of exchange rates on cash and cash equivalents

 

The effect of exchange rates on cash and cash equivalents was a decrease of $85,000 and $339,000 in the nine months ended January 31, 2016 and 2015, 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 PowerBuoys and to expand our sales, marketing and manufacturing programs associated with the planned commercialization of the PowerBuoys. Our future capital requirements will depend on a number of factors, including:

 

•	the cost of development efforts for our PowerBuoys;
•	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 costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs; and
•	the cost of shareholder and other litigation and regulatory inquiries.

 

We have incurred net losses and negative operating cash flows since inception. As of January 31, 2016, we had an accumulated deficit of $173.9 million. As of January 31, 2016, our cash and cash equivalents and marketable securities balance was approximately $9.5 million. Based upon our cash and cash equivalents and marketable securities balance as of January 31, 2016, we believe that we will be able to finance our capital requirements and operations into the quarter ending October 31, 2016. In addition, as of January 31, 2016, our restricted cash balance was approximately $0.4 million. We will require additional equity and/or debt financing to continue our operations as a going concern. If we are unable to raise additional funds when needed, our ability to operate and grow our business could be impaired. We do not know whether we will be able to secure additional funding when needed or at all, or, if funding is obtained, whether the terms will be favorable to us.

 

We expect to continue 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 affect the Company’s future operating results and cause actual results to vary materially from our expectations include, but are not limited to, risks from insufficiencies of capital, technology development, scalability of technology and production, dependence on skills of key personnel, concentration of customers and suppliers, performance of our PowerBuoys, deployment risks and laws, regulations and permitting. 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 when needed. Historically, we have raised proceeds through public capital markets. If sufficient financing is not obtained, we may be required to further curtail or limit certain product development costs and product development activities, and/or selling, general and administrative activities in order to reduce our cash expenditures.

 

In January 2013, we filed the 2013 Form S-3. The 2013 Form S-3 was declared effective in February 2013. Under the Form S-3 Shelf we established an ATM Facility with Ascendiant and offered and sold shares of our Common Stock from time to time through Ascendiant, acting as sales agent, in ordinary brokerage transactions at prevailing market prices. Under that ATM Facility, during fiscal 2014, we issued 330,633 shares of our common stock at an average price to the public of $30.20 per share, receiving net proceeds from the ATM Facility of approximately $9,698,000.

 

Also in fiscal 2014, we entered into an Underwriting Agreement with Roth Capital Partners, LLC on April 4, 2014, with respect to the issuance and sale in an underwritten Public Offering of an aggregate of 380,000 shares of our Common Stock at a price of $30.10 per share under the 2013 Form S-3. 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 that Public Offering, which was completed in early April 2014, were approximately $10,828,000.

  

 

During fiscal 2015, we did not sell any securities under or receive any proceeds from the sale of securities under the Form S-3 Shelf.

 

In October 2015, the Company entered into the Offering Agreement with the Manager under which the Company may offer and sell shares of our Common Stock, having an aggregate offering price of up to $2,906,836 from time to time through or to the Manager, acting as sales agent and/or principal, in reliance on and subject to the limitations of General Instruction I.B.6 of Form S-3 and other applicable laws and regulations. Under the Offering Agreement, during the quarter ended January 31, 2016, we sold 95,024 shares of Common Stock at an average price of $2.13 per share, for net proceeds to the Company of approximately $199,000 and we paid the Manager a sales commission of approximately $3,000 related to those shares. The Company has no obligation to sell shares of Common Stock under the Offering Agreement and may at any time upon notice terminate the Offering Agreement.

