Ocean Power Technologies, Inc.

(1)Background, Basis of Presentation and Liquidity

(a) Background

Ocean Power Technologies, Inc. (the “Company” or “OPT”) was founded in 1984 in New Jersey, commenced business operations in 1994 and re-incorporated in Delaware in 2007. The Company provides ocean data collection and reporting, marine power, offshore communications and Maritime Domain Awareness Systems (“MDA” or “MDAS”) products and integrated solutions. The Company’s solutions focus on three major service areas: Data as a Service (“DaaS”), which includes data collected by Wave Adaptive Modular Vessel (WAM-V®) autonomous vehicles and PowerBuoy® product lines; Robotics as a Service (“RaaS”), which provides a lower cost subscription model for customers to access use of WAM-V’s®; and Power as a Service (“PaaS”), which includes PowerBuoy® products. The Company offers products and services to a wide-range of customers, including those in government and offshore energy, oil and gas, construction, wind power and other industries. The Company has been 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 the supply chain. The Company’s solutions are based on technologies that enable autonomous, zero or low carbon emitting, and cost-effective data collection, analysis, transportation, cooperation with other assets such as aerial drones, and communication. The Company’s 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. The Company then channels the information it collects, and other communications, through control equipment linked to edge computing and cloud hosting environments. The Company’s goal is to generate most revenue from the sale or lease of products and solutions. The Company expects to continue having net cash outflows until it can generate positive cash flow from the commercialization of products and services.

(b) Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and for interim financial information in accordance with the Securities and Exchange Commission (“SEC”), instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP 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, 2024, as filed with the SEC and elsewhere in subsequent Exchange Act filings, including this Form 10-Q. Certain amounts have been reclassified to conform to current period presentation. This reclassification had no impact on the previously reported net loss or comprehensive loss.

(c) Going Concern Uncertainty

For the nine months ended January 31, 2025, the Company incurred net losses of approximately $15.1 million and used cash in operations of approximately $14.6 million. In addition, the Company has continued to make investments to support order backlog and future growth. For the nine months ended January 31, 2025 and through the date of filing of this Form 10-Q, the Company has obtained additional capital financing through our capital raises with certain investors. Despite this, management believes the Company’s current cash, cash equivalents, and restricted cash balances at January 31, 2025 of $10.2 million may not be sufficient to fund its planned expenditures through March 2026.

The Company’s future results of operations involve significant risks and uncertainties. Factors that could affect the Company’s future operating results and could cause actual results to vary materially from expectations include, but are not limited to, performance of its products, its ability to market and commercialize its products and new products that it may develop, access to capital, technology development, scalability of technology and production, ability to attract and retain key personnel, concentration of customers and suppliers, pending or threatened litigation, and deployment risks and integration of acquisitions.

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These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The accompanying consolidated financial statements have been prepared on a basis which assumes the Company is a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from any uncertainty related to the Company’s ability to continue as a going concern. Such adjustments could be material.

(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 for the three and nine months ended January 31, 2024 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 ***

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. The Company had cash, cash equivalents and restricted cash of approximately $10.2 million and $3.3 million as of January 31, 2025 and April 30, 2024, respectfully.

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Restricted Cash and Security Agreements

The Company has a letter of credit agreement with Santander Bank, N.A. (“Santander”). Cash of $154,000 is on deposit at Santander and serves as security for a letter of credit issued by Santander for the lease of warehouse/office space in Monroe Township, New Jersey.

In the prior years, Santander also issued a 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 and was reduced to $323,000 in August 2020. The letter of credit was further reduced by an additional $258,000 in January 2023, when the legacy PB3 PowerBuoy® (“PB3”) and its accompanying systems passed final acceptance testing. The remaining restricted amount of $65,000 was released in January 2024.

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.

(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 of approximately $100,000. Expected credit losses are written off in the period in which the financial assets are no longer collectible.

The Company grants credit to its customers, generally, without collateral, under normal payment. 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.

(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.

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(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 and predictable 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 nine months ended January 31, 2025 and 2024, the Company had four and five customers, respectively, whose revenues accounted for at least 10% of the Company’s consolidated revenues. These revenues accounted for approximately 73% and 36% of the Company’s total revenues for the respective periods. For the three months ended January 31, 2025 and 2024, the Company had three and two customers, respectively, whose revenues accounted for at least 10% of the Company’s consolidated revenues. These revenues accounted for approximately 95% and 85% of the Company’s total revenues for the respective periods.

