Ocean Power Technologies, Inc.

 

Special Note Regarding Forward-Looking Statements

 

We have made statements in this Quarterly Report on Form 10-Q that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements convey our current expectations or forecasts of future events. Forward-looking statements include statements regarding our future financial position, business strategy, pending, threatened, and current litigation, liquidity, budgets, projected revenue and costs, plans and objectives of management for future operations. The words “may,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “anticipate,” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

 

The forward-looking statements contained in or incorporated by reference are largely based on our expectations, which reflect estimates and assumptions made by management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve several risks and uncertainties that are beyond our control, including:

 

●	our ability to improve, market and commercialize our products, and achieve and sustain profitability;
●	our continued improvement 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;
●	changes in current legislation, regulations and economic conditions regarding Federal governmental tariffs, and the potential that this affects the demand for, or restricts the use 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, our financial condition and our operating performance;
●	our ability to comply with the covenants and other obligations under our convertible notes;
●	our ability to do business with properly qualified customers that have good credit ratings and pay their obligation on a timely basis;
●	the ability to continue as a going concern due to constrained liquidity in its business;
●	our history of operating losses, which we expect to continue for at least the short-term and possibly longer;
●	our ability to manage challenges and expenses associated with communications and disputes with activist shareholders, including litigation;
●	our ability to manage and mitigate risks associated with our internal cyber security protocols and protection of the data we collect and distribute;
●	our ability to protect our intellectual property portfolio;
●	the impact of potential inflation related to the U.S. dollar on our business, operations, customers, suppliers, manufacturers, and personnel;
●	our ability to meet product enhancement, manufacturing and customer delivery deadlines and the potential impact due to disruptions to our supply chain or our ability to identify vendors that can assist with the prefabrication elements of our products, as a result of, among other things, staff shortages, order delays, and increased pricing from vendors and manufacturers;
●	our forecasts and estimates regarding future expenses, revenue, gross margin, cash flow 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 which may not be successful;
●	our ability to maintain the listing of our common stock on the NYSE American;
●	the reliability and continuous improvement of our technology, products and solutions;
●	our ability to increase or more efficiently utilize the synergies available from our product lines:
●	our ability to expand markets across geographic boundaries;
●	our ability to be successful with Federal government work which is complex due to various statutes and regulations applicable to doing business with the Federal government;
●	our ability to be successful doing business internationally which requires strict compliance with applicable statutes and regulations;
●	the current geopolitical world uncertainty, including tariffs, Russia’s invasion of Ukraine, the Israel/Palestine conflict, the Iran war and previous attacks on merchant ships in the Red Sea;
●	the potential impact that new foreign country tariffs may have on our ability (i) to source and procure necessary raw materials for the manufacture and provision of our products and services; and (ii) to deliver our products to such foreign countries;
●	our ability to hire and retain key personnel, including senior management, to achieve our business objectives; and
●	our ability to establish and maintain consistent commercial profit margins.

 

 

Any or all of our forward-looking statements in this report may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended April 30, 2026, and in our subsequent reports under the Exchange Act. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur as contemplated and actual results could differ materially from those anticipated or implied by the forward-looking statements.

 

Many of these factors are beyond our ability to control or predict. These factors are not intended to represent a complete list of the general or specific factors that may affect us. You should not unduly rely on these forward-looking statements, which speak only as of the date of this filing. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise.

 

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 April 30, 2026 for a discussion of important factors that could cause 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 April 30 of that year (e.g., fiscal 2025 refers to the year ended April 30, 2026). References to “we,” “us,” “our,” and “OPT” refer to Ocean Power Technologies, Inc. and its subsidiaries, as applicable.

 

Overview

 

Ocean Power Technologies, Inc. (“OPT,” “we,” “our,” or “the Company”) is a Maritime Domain Awareness (MDA) company specializing in innovative intelligent maritime solutions. These solutions include a variety of “as a service” systems, including Data as a Service (DaaS), Robotics as a Service (RaaS), and Power as a Service (PaaS). These systems consist of a variety of platforms including the PowerBuoy®, our persistent sensor and power solution, the WAM-V® (Wave Adaptive Modular Vessel), our autonomous unmanned surface vehicle, and Merrows™, our user interface and command and control (C2) system that integrates multiple sensor feeds using software and hardware and enables artificial intelligence and machine learning (AI/ML) integration. We design, manufacture, deploy, and operate these systems for defense, security, subsea infrastructure, offshore oil and gas, offshore energy, marine research, and communication markets. We operate primarily through a combination of direct sales and leases, strategic partnerships, and long-term service agreements. Our business model emphasizes capital-light deployments, recurring revenue from service and maintenance contracts, and high-margin technology sales and leases.