 

Form S-3 limits the aggregate market value of securities that we are permitted to offer in any 12-month period under our 2013 S-3 Shelf, whether under the ATM Agreement, the Underwriting Agreement or otherwise, to one third of our public float. In 2014, we fully utilized our available transaction capacity to sell securities using the 2013 Form S-3 Shelf in the ATM offering. However, we regained the ability to utilize Form S-3 as we entered fiscal 2016. Under the SEC’s regulations, the securities registered under our 2013 Form S-3 Shelf may only be offered and sold if not more than three years have elapsed from the initial effective date of the Form S-3, except that if a new shelf registration statement is filed then we are permitted to continue to offer and sell securities under the Form S-3 until the earlier of the effective date of the new shelf registration statement or 180 days after the third anniversary of the initial effective date. On February 12, 2016, we filed a new Form S-3 shelf registration statement to register the offering and sale of up to $15 million in securities. The 2016 Form S-3 registration statement has not yet been declared effective by the SEC. Subject to compliance with applicable laws and regulations, we may continue to offer and sell shares of our Common Stock in the 2015 ATM offering with the Manager under the Offering Agreement until the earlier of August 10, 2016 or the date on which the SEC declares effective the 2016 Form S-3.

 

Under the terms of the Offering Agreement with the Manager, we may offer and sell up to $2,906,836 of our Common Stock in the 2015 ATM Offering. However, pursuant to General Instruction I.B.6 of Form S-3, at the time of filing the 2016 Form S-3, we were able to offer and sell only $1,597,102 of our Common Stock under the 2016 Form S-3, and, as of the date of that filing, we had already offered and sold $251,603 in value of our Common Stock under the Offering Agreement. Thus, under the 2016 Form S-3, we are seeking to register the offering and sale of up to $1,345,499 in value of our Common Stock for sale in the 2015 ATM Offering, which securities are included in the $15 million of securities we are seeking to register for offer and sale on the 2016 Form S-3.

 

The sale of additional equity or convertible securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities or preferred stock, these securities could have rights senior to those associated with our Common Stock and could contain covenants that would restrict our operations. 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, and our planned product development and marketing efforts, which could materially and adversely affect our financial condition and operating results.

 

During fiscal 2015, the Company returned the initial grant funding received of AU$5,595,723 (US$5,179,960) and interest of AU$109,051 (US$102,061) to ARENA. This was related to the VWP Board of Directors’ determination that the project contemplated by the grant was no longer commercially viable.

 

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 Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2016 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 allow timely decisions regarding required disclosure. Based on such evaluation, management concluded that our disclosure controls and procedures were effective as of January 31, 2016 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

 

As required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer and principal financial officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended January 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During the third quarter of fiscal 2016, our controller resigned, and we do not currently intend to fill that position with a full-time employee.  We have reassigned the controller’s duties to other individuals in the organization. There were no other changes during the quarter ended January 31, 2016.

 

 

PART II — OTHER INFORMATION

 

Item 1.

LEGAL PROCEEDINGS

 

Shareholder Litigation: 

 

The Company and its former Chief Executive Officer Charles Dunleavy are defendants in consolidated securities class action lawsuits filed, and pending in the United States District Court for the District of New Jersey captioned In Re: Ocean Power Technologies, Inc. Securities Litigation, Civil Action No. 14-3799 (FLW) (LHG). The consolidated actions are Roby v. Ocean Power Technologies, Inc., et al., Case No. 3:14-cv-03799-FLW-LHG (filed June 13, 2014); Chew, et al. v. Ocean Power Technologies, Inc. et. al., Case No 3:14-cv-03815 (filed June 13, 2014); Konstantinidis v. Ocean Power Technologies, Inc., et al., Case No. 3:14-cv-04015 (filed June 23, 2014); and Turner v. Ocean Power Technologies, Inc., et al., Case No. 3:14-cv-04592 filed (July 22, 2014). On March 17, 2015, the court entered an order appointing Five More Special Situation Fund Ltd. as the lead plaintiff.

 

On October 9, 2015, the lead plaintiff filed a third amended class action complaint which alleges claims for violations of sections 12(a) (2) and 15 of the Securities Act of 1933 and for violations of §10(b) and §20(a) of the Securities Exchange Act of 1934 arising out of public statements relating to the Company’s technology and a now terminated agreement between Victorian Wave Partners Pty. Ltd. (VWP) and the Australian Renewable Energy Agency (ARENA) for the development of a wave power station (the "VWP Project"). The third amended class action complaint seeks unspecified monetary damages and other relief. On November 5, 2015, the Company filed a motion to dismiss the third amended class action complaint. The Lead plaintiff filed a brief in opposition to the motion on December 7, 2015, and defendants filed a reply in support of the motion on December 21, 2015. The Court has not yet ruled on the motion.

