The following discussion and analysis should be read in conjunction with the
accompanying unaudited consolidated financial statements and related notes
included in this Quarterly Report on Form 10-Q. Some of the information
contained in this management’s discussion and analysis is set forth elsewhere in
this Form 10-Q, including information with respect to our plans and strategy for
our business, pending and threatened litigation and our liquidity, includes
forward-looking statements that involve risks and uncertainties. You should
review the “Risk Factors” section of our Annual Report on Form 10-K for the year
ended
actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and
analysis. References to a fiscal year in this Form 10-Q refer to the year ended
2023).
Overview
Our solutions focus on three major service areas: Data as a Service (“DaaS”),
which includes data collected by our Wave Adaptive Modular Vessel (WAM-V®)
autonomous vehicles or our PowerBuoy® product lines; Power as a Service
(“PaaS”), which includes our PowerBuoy® and subsea battery products; and our
Strategic Consulting Services.
We provide ocean data collection and reporting, marine power, offshore
communications, and Maritime Domain Awareness (“MDA”) products, integrated
solutions, and consulting services. We offer our 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. We are involved in the
entire life cycle of product development, from product design through
manufacturing, testing, deployment, maintenance and upgrades, while working
closely with partners across our supply chain. We also work closely with our
third party partners that provide us with, among other things, software,
controls, sensors, integration services, and marine installation services. Our
solutions enable technologies for autonomous, zero or low carbon emitting
economical data collection and analysis. Our solutions also offer transportation
and communication in ocean and other offshore environments and generate
actionable intelligence via a variety of inputs. We then channel the information
we collect, and other communications, through control equipment linked to edge
computing and cloud hosting environments.
Our mission is to provide intelligent maritime solutions and services that
enable more secure and more productive utilization of our oceans and waterways,
provide clean energy power services, and offer sophisticated surface and subsea
maritime domain awareness solutions. We achieve this through our proprietary,
state-of-the-art technologies that are at the core of our clean and renewable
energy platforms, and our solutions and services.
We were incorporated under the laws of the
began commercial operations in 1994. On
Business Update Regarding Macroeconomic Conditions
Adverse macroeconomic conditions, including inflation, slower growth or
recession, policy changes, higher interest rates, and currency fluctuations may
have a negative impact on our business. Ongoing labor pool shortages are
continuing and are impacting some of our delivery deadlines. These adverse
conditions could impact the spending budgets of our customers, and therefore
could adversely affect the sales of our products and services. In addition, the
Company maintains its cash accounts with financial institutions. Although we
currently believe that the financial institutions with whom we do business will
be able to fulfill their commitments to us, there is no assurance that those
institutions will be able to continue to do so.
We will continue to monitor these conditions, and, if necessary, adjust our
operations in response to these conditions.
24 Table of Contents Our Solutions Data as a Service
Our DaaS solution is at the forefront of our strategic plan to be a leader in
offshore data collection, integration, analytics and real time communication for
a variety of important applications. For example, our solutions can track
surface vessel movement for maritime border enforcement and illegal fishing
interdiction, provide security for offshore wind farms and oil and gas fields,
or provide harbor or port security as well as logistics support. We have the
ability to support aquaculture and gather information on ocean currents, water
quality, wind and other weather metrics, and map shorelines or subsurface areas.
Additionally, we offer 24/7 monitoring solutions that can provide meaningful
real time information, and long term data collection and analytics for
sophisticated applications across many industries and scientific applications.
As part of our DaaS offering, in
agreement with
conduct a feasibility study for the evaluation of a PB3 PowerBuoy® (“PB3”) power
and 5G communications solution in support of the
School’s Sea
expanded our Data as a Service offering through field demonstration such as ANTX
Coastal Trident 2022, as well as contracts with a US government services
provider for an MDAS demonstration off the
for the Digital Horizon field exercise and the International Maritime Exercise
(IMX) in
Maritime Domain Awareness Solution (“MDAS”)
(“MDA”) as the effective understanding of any activity that could impact the
security, safety, economy, or environment related to and within our oceans and
seas. Since 2002,
secure the maritime domain, primarily through the
2020 the
fisheries, one aspect of MDA security, as the leading global maritime threat.
We have designed our solution to provide detailed, localized maritime domain
awareness that can be utilized for a wide range of applications across market
segments. Our MDAS base hardware consists of a high-definition radar, a
stabilized high-definition optical and thermal imaging camera, and a vessel
Automatic Identification System (“AIS”) detection module. This hardware can be
customized or supplemented by other solutions, depending on our customer’s
requirements. These devices can be mounted on our products, such as our PB3 or
WAM-V®, and then utilizing integrated command and control software, data is sent
to us and to our customers via secure communications channels. Multiple sensors
can be used on a single unit based on the comprehensiveness of customer needs.
Capabilities of our MDAS include 24/7 vessel tracking, automatic radar plotting,
and high-definition optical and thermal video surveillance capable of providing
actionable intelligence day or night, in real time.
Our MDAS processes data onboard our buoys using edge computing and transmits the
results to our cloud-based analytics platform via secure Wi-Fi, and cellular
communications. We anticipate integrating WAM-Vs® into our MDAS solution to add
mobile assets for patrols or interdiction and utilizing satellite communication
to expand the availability of our data service. Surveillance data can be
integrated with third party marine monitoring software or with our own MDA
software solution developed together with leading partners in the technology
industry to provide command and control features of a multi-buoy surveillance
network. This network can be coordinated with the use of our WAM-Vs® so that
customers can have mobile sensor networks linked to our self-powered buoy data
and communication hubs. The data can also be integrated with satellite, weather,
bathymetric, and other third party data feeds to form a detailed surface and
subsea picture of a monitored area. All vessel video, radar, and track data is
securely stored in our cloud, or the customer’s cloud, environment and is
accessible for as long as required by the customers for further analysis and
reference.