 

We serve a global customer base, including the U.S. and allied defense agencies, offshore energy operators, and commercial interests. The common thread across these markets is the growing need for a persistent, autonomous, and sustainable offshore presence, a need we are uniquely positioned to fulfill.

 

The Company holds numerous patents and leverages decades of research including control systems, energy storage, and marine integration. Our headquarters and assembly operations are located in New Jersey, and we maintain an additional manufacturing and robotics development facility in Richmond, CA. In addition, the Company maintains an office at the Association for Uncrewed Vehicle Systems International (AUVSI) headquarters in Washington, D.C., which serves to strengthen our strategic position in the fast-growing uncrewed systems market.

 

 

OPT is committed to enabling a smarter, safer ocean economy through innovation in ocean intelligence and power. As we look forward, our strategic priorities include expanding our customer and geographic base, accelerating technology adoption, enhancing recurring revenue, and driving margin growth through platform scalability and supply chain efficiencies.

 

There have been no material changes to the Company’s business description from that disclosed in our Annual Report on Form 10-K for the year ended April 30, 2026, filed with the SEC on August 19, 2026.

 

Liquidity

 

During the three months ended July 31, 2026, the Company incurred a net loss of approximately $10.5 million and used cash in operations of approximately $10.2 million. The Company’s future results of operations involve significant risks and uncertainties. Factors that could affect the Company’s future operating results and could cause actual results to vary materially from expectations include, but are not limited to, performance of its products, its ability to market and commercialize its products and new products that it may develop, access to capital, technology development, scalability of technology and production, ability to attract and retain key personnel, concentration of customers and suppliers, pending or threatened litigation and deployment risks and integration of acquisitions.

 

The Company has incurred recurring operating losses and negative cash flows from operations and expects to continue to incur losses and use cash in operations for the foreseeable future. Based on the Company’s current operating plan, existing cash resources and anticipated cash flows from operations are not expected to be sufficient to fund planned operations and satisfy the Company’s contractual obligations for at least twelve months from the date the accompanying unaudited condensed consolidated financial statements are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

The report of the Company’s independent registered public accounting firm on the Company’s consolidated financial statements for the fiscal year ended April 30, 2026 included an explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern. The inclusion of this explanatory paragraph did not represent a modification of the auditor’s opinion on those consolidated financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

 

Subsequent to July 31, 2026, the Company did not file its Annual Report on Form 10-K for the fiscal year ended April 30, 2026 within the extension period provided by Rule 12b-25 under the Securities Exchange Act of 1934. The failure to timely file the Form 10-K constituted an event of default under the Notes (as defined below). As of the date of this Quarterly Report on Form 10-Q, the Company has not obtained a written waiver of the event of default. Although the holders of the Notes have not indicated that they intend to exercise remedies available to them under the Notes, there can be no assurance that they will not do so. Any enforcement action could have a material adverse effect on the Company’s liquidity, financial condition and ability to continue as a going concern.

 

Management’s plans to address the Company’s liquidity requirements include seeking additional capital through public or private equity or debt financings, pursuing strategic or commercial arrangements, increasing revenue and collections, reducing or delaying expenditures, and seeking to restructure or otherwise modify the Company’s outstanding debt obligations. The Company’s ability to obtain additional financing is subject to numerous risks and uncertainties, including market conditions, the Company’s operating performance, the trading price of its common stock, limitations arising from its outstanding indebtedness, and its ability to satisfy applicable securities-law and stock-exchange requirements. Additional financing may not be available when required or may be available only on terms that are unfavorable to the Company and its stockholders, including financing arrangements that result in substantial dilution to existing stockholders.

