17th Oct 2005 07:00
Ocean Power Technologies Inc17 October 2005 NEWS RELEASEFor Immediate Release Ocean Power Technologies, Inc. 1590 Reed Road Pennington, New Jersey 08534 USA OCEAN POWER TECHNOLOGIES ANNOUNCES RESULTS FOR THE YEAR ENDED 30 APRIL 2005 Pennington, NJ, USA, 17 October 2005 - Ocean Power Technologies, Inc ("OPT", or"the Company") (London Stock Exchange: AIM-OPT), a leading renewable energytechnology company that is commercialising its "intelligent" and scaleableoff-shore wave-powered electrical generation systems, is pleased to announce itsresults for the year ended 30 April 2005 (exchange rate of £1=$1.85). HIGHLIGHTS • Contract revenues of $5.4 million (£2.9 million), up 14% from the previous year. • Net loss of $429,000 (£232,000), compared to loss of $2,849,000 (£1,540,000) in the previous year. • Cash, cash equivalents and short term investments balance of $38.8 million (£21.0 million) at 30 April 2005 (2004: $39.6 million). • Additional contracts and funding: - Hawaii contract awarded $2.0 million additional funding from US Navy - Lockheed Martin contracts awarded totaling $2.0 million - Joint venture formed with Iberdrola S.A. for a multi-phased project for a 1.25 MW OPT wave power station on the northern coast of Spain • PowerBuoys deployed in ocean: - First Hawaii PowerBuoyTM initially tested in ocean - PowerBuoy installed off coast of Washington State under Lockheed contract for powering underwater sensing systems • Formation of European subsidiary Ocean Power Technologies Limited. Mark R. Draper named as Chief Executive, and office opened in Warwick, UK. • Operating results reflect planned investment in capital assets, additional professional staff, opening the European operation and product development effort. Commenting on these results Dr. George W. Taylor, Chief Executive Officer ofOPT, said: "OPT has made significant progress, with the conclusion of its first fullfinancial year subsequent to its IPO in October 2003. The hallmarks for thisperiod have been significant investments made in our proprietary wave powertechnology, in hiring highly capable individuals with international engineeringand business experience, and broadening the Company's revenue base with new,world-class strategic partners. We believe that OPT's success in gettingPowerBuoys in the water will continue, as we focus resources on the long-termissues of performance in the dynamic ocean environment, and of increasing powerefficiencies per PowerBuoy unit. With these accomplishments, and the expansionof our presence in Europe, OPT believes it is establishing the right foundationfor significant growth that is sustainable in the international marketplace.This is increasingly important, given the heightened awareness of the dangers ofglobal warming and the accelerating cost of fossil fuel." For further information, please contact: Dr. George W. Taylor, Charles F. Dunleavy,Chief Executive Officer Chief Financial OfficerTelephone: (609) 730-0400 Telephone: (609) 730-0400E-mail: [email protected] E-mail: [email protected] Michael Brennan, Ken Cronin,Evolution Securities Ltd. Gavin Anderson & CompanyTelephone: +44 207 071 4300 Telephone: +44 207 554 1400 RESULTS STATEMENT ResultsRevenues for the year ended 30 April 2005 were $5,365,235, compared to$4,713,202 for the previous year. This 14% increase was attributable primarilyto new contracts with Lockheed Martin Corp and Iberdrola S.A. Gross profit forthe year was $194,714, compared to $393,352 in the previous year. OPT's net loss for the year ended 30 April 2005 was $428,634, versus a loss forthe previous year of $2,849,476. The financial year 2005 results reflected asignificant increase in product development; selling, general and administrativecosts; plus non-operational items that included foreign exchange gains andinterest earned (see Financial Review below). Business ReviewAs demand for renewable energy continues to expand in markets throughout theworld, OPT is ideally positioned to achieve significant growth. OPT's uniquetechnology, coupled with proven ocean survivable systems, is the key to viablewave power stations. These ocean survivable systems which OPT utilises includethe conventional ocean-going buoy, marine-grade structures and sub-systems usedin the offshore oil and gas industry, and marine construction/deploymenttechniques utilised by OPT's strategic partner, the US Navy. OPT's fundamentalbusiness plan is to make, sell and service large quantities of its PowerBuoyunits, under contracts which provide for rapid scale-up. Sale of the Company'sproducts and services are strategically focused on "green" utility power marketsand premium-priced remote power. OPT Limited Ocean Power Technologies Limited has been formed as a wholly-owned subsidiary ofOPT. Based in the UK, OPT Limited will establish the Company's presence withinEuropean markets. OPT Limited's operations will comprise engineering and salesand marketing in Europe. Mark R. Draper has been appointed to the