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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the Quarterly Period Ended October 31, 2016

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

For the Transition Period From to

Commission file number: 001-33417

OCEAN POWER TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

22-2535818

(State or Other Jurisdiction of Incorporation or

Organization)

(I.R.S. Employer Identification No.)

1590 REED ROAD, PENNINGTON, NJ 08534

(Address of Principal Executive Offices, Including Zip Code)

(609) 730-0400

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☑

(Do not check if a smaller

reporting company)

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

As of November 30, 2016, the number of outstanding shares of common stock of the registrant was 6,321,040.

OCEAN POWER TECHNOLOGIES, INC.

INDEX TO FORM 10-Q

FOR THE SIX MONTHS ENDED OCTOBER 31, 2016

	Page
	Number
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited):

Consolidated Balance Sheets as of October 31, 2016 and April 30, 2016	3

Consolidated Statements of Operations for the Three and Six Months Ended October 31, 2016 and 2015	4

Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended October 31, 2016 and 2015	5

Consolidated Statements of Stockholders' Equity for the Six Months Ended October 31, 2016	6

Consolidated Statements of Cash Flows for the Six Months Ended October 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	23

Item 3. Quantitative and Qualitative Disclosures About Market Risk	36

Item 4. Controls and Procedures	36

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	37

Item 1A. Risk Factors	39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3. Defaults Upon Senior Securities	41

Item 4. Mine Safety Disclosures	41

Item 5. Other Information	41

Item 6. Exhibits	42

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.

The forward-looking statements contained in or incorporated by reference are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control, including:

	●	our ability to commercialize our PowerBuoys, and achieve and sustain profitability;

	●	our continued development of our proprietary technologies, and expected continued use of cash from operating activities unless or until we achieve positive cash flow from the commercialization of our products and services;

	●	our ability to obtain additional funding, as and if needed which will be subject to a number of factors, including market conditions, and our operating performance;

	●	our estimates regarding expenses, future revenues and capital requirements;

	●	the adequacy of our cash balances and our need for additional financings;

	●	our ability to develop and manufacture a commercially viable PowerBuoy product;

	●	that we will be successful in our efforts to commercialize our PowerBuoy or the timetable upon which commercialization can be achieved, if at all;

	●	our ability to identify and penetrate markets for our PowerBuoys and our wave energy technology;

	●	our ability to implement our commercialization strategy as planned, or at all;

	●	our ability to maintain the listing of our common stock on the NASDAQ Capital Market;

	●	the reliability of our technology and our PowerBuoys;

	●	our ability to improve the power output, survivability and reliability of our PowerBuoys;

	●	the impact of pending and threatened litigation on our business, financial condition and liquidity;

	●	changes in current legislation, regulations and economic conditions that affect the demand for renewable energy;

	●	our ability to compete effectively in our target markets;

	●	our limited operating history and history of operating losses;

	●	our sales and marketing capabilities and strategy in the United States and internationally; and

	●	our ability to protect our intellectual property portfolio.

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, 2016, in our Quarterly Report on Form 10-Q for the quarter ended July 31, 2016, 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.

Many of these factors are beyond our ability to control or predict. These factors are not intended to represent a complete list of the general or specific factors that may affect us. 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

	October 31, 2016			April 30, 2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	12,512,185		$	6,729,814
Marketable securities		25,000			75,000
Restricted cash		305,690			299,543
Unbilled receivables		102,730			37,465
Litigation receivable		2,500,000			2,500,000
Other current assets		385,308			116,805
Total current assets		15,830,913			9,758,627
Property and equipment, net		220,180			273,049
Other noncurrent assets		320,599			319,450
Total assets	$	16,371,692		$	10,351,126
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	142,781		$	372,700
Accrued expenses		2,881,505			2,674,841
Litigation payable		2,500,000			3,000,000
Unearned revenue		-			39,146
Warrant liabilities		548,382			-
Current portion of long-term debt and capital lease obligations		33,796			81,541
Total current liabilities		6,106,464			6,168,228
Long-term debt and capital lease obligations		41,167			54,567
Deferred credits payable non-current		600,000			600,000
Total liabilities		6,747,631			6,822,795
Commitments and contingencies (note 11)
Ocean Power Technologies, Inc. stockholders’ equity:
Preferred stock, $0.001 par value; authorized 5,000,000 shares, none issued or outstanding		-			-
Common stock, $0.001 par value; authorized 50,000,000 shares, issued 6,321,040 and 2,352,100 shares, respectively		6,321			2,352
Treasury stock, at cost; 13,254 and 6,894 shares, respectively		(174,894	)		(137,766	)
Additional paid-in capital		192,632,350			181,670,121
Accumulated deficit		(182,676,542	)		(177,884,011	)
Accumulated other comprehensive loss		(163,174	)		(122,365	)
Total equity		9,624,061			3,528,331
Total liabilities and stockholders’ equity	$	16,371,692		$	10,351,126

See accompanying notes to consolidated financial statements (unaudited).

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2016			2015			2016			2015
Revenues	$	169,964		$	494,412		$	372,353		$	600,078
Cost of revenues		125,146			494,412			252,431			600,078
Gross profit		44,818			-			119,922			-
Operating expenses:
Product development costs		1,307,734			1,177,656			2,944,106			3,660,444
Selling, general and administrative costs		1,723,737			1,821,993			3,242,296			3,728,938
Total operating expenses		3,031,471			2,999,649			6,186,402			7,389,382
Operating loss		(2,986,653	)		(2,999,649	)		(6,066,480	)		(7,389,382	)
Change in fair value of warrant liabilities		2,017,557			-			1,265,488			-
Interest income, net		2,232			3,712			2,046			8,835
Other (expense) income, net		-			(8,080	)		-			242,927
Foreign exchange gain (loss)		1,780			(24,801	)		6,415			(5,842	)
Net loss		(965,084	)		(3,028,818	)		(4,792,531	)		(7,143,462	)
Less: Net (profit) loss attributable to the non-controlling interest in Ocean Power Technologies (Australasia) Pty Ltd.		-			2,057			-			(45,340	)
Net loss attributable to Ocean Power Technologies, Inc.	$	(965,084	)	$	(3,026,761	)	$	(4,792,531	)	$	(7,188,802	)
Basic and diluted net loss per share	$	(0.25	)	$	(1.71	)	$	(1.51	)	$	(4.08	)
Weighted average shares used to compute basic and diluted net loss per share		3,891,512			1,773,978			3,180,501			1,762,805

⁽¹⁾ Common Stock and share data at October 31, 2015 has been adjusted retroactively to reflect a 1-for-10 reverse stock split effective October 27, 2015.

See accompanying notes to consolidated financial statements (unaudited).

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2016			2015			2016			2015
Net loss	$	(965,084	)	$	(3,028,818	)	$	(4,792,531	)	$	(7,143,462	)

Foreign currency translation adjustment		(10,537	)		12,615			(40,809	)		(45,458	)

Total comprehensive loss		(975,621	)		(3,016,203	)		(4,833,340	)		(7,188,920	)

Comprehensive (income) loss attributable to the non-controlling interest in Ocean Power Technologies (Australasia) Pty Ltd.		-			2,057			-			(72,664	)

Comprehensive loss attributable to Ocean Power Technologies, Inc.	$	(975,621	)	$	(3,014,146	)	$	(4,833,340	)	$	(7,261,584	)

See accompanying notes to consolidated financial statements (unaudited).

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

(Unaudited)

	Common Shares				Treasury Shares						Additional Paid-In		Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Shares			Amount			Capital		Deficit			Loss			Total Equity
Balance, April 30, 2016		2,352,100	$	2,352		(6,894	)	$	(137,766	)	$	181,670,121	$	(177,884,011	)	$	(122,365	)	$	3,528,331

Net loss		-		-		-			-			-		(4,792,531	)		-			(4,792,531	)

Stock based compensation		-		-		-			-			141,907		-			-			141,907

Issuance of restricted stock, net		196,940		197		-			-			486,200		-			-			486,397

Sale of stock		3,772,000		3,772		-			-			10,334,122		-			-			10,337,894

Acquisition of treasury stock		-		-		(6,360	)		(37,128	)		-		-			-			(37,128	)

Other comprehensive loss		-		-		-			-			-		-			(40,809	)		(40,809	)

Balance, October 31, 2016		6,321,040	$	6,321		(13,254	)	$	(174,894	)	$	192,632,350	$	(182,676,542	)	$	(163,174	)	$	9,624,061

See accompanying notes to consolidated financial statements (unaudited).

Ocean Power Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended October 31,
	2016			2015

Cash flows from operating activities:
Net loss	$	(4,792,531	)	$	(7,143,462	)
Adjustments to reconcile net loss to net cash used in operating activities
Foreign exchange (loss) gain		(6,415	)		5,842
Depreciation and amortization		68,475			55,629
Compensation expense related to stock option grants & restricted stock		628,304			276,912
Change in fair value of warrant liabilities		(1,265,488	)		-
Changes in operating assets and liabilities:
Accounts receivable		-			(1,357	)
Unbilled receivables		(65,265	)		34,862
Other current assets		(269,157	)		(144,364	)
Other noncurrent assets		(35,690	)		51,718
Accounts payable		(231,572	)		(92,077	)
Accrued expenses		(275,053	)		(28,408	)
Unearned revenues		(39,146	)		-
Net cash used in operating activities		(6,283,538	)		(6,984,705	)
Cash flows from investing activities:
Maturities of marketable securities		50,000			50,000
Restricted cash		(6,147	)		50,829
Purchases of equipment		(11,500	)		(11,130	)
Net cash provided by investing activities		32,353			89,699
Cash flows from financing activities:
Proceeds from issuance of common stock and related warrants, net of costs		12,151,764			4,798
Repayment of debt		(63,401	)		(50,000	)
Acquisition of treasury stock		(37,128	)		(1,724	)
Net cash provided by (used in) financing activities		12,051,235			(46,926	)
Effect of exchange rate changes on cash and cash equivalents		(17,679	)		(54,480	)
Net increase (decrease) in cash and cash equivalents		5,782,371			(6,996,412	)
Cash and cash equivalents, beginning of period		6,729,814			17,335,734
Cash and cash equivalents, end of period	$	12,512,185		$	10,339,322

See accompanying notes to consolidated financial statements (unaudited).

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(1) Background, Basis of Presentation and Liquidity

a)	Background

Ocean Power Technologies, Inc. (the “Company”) was incorporated in 1984 in New Jersey, commenced business operations in 1994 and re-incorporated in Delaware in 2007. The Company is developing and is seeking to commercialize its proprietary systems that generate electricity by harnessing the renewable energy of ocean waves. The Company uses proprietary technologies that convert the mechanical energy created by the heaving motion of ocean waves into electricity. The Company has designed and continues to develop the PowerBuoy product line which is based on modular, ocean-going buoys, which the Company has been periodically ocean testing since 1997. The Company markets its PowerBuoys in the United States and internationally. Since fiscal 2002, government agencies have accounted for a significant portion of the Company’s revenues. These revenues were largely for the support of product development efforts. The Company’s goal is that an increased portion of its revenues be from the sale or lease of products and maintenance services, as compared to revenue to support its product development efforts. As the Company continues to advance its proprietary technologies, it expects to continue to have a net decrease in cash from operating activities unless and until it achieves positive cash flow from the planned commercialization of products and services.

b)	Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The interim operating results are not necessarily indicative of the results for a full year or for any other interim period. Further information on potential factors that could affect the Company's financial results can be found in the Company's Annual Report on Form 10-K for the year ended April 30, 2016 filed with the Securities and Exchange Commission (“SEC”) and elsewhere in this Form 10-Q.

c)	Liquidity/Going Concern

The consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $182.7 million at October 31, 2016. At October 31, 2016, the Company had approximately $12.5 million in cash on hand, including $6.9 million resulting from the closing of a public offering of the Company’s common stock on October 19, 2016. The Company generated revenues of $0.4 million and $0.6 million in the six months ended October 31, 2016 and 2015, respectively. Based on the Company’s cash and cash equivalents and marketable securities as of October 31, 2016, the Company believes that it will be able to finance its capital requirements and operations into at least the quarter ending January 31, 2018. The Company will require additional equity and/or debt financing to continue its operations. The Company cannot assure you that it will be able to secure additional funding when needed or at all, or, if secured, that such funding would be on favorable terms. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Management is evaluating different strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, additional funding from current or new investors, officers and directors; borrowings of debt; a public offering of the Company’s equity or debt securities; partnerships and/or collaborations. There can be no assurance that any of these future-funding efforts will be successful.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In fiscal 2017 and 2016, the Company has continued to make investments in ongoing product development efforts in anticipation of future growth. The Company’s future results of operations involve significant risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, risks from lack of available financing and insufficient capital, performance of PowerBuoys, its inability to market and commercialize its PowerBuoys, technology development, scalability of technology and production, dependence on skills of key personnel, concentration of customers and suppliers, deployment risks and laws, regulations and permitting. In order to continue to implement its business strategy, the Company requires additional equity and/or debt financing. The Company closed three equity financing arrangements during the six months ended October 31, 2016. The Company does not currently have any committed sources of debt or equity financing, and the Company cannot assure that additional equity and/or debt financing will be available to the Company as needed on acceptable terms, or at all. Historically, the Company has raised capital through securities sales in the public capital markets. If sufficient additional financing is not obtained when needed, the Company may be required to further curtail or limit operations, product development costs, and/or selling, general and administrative activities in order to reduce its cash expenditures. This could cause the Company to be unable to execute its business plan, take advantage of future opportunities and may cause it to scale back, delay or eliminate some or all of its product development activities and/or reduce the scope of or cease its operations.

