Ocean Power Technologies Inc 25 January 2005 NEWS RELEASE -------------------------------------------------------------------------------- Ocean Power Technologies,Inc. 1590 Reed Road Pennington, New Jersey 08534 USA OCEAN POWER TECHNOLOGIES ANNOUNCES INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2004 Pennington, NJ, USA, 25 January 2005 - Ocean Power Technologies, Inc ("OPT", or the "Company") (London Stock Exchange:AIM-OPT), a leading renewable energy technology company that is commercialising its off-shore wave-powered electrical generation systems, is pleased to announce its interim results for the six months ended 31 October 2004 (exchange rate of £1 = $1.81). HIGHLIGHTS •Additional contracts and funding secured: -Hawaii PowerBuoy(TM) installed, and additional funding of $1.1 million received from US Navy -Joint Venture formed with Iberdrola S.A. for a multi-phased project for 1.25 MW OPT wave power station on the northern coast of Spain -Successful ocean test of PowerBuoy(TM) under Lockheed Martin Corp. contract, and second phase contract worth $1.5 million awarded •Net income of $110,000 (£61,000) compared to loss of $3.6 million (£2.0 million) in the prior period ended 31 October 2003 •Contract revenues of $1.7 million (£0.9 million) down 31% from the corresponding prior period reflecting planned investment and time spent on product development and integration of new personnel •$39.5 million (£21.8 million) in cash and short-term investments at end of period •New senior personnel appointed -President of Ocean Power Technologies, Inc. -Chief Executive of Ocean Power Technologies Limited, UK-based European subsidiary Commenting on the interim results Dr. George W. Taylor, CEO said: "During the first half of this financial year, the Company has concentrated on making significant investments in new personnel, as well as in the development of our core PowerBuoy product. We have established our presence in the UK and Europe with the formation of Ocean Power Technologies Limited. With new contracts won in the period we expect to continue our progress in building for future growth." For further information, please contact: Dr. George W. Taylor, Charles F. Dunleavy, Chief Executive Officer Chief Financial Officer Telephone: (609) 730-0400 Telephone: (609) 730-0400 E-mail: gtaylor@oceanpowertech.com E-mail: cdunleavy@oceanpowertech.com Michael Brennan, Ken Cronin, Evolution Securities Limited Gavin Anderson & Co. Telephone: +44 207 071 4300 Telephone: +44 207 554 1400 Background Information Ocean Power Technologies, Inc. OPT is the world's first publicly listed wave power company. It is commercialising its proprietary technology for the generation of electrical power using the energy of ocean waves. OPT's wave energy systems are based on modular, buoy-like structures, called PowerBuoysTM, which are "intelligent" systems capable of responding to differing wave conditions. The Company's ocean-tested systems have the potential to provide cost competitive, clean electrical power on a large scale without the enhancements of tax credits or subsidies. For further information, see the Company's website: www.oceanpowertechnologies.com. INTERIM RESULTS STATEMENT Business Review --------------- Hawaii - US Navy OPT has continued to make significant progress on its contract with the US Navy for delivery of PowerBuoy systems at a US Marine Corps base off the Island of Oahu, in Hawaii. The first PowerBuoy unit was installed near Kaneohe Bay, having been towed to the site by a standard commercial tugboat. The deployment was successfully accomplished within three hours, and the straight forward process is expected to facilitate the building of future OPT wave power stations. This first Hawaii PowerBuoy unit is initially rated for production of 40-50 kilowatts of electrical power, and full-scale testing and upgrades of the system are being conducted. OPT and the US Navy continue to partner in this project to demonstrate the use of OPT's wave power systems to provide renewable power to Hawaii. Further, $1.1 million was added to contract value by the US Navy during this period. Spain - Iberdrola In July 2004 OPT signed a Joint Venture Agreement with Iberdrola SA, IDAE, the energy agency of the Government of Spain, and Sodercan, the industrial development agency of the Spanish region of Cantabria. The Joint Venture is for the phased development, construction and operation of a 1.25 Megawatt OPT wave power station off the coast of the Cantabria region in northern Spain, to be connected into the Spanish national power grid. OPT has invested in this Joint Venture and retains a 10% interest. Iberdrola, which retains a 70% interest in the joint venture, is one of the largest renewable energy utilities worldwide and also one of the largest electric power utilities in Europe. It has more than 2,400 Megawatts of renewable energy generation assets, and plans to increase that capacity to 4,500 MW by 2008, through an investment of 3.1 billion Euros. As part of the initial phase of the Spanish wave power project, OPT and Iberdrola are working on the development of the site, permitting and the identification of local vendors and sub-contractors for building and installing portions of the OPT system. Lockheed Martin In May 2004, the Company announced its receipt of an award from Lockheed Martin Corp of an initial contract to provide a wave energy generating system to power underwater sensing equipment, with applications for oceanographic data sampling. Under this contract, OPT has developed