(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 nine months ended January 31, 2025 and 2024 was approximately $1.3 million and $0.8 million, respectively. For the three months ended January 31, 2025 and 2024, the aggregate share-based compensation expense was approximately $0.8 million and $0.1 million, respectively. The Company’s policy is to account for forfeitures of share-based compensation as they occur.

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 surrender 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 consideration 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 January 31, 2025 or 2024. The Company presents shipping and handling costs, that occur after control of the promised goods or services transfer to the customer, as fulfilment costs in costs of revenues and regular shipping and handling activities charged to operating expenses.

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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 nine-month period ended January 31, 2025, the Company recognized approximately $4.0 million in revenue related to performance obligations satisfied at a point in time and approximately $0.5 million in revenue related to performance obligations satisfied over time. During the three-month period ended January 31, 2025, the Company recognized approximately $0.4 million in revenue related to performance obligations satisfied at a point in time and approximately $0.4 million in revenue related to performance obligations satisfied over time.

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 nine-month periods ended January 31, 2025 and 2024, 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, “Leases”. 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 842. 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.

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As of January 31, 2025, the Company’s total remaining performance obligations, also referred to as backlog, totalled $7.5 million as compared to $3.3 million as of January 31, 2024.

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 table below represents the total revenue recognized under ASC 606 and ASC 842 for the three and nine months ended January 31, 2025 and 2024.

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(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 RSUs 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, totalling 20,835,027 and 6,094,714 as of January 31, 2025 and 2024, respectively, were excluded from each of the computations as the effect would have been anti-dilutive due to the net loss for the periods. Share purchase rights, which include a contingency, are not included in the calculation until the contingency is resolved.

(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 and 10 years respectively, which is consistent with the estimated pattern of economic benefit of the assets. The trademark is not subject to amortization.

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 nine months ended January 31, 2025 or 2024.

(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 nine months ended January 31, 2025 and 2024. 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 revenue 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 (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) 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.

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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.

In order to monetize their attributes, the Company has historically sold the Net Operating Losses (NOL’s) and R&D credit generated in New Jersey. The Company has elected to recognize the gain on the sale as a component of tax expense at the time of the sale. Prior to the time of sale, the Company has elected to not factor the expected sales when assessing the realizability of the related deferred tax assets.

(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 nine months ended January 31, 2025 and 2024, 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. The Company had approximately $2.6 million and $5.5 million in product development expense for the nine months ended January 31, 2025 and 2024, respectively. The Company had approximately $1.3 million and $1.5 million in product development expense for the three months ended January 31, 2025 and 2024, respectively.

(r)Recently Issued Accounting Standards

In December 2023, the Financial Accounting Standards Board (“FASB”) issued 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 what the potential impact of adopting this ASU 2023-09 could have 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 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.

In November 2024, the FASB issued ASU No. 2024-3, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU improves the disclosures about a public business entity’s expenses and addresses requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The new guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating what the potential impact of adopting this ASU 2024-03 could have on our consolidated financial statements and disclosures.

(3)Accounts Receivable, Contract Assets and Contract Liabilities

The following provides further details on the balance sheet accounts of accounts receivable, contract assets and contract liabilities from contracts with customers:

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Contract Assets

Contract assets include unbilled amounts typically resulting from arrangements whereby the right to payment is conditional on completing additional tasks or services for a performance obligation. The increase in contract assets from year end is primarily a result of consulting services projects for which revenue was recognized in the current period but has not yet been billed. No impairments to contract assets were incurred during the nine months ended January 31, 2025 and 2024.

Significant changes in the contract assets balances during the period were as follows:

Contract Liabilities

Contract liabilities consist of amounts invoiced to customers in excess of revenue recognized. The decrease in contract liabilities from year end is primarily due to converting previous payments collected to recognized revenue in the current year.

Significant changes in the contract liabilities balances during the period are as follows:

(4)Inventory

The Company holds inventory related to the production of its WAM-V® and PowerBuoy® products.

