UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
For the fiscal year ended April 30, 2024
Or
For the transition period from to .
Commission
File Number 001-33417
Ocean
Power Technologies, Inc.
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28
ENGELHARD DRIVE, SUITE B
MONROE
TOWNSHIP, NJ08831
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (609)730-0400
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Exchange on Which Registered
Common Stock, par value $0.001 OPTT NYSE American
Series A Preferred Stock Purchase Rights n/a NYSE American
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the common stock of the registrant held by non-affiliates as of October 31, 2023, the last business day of
the registrant’s most recently completed second fiscal quarter, was $17.6 million based on the closing sale price of the registrant’s
common stock on that date as reported on the NYSE American.
The
number of shares outstanding of the registrant’s common stock as of July 22, 2024 was 92,708,981.
OCEAN
POWER TECHNOLOGIES, INC.
ANNUAL
REPORT ON FORM 10-K
TABLE
OF CONTENTS
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 19
Item 1B. Unresolved Staff Comments 35
Item 2. Properties 35
Item 3. Legal Proceedings 35
Item 4. Mine Safety Disclosures 36
PART II
Item 6. Selected Financial Data 38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 48
Item 8. Financial Statements and Supplementary Data 48
Item 9A. Controls and Procedures 48
Item 9B. Other Information 49
PART III
Item 10. Directors, Executive Officers and Corporate Governance 50
Item 11. Executive Compensation 50
Item 14. Principal Accountant Fees and Services 50
PART IV
Item 15. Exhibits, Financial Statement Schedules 51
PowerBuoy®,
PB-Vue ®, PowerTower ®, Making Waves in Power ®, Talk on Water ®, WAM-V®
and the Ocean Power Technologies logo are trademarks of Ocean Power Technologies, Inc. All other trademarks appearing in this annual
report are the property of their respective holders.
i
Special
Note Regarding Forward-Looking Statements
We
have made statements in this Annual Report on Form 10-K (the “Annual Report”) in, among other sections, Item 1 - “Business,”
Item 1A - “Risk Factors,” Item 3 - “Legal Proceedings,” and Item 7 - “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” that are forward-looking statements. Forward-looking statements convey
our current expectations or forecasts of future events. Forward-looking statements include statements regarding our future financial
position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “may,”
“continue,” “estimate,” “intend,” “plan,” “will,” “believe,”
“project,” “expect,” “anticipate” and similar expressions may identify forward-looking statements,
but the absence of these words does not necessarily mean that a statement is not forward-looking.
Any
or all of our forward-looking statements in this Annual Report may turn out to be inaccurate. We have based these forward-looking statements
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.” In light
of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report may not occur
as contemplated and actual results could differ materially from those anticipated or implied by the forward-looking statements.
You
should not unduly rely on these forward-looking statements, which speak only as of the date of this filing. Unless required by law, we
undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise.
Our
fiscal year begins on May 1 and ends on April 30. When we refer to a particular fiscal year, we are referring to the fiscal year ending
on April 30 of that year. References to fiscal 2024 are to the fiscal year ended April 30, 2024.
Unless
the context indicates otherwise, the terms “Company,” “Ocean Power Technologies,” “OPT,” “we,”
“our” or “us” as used herein refers to Ocean Power Technologies Inc. and its subsidiaries.
ii
PART
I
ITEM
1. BUSINESS
Overview
Our
solutions focus on three major service areas: Data as a Service (“DaaS”), which includes data collected by our Wave Adaptive
Modular Vessel (WAM-V®) autonomous vehicles or our PowerBuoy® PB product lines; Robotics as a Service (“RaaS”),
which provides a lower cost subscription model for our customers to access use of our WAM-V’s®; and Power as a Service (“PaaS”),
which includes our PowerBuoy® products.
Our
mission is to provide intelligent maritime solutions and services that enable more secure and more productive utilization of our oceans
and waterways, provide clean energy power services, and offer sophisticated surface and subsea maritime domain awareness solutions. The
Company achieves this through our proprietary, state-of-the-art technologies that are at the core of our clean and renewable energy platforms,
autonomous systems, solutions and services. The Company is involved in the entire life cycle of product development, from product
design through assembly, testing, deployment, maintenance and upgrades, while working closely with partners across our supply chain.
The Company also works closely with our third-party partners that provide us with, among other things, software, controls, sensors, integration
services, and marine installation services. Our solutions are based on proprietary technologies that enable autonomous, zero or low carbon
emitting, and cost-effective data collection, analysis, transportation and communication. Our solutions are primarily suited to ocean
and other offshore environments, and support generation of actionable intelligence on a standalone basis or working with other data sources.
We channel the information we collect, and other communications, through control equipment linked to edge computing and cloud hosting
environments. The data collected by OPT’s technologies underscores the Company’s unique position as a system of systems provider.
What sets OPT apart is its ability to enhance these data collection capabilities by integrating the WAM-V and PB systems. This integration
enables the use of artificial intelligence and Machine Learning not only to improve data accuracy and operational efficiency but also
delivery of actionable intelligence.