In October 2015, the Company entered into an At the Market Offering Agreement (“2015 ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), under which the Company offered from time to time in an at the market offering (the “2015 ATM Facility”) shares of its Common Stock under a shelf registration statement filed in 2013 on Form S-3 (the “2013 Form S-3”) and under a subsequent shelf registration statement on Form S-3 (the “2016 Form S-3”) filed with the SEC in February 2016 and declared effective by the SEC in April 2016. The 2016 Form S-3 registers for sale up to $15 million in securities by the Company in a public offering, although the Company is limited by Instruction I.B.6 in the amount that it may sell under Form S-3 in any 12 calendar month period to one third of its public float. Form S-3 limits the aggregate market value of securities that the Company is permitted to offer in any 12-month period under its 2013 Form S-3 Shelf, whether under the ATM Agreement, the Underwriting Agreement or otherwise, to one-third of its public float. In 2014, the Company fully utilized its available transaction capacity to sell securities using the 2013 Form S-3 Shelf in the ATM offering. However, the Company regained the ability to utilize the 2013 Form S-3 Shelf as the Company entered fiscal 2016. Under the 2015 ATM Facility, between October 2015 and April 2016, the Company issued and sold 144,571 shares of its Common Stock with an aggregate market value of $293,343 under the 2015 ATM Agreement at an average price of $2.03 per share and paid Wainwright of the 2015 ATM Facility a sales commission of approximately $4,400 related to those shares. The 2015 ATM Agreement was terminated on June 2, 2016, effective immediately, and the 2015 ATM Facility is no longer available for use by the Company. Under the SEC’s regulations, the securities registered under its 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 the Company is 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, the Company filed a new Form S-3 shelf registration statement (the “2016 Form S-3”) to register the offering and sale of up to $15 million in securities. The 2016 Form S-3 registration was declared effective by the SEC on April 26, 2016.

On June 2, 2016, the Company entered into a securities purchase agreement, which was amended on June 7, 2016 (as amended, the “Purchase Agreement”) with certain institutional purchasers (the “June Purchasers”). Pursuant to the terms of the June Purchase Agreement, the Company sold an aggregate of 417,000 shares of Common Stock together with warrants to purchase up to an aggregate of 145,952 shares of Common Stock. Each share of Common Stock was sold together with a warrant to purchase 0.35 of a share of Common Stock at a combined purchase price of $4.60. The net proceeds to the Company from the offering were approximately $1.7 million, after deducting placement agent fees and estimated offering expenses payable by the Company, but excluding the proceeds, if any, from the exercise of the warrants issued in the offering. The warrants have an exercise price of $6.08 per share, will be exercisable on the date that is six months and one day from the date of issuance (“Initial Exercise Date”), and will expire five years following the Initial Exercise Date.

On July 22, 2016, the Company entered into the Second Amendment to the Purchase Agreement (the “Second Amended Purchase Agreement”) with certain purchasers (the “July Purchasers”). Pursuant to the terms of the Second Amended Purchase Agreement, the Company sold an aggregate of 595,000 shares of Common Stock together with warrants to purchase up to an aggregate of 178,500 shares of Common Stock. Each share of Common Stock was sold together with a warrant to purchase 0.30 of a share of Common Stock at a combined purchase price of $6.75. The net proceeds to the Company from the offering were approximately $3.6 million, after deducting placement agent fees and estimated offering expenses payable by the Company, but excluding the proceeds, if any, from the exercise of the warrants issued in the offering. The Warrants were exercisable immediately at an exercise price of $9.36 per share. The Warrants will expire on the fifth (5th) anniversary of the initial date of issuance.

On October 19, 2016, the Company sold 2,760,000 shares of common stock at a price of $2.75 per share, which includes the sale of 360,000 shares of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the over-allotment option by the underwriters in a public offering. The net proceeds to the Company from the offering were approximately $6.9 million, after deducting placement agent fees and offering expenses payable by the Company. The Company is using the net proceeds from this offering for general corporate purposes, which may include additional development, testing and demonstrations of the PowerBuoy system with the goal of furthering and accelerating its commercialization efforts and expanding its sales and marketing functions.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The sale of additional equity or convertible securities could result in dilution to stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights senior to those associated with the Company’s Common Stock and could contain covenants that would restrict its operations. Financing may not be available in amounts or on terms acceptable to the Company, or at all. If the Company is unable to obtain required financing, it may be required to reduce the scope of its operations, including its planned product development and marketing efforts, which could materially and adversely harm its financial condition and operating results. If the Company is unable to secure additional financing, it may be forced to cease operations.

(2) Summary of Significant Accounting Policies

(a) Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Participation of stockholders other than the Company in the net assets and in the earnings or losses of a consolidated subsidiary is reflected as a non-controlling interest in the Company's Consolidated Balance Sheets and Statements of Operations, which adjusts the Company's consolidated results of operations to reflect only the Company's share of the earnings or losses of the consolidated subsidiary. As of October 31, 2016 and 2015, respectively, there were no non-controlling interests. As of July 31, 2015, there was one non-controlling interest, consisting of 11.8% of the Company's Australian subsidiary, Ocean Power Technologies (Australasia) Pty. Ltd. (“OPTA”). OPTA owns 100% of Victorian Wave Partners Pty. Ltd. (“VWP”), which is also organized under the laws of Australia.

In September 2015, the Company re-purchased the non-controlling interest (consisting of 11.8%) of OPTA for nominal consideration and now has 100% ownership of OPTA. The Company also periodically evaluates its relationships with other entities to identify whether they are variable interest entities, and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is included in the consolidated financial statements. As of October 31, 2016, there were no such entities.

(b) Use of Estimates

The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount of property and equipment; fair value of warrant liabilities, valuation allowances for receivables and deferred income tax assets; estimated costs to complete projects; and percentage of completion of customer contracts for purposes of revenue recognition. Actual results could differ from those estimates. The current economic environment, particularly the macroeconomic pressures in certain European countries, has increased the degree of uncertainty inherent in those estimates and assumptions.

(c) Revenue Recognition

The Company’s contracts are either cost plus or fixed price contracts. Under cost plus contracts, customers are billed for actual expenses incurred plus an agreed-upon fee. Currently, the Company has two types of fixed price contracts, firm fixed price and cost-sharing. Under firm fixed price contracts, the Company receives an agreed-upon amount for providing products and services specified in the contract. 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.

Generally, the Company recognizes 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 the 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 the Company is unable to reasonably estimate the total costs of the project prior to completion. These contracts are subject to interpretation and management may make a judgment as to the amount of revenue earned and recorded. Because the Company has 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 revenue for the periods involved. Upon anticipating a loss on a contract, the Company recognizes the full amount of the anticipated loss in the current period.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Under cost plus and firm fixed price contracts, a profit or loss on a project is recognized depending on whether actual costs are more or less than the agreed upon amount. Under cost sharing contracts, an amount corresponding to the revenue is recorded in cost of revenues, resulting in gross profit on these contracts of zero. The Company’s share of the costs is recorded as product development expense.

Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed. Unbilled receivables are normally billed and collected within one year. Billings made on contracts are recorded as a reduction of unbilled receivables, and to the extent that such billings and cash collections exceed costs incurred plus applicable profit margin, they are recorded as unearned revenues.

Some of the Company’s projects have been under cost-sharing contracts.

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company invests excess cash in an overnight U.S. government securities repurchase bank account and a money market account. In accordance with the terms of the repurchase agreement, the Company does not take possession of the related securities. The agreement contains provisions to ensure that the market value of the underlying assets remain sufficient to protect the Company in the event of default by the bank by requiring that the underlying securities have a total market value of at least 100% of the bank’s total obligations under the agreement.

	October 31, 2016		April 30, 2016

Checking and savings accounts	$	9,990,970	$	4,534,671
Overnight repurchase account		2,521,215		2,195,143
	$	12,512,185	$	6,729,814

(e) Marketable Securities

Marketable securities with original maturities longer than three months but that mature in less than one year from the balance sheet date are classified as current assets. Marketable securities that the Company has the intent and ability to hold to maturity are classified as investments held-to-maturity and are reported at amortized cost. The difference between the acquisition cost and face values of held-to-maturity investments is amortized over the remaining term of the investments and added to or subtracted from the acquisition cost and interest income. As of October 31, 2016 and April 30, 2016, all of the Company’s investments were classified as held-to-maturity.

(f) Restricted Cash and Credit Facility

A portion of the Company’s cash is restricted under the terms of two security agreements.

One agreement is between the Company and Barclays Bank. Under this agreement, the cash is on deposit at Barclays Bank and serves as security for letters of credit and bank guarantees that are expected to be issued by Barclays Bank on behalf of OPT LTD, one of the Company's subsidiaries, under a credit facility established by Barclays Bank for OPT LTD. The credit facility carries a fee of 1% per annum of the amount of any such obligations issued by Barclays Bank. The credit facility does not have an expiration date, but is cancelable at the discretion of the bank. As of October 31, 2016, there was €278,828 ($305,690) in letters of credit outstanding under this agreement.

The second agreement is between the Company. and the New Jersey Board of Public Utilities (“NJBPU”). The Company received a $500,000 recoverable grant award from the NJBPU, none of which remains outstanding at October 31, 2016. Under this arrangement, the Company annually assigns to the NJBPU a certificate of deposit in an amount equal to the outstanding grant balance. See Note 6.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Restricted cash includes the following:

	October 31, 2016		April 30, 2016

NJBPU agreement	$	-	$	50,000
Barclay's Bank Agreement		305,690		249,543
	$	305,690	$	299,543

(g) Foreign Exchange Gains and Losses

The Company has invested in certain certificates of deposit and has maintained cash accounts that are denominated in British pounds sterling, Euros and Australian dollars. These amounts are included in cash, cash equivalents, restricted cash and marketable securities on the accompanying consolidated balance sheets. Such positions may result in realized and unrealized foreign exchange gains or losses from exchange rate fluctuations, which gains and losses are included in foreign exchange gain in the accompanying consolidated statements of operations.

(h) Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives (three to seven years) of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining lease term. Expenses for maintenance and repairs are charged to operations as incurred. Property and equipment is also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, then an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

(i) Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances, bank certificates of deposit and trade receivables. The Company invests its excess cash in highly liquid investments (principally, short-term bank deposits, Treasury bills, Treasury notes and money market funds) and does not believe that it is exposed to any significant risks related to its cash accounts, money market funds or certificates of deposit.