position ofChief Executive of OPT Limited. Mr. Draper was previously the managing directorof the UK Generation Business of E.ON (formerly Powergen), with directresponsibility for both renewable and conventional power generation. The hiringof additional key staff has commenced, and OPT Limited has projects underway inEurope. OPT Limited is expected to benefit from participation in variousEuropean initiatives now in place to foster growth in marine renewables. Forexample, the marine deployment fund in the UK has certain incentives withrespect to capital expenditures and production tariffs which OPT Limitedbelieves will be of benefit to its construction of a demonstration powerstation, with a utility partner. In this connection, OPT Limited has heldcontinued dialogue with the UK Energy minister and key officials of theDepartment of Trade and Industry. Further, OPT Limited has identified potentialutility partners for the building of a demonstration power station, andanalysing potential sites. Iberdrola S.A. In July 2004 OPT signed a Joint Venture Agreement with Iberdrola S.A., IDEA, theenergy agency of the Government of Spain, and Sodercan, the industrialdevelopment agency of the Spanish region of Cantabria. To receive the support ofthese regional and federal European government agencies, following from thesponsorship which OPT is receiving from the US federal government and the NewJersey state government, marks an important milestone for OPT. Iberdrola is oneof the largest renewable energy companies worldwide with more than 2,400Megawatts (MW) of renewable energy generation assets, and plans to increase thatcapacity to 4,500 MW by 2008. It is also one of the largest electric powerutilities in Europe. The Joint Venture is for the phased development,construction and operation of a 1.25 Megawatt OPT wave power station off thecoast of the Cantabria region in northern Spain, to be connected into theSpanish national power grid. Following the successful completion of the initial1.25 MW OPT wave power station, Iberdrola has stated it expects over thefollowing several years to install hundreds of megawatts of OPT wave powerstations along Spain's northern coast. OPT has invested in this Joint Ventureand retains a 10% interest, with Iberdrola retaining a 60% interest. Inaddition, Total S.A., the major French energy company, has acquired a 10%interest in the venture. As part of the initial phase of the Spanish wave power project, OPT andIberdrola are working on the development of the site, permitting and theidentification of local vendors and sub-contractors for building and installingportions of the OPT system. US Navy OPT has continued to make progress on its contract with the US Navy for deliveryof PowerBuoy systems at a US Marine Corps base on the island of Oahu, in Hawaii.The project is to provide up to 1MW of power to the Hawaiian power grid. Withthe active participation and support of the US Navy, the project is focused onsurvivability, deployment, methodology, grid connection and multiple-buoyintegration. The first PowerBuoy unit was installed in June 2004 near KaneoheBay, having been towed to the site by a standard commercial tugboat. Once onsite, the deployment was successfully accomplished within three hours and thestraightforward process is expected to facilitate the building of future OPTwave power stations. This first Hawaii PowerBuoy unit is initially rated forproduction of 40-50 kilowatts of electrical power. Full-scale testing of thefirst buoy was conducted in the ocean over four months. The initial system hasnow been modified and enhanced and will be redeployed. As an indication of theUS Navy's continuing partnership in this project, $2.0 million was added tocontract value during the year. New Jersey Board of Public Utilities OPT will shortly deploy the PowerBuoy to be delivered under its contract withthe New Jersey Board of Public Utilities ("NJBPU"). Under the contract, OPT isinstalling and will operate one of its PowerBuoy systems off the coast of NewJersey. To date, system designs have been prepared, system performancesimulations have been conducted, extensive wave tank testing has been completedsuccessfully, and mooring systems have been deployed in the ocean. The systemwill be used to perform ocean testing of certain technology innovations, and formarketing purposes to prospective partners for a scale-up to a multi-megawattpower station off the New Jersey coast. The contract award to OPT was made underthe New Jersey Renewable Energy and Economic Development programme. New Jersey is one of the leading US states to foster the wide-scale deploymentof renewable energy systems. New Jersey has mandated that 4% of all powerproduced in the state must be from renewable generating sources by 2008, and 20%by 2020. With a population that consumes about 5,000 MW of power, a 4% mandatetranslates to 200 MW of renewable power requirement. OPT looks forward tobuilding on its contract with NJBPU to obtain a strategic partner, and