In
November 2023 we announced that we have substantially completed our research and development phase and are primarily focused on commercial
activities. We have built a suite of products (more fully described below) that we believe will be the basis for our current and future
commercial success resulting in meaningful progress in orders, pipeline, and backlog. This pivot to commercial activities has enabled
reallocation of headcount, resulting in approximately $4.5 million in annual run rate savings, and a material reduction in third-party
expenditures. The majority of our employees are now dedicated to customer sales, assembly, delivery and operations support.
We
were incorporated under the laws of the State of New Jersey in April 1984 and began commercial operations in 1994. On April 23, 2007,
we reincorporated in Delaware.
Our
Solutions
Data
as a Service
Our
DaaS solution is at the forefront of our strategic goal to be a leader in offshore data collection, integration, analytics and real time
communication for a variety of important applications. For example, our solutions can track surface vessel movement for maritime border
enforcement and illegal fishing interdiction, provide security for offshore wind farms and oil and gas fields, and provide harbor or
port security as well as logistics support. We have the ability to support aquaculture and gather information on ocean currents, water
quality, wind and other weather metrics, provide photography, and map shorelines or subsurface bathymetry, objects and activity. We also
offer 24/7 monitoring solutions that can provide meaningful real time information, and long-term data collection and analytics for sophisticated
applications across many industries and scientific applications. Additionally, the stability of our WAM-V® platform makes it an ideal
solution to produce high quality sonar data in many sea conditions for subsea surveys. WAM-V’s® can also be outfitted with
various equipment for the performance of marine infrastructure surveys, berth clearance surveys, dredging surveys, and mining pit surveys.
In
October 2020, the Company launched its DaaS offering in support of the U.S. Navy’s Naval Postgraduate School’s (“NPS”)
Field Experimentation (formerly Sea, Land, Air, Military Research Initiative). In February 2024, the Company received additional funding
from the Naval Postgraduate School for the year-long deployment of a PowerBuoy® in Monterey Bay. The PowerBuoy®, integrating
our MDAS along with cutting-edge Satellite communication and AT&T 5G technology, will demonstrate its persistent surveillance and
communications capacities in a maritime environment. This deployment marks a significant milestone in maritime technology, showcasing
the potential of standalone at-sea infrastructure nodes to support diverse operational needs. We have further expanded our DaaS offering
through field demonstration such as ANTX Coastal Trident 2022, as well as the Naval Task Force 59 for the Digital Horizon field exercise
and the International Maritime Exercise (IMX) in Bahrain. Additional DaaS contracts include Sulmara for survey services with our WAM-V®
platform and Phase I funding through National Oceanic and Atmospheric Administration’s (NOAA) Small Business Innovation Research
(SBIR) program.
In
September 2023, the Company received an award of three separate Indefinite Delivery Indefinite Quantity (IDIQ) Multiple-Award Contracts
(MAC) from NOAA. NOAA has selected OPT as one of several Multiple Award IDIQ contract holders to provide Uncrewed Maritime Systems (UMS)
Services to NOAA’s Office of Marine and Aviation Operations (OMAO), Uncrewed Systems Operation Center (UxSOC). Under these contracts,
OPT will bring its expertise to utilize cutting-edge UMS to support NOAA in conducting vital marine resource surveys
and research while also playing a pivotal role in enhancing NOAA’s meteorological and oceanographic observations, further advancing
our understanding of the natural world. Finally, OPT will collaborate with NOAA to explore and characterize the depths of our oceans,
contributing to the discovery and preservation of invaluable marine ecosystems.
Additionally,
the Company was awarded a contract to provide scientific hardware delivery, training, and integration services under a subcontract for
a U.S. government agency. This project seeks to identify and integrate sensors and systems and share data suitable for the full spectrum
of maritime operations. We will provide the required hardware, hardware deployment support, software, software deployment support, integration
services, surveillance and telemetry data, and associated training in support of a legacy PB3 PowerBuoy® equipped with our Maritime
Domain Awareness (MDA) solution. The project will be deployed in support of security efforts to detect illegal, unreported, and unregulated
(“IUU”) fishing, dark vessels, and human/drug trafficking in operation 24/7/365. As further discussed under “Commercial
Activities,” the Company was awarded a contract in support of foreign law enforcement partners. This collaboration aims to protect
vital marine species and combat illegal, unreported, and unregulated (IUU) fishing activities in critical habitats using our state-of-the-art
uncrewed technologies and demonstrates unprecedented, networked surveillance capabilities and evidence collection.
Maritime
Domain Awareness Solution
The
International Maritime Organization defines Maritime Domain Awareness as the effective understanding of any activity that could impact
the security, safety, economy, or environment related to and within our oceans and seas. Since 2002, the U.S. has had an active strategy
to secure the maritime domain, primarily through the U.S. Navy. Furthermore, in 2020 the U.S. Coast Guard elevated IUU fishing, one aspect
of MDA security, as the leading global maritime threat.