 

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 invited the attorney to participate in the Section 220 Demand process discussed below. On February 6, 2015, the Company produced documents to the attorney pursuant to a confidentiality agreement in connection with the Section 220 Demand process.

 

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 two additional Section 220 Demands relating to the same subject matter from attorneys claiming to represent two different shareholders. The Company has responded in writing to the three Section 220 Demands and on February 6, 2015 produced documents to each of the attorneys pursuant to confidentiality agreements.

 

The Company and certain of its current and former directors and officers are defendants in a derivative lawsuit filed on March 18, 2015 in the United States District Court for the District of New Jersey captioned Labare v. Dunleavy, et. al., Case No. 3:15-cv-01980-FLW-LHG. The derivative complaint alleges claims for breach of fiduciary duty, abuse of control, gross mismanagement and unjust enrichment relating to the now terminated agreement between VWP and ARENA referred to above. The derivative complaint seeks unspecified monetary damages and other relief. On May 18, 2015, the plaintiff and all the defendants agreed to stay the derivative lawsuit pending action in the consolidated class action securities litigation discussed above (namely, a court order denying any motions to dismiss the commencement of discovery, a joint request to lift the stay, or further order of the court).

 

On July 10, 2015, a second derivative lawsuit, captioned Rywolt v. Dunleavy, et al., Case No. 3:15-cv-05469, was filed by another shareholder against the same defendants in the United States District Court for the District of New Jersey alleging similar claims for breach of fiduciary duty, gross mismanagement, abuse of control, and unjust enrichment relating to the now terminated agreement between VWP and ARENA. The Rywolt complaint also seeks unspecified monetary damages and other relief. On September 2, 2015, the plaintiff and all the defendants agreed to stay the Rywolt derivative lawsuit pending action in the consolidated class action securities litigation discussed above (namely, a court order denying any motions to dismiss the commencement of discovery, a joint request to lift the stay, or further order of the court). In addition, on September 2, 2015, the plaintiffs in the Labare and Rywolt derivative lawsuits filed an unopposed motion to consolidate the two actions. On February 8, 2016, the Court entered an order (i) consolidating the Labare and Rywolt actions; (ii) appointing Labare and Rywolt as co-lead plaintiffs; (iii) appointing The Rosen Law Firm P.C. as lead counsel; and (iv) directing the co-lead plaintiffs to file a consolidated amended complaint within 30 days of the order.

 

The Company and its current directors are defendants in a lawsuit filed by an alleged shareholder in the Superior Court of New Jersey, Mercer County Chancery Division on January 25, 2016, captioned Stern v. Ocean Power Technologies, Inc., et al., Civil Action No. C-5-16. The complaint alleges that certain provisions of the Company’s Articles of Incorporation and Bylaws providing that the Company’s directors may be removed only for cause and only by an affirmative vote of at least 75% of the votes which all the stockholders would be entitled to cast in any annual election of directors are invalid under Section 141(k) of the Delaware General Corporation Law. The Complaint asserts a breach of fiduciary claim against the director defendants and a declaratory judgment claim against all defendants seeking, among other things, to invalidate the current provisions and declare that the Company’s directors may be removed and replaced without cause and by a simple majority vote. The Complaint seeks declaratory and injunctive relief as well as unspecified costs and attorneys’ fees. Defendants have not yet responded to the Complaint.

  

 

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 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. The Company and Mr. Dunleavy have agreed to suspend his alleged employment claims pending resolution of the shareholder litigation.

 

We have not established any provision for losses relating to these claims and pending litigation. Due to the stages of these proceedings, and considering the inherent uncertainty of these claims and litigation, at this time we are not able to predict or reasonably estimate whether we have any possible loss exposure or the ultimate outcome of these claims.