The table below shows the percentage of the Company's revenues derived from customers whose revenues accounted for at least 10% of the Company's consolidated revenues for at least one of the periods indicated:

	Three Months Ended October 31,						Six Months Ended October 31,
	2016			2015			2016			2015
US Department of Energy		-			18	%		-			32	%
European Union (WavePort project)		-			82	%		-			68	%
Mitsui Engineering & Shipbuilding		95	%		-			97	%		-
U.S. Department of Defense Office of Naval Research		5	%		-			3	%		-
		100	%		100	%		100	%		100	%

The loss of, or a significant reduction in revenues from a current customer could significantly impact the Company's financial position or results of operations. The Company does not require its customers to maintain collateral.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(j) Warrant Liabilities

The Company's warrants to purchase shares of its common stock are classified as warrant liabilities and recorded at fair value. The warrant liabilities are subject to remeasurement at each balance sheet date and the Company recognizes any change in fair value in its statements of operations as a change in fair value of the warrant liabilities. The Company will continue to adjust the carrying value of the warrants for changes in the estimated fair value until such time as these instruments are exercised or expire. At that time, the liabilities will be reclassified to additional paid-in capital, a component of stockholders' equity.

(k) Net Loss per Common Share

Basic and diluted net loss per share for all periods presented is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Due to the Company's net losses, potentially dilutive securities, consisting of outstanding stock options and non-vested performance-based shares, were excluded from the diluted loss per share calculation due to their anti-dilutive effect.

In computing diluted net loss per share, options to purchase shares of common stock, warrants on common stock and non-vested restricted stock issued to employees and non-employee directors, totaling 687,825 for the three and six months ended October 31, 2016 and 165,870 for the three and six months ended October 31, 2015, were excluded from each of the computations as the effect would be anti-dilutive due to the Company's losses.

(l) Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”. This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about:

●

Contracts with customers—including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations).

●

Significant judgments and changes in judgments—determining the timing of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated to performance obligations.

●

Certain assets—assets recognized from the costs to obtain or fulfill a contract.

In August 2015, the FASB issued updated guidance deferring the effective date of the revenue recognition standard. In March and April 2016, the FASB issued additional updated guidance, which clarifies certain aspects of the ASU and the related implementation guidance issued by the FASB-IASB Joint Transition Resource Group for Revenue Recognition. This guidance is effective for the Company for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact that this guidance will have on its results of operations, financial position and cash flows.

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which describes how an entity should assess its ability to meet obligations and sets rules for how this information should be disclosed in the financial statements. The standard provides accounting guidance that will be used along with existing auditing standards. The new standard applies to all entities for the first annual period ending after December 15, 2016, and interim periods thereafter. Early application is permitted. The Company is evaluating the effect ASU 2014-15 will have on its consolidated financial statements and disclosures and have not yet determined the effect of the standard on its ongoing financial reporting at this time.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”, which makes limited amendments to the guidance in U.S. GAAP on the classification and measurement of financial instruments. The update significantly revises an entity's accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. The update will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will evaluate the effect of ASU 2016-01 for future periods as applicable.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is evaluating the effect ASU 2016-02 will have on its consolidated financial statements and disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718)”, or ASU No. 2016-09. The amendments of ASU No. 2016-09 were issues as part of the FASB's Simplification initiative focused on improving areas of GAAP for which cost and complexity may be reduced while maintaining or improving the usefulness of information disclosed within the financial statements. The amendments focused on simplification specifically with regard to share-based payment transactions, including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash flows. The guidance in ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company will evaluate the effect of ASU 2016-09 for future periods as applicable.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The standard provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets held. The ASU is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company is evaluating the effect ASU 2016-13 will have on its consolidated financial statements and disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, providing additional guidance on eight specific cash flow classification issues. The goal of the ASU is to reduce diversity in practice of classifying certain items. The amendments in the ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted. The Company is evaluating the effect ASU 2016-13 will have on its consolidated financial statements and disclosures and has not yet determined the effect of the standard on its ongoing financial reporting at this time.

(3) Marketable Securities

Marketable securities with initial maturities longer than three months but that mature within one year from the balance sheet date are classified as current assets and are summarized as follows:

October 31,

2016

April 30,

2016

Certificate of Deposit

25,000

75,000

(4) Balance Sheet Detail

	October 31, 2016		April 30, 2016

Accrued expenses
Project costs	$	1,300,059	$	817,509
Contract loss reserve		198,819		198,819
Employee incentive payments		279,042		688,389
Accrued salary and benefits		540,347		456,077
Legal and accounting fees		283,175		240,466
Other		280,063		273,581
	$	2,881,505	$	2,674,841

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(5) Related Party Transactions

In April 2014, the Company entered into an Executive Transition Agreement with George W. Taylor, who was formerly employed by the Company as Executive Vice Chairman and served on the Company’s Board of Directors prior to that date. Under this agreement, Dr. Taylor received fifteen months of consulting fees at a monthly rate of $20,000 (this period terminated on July 18, 2015). For the three and six months ended October 31, 2016 and 2015, the Company recorded $0 and $52,667, respectively, in expense relating to this agreement, recorded in selling, general and administrative expense in the unaudited consolidated statement of operations.

(6) Debt

The Company was awarded a recoverable grant totaling $500,000 between April 2009 and June 2010 from the NJBPU under the Renewable Energy Business Venture Assistance Program. Under the terms of this agreement, the amount to be repaid is a fixed monthly amount of principal only, repayable over a five-year period beginning in November 2011. The terms also required the Company to annually assign to the NJBPU a certificate of deposit in an amount equal to the outstanding grant balance. As of October 31, 2016, there was no outstanding balance, and therefore, there is no certificate of deposit assigned to restricted cash. See Note 2(f).

	October 31, 2016		April 30, 2016

Total debt	$	-	$	50,000
Current portion of long-term debt		-		(50,000	)
Long-term debt	$	-	$	-

(7) Deferred Credits Payable

During the year ended April 30, 2001, in connection with the sale of common stock to an investor, the Company received $600,000 from the investor in exchange for an option to purchase up to 500,000 metric tons of carbon emissions credits generated by the Company during the years 2008 through 2012, at a 30% discount from the then-prevailing market rate. If the Company received emission credits under applicable laws and failed to sell to the investor the credits up to the full amount of emission credits covered by the option, the investor was entitled to liquidated damages equal to 30% of the aggregate market value of the shortfall in emission credits (subject to a limit on the market price of emission credits). Under the terms of the agreement, if the Company did not become entitled under applicable laws to the full amount of emission credits covered by the option by December 31, 2012, the Company was obligated to return the option fee of $600,000, less the aggregate discount on any emission credits sold to the investor prior to such date. In December 2012, the Company and the investor agreed to extend the period for the sale of emission credits until December 31, 2017. As of October 31, 2016, the Company has not generated any emissions credits eligible for purchase under the agreement. The $600,000 has been classified as a noncurrent liability as of October 31, 2016 and April 30, 2016.

(8) Warrants

On June 2, 2016, the Company entered into a securities purchase agreement, which was amended on June 7, 2016 (as amended, the “Purchase Agreement”) with certain institutional purchasers (the “June Purchasers”). Pursuant to the terms of the June Purchase Agreement, the Company sold an aggregate of 417,000 shares of Common Stock together with warrants to purchase up to an aggregate of 145,952 shares of Common Stock. Each share of Common Stock was sold together with a warrant to purchase 0.35 of a share of Common Stock at a combined purchase price of $4.60. The warrants have an exercise price of $6.08 per share, will be exercisable on the date that is six months and one day from the date of issuance (“Initial Exercise Date”), and will expire five years following the Initial Exercise Date.

On July 22, 2016, the Company entered into the Second Amendment to the Purchase Agreement (the “Second Amended Purchase Agreement”) with certain institutional purchasers (the “July Purchasers”). Pursuant to the terms of the Second Amended Purchase Agreement, the Company sold an aggregate of 595,000 shares of Common Stock together with warrants to purchase up to an aggregate of 178,500 shares of Common Stock. Each share of Common Stock was sold together with a warrant to purchase 0.30 of a share of Common Stock at a combined purchase price of $6.75. The Warrants were exercisable immediately at an exercise price of $9.36 per share. The Warrants will expire on the fifth (5th) anniversary of the initial date of issuance.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The warrants contain a feature whereby they could require the transfer of assets and therefore are liability classified in accordance with ASC 480. As such, the warrants with a value of $548,382 and $0 at October 31, 2016 and April 30, 2016, respectively, are reflected as warrant liabilities in the unaudited condensed consolidated balance sheets. Unrealized gains of $2,017,557 and $1,265,448 were included as change in fair value of warrant liabilities in the consolidated statements of operations for the three and six months ended October 31, 2016, respectively. There are no unrealized losses for the three and six months ended October 31, 2015. The Company determined the fair value using the Black-Scholes option pricing model with the following assumptions:

	October 31, 2016
Dividend rate		0%
Risk-free rate		1.3%
Expected life (years)	4.7	-	5.1
Expected volatility		126.7%

(9) Stock-Based Compensation

The aggregate stock-based compensation expense related to all stock-based transactions recorded in the consolidated statements of operations was approximately $628,000 and $277,000 for the six months ended October 31, 2016 and 2015, respectively.

(a) Stock Options

Valuation Assumptions for Options Granted During the Six Months Ended October 31, 2016 and 2015

The fair value of each stock option granted, for both service-based and performance-based vesting requirements during the six months ended October 31, 2016, was estimated at the date of grant using the Black-Scholes option pricing model, assuming no dividends and using the weighted average valuation assumptions noted in the following table. The risk-free rate is based on the US Treasury yield curve in effect at the time of grant. The expected life (estimated period of time outstanding) of the stock options granted was estimated using the "simplified" method as permitted by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. Expected volatility was based on the Company’s historical volatility for the six months ended October 31, 2016.

	Six Months Ended October 31,
	2016			2015
Risk-free interest rate		1.3	%		1.6	%
Expected dividend yield		0.0	%		0.0	%
Expected life (in years)		5.5			5.5
Expected volatility		103.96	%		85.74	%

The above assumptions were used to determine the weighted average per share fair value of $2.53 and $4.05 for stock options granted during the six months ended October 31, 2016 and 2015, respectively.

A summary of stock options under our stock incentive plans is as follows:

						Weighted
						Average
				Weighted		Remaining
	Shares			Average		Contractual
	Underlying			Exercise		Term
	Options			Price		(In Years)
Outstanding as of April 30, 2016		89,303		$	42.90		3.6
Forfeited		(841	)		51.50
Exercised		-			-
Granted		171,749			2.12
Outstanding as of October 31, 2016		260,211			15.96		7.4
Exercisable as of October 31, 2016		156,466		$	24.44		5.8

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

As of October 31, 2016, the total intrinsic value of outstanding and exercisable options was approximately $96,000 and $90,000, respectively. As of October 31, 2016, approximately 101,959 additional options are expected to vest in the future with an intrinsic value of approximately $4,000 and a weighted average remaining contractual term of 9.9 years. There was approximately $142,000 and $110,000 of total recognized compensation cost related to stock options for the six months ended October 31, 2016 and 2015, respectively. As of October 31, 2016, there was approximately $314,000 of total unrecognized compensation cost related to non-vested stock options granted under the plans. This cost is expected to be recognized over a weighted-average period of 1.0 years. The Company typically issues newly authorized but unissued shares to satisfy option exercises under these plans.

(b) Restricted Stock

Compensation expense for non-restricted stock is generally recorded based on its market value on the date of grant and recognized ratably over the associated service and performance period. During the six months ended October 31, 2016, the Company granted 203,662 shares subject to service-based vesting requirements and no shares subject to performance-based vesting requirements. The achievement or vesting requirement of the performance-based grants is tied to the Company’s total shareholder return (TSR) relative to the total shareholder return of three alternative energy Exchange Traded Funds as measured over a specific performance period. No vesting of the relevant shares will occur in instances where the Company’s TSR for the relevant period is below 80% of the peer group. However, additional opportunities to vest some or all of a portion of the shares in a subsequent period may occur. Compensation expense for these awards with market-based vesting is calculated based on the estimated fair value as of the grant date utilizing a Monte Carlo simulation model and is recognized over the service period on a straight-line basis. In January 2016, the Board of Directors authorized a modification to certain outstanding restricted stock grants, which converted certain grants with performance-based grants to service based grants. The modification of the restricted stock grants did not have a material impact on the Company’s statement of operations for the six months ended October 31, 2016. Restricted stock issued and unvested at October 31, 2016 included 4,000 shares of unvested restricted stock subjected to performance-based vesting requirements.