We
have designed our solution to provide detailed, localized maritime domain awareness that can be utilized for a wide range of applications
across market segments. Our MDAS base hardware consists of a high-definition radar, a stabilized high-definition optical and thermal
imaging camera, and a vessel Automatic Identification System (“AIS”) detection module. This hardware can be customized or
supplemented by other solutions, depending on the requirements of our customers. These devices can be mounted on our products, such as
our legacy PB3 and NextGen PB or WAM-V®, and then, utilizing integrated command and control software, data would be sent to us and
to our customers via secure communications channels. Multiple sensors can be used on a single unit based on the comprehensiveness of
the needs of our customers.
Our
MDAS processes data onboard our platforms (i.e., edge computing) and transmits the results to our cloud-based analytics platform via
secure Wi-Fi and cellular and satellite communications. We anticipate integrating our MDAS solution into our WAM-V’s® to
add mobile assets for patrols or interdiction and utilizing satellite communication to expand the availability of our data service.
Surveillance data can be integrated with third party marine monitoring software or with our own MDA software solution to provide
command and control features of a multi-platform surveillance network. As an example, one or more WAM-Vs® can be networked to
our self-powered buoy, which acts as a central data and communication hub. These WAM-Vs® can significantly increase the range of
our MDAS network solutions. The data can also be integrated with satellite, weather, bathymetric, and other third-party data feeds
to form a detailed surface and subsea picture of a monitored area. All vessel video, radar, and track data is securely stored in our
cloud, or the customer’s cloud environment and is accessible for as long as required by the customer for further analysis and
reference.
The
Company launched the first commercially ready MDAS on a test buoy off the coast of New Jersey in September 2021. The system includes
our proprietary integration of sensors, hardware and software, supported by cloud infrastructure as well as having a web-based user interface
that displays camera, radar, AIS and live chart data. During the first half of calendar 2024 we successfully demonstrated the system
multiple times for potential customers, including a showcase in San Diego Bay at the U.S. Navy’s Advanced Naval Technology Exercise,
and remote demonstrations using assets deployed off New Jersey for potential customers active in the Mediterranean, South America and
Middle East.
Autonomous
Vehicles
Our
Autonomous Vehicles business incorporates the patented WAM-V® technology, which enables roaming capabilities for unmanned maritime
systems in waters around the world. The first WAM-V® was launched in 2007 as a new vehicle class to deliver reliable autonomous surface
vehicles to customers that could provide robust, real-time data collection and reporting. Our Autonomous Vehicles business also provides
RaaS, allowing customers to lease WAM-V® robotics and access information from our WAM-Vs® while we maintain ownership and maintenance
and repair responsibilities. Today, WAM-Vs® operate in ten countries for commercial, military defense and scientific uses. Our WAM-Vs®
exist in three primary sizes of 8, 16, and 22 feet. However, many of the design components are common across the sizes, allowing for
integration of different payloads and adaptation of the payload platforms for larger equipment. All sizes can be adapted to suit electric
or liquid fuel propulsion methods.
The
WAM-V® product line highly complements the Company’s business strategy and can be used inshore, nearshore, and offshore. This
business continues to grow and is further expanding into core marine survey and maritime security markets in the Middle East, Europe,
Asia, Oceania and the Americas. We continue to find ways to integrate Autonomous Vehicles with the Company’s existing platforms
and service offerings and expect to take advantage of new synergistic opportunities as they arise. In addition, in connection with our
Merrows offering noted below, we are already integrating data streams relating to all aspects of, on, under, adjacent to, or bordering
on a sea, ocean, or other navigable waterway onto the WAM-V® to expand our offering to provide a roaming MDA solution to our customers.
Recent
Technological Advancements
In
August 2023 we successfully demonstrated a WAM-V attaching itself remotely to a buoy and establishing a connection that enabled charging.
This successful electrical connection that enabled charging represents a significant step forward in the integration of renewable energy
sources within the maritime industry and paves the way for a future where electrically propelled autonomous vessels can operate for extended
durations, opening doors to potential new applications within the maritime domain. We are continuing to advance the ability to remotely
charge our WAM-V® from our PowerBuoy® platforms, enabling persistent, resident and roaming capabilities.
The
Company continues to advance its efforts with the WAM-V® in the defense and national security industry. To that end, it has started
working with various U.S. Government agencies to provide its assets on a Contractor Owned Contractor Operated, Government Owned Government
Operated, and Government Owned Contractor Operated basis. These advances are being supported through the hiring of employees that are
U.S. citizens and the Company’s workforce is now approximately 25% veterans. As part of these efforts, the Company is also working
with other Unmanned Surface Vehicle (USV), Unmanned Aerial Vehicle (UAV), and Unmanned Underwater Vehicle (UUV) providers to support
autonomous swarming services for the defense industry.