coupledwith additional support from the state, to construct a commercial OPT wave powerstation. Lockheed Martin In May 2004, the Company announced its receipt of an award from Lockheed MartinCorp. of a contract worth an initial $0.5 million to provide a wave energygenerating system to power remote underwater sensing equipment and associateddata link, for oceanographic data sampling. Under this contract, OPT developed asmall-scale wave energy conversion system designed to provide continuous,renewable power to Lockheed Martin's systems under its contract from the USNavy. OPT's technology is expected to improve those systems' performance andgreatly enhance operating life, with a resultant major economic savings to thecustomer. During the year ended 30 April 2005, OPT successfully completed oceandeployment, testing and operation of this system for Lockheed Martin, and hassuccessfully demonstrated in-ocean performance 20 nautical miles off the coastof Seattle, Washington, in accord with design specifications. Total time todesign, build and complete testing in the ocean was accomplished within ninemonths, and the project was completed on a profitable basis. Furthermore, following the successful ocean testing of the prototype LockheedMartin system, OPT was awarded a $1.5 million contract from Lockheed Martin forthe second phase of the programme. This contract was for the preliminary designand planning for the system development and the demonstration of initialproduction quantities of OPT's small scale PowerBuoy system. Both of the firsttwo contracts from Lockheed were successfully completed, and OPT received aletter from Lockheed commending the Company for its satisfactory completion ofthe contracts within schedule and budget. The expected next phase, for systemsdevelopment and initial production quantities, is part of a much largerprogramme which would include Lockheed and other major defense contractors.OPT's portion, while material to its trading, is a relatively small part of thetotal programme, and it is dependent on the determination and timing of work tobe performed by Lockheed and the major subcontractors. In addition to theprogramme with Lockheed Martin, there is extensive commercial potential forOPT's system as a renewable power source for a range of offshore equipmentincluding meteorological and oceanographic data buoys, fishing and navigationalaids, mariculture, and other data sampling applications. Each of the aforementioned contracts, individually, carries the high prospect ofincreased future business with the respective global customers. OPT believesthat it is well positioned to grow its business in an ever-expandinginternational renewable energy marketplace. Cornerstones of this effort arealliances with significant strategic partners on both the demand and supplyside, standardised production techniques and volume production of PowerBuoyunits. OPT's strategy for establishing its baseline PowerBuoy brand includes afocus on ocean survivability, successful installation procedures, andconsistent, predictable performance. With that focus on execution, the Companybelieves it will successfully expand the global sales of its PowerBuoy system. Product DevelopmentThe Company continues to direct significant resources to certain new productdevelopment initiatives. The focus of these initiatives is on enhancingsurvivability and power conversion efficiencies of the PowerBuoy system, withthe expected result of increasing power output capacity per PowerBuoy. Thiseffort to date has served as the basis for several new patent applications. Asof 31 August 2005, the Company has 27 patents issued and 11 patents filed andpending. The Company will allocate increased resources to product development,and views this as an important investment that will leverage the existingtechnology. OPT believes that the path to achieving lower cost per kilowatt hour produced bythe PowerBuoy system includes (a) power conversion efficiency improvementsthrough technical innovations, (b) manufacturing economies of scale, (c)utilising modular, marine-proven systems such as ocean-going buoys, and (d)effective, quality-controlled sourcing of components on an international basis. Board Changes Following the Annual General Meeting of Shareholders held on 22 November 2004,the Board of Directors of OPT, consisting of Sir Eric A. Ash, Charles F.Dunleavy, Seymour S. Preston III, and Dr. George W. Taylor, elected Seymour S.Preston III as Chairman of the Board of Directors, Sir Eric A. Ash, as Chairmanof the Compensation and Nominating Committees, and Seymour S. Preston III asChairman of the Audit Committee. In addition, Sir Eric A. Ash was electedChairman of the Board of Directors of Ocean Power Technologies Limited. Theother OPT Limited Board Members are Mark R. Draper, Charles F. Dunleavy and Dr.George W. Taylor. PersonnelThe Company has added several key personnel in both the UK and the US during2005 in the areas of senior management, engineering and