 

(b)	Regulatory Matters:

 

SEC Subpoena

 

On February 4, 2015, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) requesting information related to the VWP Project. The Company has provided information to the SEC in response to that subpoena. The SEC investigation is ongoing and the Company continues to cooperate with the SEC in its investigation. We are unable to predict what action, if any, might be taken by the SEC or its staff as a result of this investigation or what impact, if any, the cost of responding to the SEC’s investigation or its ultimate outcome might have on our financial position, results of operations or liquidity. We have not established any provision for losses relating to this matter.

 

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, 2015and set forth below in this Quarterly Report on Form 10-Q. These risk factors describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K filed with the SEC on July 6, 2015, except for the addition of the following:

 

Future sales of our common stock or securities convertible or exchangeable for our common stock may depress our stock price.

 

In the future, if permitted pursuant to General Instruction I.B.6 of Form S-3, we may offer and sell additional shares of our Common Stock up to the $2,906,836 in value (of which we have already sold approximately $251,603 in value)in the 2015 ATM offering under the Sales Agreement. In addition, historically, we have financed our operations principally from public sales of our Common Stock and we have filed the 2016 Form S-3 seeking to register the offering and sale of up to $15 million in securities. The 2016 Form S-3 has not been declared effective by the SEC. The sale of a substantial number of shares of our Common Stock, or securities convertible or exchangeable for our Common Stock, or the perception that such sales may occur, could cause the trading price of our Common Stock to decline and it could decline materially and adversely.

 

Our stockholders may experience substantial dilution in the value of their investment or their ownership interest if we issue additional shares of our capital stock in the future.

 

Our certificate of incorporation currently authorizes us to issue up to 50,000,000 shares of our common stock and to issue and designate the rights of, without stockholder approval, up to 5,000,000 shares of preferred stock. In the future, in order to raise additional capital, we may offer additional shares of our Common Stock or other securities convertible into or exchangeable for our Common Stock at prices that may not be the same as the price per share paid by other investors, and dilution to our stockholders in the value of their investment and their ownership and voting interest in the Company could result. We may sell shares or other securities in any other offering at a price per share that is less than the price per share paid by existing investors, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our Common Stock, or securities convertible or exchangeable into Common Stock, in future transactions may be higher or lower than the price per share paid by other investors.

  

 

We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our Common Stock as to distributions and in liquidation, which could negatively affect the value of our Common Stock.

 

In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by some or all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred stock, hybrid securities, or securities convertible into or exchangeable for equity securities, any of which may rank senior to our common stock. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive distributions of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in future offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.

 

We have a pending SEC investigation that has caused us to incur significant costs and expenses and has diverted our management time, and could have a material adverse effect on our business, financial condition, results of operations, cash flow and our ability to raise capital in the future.

 

The Company has received a subpoena from the SEC arising out of public disclosures related to a now-terminated agreement between Victorian Wave Partners Pty. Ltd. (VWP), a second tier Australian subsidiary of the Company, and the Australian Renewable Energy Agency (ARENA), for the development of a wave power station. The Company has provided information to the SEC in response to that subpoena, and the Company continues to cooperate with the SEC in this investigation. We have incurred and expect to continue to incur significant professional fees and other costs related to the SEC investigation. We are unable to predict what action, if any, might be taken by the SEC or its staff as a result of this investigation or what impact, if any, the cost of responding to the SEC’s investigation or its ultimate outcome might have on our financial position, results of operations or liquidity. We have not established any provision for losses relating to this matter. If the SEC were to conclude that enforcement action is appropriate, we could be required to pay civil penalties and fines, and the SEC could impose other sanctions against us or against our current and former officers and directors. In addition, our Board of Directors, management and employees may expend a substantial amount of time on the SEC investigation, diverting resources and attention that would otherwise be directed toward our operations and implementation of our business strategy, all of which could materially adversely affect our business, financial condition, results of operations or cash flows.

 

 

We are the subject of pending and threatened securities and other litigation, which is costly and time-consuming to defend, and if decided against us, could require us to pay substantial judgments or settlements. We may be the subject of future securities or other litigation, which could adversely affect our company, our business and our liquidity.