The Company’s raw materials balance represents the majority of the inventory as the Company orders parts in quantity to fill orders. Work in process and finished products typically represent smaller portions of inventory as the Company does not historically hold finished products with the exception of assets transitioning to the lease fleet. The Company typically ships finished products as they are completed.

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(5)Other Current Assets

Other current assets consisted of the following at January 31, 2025 and April 30, 2024:

(6)Property and Equipment, net

The components of property and equipment, net as of January 31, 2025 and April 30, 2024 consisted of the following:

Leased WAM-V’s and buoys represent fixed assets that are associated with underlying operating leases with customers or for customer demonstration as discussed in the revenue recognition section related to ASC 842.

Depreciation expense was approximately $610,000 and $286,000 for the nine-month periods ended January 31, 2025 and 2024, respectively. Depreciation expense was approximately $155,000 and $114,000 for the three-month periods ended January 31, 2025 and 2024, respectively.

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(7)Intangible Assets

The components of intangible assets, net as of January 31, 2025 and April 30, 2024 consisted of the following:

Amortization expense was approximately $99,000 and $114,000 for the nine-month periods ended January 31, 2025 and 2024, respectively. Amortization expense was approximately $33,000 and $34,000 for the three-month periods ended January 31, 2025 and 2024, respectively.

(8)Goodwill

Goodwill in the amount of $8.5 million was recognized in November 2021 related to the acquisition of MAR. There have beenno additions to, or any impairment of, goodwill during the nine-month periods ended January 31, 2025 and 2024.

(9)Leases

Lessor Information

As of January 31, 2025 and April 30, 2024, the Company had three WAM-V’s leased to customers which have been classified as operating leases per accounting guidance contained within ASC Topic 842, “Leases”, respectively. The remaining term on these operating leases is less than 2 years.

Lessee Information

Right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, the Company uses the incremental borrowing rate based on the information available at the effective date to determine the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. The renewal options have not been included in the lease term as they are not reasonably certain of exercise. The Company’s operating leases consist of leases for office facilities and warehouse space. Lease expense for minimum lease payments is recognized on a straight- line basis over the lease term and consists of interest on the lease liability and the amortization of the right of use asset.

The Company has a lease for its facility located in Monroe Township, New Jersey that is used as warehouse/production space and the Company’s principal offices and corporate headquarters. In February 2024, the Company extended the lease for its main headquarters in Monroe, NJ to April 30, 2026. The lease is classified as an operating lease and is included in right-of-use assets, net, right-of-use liabilities – current portion, and right-of-use liabilities- less current portion on the Company’s Consolidated Balance Sheets.

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The Company also has a lease for office space located in Richmond, California. This lease commenced in April of 2023 and will expire in June of 2028. The lease is classified as an operating lease and is included in right-of-use assets, right-of-use liabilities- current and right-of-use liabilities- long-term on the Company’s Consolidated Balance Sheets.

Variable lease expenses, if any, are recorded as incurred. The operating lease cash flow payments for the nine months ended January 31, 2025 and 2024 were $679,000 and $564,000, respectively. The operating lease cash flow payments for the three months ended January 31, 2025 and 2024 were $314,000 and $193,000, respectively.

The components of lease expense which are included in our operating expenses in the Consolidated Statement of Operations for the three and nine months ended January 31, 2025 and 2024 were as follows:

Schedule of Operating Lease Costs

Information related to the Company’s right-of use assets and lease liabilities as of January 31, 2025 was as follows:

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Total remaining lease payments under the Company’s operating leases are as follows:

(10)Accrued Expenses

Accrued expenses consisted of the following at January 31, 2025 and April 30, 2024:

(11)Warrants

Equity Classified Warrants

The underwritten public offering from April 2019 included the issuance of common stock warrants to purchase up to 4,927,680 shares of common stock that had an exercise price of $3.85 per share and expired five years from the issuance date. As of April 30, 2024, common warrants to purchase 732,500 shares of the common stock had been exercised. The remaining warrants expired prior to April 30, 2024.