project management.These professional employees have all had experience in delivering systems andservices, and strengthen OPT's execution capability. In order to incentiviseemployees' performance and teamwork, all employees participate in the Company'sstock option plans. Financial ReviewRevenues for the year ended 30 April 2005 were $5,365,235, compared with$4,713,202 during the previous year. This represents a 14% increase. Theincrease in revenues compared with the previous year is attributable to OPT'scontracts with Lockheed Martin, Iberdrola and New Jersey Board of PublicUtilities, net of a decrease in revenues recognized in connection with theHawaii contract. Gross profit from contracts was $194,714 in the year ended 30April 2005, compared to $393,352 in the previous year. Company-funded product development costs were $904,618 in the year ended 30April 2005, compared to $255,958 in the previous year. These costs related toengineering efforts focused on increasing power capacity per PowerBuoy, enhancedpower take-off, and system survivability. Selling, general and administrative expenses were $2,553,911 in the year ended30 April 2005, up 46% from $1,745,955 in the previous year. The increase was dueprimarily to growing the Company's European operations, expanded marketingefforts, higher personnel-related costs and costs related to the Company beingpublicly held. The increased level of personnel-related costs reflects theCompany's investment in its professional staff in the areas of projectmanagement, engineering and business development. OPT's net loss for the year ended 30 April 2005 was $428,634, versus a net lossof $2,849,476 the previous year. Results for the twelve-month period ended 30April 2004 included a one-time charge of $3.5 million to Tyco ElectronicsCorporation ("Tyco") related to a 1999 agreement between Tyco and OPT. This wasa non-recurring item included in Other income (expense) in financial year 2004. As of 30 April 2005 the Company had cash, cash equivalents and certificates ofdeposit totaling $38,787,176, as compared to $39,565,574 at 30 April 2004. TheCompany had total interest income of $1,297,156 for year-ended 30 April 2005, ascompared to $555,717 in the previous year. The increase in interest income fromthe prior year reflected a full year's invested balances in fiscal 2005, versuscomparable principal amounts invested for only a half-year in fiscal 2004. Purchases of equipment and patent costs were $560,902 in the year ended 30 April2005, compared to $159,860 in the previous year. The Company increased itsengineering, test and production facilities in 2005, reflecting planned use ofproceeds from its initial public offering and listing on the AIM market of theLondon Stock Exchange in October 2003. Current Trading and Outlook During financial year ending 30 April 2006, OPT will continue to invest in thoseareas which position the Company for significant growth. These include thehiring of experienced personnel, leveraging its existing contracts by committingincreased resources to product development, adding more world-class strategicpartners, and getting more PowerBuoys in the ocean. OPT has recently announced anew relationship with Total S.A., a leading international energy company.Initiatives are under way in the UK with respect to establishing the marketpresence of OPT Limited. Paul Jordan, a former official of the Carbon Trust,joined OPT Limited in October 2005 as Business Development Manager. With the recent passing of the US Energy Bill, the United States Government hasfor the first time included specific language to provide financial incentivesfor wave energy. OPT has been involved directly with the effort that hasculminated in this accomplishment. The Company is already well-positioned in theUnited States with its contract to build a grid-connected wave power station inHawaii for the US Navy and a contract with the New Jersey Board of PublicUtilities to build a demonstration wave power system. The Company expects thenew Energy Bill incentives of the US Government to result in additional businessfor OPT with US utilities and others. The Company continues to assert careful stewardship of the funds raised inconnection with its IPO. The planned use of those proceeds has not fundamentallychanged course since the IPO and OPT is making the investments noted previouslyincluding a strong emphasis on product development. We are pleased with thecontinuing support of our customers under existing contracts. Based on the sizeof our Company, the timing of new contract awards, especially within the contextof large government programmes, may create delays in year to year revenues.However, the Company has strong confidence that its strategy focused on gettingsystems in the ocean and increasing power output of the PowerBuoy is consistentwith long-term accelerated growth, which will lead to OPT becoming a majorinternational company. Seymour S. Preston III Dr. George W. TaylorChairman Chief Executive Officer