In
April 2024 the Company announced Merrows, a projected significant step forward to enhance maritime domain awareness and underline
the critical importance of ocean security’s role in national security. Merrows is OPT’s groundbreaking consolidated
solution offering comprehensive ocean surveillance and involves the deployment of sophisticated Command, Control, Communications,
Computers, Cyber, Intelligence, Surveillance, and Reconnaissance systems. These systems are integrated within OPT’s roaming
technologies, such as the Wave Adaptive Modular Vessel, and resident technologies, like the PB, to offer an unparalleled level of
surveillance and data analysis capability. This initiative, which builds on OPT’s recently completed R&D efforts,
demonstrates the company’s commitment to safeguarding the world’s oceans through advanced technology and
innovation.
In
May 2024 the Company announced it is approaching 15MWh of renewable energy production from its family of PB.
The recent launch of its Next Generation PB off the coast of New Jersey has materially accelerated average energy production by combining
solar, wind, and wave energy production capabilities. The energy generation numbers are based on deployments in the Atlantic, Pacific,
Mediterranean, and North Sea. OPT has demonstrated and delivered use cases as a proven solution for Anti-Submarine Warfare, Intelligence,
Surveillance, and Reconnaissance, USV Charging, and Environmental Sensing. These numbers show
that non-grid connected marine energy production is not just for the R&D community but is a commercially available solution.
Robotics
as a Service
During
fiscal 2023 the Company introduced the subscription model for our customers to access our WAM-V’s®. Under this model we lease
our WAM-V’s to our customers over a fixed time period or provide a specified number of use days, typically with a guaranteed minimum.
This model provides a lower cost entry point for our customers to access our products, provides a try before buying opportunity, and
allows our customers increased access during periods of increased need. The Company expects to benefit from the growing RaaS trend, providing
greater visibility into predicting revenue and planning supply for demand, while providing our customers with flexibility and a lower
cost of entry.
Power
as a Service
PaaS
solutions deliver value to customers by utilizing our managed power platforms. We continue to commercialize our proprietary power platforms
that generate electricity primarily by harnessing the renewable energy of ocean waves. In addition to offering our commercial legacy
PB3, we have added solar power options to our next generation PowerBuoy® (the “NextGen PB”) and have the option of adding
small wind turbines to supplement power generation. The NextGen PB includes versions with and without a wave energy converter (WEC),
with the non-WEC version replacing our previous hybrid PB. Our focus for these solutions is on bringing autonomous clean power to our
customers wherever it is required. Moreover, offshore data and communications networks require power to function, and our solution solves
this need without requiring ongoing battery replacement or older technologies such as shore station power cables. Many of the lessons
learned from the deployments of both our legacy PB3 and demonstrator systems have been used to develop the next generation of PowerBuoy®
systems that are based on modularity for WEC and non-WEC applications. The legacy PB3 will continue to be available and supported in
addition to the support provided to the NextGen PB, which was fully commercialized during fiscal 2024.
Next
Generation PowerBuoy® (NextGen PB)
The
NextGen PB is our future platform that integrates the lessons learned from the legacy PB3 and our demonstrator systems. It consists of
two versions, one utilizing solar and wind power and one utilizing solar and wind power plus wave energy conversion capability, to provide
reliable power in remote offshore locations, regardless of ocean wave conditions. Both versions utilize the same spar shape, thus increasing
modularity and decreasing part count and costs. The WEC technology in the NextGen PB is based on our ongoing Mass on Spring Wave Energy
Converter (MOSWEC) development which has the advantages of smaller size, lower cost, environmentally sealed design, and increased energy
generation capability. The prototype of the solar and wind PowerBuoy® and the prototype of the MOSWEC PowerBuoys®
has been tested off the coast of New Jersey and the solar and wind system was used during the MDAS demonstration for ANTX during fiscal
2023.
We
believe this product addresses a broader spectrum of customer deployment needs, including low-wave and nearshore environments, with the
potential for greater product integration within each customer project. The NextGen PB is intended to provide a stable energy platform
for our MDAS solution, and for agile deployment of other intelligence gathering surface and subsea sensors, subsea power applications,
such as a surface communications hub for electric remotely operated vehicles (“eROV”) and autonomous underwater vehicles
used for mine counter measures, unexploded ordinance disposal, subsea acoustic monitoring, underwater inspections and short-term maintenance,
and subsea equipment monitoring and control. The design has a high payload capacity for surveillance and communications equipment, including
subsea acoustics, with the capability of being tethered to subsea payloads such as batteries, or with a conventional anchor mooring system.
Energy is stored in onboard lithium-ion batteries which can power subsea and topside payloads. The control system uses sensors and an
onboard computer to continuously monitor the subsystems. The NextGen PB is designed to be able to operate over a broad range of temperature
and ocean wave conditions. It has a 50kW-hour battery system which can be expanded up to 100 kW-hour energy.