25 Table of Contents
In
buoy off the coast of
integration of sensors, hardware and software, supported by cloud infrastructure
as well as having a web-based user interface that displays camera, radar, AIS
and live chart data. We have successfully demonstrated the system multiple times
for potential customers and it was showcased in
Advanced Naval Technology Exercise in
MDAS with hardware optimization and feature enhancements.
Autonomous Vehicles (“WAM-V®”)
On
interest of
developer of the patented Wave Adaptive Modular Vessel (WAM-V®) technology,
which enables roaming capabilities for unmanned maritime systems in waters
around the world. MAR launched the first WAM-V® in 2007 as a new vessel class to
deliver reliable autonomous surface vehicles to customers that could provide
robust, real-time data collection and reporting. MAR also provides RaaS,
(Robotics as a Service) allowing customers to lease WAM-V® robotics and access
information from our WAM-Vs® while we maintain ownership and maintenance and
repair responsibilities. Today, WAM-Vs® operate in 11 countries for commercial,
military and scientific uses. Our WAM-Vs® exist in three primary sizes, 8, 16,
and 22 feet, however, many of the design components are common across the sizes,
allowing for integration of different payloads and adaption of the payload
platforms for larger equipment. All sizes can be adapted to suit different
propulsion methods.
This acquisition immediately provided the Company with an established product
line that highly complements the Company’s business strategy and can be used
inshore, nearshore, and offshore. Since the acquisition, the business of MAR has
continued to grow and is further expanding into its core marine survey and
maritime security markets in
to find ways to integrate MAR technology with the Company’s existing platforms
and service offerings, and expect to take advantage of new synergistic
opportunities as they arise. During the quarter ended
Company participated in the Digital Horizon demonstration for the
vehicles. In addition, we plan to integrate the MDAS platform onto the WAM-V® to
expand our MDA offering to provide a roaming MDA solution to our customers.
Power as a Service
PaaS solutions deliver value to customers by utilizing our managed power
platforms. We continue to develop and commercialize our proprietary power
platforms that generate electricity primarily by harnessing the renewable energy
of ocean waves for our PB3 and solar power for our hybrid PowerBuoy® (the
“hybrid PB”), and have the option of adding small wind turbines to supplement
power generation. We also continue to commercialize our subsea battery for
subsea power applications and as additional storage when combined with our buoy
platforms. Our focus for these solutions is on bringing autonomous clean power
to our customers wherever it is required. Moreover, offshore data and
communications networks require power to function, and our solution solves for
this need without requiring ongoing battery replacement or older technologies
such as shore to station power cables. Many of the lessons learned from the
deployments of both our PB3, including with Enel Green Power Chile, LTDA (“EGP”)
for which we received final acceptance during the third quarter of fiscal 2023,
and hybrid PB are being used to develop the next generation of PowerBuoy®
systems that is based on modularity for Wave Energy Converter (“WEC”) and
non-WEC applications. The PB3 and hybrid PB will continue to be available and
supported.
26 Table of Contents PB3 PowerBuoy®
The PB3 uses proprietary technologies that convert the hydrokinetic energy of
ocean waves into electricity. The PB3 features a unique onboard power take-off
(“PTO”) system, which incorporates both energy storage and energy management and
control systems. The PB3 generates a nominal nameplate capacity rating of up to
3 kilowatts (“kW”) of peak power. Power generation is deployment-site dependent,
as wave activity impacts power generation. Our energy storage system (“ESS”) has
a capacity of up to a nominal 150 kW-hours to meet specific application
requirements.
The PB3 is designed to generate power for use independent of the power grid in
offshore locations. The hull consists of a main spar structure compliantly
moored to the seabed and surrounded by a floating annular structure that can
freely move up and down in response to the passage of the waves. The PTO system
includes a mechanical energy conversion system, an electrical generator, a power
electronics system, our control system, and our ESS which is sealed within the
hull. As ocean waves pass the PB3, the mechanical stroke action created by the
rising and falling of the waves is converted into rotational mechanical energy
by the PTO, which in turn, drives the electric generator. The power electronics
system then conditions the electrical output which is stored within the ESS.
The operation of the PB3 is controlled by our customized, proprietary control
system. The control system uses sensors and an onboard computer to continuously
monitor the PB3 subsystems. We believe that this ability to optimize and manage
the electric power output of the PB3 is a significant advantage of our
technology. In the event of large storm waves, the control system automatically
locks the PB3, and electricity generation is suspended. However, the load center
(either the on-board payload or one in the vicinity of the PB3) may continue to
receive power from the ESS. When wave heights return to normal operating
conditions, the control system automatically unlocks the PB3 and electricity
generation and ESS replenishment recommences. This safety feature helps to
protect the PB3 from being damaged by storms.
Customized solutions are also available for the PB3 including the addition of
subsea sensors to monitor for acoustic signatures, tsunami activity, and water
quality.
hybrid PowerBuoy®
The hybrid PB is an alternative platform to the PB3, and utilizes solar and wind
power to supplement its propane engine, and providing reliable power in remote
offshore locations, regardless of ocean wave conditions. We believe this product
addresses a broader spectrum of customer deployment needs, including low-wave
and nearshore environments, with the potential for greater product integration
within each customer project. The hybrid PB is intended to provide a stable
energy platform for our MDAS solution, and for agile deployment of subsea power
applications, such as a surface communications hub for electric remotely
operated vehicles (“eROV”) and autonomous underwater vehicles (“AUV”) used for
underwater inspections and short-term maintenance, and subsea equipment
monitoring and control. The design has a high payload capacity for surveillance
and communications equipment, with the capability of being tethered to subsea
payloads such as batteries, or with a conventional anchor mooring system. Energy
is stored in onboard lithium ion batteries which can power subsea and topside
payloads. The control system uses sensors and an onboard computer to
continuously monitor the hybrid PB subsystems. The hybrid PB is designed to be
able to operate over a broad range of temperature and ocean wave conditions. It
has a 30kW-hour battery system and carries up to 1.2MW-hour energy when combined
with the current onboard propane storage system.