 

Management’s plans have not alleviated the substantial doubt about the Company’s ability to continue as a going concern because those plans are not currently considered probable of being effectively implemented within the applicable assessment period. There can be no assurance that the Company will be successful in implementing any of these plans.

 

 

Convertible Notes

 

In April 2026, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors pursuant to which the Company issued and sold senior convertible notes (the “Notes”) in an aggregate principal amount of $10.0 million, along with a 13% premium on the principal amount. The conversion rate related to this agreement is $12.00 per share. Proceeds from these Notes were used to pay off the remaining balances associated with the May and October 2025 convertible notes, respectively. Beginning on the closing date, the Notes are subject to quarterly cash amortization payments through maturity and monthly interest payment calculated on a 4.5% annual rate for the outstanding principal amount at the end of the previous month. Between the premium and annual interest rate, the effective interest rate on this Note is approximately 20%. The agreement also contains a make-whole interest whereby in connection with any conversion, redemption, or other repayment would result in an additional interest amount as if the principal remained outstanding through the maturity date. The Notes rank senior to the Company’s other unsecured indebtedness, subject to certain exceptions, and contain customary affirmative and negative covenants, including restrictions on indebtedness, liens, restricted payments, asset transfers, changes in business, and affiliate transactions, including a covenant requirement $2.0 million minimum cash balance to be maintained. The Notes also contain customary events of default. The conversion of these notes into equity may occur at times and under pricing mechanisms that could lead to a substantial number of shares being issued, potentially at prices below prevailing market prices.

 

Backlog

 

As of July 31, 2026, backlog was $19.1 million, compared to $15.0 million at July 31, 2025. The backlog represents the value of unfulfilled, purchase orders and agreements with commercial and 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.

 

Backlog figures do not necessarily reflect future revenue, as orders may be adjusted, delayed, or canceled, and our recognition of associated revenue is subject to the terms of the underlying agreements. The size of our backlog may also fluctuate materially based on the timing of new awards, contract renewals, or the conclusion of long-term engagements. Consequently, while we view backlog as a useful performance indicator, it should not be relied upon as a predictor of future results.

 

Critical Accounting Policies and Estimates

 

There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended April 30, 2026 other than noted below.

 

We measure the warrant liability associated with the June 2026 equity issuance (described below) at fair value using a Black-Scholes option-pricing model. The valuation requires the use of assumptions and judgments, including the market price of our common stock, expected stock-price volatility, the risk-free interest rate, the expected remaining term of the warrants and the expected dividend yield. Certain of these assumptions, particularly expected volatility, are not directly observable and may change significantly between reporting periods.

 

Changes in these assumptions, individually or in combination, could materially affect the estimated fair value of the warrant liability and the amount of the related noncash gain or loss recognized in our results of operations. An increase in the market price or expected volatility of our common stock generally would increase the warrant liability and result in a noncash loss, while a decrease in those assumptions generally would reduce the warrant liability and result in a noncash gain. See Note 13, Common Stock and Warrant Issuance, and Note 12, Fair Value Measurements, to our condensed consolidated financial statements for additional information.

 

 

Recently Issued Accounting Standards

 

In recent periods, the FASB issued certain Accounting Standards Updates (“ASUs”) that may be relevant to the Company’s operations and financial reporting. We are currently evaluating the potential impact of these ASUs and adopting them when applicable based on their effective dates.

 

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which improves the transparency of income tax disclosures by requiring companies to (1) disclose consistent categories and greater disaggregation of information in the effective rate reconciliation and (2) provide information on income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, although early adoption is permitted. The guidance should be applied on a prospective basis with the option to apply the standard retrospectively. We are currently evaluating the impact of adopting this ASU 2023-09 on our consolidated financial statements and disclosures for the annual period ending April 30, 2026.

 

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

 

In July 2025, the FASB issued Accounting Standards Update 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (ASU 2025-05”). ASU 2025-05 provides a practical expedient that all entities can use when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, and interim reporting periods in those years. Entities that elect the practical expedient and, if applicable, make the accounting policy election are required to apply the amendments prospectively. The Company adopted ASU 2025-05 on May 1, 2026 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

 

In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which clarifies and modernizes certain aspects of the accounting for, and disclosure of, internal-use software costs. The ASU removes all references to software development project stages so that the guidance is neutral to different software development methods and clarifies the threshold entities apply to begin capitalizing costs. The ASU is effective for annual periods beginning after December 15, 2027, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial statements.