A summary of non-vested restricted stock under our stock incentive plans is as follows:

				Weighted
	Number			Average Price per
	of Shares			Share

Issued and unvested at April 30, 2016		44,022		$	6.51
Granted		203,662			4.03
Forfeited		(31,528	)		3.15
Vested		(112,994	)		5.00
Issued and unvested at October 31, 2016		103,162		$	4.30

There was approximately $486,000 and $167,000 of total recognized compensation cost related to restricted stock for the six months ended October 31, 2016 and 2015, respectively. As of October 31, 2016, there was approximately $418,000 of total unrecognized compensation cost related to unvested restricted stock granted under our plans. This cost is expected to be recognized over a weighted average period of 0.6 years.

(c)Treasury Stock

During the six months ended October 31, 2016 and 2015, 6,360 and 452 shares, respectively, of common stock were purchased by the Company from employees to pay taxes related to the vesting of restricted stock.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(10) Fair Value Measurements

The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2

Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.

Level 3

Unobservable inputs are not corroborated by market data. This category is comprised of financial and non-financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies using significant inputs that are generally less readily observable from objective sources.

Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels during the six months ended October 31, 2016 and 2015.

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments, other than investment in affiliates.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.

Warrant Liabilities

The fair value of the Company's warrant liabilities (refer to Note 8) recorded in the Company's financial statements is determined using the Black-Scholes option pricing model and the quoted price of the Company's common stock in an active market, volatility and expected life, is a Level 3 measurement. Volatility is based on the actual market activity of the Company's stock. The expected life is based on the remaining contractual term of the warrants and the risk free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants' expected life.

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2016:

Total Carrying

Value in

Consolidated

Balance Sheet

Quoted prices

in active

markets for

identical assets

or liabilities

(Level 1)

Significant

other

observable

inputs

(Level 2)

Significant

unobservable

inputs

(Level 3)

Financial Liabilities:

Warrant liabilities

548,382

—

548,382

The changes on the value of the warrant liabilities during the six months ended October 31, 2016 were as follows:

Fair value – April 30, 2016	$	—
Issuance		1,813,870
Transfers		—
Change in fair value		(1,265,488	)
Fair value – October 31, 2016	$	548,382

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

There were no remeasured assets or liabilities at fair value on a non-recurring basis during the six months ended October 31, 2016 and 2015, respectively.

(11) Commitments and Contingencies

(a) Litigation

Shareholder Litigation and Demands

The Company and its former Chief Executive Officer Charles Dunleavy are defendants in consolidated securities class action lawsuits 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, defendants 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. On May 5, 2016, the parties entered into a Stipulation and Agreement of Class Settlement (“Stipulation”) in which they agreed to a settlement of the consolidated securities class action lawsuits, subject to Court approval. The Stipulation provides, among other things, for a settlement payment by or on behalf of the Company of $3,000,000 in cash, of which the Company was to pay $500,000 and the Company’s insurer will pay $2,500,000, and the issuance by the Company of 380,000 shares (valued at $596,000 on the date the Stipulation was signed by the parties) of its Common Stock to the class members. In connection with the settlement, the parties have agreed to execute mutually agreeable releases. On June 7, 2016, the Court entered an Order Granting Preliminary Approval of Settlement. The Court scheduled a hearing for November 14, 2016 to determine, among other things, whether to grant final approval of the settlement. The amounts agreed in the Stipulation agreement, including the amount to be contributed by our insurance carrier, have been reflected in the Company’s Consolidated Financial Statements as of April 30, 2016. In July 2016, the Company paid the $500,000 portion of the settlement and the remaining balance of $2,500,000 was paid by the Company’s insurer in August 2016. On November 14, 2016, the Court held its previously scheduled Settlement Hearing to consider whether to grant final approval of the settlement, and on November 15, 2016, the Court issued its Final Judgment approving the settlement and dismissing the proceeding with prejudice. The distribution of the $3,000,000 in cash and 380,000 shares of the Company’s common stock is scheduled to occur 30 days after the date of the Final Judgment.

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.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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 co-lead plaintiffs filed a consolidated complaint on March 9, 2016. Defendants have not responded to the consolidated complaint because of the pending stay.

On April 21, 2016, a third derivative lawsuit, captioned LaCalamito v. Dunleavy, et al., Case No. 3:16-cv-02249, was filed by another shareholder against certain current and former directors and officers of the Company in the United States District Court for the District of New Jersey alleging similar claims for breach of fiduciary duty relating to the now terminated agreement between VWP and ARENA. The LaCalamito complaint seeks unspecified monetary damages and other relief. The Company has not been formally served and has not yet responded to the complaint.

On June 9, 2016, a fourth derivative lawsuit, captioned Pucillo v. Dunleavy, et al., was filed by another shareholder against certain current and former directors and officers of the Company in the United States District Court for the District of New Jersey alleging similar claims for breach of fiduciary duty, unjust enrichment, and abuse of control relating to the now terminated agreement between VWP and ARENA. The Pucillo complaint seeks unspecified monetary damages and other relief. On August 2, 2016, the parties in the Pucillo lawsuit filed a Stipulation and Proposed Order pursuant to which: (i) the defendants agreed to accept service of the Pucillo complaint; (ii) the parties agreed to stay the Pucillo action pending the filing and resolution of a motion to consolidate the Pucillo action with the Labare and Rywolt actions; and (iii) the parties agreed that the defendants shall not be required to respond to the Pucillo complaint during the pendency of the stay. The Court approved the Stipulation on August 3, 2016.

On October 25, 2016, the Court approved and entered a Stipulation and Order that, among other things, (i) consolidated the four derivative actions; (ii) substituted plaintiff Pucillo for plaintiffs Labare and Rywolt as the lead plaintiff in the consolidated actions; and (iii) stayed the consolidated actions pending the settlement hearing scheduled for November 14, 2016 in the securities class action and further order of the Court.

The Company and certain of 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 Certificate of Incorporation and By-laws 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. By Unanimous Written Consent dated June 17, 2016, the Company’s Board of Directors amended the Company’s By-laws to delete the “only for cause” requirement, thereby allowing for removal of directors with or without cause by the Company’s stockholders. In addition, the Board proposed, subject to approval by the Company’s stockholders at the next annual general meeting of stockholders, a similar amendment to the director removal provision in the Company’s Certificate of Incorporation. On June 22, 2016, the parties to the lawsuit submitted a Stipulation and Proposed Order Staying Proceedings that (1) stays the case pending the stockholder vote on the proposed amendment to the Company’s Certificate of Incorporation; (2) provides for dismissal of the action with prejudice if the stockholders approve the amendment, subject to plaintiff’s right to make a fee application to the court and defendants’ right to oppose any such application; and (3) provides for the stay to be lifted and the action to resume, without waiver of any parties’ rights, if the stockholders do not approve the amendment. The Court approved the Stipulation on June 30, 2016. On September 2, 2016, the Company filed a definitive proxy statement with the SEC which includes this proposal. At the annual shareholder meeting on October 21, 2016, the proposal was not approved because an insufficient number of votes were cast to satisfy the requirement that the proposal be approved by the holders of at least 75% of the outstanding shares of common stock entitled to vote at the meeting. However, stockholders approved an amendment to the Company’s Certificate of Incorporation to add a provision which requires that any provision of the Certificate of Incorporation that is contrary to a requirement of the Delaware General Corporate Law shall be read in conformity with the applicable requirement of the Delaware General Corporate Law. The parties have agreed that the case shall remain stayed until further steps, if any, can be agreed to and taken as needed.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Employment Litigation

On June 10, 2014, the Company announced that it had terminated Charles Dunleavy as its Chief Executive Officer and as an employee of the Company for cause, effective June 9, 2014, and that Mr. Dunleavy had also been removed from his position as Chairman of the Board of Directors. On June 17, 2014, Mr. Dunleavy wrote to the Company stating that he had retained counsel to represent him in connection with an alleged wrongful termination of his employment. On July 28, 2014, Mr. Dunleavy resigned from the Board and the boards of directors of the Company's subsidiaries. The Company and Mr. Dunleavy have agreed to suspend his alleged employment claims pending resolution of the shareholder litigation.

Except for the Stipulation agreement noted previously, 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 Investigation

On February 4, 2015, the Company received a subpoena from the SEC requesting information related to the VWP Project. The Company has provided information to the SEC in response to that subpoena. As part of the same investigation, on July 12, 2016, the SEC issued a second subpoena requesting information related to the Company’s April 4, 2014 public offering. 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.

Spain IVA (sales tax)

In June 2012, the Company received notice that the Spanish tax authorities are inquiring into its 2010 IVA (value-added tax) filing for which the Company benefitted from the offset of approximately $250,000 of input tax. The Company believes that the inquiry will find that the tax credit was properly claimed and, therefore, no liability has been recorded. The Company issued two letters of credit in the amount of €278,828 ($305,690) at the request of the Spanish tax authorities. This is a customary request during the inquiry period. In November 2014, March 2015 and September 2015, the Company received partial refunds of the amount under dispute and continues to expect that this matter will be resolved in the Company’s favor.

Spain Income Tax Audit

We are currently undergoing an income tax audit in Spain for the period from 2008 to 2014, when our Spanish branch was closed. The branch reported net operating losses for each of the years reported. We have not established any provision for losses related to this matter.

Ocean Power Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(12) Income Taxes

The Company did not recognize any consolidated income tax benefit (expense) for the three and six month periods ended October 31, 2016 and 2015. The Company has recorded a valuation allowance to reduce its net deferred tax asset to an amount that is more likely than not to be realized in future years. Accordingly, the benefit of the net operating loss that would have been recognized was offset by changes in the valuation allowance.

During the six months ended October 31, 2016, the Company had no material changes in uncertain tax positions.

(13) Operating Segments and Geographic Information

The Company's business consists of one segment as this represents management's view of the Company's operations. The Company operates on a worldwide basis with one operating company in the US and operating subsidiaries in the UK and in Australia. Revenues and expenses are generally attributed to the operating unit that bills the customers.

Geographic information is as follows:

	North America			Europe			Asia and Australia			Total

Three months ended October 31, 2016
Revenues from external customers	$	169,964		$	-		$	-		$	169,964
Operating loss		(2,883,434	)		(95,702	)		(7,517	)		(2,986,653	)

Three months ended October 31, 2015
Revenues from external customers	$	494,412		$	-		$	-		$	494,412
Operating loss		(2,880,664	)		(78,259	)		(40,726	)		(2,999,649	)

Six months ended October 31, 2016
Revenues from external customers	$	372,353		$	-		$	-		$	372,353
Operating loss		(5,909,078	)		(143,442	)		(13,960	)		(6,066,480	)

Six months ended October 31, 2015
Revenues from external customers	$	600,078		$	-		$	-		$	600,078
Operating loss		(7,096,878	)		(165,982	)		(126,522	)		(7,389,382	)

October 31, 2016
Long-lived assets	$	220,180		$	-		$	-		$	220,180
Total assets		15,717,801			266,348			387,543			16,371,692

April 30, 2016
Long-lived assets	$	273,049		$	-		$	-		$	273,049
Total assets		9,553,033			395,389			402,704			10,351,126

(14) Subsequent Events

On November 7, 2016, the Company received approximately $700,000 through the State of New Jersey's Business Tax Certificate Transfer Program (the “Program”). The Program enables companies to raise cash to finance their growth and operations. The Program is administered by the New Jersey Economic Development Authority (“NJEDA”) and the New Jersey Department of the Treasury's Division of Taxation. Under the Program, New Jersey-based technology or biotechnology companies with fewer than 225 US employees may be eligible to sell net operating losses (“NOLs”) and research and development tax credits to unaffiliated corporations, for at least 80 percent of their value, up to a maximum lifetime benefit of $15 million per business.

