| Summary of Significant Accounting Policies | (2)
Summary of Significant Accounting Policies (a)
Consolidation The
accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, Marine
Advanced Robotics Inc. (CA), referred to herein as MAR, 3dent Technologies LLC (3Dent), Oregon Wave Energy Partners I LLC (DE),
ReedSport OPT WavePark, LLC (OR) and Ocean Power Technologies Ltd. in the United Kingdom. ReedSport OPT WavePark, LLC (OR) and
Oregon Wave Energy Partners I, LLC (DE) were dissolved during the first quarter of fiscal 2024. 3dent was sold in November 2023 and
the consolidated financial statements include 3dent’s results of operations for the applicable periods through the date of
sale. All significant intercompany balances and transactions have been eliminated in consolidation. (b)
Use of Estimates The
preparation of the consolidated financial statements requires management of the Company to make several estimates and assumptions relating
to the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue
and expenses during the period. Significant items subject to such estimates and assumptions include, among other items, stock-based compensation
based on actual and projected revenues, over time revenue recognition, valuation consideration related to business combinations, including
contingent consideration based on actual and projected revenues, including discount rates and present values, and other assumptions and
estimates used to evaluate the recoverability of long-lived assets, goodwill and other intangible assets. Actual results could differ
from those estimates. (c)
Cash, Cash Equivalents, Restricted Cash and Security Agreements and Short Term Investments Cash
and Cash Equivalents The
Company considers all highly liquid investments with an original maturity of three months or less when purchased, to be cash
equivalents. The Company invests excess cash in a money market account or in short term investments that are held-to-maturity. The
Company had cash, cash equivalents and restricted cash of approximately $ 3.3 million
as of both July 31, 2024 and April 30, 2024. Restricted
Cash and Security Agreements The
Company has a letter of credit agreement with Santander Bank, N.A. (“Santander”). Cash of $ 154,000 In
the prior years, Santander also issued one letter of credit to subsidiaries of Enel Green Power (“EGP”) pursuant to the Company’s
contracts with EGP. A letter of credit was issued in the amount of $ 645,000 323,000 258,000 65,000 The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets
that total to the same amounts shown in the Consolidated Statements of Cash Flows. Schedule of Cash and Cash Equivalents and Restricted Cash
July 31, 2024 April 30, 2024
(in thousands)
Cash and cash equivalents $ 3,182 $ 3,151
Restricted cash- long term 154 154
Cash,
cash equivalents, restricted cash and restricted cash equivalents $ 3,336 $ 3,305 (d)
Inventory In
accordance with Accounting Standards Codification 330 (ASC 330), inventory is stated at the lower of costs or net realizable value applicable
to goods on hand. Items remain in inventory until they are shipped to the customer, at which time the costs are transferred on a FIFO
basis to cost of revenues, or moved to leased assets as applicable, following the matching principle where costs and revenues are recognized
in the same period. The Company has three classes of inventory; raw materials, work in process, and finished goods. (e)
Accounts Receivable Accounts
receivable are stated at the net amount expected to be collected. Amounts are usually due between 30 and 90 days after the invoice issuance.
The Company is exposed to credit losses primarily on accounts receivable and contract assets related to sales to customers. If applicable,
an allowance for credit losses is established to provide for the expected lifetime credit losses by evaluating factors such as customer
creditworthiness, historical payment and loss experiences, current economic conditions (including geographic and political risk), and
the age and status of outstanding receivables. Based on these factors, management has determined the allowance for credit losses was
immaterial. Expected credit losses are written off in the period in which the financial asset is no longer collectible. The
Company grants credit to its customers, generally, without collateral, under normal payment terms (typically 30 to 90 days after invoicing).