Subsea Battery
Our subsea battery is complementary to both the PB3 and hybrid PB products and
can be deployed together with our PowerBuoys® or as a standalone unit. It offers
customers the option of placing additional modular and expandable energy storage
on the seabed near existing, or to be installed, subsea equipment. Our
pressure-tested lithium-iron phosphate subsea batteries supply power that can
enable subsea equipment, sensors, communications and AUV and eROV recharge. Our
PB3 and hybrid PB are complementary to the subsea batteries by providing a means
for recharging during longer term deployments, or the batteries can be used
independently for shorter term deployments.
The subsea battery provides both long or short-term power supply from its
integrated energy storage system, enabling us to supply into a range of
industries and applications, from backup power to critical subsea infrastructure
to continuous operation of subsea equipment, such as electric valves. The base
design of the subsea battery has a nominal 100kW-hours of available energy
storage and is designed to operate in water depths of up to 500 meters. It comes
installed on a readily deployable subsea skid suitable for installation on the
seabed. The subsea battery can be integrated into other subsea equipment on land
prior to deployment.
27 Table of Contents
Strategic Consulting Services
The focus of our Strategic Consulting Services is on delivering value to our
customers in the areas of ocean engineering, structural and dynamic analysis,
Front End Engineering and Design (“FEED”) studies, and motion simulation. These
services can be integrated in support of our broader PaaS and/or DaaS solutions,
utilizing our products or on an independent basis for third party clients. In
the near term, we will focus on increasing our market share in the offshore wind
market, the broader floating foundation design market, as well as with our
offshore energy customers.
We intend to continue to grow our service sectors and strengthen our solutions
through internal developments, partnerships, and potential acquisitions. Our
Strategic Consulting Services were materially expanded with the acquisition of
3dent
consultants/designers has expertise in structural engineering, hydrodynamics and
naval architecture. Consulting services include simulation engineering,
developing purpose specific software, concept design and motion analysis. We
also offer a full range of high-level offshore engineering to offshore wind
developers, offshore construction companies, drilling contractors, major oil
companies, service companies, shipyards, and engineering firms. For example, we
advise offshore drill rig owners, including owners of floaters, jackups, and
lift boats. The Company has seen an increase in consulting services activity for
conventional offshore energy and for offshore wind projects over the last year.
Strategy and Marketing
Our strategy includes developing integrated solutions and services, including
autonomous and cloud-based delivery systems for ocean data and predictive
analytics to provide actionable intelligence for our clients. We believe that
having demonstrated the capability of our solutions, we can advance our product
and services and gain further adoption from our target markets. Our marketing
efforts are focused on offshore locations that require a cost-efficient solution
for renewable, reliable, and persistent power, data collection, and
communications, either by supplying electric power to payloads that are
integrated directly with our products or located in its vicinity, such as on the
surface, the seabed, or in the water column. Our recent projects have been in
the offshore energy, military and government, and science and research
industries.
Based on recent market analysis, several emerging themes are shaping the
offshore maritime domain awareness sector for commercial and defense
applications, as highlighted by the National Plan to achieve MDA released by the
(“GAO”) in their ‘Uncrewed Maritime Systems’ 2022 report on Maritime Security.
Large defense contractors are expanding into the “ocean data collection” space
by acquiring small and mid-size unmanned and autonomous surface and subsea
vehicle companies. Uncrewed systems are increasingly in demand by defense and
security and commercial companies to reduce costs and improve safety in offshore
operations. Also, geopolitical developments such as the need for countries to
protect their exclusive economic zones from illegal fishing activities and
protect natural resources on the seabed are accelerating the adoption of
solutions or technologies that collect, transmit, and synthesize data to provide
actionable intelligence and decision-advantage to clients. For example, in its
‘Technology Outlook 2030’,
of quality assurance and risk management in maritime, oil and gas and the energy
industries, observed that all-electric systems are gaining popularity in subsea
applications due to their cost-efficiency and reduced environmental impact. DNV
predicts that all-electric subsea systems will play a critical role in the
industry’s transition to a more sustainable future. These trends reinforce the
increasing need for products, solutions, and services in the offshore maritime
domain awareness sector, particularly for uncrewed and sentinel systems that can
improve safety and reduce costs.
We serve a diverse range of leading customers in this sector, including defense
and security organizations, offshore wind, science and research, ports and
harbors, and oil & gas companies. Our pipeline continues to grow with a healthy
mix of defense and security and commercial opportunities, as we witness growing
interest from offshore wind companies for autonomous monitoring, surveillance
and survey-related services during various stages of the project development
cycle. Additionally, we are also attracting interest targeted toward subsea
applications, using proprietary sensor payloads for environmental monitoring and
subsea intelligence. Our buoys and WAM-Vs® are uniquely able to deliver these
services either as a standalone solution or in combination with other systems.
Furthermore, we are becoming a reliable player in the hydrography survey market,
particularly in the shallow water environment.
28 Table of Contents Commercial Activities
We continue to seek new strategic relationships and further develop our existing
partnerships. We collaborate with companies that have developed or are
developing in-ocean applications requiring a persistent source of power that is
also capable of real time data collection, processing and communication, to
address potential customer needs. For the nine months ended
2022, the Company had two and four customers whose revenues accounted for at
least 10% of the Company’s consolidated revenues, respectively. These revenues
accounted for approximately 28% and 58% of the Company’s total revenue for the
respective periods. For the three months ended
Company had five and four customers whose revenues accounted for at least 10% of
the Company’s consolidated revenues, respectively. These revenues accounted for
approximately 63% and 71% of the Company’s total revenue for the respective
periods.