Consolidated Balance Sheets as ofApril 30, 2004 and 2005 ASSETS 2004 2005 $ $CURRENT ASSETS:Cash and cash equivalents 38,840,245 13,584,814Certificates of deposit 725,329 25,202,362Accounts receivable 46,925 668,424Unbilled receivables 553,821 822,037Other current assets 225,308 464,582 Total current assets 40,391,628 40,742,219 EQUIPMENT, Net of accumulated depreciation of $302,377and $414,447 respectively 104,195 427,613 PATENTS, Net of accumulated amortization of $108,779and $137,693 respectively 238,309 334,809 OTHER ASSETS 13,347 91,746 TOTAL ASSETS 40,747,479 41,596,387 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:Accounts payable 472,477 876,968Accrued expenses 1,179,305 1,891,483Unearned revenues 263,678 16,788Amounts due to related parties 53,773 53,773 Total current liabilities 1,969,233 2,839,012 LONG-TERM DEBT 250,000 245,844 DEFERRED CREDITS 675,000 675,000 Total liabilities 2,894,233 3,759,856 COMMITMENTS STOCKHOLDERS' EQUITY:Preferred stock, $0.001 par value; 5,000,000 shares,issued or outstanding none as of April 30, 2004 and 2005 - -Common stock, $0.001 par value; authorized 105,000,000shares, issued and outstanding 51,165,758 and 51,512,953shares as of April 30, 2004 and 2005, respectively 51,166 51,513Additional paid-in capital 58,959,616 59,377,593Accumulated deficit (21,156,480) (21,585,114)Accumulated other comprehensive loss (1,056) (7,461)Total stockholders' equity 37,853,246 37,836,531TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 40,747,479 41,596,387 See notes to consolidated financial statements. Consolidated Statements of OperationsFor the years ended April 30, 2004 and 2005 2004 2005 $ $ CONTRACT REVENUES 4,713,202 5,365,235 COST OF REVENUES 4,319,850 5,170,521 Gross profit 393,352 194,714 PRODUCT DEVELOPMENT COSTS 255,958 904,618 SELLING, GENERAL AND ADMINISTRATIVE COSTS 1,745,955 2,553,911 Operating loss (1,608,561) (3,263,815) INTEREST INCOME 555,717 1,297,156 OTHER INCOME (EXPENSE) (3,381,977) 30,880 FOREIGN EXCHANGE GAIN 1,585,345 1,507,145 NET LOSS (2,849,476) (428,634) See notes to consolidated financial statements. Consolidated Statements of Changes in Stockholders' EquityYears ended April 30, 2004 and 2005 Common Shares Additional Capital Shares Amount Paid-in $ $ BALANCE, APRIL 30, 2003 30,231,913 13,278,892 5,521,324 Net loss - - -Foreign currency translation adjustment - - -Total comprehensive lossChange to $0.001 par value - (13,248,660) 13,248,660Compensation related to shares issuedfor services 49,791 50 92,300Compensation related to stock optiongrants issued for services - - 311,024Sale of common stock, net of issuancecosts (including 178,172 sharesissued as fee payment) 20,178,172 20,178 38,287,014Shares issued under agreement with AMPIncorporated (now Tyco Electronics) 705,882 706 1,499,294 BALANCE, APRIL 30, 2004 51,165,758 51,166 58,959,616 Net loss - - -Foreign currency translation adjustment - - -Total comprehensive lossCompensation related to stock optiongrants issued to employees - - 131,500Compensation related to stock optiongrants issued for services - - 53,174Adjustment for shareholder reductionin shares held (13,971) (14) 14Proceeds from exercise of stock 361,166 361 233,289options BALANCE, APRIL 30, 2005 51,512,953 51,513 59,377,593 See notes to consolidated financial statements. Consolidated Statements of Changes in Stockholders' EquityYears ended April 30, 2004 and 2005 Accumulated other Stockholders' Accumulated Comprehensive Equity Deficit (Loss) Income $ $ $ BALANCE, APRIL 30, 2003 (18,307,004) (2,427) 490,785 Net loss (2,849,476) - (2,849,476)Foreign currency translation - 1,371 1,371adjustmentTotal comprehensive loss (2,848,105)Change to $0.001 par value - - -Compensation related to shares issuedfor services - - 92,350Compensation related to stock optiongrants issued for services - - 311,024Sale of common stock, net of issuancecosts (including 178,172 shares issuedas fee payment) - - 38,307,192Shares issued under agreement withAMP Incorporated (now TycoElectronics) - - 1,500,000 BALANCE, APRIL 30, 2004 (21,156,480) (1,056) 37,853,246 Net loss (428,634) - (428,634)Foreign currency translation - (6,405) (6,405)adjustmentTotal comprehensive loss (435,039)Compensation related to stock optiongrants issued to employees - - 131,500Compensation related to stock optiongrants issued for services - - 53,174Adjustment for shareholderreduction in shares held - - -Proceeds from exercise of stockoptions - - 233,650 BALANCE, APRIL 30, 2005 (21,585,114) (7,461) 37,836,531 See notes to consolidated financial statements. Consolidated Statements of Cash FlowsFor the years ended April 30, 2004 and 2005 2004 2005 $ $ CASH FLOWS FROM OPERATING ACTIVITIES:Net loss (2,849,476) (428,634)Adjustments to reconcile net loss to net cash usedin operating activities:Depreciation and amortization 42,005 140,984Compensation expense related to stock option grantsand common stock issuance 403,374 184,674Issuance of shares in connection with settlementagreement with