Ocean Power Technologies Inc 30 January 2006 NEWS RELEASE Ocean Power Technologies, Inc. 1590 Reed Road Pennington, New Jersey 08534 USA For Immediate Release OCEAN POWER TECHNOLOGIES ANNOUNCES INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2005 Pennington, NJ, USA, 30 January 2006 - 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, announces its interim results for the six months ended 31 October 2005 (exchange rate of £1 = $1.80). HIGHLIGHTS •Deployment of PowerBuoysTM at customer sites off Hawaii and New Jersey, USA •Contracts entered into and funding secured: -Additional funding of $2.8 million received from US Navy in connection with Hawaii wave power station -Agreement signed with Total S.A. for a multi-phased project for 2-5 MW OPT wave power station on the west coast of France •Net loss of $4.0 million (£2.2 million) compared to net income of $110,000 (£61,000) in the prior six-month period ended 31 October 2004 •Contract revenues of $1.1 million (£0.6 million), compared to $1.7 million (£0.9 million) in the prior six-month period •$35 million (£19 million) in cash and short-term investments at 31 October 2005 •New key personnel appointed: -Senior Vice President, Engineering of Ocean Power Technologies, Inc. -Business Development Manager of Ocean Power Technologies Limited, UK-based European subsidiary Commenting on the interim results Dr. George W. Taylor, Chief Executive Officer of OPT, said: "OPT has made solid progress in getting its PowerBuoys into the ocean. The first Hawaii system is about to be connected to the grid and the New Jersey buoy has withstood the significant wind and wave forces of Hurricane Wilma. OPT's PowerBuoys have had considerably more time and successful operation in the ocean than any other offshore wave power system. With our ongoing commitment of resources to product development, we look forward to leveraging the technology improvements made last year, and accelerating the commercialisation of our product throughout 2006. Our revenues reflect delays in the timing of new contract awards, which will affect the rest of the Company's current financial year ending 30 April 2006. While these revenues are lower than were originally expected for this year, we believe they reflect a deferral, rather than the loss of opportunities. In fact, customer interest is higher than it has ever been in the past, and we are very pleased that our on-going customer relationships are strong. We are confident that our increased international marketing efforts are positioning OPT for expansion of the Company's business." 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 & Company 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 Product Development Over the six months ended 31 October 2005, the Company has focused resources on advancing the PowerBuoy technology. This effort has included commercial engineering design for performance and survivability, advanced-power take off development and enhanced control systems. The central emphasis is on increased power-out per PowerBuoy; lowering capital cost (dollars per kilowatt) and energy cost (cents per kilowatt hour), as well as development of effective maintenance procedures. During this period, the Company has made significant progress in its technology, as evidenced by the building and deployment of its PowerBuoys in Hawaii and New Jersey. The PB40 design enables operation in worldwide areas of high tidal variation. It also can be utilised in deepwater applications where power is consumed in situ. Data collected from system sensors by on-board computers are transmitted by radiofrequency link to shore-based facilities in Hawaii and New Jersey, respectively. The data are then transmitted via the internet to OPT's facility in Pennington, New Jersey for further analysis. OPT has in real time used that information to electronically tune the New Jersey buoy from its facility in Pennington, New Jersey to achieve maximum performance in various wave conditions. The Company's in-depth experience of designing, building and deploying PowerBuoys since 1997 is now being utilised in OPT's cost engineering efforts, and also in developing a comprehensive program for long-term maintenance. Product development costs incurred during this period also include the Company's engineering effort related to the PB125 system, rated at 125 kilowatts per PowerBuoy. Design of the system is in progress and initial wave tank tests are planned for the first quarter of 2006. OPT has expanded its in-house life cycle testing capability. Prior to the deployment of the Hawaii and New Jersey systems in October 2005, OPT's engineering personnel designed, built and utilised test rigs for the life cycle testing of assemblies and sub-systems used in these two contracts. During the six months ended 31 October 2005, OPT filed one new patent application, and one patent was issued. Business Review European Operations OPT's European business, Ocean Power Technologies Limited ("OPT Ltd'), has made continued progress in establishing the Company's presence within European markets. As discussed further below, OPT Ltd signed an agreement with Total and Iberdrola for the development of a wave power station in France. In addition, OPT Ltd made a formal expression of interest in the use of the "Wave Hub" marine energy test