Generally, invoicing occurs after the services are performed or control of the product has transferred to the customer. Accounts receivable
represent an unconditional right to consideration arising from the Company’s performance under contracts with customers. (f)
Property and Equipment, net 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 ten 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. Schedule of Property, Plant and Equipment, Useful Life
Description Estimated
depreciable life
Equipment 5 7 years
Computer equipment & software 3 years
Office furniture & fixtures 3 7 years
Leasehold improvements Shorter of the estimated useful life or lease term
Leased Power Buoy assets 10 years
Leased WAM-V assets 10 years (g)
Foreign Exchange Gains and Losses Transactions
denominated in a foreign currency may result in realized and unrealized foreign exchange gains or losses from exchange rate fluctuations,
which are included in “Foreign exchange gain” in the accompanying Consolidated Statements of Operations. (h)
Concentration of Credit Risk Financial
instruments that potentially subject the Company to credit risk consist principally of trade accounts receivable and cash
equivalents. The Company believes that its credit risk is limited because the Company’s current contracts are with entities
with a reliable payment history. The Company invests its excess cash in a money market fund and does not believe that it is exposed to any significant risks related to its cash accounts, money market fund, or
held-to maturity investments. For
the three months ended July 31, 2024 and 2023, the Company had two and four customers, respectively, whose revenues accounted for at
least 10% of the Company’s consolidated revenues. These revenues accounted for approximately 84 73 (i)
Share-Based Compensation Costs
resulting from all share-based payment transactions are recognized in the consolidated financial statements at their fair values. The
aggregate share-based compensation expense recorded in the Consolidated Statements of Operations for the three months ended July 31,
2024 and 2023 was approximately $ 0.3 0.4 Additionally,
upon vesting of Restricted Stock Units (“RSU”) that were granted to an employee, the employee is given the option to
either pay the taxes themselves, or have enough shares of their RSU award withheld by the Company to cover the taxes incurred by the
employee. In the event the employee elects to surrenders shares to cover the tax implication, the Company maintains those shares in
the Company’s treasury stock account. Shares held in the Company’s Treasury stock account are not available for future RSU grants. (j)
Revenue Recognition The
Company accounts for revenue in accordance with Accounting Standards Codification 606 (ASC 606) for contracts with customers and Accounting
Standards Codification 842 (ASC 842) for leasing arrangements. In relation to ASC 606, which states that a performance obligation is
the unit of account for revenue recognition, the Company assesses the goods or services promised in a contract with a customer and identifies
as a performance obligation as either: a) a good or service (or a bundle of goods or services) that is distinct; or b) a series of distinct
goods or services that are substantially the same and that have the same pattern of transfer to the customer. A contract may contain
a single performance obligation or multiple performance obligations. For contracts with multiple performance obligations, the Company
allocates the contracted transaction price to each performance obligation based upon the relative standalone selling price, which represents
the price the Company would sell a promised good or service separately to a customer. The Company determines the standalone selling price
based upon the facts and circumstances of each obligated good or service. When no observable standalone selling price is available, the
standalone selling price is generally estimated based upon the Company’s forecast of the total cost to satisfy the performance
obligation plus an appropriate profit margin. The
nature of the Company’s contracts may give rise to several types of variable consideration, including unpriced change orders, liquidated
damages and penalties. Variable considerations can also arise from modifications to the scope of services. Variable consideration is
included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not
occur once the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination
of whether to include such amounts in the transaction price are based largely on the assessment of legal enforceability, performance,
and any other information (historical, current, and forecasted) that is reasonably available to us. There was no variable consideration
as of July 31, 2024 or 2023. The Company presents shipping and handling costs, that occur after control of the promised goods or services
transfer to the customer, as fulfillment costs in costs of goods sold and regular shipping and handling activities charged to operating
expenses. The
Company recognizes revenue when or as it satisfies a performance obligation by transferring a good or service to a customer, either (1)
at a point in time or (2) over time. A good or service is transferred when or as the customer obtains control. The evaluation of whether
control of each performance obligation is transferred at a point in time or over time is made at contract inception. Input measures such
as costs incurred are utilized to assess progress against specific contractual performance obligations for the Company’s services.
The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be
provided. For the Company, the input method using costs or labor hours incurred best represents the measure of progress against the performance
obligations incorporated within the contractual agreements. If estimated total costs on any contract project a loss, the Company charges
the entire estimated loss to operations in the period the loss becomes known. The cumulative effect of revisions to revenue, estimated
costs to complete contracts, including penalties, change orders, claims, anticipated losses, and others are recorded in the accounting
period in which the events indicating a loss are known and the loss can be reasonably estimated. These loss projections are re-assessed
for each subsequent reporting period until the project is complete. Such revisions could occur at any time and the effects may be material.