In order to achieve success in ongoing efforts to commercialize our products, we
must expand our customer base and obtain commercial contracts to lease or sell
our solutions and services to customers. Our potential customer base for our
solutions includes various public and private entities, and agencies that
require remote offshore power.
Current and Recent Contracts ? OurNovember 2021 MAR acquisition has led to contracts to build WAM-Vs® forBrigham Young University ,Nippon Kaiyo , Australian Defense,S.T. Hudson , andApplied Research Lab atUniversity of Hawaii , and has resulted in leased WAM-Vs® to Sulmara and other commercial customers and universities as well as government related projects such asTask Force 59 and IMX. ? InOctober 2022 , we entered into a contract with WildAid to further develop capabilities to combat IUU fishing. This is the third consecutive year that MAR has been selected for this work. ? In fiscal year 2022, the Company completed a Phase I study for theDepartment of Energy (DOE) Small Business Innovation Research (SBIR) program, evaluating the feasibility of the next generation wave energy conversion technology. In Q2 fiscal year 2023, the Company was awarded a Phase II contract, providing funding for the detailed design, construction, and in-water testing of the initial prototype for this next generation wave energy system. The program commenced in Q3 fiscal year 2023 and is planned to extend through Q4 fiscal year 2024. ? For the nine months endedJanuary 31, 2023 , our Strategic Consulting Services continued to generate revenues from both existing and new customers of approximately$644,000 . Notably, we advanced several large projects in the pipeline with larger oil and gas operators and offshore wind developers. ? InMay 2022 , the Company entered into a contract with a major oil and gas operator to evaluate the use of wave energy conversion systems to help decarbonize their offshore operations. The feasibility study was completed in the second quarter of fiscal year 2023 and discussions continue to identify opportunities to demonstrate wave conversion technology in support of various applications supporting offshore oil and gas operations. ? InSeptember 2022 , the Company entered into a contract with a major US government services contractor to demonstrate our MDAS capabilities. The scope includes supply of a PB3 equipped with MDAS and a deepwater mooring system, as well as technical support for offshore installation of the system. The system will be deployed for a 9-month demonstration, scheduled to begin in Q1 fiscal year 2024. 29 Table of Contents ? InAugust 2022 , we received a NOAA Phase I SBIR Grant for research related to dynamic swarming of USVs for hydrographic survey in post disaster recovery efforts. ? InSeptember 2022 , the Company was part of a group awarded funding by theU.S. DOE to develop advanced autonomous robotic technology for environmental monitoring of marine ecosystems, at and below the waterline, at offshore wind power sites on theWest Coast ofthe United States . ? InSeptember 2019 , we entered into two contracts with subsidiaries of EGP, which included the sale of a PB3 and the development and supply of a turn-key integratedOpen Sea Lab ("OSL") which was the Company's first deployment off the coast ofChile . Due to the COVID-19 pandemic and other factors, force majeure was declared inApril 2020 and delayed the deployment. InApril 2021 , the Company resumed the deployment process and placed the PB3 in the water. During fiscal 2022, deployment of the PB3 was completed. Final Acceptance was achieved inJanuary 2023 upon satisfactory installation. The customer paid their final invoice and released the letter of credit. Our warranty obligations extend throughJanuary 2024 and are secured by a letter of Credit. Business Relationships
We believe that our solutions are best developed, sold, deployed, and maintained
together with subject matter experts in their respective fields. This enables
the Company to protect, maintain, and evolve our various platforms and integrate
them with surface and subsea payloads. The Company has previously entered into
business relationships focused on including, but not limited to, deployment and
installations, sourcing of surface payloads, and integration with autonomous
vehicles. To augment the further development the MDAS, we maintain ongoing
strategic software and robotics partnerships with two software companies,
Greensea and Fathom5 will further the development, alongside our internal
technology resources, of our next-generation MDAS product for the maritime
industrial market and governmental defense and security organizations.
integration software, control software, autonomy and systems integration for the
buoy sensor payload.
Fathom5 designed and is building a customized data platform that supports the
Company’s MDAS with sensor data feed management, secure communications
management, a cloud-based infrastructure, and web-based user interface. The
platform was designed with a flexible architecture that allows the Company to
integrate new sensor technologies and third-party analytics capabilities and
share MDAS data with customers and partners.
We also maintain an active dialogue with several offshore specialist and marine
operations partners in the
deployment, maintenance, and recovery operations and projects.
Business Strategy
During fiscal 2023, we continue to advance our marketing programs, products, and
solutions. We have made progress in transitioning from an R&D focused
organization to more robust commercialization efforts and we are moving further
into the ocean DaaS market. We intend to build on these efforts by introducing
additional processes and making investments in appropriate human capital to more
effectively target potential customers from demand generation to close of
contract. In addition, we are focusing on customer care and service efforts to
increase repeat business opportunities. This strategy was further enhanced by
our acquisition of MAR in
The majority of the Company’s potential customers are in areas of defense and
security, hydrographic survey, offshore and coastal communication networks, and
maritime domain awareness, including mitigation of IUU fishing. These are
largely for customers in
domestic or abroad. Further, the Company’s acquisition of MAR provides an
unmanned surface vehicle platform for use in oil & gas, renewable energy,
hydrographic survey, and security and defense markets largely in
and
30 Table of Contents
Historically, demonstration projects have been a requisite step towards broad
solution deployment and revenues associated with specific applications such as
our New Jersey MDAS test array as part of our DaaS solution and to highlight
these capabilities. Customers may want their own dedicated demonstration
depending on customer needs. During a typical demonstration project’s
specification, negotiation and evaluation period, we are often subject to the
prospective customer’s vendor qualification process, which entails substantial
due diligence of the Company and its capabilities. Such demonstrations are often
a required step prior to leasing and may include negotiation of standard terms
and conditions. Many proposals contain provisions which would provide the option
to purchase or lease our PowerBuoy® or WAM-V® product upon successful conclusion
of the demonstration project. The Company has successfully demonstrated the
capabilities of many of its solutions on its own or in customer-sponsored
evaluation projects and remains focused on further demonstrations to build
customer awareness and confidence and to drive revenue.
