OPTT 10-K & 10-Q changes, risk factors and insider trading

We do not know whether we will be able to successfully commercialize our products and services or whether we can achieve profitability. There is significant uncertainty about our ability to successfully commercialize our products in our targetedtarget markets. Even if we do achieve commercialization of our products and services and become profitable, we may not be able to achieve or, if achieved, sustain profitability on a quarterly or annual basis.

We maintain a Facility Security Clearance (FCL) at the Secret level, which enables us to perform on U.S. government contracts that involve access to classified information. Our eligibility to maintain this clearance is subject to the requirements of the National Industrial Security Program, administered by the Defense Counterintelligence and Security Agency (DCSA). If we fail to comply with these requirements, such as through deficiencies in our security protocols, loss of cleared personnel and inability to replace these people in key roles, or failure to report material organizational changes, our FCL may be suspended or revoked. If FCL is suspended or revoked, OPT will no longer be able to participate or bid on . contracts that involve classified information.

Historically, we have funded our business operations through sales of equity and debt securities. We have raised approximately $23.4$28.7 million during fiscal 2025, 2026, and had an unrestricted cash balance of $6.7$8.7 million as of April 30, 2025.2026. We do not know whether we will be able to secure additional additional funding if needed in the future or, if secured, whether the terms will be favorable to us or our investors. Our ability to obtain additional funding will be subject to several factors, including market conditions, our operating performance, litigation and investor sentiment. These factors may make additional funding unavailable, or the timing, dollar amount, and terms and conditions of additional funding unattractive.

Our ability to obtain, maintain and renew facility and personnel security clearances depends upon continued compliance with evolving government security requirements. Increased scrutiny of contractors supporting defense, intelligence and critical infrastructure programs may increase compliance costs and administrative burdens. Any delay in obtaining or renewing required clearances could adversely affect our ability to compete for, win or perform government contracts. The Company’s operations and performance depend significantly on global and regional economic conditions. Macroeconomic conditions, including inflation, slower growth or recession, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations can materially and adversely affect demand for the Company’s products and services. In addition, confidence and spending can be materially adversely affected in response to financial market volatility, negative financial news, declines in income or asset values, energy market dislocations and cost increases, labor and healthcare costs and other economic factors. An adverse impact on demand for the Company’s products, uncertainty about, or a decline in, global or regional economic conditions can have a significant impact on the Company’s suppliers and other partners. Potential effects include financial instability; inability to obtain credit to finance operations and purchases of the Company’s products; and insolvency. We cannot predict the timing or scale of these various macroeconomic conditions, but they could have a material adverse effect on our business, results of operations and financial condition.

We have issued $10.0$10.4 million in convertible notes to investors and have the option to issue up to an additional $15.0 million in convertible notes under the same investment agreement.outstanding Our debt level and the need to meet related covenants can have negative consequences. We may incur more debt in the future, and there can be no assurance that our cost of funding will not substantially increase. The convertible notes also impose certain restrictions on us, including financial covenants and events of default. Upon an event of default, for example, the lenders can get an increased rate of return and force a redemption, which could adversely affect our liquidity and financial condition. condition.The conversion provisions of the convertible notes may also create significant dilution and downward pressure on the market price of our common stock. In addition, holders of the notes may engage in hedging or other market activities that could increase volatility in our common stock. The existence of the notes may also make it more difficult for us to raise additional equity capital on favorable terms.

We currently maintain cash balances in accounts at U.S. financial institutions that we believe are high quality. These accounts are in non-interest-bearing and interest-bearing operating accounts and may, from time to time, exceed the Federal Deposit Insurance CorporationCorporation. (“FDIC”) insurance limits. If such banking institutions were to fail, we could lose all or a portion of those amounts held more than such insurance limitations. In addition, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, our third-party vendors and counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems, which could adversely affect our business, financial condition, results of operations and liquidity.

Currency translation and transaction risk may adversely affect our business, financial condition and results of operations.