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(12)Share-Based Compensation

In 2015, upon approval by the Company’s shareholders, the Company’s 2015 Omnibus Incentive Plan (the “2015 Plan”) became effective. A total of 1,332,036 shares were authorized for issuance under the 2015 Omnibus Incentive Plan, including shares available for awards under the 2006 Stock Incentive Plan remaining at the time that plan terminated, or that were subject to awards under the 2006 Stock Incentive Plan that thereafter terminated by reason of expiration, forfeiture, cancellation or otherwise. If any award under the 2006 Stock Incentive Plan or 2015 Plan expires, is cancelled, terminates unexercised or is forfeited, those shares become again available for grant under the 2015 Plan. Most recently in January 2025, the shareholders approved an amendment and restatement of the 2015 Plan to, among other things, provide an aggregate increase to the 2015 Plan of 20,000,000 shares resulting in total shares authorized for issuance of 27,282,036 as of January 31, 2025. The 2015 Plan will now terminate in January 2035, but is subject to earlier termination as provided in the 2015 Plan.

On January 18, 2018, the Company’s Board of Directors adopted the Company’s Employment Inducement Incentive Award Plan (the “2018 Inducement Plan”) pursuant to which the Company reserved 25,000 shares of common stock for issuance under the Inducement Plan in accordance with Rule 711(a) of the NYSE American Company Guide. On February 9, 2022, the 2018 Inducement Plan was amended to increase the authorized shares by 250,000 to 275,000.

Stock Options

The Company estimates the fair value of each stock option award granted with service-based vesting requirements, using the Black-Scholes option pricing model, assuming no dividends, and using weighted average valuation assumptions. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant commensurate with the expected life of the award. 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. 110,Share-Based Payment. Expected volatility is based on the Company’s historical volatility over the expected life of the stock option granted. The Company did not grant any stock options during the nine months ended January 31, 2025 and 2024, respectively.

A summary of stock options under the stock incentive plans is detailed in the following table.

As of January 31, 2025, the total intrinsic value of outstanding and exercisable options was approximately zero. As of January 31, 2025, approximately 58,000 options were unvested, which had an intrinsic value ofzero and a weighted average remaining contractual term of 8.0 years. There was approximately $38,000 and $50,000 of total recognized compensation cost related to stock options during each of the nine months ended January 31, 2025 and 2024, respectively. There was approximately $12,000 and($49,000) of total recognized compensation cost related to stock options during each of the three months ended January 31, 2025 and 2024, respectively. As of January 31, 2025, there was approximately $35,000 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 year.

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Performance Stock Units

As of January 31, 2025, there were no performance stock units outstanding. As of April 30, 2023 there were 66,667 units outstanding which were all cancelled during the quarter ended July 31, 2023. There was approximately zero and $43,000 of total recognized compensation cost related to performance stock units during the nine months ended January 31, 2025 and 2024, respectively.

Restricted Stock Units

Compensation expense for RSUs is generally recorded based on the market value on the date of grant and recognized rateably over the associated service and performance period. During the nine months ended January 31, 2025 and 2024, the Company granted 21,903,000 and 183,000 shares, respectively, that were subject to both service-based and market-based vesting requirements.

A summary of unvested RSU’s under the Stock Incentive Plans is as follows:

There was approximately $1,293,000 and $710,000 of total recognized compensation cost related to RSUs for the nine months ended January 31, 2025 and 2024, respectively. There was approximately $768,000 and $179,000 of total recognized compensation cost related to RSUs for the three months ended January 31, 2025 and 2024, respectively. As of January 31, 2025, there was approximately $17,480,000 of unrecognized compensation cost remaining related to unvested RSUs. This cost is expected to be recognized over a weighted-average period of 1.7 years.

(13)Fair Value Measurements

ASC Topic 820, “Fair Value Measurements” states that fair value is an exit price, representing the amount 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. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable input and minimizes the use of unobservable inputs. The following is a description of the three hierarchy levels.

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Disclosure of Fair Values

The Company’s financial instruments that are not re-measured at fair value include cash, cash equivalents, restricted cash, accounts receivable, other assets, contract assets and liabilities, deposits, accounts payable, and accrued expenses. The carrying value is equal to their fair value due to the short-term nature of these accounts.

During the nine months ended January 2025, the Company paid $150,000 in cash and issued 2,864,808 in shares worth $0.5 million to partially satisfy the final earnout period related to its acquisition of MAR in November 2021.