site located off the north coast of Cornwall, England. The Cornish site is one potential location being considered by OPT Ltd for a demonstration wave power plant in the United Kingdom. In that connection, OPT Ltd has identified and held meetings with several potential commercial partners. Mark Draper, Chief Executive of OPT Ltd, has, during this period, increased the awareness of OPT Ltd's presence within the UK marketplace. He has participated in meetings convened by the Parliamentary Marine Committee and the UK government's Marine Bill Group, and has spoken at conferences sponsored by marine power technology industry organisations. In this period, Paul Jordan joined OPT Ltd as Business Development Manager. Mr. Jordan had previously set up and run the Carbon Trust's Marine Energy Challenge, where his responsibilities included the assessment of marine energy technologies, and the determination of the cost competitiveness and future growth potential of wave energy. Prior to the Carbon Trust, he worked at Rolls Royce in the development of 5 MW to 150 MW gas turbine and diesel engine power projects in the UK and Americas. He also has an MBA from INSEAD, France. Spain - Iberdrola OPT has completed the first phase of its Joint Venture Agreement initially signed in 2004 with Iberdrola SA, IDAE, the energy agency of the Government of Spain, and Sodercan, the industrial development agency of the Spanish region of Cantabria. In June 2005 Total S.A. became an additional partner in the Joint Venture Agreement. 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. Under this initial phase, OPT and Iberdrola have selected a wave power station site near Santona, identified the path for the undersea power transmission cable, identified the onshore connection point to the grid, conducted cost engineering and received quotations from local and international vendors and sub-contractors for building and installing portions of the OPT system. As noted above, the first phase has been completed and the project is expected to move into the next phase shortly. France - Total S.A. In June 2005, OPT Ltd signed an agreement with a unit of Total S.A. and with Iberdrola S.A. for the development of a wave power station in France. As noted above, Total also became a partner of the on-going OPT wave power project near Santona, Spain. In the first phase of the new project in France, the parties will collaborate in identifying potential sites on the western coastline of France and gaining the necessary consents and permits. When a suitable site is identified with good local acceptance, all authorizations obtained, and the off-take of electricity is in place, a wave power station with a capacity of between 2 and 5 MW will be installed in the second phase of the project. This will be developed using OPT's patented PowerBuoy technology. To date, the steering committee of the venture has held several planning and organisational meetings and the work programme is being developed. The process of gathering initial data regarding potential sites has commenced. North American Operations Hawaii - US Navy Under its contract with the US Navy for delivery of PowerBuoy systems at a US Marine Corps base in Hawaii, OPT completed the redeployment of an improved PowerBuoy in October 2005. This deployment was completed quickly and efficiently, within one day. The PowerBuoy unit was installed near Kaneohe Bay, having been towed to the site by a standard commercial tugboat. This Hawaii PowerBuoy unit is rated for production of 40 kilowatts of electrical power, and the system will undergo monitoring and systems integration during in-ocean operation. While $2.8 million was added to the Hawaii contract value by the US Navy during this period, the Navy's approval cycle for the related scope of work was not completed until January 2006. Consequently, work on the new phase of the contract, and therefore revenues for OPT under the contract, commenced later than expected. Lockheed Martin The first two contracts OPT was awarded by Lockheed Martin were successfully completed by June 2005, and OPT received a letter from Lockheed Martin commending the Company for its satisfactory completion of the contracts within schedule and budget. The expected next phase is part of a considerably larger programme which would include Lockheed Martin and other major defence contractors. OPT's potential role, while material to its business, is a relatively small part of the programme, and it is dependent on the determination and timing of work to be performed by Lockheed Martin and the major subcontractors. OPT's revenue projections for its financial year ended 30 April 2006 had anticipated a significant contribution from its prospective work on this programme, and the Company had hoped that the on-going discussions among Lockheed Martin and its subcontractors would have been resolved in this period. The Company believes there is extensive commercial potential for the technology it has developed under the contracts received to date from Lockheed Martin. OPT's innovative system can be used as a renewable power source for a wide range of non-utility applications. These include meteorological and oceanographic data buoys, fishing and navigational aids, mariculture, other data sampling applications and homeland security. OPT is