AMP Incorporated (now Tyco Electronics) 1,500,000 - Changes in Working Capital:Accounts receivable (46,925) (621,499)Unbilled receivables (210,743) (268,216)Other current assets (173,610) (239,274)Accounts payable 213,801 404,491Accrued expenses 116,433 708,022Unearned revenues 263,678 (246,890)Amounts due to related parties (87,841) - Net cash used in operating activities (829,304) (366,342) CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of certificates of deposit (725,329) (58,050,287)Maturities of certificates of deposit 710,000 33,573,254Purchase of equipment and patent costs (159,860) (560,902)Investments in joint ventures and other assets - (78,399) Net cash used in investing activities (175,189) (25,116,334) CASH FLOWS FROM FINANCING ACTIVITIES:Sale of common stock, net of issuance costs 38,307,192 -Proceeds from exercise of stock options - 233,650 Net cash provided by financing 38,307,192 233,650 activities EFFECT OF EXCHANGE RATE CHANGES ONCASH 1,371 (6,405) NET (DECREASE) INCREASE IN CASH AND CASHEQUIVALENTS 37,304,070 (25,255,431) CASH AND CASH EQUIVALENTS, BEGINNING OFYEAR 1,536,175 38,840,245 CASH AND CASH EQUIVALENTS, END OF YEAR 38,840,245 13,584,814 SUPPLEMENTAL DISCLOSURE OF NON CASHTRANSACTIONS:Issuance of shares to consultant in connection withinitial public offering 178,350 - See notes to consolidated financial statements. OCEAN POWER TECHNOLOGIES, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED APRIL 30, 2004 AND 2005 1. ORGANIZATIONOcean Power Technologies, Inc. (the "Company") was incorporated on April 19,1984 in the State of New Jersey and commenced active operations in 1994. TheCompany is engaged in the business of commercializing products for thegeneration of electrical energy from ocean waves. These products are soldinternationally. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - During fiscal 2001, the Company established a wholly ownedsubsidiary based in Australia. In July 2001, the Company sold 11.76% of thesubsidiary for approximately $1,020,000 in cash, less costs of approximately$56,000. During fiscal 2005, the Company established a wholly owned subsidiarybased in the United Kingdom. The accompanying consolidated financial statementsinclude the accounts of the Company and its subsidiaries. All significantinter-company transactions have been eliminated. Use of Estimates - The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates. Revenue Recognition - The Company recognizes revenue on government andcommercial contracts under the percentage of completion method. The percentageof completion is determined by relating the costs incurred to date to theestimated total costs. The cumulative effects resulting from revisions ofestimated total contract costs and revenues are recorded in the period in whichthe facts requiring revision become known. When a loss is anticipated on acontract, the full amount thereof is provided currently. During fiscal 2005, theCompany recorded a provision of $21,000, related to an anticipated loss on acontract. Reserves related to that and another contract of approximately$785,000 and $806,000 in aggregate are included in accrued expenses in theaccompanying consolidated balance sheets as of April 30, 2004 and 2005,respectively. Unbilled receivables represent expenditures on contracts, plus profits or lesslosses recorded thereon, not yet billed. Unbilled receivables are billed andcollected within one year. Billings made on contracts are recorded as areduction of unbilled receivables, and to the extent that such billings exceedcosts incurred plus profits or less losses recorded thereon, they are recordedas unearned revenues. Cash Equivalents - Cash equivalents consist of investments in short-termfinancial instruments with maturities of three months or less from the date ofpurchase. Equipment - Equipment is stated at cost, less accumulated depreciation.Depreciation is calculated using the straight-line method over the estimateduseful lives (three to seven years). Expenses for maintenance and repairs arecharged to operations as incurred. Depreciation expense was approximately$34,000 and $112,000 for the years ended April 30, 2004 and 2005, respectively. Foreign Exchange Gains- The Company has invested in certain certificates ofdeposit and cash equivalents that are denominated in British pounds sterling.Such certificates of deposit and cash equivalents had a balance of $21,788,000as of April 30, 2005. Such positions may result in realized and unrealizedforeign exchange gains or losses from exchange rate fluctuations, which areincluded in the consolidated results of operations. Patents - External costs related to the filing of patents, including legal andfiling fees, are capitalized. Amortization is calculated using the straight-linemethod over the lives of the patents (17 years). Expenses for the development oftechnology are charged to operations as incurred. Amortization expense relatedto patents for the next five years is approximately $20,000 