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 hierarchy levels during either of the three and nine months ended January 31, 2025 and 2024, respectively.

(14)Equity

On March 21, 2024, the Company entered into an At-the-Market Offering Agreement with an aggregate offering price of up to $7.0 million (the “2023 ATM Facility”). On August 30, 2024 the aggregate offering price under the 2023 ATM Facility was increased to approximately $16.0 million. It was then reduced to approximately $2.9 million in September 2024 and increased again to approximately $60.0 million in December 2024. As of January 31, 2025, the Company had received proceeds of approximately $16.9 million under this facility and an additional $0.9 million between January 31, 2025 and March 16, 2025.

First Registered Direct Offering

On September 13, 2024, the Company entered into a common stock purchase agreement (the “First RDO Purchase Agreement”) with an institutional accredited investor for the sale (the “First Offering”) by the Company of shares (the “First RDO Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), for aggregate gross proceeds of $1.5 million before deducting offering expenses payable by the Company. The First RDO Shares were issued upon execution of a funding notice by the Company to the investor. The First RDO Shares were issued at a price per share equal to 80% of the lowest traded price of the Common Stock ten days prior to the closing date for the purchase of the shares. In addition, the Company has the right, but not the obligation, to sell to this investor up to an additional $3.5 million of shares of Common Stock on the same pricing terms.

The First RDO Purchase Agreement contained customary representations, warranties and agreements by the Company and customary conditions for closing. Pursuant to the First RDO Purchase Agreement, the Company also agreed to indemnify the purchaser against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained therein. The First RDO Purchase Agreement included a waiver to the Tax Benefits Preservation Plan as well as a covenant on the investor to vote their shares of common stock in favor of all Company director nominees and other proxy proposals, but only for so long as the investor owns more than 5% of the outstanding stock.

Second Registered Direct Offering

On September 13, 2024, the Company also entered into a common stock purchase agreement (the “Second RDO Purchase Agreement”) with a separate institutional accredited investor for the sale (the “Second Offering”) by the Company of shares (the “Second RDO Shares”) of the Common Stock, for aggregate gross proceeds of $1.5 million, before deducting offering expenses payable by the Company. The Second RDO Shares were issued upon issuance of a funding notice by the Company to the investor. The Second RDO Shares were issued at a price per share equal to 80% of the lowest traded price of the Common Stock five days prior to the closing date for the purchase of the shares. In addition, the Company has the right, but not the obligation, to sell to this investor up to an additional $2.5 million of shares of Common Stock on the same pricing terms.

The Second RDO Purchase Agreement contains customary representations, warranties and agreements by the Company and customary conditions to closing. Pursuant to the Second RDO Purchase Agreement, the Company also agreed to indemnify the purchaser against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained therein. The Second RDO Purchase Agreement included a waiver to the Tax Benefits Preservation Plan as well as a covenant on the investor to vote their shares of common stock in favor of all Company director nominees and other proxy proposals, but only for so long as the investor owns more than 5% of the outstanding stock.

The Company used the net proceeds from the First RDO Purchase Agreement and the Second RDO Purchase Agreement to build additional products and solutions to meet market demand, further advance the development of new products and solutions, engage in corporate development and merger and acquisition activities, for working capital needs, capital expenditures, repayment or refinancing of indebtedness, repurchases and redemptions of securities, and for other general corporate purposes.

Convertible Debt Offering

On December 20, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an institutional investor (the “Investor”) under which the Company agreed to issue and sell, in one or more registered public offerings by the Company directly to the Investor (the “Offering”), senior convertible notes for up to an aggregate principal amount of $54.0 million (the “Notes”) that will be convertible into shares of the Company’s common stock. On December 20, 2024 (the “Initial Closing Date”), the Company issued and sold to the Investor a Note in the original principal amount of $4.0 million (the “Initial Note”). Upon our filing of one or more additional prospectus supplements, and our satisfaction of certain other conditions, the Securities Purchase Agreement contemplates additional closings of up to $50 million in aggregate principal amount of additional Notes, upon mutual agreement of the Company and the Investor. The Securities Purchase Agreement contains customary representations, warranties and covenants. It also grants the Investor the right to participate in certain future equity and equity-linked transactions of the Company from the Initial Closing Date through the 3-year anniversary thereof, as well as certain anti-dilution rights applicable to the Notes. No Note may be converted to the extent that such conversion would cause the then holder of such Note to become the beneficial owner of more than 4.99%, or, at the option of such holder, 9.99% of the then outstanding common stock, after giving effect to such conversion (the “Beneficial Ownership Cap”).