actively pursuing these market sectors and has submitted proposals for related contract opportunities, including certain ones in partnership with Lockheed Martin. New Jersey - NJ Board of Public Utilities Under its contract with the New Jersey Board of Public Utilities, OPT installed in October 2005 and is now operating one of its PowerBuoy systems off the coast of New Jersey. This system is designed to demonstrate the Company's advanced PowerBuoy PB40 design, which allows for efficient performance in regions of wide tidal variation. Reflecting available wave conditions, data is collected in real time from the on-board sensors, transmitted to shore by radio, and received at OPT's facility via internet connection. This data compares favorably to OPT's predictive models, and energy produced demonstrates that the power take off and control systems are functioning properly. OPT has also remotely changed certain software and electronics-based control parameters and algorithms resident in the PowerBuoy, via the internet and radio links, for maximising power production. Since deployment, the system has withstood significant wave and wind forces generated by Hurricane Wilma. The New Jersey PowerBuoy will be used for marketing purposes, as well as for on-going enhancement of OPT's innovative technology. Financial Review Contract revenues for the six month period ended 31 October 2005 were $1,106,499, compared with $1,690,034 in the six month period ended 31 October 2004, a decrease of 35%. The decrease in revenues compared to the same period in 2004 reflects delays in the awarding of new contracts. Gross loss from contract revenues was $400,135 in the six months ended 31 October 2005, compared to a profit of $68,079 in the six-month period ended 31 October 2004. The decrease in gross profit 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 $1,551,638 in the six months ended 31 October 2005 from $506,146 in the same period in 2004. As previously noted, the Company is making a substantial investment in the on-going development and commercialisation of its core PowerBuoy product. Selling, general and administrative costs were $1,434,294 in the six month period ended 31 October 2005, compared to $823,517 in the same period of 2004. The increase resulted primarily from costs associated with increased selling and marketing activity and the Company's expanded facilities. The six month period ended 31 October 2005 was unfavorably affected by foreign exchange losses of $1,446,790, compared to gains of $772,769 for the comparable period in 2004. The foreign exchange gains and losses result from the effect of exchange rate fluctuations on the Company's sterling and euro-denominated investments. OPT believes that since much of these investments will be used for the purchase of sterling and euro-denominated goods and services, such foreign exchange gains and losses are afforded a "natural hedge." Interest income for the six month period ended 31 October 2005 was $709,457, compared to $599,453 in the six months ended 31 October 2004, reflecting higher interest rates on invested balances. OPT's net loss in the six month period ended 31 October 2005 was $4 million, compared to net income of $110,638 in the six month period ended 31 October 2004. OUTLOOK The Company is accelerating its on-going commitment of resources to the commercialisation of its PowerBuoy product. John A. Baylouny has joined the Company as Senior Vice President, Engineering, with prime responsibility for the commercial roll-out of the PowerBuoy technology. Prior to coming to OPT, he served as Vice President and General Manager for a division of DRS Technologies, Inc. (a public company specialising in electronic systems, technology-based products and power systems, and generating $1.5 billion in revenues). OPT has made significant progress in its technology, and data collected from in-ocean buoy operations have resulted in enhancements to the efficiency of PowerBuoy power generation. We believe that OPT's core technology advantage is significantly ahead of where it was one year ago. We are confident that recent engineering achievements and product development work now in progress clearly position the Company as a leader within the industry. OPT is conducting an active and broad-based marketing effort to identify and consummate new contracts. In Europe we are seeking to develop the existing relationships with Iberdrola and Total and we are actively seeking partners in the UK, as well as other new opportunities. Key marketing thrusts in North America include contracts with the US Navy, utilities serving the West Coast and New Jersey grids, Lockheed Martin Corp., and applications-driven customers for smaller PowerBuoys, such as homeland security, ocean data-gathering and water treatment. Opportunities in Australia and Japan are also being actively pursued. We are pleased that the new and existing business opportunities OPT has been pursuing remain very active and we are excited about the number of prospective customers who are approaching OPT. Furthermore, we appreciate the continuing strong support from our existing customers, with whom we maintain frequent communications on contract progress. The Company has never been in a better position with respect to its business, and we are moving to leverage that