per year. Long-Lived Assets - On May 1, 2002, the Company adopted Statement of FinancialAccounting Standard, Accounting for the Impairment or Disposal of Long-LivedAssets ("SFAS No. 144"). SFAS No. 144 replaced SFAS No. 121, Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, andestablishes accounting and reporting standards for long-lived assets to bedisposed of by sale. SFAS No. 144 requires that long-lived assets be measured atthe lower of carrying amount or fair value less cost to sell. SFAS No. 144 alsobroadens the reporting of discontinued operations to include all components ofan entity with operations that can be distinguished from the rest of the entitythat will be eliminated from the ongoing operations of the entity in a disposaltransaction. In fiscal 2005, the Company reviewed its long-lived assets forimpairment in accordance with SFAS No. 144 and determined that no impairmentcharge was necessary for the year ended April 30, 2005. Concentration of Credit Risk - Financial instruments that potentially subjectthe Company to concentration of credit risk consist principally of cashbalances, bank certificates of deposit and trade receivables. However, theCompany invests its excess cash in highly liquid investments (principallyshort-term bank deposits). In fiscal 2004 and 2005, the Company's customer base was principally comprisedof agencies within the U.S. Government. The Company does not require collateralfrom its customers. Stock-Based Compensation - Stock-based compensation issued to employees isvalued using the intrinsic value method under Accounting Principles Board("APB") Opinion No. 25, Accounting for Stock Issued to Employees. Under thismethod, compensation expense is measured on the date of grant and amortized overthe vesting period if the current market price of the underlying stock exceededthe exercise price on the straight-line basis. SFAS No. 123, Accounting forStock-Based Compensation, established accounting and disclosure requirementsusing a fair value-based method of accounting for stock-based employeecompensation plans. As allowed by SFAS No. 123, the Company has elected tocontinue to apply the intrinsic value-based method of accounting describedabove, and has adopted only the disclosure requirements of SFAS No. 123.Stock-based compensation issued to non-employees is valued using the fair valuemethod. In December 2002, the Financial Accounting Standards Board ("FASB") issued SFASNo. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure".SFAS No. 148 amends SFAS No. 123, to provide alternative methods of transitionfor a voluntary change to the fair value-based method of accounting forstock-based employee compensation ("Transition Provisions"). The TransitionProvisions of SFAS No. 148 are effective for financial statements forfiscal years ending after December 15, 2002. The Company continues to use theintrinsic value method of accounting for stock-based compensation. As a result,the Transition Provisions do not have an effect on the Company's financialstatements. The Company has adopted the disclosure provisions of SFAS No. 148;however, the Company will continue to apply the intrinsic value method under APBOpinion No. 25. For disclosure purposes, pro forma net loss impacts are provided as if the fairmarket value method under SFAS No. 123 had been applied as of April 30, 2004 and2005. 2004 2005 $ $ Net loss, as reported (2,849,476) (428,634)Add stock-based employee compensation expense included in 171,542 131,500reported net lossDeduct total stock-based employee compensation expense (2,310,000) (1,367,000)determined under fair-value based method for all awards Pro forma net loss (4,987,934) (1,664,134) In accordance with SFAS No. 123, as amended by SFAS No. 148, the fair value ofoption grants is estimated on the date of grant using the Black-Scholesoption-pricing model for pro forma footnote purposes with the followingassumptions used for grants: dividend yield 0%; risk-free interest rate of 3.39%in 2004 and 4.00% in 2005, respectively; expected option life primarily of 10years; and volatility of 85.6% and 80.8% in 2004 and 2005, respectively. Accounting for Income Taxes - The Company accounts for income taxes inaccordance with SFAS No. 109, "Accounting for Income Taxes," which requires theuse of the liability method of accounting for deferred income taxes. Under thismethod, deferred income taxes represent the net tax effect of temporarydifferences between carrying amount of assets and liabilities for financialreporting purposes and the amount used for income tax purposes. Additionally, ifit is more likely than not that some portion or all of a deferred tax asset willnot be realized, a valuation allowance is required to be recognized. Other Comprehensive Loss - The functional currency for the Company's foreignoperations is the applicable local currency. The translation from the applicableforeign currencies to U.S. dollars is preformed for balance sheet accounts usingthe exchange rates in