 

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270) which is intended to streamline the guidance in ASC 270, Interim Reporting, and clarify when it applies. Under the amendments, an entity is subject to ASC 270 if it provides interim financial statements and notes in accordance with GAAP. ASU 2025-11 also addresses the form and content of such financial statements, interim disclosures requirements, and establishes a principle under which an entity must disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, and early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial statements.

 

 

Financial Operations Overview

 

The following describes certain line items in our Statements of Operations and some of the factors that affect our operating results.

 

We currently focus our sales efforts in key global markets in North America, South America, Europe and Asia. In fiscal 2026, we made significant progress in diversifying our customer and geographic base. Our strategic efforts to expand into defense, energy, and environmental monitoring markets in Europe, the Middle East, and Africa (EMEA) resulted in a substantial increase in EMEA-sourced revenue. This geographic expansion reflects the increasing global relevance of our autonomous maritime systems, particularly among government and industrial customers. It also demonstrates the early success of our international channel development initiatives, which we intend to further scale in fiscal 2026 through targeted partnerships, regional deployments, and export-driven offerings.

 

The following table shows the percentage of our revenues by geographical location of our customers for the three months ended July 31, 2026 and 2025.

 

	Three months ended July 31,
Customer Location*	2026				2025
North America & South America		80	%			11	%
EMEA		5	%			89	%
Asia & Australia		15	%			<1	%
		100	%			100	%

 

* For U.S. Government contracts, the revenue is classified as North American however, location of operations may differ.

 

Cost of revenue

 

Our cost of revenue consists primarily of subcontracts, materials incurred, labor and manufacturing overhead expenses, such as engineering expenses, equipment depreciation, maintenance, and facility related expenses, and includes the cost of equipment to customize the PowerBuoy®, WAM-V® and our other products supplied by third-party suppliers. Cost of revenue also includes PowerBuoy® and other product system delivery and deployment expenses and may include losses recorded at the time a loss is forecasted to be incurred on a contract.

 

Operating Expenses

 

Engineering and product development costs

 

Our engineering and product enhancement costs consist of salaries and other personnel-related costs and the costs of products, materials and outside services used in our product enhancement and unfunded research activities. Our product enhancement 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 the development of new products, product applications and complementary technologies. We expense all of these costs as incurred.

 

Selling, general and administrative costs

 

Our selling, general and administrative costs consist primarily of professional fees, salaries, share-based compensation and other personnel-related costs for employees and consultants engaged in sales and marketing 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.

 

 

Foreign exchange gain loss

 

We transact business in various countries and have exposure to fluctuations in foreign currency exchange rates. Since we conduct our business in U.S. dollars and our functional currency is the U.S. dollar, our main foreign exchange exposure, if any, results from changes in the exchange rate between the U.S. dollar and transactions settled in foreign currencies.

 

The Company completed the process of winding down its Australian subsidiary during fiscal 2024 and its UK subsidiary during fiscal 2025. 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 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.”

 

Three months ended July 31, 2026 compared to the three months ended July 31, 2025

 

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 July 31, 2026 and 2025.

 

	Three months ended July 31,
	2026				2025
Product & service revenue	$	1,046			$	1,115
Lease revenue		656				67
Total revenue		1,703				1,182
Cost of revenues		4,534				1,205
Gross margin		(2,831	)			(23	)
Operating expenses		12,246				7,055
Operating loss		(15,077	)			(7,078	)
Interest income/(expense), net		(373	)			(310	)
Change in fair value of derivative		4,912				—
Foreign exchange loss		(1	)			—
Loss before income taxes		(10,537	)			(7,388	)
Income tax benefit		—				—
Net loss		(10,537	)			(7,388	)

 

Revenues

 

Revenues for the three months ended July 31, 2026 increased approximately $0.5 million related primarily to ongoing buoy operations during the current year.

 

Cost of revenues

 

Cost of revenues for the three months ended July 31, 2026 increased approximately $3.3 million and is related primarily to the recognition of one-time losses associated with contracts in strategically important markets, including $0.3 million related to revenue and cost of goods sold at no margin to the Company for change orders on existing contract. The expenses and revenues associated with these projects will continue over the next several months.