The Initial Note was issued with an original issue discount of 9.5%, resulting in $3.6 million of proceeds to the Company, before fees and expenses of approximately $0.4 million. Each Note bore interest at a rate of 12.5% per annum, which compounded on the first calendar day of each calendar quarter and increased the principal amount of the Notes on a dollar-for-dollar basis. Upon the occurrence and during the continuance of an event of default, the interest rate on the Notes will increase to 17.5% per annum. Unless earlier converted, the Notes will mature on the eighteen-month anniversary of their respective issuance dates. All amounts due under the Notes were convertible at any time, in whole or in part, and subject to the Beneficial Ownership Cap, at the option of the holders into shares of common stock at a conversion price equal to the lower of the closing price of the common stock on the trading day prior to each closing plus a 15% premium (the “Reference Price”) or 90% of the volume weighted average price of the common stock during the seven trading days ending and including the trading day immediately preceding the delivery or deemed delivery of the applicable conversion notice. Upon the satisfaction of certain conditions, we could have prepaid outstanding Notes upon not less than 20 business days nor more than 30 business days’ written notice by paying an amount equal to the face value of the Notes at a premium of 15%.

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The Initial Note contained certain terms and conditions which management evaluated as potential embedded derivatives. Management determined that the optional conversion feature is not clearly and closely related to the debt host instrument, and therefore required bifurcation and separate accounting. We determined the fair value of the embedded derivative as approximately $0.4 million and recorded it as a discount to the debt and a derivative liability on the date of issue.

The Investor converted all of the outstanding principal and accrued interest under the Initial Note to common stock during December 2024, resulting in the issuance of 15,442,429 common shares at an average conversion price of $0.26 per share. Interest expense during the time the Initial Note was outstanding was immaterial. The Company recognized a loss on extinguishment resulting from the conversion, which is presented as a separate line item in the Company’s Consolidated Statements of Operations.

(15)Commitments and Contingencies

Spain Income Tax Audit

The Company underwent an income tax audit in Spain for the period from 2011 to 2014, when its Spanish branch was closed. On July 30, 2018, the Spanish tax inspector concluded that although there was no tax owed in light of losses reported, the Company’s Spanish branch owed penalties for failure to properly account for the income associated with the funding grant. During the year ended April 30, 2022, the Company received notice from the Spanish Central Economic and Administrative Tribunal (“Spanish Tax Administration”) that it agreed with the inspector and ruled that the Company owes the full amount of the penalty in the amount of €279,870 or approximately $331,000. On January 25, 2021, the Company paid the Spanish Tax Administration €279,870. Notwithstanding that payment, on April 30, 2022, the Company filed its appeal of the decision of the Central Court to the Spanish National Court. On February 3, 2025, the Spanish National Court denied the Company’s appeal, and the Company does not believe it has further available grounds to appeal this decision to the Spanish Supreme Court. Accordingly, this matter is closed.

Litigation with Paragon Technologies, Inc.

On October 10, 2023, Paragon Technologies, Inc. filed a complaint in the Court of Chancery of the State of Delaware against the Company, and the members of its Board of Directors, claiming certain breaches of their fiduciary duties. The complaint sought only injunctive relief against the Company, and not monetary damages, and therefore the financial exposure derived therein was limited to applicable legal fees and costs at that stage, which was material to FY’ 24. On November 2, 2023, Paragon sought leave to amend its complaint to add additional claims. The Court granted this motion for leave to amend, provided that the Court would not delay the hearing on the matters raised in the initial complaint, which was set for November 28, 2023. This hearing on the initial complaint was held and on November 30, 2023, the Court ruled in favor of the Company and denied Paragon’s motion for injunctive relief. The status of the in the amended complaint is still pending. On February 28, 2024, the Company successfully finalized its 2023 annual meeting of stockholders in spite of Paragon’s repeated attempts to contest the meeting. In an August 12, 2024 Press Release and its Form 10-Q report for the second quarter of 2024, Paragon announced that it was no longer pursuing litigation against the Company. Pursuant to a Court order dated January 9, 2025, Paragon was required “to file a status report within 30 days. Otherwise, the case will be dismissed under Rule 41(e).” Because Paragon did not file a status report by February 10, 2025, the Company anticipates that the Court will dismiss the case, with prejudice, due to Paragon’s failure to prosecute.