The Company is pursuing a long-term growth strategy to expand its market value
proposition while growing the Company’s revenue base. This strategy includes
partnerships with leading companies and organizations in adjacent and
complementary markets. We continue to develop our PowerBuoy® and WAM-V® products
for use in offshore power, data acquisition, and real-time data communications
applications, and in order to achieve this goal, we are pursuing the following
business objectives:
? Integrated turn-key solutions, purchases or leases. We believe our DaaS and
PaaS solutions, together with our platforms, are well suited to enable
unmanned, autonomous (non-grid connected) offshore applications, such as
topside and subsea surveillance and communications, subsea equipment
monitoring, early warning systems platform, subsea power and buffering, and
weather and climate data collection. We have investigated and realized market
demand for some of these solutions and we intend to sell and/or lease our
products to these markets as part of these broader integrated solutions.
Additionally, we intend to provide services associated with our solution
offerings such as paid engineering studies, value-added engineering,
maintenance, remote monitoring and diagnostics, application engineering,
planning, training, project management, and marine and logistics support
required for our solution life cycle. We continue to increase our commercial
capabilities through new hires in sales, engineering, product development,
safety, and application support, and through engagement of expert market
consultants in various geographies. As our MDAS development continues, we
expect that this will also include data and cloud services.
? Expand customer system solution offerings through new complementary products
that enable more cost-efficient deployments that make shorter missions more
feasible. We are continuously innovating new solutions to deliver enhanced
value to our customers, such as enhancing our MDAS and improving our
deployment platforms solutions, such as our PowerBuoys® and WAM-Vs®. We are
currently developing our next generation Power Buoy that incorporates wave,
wind, and solar power generation capabilities in a robust yet cost effective
system that supports shorter term missions as well as the ability to operate
in near shore and low wave environments. This effort is partially funded by
the DOE SBIR Phase II award. In addition, we have future plans to integrate
PB3 and WAM-V® capabilities, including the possibility of adding recharging
capabilities to our PowerBuoys, and MDAS capabilities to include our WAM-Vs®,
thus extending our reach and providing both fixed and mobile MDAS offerings to
our customers.
The Company has a subsea battery system available to commercial clients that is
complementary to the Company’s PowerBuoy® products. The subsea battery system
offers the ability to create a seafloor energy storage solution for remote
offshore operations. These subsea battery systems contain lithium-iron phosphate
batteries, which provide high power density to supply power to subsea equipment,
sensors, communications, and the recharging of AUVs and eROVs. Ideal for many
remote offshore customer applications, these subsea battery systems are designed
to be safe, high performance, cost-efficient, and quickly deployable. The
Company’s PowerBuoy® products can also be used with other providers’ battery
systems.
31 Table of Contents
Our WAM-Vs® are easily and economically shipped via land, air, or sea, and their
modular design enables us to quickly reduce their size for storage or shipment.
The ability to disassemble a WAM-V® reduces the footprint by as much as 75%, and
as a result, a 20-foot container can hold four 16-foot WAM-Vs®. To integrate our
solutions and add roaming as an option or enhancement to our MDAS, we are
advancing developments to further integrate MDAS into the WAM-V® platform and
develop additional autonomy capabilities.
? Focus sales efforts in key global markets in theU.S. ,Europe ,Canada ,Asia andAustralia . While we are marketing our products and services globally, we have focused on several key markets and applications, includingU.S. and foreign defense and security applications with our MDAS offering; subsea power for oil and gas; and the hydrographic survey market with regard to our WAM-Vs®. We believe that each of these areas has demand for our solutions, sizable end market opportunities, and high levels of industrialization and economic development. We have an office inHouston, Texas that enables us to further support our customers and strengthen our dialogue with our solution partners. During fiscal 2022, we added an office inRichmond, California through our acquisition of MAR. During fiscal 2022, we also further streamlined our global operation by selecting to work with partners in active offshore markets, such as theNorth Sea . These relationships continue to be evaluated against performance criteria during fiscal 2023. We are in active discussions with potential partners inNorth and South America , theCaribbean ,Southeast Asia andWest Africa . ? Expand our relationships in key market areas through strategic partnerships and collaborations. We believe that strategic partners are an important part of expanding visibility to our products. Partnerships and collaborations can be used to improve the development of overall integrated solutions, create new market channels, expand commercial know-how and geographic footprint, and bolster our product delivery capabilities. We have formed such a relationship with several well-known groups, and we continue to seek other opportunities to collaborate with application experts from within our selected markets. These partnerships have helped us source services, such as installation expertise, and products, such as MDA enabling equipment, to meet our development and customer obligations. We have been actively pursuing additional opportunities to bring in-house skills, capabilities, and solutions that are complementary to our strategy and enable us to scale more quickly, including, for example, our acquisition of 3Dent and MAR. ? Partner with fabrication, deployment and service support. In order to minimize our capital requirements as we scale our business, we intend to optimize and utilize state of the art fabrication, anchoring, mooring, cabling supply, and in some cases, deployment of our products and solutions. We believe this domestically distributed manufacturing and assembly approach enables us to focus on our core competencies and ensure a cost-effective product by leveraging a larger more established supply base. We continue to seek strategic partnerships regarding servicing of our products and solutions. ? Survey and security market applications. With the addition of our WAM-V® products, we are able to increase our ability to lease vehicles specifically to support shoreline and offshore survey markets as well as security applications while integrating MDA into these solutions. 32 Table of Contents Liquidity
During the nine months ending
of approximately
development efforts and in building inventory in anticipation of, and in support
of, future growth. 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, technology development, scalability of technology and production,
ability to attract and retain key personnel, concentration of customers and
suppliers, and deployment risks and integration of acquisitions.