 

Operating expenses

 

Operating expenses for the three months ended July 31, 2026 increased approximately $5.2 million and was primarily the result of the significant increases in product development of $2.6 million, one-time non-cash losses on abandonment of assets and warrant acquisition expense of $1.4 million, and increases in employee-related expenses of $0.8 million.

 

Product development

 

Product development expenses increased by $2.6 million to $2.7 million for the three months ended July 31, 2026, compared with $0.1 million for the corresponding prior-year period. The increase was primarily attributable to a charge related to the July 2026 acquisition of in-process research and development assets from Columbia Power Technologies, Inc. The acquired technology had not reached technological feasibility and had no alternative future use and, accordingly, the acquisition-date cost was expensed. Approximately $2.0 of the charge related to common stock issued as consideration and was noncash.

 

 

Interest expense

 

Interest expense for the three months ended July 31, 2026 and 2025 was $373,000 and $310,000, respectively, with the change primarily related to interest expenses associated with the May and October 2025 convertible notes and the April 2026 convertible note.

 

Change in fair value of derivatives

 

The warrants issued in the June 2026 registered direct offering are accounted for as derivative liabilities and are measured at fair value at each reporting date. For the three months ended July 31, 2026, we recognized a noncash gain of approximately $4.9 million from the change in fair value of the warrant liability. There was no comparable amount during the corresponding period of the prior year. The change in fair value during the period was primarily attributable to changes in the market price of our common stock and other valuation assumptions. Because the warrant liability is remeasured each reporting period, changes in our stock price and the other valuation assumptions may result in significant noncash gains or losses in future periods. These fair-value adjustments affect our reported results of operations but do not affect our cash flows from operating activities.

 

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 $10.5 million and $7.4 million for the three months ended July 31, 2026 and 2025, respectively. Refer to “Liquidity Outlook” below for additional information.

 

On June 8, 2026, we completed a registered direct offering in which we issued 833,334 shares of common stock together with warrants to purchase up to 833,334 additional shares of common stock. The combined purchase price was $12.00 for each share of common stock and accompanying warrant. We received gross proceeds of $10.0 million and net proceeds of approximately $9.3 million after placement-agent fees and other offering expenses. We used a portion of the net proceeds to repay principal and other amounts due under our convertible notes payable. The remaining proceeds have been, and are expected to be, used for working capital and other general corporate purposes.

 

The offering increased our liquidity during the quarter; however, the net proceeds do not eliminate our need to obtain additional capital to fund our operations and satisfy our obligations. We expect to continue evaluating potential sources of capital, which may include additional public or private equity offerings, debt financings, strategic transactions or other financing arrangements. Our ability to obtain additional financing is subject to market conditions and other factors beyond our control, and there can be no assurance that financing will be available when needed or on acceptable terms. If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operations.

 

The warrants become exercisable on December 8, 2026, at an initial exercise price of $12.00 per share. If all warrants were exercised for cash at the initial exercise price, we would receive additional gross proceeds of $10.0 million. However the decision to exercise the warrants is within the control of the holders. Accordingly, we cannot predict whether or when the warrants will be exercised, and potential proceeds from their exercise should not be considered a committed source of liquidity. We have not assumed the receipt of any warrant exercise proceeds in our assessment of available liquidity.

 

Net cash provided by financing activities for the three months ended July 31, 2026 included approximately $9.0 million of net proceeds from the offering.

 

Net cash used in operating activities

 

During the three months ended July 31, 2026, net cash used in operating activities was $10.2 million, an increase of $4.6 million compared to net cash used in operating activities during the three months ended July 31, 2025 of $5.6 million. This primarily reflects an increase in net loss of $3.1 million, contract assets, contract liabilities, and inventory on hand, partially offset an increase in accounts payable in the current year versus the prior year.

 

Net cash used in investing activities

 

Net cash used in investing activities during the three months ended July 31, 2026 was $0.1 million, compared to $1.5 million during the three months ended July 31, 2025, a change of $1.3 million. The net cash used in investing activities during the three months ended July 31, 2026 was due to the purchase of property, plant and equipment.