In February 2025, the Company received a shareholder demand under Section 220 of the General Corporation Law of the State of Delaware for inspection of certain books and records relating to prior equity grants made to officers and directors under the 2015 Plan in January 2023, February 2024 and January 2025. The Company is reviewing and considering the demand and engaging with counsel for the shareholder. The Company has not recorded any material liability for these matters as of January 31, 2025 as it cannot estimate the ultimate outcome at this time.

General Legal Matters

From time to time, the Company is involved in legal and administrative proceedings and claims of various types. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable, and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.

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(16)Income Taxes

Uncertain Tax Positions

The Company accounts for income taxes in accordance with ASC 740. The guidance requires the Company to recognize in its consolidated financial statements the impact of a tax position if that position is more likely than not to be sustained upon examination, based on the technical merits of the position. The Company has no current or deferred tax due to current and projected losses for the year. The Company previously appealed the results of the income tax audit in Spain for the period from 2011 to 2014, when the Company’s Spanish branch was closed (see Note 14). On February 3, 2025, the Spanish National Court denied the Company’s appeal, and the Company does not believe it has further available grounds to appeal this decision to the Spanish Supreme Court. Accordingly, this matter is closed. At January 31, 2025, the Company had no uncertain tax positions. The Company does not expect any material increase or decrease in its income tax expense or benefit in the next twelve months, related to examinations or uncertain tax positions. Net operating loss and credit carry forwards since inception remain open to examination by taxing authorities and will continue to remain open for a period of time after utilization.

Tax Preservation Plan

In June 2023, in order to protect the Company’s valuable tax assets related to its net operating losses from being limited or lost under Section 382 of the Internal Revenue Code, the Company adopted a Tax Benefits Preservation Plan (the “Plan”). Pursuant to the Plan, the Board declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of common stock of the Company. The dividend was distributed to stockholders of record as of the close of business on July 11, 2023. The Plan substantially diminishes the risk that the Company’s ability to utilize its net operating loss carryovers to reduce potential future federal income tax obligations may become substantially limited. The Plan is intended to act as a deterrent to any person or group acquiring beneficial ownership of 4.99% or more of the outstanding common stock without approval by potentially subjecting any such person or group to significant dilution. The Plan was approved by shareholders by a non-binding advisory vote at the Company’s Annual Meeting held on February 28, 2024.

The Company determined the grant date fair value of the Rights using an option-pricing model. The amount was immaterial to the consolidated financial statements and deemed to be de minimis, and accordingly was not recorded to the financial statements.

Sale of New Jersey NOL’s and R&D Tax Credits

In order to monetize their attributes, the Company has historically sold the Net Operating Losses (NOL’s) and R&D credit generated in New Jersey. In September 2024 the Company was notified that it received a preliminary award of approximately $1.1 million for New Jersey State for the sale of the fiscal year 2024 NOL. The final allocation is expected to be determined during the fourth quarter of OPT’s 2025 fiscal year when the sale of the NOL’s and credit are finalized. The Company has elected to recognize the gain on the sale as a component of tax expense at the time of the sale. Historically the Company has received over 90% of the amount of the preliminary award upon final sale.

(17)Operating Segments and Geographic Information

The Company’s business consists ofone reportable segment as the revenues associated with its different business lines are not material enough to justify segment reporting or to make it meaningful to investors, and the Company’s chief operating decision maker does not view the Company’s operations on a segment basis. The Company operates worldwide, with its U.S. operations in New Jersey and California and one operating subsidiary in the UK. Revenues and expenses are generally attributed to the operating unit that bills the customers. During each of the three and nine months ended January 31, 2025 and 2024, the Company’s primary business operations were in North America, South America, EMEA and Asia/Australia.

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