Legacy
PB3 PowerBuoy®
The
legacy PB3 uses proprietary technologies that convert the hydrokinetic energy of ocean waves into electricity. The legacy PB3 generates
a nominal nameplate capacity rating of up to three kilowatts (“kW”) of peak power. Our Energy Storage System (“ESS”)
has a capacity of up to a nominal 150 kW-hours to meet specific application requirements.
The
legacy PB3 is designed to generate power for use independent of the power grid in offshore locations. As ocean waves pass the legacy
PB3, the rising and falling of the waves are converted into mechanical energy, which in turn, drives the electric generator. The power
electronics system then conditions the electrical output which is stored within the ESS.
The
operation of the legacy PB3 is controlled by our customized, proprietary control system. The control system uses sensors and an onboard
computer to continuously monitor the legacy PB3 subsystems. We believe that this ability to optimize and manage the electric power output
of the legacy PB3 is a significant advantage of our technology.
Strategic
Consulting Services
In
November 2023 OPT divested its non-core strategic consulting team so that it can more fully focus its efforts and resources on the commercialization
of its cutting-edge pipeline of products – particularly for the national security and defense markets. Going forward, the focus
of our Strategic Consulting Services will be on delivering value to our customers through services which can be integrated in support
of our broader PaaS, DaaS and/or RaaS solutions.
Strategy
and marketing
Our
strategy includes developing integrated solutions and services, including autonomous and cloud-based delivery systems for ocean intelligence,
ocean data and predictive analytics to provide actionable intelligence including our product offering Merrows. We also have a number
of resellers and strategic alliances, including partnerships recently entered into in the Middle East and USA to advance our product
and services and gain further adoption from our target markets. Our marketing efforts are focused on offshore locations that require
a cost-efficient solution for renewable, reliable, and persistent power, data collection, and communications, either by supplying electric
power to payloads that are integrated directly with our products or located in its vicinity, such as on the surface, the seabed, or in
the water column. Our recent projects have been primarily focused on military and government applications.
Our
recent market analysis reveals evolving dynamics within the offshore MDA sector, notably influenced by the technological revolution that
enhances MDA capabilities through advanced, low-cost unmanned systems. This shift, highlighted by the National Plan to achieve MDA by
the Department of Homeland Security (“DHS”) and the Government Accountability Office (“GAO”) in their 2022 ‘Unmanned
Maritime Systems’ report on Maritime Security, is further exemplified by the U.S. Coast Guard’s March 2023 Unmanned System
Strategic Plan. This plan outlines a vision to effectively employ, defend against, and regulate unmanned systems in maritime operations,
underscoring the strategic importance of collaborative international efforts in maritime security. The U.S. is actively encouraging Pacific
allies to bolster their maritime surveillance capabilities to counteract regional coercive behaviors, reflecting a broader trend towards
democratizing technology to enhance global maritime safety, security, and prosperity. This aligns with our company’s positioning,
as our products are well-suited to enable the Coast Guard and other maritime bodies to achieve their mission-critical capabilities in
surveillance, detection, classification, identification, and prosecution, which are essential for executing statutory missions. Moreover,
large defense contractors’ increasing interest in the “ocean data collection” space, through acquisition of small and
mid-size unmanned and autonomous surface vehicle companies, signifies a growing market and application opportunities for our unmanned
system offerings. Within the United States, our MDAS deployed on NextGen PB can also be deployed domestically, enhancing our market size.
Unmanned
systems are increasingly in demand by defense and security and commercial companies to reduce costs and improve safety in offshore operations.
Also, geopolitical developments such as conflict in the Middle East and Eastern Europe demonstrate the need for countries to protect
their borders. In addition, the need to protect exclusive economic zones from illegal fishing activities and protect natural resources
on the seabed are accelerating the adoption of solutions or technologies that collect, transmit, and synthesize data to provide actionable
intelligence and decision-advantage to clients. Our recent operations in Bahrain and in the Asia Pacific region show the broadening geographic
opportunity for our services, especially in the defense and security markets. This includes support for other unmanned assets, such as
aerial drones, deployment of underwater vehicles, that can then communicate via PowerBuoy® deployed communication links,
and as a deployment platform for secure communication networks.
We
are focused on serving defense and security organizations, while also targeting offshore wind, science and research, and ports and harbors.
Our pipeline continues to grow and comprises primarily participants in defense and security markets. In addition, we continue to see
a growing number of commercial opportunities as we witness growing interest from offshore wind companies for autonomous monitoring, surveillance
and survey-related services during various stages of the project development cycle, including initial permitting that can reduce risk
in permit obtainment and legal challenge. Further, we are attracting interest targeted toward subsea applications, using proprietary
sensor payloads for environmental monitoring and subsea intelligence. We believe that our buoys and WAM-Vs® are uniquely able to
deliver these services either as a standalone solution or in combination with other systems. Furthermore, we are becoming a trusted provider
of solutions for the hydrography survey market, especially for shallow water operations.