Our reporting currency is the U.S. dollar, however sometimes we incur costs in the local currency of countries in which our customers and suppliers are located. As a result, we are subject to currency translationtransaction risk. A percentage of our revenue has historically been generated outside the U.S. and can be denominated in foreign currencies of our customers. Changes in exchange rates between foreign currencies and the U.S. dollar could affect our revenue and cost of revenue and could result in exchange losses. We cannot accurately predict the impact of future exchange rate fluctuations on the results of our operations. Currently, we do not engage in any exchange rate hedging activities and, as a result, any volatility in currency exchange rates may have an immediate adverse effect on our business, financial condition and results of operations.

Even if wave energy and maritime domain awareness technology achieve broad commercial acceptance, our products, including our MDAS offering, NextGenPowerBuoys® PB and Legacy PBB and WAM-V® autonomous surface vessels may not prove to be commercially viable technologies. We have have invested a significant portion of our time and financial resources since our inception in the development of our PowerBuoys® but but have not yet achieved successful large scale or profitable commercialization of our PowerBuoys®. We have also added the the WAM-V® product line, but we have not achieved profitability with this product line. As we seek to manufacture, market, sell and deploy our PowerBuoys® and WAM-Vs® in greater quantities, we may encounter unforeseen hurdles that would limit the commercial viability of these products, including unanticipated manufacturing, deployment, operating, maintenance and other costs. We may also encounter technical obstacles to deploying, operating and maintaining PowerBuoys®, WAM-Vs®, or other products.

To date, our operations have not been materially adversely affected by global conflicts including Russia’s invasion of Ukraine, the current Israel/Palestine conflict, the conflict in Iran, or the recent attacks on merchant ships in the Red Sea. However, further escalation of these or other conflicts could result in, among other negative consequences, a disruption to the global economy and supply chain leading to a shortage of parts, materials and services needed to manufacture and timely deliver our products. Any such shortages could negatively impact our suppliers’ ability to meet our demand requirements and, in turn, our ability to satisfy our customer demand. These challenges, together with other challenges associated with operating an international business, may adversely affect our ability to recognize revenue and our other operating results.

If we are unable to effectively manage our growth, this could adversely affect our business and operations.operations could be adversely affected.

Our systems and processes involve the storage and transmission of proprietary information and sensitive or confidential data, including personal information of employees, and possibly customers and others. In addition, we rely on information systems controlled by third parties. Information system failures, network disruptions, and system and data security breaches, manipulation, destruction, ransom, or leakage, whether intentional or accidental, could impair our ability to provide services to our customers or otherwise harm our ability to conduct our business.,business, including delays in execution of classified work or revocation of our FCLFCL. Any such failures, disruptions or breaches could also impede the development, manufacture or shipment of products, interrupt or delay processing of transactions and reporting financial results, result in theft or misuse of our intellectual property or other assets, or result in the unintentional disclosure of personal, proprietary, sensitive, or confidential information of employees, customers, and others. Our development and use of our MDAS platforms, cloud-based offerings, as well as our evolution toward DaaS, PaaS and RaaS models, require us to host increasing amounts of our own data as well as customer data, and increases the risk that our and our customers’ data and financial and proprietary information could be more susceptible to such failures and data breaches.

The increasing use of artificial intelligence technologies by threat actors may increase the sophistication, frequency and effectiveness of cyberattacks directed at the Company, its employees, customers, suppliers and business partners. In addition, the Company’s use of third-party software, cloud services, artificial intelligence tools and connected devices may introduce vulnerabilities that are outside of its direct control. We utilize, develop, install and maintain a number of information technology systems. Various privacy and security laws require us to protect sensitive and confidential information from disclosure. In addition, we are bound by our customers and other contracts, as well as our own business practices, to protect confidential and proprietary information (whether it be ours or a third party’s information entrusted to us) from disclosure. Our computer systems, as well as those of our customers, contractors and other vendors, face the threat of unauthorized access, computer hackers, viruses, malicious code, cyber-attacks, phishing and other security incursions and system disruptions, including attempts to improperly access our confidential and proprietary information, as well as the confidential and proprietary information of our customers and other business partners. Industry-accepted security measures and technology to secure computer systems, and the information stored by cloud vendors on these systems are subject to threats. For example, as we plan to receive projects from the DoD DoW and Department of Homeland Security (“DoHS”),DHS, we will have to meet their framework for establishing cyber security standards and and best practices, what they call Cybersecurity Maturity Model Certification at various levels as we grow our business with DoDDoW and DHS. DoHS. There can be no assurance that our efforts will prevent these threats, or that we will be able to secure appropriate certifications in in this area. Further, as these security threats continue to evolve, we may be required to devote additional resources to protect, prevent, detect and respond against such threats. A party who circumvents our security measures, or those of our customers, contractors or other vendors, could misappropriate confidential or proprietary information, improperly manipulate data, or cause damage or interruptions to systems. If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our security processes and procedures and our compliance with applicable laws and regulations, including evolving government cyber security requirements for government contractors. Any of these events could damage our reputation, result in litigation and regulatory fines and penalties, or have a material adverse effect on our business, financial condition, results of operations or cash flows.