During the three-month period ended July 31, 2024, the Company recognized approximately $ 1.2 0.1 0.5 0.8 The
Company’s contracts are either cost-plus contracts, fixed-price contracts, time and material agreements, lease or service agreements.
Under cost plus contracts, customers are billed for actual expenses incurred plus an agreed-upon fee. 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, and a profit or loss is recognized depending on
whether actual costs are more or less than the agreed-upon amount. Under cost-sharing contracts, the fixed amount agreed upon with the
customer is only intended to fund a portion of the costs on a specific project. Under cost-sharing contracts, an amount corresponding
to the revenue is recorded in cost of revenue, resulting in gross profit on these contracts of zero. The Company reports its disaggregation
of revenue by contract type since this method best represents the Company’s business. For the three-month periods ended July 31,
2024 and 2023, the majority of the Company’s contracts were classified as firm fixed-price and the remainder were cost-sharing. The
Company’s contract assets and liabilities primarily relate to the timing differences between cash received from a customer in connection
with contractual rights to invoicing and the timing of revenue recognition following completion of performance obligations. The Company’s
accounts receivable balance is made up entirely of customer contract-related balances. The
Company’s revenue also includes revenue from certain contracts which do not fall within the scope of ASC 606, but under the scope
of ASC 842. At inception of a contract for those classified under ASC 842, the Company classifies leases as either operating or financing
in accordance with the authoritative accounting guidance contained within ASC Topic 842, “Leases”. If the direct financing
or sales-type classification criteria are met, then the lease is accounted for as a finance lease. All others are treated as operating
leases. The Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term, or as
agreed upon in-use days are utilized, which is presented in Revenues in the Consolidated Statement of Operations. The Company also enters
into lease arrangements for its PowerBuoys® and Wave Adaptive Modular Vessels (“WAM-V®”) with certain customers.
Revenue related to multiple-element arrangements is allocated to lease and non-lease elements based on their relative standalone selling
prices or expected cost plus a margin approach. Lease elements generally include a PowerBuoy®, WAM-V®, and components, while
non-lease elements, which the Company expects to become more prevalent, generally include engineering, monitoring and support services.
In the lease arrangement, the customer may be provided with an option to extend the lease term or purchase the leased buoy or WAM-V®
at some point during and/or at the end of the lease term. As
of July 31, 2024, the Company’s total remaining performance obligations, also referred to as backlog, totaled $ 5.3 65 3.4 Existing
customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined that collectability
of any portion of the contract value is not probable, an analysis of variable consideration will be performed using either the most likely
amount or expected value method to determine the amount of revenue that must be constrained until the scenario causing the variability
has been resolved. The
Company has elected to record taxes collected from customers on a net basis and does not include tax amounts in revenue or costs of revenue. The
below table represents the total revenue recognized under ASC 606 and ASC 842 for the three months ended July 31, 2024 and 2023. Schedule of Revenue Recognizes from Operating Lease Arrangements
ASC 606 ASC 842 Total ASC 606 ASC 842 Total
Three months ended July 31, 2024 Three months ended July 31, 2023
ASC 606 ASC 842 Total ASC 606 ASC 842 Total
(in thousands) (in thousands)
Product Line:
WAM-V $ 1,234 $ 67 $ 1,301 $ 460 $ 243 $ 703
Buoy — — — 250 — 250
Services — — — 319 — 319
Total $ 1,234 $ 67 $ 1,301 $ 1,029 $ 243 $ 1,272
Region:
North and South America $ 1,230 $ — $ 1,230 $ 1,029 $ 225 $ 1,254
Europe 4 67 71 — 18 18
Total $ 1,234 $ 67 $ 1,301 $ 1,029 $ 243 $ 1,272
Revenue $ 1,234 $ 67 $ 1,301 $ 1,029 $ 243 $ 1,272 (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 and common stock equivalents outstanding during the period. Due to the Company’s net losses, potentially dilutive
securities, consisting of options to purchase shares of common stock, warrants on common stock and unvested RSU
issued to employees and non-employee directors, were excluded from the diluted loss per share calculation due to their anti-dilutive
effect. In
computing diluted net loss per share on the Consolidated Statements of Operations, warrants on common stock, options to purchase shares
of common stock and unvested RSUs issued to employees and non-employee directors, totaling 6,259,956 7,614,992 (l)
Intangibles, net Intangible
assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at