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 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 2016 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 2016 refers to the year ended April 30, 2016).

Overview

Nearly 70% of the earth’s surface is covered by water, with over 40% of the world’s population living within approximately 150 miles of a coast. Thousands of information gathering and/or power systems are deployed in the oceans today to increase understanding of weather, climate change, biological processes, and marine mammal patterns and to support exploration and operations for industries such as oil and gas. Most of these systems are powered by battery, solar, wind, fuel cell, or fossil fuel generators that are expensive to operate while also limited in their electric power delivery. These incumbent systems often require significant tradeoffs in sensor accuracy, data processing and communications bandwidth and frequency in order to operate with available power. More persistent power systems requiring less maintenance, like our systems, may have the ability to save costs over current operating systems. Just as importantly, increases in available power may allow for better sensors and shorter data sampling and communication intervals up to real-time which could as a result improve scientific and economic returns.

Incorporated in 1984 and headquartered in Pennington, New Jersey, we believe we are the leader in ocean wave power. We are developing and seeking to commercialize our proprietary systems that generate electricity by harnessing the renewable energy of ocean waves. Our PowerBuoys use proprietary technologies that convert the mechanical energy created by the heaving motion of ocean waves into electricity. We currently have designed and continue to develop our PowerBuoy product line which is based on modular, ocean-going buoys, which we have been periodically ocean testing since 1997.

We have designed our autonomous PowerBuoy to generate power for use in remote locations, independent of an existing power grid. Our current PowerBuoy product, the PB3, incorporates a unique power take-off (“PTO”) and onboard system for energy storage and management, and is significantly smaller than our previous iteration utility-scale PowerBuoy. We are continuing to develop and test our PowerBuoys, which we believe could be utilized in a variety of applications.

Our PB3 PowerBuoy design leverages portions of earlier features that we do not believe require further validation prior to implementation in our current products. Currently, our product development and engineering efforts are focusing primarily on developing technologies that will increase the energy output and reliability of our product through design scalability to maintain quality and speed time to our targeted markets. Our marketing and development efforts are targeting applications that require reliable, persistent, and sustainable power sources operating independently of the utility grid, either by supplying electric power to payloads that are integrated directly in our PowerBuoy or located in its vicinity including on the seabed.

Based on our market research and available public data, management believes that there is the potential for us to pursue business opportunities in multiple markets that would have a direct need for our PowerBuoys including oil and gas, ocean observing, defense and security, communications, and offshore wind. Depending on power needs, sensor types and other considerations, we believe our PowerBuoy could have the ability to satisfy several application requirements within these markets. We believe that the PB3 generates sufficient persistent power to meet the application needs of many of the potential customers within our target markets. We are continuing our development efforts to increase the energy output of the PowerBuoy to generate more power required for other applications within these markets.

Since fiscal 2002, government agencies have accounted for a significant portion of our revenues. These revenues were largely for the support of our development efforts relating to our technology and development of our PowerBuoys. Our goal is that an increased portion of our revenues be from the sale or lease of our products and sales of services, as compared to revenue from grants to support our business operations. As we continue to develop and commercialize our products, we expect to have a net loss of cash from operating activities unless and until we achieve positive cash flow from the commercialization of our products and services. During fiscal 2015 and 2016, we continued work on projects with the U.S. Department of Energy (“DOE”), and Mitsui Engineering and Shipbuilding Co., Ltd. (“MES”), with whom we signed our first commercial leasing agreement in May 2016, and we continued our efforts to increase the reliability and power output of our PowerBuoys.

Product Development

The development of our technology has been funded by capital we raised and by development engineering contracts we received starting in fiscal 1995, including projects with the DOE, the U.S. Navy, the Department of Homeland Security and MES. Through these historic projects, we also continued development of our current and our next generation PowerBuoy technology.

During fiscal 2017, we are continuing to focus on the commercialization of our PowerBuoy technology in autonomous application markets. We completed our work under our DOE contract that focused on further optimization of our modular PTO technology and delivered the project final report to the DOE in February 2016. In January 2016, we successfully completed the final stage and associated review with the DOE of the contract deliverables during which the DOE reviewed advancements related to PTO design aspects such as reliability, cost take out, manufacturability and scalability. As we continued to focus on the development and validation of our PB3 PowerBuoy commercial product, our activities concentrated mainly on implementing all of our lessons learned during our efforts in the prior fiscal year from our ocean deployments and accelerated life testing (“ALT”). The resulting improved PB3 PowerBuoy was deployed off the coast of New Jersey in July of 2016 and was retrieved early December 2016 upon completing all intended testing and validation. Upon inspection and refurbishment, we anticipate the PB3 PowerBuoy will be shipped to Japan to fulfill the requirements of our lease with MES including a deployment off of Kozu-Island in the Pacific Ocean. ALT of the PB3 commercial PTO is ongoing with no failures to date. In addition to the deployment of the PB3 PowerBuoy, the prior generation PB3-A1, was fitted with a sensor that collects tagged marine mammal migration information as well as with a Self-Contained Ocean Observing Payload (“SCOOP”).The marine mammal migration detection sensor was attached to the PB3-A1 PowerBuoy as part of an agreed scope of work with the Wildlife Conservation Society (“WCS”) through a memorandum of agreement between WCS and OPT. The SCOOP payload was integrated into PB3-A1 to complete the Phase 1 work scope of a Cooperative Research and Development Agreement (“CRADA”) between the National Data Buoy Center (NDBC) and OPT. The PB3-A1, deployed off the coast of New Jersey in May 2016, was retrieved in October 2016. From July 2016 through October 2016, both PB3-A1 and PB3 were simultaneously deployed generating valuable performance validation data. Both the NDBC SCOOP as well as the WCS tagged mammal migration detection sensor met all of their performance requirements. Our intent is to upgrade this pre-commercial design PowerBuoy to the full commercial design by retrofitting it with the final commercial PTO including our modular energy storage system, and to make it available to support our on-going commercialization efforts. In addition to the PB3 commercial product validation activities, a concerted effort has been underway which focuses on proactively implementing additional features driven by extensive and direct discussions with potential users and customers in our target markets. Such features include:

●

The design, development and implementation of a versatile mooring interface that allows the PB3 to accommodate various types of mooring configurations depending on the specifics and the needs of the customer, eliminating the need for a redesign to the device.

●

The design, development and implementation of a flexible power transmission system intended to support delivery of power and communication capabilities to customer payloads which are external to the PowerBuoy, and which may reside in the water column or on the seabed.

Additionally, and building upon our initial success in implementing an auto-ballast system in our commercial PB3, we are further enhancing this feature in order to achieve faster and more cost effective PB3 deployments and retrievals.

Further, we have initiated the development of our PB15, the next scale-up of our autonomous PowerBuoy, which is in accordance with our product roadmap. Our intent is to complete the preliminary design of our PB15 in fiscal 2017. We believe the PB15 PowerBuoy would have a peak rating of 15kW and an average continuous power output that depends on the deployment site’s metocean conditions. While this scale-up leverages every aspect of the product development and validation of the PB3, it also strategically positions the product to allow OPT to respond to higher power needs as expressed by potential end-users and customers in our target markets.

As previously stated, the PB3 has achieved commercial status through a series of design iterations which focused on improving its reliability and survivability in the ocean environment. Though the PB3 will continue to undergo further enhancements through customary product life cycle management, we believe the PB3 has achieved a maturity level for immediate commercial use. We believe that the PB3 will generate and store sufficient power to address various application requirements in our target markets. Our product development and engineering efforts are focused, in part, on increasing the energy output and efficiency of our PowerBuoys and, if we are able to do so, we believe the PowerBuoy would be useful for additional applications where cost savings and additional power are required by our potential customers. We continue to explore opportunities in these target markets, and we have not yet finalized any product offerings in these potential markets. We believe that by increasing the energy output of our PowerBuoys we may be able to address larger segments of our target markets. By improving our design and manufacturing, we also seek to reduce the cost of our PowerBuoys through further design iterations and manufacturing ramp-up. In so doing, we seek to improve customer value, displace additional incumbent solutions, and become a viable power source for new applications in our target markets.

Commercial Activities

We are 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 potential customer needs. As announced in October 2015, 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.

In September, 2016, we entered into a contract with the Department of Defense Office of Naval Research totaling approximately $250,000 to carry out the first phase of a project which focuses on the initial concept design and development of a mass-on-spring PTO-based PowerBuoy leveraging a number of OPT patents covering such a technology. If successful, this device is expected to be able to respond to the unique set of requirements expected in various military marine applications.

In November, 2016, we entered into a joint marketing agreement with Sonalysts, Inc. The purpose of this agreement is for OPT and Sonalysts to collaboratively identify and pursue opportunities leveraging our individual products and capabilities. Sonalysts has primary capabilities in operations and analysis; modeling and simulation; systems engineering and integration; program support; and undersea wireless communications technologies.

During the six months ended October 31, 2016, we deployed the PB3-A1 PowerBuoy and deployed the commercial PB3 PowerBuoy. The PB3-A1 included a payload from the NBDC, under a CRADA to conduct ocean demonstrations of its innovative SCOOP monitoring system as well as a WCS tagged marine mammal migration pattern monitoring sensor. The WCS sensor was used in a first step to assess whether the PB3 could ultimately provide power to WCS’ sensors, transmit data, and provide real-time data communication for acoustic monitoring of the movements of marine wildlife in certain waters. In June 2016, we deployed the PB3-A1 off the coast of New Jersey. The SCOOP was powered by the PB3-A1, where it provided metocean data to OPT and to NDBC without issue. The data collected by the WCS sensor is currently being processed by WCS. The PB3-A1was retrieved in October 2016 and is undergoing a full system update by incorporating the full commercial PTO to be brought up to full commercial status similar to the PB3.

On May 31, 2016, we entered into a contract with MES totaling $975,587, a portion of which was performed in fiscal 2016 as agreed under a letter of intent signed in March 2016. The contract with MES included certain engineering and other services, and a six-month lease of our PB3 PowerBuoy, commencing in March 2017, and extending through August 2017.

During the six months ended October 31, 2016, we progressed discussions with our Technical Advisory Panel members and conducted extensive business development meetings and other activities with potential customers and business partners. We also continued our accelerated life testing to further validate the reliability and durability of our PowerBuoys.

Capital Raises

In October 2015, we entered into an At the Market Offering Agreement (the “2015 Offering Agreement”) with Rodman & Renshaw, a unit of H. C. Wainwright & Co., LLC (“H. C. Wainwright”) under which we offered shares of our common stock, from time to time through or to the H. C. Wainwright, acting as sales agent and/or principal, (the “2015 ATM Offering”). Under the 2015 Offering Agreement, during the year ended April 30, 2016, we sold 144,571 shares of Common Stock with an aggregate market value of $293,343 under the Offering Agreement and paid the H. C. Wainwright a sales commission of approximately $4,400 related to those shares.

On June 2, 2016, we entered into a securities purchase agreement, which was amended on June 7, 2016 (as amended, the “Purchase Agreement”) with certain institutional purchasers (the “June Purchasers”). Pursuant to the terms of the June Purchase Agreement, we sold an aggregate of 417,000 shares of Common Stock together with warrants to purchase up to an aggregate of 145,952 shares of Common Stock. Each share of Common Stock was sold together with a warrant to purchase 0.35 of a share of Common Stock at a combined purchase price of $4.60. The net proceeds to the Company from the offering were approximately $1.7 million, after deducting placement agent fees and estimated offering expenses payable by the Company, but excluding the proceeds, if any, from the exercise of the warrants issued in the offering. The warrants have an exercise price of $6.08 per share, will be exercisable on the date that is six months and one day from the date of issuance (“Initial Exercise Date”), and will expire five years following the Initial Exercise Date.