Competitive
Advantages
We
continue to commercialize our current and future products and solutions by targeting customers in our principal markets (defense and
security, offshore oil and gas, science and research, and offshore wind, as well as government applications in border protection, fishery
protection and marine protected areas) that require resident, semi-resident, or roaming platforms. Our platforms provide stable and reliable
power sources in nearshore and remote maritime locations for short and long-term deployments. We believe that our solutions and our existing
commercial relationships provide the following competitive advantages in our target markets:
Our
Target Markets
The
Company takes a rigorous approach to market evaluation. Utilizing our deep internal industry knowledge as well as publicly available
and purchased data, we evaluate total addressable market sizes. We apply screening criteria to narrow our focus within these markets
and identify sub-segments and associated service addressable market sizes. These market evaluations are updated on an ongoing basis.
The DOE has identified eight non-grid applications where renewable marine energy could provide consistent, reliable power. The identified
marine energy applications are ocean observation, underwater vehicle charging, marine aquaculture, marine algae, seawater mining, seawater
desalination, coastal resiliency and disaster recovery, and isolated communities. We have been focused on addressing the energy needs
of some of these applications (e.g., ocean observation, underwater vehicle charging), and other offshore applications (e.g., maritime
domain awareness, well monitoring and powering subsea equipment control systems).
Defense
and Security
Our
MDAS provides the ideal understanding of the global maritime domain impacting the defense and security markets by generating actionable
intelligence from the sea. This modular, standalone solution can be deployed across multiple platforms and provides remote, autonomous
monitoring that enables enforcement of maritime law in dangerous and remote ocean environments to improve safety at sea. Applications
include port security, maritime border protection, and IUU fishing protection, among others. Using an integrated suite of monitoring
components and data communications and analysis software, our MDAS can enable 24/7, real-time, unmanned offshore monitoring capabilities.
We
believe that our buoys are uniquely positioned to be used to provide power and communications for multiple applications within the defense
and security markets. The ability of the buoys to power multiple payloads may be an attractive feature for these markets, as their systems
can be easily integrated into other PowerBuoy® applications allowing their operation to be concealed. One example of an application
for domestic and international defense departments and defense contractors includes forward deployed energy and communications outposts
(which is a current U.S. Department of Defense program), both above and below sea surface. Buoys enabled with our MDAS provide actionable
intelligence from 24/7/365 radar and AIS vessel tracking (including “dark vessels”), automatic notifications and vessel warnings,
real-time visual and Infra-Red video surveillance, with an integrated command and control user interface. Other examples of such applications
include perimeter security, early detection and warning systems, remote sensing stations, high frequency radar, sonar, electro-optical
and infrared sensors for maritime security, network communications systems, and unmanned underwater vehicle docking stations.
In
addition, our WAM-V® is an ideal platform servicing multiple applications within the defense and security markets,
including high value asset protection, marine domain awareness, security perimeter, mine counter measures and explosive ordinance
disposal, anti-submarine warfare, and border security. Multiple WAM-V’s® can also autonomously work together to
provide a security perimeter and coordinate to intercept suspicious vessels and provide valuable information before the threat gets
near the protected asset. The portability of the WAM-V® provides quick relocation of the entire system by air, sea or
ground and the scalability of the WAM-V® technology means that a common platform can be used for multiple missions
with varying requirements. Our platforms and systems are designed to be operated in compliance with our customers’ and our
internal cybersecurity standards and integrate with our customers’ command and control systems (“C2”).
Additionally, we actively manage cybersecurity at the corporate level. by taking ongoing steps to protect data and systems from
cyber threats. This continuous cycle of identifying risks, implementing safeguards, monitoring for attacks, and adapting to new
threats reduces the risk of a cyberattack and the potential damage it can cause.
IUU
fishing has become a global issue with both environmental and economic consequences. According to a report published in Science Advances
by the American Association for the Advancement of Science, it is estimated the global economic impact from illegal fishing to be as
high as $50 billion. Most exclusive economic zone monitoring is done by offshore patrol vessels (“OPV”), which is one of
the fastest growing naval product markets. We believe that our autonomous MDAS solution, which can be combined with mobile assets such
as our WAM-V® or satellite imagery, can deliver substantial economic impact to governments over incumbent solutions in securing remote
fisheries and MPAs. In the U.S. specifically, IUU fishing is considered a major maritime threat by the DHS.
Offshore
Oil and Gas
We
believe the offshore oil and gas industry is undergoing a significant transformation as it continues to invest in new technologies that
enable carbon reduction, cost savings, and the electrification and digitization of operations. There are over 10,000 offshore oil and
gas platforms worldwide, including exploration, production, reservoir management, and sites pending decommissioning based on information
from organizations such as the U.S. Bureau of Ocean Energy Management (“BOEM”) and industry organizations and publications.