 

Net cash provided by financing activities

 

Net cash provided by financing activities during the three months ended July 31, 2026 and July 31, 2025 was $9.0 million and $10.2 million, respectively. The current year activity was driven by the proceeds raised related to the June common stock and warrant offering of $10.0 million and ATM proceeds of $1.4 million, and the prior year activity was related primarily to ATM proceeds of $0.3 million, and $9.9 million in proceeds related to convertible debt issued in May 2025 discussed above under “Liquidity”.

 

Effect of exchange rates on cash and cash equivalents

 

There was no material effect of exchange rates on cash and cash equivalents during either the three months ended July 31, 2026 and July 31, 2025.

 

 

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 July 31, 2026, our year-to-date revenues were $1.7 million, our year-to-date net losses were $10.5 million, and our year-to-date net cash used in operating activities was $10.2 million.

 

We expect to continue to devote substantial resources to expand our sales, marketing and manufacturing programs associated with the continued commercialization of our products. Our future capital requirements will depend on several factors, including but not limited to:

 

●	our ability to improve, market and commercialize our products, and achieve and sustain profitability;
●	our continued improvement 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;
●	changes in current legislation, regulations and economic conditions regarding Federal governmental tariffs, and the potential that this affects the demand for, or restricts the use 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, our financial condition and our operating performance;
●	our ability to comply with the covenants and other obligations under our convertible notes;
●	our ability to do business with properly qualified customers that have good credit ratings and pay their obligation on a timely basis;
●	the ability to continue as a going concern due to constrained liquidity in our business;
●	our history of operating losses, which we expect to continue for at least the short-term and possibly longer;
●	our ability to manage challenges and expenses associated with communications and disputes with activist shareholders, including litigation;
●	our ability to manage and mitigate risks associated with our internal cyber security protocols and protection of the data we collect and distribute;
●	our ability to protect our intellectual property portfolio;
●	the impact of potential inflation related to the U.S. dollar on our business, operations, customers, suppliers, manufacturers, and personnel;
●	our ability to meet product enhancement, manufacturing and customer delivery deadlines and the potential impact due to disruptions to our supply chain or our ability to identify vendors that can assist with the prefabrication elements of our products, as a result of, among other things, staff shortages, order delays, and increased pricing from vendors and manufacturers;
●	our forecasts and estimates regarding future expenses, revenue, gross margin, cash flow 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 which may not be successful;
●	our ability to maintain the listing of our common stock on the NYSE American;
●	the reliability and continuous improvement of our technology, products and solutions;
●	our ability to increase or more efficiently utilize the synergies available from our product lines:
●	our ability to expand markets across geographic boundaries;
●	our ability to be successful with Federal government work which is complex due to various statutes and regulations applicable to doing business with the Federal government;
●	our ability to be successful doing business internationally which requires strict compliance with applicable statutes and regulations;
●	the current geopolitical world uncertainty, including tariffs, Russia’s invasion of Ukraine, the Israel/Palestine conflict, the Iran War and previous attacks on merchant ships in the Red Sea;
●	the potential impact that new foreign country tariffs may have on our ability (i) to source and procure necessary raw materials for the manufacture and provision of our products and services; and (ii) to deliver our products to such foreign countries;
●	our ability to hire and retain key personnel, including senior management, to achieve our business objectives;
●	our ability to establish and maintain consistent commercial profit margins; and
●	our recurring operating losses, negative cash flows, limited liquidity and unwaived event of default under the Notes raise substantial doubt about our ability to continue as a going concern.

 

Our business is capital intensive, and through July 31, 2026, we have been funding our business principally through sales of our securities. As of July 31, 2026, our cash and cash equivalents and long-term restricted cash balance was $7.5 million and we expect to fund our business with this amount and, to a lesser extent, with our cash flow generated from operations. Management believes the Company’s current cash and cash equivalents, and short term investments, may not be sufficient to fund its planned expenditures through September 2027.

 

These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern for at least a period of one year from the issuance of these consolidated financial statements. The ability to continue as a going concern is dependent upon the Company’s operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.

 

Off-Balance Sheet Arrangements

 

Since inception, we have not engaged in any off-balance sheet financing activities.