The Company previously obtained equity financing through its At the Market
Offering Agreement (“ATM”) with A.G.
through its equity line financing with
Capital
financing will be available to the Company as needed on acceptable terms, or at
all.
Management believes the Company’s cash balance of
investments balance of
its planned operations through at least
Capital Raises
At the Market Offering Agreement: On
an At-the-Market Offering Agreement with AGP (the “2020 ATM Facility”) pursuant
to which the Company may issue and sell, from time to time, shares of the
Company’s common stock having an aggregate offering price of up to
million
the time of sale, and, as a result, prices will vary. Although the Company
initially only had filed to sell up to
was filed on
million
Facility. As of
available under this facility, subject to the filing of a prospectus supplement
for an additional
Equity Line Common Stock Purchase Agreement: On
entered into a common stock purchase agreement with
provided that, subject to certain terms, conditions and limitations,
Capital
the Company’s common stock over a 30-month period subject to a limit of 19.99%
of the outstanding common stock on the date of the agreement if the price did
not exceed a specified price in the agreement. The number of shares the Company
could issue within the 19.99% limit was 3,722,251 shares without shareholder
approval. Shareholder approval was received at the Company’s annual meeting of
shareholders on
common stock which exceeded the 19.99% limit of the outstanding common stock on
the date of the agreement. Through
aggregate of 3,722,251 shares of common stock with an aggregate market value of
stock purchase agreement with approximately
facility as of
The sale of additional equity or convertible securities could result in dilution
to our shareholders. If additional funds are raised through the issuance of debt
securities or preferred stock; these securities could have rights senior to
those associated with our common stock and could contain covenants that would
restrict our operations. The Company has obtained equity financing through its
ATM Agreement with AGP and the
be certain that additional equity and/or debt financing will be available to the
Company as needed on acceptable terms, or at all. If we are unable to obtain
required financing when needed, we may be required to reduce the scope of our
operations, including our planned product development and marketing efforts,
which could materially and adversely affect our financial condition and
operating results. If we are unable to secure additional financing, we may be
forced to cease our operations.
Backlog
As of
includes unfilled firm orders for our products and services from commercial or
governmental customers. If any of our contracts were to be terminated, our
backlog would be reduced by the expected value of the remaining terms of such
contract.
The amount of contract backlog is not necessarily indicative of future revenue
because modifications to or terminations of present contracts and production
delays can provide additional revenue or reduce anticipated revenue. A portion
of our revenue is recognized using the input method used to measure progress
towards completion of our customer contracts over time, and changes in estimates
from time to time may have a significant effect on revenue and backlog. Our
backlog is also typically subject to large variations from time to time due to
the timing of new awards.
33 Table of Contents
Critical Accounting Policies and Estimates
To understand our financial statements, it is important to understand our
critical accounting policies and estimates. We prepare our financial statements
in accordance with
The preparation of financial statements also requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, costs and
expenses and related disclosures. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ significantly from the estimates made
by our management. To the extent that there are differences between our
estimates and actual results, our future financial statement presentation,
financial condition, results of operations and cash flows will be affected. We
believe that the accounting policies are critical to understanding our
historical and future performance, as these policies relate to the more
significant areas involving management’s judgments and estimates.
For a discussion of our critical accounting estimates, see the section entitled
Item 7.- “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K for the year ended
estimates or accounting policies during the nine months ended
Recently Issued Accounting Standards
In
2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of
Credit Losses on Financial Instruments.” This amendment replaces the incurred
loss impairment methodology in current GAAP with a methodology that reflects
expected credit losses on instruments within its scope, including trade
receivables. This update is intended to provide financial statement users with
more decision-useful information about the expected credit losses. In
2019
326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which
deferred the effective date of ASU 2016-13 for Smaller Reporting Companies for
fiscal years beginning after
those fiscal years. The Company is currently evaluating the impact the adoption
of ASU 2016-13 will have on its consolidated financial statements.
Financial Operations Overview
The following describes certain line items in our statement of operations and
some of the factors that affect our operating results.
Revenues
A performance obligation is the unit of account for revenue recognition in
accordance with Accounting Standards Codification 606 (ASC 606) or Accounting
Standards Codification 842 (ASC 842) which identifies how to recognize revenue
in leasing arrangement. For revenue recognized under ASC 606, 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 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.
34 Table of Contents
The nature of the Company’s contracts may give rise to several types of variable
considerations, including unpriced change orders and liquidated damages and
penalties. Variable considerations can also arise from modifications to the
scope of services. Variable consideration is included in the transaction price
to the extent it is probable that a significant reversal of cumulative revenue
recognized will not occur once the uncertainty associated with the variable
consideration is resolved. Our estimates of variable consideration and
determination of whether to include such amounts in the transaction price are
based largely on our assessment of legal enforceability, performance and any
other information (historical, current, and forecasted) that is reasonably
available to us. There was no variable consideration related to open contracts
as of
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 of it. 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 or time elapsed 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 hour incurred
best represents the measure of progress against the performance obligations
incorporated within the contractual agreements. When the Company’s estimate of
total costs to be incurred to satisfy the performance obligations exceeds
revenues, the Company recognizes the loss immediately.
The Company’s contracts are either cost plus or fixed price contracts. Under
cost plus contracts, customers are billed for actual expenses incurred plus an
agreed-upon fee. Under cost plus contracts, a profit or loss on a project is
recognized depending on whether actual costs are more or less than the agreed
upon amount.
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, 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 revenues, resulting in gross
profit on these contracts of zero. The Company’s share of the costs is recorded
as product development expense. The Company reports its disaggregation of
revenues by contract type since this method best represents the Company’s
business. For the nine-month periods ended
Company’s contracts were classified as firm fixed price.