a small-scale wave energy conversion system designed to provide continuous, renewable power to Lockheed Martin's systems. OPT's technology is expected to improve those systems' performance and reduce total ownership costs. OPT is very pleased to announce that the prototype version of its system for Lockheed Martin has been tested in the ocean and has successfully demonstrated in-ocean performance in accord with design specifications. Total time to design, build and complete testing in the ocean was accomplished within nine months, and the project was done on a profitable basis. Furthermore, the Company is pleased to announce that following the successful ocean testing of the prototype Lockheed Martin system, OPT has been awarded a $1.5 million contract from Lockheed for the second phase of the program. This contract is for the Preliminary Design and planning for the System Development and Demonstration of initial production quantities of OPT's small-scale PowerBuoy system. New Jersey - NJ Board of Public Utilities OPT continues to make progress on its contract with the New Jersey Board of Public Utilities. Under the contract, OPT will install and operate one of its PowerBuoy systems off the coast of New Jersey. To date, system designs have been prepared, system performance simulations have been conducted, and extensive wave tank testing has been completed successfully. Personnel Since 31 October 2003, OPT has doubled the size of its staff to 27 employees. The Company has recruited senior management, engineering and administrative personnel to help grow its business and enhance its ability to execute under existing and prospective contracts. In September 2004 Samuel R. Wennberg was appointed to the position of President of Ocean Power Technologies, Inc. Mr. Wennberg has experience in large and small companies and in the successful development and commercialsation of technology-based products. He is responsible for the commercial "roll-out" of OPT's PowerBuoy product. Ocean Power Technologies Limited has been formed as a wholly-owned subsidiary of OPT. Based in the UK, OPT Limited will establish the Company's presence within the UK and European markets. The new company's operations will comprise engineering, sales and marketing, customer contracts, and all activities in the UK and Europe marketplace. Mark R. Draper has been appointed to the position of Chief Executive of OPT Limited. Mr. Draper was previously the managing director of the UK Generation Business of E.ON (formerly Powergen), with direct responsibility for both renewable and conventional power generation. In connection with the formation of OPT Limited in the UK, Sir Eric Ash has been elected non-executive Chairman of OPT Limited, while Seymour S. Preston III has been elected non-executive Chairman of OPT. As well as having made key additions to the management team, OPT has doubled the size of its facility in New Jersey, including a significant addition of sub-assembly production and test area. We believe this will enhance OPT's engineering and development capabilities, as well as provide more capacity for product testing. Consolidated Results -------------------- Contract revenues for the six month period ended 31 October 2004 were $1,690,034, compared with $2,442,412 in the six month period ended 31 October 2003, a decrease of 31%. The decrease in revenues over the same period in 2003 reflects the change in focus by directing personnel and other resources to technology development engineering and to the integration and training of new personnel. These investments were identified as part of the use of proceeds of the Company's IPO in October 2003. Gross profit from contract revenues was $68,079 in the six months ended 31 October 2004, compared to $308,046 in the six-month period ended 31 October 2003. The decrease in gross profit margin is primarily due to planned costs associated with the deployment of the first PowerBuoy under the Hawaii contract. Company-funded product development costs increased to $506,146 in the six months ended 31 October 2004 from nil in the same period in 2003. As previously noted, the Company is making a substantial investment in the on-going development and commercialisation of its core PowerBuoy product. This is in keeping with the expected use of proceeds received in connection with OPT's Initial Public Offering in October 2003. Selling, general and administrative costs were $823,517 in the six month period ended 31 October 2004, compared to $433,003 in the same period of 2003. The increase resulted from costs associated with the hiring and assimilation of new personnel, including senior management, engineering and support staff; selling and marketing activity; the establishment of a subsidiary based in the UK; expansion of the Company's intellectual property base; and administrative costs associated with OPT's status as a listed company. OPT's net income in the six month period ended 31 October 2004 was $110,638, compared to a net loss of $3,608,022 in the six month period ended 31 October 2003. The 2004 six month period was favorably impacted by interest income of $599,453 and foreign exchange gains of $772,769, while the 2003 six month period reflected a $3.5 million one-time charge included in other expense for a payment made in 2003 as part of the planned use of proceeds from the Company's IPO. The income per share was $0.002 on a fully diluted basis in the current six-month period, compared to a loss per share of $0.12 in the six month period ended 31 October 