If an ownership change occurs, the amount of the taxable income for any post-change year that may be offset by a pre-change loss is subject to an annual limitation that is cumulative to the extent it is not all utilized in a year. This limitation is derived by multiplying the fair market value of our stock as of the ownership change by the applicable federal long-term tax-exempt rate. To the extent that a company has a net unrealized built-in gain at the time of an ownership change, which is realized or deemed recognized during the five-year period following the ownership change, there is an increase in the annual limitation for each of the first five-years that is cumulative to the extent it is not all utilized in a year. If an ownership change should occur in the future, our ability to use the NOLcarryforwardsNOL carryforwards to offset future taxable income will be subject to an annual limitation and will depend on the amount of taxable income generated by us in future periods. There is no assurance that we will be able to fully utilize the NOL carryforwards and we may be required to record an additional valuation allowance related to the amount of the NOL that may not be realized, which could impact the results of our operations.

In the past, companies that experienced significant volatility in the market price of their publicly traded securities have become subject to class action securities litigation. Our stock price has been volatile, and class action securities litigation and derivative lawsuits have been filed against us, and it is possible that additional lawsuits could be brought against us in the future. The results of complex legal proceedings are difficult to predict. These lawsuits assert types of claims that, if resolved against us, could give rise to substantial damages, and an unfavorable outcome or settlement of these lawsuits, or any future lawsuits, could have a material adverse effect on our business, financial condition, results of operations and/or stock price. Even if any future lawsuits are not resolved against us, the costs of defending such lawsuits may be material to our business and our operations. Moreover, these lawsuits may divert our management’s attention from the operation of our business. For more information on our legal proceedings, see Item 3 “Legal Proceedings” of this Annual Report and Note 14 “Commitments and Contingencies – Litigation with Paragon Technologies, Inc.” in the accompanying consolidated financial statements for the fiscal year ended April 30, 2025.2026.

The issuance of shares upon conversion of the notesNotes and Warrants noted above could dilute the ownership interests of existing stockholders, and the sales of such shares into the public market (or the perception that such sales may occur) could place significant downward pressure on the trading price of our common stock. If our share price declines, it may result in more shares being issued upon conversion of the notes, further diluting existing stockholders.

In June 2023,2023 (and amended and restated in June 2026), our Board of Directors adopted a Section 382 Tax Benefits Preservation Plan in an effort to diminish the risk that the Company’s ability to utilize its net operating loss carryovers to reduce potential future federal income tax obligations may become substantially limited. The Section 382 Tax Benefits Preservation Plan is also intended to act as a deterrent to any person or group acquiring beneficial ownership of 4.99% or more of the outstanding common stock without the approval of our Board of Directors. In June 2026, our Board of Directors adopted an amended and restated Section 382 Tax Benefits Preservation Plan for the same purposes.