As of
also referred to as backlog, totaled
recognize approximately 85%, or
obligations as revenue over the next twelve months.
The Company also enters into lease arrangements for its PB3 and 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 PB3 or WAM-V® and components, while non-lease elements generally include
engineering, monitoring and support services. In the lease arrangement, the
customer may be provided an option to extend the lease term or purchase the
leased asset at some point during and/or at the end of the lease term.
The Company classifies leases as either operating or financing in accordance
with the authoritative accounting guidance contained within ASC Topic 842,
“Leases”. At inception of the contract, the Company evaluates the lease against
the lease classification criteria within ASC Topic 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 an operating lease, either under
the right of use classification or short-term operating lease.
The Company recognizes revenue from operating lease arrangements generally on a
straight-line basis over the lease term based on time or usage as presented in
Revenues in the Consolidated Statement of Operations. The lease income for the
three months ended
respectively.
35 Table of Contents
For the nine months ended
four customers whose revenues accounted for at least 10% of the Company’s
consolidated revenues, respectively. These revenues accounted for approximately
28% and 58% of the Company’s total revenue for the respective periods.
For the three months ended
four customers whose revenues accounted for at least 10% of the Company’s
consolidated revenues, respectively. These revenues accounted for approximately
63% and 71% of the Company’s total revenue for the respective periods.
We currently focus our sales efforts in key global markets in
revenues by geographical location of our customers for the nine months ended
Nine months ended January 31,
Customer Location* 2023 2022
North America 82 % 83 %
South America 4 % 16 %
Europe - % 1 %
Asia and Australia 14 % - %
100 % 100 %
* For
however, location of operations may differ.
Cost of revenues
Our cost of revenues consists primarily of subcontracts, incurred material,
labor and manufacturing overhead expenses, such as engineering expense,
equipment depreciation and maintenance and facility related expenses, and
includes the cost of equipment to customize the PowerBuoy® and our other
products supplied by third-party suppliers. Cost of revenues also includes
PowerBuoy® and other product system delivery and deployment expenses and may
include anticipated losses at completion on certain contracts.
Operating Expenses
Engineering and product development costs
Our engineering and product development costs consist of salaries and other
personnel-related costs and the costs of products, materials and outside
services used in our product development and unfunded research activities. Our
product development costs relate primarily to our efforts to increase the power
output and reliability of our PowerBuoy® system and other products, to enhance
and optimize data monitoring and controls systems, and to the development of new
products, product applications and complementary technologies. We expense all of
our product development costs including engineering product development costs as
incurred.
Selling, general and administrative costs
Our selling, general and administrative costs consist primarily of professional
fees, salaries and other personnel-related costs for employees and consultants
engaged in sales and marketing and support of our products, and costs for
executive, accounting and administrative personnel, professional fees and other
general corporate expenses.
Interest income, net
Interest income, net consists of interest received on cash, cash equivalents,
and short term investments and interest paid on certain obligations to third
parties as well as amortization expense related to the premiums on the purchase
of short term investments.
36 Table of Contents Foreign exchange gain (loss)
We transact business in various countries and have exposure to fluctuations in
foreign currency exchange rates. Foreign exchange gains and losses arise in the
translation of foreign-denominated assets and liabilities, which may result in
realized and unrealized gains or losses from exchange rate fluctuations. Since
we conduct our business in
dollar, our main foreign exchange exposure, if any, results from changes in the
exchange rate between the
Euro.
We maintain cash accounts that are denominated in British pounds sterling in
addition to
balance of
compared to our total cash, cash equivalents, short term investments, and
restricted cash balances of
million
In addition, a portion of our operations is conducted through our subsidiaries
in countries other than the
in the
sterling. This subsidiary has foreign exchange exposure that results from
changes in the exchange rate between their functional currency and other foreign
currencies in which they conduct business. The Company is in the process of
winding down its Australian subsidiary, which is expected to be completed during
fiscal 2023. The unrealized gains or losses resulting from foreign currency
balances translation are included in Accumulated Other Comprehensive Loss within
Shareholders’ Equity. Foreign currency transaction gains and losses are
recognized within our Consolidated Statements of Operations.
We currently do not hedge our exchange rate exposure. However, we assess the
anticipated foreign currency working capital requirements and capital asset
acquisitions of our foreign operations and attempt to maintain a portion of our
cash and cash equivalents denominated in foreign currencies sufficient to
satisfy these anticipated requirements. We also assess the need and cost to
utilize financial instruments to hedge currency exposures on an ongoing basis
and may hedge against exchange rate exposure in the future.
Results of Operations
This section should be read in conjunction with the discussion below under
“Liquidity and Capital Resources.”
37 Table of Contents
Three months ended
31, 2022
The following table contains selected statement of operations information, which
serves as the basis of the discussion of our results of operations for the three
months ended
Three months ended October 31,
2023 2022
Revenues $ 734 $ 484
Cost of revenues 598 597
Gross margin (loss) $ 136 $ (113 )
(Gain)/loss from change in fair value of consideration 373 (60 )
Operating expenses 6,820 5,439
Operating loss $ (7,057 ) $ (5,492 )
Interest income, net 229 16
Other income, proceeds from insurance claim 458 -
Foreign exchange gain 2 5
Loss before income taxes $ (6,368 ) $ (5,471 )
Income tax benefit 278 -
Net loss $ (6,090 ) $ (5,471 )
Revenues
Revenues for the three months ended
and
higher levels of revenue stemming from MAR which increased revenue by
million
Cost of revenues
Cost of revenues for the three months ended
million
increase in revenue is related to better margins on our strategic consulting
services and government related grants with
Change in fair value of contingent consideration
The change in fair value of contingent consideration for the three months ended
consideration liability based on actual and forecasted revenues relating to the
MAR acquisition. The previous year related to an adjustment to a 3Dent earnout
liability in relation to their acquisition.