2003. CURRENT OUTLOOK AND TRADING For the balance of OPT's fiscal year ended 30 April 2005, significant effort will continue in product development and in adding new personnel. We are confident that these investments will position the Company for future growth, expansion of its international marketing presence and for the continuing commercialisation of its PowerBuoy product. Seymour S. Preston III Dr. George W. Taylor Chairman Chief Executive Officer OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS ________________________________________________________________________________ 6 months 6 months ended ended Year ended 31-Oct 31-Oct 30-Apr 2004 2003 2004 USD USD USD CONTRACT REVENUES $1,690,034 $2,442,412 $4,713,202 COST OF REVENUES 1,621,955 2,134,366 4,319,850 ---------- ---------- -------------- Gross profit 68,079 308,046 393,352 PRODUCT DEVELOPMENT COSTS 506,146 - 255,958 SELLING, GENERAL AND ADMINISTRATIVE COSTS 823,517 433,003 1,745,955 ---------- ---------- -------------- Operating loss (1,261,584) (124,957) (1,608,561) INTEREST INCOME 599,453 16,988 555,717 OTHER INCOME - - 118,119 FOREIGN EXCHANGE GAIN 772,769 - 1,585,345 OTHER EXPENSE (1) - (3,500,053) (3,500,096) ---------- ---------- -------------- NET INCOME (LOSS) $110,638 ($3,608,022) ($2,849,476) ========== ========== ============== EARNINGS (LOSS) PER SHARE: BASIC $0.002 ($0.12) ($0.07) DILUTED $0.002 - - (1) See Note 2 to Interim Consolidated Financial Statements OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED BALANCE SHEETS ________________________________________________________________________________ 31-Oct 31-Oct 30-Apr 2004 2003 2004 USD USD USD ASSETS CURRENT ASSETS: Cash and cash equivalents $15,100,012 $1,125,214 $38,840,245 Certificates of deposit 24,375,896 710,000 725,329 Accounts receivable 113,140 4,515 46,925 Unbilled receivables 402,942 896,286 553,821 Stock subscription - 42,500,000 - receivable Other current assets 387,936 43,541 225,308 --------- ------------ ------------- Total current assets 40,379,926 45,279,556 40,391,628 EQUIPMENT, Net of accumulated depreciation 272,934 42,493 104,195 PATENTS, Net of accumulated amortization 285,376 176,994 238,309 OTHER ASSETS 91,435 13,347 13,347 --------- -------------- ------------- TOTAL ASSETS $41,029,671 $45,512,390 $40,747,479 ========= =============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $278,700 $691,166 $ 472,477 Accrued expenses 1,280,371 9,012,926 1,179,305 Unearned revenues 327,607 263,678 Amounts due to related 53,773 141,614 53,773 parties --------- ------------ ------------- Total current liabilities 1,940,451 9,845,706 1,969,233 --------- ------------ ------------ LONG-TERM DEBT 250,000 250,000 250,000 --------- ------------ ------------- DEFERRED CREDITS 675,000 675,000 675,000 --------- ------------- ------------ STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value - 5,000,000 shares authorized; no shares issued and outstanding - - - Common stock, $.001par value - 105,000,000 shares authorized; 51,487,758;50,274,204; and 51,165,758 shares issued and outstanding as of 31 October 2004 and 2003, and 30 April 2004, respectively 51,488 50,274 51,166 Additional paid-in capital 59,159,854 56,607,668 58,959,616 Accumulated deficit (21,045,842) (21,915,025) (21,156,480) Accumulated other comprehensive loss (1,280) (1,233) (1,056) --------- ------------- -------- Total stockholders' equity 38,164,220 34,741,684 37,853,246 --------- ------------- -------- --------- ------------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $41,029,671 $45,512,390 $40,747,479 ========= ============= ========= OCEAN POWER TECHNOLOGIES, INC AND SUBSIDIARY UNAUDITED CONSOLIDATED CASH FLOW STATEMENTS ________________________________________________________________________________ 6 months 6 months Year ended 31-Oct 31-Oct 30-Apr 2004 2003 2004 USD USD USD CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $110,638 $(3,608,022) $(2,849,476) Adjustments to reconcile net income (loss) to the net cash provided by or (used in) operating activities: Depreciation and amortization 50,874 21,810 42,005 Compensation expense related to stock option grants and common stock issuance - 80,188 403,374 Issuance of shares in connection with the settlement agreement with AMP Incorporated (now Tyco Electronics) - - 1,500,000 Changes in working capital: Accounts receivable (66,215) (4,515) (46,925) Unbilled receivables 150,879 (553,208) (210,743) Other current assets (162,628) 8,158 (173,610) Accounts payable (193,777) 432,490 213,801 Accrued expenses 101,066 3,227,592 116,433 Unearned revenues 63,929 - 263,678 Amounts due to related parties - - (87,841) -------- ------------- --------- Net cash provided by (used in) operating activities 54,766 (395,507) (829,304) -------- ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of certificates of deposit (32,623,212) - (725,329) Maturities of certificates of deposit 8,972,645 - 710,000 Investment in joint venture and (78,088) - other assets Purchase of equipment and patent (266,680) (16,648) (159,860) costs -------- ------------- ----------- Net cash used in investing activities (23,995,335) (16,648) (175,189) -------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options 200,560 - - Sale of common stock, net of issuance costs - - 38,307,192 -------- ----------- ----------- Net cash provided by financing activities 200,560 - 38,307,192 -------- ----------- ------------- EFFECTS OF EXCHANGE RATES (224) 1,194 1,371 -------- ------------ ------------ NET DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS (23,740,233) (410,961) 37,304,070 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 38,840,245 1,536,175 1,536,175 -------- -------------- -------------- CASH AND CASH EQUIVALENTS, END OF YEAR $15,100,012 $1,125,214 $38,840,245 ======== ============== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: Issuance of shares to consultant in connection with initial public offering 178,350 Stock subscription receivable 37,777,538 -------- ------------- -------------- Total noncash transactions - 37,777,538 178,350 ======== =============== ========== OCEAN POWER TECHNOLOGIES, INC AND SUBSIDIARY NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS ________________________________________________________________________________ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim six month period ended 31 October 2004 are not necessarily indicative of results that may be expected for the year ending 30 April 2005. The financial information contained in this interim report does not constitute statutory accounts for the Company for the relevant periods. Consolidation - In September 2004, the Company established a wholly owned subsidiary in the United Kingdom. The Company has one other subsidiary in Australia that was established in 2001. In July 2001, the Company sold 11.76% of the Australian subsidiary to a subsidiary of Woodside Petroleum, Ltd. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition - The Company recognizes revenue on government and commercial contracts under the percentage of completion method. The percentage of completion is determined by relating the costs incurred to date to the estimated total costs. The cumulative effects resulting from revisions of estimated total contract costs and revenues are recorded in the period in which the facts requiring revision become known. When a loss is anticipated on a contract, the full amount thereof is provided currently. Unbilled receivables represent expenditures on contracts, plus profits or less losses recorded thereon, not yet billed. Unbilled receivables are billed and collected within one year. Billings made on contracts are recorded as a reduction of unbilled receivables, and to the extent that such billings exceed costs incurred plus profits or less losses recorded thereon, they are recorded as unearned revenues. Cash Equivalents - Cash equivalents consist of investments in short-term financial instruments with maturities of three months or less from the date of purchase. Equipment - Equipment is stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives (three to seven years). Expenses for maintenance and repairs are charged to operations as incurred. Foreign Exchange Gains- The Company has invested in certain certificates of deposit, which mature 90 days or less from the date of purchase and are denominated in British pounds sterling. Such certificates of deposit are included in cash and cash equivalents. Additionally, the Company has investments in certain certificates of deposit, which mature in 91 days or more from the date of purchase and are denominated in British pounds sterling. Such instruments are included in certificates of deposit. These positions may result in realized and unrealized foreign exchange gains or losses from exchange rate fluctuations, which are included in the consolidated results of operations. Patents - External costs related to the filing of patents, including legal and filing fees, are capitalized. Amortization is calculated using the straight-line method over the lives of the patents (17 years). Expenses for the development of technology are charged to operations as incurred. Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances, bank certificates of deposit and trade receivables. However, the Company invests its excess cash in highly liquid investments (principally short-term bank deposits). 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 shareholders' equity. Earnings per share - The basic income and loss per share has been calculated by dividing the income or loss for the period by the average number of common shares in issue during the period. Diluted income per share is calculated by dividing the income for the period by the average number of common shares in issue during the period, including common stock equivalents. Diluted loss per share calculations are not shown, as common stock equivalents would be anti-dilutive. 6 months 6 months Year ended ended ended 31 October 31 October 30 April 2004 2003 2004 Net income (loss) (USD) $ 110,638 $(3,608,022) $(2,849,476) Weighted average common shares in issue - basic 51,219,425 31,129,156 41,516,146 Weighted average common shares in issue - diluted 53,068,734 - - Basic income (loss) per share (USD) $0.002 ($0.12) ($0.07) Diluted income per share (USD) $0.002 - - 2. OTHER EXPENSE Other expense for the year ended 30 April 2004 and the six-month period ended 31 October 2003 includes a total of $3,500,000 expense related to a one-time charge for a payment due to Tyco Electronics Corporation ("Tyco"). Payment of the $3.5 million is part of a 1999 agreement for the buy-back of $5.5 million of OPT preferred stock and convertible debt held by Tyco, plus release of liens held by Tyco on all the assets of OPT. This payment was required in the 1999 agreement, in the event of certain specified transactions such as an IPO, and was identified in the use of proceeds from OPT's IPO. This information is provided by RNS The company news service from the London Stock Exchange