the acquisition date (which is regarded as their cost). Intangible assets, including patents, are amortized over the estimated useful
life of the asset on a basis that approximates the pattern of economic benefit. The patents, trade name and customer relationship intangibles
are being amortized over 20 12 10 Intangible
assets are reviewed for impairment if indicators of potential impairment exist. There were no indications of potential impairment of
intangible assets for either the three months ended July 31, 2024 or 2023. (m)
Goodwill Goodwill
is assessed for impairment using a qualitative or quantitative approach. The Company performs an annual impairment test of goodwill
and further periodic tests to the extent indicators of impairment develop between annual impairment tests. There were no indications
of potential impairment of goodwill identified for the three months ended July 31, 2024 and 2023. Where the Company uses a
qualitative analysis, it considers factors that include historical financial performance, macroeconomic and industry conditions, and
the legal and regulatory environment. If the qualitative assessment indicates that it is more likely than not that an impairment
exists, then a quantitative assessment is also performed. The quantitative assessment requires an analysis of several estimates
including future cash flows or income consistent with management’s strategic business plans, annual sales growth rates and the
selection of assumptions underlying a discount rate (weighted average cost of capital) based on market data available at the time to
determine the fair value of the Company. If the fair value is less than the carrying amounts, an impairment charge for the
difference is recorded. The Company acquired goodwill as part of its purchase of MAR. Management performed its annual qualitative
assessment in fiscal year 2024 and determined that it is more likely than not that no goodwill impairment existed as of April 30,
2024. (n)
Income Taxes Income
taxes are accounted for under ACS 740 utilizing the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences and operating loss and tax credit
carry forwards are expected to be recovered, settled or utilized. In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all the deferred tax assets will not be realized. If such event occurs, a valuation
allowance is recorded. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The
Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained upon examination.
Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition
or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized
tax benefits in interest expense and penalties in selling, general, and administrative expenses, to the extent incurred. Refer to Note
15 for additional disclosure. (o)
Accumulated Other Comprehensive Loss The
functional currency for the Company’s foreign operations is the applicable local currency. The translation from the applicable
foreign currencies to U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date
and for revenue and expense accounts using an average exchange rate during the period. The unrealized gains or losses resulting from
such translation are included in Accumulated Other Comprehensive Loss within Shareholders’ Equity. For the three months ended July
31, 2024 and 2023, there were no amounts recorded to other comprehensive loss due to limited foreign operations. (p)
Warranty The
Company does not include a right of return on its products other than rights related to standard warranty provisions that permit repair
or replacement of defective goods. Warranty expense incurred to date has not been material. (q)
Product Development Costs
related to product development activities by the Company are expensed as incurred. During fiscal year 2024 the Company substantially
completed its product development activities and is now primarily focused on commercial activities. The Company had approximately $ 0.5 1.9 (r)
Recently Issued Accounting Standards In
December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which improves the transparency
of income tax disclosures by requiring companies to (1) disclose consistent categories and greater disaggregation of information in the
effective rate reconciliation and (2) provide information on income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective
for fiscal years beginning after December 15, 2024, although early adoption is permitted. The guidance should be applied on a prospective
basis with the option to apply the standard retrospectively. We are currently evaluating the impact of adopting this ASU 2023-09 on our
consolidated financial statements and disclosures. In
November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.”
This ASU improves financial reporting by requiring disclosure of incremental segment information. The new guidance is effective for fiscal
years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is
permitted. The guidance was effective for the Company on May 1, 2024. The Company expects to provide incremental qualitative segment-related
disclosures beginning with the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2025. |