Operating expenses
Operating expenses for the three months ended
million
due to increased headcount, an increase in product development costs of
million
prior year.
38 Table of Contents Interest income
Interest income for three months ended
million
short term investments we made during the fourth quarter of fiscal 2022. As
such, there were no short term investments held for the three months ended
Other income
Other income for the three months ended
million
proceeds received for an insurance claim.
Nine months ended
2022
The following table contains selected statement of operations information, which
serves as the basis of the discussion of our results of operations for the nine
months ended
Nine months ended
2023 2022
Revenues $ 1,752 $ 1,003
Cost of revenues 1,382 1,320
Gross margin (loss) $ 370 $ (317 )
(Gain)/loss from change in fair value of consideration 154 (60 )
Operating expenses 19,546 15,451
Operating loss $ (19,330 ) $ (15,708 )
Interest income, net 604 56
Other income, proceeds from insurance claim 458 -
Other income, employee retention credit 1,202 -
Gain on extinguishment of PPP loan - 890
Foreign exchange gain 2 -
Loss before income taxes $ (17,064 ) $ (14,762 )
Income tax benefit 278 1,041
Net loss $ (16,786 ) $ (13,721 )
Revenues
Revenues for the nine months ended
and
higher levels of revenue stemming from the acquisition of MAR which produced
in
Cost of revenues
Cost of revenues for the nine months ended
million
million
related projects for the nine months ended
the Company for only three of the nine months ended
39 Table of Contents
Change in fair value of contingent consideration
The change in fair value of contingent consideration for the nine months ended
consideration liability based on actual and forecasted revenues relating to the
MAR acquisition. The previous year related to an adjustment to a 3Dent earnout
liability in relation to their acquisition.
Operating expenses
Operating expenses for the nine months ended
million
months in the current year and only 2 months in the prior year, an increase in
product development related costs of
expenses of
the prior year.
Interest Income
Interest income for the nine months ended
million
short term investments we made during the fourth quarter of fiscal 2022. As
such, there were no short term investments held for the nine months ended
Extinguishment of Debt
The Company filed its loan forgiveness application for the PPP loan at the end
of
Company was informed that its application was approved, the loan was fully
forgiven and the Company recognized a gain on extinguishment of PPP loan of
million
Other income
Other income for the nine months ended
million
employee retention credits applied for previously filed payroll tax returns with
the Internal Revenue Service of
insurance claim of
Liquidity and Capital Resources
Our cash requirements relate primarily to working capital needed to operate and
grow our business including funding operating expenses. We have experienced and
continue to experience negative cash flows from operations and net losses. The
Company incurred net losses of
months ended
Outlook” below for additional information.
Net cash used in operating activities
During the nine months ended
activities was
used in operating activities during the nine months ended
increase in inventory of
extinguishment of the PPP loan of
liabilities of
of
Net cash provided by (used in) investing activities
Net cash provided by investing activities during the nine months ended
31, 2023
activities during the nine months ended
cash provided by investing activities was primarily due to the redemption of
short term investments of
short term investments of
2023
40 Table of Contents
Net cash (used in) provided by financing activities
Net cash used in financing activities during the nine months ended
2023
by financing activities during the nine months ended
relates to the number of stock option exercises in the prior year while no
options were exercised in the current year.
Effect of exchange rates on cash and cash equivalents
There was no effect of exchange rates on cash and cash equivalents during the
nine months ended
rates on cash and cash equivalents stems primarily from gains or losses on
consolidation of foreign subsidiaries and foreign denominated cash and cash
equivalents.
Liquidity Outlook
Since our inception, the cash flows from customer revenues have not been
sufficient to fund our operations and provide the capital resources for our
business. As of
million
date net cash used in operating activities was
deficit was
We expect to devote substantial resources to continue our development efforts
for our products and to expand our sales, marketing and manufacturing programs
associated with the continued commercialization of our products. Our future
capital requirements will depend on a number of factors, including but not
limited to:
? our ability to develop, market and commercialize our products, and achieve and
sustain profitability;
? our continued development of our proprietary technologies, and expected
continued use of cash from operating activities unless or until we achieve
positive cash flow from the commercialization of our products and services;
? our ability to obtain additional funding, as and if needed, which will be
subject to several factors, including market conditions, and our operating
performance;
? the continued impact of COVID-19 and the inflation related to the
on our business, operations, customers, suppliers and manufacturers and
personnel;
? our ability to meet product development, manufacturing and customer delivery
deadlines may be impacted by disruptions to our supply chain, primarily related
to labor shortages and manufacturing and transportation delays both here in the
U.S. and abroad;
? our acquisitions and our ability to integrate them into our operations may use
significant resources, be unsuccessful or expose us to unforeseen liabilities;
? our estimates regarding future expenses, revenues, and capital requirements;
? our ability to identify and penetrate markets for our products, services, and
solutions;
? our ability to effectively respond to competition in our targeted markets
? our ability to establish relationships with our existing and future strategic
partners may not be successful;
41 Table of Contents
? our ability to maintain the listing of our common stock on the NYSE American;
? the reliability of our technology, products and solutions;
? our ability to improve the power output and survivability of our products;
? changes in current legislation, regulations and economic conditions that affect
the demand for, or restrict the use of our products;
? our ability to hire and retain key personnel, including senior management, to
achieve our business objectives;
? our history of operating losses, which we expect to continue for at least the
short term and possibly longer; and
? our ability to protect our intellectual property portfolio.
Our business is capital intensive, and through
funding our business principally through sales of our securities. As of
31, 2023
investments balance was
this amount and, to a lesser extent, with our profits. Management believes the
Company’s current cash and cash equivalents, and short term investments, are
sufficient to fund its planned expenditures through at least
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet financing
activities.
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