On July 22, 2016, we entered into the Second Amendment to the Purchase Agreement (the “Second Amended Purchase Agreement”) with certain purchasers (the “July Purchasers”). Pursuant to the terms of the Second Amended Purchase Agreement, we sold an aggregate of 595,000 shares of Common Stock together with warrants to purchase up to an aggregate of 178,500 shares of Common Stock. Each share of Common Stock was sold together with a warrant to purchase 0.30 of a share of Common Stock at a combined purchase price of $6.75. The net proceeds to the Company from the offering were approximately $3.6 million, after deducting placement agent fees and estimated offering expenses payable by the Company, but excluding the proceeds, if any, from the exercise of the warrants issued in the offering. The Warrants will be exercisable immediately at an exercise price of $9.36 per share. The Warrants will expire on the fifth (5th) anniversary of the initial date of issuance.

On October 19, 2016, we sold 2,760,000 shares of common stock at a price of $2.75 per share, which includes the sale of 360,000 shares of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the over-allotment option by the underwriters in a public offering. The net proceeds to the Company from the offering were approximately $6.9 million, after deducting placement agent fees and offering expenses payable by the Company. We are using the net proceeds from this offering for general corporate purposes, which may include additional development, testing and demonstrations of our PowerBuoy system with the goal of furthering and accelerating its commercialization efforts and expanding its sales and marketing functions.

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

Backlog

As of October 31, 2016 our backlog was approximately $0.7 million and on April 30, 2016, our backlog was negligible.

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 (U.S. Congress, in the case of U.S. Government agencies), and unfunded amounts, which are unfilled firm orders 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 contract. Our backlog was fully funded at October 31, 2016.

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.

Business Strategy

As part of our strategic pivot in operations initiated in fiscal 2015, we are currently focused on developing and commercializing our PowerBuoy products and services for use in autonomous power applications. Generally, these applications are independent of the power grid and are located in remote offshore locations. We have incorporated our prior knowledge and best practices into our product design and validation processes, some of which were gained during the development of utility scale buoys. Based on market research and available public data, we believe considerable business opportunity could exist in markets which require autonomous offshore power. Based on our market research and available public data, management believes that there is the potential for us to pursue business opportunities in multiple markets that would have a direct need for our PowerBuoys including oil and gas, ocean observing, defense and security, communications, and offshore wind.

Our business strategy is to commercialize our autonomous PowerBuoy products. In order to achieve this goal, we are pursuing the following business objectives:

●

Sell and/or Lease PowerBuoys. We believe our autonomous PowerBuoy is well suited for many remote offshore applications. Within our selected markets we intend to sell or lease PowerBuoys, and provide services associated with product sales or leases such as maintenance, application engineering, planning, training, and logistics support required for the PowerBuoy life-cycle.

●

Concentrate sales and marketing efforts in specific geographic markets. We are currently focusing our sales and marketing efforts in North America, Europe, Australia, and parts of Asia, including Japan. We believe that each of these areas has appropriate wave conditions, political and economic stability, sizeable end market opportunities, and high levels of industrialization and economic development.

●

Expand our relationships in key market areas. We believe that an important element of our business strategy is to collaborate with other organizations to leverage our combined expertise, market presence and access, and core competences across key markets. We have formed such a relationship with several well-known organizations, including MES in Japan, the NDBC, the WCS, Gardline Environmental (an international and multi-disciplinary marine service company at the forefront of marine management with offices on five continents), and Sonalysts, Inc. (Sonalysts has primary capabilities in operations and analysis; modeling and simulation; systems engineering and integration; program support; and undersea wireless communications technologies). We continue to seek other opportunities to collaborate with application experts from within our selected markets.

●

Outsource most of the equipment fabrication and deployment. We outsource all fabrication, anchoring, mooring, cabling supply, and in most cases deployment of our PowerBuoy in order to minimize our capital requirements as we scale our business. However, our PTO is a proprietary subsystem and is assembled and tested at our facility. We believe this distributed manufacturing and assembly approach enables us to focus on our value-adding core competencies while also enabling the cost effectiveness of our PowerBuoy through leveraging a larger more qualified supply base.

●

Continue to increase PowerBuoy output. Our product development and engineering efforts are focused on increasing the energy output, reliability, and expected operating life of our PowerBuoys, as well as optimizing manufacturability of our designs with a focus on cost competitiveness. We believe that by increasing the energy output we will be able to address larger segments of our target markets.

Going Concern

Our financial statements have been prepared assuming we will continue as a going concern. We have experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $182.7 million at October 31, 2016. At October 31, 2016, we have approximately $12.5 million in cash on hand, including $6.9 million resulting from the closing of a public offering of the Company’s common stock on October 19, 2016. We generated revenues of $0.3 million and $0.6 million for the six months ended October 31, 2016 and 2015, respectively. Based on the Company’s cash and cash equivalents and marketable securities balances as of October 31, 2016, the Company believes that it will be able to finance its capital requirements and operations into at least the quarter ending January 31, 2018. The report of our independent registered public accounting firm on our consolidated financial statements filed with our Annual Report on Form 10-K for fiscal 2016, contains an explanatory paragraph regarding our ability to continue as a going concern, based on, among other factors, that our ability to continue as a going concern is dependent upon our ability to raise additional external capital and increase revenues. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We cannot assure you that we will be successful in our efforts to generate revenues, become profitable, raise additional outside capital or to continue as a going concern. If we are not successful in our efforts to raise additional capital sufficient to support our operations, we would be forced to cease operations, in which event investors would lose their entire investment in our company.

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 six months ended October 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 six months ended October 31, 2016 and 2015:

	Three Months Ended October 31,				Six Months Ended October 31,
	($ millions)				($ millions)
	2016		2015		2016		2015
US Department of Energy	$	-	$	0.1	$	-	$	0.2
European Union (WavePort project)		-		0.4		-		0.4
Mitsui Engineering & Shipbuilding		0.2		-		0.4		-
U.S. Department of Defense Office of Naval Research		-		-		-		-
	$	0.2	$	0.5	$	0.4	$	0.6

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 six months ended October 31, 2016 and 2015:

	Six months ended October 31,
Customer Location	2016			2015

United States		3	%		32	%
Europe		-			68
Asia and Australia		97			-
		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.

Our revenue recorded for the three and six months ended October 31, 2015 included revenue generated from cost-sharing contracts, which result in zero gross profit.

Our ability to generate a gross profit will depend on the nature of future contracts, our success at generating revenues through sales or leases of our 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 goal to fund the majority of our product development efforts with sources from commercial relationships, including cost-sharing agreements. If we are unable to obtain commercial relationships or cost-sharing arrangements, we may be forced to curtail our development expenses and scope to reduce our overall expenses. We recently narrowed our development focus to the PB3 to drive toward commercialization of that product and to reduce our overall expenses. In the future, we also may continue to develop the PB15 (formerly known as 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.

Fair Value of Financial Instruments

The fair value of our financial instruments reflects the amounts that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value of our warrant liabilities are subject to remeasurement each financial statement reporting period, as such, changes in this fair value are reflected in the Statement of Operations.

Our financial instruments not required to be adjusted to fair value on a recurring basis consist principally of cash and restricted cash, accounts receivable, accounts payable, and accrued expenses. We believe the carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to their relatively short maturities.

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 $12.8 million as of October 31, 2016, compared to $10.8 million as of October 31, 2015.

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 $1.1 million as of October 31, 2016 and $1.8 million as of October 31, 2015, compared to our total cash, cash equivalents, restricted cash, and marketable securities balances of $12.8 million as of October 31, 2016 and $10.8 million as of October 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.

We currently do not hedge our exchange rate exposure. However, we assess the anticipated foreign currency working capital requirements and capital asset acquisitions of our foreign operations and attempt to maintain a portion of our cash, cash equivalents and marketable securities denominated in foreign currencies sufficient to satisfy these anticipated requirements. We also assess the need and cost to utilize financial instruments to hedge currency exposures on an ongoing basis and may hedge against exchange rate exposure in the future.

Results of Operations

Three Months Ended October 31, 2016 Compared to Three Months Ended October 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 October 31, 2016 and 2015:

	Three Months ended October 31,						% Change 2016 Period to
	2016			2015			2015 Period
Revenues	$	169,964		$	494,412			(66	)%
Cost of revenues		125,146			494,412			(75	)
Gross profit		44,818			-			100
Operating expenses:
Product development costs		1,307,734			1,177,656			11
Selling, general and administrative costs		1,723,737			1,821,993			(5	)
Total operating expenses		3,031,471			2,999,649			1
Operating loss		(2,986,653	)		(2,999,649	)		0
Change in fair value of warrant liabilities		2,017,557			-			100
Interest income, net		2,232			3,712			(40	)
Other expense, net		-			(8,080	)		100
Foreign exchange gain (loss)		1,780			(24,801	)		(107	)
Net loss		(965,084	)		(3,028,818	)		(68	)
Less: Net (gain) loss attributable to the non-controlling interest in Ocean Power Technologies (Australasia) Pty Ltd		-			2,057			(100	)
Net loss attributable to Ocean Power Technologies, Inc	$	(965,084	)	$	(3,026,761	)		(68	)%

Revenues

Revenues decreased by $0.3 million, or 66%, to $0.2 million in the three months ended October 31, 2016, as compared to $0.5 million in the three months ended October 31, 2015. The decrease in revenue is related to lower revenue on the MES agreement, announced in June 2016, as compared to revenue from our WavePort contract with the European Union (the “EU”) for our project in Spain and the billable work under our prior contracts with the DOE during the three months ended October 31, 2015.

Cost of revenues

Cost of revenues decreased by approximately $0.4 million, or 75%, to approximately $0.1 for the three months ended October 31, 2016, as compared to $0.5 million for the three months ended October 31, 2015. The decrease in cost of revenue is related to lower costs incurred from the MES agreement, announced in June 2016, compared to higher costs from our WavePort contract with the EU for our project in Spain and the billable work under our prior contracts with the DOE during the three months ended October 31, 2015.

Revenue in the three month period ended October 31, 2015 included revenue under cost-sharing contracts. Under cost-sharing contracts, we receive a fixed amount agreed upon with the customer that is only intended to fund a portion of the costs on a specific project. We fund the remainder of the costs primarily as part of our product development efforts. Revenue is typically recorded using the percentage-of-completion method applied to the contractual amount agreed upon with the customer. An equal amount corresponding to the revenue is recorded in cost of revenues resulting in gross profit on these contracts of zero. Our share of the costs is considered to be product development expense. Our ability to generate a gross profit will depend on the nature of future contracts, our success at increasing sales of our PowerBuoy systems and on our ability to manage costs incurred on our fixed price contracts.

Product development costs

Product development costs increased by $0.1 million, or 11%, to $1.3 million in the three months ended October 31, 2016, as compared to $1.2 million in the three months ended October 31, 2015. For the three months ended October 31, 2016, product development costs primarily reflect the deployment of the commercial design PB3 PowerBuoy. For the three months ended October 31, 2015, product development costs reflected costs related to deployment of the legacy PB40 utility scale PowerBuoy.

Selling, general and administrative costs

Selling, general and administrative costs decreased by approximately $0.1 million, or 5%, to $1.7 million for the three months ended October 31, 2016 as compared to $1.8 million for the three months ended October 31, 2015. The decrease was related primarily to lower employee related costs, legal fees and third party consultant fees. These decreases were partially offset by increased stock compensation expense.

Change in fair value of warrant liabilities

Change in fair value of warrant liabilities for the three months ended October 31, 2016 and 2015, reflected a net fair market value unrealized gain of $2.0 million and $0 on our warrant derivatives, respectively.

Interest income, net

Interest income, net was approximately $2,200 for the three months ended October 31, 2016, as compared to approximately $4,000 in the three months ended October 31, 2015. The decrease in interest income was related to lower interest earned on marketable securities for the three months ended October 31, 2016 compared to the three months ended October 31, 2015.

Foreign exchange gain (loss)

Foreign exchange gain was approximately $1,800 for the three months ended October 31, 2016, compared to a foreign exchange loss of $25,000 for the three months ended October 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 expense, net

During the three months ended October 31, 2016, we did not have any other expense. During the three months ended October 31, 2015, other expense was approximately $8,000.