Driven by the growing demand for electrification, we believe that we have opportunities to implement one or more buoys at some of these
sites to displace current power solutions, or augment existing technologies. Customer feedback obtained through engineering studies with
multiple oil and gas customers has helped identify target applications for our buoys – namely, temporary power and control communications
for subsea fields experiencing umbilical degradation and subsea docking stations for future resident ROV/AUV applications for inspection,
maintenance, and repair. The market for remote and autonomous charging of subsea assets, such as ROVs and AUVs, is rapidly taking shape.
Based on various reports, other applications in the oil and gas market include providing power to unmanned platforms and area surveillance
during decommissioning activities. Although estimates vary in these reports, they generally point towards more than 2,000 platforms (and
corresponding wells) that need to be decommissioned over the next 10 years across the globe. We see this market materializing primarily
in the North Sea and regions such as Brazil and Australia. Furthermore, there is an increasing market demand for providing interim power
and control solutions for tiebacks where control and monitoring umbilicals are exhibiting failures. In addition, we believe the survey
capability afforded by our WAM-V’s® is perfectly suited to serve a broad range of survey needs of the oil and gas industry
often required for permit obtainment. WAM-V® stability produces excellent sonar data quality in higher sea conditions than comparably
sized vessels and can be used as a force multiplier to existing manned assets or as the sole deployment tool. WAM-V’s® can
be outfitted with various sonar solutions depending on requirements and identify any underwater obstacles or hazards.
Marine
Charting
Since
2019, WAM-Vs® have been used in support of nautical charting efforts for NOAA-backed projects in the Great Lakes and Western Alaska.
WAM-V’s® are teamed up with manned assets to provide enhanced capability, improving the project’s production efficiency
and lowering the carbon footprint, when compared to a manned asset.
Science
and Research
The
science and research market provides environmental intelligence to the entire ocean enterprise, which supports ocean measurement, observation
and forecasting, and is an important provider of information to maritime commerce and the entire “blue economy.” Maritime
commerce and the scientific community depend on information in areas such as meteorology, climate change, ocean currents, and biological
processes to inform operations and development. These groups often require a power and communications solution in remote offshore locations.
Additionally, the increased interest in protecting marine habitats offers opportunities to collaborate with governments and NGOs to monitor
marine sanctuaries.
Offshore
Wind and Other Markets
Opportunities
also exist in other markets such as supporting offshore wind farm development and aquaculture. According to the U.S. Department of Energy’s
2023 Offshore Wind Market Report, the U.S. offshore wind energy pipeline has reached 52,687 megawatts (MW) as of May 2023, including
projects at various stages from installed to those in permitting. Investment in the offshore wind sector is accelerating. In 2022, approximately
$2.7 billion was invested in infrastructure to support offshore wind projects, indicating a robust financial commitment to sustainable
energy solutions.
The
offshore wind fleet is forecast to grow 15-fold by 2040 and move further offshore with Europe alone connecting over 500 turbines in
2019. While these turbines develop significant power, there are opportunities pre-installation of the turbines to autonomously
collect ocean data during the early stages and monitor marine habitats during construction. There are also opportunities to support
ongoing survey work once wind farms are operational to mitigate carbon emissions and to provide communication stations for aerial
drones performing maintenance inspection tasks. Furthermore, the U.S. recently approved the permits for the first major utility
scale offshore wind farm. Providing wave power solutions to utility scale renewable developments offers an attractive proposition to
support renewable power and autonomous operations. Our solutions can support aquaculture development with systems such as species
escape tracking, effluent monitoring, and other water quality considerations.
Our
WAM-V’s® are currently used to perform sonar surveys that support the marine infrastructure required for offshore wind development
and installation. They can also assist during the planning and environmental permitting phase including metocean and environmental data
and mammal tracking. We can also protect operations through MDA to monitor operations and vessel traffic and motion data analysis for
predictive maintenance and safety.
We
also provide offshore engineering, consulting, and design services for offshore wind, drilling contractors, defense contractors, construction
yards, engineering firms, and oil and gas, wave energy, and marine construction and service companies including design review, forensic
investigation, and expert witness services.
Business
Strategy
During
the fiscal year ended April 30, 2024, we have continued to advance our marketing programs, products, and solutions (including Merrows
noted above). We have substantially completed our research and development efforts, thus positioning the Company to increase its focus
on delivering intelligent maritime solutions and services, particularly in the national security and defense markets. We intend to build
on these efforts by introducing additional processes and making investments in appropriate human capital, operations, and manufacturing
capabilities. In support of our focus on the national security and defense markets, we have developed a defense specific sales team,
including veterans from the U.S. Navy and Swedish Navy.
In
addition, on November 20, 2023, we retained Rear Admiral Victorino “Vic” G. Mercado (Retired) as a special advisor to the
Company’s Board of Directors. We are leveraging Vic’s experience, expertise, and networks as we build on our momentum in
providing intelligent maritime solutions to the U.S. Government and defense and security sectors, and carefully navigate the challenges
of securing access to and protecting highly sensitive and confidential information.