effect at the balance sheet date and for revenue andexpense accounts using an average exchange rate during the period. Theunrealized gains or losses resulting from such translation are included inshareholders' equity. Recent Accounting Pronouncements - In July 2001, the FASB issued SFAS No. 143,"Accounting for Asset Retirement Obligations". SFAS No. 143 requires entities torecord the fair value of a liability for an asset retirement obligation in theperiod in which it is incurred. When the liability is initially recorded, theentity capitalizes a cost by increasing the carrying amount of the relatedlong-lived asset. Over time, the liability is accreted to its then presentvalue, and the capitalized cost is depreciated over the useful life of therelated asset. Upon settlement of the liability, an entity either settles theobligation for its recorded amount or incurs a gain or loss upon settlement.SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, withearlier application encouraged. The Company adopted SFAS No. 143 in fiscal 2004and it did not have a material impact on the Company's consolidated financialposition or results of operations. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation ofVariable Interest Entities," ("FIN 46"), an interpretation of AccountingResearch Bulletin No. 51, "Consolidated Financial Statements." FIN 46establishes accounting guidance for consolidation of variable interest entitiesthat function to support the activities of the primary beneficiary. In December2003, the FASB revised FIN 46 and issued FIN 46 (revised December 2003) ("FIN46R"). In addition to conforming to previously issued FASB Staff Positions, FIN46R deferred the implementation date for certain variable interest entities. TheCompany does not have any investments in or contractual relationship or otherbusiness relationship with a variable interest entity and therefore the adoptionof FIN 46R did not have any impact on the Company's consolidated financialposition or results of operations. In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment", whichaddresses the accounting for transactions in which an entity exchanges itsequity instruments for goods or services, with a primary focus on transactionsin which an entity obtains employee services in share-based paymenttransactions. SFAS No. 123R is a revision to SFAS No. 123 and supersedes APBOpinion No. 25, "Accounting for Stock Issued to Employees", and its relatedimplementation guidance. SFAS No. 123R will require measurement of the cost ofemployee services received in exchange for stock compensation based on thegrant-date fair value of the employee stock options. Incremental compensationcosts arising from subsequent modification of awards after the grant date mustalso be recognized. The provisions of SFAS No. 123R will be effective for theCompany for annual periods beginning after December 15, 2005. Management isevaluating the alternatives allowed under the standard and expects the adoptionof SFAS No. 123R to result in amounts that are similar to the current pro-formadisclosures under SFAS No. 123R for all share-based payment transactions throughApril 30, 2005. The impact of any future share-based payment transactions on theCompany's financial position or results of operations can not be determined. In December 2004, the FASB issued SFAS No. 153. "Exchange of NonmonetaryAssets," which eliminates and exception in APB Opinion No. 29 for nonmonetaryexchanges of similar productive assets and replaces it with a general exceptionfor exchanges of nonmonetary assets that do not have commercial substance. SFASNo. 153 will be effective for the Company for nonmonetary asset exchangesoccurring in fiscal periods beginning after June 15, 2005. Management isevaluating the impact from adopting SFAS No. 153, which is not expected to havean impact on the Company's consolidated financial position, results ofoperations or cash flows. In May, 2005 the FASB issued SFAS No. 154, "Accounting Changes and ErrorCorrections". SFAS No. 154 requires retroactive application of a voluntarychange in accounting principle to prior period financial statements unless it isimpracticable. SFAS No. 154 also requires that a change in method ofdepreciation, amortization, or depletion for long-lived, non-financial assets beaccounted for as a change in accounting estimate that is affected by a change inaccounting principle. SFAS No. 154 replaces APB Opinion 20, "AccountingChanges", and SFAS No. 3, "Reporting Accounting Changes in Interim FinancialStatements". SFAS No. 154 will be effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005.Management currently believes that adoption of the provisions of SFAS No. 154will not have a material impact on the Company's consolidated financialstatements. Reclassification- Certain amounts in the prior year's financial statements havebeen reclassified to conform to the current year presentation. ****** This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Optima Health