Results of Operations

Six Months Ended October 31, 2016 Compared to Six Months Ended October 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 six months ended October 31, 2016 and 2015:

							% Change
	Six Months ended October 31,						2016 Period to
	2016			2015			2015 Period
Revenues	$	372,353		$	600,078			(38	)%
Cost of revenues		252,431			600,078			(58	)
Gross profit		119,922			-			100
Operating expenses:
Product development costs		2,944,106			3,660,444			(20	)
Selling, general and administrative costs		3,242,296			3,728,938			(13	)
Total operating expenses		6,186,402			7,389,382			(16	)
Operating loss		(6,066,480	)		(7,389,382	)		(18	)
Change in fair value of warrant liabilities		1,265,488			-			100
Interest income, net		2,046			8,835			(77	)
Other income, net		-			242,927			(100	)
Foreign exchange gain (loss)		6,415			(5,842	)		210
Net loss		(4,792,531	)		(7,143,462	)		(33	)
Less: Net (gain) loss attributable to the non-controlling interest in Ocean Power Technologies (Australasia) Pty Ltd		-			(45,340	)		(100	)

Net loss attributable to Ocean Power Technologies, Inc	$	(4,792,531	)	$	(7,188,802	)		(33	)%

Revenues

Revenues decreased by $0.2 million, or 38%, to $0.4 million in the six months ended October 31, 2016, as compared to $0.6 million in the six months ended October 31, 2015. The decrease in revenue is related to our MES agreement, announced in June 2016, as compared to revenue from our WavePort contract with the EU for our project in Spain and the billable work under our prior contracts with the DOE during the six months ended October 31, 2015.

Cost of revenues

Cost of revenues decreased by approximately $0.3 million, or 58%, to approximately $0.3 million for the six months ended October 31, 2016, as compared to $0.6 million for the six months ended October 31, 2015. The decrease in cost of revenue is related to lower costs incurred from our MES agreement, announced in June 2016, compared to higher costs from our WavePort contract with the EU for our project in Spain and the billable work under our prior contracts with the DOE during the six months ended October 31, 2015.

Our revenue in the six month period ended October 31, 2015 included revenue under cost-sharing contracts. Under cost-sharing contracts, we receive a fixed amount agreed upon with the customer that is only intended to fund a portion of the costs on a specific project. We fund the remainder of the costs primarily as part of our product development efforts. Revenue is typically recorded using the percentage-of-completion method applied to the contractual amount agreed upon with the customer. An equal amount corresponding to the revenue is recorded in cost of revenues resulting in gross profit on these contracts of zero. Our share of the costs is considered to be product development expense. Our ability to generate a gross profit will depend on the nature of future contracts, our success at increasing sales of our PowerBuoy systems and on our ability to manage costs incurred on our fixed price contracts.

Product development costs

Product development costs decreased by $0.7 million, or 20%, to $2.9 million in the six months ended October 31, 2016, as compared to $3.7 million in the six months ended October 31, 2015. For the six months ended October 31, 2016 product development costs reflect the redeployment of the PB3-A1, the deployment of the commercial design PB3 PowerBuoy and estimated costs related to the retrieval of the PB40 mooring system. For the six months ended October 31, 2015 product development costs reflected costs related to deployment of the legacy PB40 utility scale PowerBuoy as well as costs related to the redesigned commercial PB3..

Selling, general and administrative costs

Selling, general and administrative costs decreased by approximately $0.5 million, or 13%, to $3.2 million for the six months ended October 31, 2016 as compared to $3.7 million for the six months ended October 31, 2015. The decrease was related primarily to lower employee related costs, legal fees and third party consultant fees. These decreases were partially offset by increased stock compensation expense.

Change in fair value of warrant liabilities

Change in fair value of warrant liabilities for the six months ended October 31, 2016 and 2015, reflected a net fair market value unrealized gain of $1.3 million and $0 on our warrant derivatives, respectively.

Interest income, net

Interest income, net was approximately $2,000 for the six months ended October 31, 2016, as compared to approximately $9,000 in the six months ended October 31, 2015. The decrease in interest income was related to lower interest earned on marketable securities for the six months ended October 31, 2016 compared to the six months ended October 31, 2015.

Foreign exchange gain (loss)

Foreign exchange gain was approximately $6,400 for the six months ended October 31, 2016, compared to a foreign exchange loss of $5,800 for the six months ended October 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, net

During the six months ended October 31, 2016, we did not have any other income. During the six months ended October 31, 2015, we received a refund of $243,000 related to research and development expenditures in Australia.

Net Loss Outlook

We have incurred net losses since we began operations in 1994. To achieve profitability, we will need to increase revenue and gross profit, control our fixed costs and/or possibly reduce our expenses, including our unfunded product development expenditures.

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 our target markets. Even if we do achieve profitability at some point in the future, we may not be able to sustain or increase profitability on a quarterly or annual basis. Refer to “Liquidity Outlook” below for additional information.

Liquidity and Capital Resources

Since our inception, the cash flows from customer revenues have not been sufficient to fund our operations and provide the capital resources for the planned growth of our business. For the two years ended April 30, 2016, our aggregate revenues were $4.8 million, our aggregate net losses were $26.3 million and our aggregate net cash used in operating activities was $28.1 million. Refer to “Liquidity Outlook” below for additional information.

Cash flows for the six months ended October 31, 2016 and 2015 were as follows:

	2016			2015
Net loss	$	(4,792,531	)	$	(7,143,462	)

Adjustments for noncash operating items		(575,124	)		338,383

Net cash operating loss		(5,367,655	)		(6,805,079	)

Net change in operating assets and liabilities		(915,833	)		(179,626	)

Net cash used in operating activities	$	(6,283,538	)	$	(6,984,705	)

Net cash provided by investing activities	$	32,353		$	89,699

Net cash provided by (used in) financing activities	$	12,051,235		$	(46,926	)

Effect of exchange rates on cash and cash equivalents	$	(17,679	)	$	(54,480	)

Net cash used in operating activities

Net cash used in operating activities was $6.3 million and $7.0 million for the six months ended October 31, 2016 and 2015, respectively. The change was primarily the result of the net change in operating assets and liabilities.

The decrease in net loss for the six months ended October 31, 2016 compared to the six months ended October 31, 2015 reflects a decrease in product development costs of $0.7 million relating primarily to the deployment of the PB40 off the coast of New Jersey and the anticipated deployment of the APB350 in the prior year, a decrease in SG&A costs of $0.5 million relating primarily to decreased legal fees and employee related costs, and a decrease of $1.3 million in the change in fair value of warrant liabilities.

The decrease in noncash operating items reflects a decrease in the change in fair value of the warrant assets of $1.3 million partially offset by an increase in equity compensation of $0.4 million.

The decrease in operating assets and liabilities reflects a net decrease in accounts payable and accrued expenses of $0.4 million, a decrease in unbilled receivables of $0.1 million and a decrease of $0.2 million in other current assets, during the six months ended October 31, 2016. In July 2016, the Company paid $0.5 million related to a litigation settlement.

Net cash provided by investing activities

Net cash provided by investing activities was approximately $32,000 and $0.1 million for the six months ended October 31, 2016 and 2015, respectively. The change was primarily the result of a net decrease in restricted cash during the six months ended October 31, 2016.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $12.1 million for the six months ended October 31, 2016 and net cash used in financing activities was $47,000 for the six months ended October 31, 2015. The net cash provided in 2016 was the result of the issuance of common stock and warrants through our public offerings net of related issuance costs. The net cash used in 2015 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 $18,000 and $54,000 in the six months ended October 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 but not limited to:

	●	our ability to commercialize our PowerBuoys, and achieve and sustain profitability;

	●	our continued development of our proprietary technologies, and expected continued use of cash from operating activities unless or until we achieve positive cash flow from the commercialization of our products and services;

	●	our ability to obtain additional funding, as and if needed which will be subject to a number of factors, including market conditions, and our operating performance;

	●	our estimates regarding expenses, future revenues and capital requirements;

	●	the adequacy of our cash balances and our need for additional financings;

	●	our ability to develop and manufacture a commercially viable PowerBuoy product;

	●	that we will be successful in our efforts to commercialize our PowerBuoy or the timetable upon which commercialization can be achieved, if at all;

	●	our ability to identify and penetrate markets for our PowerBuoys and our wave energy technology;

	●	our ability to implement our commercialization strategy as planned, or at all;

	●	our ability to maintain the listing of our common stock on the NASDAQ Capital Market;

	●	the reliability of our technology and our PowerBuoys;

	●	our ability to improve the power output, survivability and reliability of our PowerBuoys;

	●	the impact of pending and threatened litigation on our business, financial condition and liquidity;

	●	changes in current legislation, regulations and economic conditions that affect the demand for renewable energy;

	●	our ability to compete effectively in our target markets;

	●	our limited operating history and history of operating losses;

	●	our sales and marketing capabilities and strategy in the United States and internationally; and

	●	our ability to protect our intellectual property portfolio.

Our business is capital intensive and, to date, we have been funding our business principally through sales of our securities, and we expect to continue to fund our business with sales of our securities and, to a limited extent, with our revenues until, if ever, we generate sufficient cash flow to internally fund our business. This is largely a result of the high product development costs associated with our product development. We may choose to reduce our operating expenses through personnel reductions, and reductions in our research and development and other operating costs during fiscal year 2017, if we are not successful in our efforts to raise additional capital. We cannot assure you that we will be able to increase our revenues and cash flow to a level which would support our operations and provide sufficient funds to pay our obligations for the foreseeable future. Further, we cannot assure you that we will be able to secure additional financing or raise additional capital or, if we are successful in our efforts to raise additional capital, of the terms and conditions upon which any such financing would be extended. If we are unable to raise additional capital when needed or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

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

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 October 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 October 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

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended October 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

Shareholder Litigation and Demands:

We and our former Chief Executive Officer, Charles Dunleavy, are defendants in consolidated securities class action lawsuits 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 our technology and a now terminated agreement between VWP and ARENA for the VWP Project. The third amended class action complaint seeks unspecified monetary damages and other relief. On November 5, 2015, defendants 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. On May 5, 2016, the parties entered into a Stipulation and Agreement of Class Settlement (“Stipulation”) in which they agreed to a settlement of the consolidated securities class action lawsuits, subject to Court approval. The Stipulation provides, among other things, for a settlement payment by or on behalf of the Company of $3,000,000 in cash, of which the Company was to pay $500,000 and the Company’s insurer will pay $2,500,000, and the issuance by the Company of 380,000 shares (valued at $596,000 on the date the Stipulation was signed by the parties) of its Common Stock to the class members. In connection with the settlement, the parties have agreed to execute mutually agreeable releases. On June 7, 2016, the Court entered an Order Granting Preliminary Approval of Settlement. The Stipulation is subject to, among other requirements, final approval by the Court following notice to all class members. The Court scheduled a hearing for November 14, 2016 to determine, among other things, whether to grant final approval of the settlement. The amounts agreed in the Stipulation agreement, including the amount to be contributed by our insurance carrier, have been reflected in the financial statements as of July 31, 2016 and April 30, 2016. In July 2016, the Company paid the $500,000 portion of the settlement and the remaining balance of $2,500,000 was paid by the Company’s insurer in August 2016. On November 14, 2016, the Court held its previously scheduled Settlement Hearing to consider whether to grant final approval of the settlement, and on November 15, 2016, the Court issued its Final Judgement approving the settlement and dismissing the proceedings with prejudice. The distribution of the $3,000,000 in cash and 380,000 shares of the Company’s common stock is scheduled to occur 30 days after the date of the Final Judgment.

On July 10, 2014, we 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. We invited the attorney to participate in the Section 220 Demand process discussed below. On February 6, 2015, we produced documents to the attorney pursuant to a confidentiality agreement in connection with the Section 220 Demand process.

We 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. We have received two additional Section 220 Demands relating to the same subject matter from attorneys claiming to represent two different shareholders. We have 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.

We and certain of our 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 April 21, 2016, a third derivative lawsuit, captioned LaCalamito v. Dunleavy, et al., Case No. 3:16-cv-02249, was filed by another shareholder against certain current and former directors and officers of the Company in the United States District Court for the District of New Jersey alleging similar claims for breach of fiduciary duty relating to the now terminated agreement between VWP and ARENA. The LaCalamito complaint seeks unspecified monetary damages and other relief. We have not been formally served and have not yet responded to the complaint.