The
majority of the Company’s potential customers are in areas of defense and security, hydrographic survey, offshore wind, offshore
and coastal communication networks, and MDA, including mitigation of IUU fishing, where the end use may be both domestic and abroad.
Historically,
demonstration projects have been a requisite step towards broad solution deployment and revenue associated with specific applications
such as our New Jersey MDAS test array as part of our DaaS solution and to highlight these capabilities. Customers may want their own
dedicated demonstration depending on customer needs. During a typical demonstration project’s specification, negotiation and evaluation
period, we are often subject to the prospective customer’s vendor qualification process, which entails substantial due diligence
of the Company and its capabilities. Such demonstrations are often a required step prior to leasing and may include negotiation of standard
terms and conditions. Many proposals contain provisions which would provide the option to purchase or lease our PowerBuoy® or WAM-V®
product upon successful conclusion of the demonstration project. The Company maintains a fleet of WAM-Vs® dedicated to demonstrations
and has successfully demonstrated the capabilities of many of its solutions on its own or in customer-sponsored evaluation projects and
remains focused on further demonstrations to build customer awareness and confidence and to drive revenue.
The
Company is pursuing a long-term growth strategy to expand its market value proposition while growing the Company’s revenue base.
This strategy includes partnerships with leading companies and organizations in adjacent and complementary markets. We continue to refine
NextGen PB and WAM-V® products for use in offshore power, data acquisition, and real-time data communications applications, and to
achieve this goal, we are pursuing the following business objectives:
Marketing
and Sales
We
continue to enhance our marketing capabilities across our target markets, and we are actively marketing our products and solutions. During
fiscal 2024 we significantly streamlined our marketing and sales team to focus on the defense and security markets, both in the U.S.
and internationally, as well as expanded into global regions we believe offer the most opportunity for growth, such as Latin America.
We believe the addition of this deep industry knowledge positions us well for success in these markets in fiscal 2025 and beyond. Because
some of our solutions use technology that is not yet fully adopted by customers within our target markets in every case, we expect that
the customer decision process will continue to include substantial time educating end-users and stakeholders, which may result in the
continuation of a lengthy sales cycle.
One
of the primary ways we showcase our Company’s products, services and expertise is through demonstrations, conferences, and selective
use of trade shows. We utilize our database to select conferences and trade shows where we will have the most effective visibility to
our potential clients. During fiscal 2025, we have plans to continue to attend and present at various demonstrations, conferences, and
trade shows in the U.S., Europe, and the Middle East.
Additionally,
we seek to enter strategic relationships to develop application solutions with commercial and military sensor and equipment manufacturers.
Competition
We
expect to compete with other providers in the DaaS, RaaS, and PaaS industries. Our DaaS solution competes with other data acquisition
companies in a variety of industries, from sensor and measurement equipment providers to other providers of autonomous vehicles.
Our
PaaS solution competes with other offshore autonomous power sources, primarily consisting of subsea batteries, solar and fossil-fuel
power sources, where many of the providers are substantially larger than us and may have access to greater financial resources. Incumbent
sources of offshore power may also represent established and reliable power sources and may have already gained customer acceptance.
Our ability to compete successfully for business from applications seeking offshore power will depend on (a) our ability to produce and
store energy reliably and at a total cost that is competitive with or lower than that of other sources, and (b) the demonstrated reliability
of our products and positive customer perception of our company. We also may have the opportunity to cooperate with other solution providers,
such as other suppliers of subsea batteries where our PowerBuoys® could provide recharging capabilities or other providers of autonomous
surface or underwater vehicles where our PowerBuoys® could provide charging and enhanced communications capabilities.
The
vast majority of the companies in the DOE’s wave energy converter database are small, early-stage companies with a limited number
of employees that do not have our in-ocean validation experience. Only a few of these companies have conducted testing similar to ours,
such as accelerated life testing and extensive wave tank testing on small-scale models of their devices. We believe our in-ocean experience
is critical towards proving the reliability, survivability and performance of any wave energy system, which we believe our future customers
will require before adopting any wave generated energy solution. It is our belief that experience gained through full scale in-ocean
deployments, coupled with other types of factory and laboratory testing, and our resulting understanding of risks and failure modes provides
us with an advantage compared to potential wave energy competitors.
Competition
for the WAM-V® product line and RaaS solution includes companies which market solutions as ASVs and USVs. There are several
established competitors in this space, with the pace of new entrants increasing in-line with the expanding market opportunities. Through
our ongoing product development and building upon our years of commercial deployment data, we believe that we continue to maintain a
first mover advantage in the smaller scale autonomous offshore power market.
We
continuously monitor non-traditional competitive threats, such as multi-domain drones and artificial intelligence tools utilizing satellite
data. We have had discussions with companies in these markets to evaluate synergistic solution development where we believe there may
be a demand for cooperative solutions.
Commercial
Activities
As
noted above, we are now primarily focused on commercial activities. We have built a suite of products that we believe will be the basis