 

We are the subject of certain pending and threatened litigation certain of which arises, in part, out of a securities offering that we conducted in April 2014 and other activities of the Company. This litigation is costly and time-consuming to defend and may distract our management from the daily operations of our business. We have received other requests for documents from other potential plaintiffs arising out of this securities offering, and we may be the subject of additional future securities litigation, which could adversely affect our company, our business and our liquidity. Although we maintain directors’ and officers’ insurance coverage, we cannot assure you that this insurance coverage will be sufficient to cover the substantial fees of lawyers and other professional advisors relating to this pending or any future litigation, our obligations to indemnify our officers and directors who may become parties to such pending and any future actions, or the amount of any judgments or settlements that we may be obligated to pay in connection with these lawsuits. In addition, these actions have caused our insurance premiums to increase, and we may be subject to additional increases in the future. Further, given the volatility of the market price of our common stock, we may be subject to future class action securities and other litigation. Accordingly, we have incurred and may continue to incur substantial legal expenses, judgments and/or settlements relating to pending, threatened and future litigation and our management time and attention may be diverted from the operation of our business, which could materially and adversely affect our business.

  

 

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following table details the Company’s share repurchases during the quarter:

 

Period		Total Number of Shares Purchased (1)				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans				Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
November 1-30, 2015			—				—				—				—
December 1-31, 2015			—				—				—				—
January 1-31, 2016			1,387			$	1.58				—				—

 

(1) Represents shares delivered back to the Company by employees to pay taxes related to the vesting of restricted shares.

 

 

Item 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

Item 4.

MINE SAFETY DISCLOSURES

 

Not Applicable.

 

Item 5.

OTHER INFORMATION

 

None.

 

 

Item 6.

EXHIBITS

 

10.1		Ocean Power Technologies, Inc. 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s registration statement on Form S-8 filed with the SEC on December 14, 2015)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of 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 January 31, 2016, filed March 11, 2016: (i) Consolidated Balance Sheets – January 31, 2016 (unaudited) and April 30, 2015, (ii) Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended January 31, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Loss (unaudited) – Three and Nine Months Ended January 31, 2016 and 2015, (iv) Consolidated Statements of Cash Flows (unaudited) – Three and Nine Months Ended January 31, 2016 and 2015, (v) Consolidated Statements of Stockholders’ Equity (unaudited) – Three and Nine Months Ended January 31, 2016 and 2015 and (vi) Notes to Consolidated Financial Statements.
		* As provided in Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed to be “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act 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.

 

	Ocean Power Technologies, Inc.
		(Registrant)
Date: March 11, 2016	By:	/s/ George H. Kirby III
		George H. Kirby III
		Chief Executive Officer

 

 

 

Date: March 11, 2016
	By:	/s/ Mark A. Featherstone
		Mark A. Featherstone
		Chief Financial Officer

 

 

EXHIBIT INDEX

 

10.1		Ocean Power Technologies, Inc. 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s registration statement on Form S-8 filed with the SEC on December 14, 2015)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of 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 January 31, 2016, filed March 11, 2016: (i) Consolidated Balance Sheets – January 31, 2016 (unaudited) and April 30, 2015, (ii) Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended January 31, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Loss (unaudited) – Three and Nine Months Ended January 31, 2016 and 2015, (iv) Consolidated Statements of Cash Flows (unaudited) – Three and Nine Months Ended January 31, 2016 and 2015, (v) Consolidated Statements of Stockholders’ Equity (unaudited) – Three and Nine Months Ended January 31, 2016 and 2015 and (vi) Notes to Consolidated Financial Statements.
		* As provided in Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed to be “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability under those sections.

 

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

 

I, George H. Kirby, 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.

 

Date: March 11, 2016
		/s/ George H. Kirby III
		George H. Kirby III
		Chief Executive Officer

         

 

 Exhibit 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.

 

Date: March 11, 2016
	By:	/s/ Mark A. Featherstone
		Mark A. Featherstone
		Chief Financial Officer

   

 

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 January 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, George H. Kirby III, 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.

 

Date: March 11, 2016
		/s/ George H. Kirby III
		George H. Kirby III
		Chief Executive Officer

 

 

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 January 31, 2016, 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.

 

Date: March 11, 2016
		/s/ Mark A. Featherstone
		Mark A. Featherstone
		Chief Financial Officer

 

 

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.