We and certain of our current and former 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 our Certificate 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. By Unanimous Written Consent dated June 17, 2016, the Company’s Board of Directors amended the Company’s By-laws to delete the “only for cause” requirement, thereby allowing for removal of directors with or without cause by the Company’s stockholders. In addition, the Board proposed, subject to approval by the Company’s stockholders at the next annual general meeting of stockholders, a similar amendment to the director removal provision in the Company’s Certificate of Incorporation. On June 22, 2016, the parties to this lawsuit submitted a Stipulation and Proposed Order Staying Proceedings that (1) stays the case pending the stockholder vote on the proposed amendment to the Company’s Certificate of Incorporation; (2) provides for dismissal of the action with prejudice if the stockholders approve the amendment, subject to plaintiff’s right to make a fee application to the court and defendants’ right to oppose any such application; and (3) provides for the stay to be lifted and the action to resume, without waiver of any parties’ rights, if the stockholders do not approve the amendment. The court approved the stipulation on June 30, 2016. On September 2, 2016, the Company filed a definitive proxy statement with the SEC which includes this proposal. At the annual shareholder meeting on October 21, 2016, the proposal was not approved because an insufficient number of votes were cast to satisfy the requirement that the proposal be approved by the holders of at least 75% of the outstanding shares of common stock entitled to vote at the meeting. However, stockholders approved an amendment to the Company’s Certificate of Incorporation to add a provision which requires that any provision of the Certificate of Incorporation that is contrary to a requirement of the Delaware General Corporate Law shall be read in conformity with the applicable requirement of the Delaware General Corporate Law. The parties have agreed that the case shall remained stayed until further steps, if any, can be agreed to and taken as needed.

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.

(b) Regulatory Matters:

SEC Investigation

On February 4, 2015, we received a subpoena from the SEC requesting information related to the VWP Project. We have provided information to the SEC in response to that subpoena. As part of the same investigation, on July 12, 2016, the SEC issued a second subpoena requesting information related to the Company’s April 4, 2014 public offering. The Company has provided information to the SEC in response to that subpoena. The SEC investigation is ongoing and we continue 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.

Spain IVA (sales tax)

In June 2012, we received notice that the Spanish tax authorities are inquiring into our 2010 IVA (value-added tax) filing for which the Company benefitted from the offset of approximately $250,000 of input tax. We believe that the inquiry will find that the tax credit was properly claimed and, therefore, no liability has been recorded. We have issued two letters of credit in the amount of €278,828 ($305,690) at the request of the Spanish tax authorities. This is a customary request during the inquiry period. In November 2014, March 2015 and September 2015, we received partial refunds of the amount under dispute and continue to expect that this matter will be resolved in our favor.

Spain Income Tax Audit

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, 2016 and 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 15, 2016 and our Form 10-Q for the quarter ended July 31, 2016, except as discussed below.

Our auditors have raised substantial doubts as to our ability to continue as a going concern.

Our financial statements have been prepared assuming we will continue as a going concern. Due to the significant product development costs associated with our business and operations, we have experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $182.7 million at October 31, 2016. At October 31, 2016, the Company has approximately $12.5 million in cash on hand, including $6.9 million resulting from the closing of a public offering of the Company's common stock on October 19, 2016. The Company generated revenues of $0.4 million and $0.6 million in the six months ended October 31, 2016 and 2015, respectively. We generated revenues of only $0.7 million in fiscal 2016, and $4.1 million in fiscal 2015. Based on the Company’s cash and cash equivalents and marketable securities balances as of October 31, 2016 the Company believes that it will be able to finance its capital requirements and operations into at least the quarter ending January 31, 2018. We continue to experience operating losses and currently have only one primary revenue producing contract, which is an agreement with MES (the “MES Agreement”) to, among other things, lease and deploy our PB3 PowerBuoy off Kozushima Island, Japan and to provide certain engineering and other services. The total value of the lease and other services to be provided by us under the MES Agreement is $975,587. We currently expect the term of the lease to commence in March 2017, and the term of the MES Agreement to extend through August 2017. During the six months ended October 31, 2016, our net burn rate (cash used in operations less cash generated by operations) including product development spending was approximately $900,000 per month, excluding $500,000 cash paid in relation to the litigation settlement.

Our business is capital intensive and, to date, we have been funding our business principally through sales of our securities, and we expect to continue to fund our business with sales of our securities and, to a limited extent, with our revenues until, if ever, we generate sufficient cash flow to internally fund our business. This is a largely a result of the high product development costs associated with our product development. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that our operating expenses will be approximately $12 million in fiscal 2017. Through the six months ended October 31, 2016, the Company has already incurred approximately $6.1 million in such operating costs. We may choose to reduce our operating expenses through personnel reductions, and reductions in our research and development and other operating costs during fiscal year 2017, if we are not successful in our efforts to raise additional capital. We cannot assure you that we will be able to increase our revenues and cash flow to a level which would support our operations and provide sufficient funds to pay our obligations for the foreseeable future. Further, we cannot assure you that we will be able to secure additional financing or raise additional capital or, if we are successful in our efforts to raise additional capital, of the terms and conditions upon which any such financing would be extended. If we are unable to meet our obligations, we would be forced to cease operations, in which event investors would lose their entire investment in our company.

We have a history of operating losses and may not achieve or maintain profitability and positive cash flow.

We have incurred net losses since we began operations in 1994, including net losses attributable to Ocean Power Technologies, Inc. of $4.8 million during the six months ended October 31, 2016 and $13.1 million in fiscal 2016. As of October 31, 2016, we had an accumulated deficit of $182.7 million. To date, our activities have consisted primarily of activities related to the development and testing of our technologies and our PowerBuoy. Thus, our losses to date have resulted primarily from costs incurred in our research and development programs and from our selling, general and administrative costs. As we continue to develop our proprietary technologies, we expect to continue to have a net use of cash from operating activities unless or until we achieve positive cash flow from the commercialization of our products and services.

We do not know whether we will be able to successfully commercialize our PowerBuoys, or whether we can achieve profitability. There is significant uncertainty about our ability to successfully commercialize our PowerBuoys in our targeted markets. Even if we do achieve commercialization of our PowerBuoy and become profitable, we may not be able to achieve or, if achieved, sustain profitability on a quarterly or annual basis.

We may not be able to raise sufficient capital to continue to operate our business.

Historically, we have funded our business operations through sales of equity securities. We do not know whether we will be able to secure additional equity funding or, if secured, whether the terms will be favorable to us or our investors. Our ability to obtain additional funding will be subject to a number of factors, including market conditions, our operating performance, pending litigation and investor sentiment. These factors may make additional funding unavailable, or the timing, amount, terms and conditions of additional funding unattractive. If we issue additional equity securities to raise capital, our existing stockholders would experience dilution or may be subordinated to any rights, preferences or privileges granted to the new equity holders.

We have filed a shelf registration statement on Form S-3 with the SEC registering the sale of up to $15,000,000 of debt, equity and other securities (the “Shelf Registration Statement”), which was declared effective on April 26, 2016. In June 2016, we completed an offering off of the Shelf Registration Statement of an aggregate of 417,000 shares of common stock together with warrants to purchase up to an aggregate of 145,952 shares of common stock. In July 2016, we completed a best efforts public offering off of the Shelf Registration Statement of 595,000 units, with each unit consisting of one share of common stock and 0.3 of a warrant to purchase one share of our common stock, for a total of 178,500 warrants.

On October 19, 2016, we sold 2,760,000 shares of common stock at a price of $2.75 per share, which includes the sale of 360,000 shares of the Company’s common stock sold by the Company pursuant to the exercise, in full, of the over-allotment option by the underwriters in a public offering. The net proceeds to the Company from the offering were approximately $6.9 million, after deducting placement agent fees and estimated offering expenses payable by the Company, but excluding the proceeds, if any, from the exercise of the warrants issued in the offering. We are using the net proceeds from this offering for general corporate purposes, which may include additional development, testing and demonstrations of our PowerBuoy system with the goal of furthering and accelerating its commercialization efforts and expanding its sales and marketing functions.

Future sales under our current Shelf Registration Statement or other sales of equity or convertible securities could be dilutive to our stockholders. We cannot assure you that we will be able to issue any such securities or, if issued, what the terms of those securities would be. In particular, any new securities issued could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our operations.

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

August 1-31, 2016		-	$	-		-		-
September 1-30, 2016		3,450	$	7.29		-		-
October 1-31, 2016		2,463	$	3.19		-		-

(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


3.1		Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on October 21, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 21, 2016).

10.1		Employment Letter between the Company and Matthew Shafer dated August 23, 2016 (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed August 29, 2016).

10.2		Letter Agreement between the Company and Mark A. Featherstone dated August 25, 2016 (incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K filed August 29, 2016).

10.3		Agreement by and between the Company and the U.S. Office of Naval Research dated September 13, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 14, 2016).

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 302 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

101		The following materials formatted in eXtensible Business Reporting Language (XBRL) from Ocean Power Technologies, Inc Quarterly Report on Form 10-Q for the quarter ended October 31, 2016, filed December 9, 2016: (i) Consolidated Balance Sheets – October 31, 2016 (unaudited) and April 30, 2016, (ii) Consolidated Statements of Operations (unaudited) – Three and Six Months Ended October 31, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Loss (unaudited) – Three and Six Months Ended October 31, 2016 and 2015, (iv) Consolidated Statements of Cash Flows (unaudited) –Six Months Ended October 31, 2016 and 2015, (v) Consolidated Statements of Stockholders’ Equity (unaudited) – Six Months Ended October 31, 2016 and 2015 (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 1933, as amended, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability under those sections.

		** As provided in Rule 406T of Regulation S-T, this exhibit shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Ocean Power Technologies, Inc.
	(Registrant)


Date: December 9, 2016		/s/ George H. Kirby III
	By:	George H. Kirby III
		Chief Executive Officer


Date: December 9, 2016		/s/ Matthew T. Shafer
	By:	Matthew T. Shafer
		Chief Financial Officer

EXHIBITS INDEX

3.1	Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on October 21, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 21, 2016).

10.1	Employment Letter between the Company and Matthew Shafer dated August 23, 2016 (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed August 29, 2016).

10.2	Letter Agreement between the Company and Mark A. Featherstone dated August 25, 2016 (incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K filed August 29, 2016).

10.3	Agreement by and between the Company and the U.S. Office of Naval Research dated September 13, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 14, 2016).

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 302 of the Sarbanes-Oxley Act of 2002

32.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

101	The following materials formatted in eXtensible Business Reporting Language (XBRL) from Ocean Power Technologies, Inc Quarterly Report on Form 10-Q for the quarter ended October 31, 2016, filed December 9, 2016: (i) Consolidated Balance Sheets – October 31, 2016 (unaudited) and April 30, 2016, (ii) Consolidated Statements of Operations (unaudited) – Three and Six Months Ended October 31, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Loss (unaudited) – Three and Six Months Ended October 31, 2016 and 2015, (iv) Consolidated Statements of Cash Flows (unaudited) – Six Months Ended October 31, 2016 and 2015, (v) Consolidated Statements of Stockholders’ Equity (unaudited) – Six Months Ended October 31, 2016 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 1933, as amended, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability under those sections.

	** As provided in Rule 406T of Regulation S-T, this exhibit shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability under those sections.

ex31-1.htm

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 officers 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: December 9, 2016

		/s/ George H. Kirby III
		George H. Kirby III
		Chief Executive Officer

ex31-2.htm

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

I, Matthew T. Shafer, 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 officers 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: December 9, 2016


		/s/ Matthew T. Shafer
		Matthew T. Shafer
		Chief Financial Officer

ex32-1.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Ocean Power Technologies, Inc. (the "Company") for the period ended October 31, 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: December 9, 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.

ex32-2.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Ocean Power Technologies, Inc. (the "Company") for the period ended October 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Matthew T. Shafer, 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: December 9, 2016

		/s/ Matthew T. Shafer
		Matthew T. Shafer
		Chief Financial Officer