advantage. Seymour S. Preston III Dr. George W. Taylor Chairman Chief Executive Officer OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS 6 months 6 months ended ended Year ended 31-Oct 31-Oct 30-Apr 2005 2004 2005 USD USD USD CONTRACT REVENUES $ 1,106,499 $ 1,690,034 $ 5,365,235 COST OF REVENUES 1,506,634 1,621,955 5,170,521 Gross profit (loss) (400,135) 68,079 194,714 PRODUCT DEVELOPMENT COSTS 1,551,638 506,146 904,618 SELLING, GENERAL AND ADMINISTRATIVE COSTS 1,434,294 823,517 2,553,911 Operating loss (3,386,067) (1,261,584) (3,263,815) INTEREST INCOME 709,457 599,453 1,297,156 OTHER INCOME 75,000 - 30,880 FOREIGN EXCHANGE GAINS(LOSSES) (1,446,790) 772,769 1,507,145 NET INCOME (LOSS) $ (4,048,400) $ 110,638 $ (428,634) EARNINGS (LOSS) PER SHARE: BASIC $ (0.08) $ 0.002 $ (0.01) DILUTED $ (0.08) $ 0.002 $ (0.01) OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS 31-Oct 31-Oct 30-Apr 2005 2004 2005 USD USD USD ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,882,319 $ 15,100,012 $ 13,584,814 Certificates of deposit 31,311,409 24,375,896 25,202,362 Accounts receivable 136,818 113,140 668,424 Unbilled receivables 332,976 402,942 822,037 Other current assets 330,036 387,936 464,582 Total current assets 35,993,558 40,379,926 40,742,219 EQUIPMENT, Net of accumulated depreciation 537,914 272,934 427,613 PATENTS, Net of accumulated amortization 345,788 285,376 334,809 OTHER ASSETS 88,837 91,435 91,746 TOTAL ASSETS $ 36,966,097 $ 41,029,671 $ 41,596,387 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 404,030 $ 278,700 $ 876,968 Accrued expenses 1,596,909 1,280,371 1,891,483 Unearned revenues 166,671 327,607 16,788 Amounts due to related parties 53,773 53,773 53,773 Total current liabilities 2,221,383 1,940,451 2,839,012 LONG-TERM DEBT 240,357 250,000 245,844 DEFERRED CREDITS 600,000 675,000 675,000 Total liabilities 3,061,740 2,865,451 3,759,856 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; 51,599,441; 51,487,758; and 51,512,953 shares issued and outstanding as of 31 October 2005 and 2004, and 30 April 2005, respectively 51,599 51,488 51,513 Additional paid-in capital 59,488,709 59,159,854 59,377,593 Accumulated deficit (25,633,514) (21,045,842) (21,585,114) Accumulated other comprehensive loss (2,437) (1,280) (7,461) Total stockholders' equity 33,904,357 38,164,220 37,836,531 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,966,097 $ 41,029,671 $ 41,596,387 OCEAN POWER TECHNOLOGIES, INC AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 6 months 6 months Year ended 31-Oct 31-Oct 30-Apr 2005 2004 2005 USD USD USD CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4,048,400) $ 110,638 $ (428,634) Adjustments to reconcile net income(loss) to the net cash provided by or (used in) operating activities: Depreciation and amortization 84,465 50,874 140,984 Compensation expense related to stock option grants and common stock issuance - - 184,674 Changes in working capital: Accounts receivable 531,606 (66,215) (621,499) Unbilled receivables 489,061 150,879 (268,216) Other current assets 137,144 (162,628) (239,274) Accounts payable (472,938) (193,777) 404,491 Accrued expenses (294,573) 101,066 708,022 Unearned revenues 149,883 63,929 (246,890) Net cash provided by (used in) operating activities (3,423,752) 54,766 (366,342) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of certificates of deposit (37,194,886) (32,623,212) (58,050,287) Maturities of certificates of deposit 31,085,839 8,972,645 33,573,254 Investment in joint ventures and other assets 309 (78,088) (78,399) Realization of deferred credits (75,000) - - Purchase of equipment and patent costs (205,745) (266,680) (560,902) Net cash used in investing activities (6,389,483) (23,995,335) (25,116,334) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 111,202 200,560 233,650 Repayment of long-term debt (5,487) - - Net cash provided by financing activities 105,715 200,560 233,650 EFFECTS OF EXCHANGE RATES 5,025 (224) (6,405) NET DECREASE IN CASH AND CASH EQUIVALENTS (9,702,495) (23,740,233) (25,255,431) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,584,814 38,840,245 38,840,245 CASH AND CASH EQUIVALENTS, END OF YEAR $3,882,319 $15,100,012 $13,584,814 OCEAN POWER TECHNOLOGIES, INC AND SUBSIDIARIES 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 2005 are not necessarily indicative of results that may be expected for the year ending 30 April 2006. 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. Expenses for maintenance and repairs are charged to operations as incurred. Foreign Exchange Gains and Losses- The Company has invested in certain certificates of deposit and cash equivalents that are denominated in British pounds sterling. Such 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. 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 stockholders' 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 2005 2004 2005 Net gain (loss) (USD) $ (4,048,400) $ 110,638 $ (428,634) Weighted average common shares in issue - basic 51,534,868 51,219,425 51,355,495 Weighted average common shares in issue - diluted 51,534,868 53,068,734 51,355,495 Basic income (loss) per share $ (0.08) $ 0.002 $ (0.01) (USD) Diluted income per share (USD) $ (0.08) $ 0.002 $ (0.01) This information is provided by RNS The company news service from the London Stock Exchange