We continue to monitor federal budget developments, appropriations activity, agency guidance, and agencybroader guidancegeopolitical events to assess downstream effects on pipeline conversion and resource allocation. WeDuring fiscal 2026, the U.S. Government operated under two continuing resolutions, experienced two temporary government shutdowns, and faced delays in the enactment of a full-year defense appropriation. In addition, heightened geopolitical tensions, including the conflict involving Iran, contributed to shifting government priorities and procurement timing across portions of the defense market. These factors resulted in delays in certain customer procurement activities, contract awards, and program funding decisions. While the timing of these opportunities remains uncertain, we believe our active positioning in mission-critical domains, including persistent maritime surveillance, energy resilience, and multi-domain autonomy, will allowpositions us well to capitalizecompete onfor pent-upthese demandopportunities as deferredprocurement contractactivity opportunities move forward in the second half of calendar year 2025.resumes. However, additional political disruptionsdisruptions, appropriations delays, geopolitical instability, or appropriationschanges delaysin government priorities could further delay customer decisions and adversely affect our operating operatingresults, resultscash flows, and cashthe flow.timing of future contract awards.

Inflationary pressures may impact the cost of key inputs used in products. Although pricing volatility began to moderate in the latter half of fiscal 2025, we may experience elevated vendor pricing compared to pre-pandemic levels. To partially offset these pressures, we have implemented cost optimization measures, adjusted pricing on new contracts, and re-evaluated supplier agreements.

Despite these headwinds, our diversified contract basebase, including U.S. federal government agencies, strategic defense contractors, and energy developers—continuesdevelopers, toprovides supporta foundation for future revenue visibility. We remain focused on cost discipline, capital efficiency, and maintaining operational flexibility as macroeconomic uncertainty persists into fiscal 2026.generation.

During fiscal yearyears 20252025, 2026 and subsequently, we undertook two significantvarious capital raising activities to support our strategic initiatives and operational needs.

On March 21, 2024, the Company entered into an At-the-Market Offering Agreement with an aggregate offering price of up to $7.0 million (the “2023 ATM Facility”). On August 30, 2024 the aggregate offering price under the 2023 ATM Facility was increased to approximately $16.0 million. It was then reduced to approximately $2.9 million in September 2024 and increased again to approximately $60.0 million in December 2024. As of April 30, 2025, theThe Company had received proceeds of approximately $17.7$18.0 million under this facility andprior anto additionaltermination of the facility $0.3effective millionAugust between April 30, 2025 and June 16,8, 2025.

MayConvertible 2025 Convertible Debt Issuance

The sale of additional equity and convertible debt under new facilities 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 cannot 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 incremental 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.

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers (“ASC 606”) for contracts with customers and Accounting StandardsASC CodificationTopic 842 - Leases (“ASC 842”) for leasing arrangements. In relation to ASC 606, which states that a performance obligation is the unit of account for revenue recognition, 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 performance obligation 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.

The nature of the Company’s contracts may give rise to several types of variable consideration, including unpriced change orders, liquidated damages and penalties. Variable consideration 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. Estimates of variable consideration and determination of whether to include such amounts in the transaction price are based largely on the assessment of legal enforceability, performance, and any other information (historical, current, and forecasted) that is reasonably available to us. There was no variable consideration asrecognized in ofrevenue for the years ended April 30, 20252026 or 2024.2025. The Company presents shipping and handling costs, that occur after control of the promised goods or services transfer to the customer, as fulfilmentfulfillment costs in costs of revenuesgoods sold and regular shipping and handling activities charged to operating expenses.

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 (e.g., upon shipment, upon delivery, as services are rendered, or upon completion of service), including when performance obligations are satisfied in a bill-and-hold arrangement. 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 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 hours incurred best represents the measure of progress against the performance obligations incorporated within the contractual agreements. If estimated total costs on any contract project a loss, the Company charges the entire estimated loss to operations in the period the loss becomes known. For the quarter ended January 31, 2026 the Company recorded one-time losses associated with two contracts in strategically important markets. The expenses associated with these projects are now substantially complete, although they will continue to generate revenue over the next several months. Importantly, our core programs and commercial pipeline continue to demonstrate improving margin quality and operating leverage. The cumulative effect of revisions to revenue, estimated costs to complete contracts, including penalties, change orders, claims, anticipated anticipated losses, and others are recorded in the accounting period in which the events indicating a loss are known and the loss can be reasonably estimated. These loss projections are re-assessed for each subsequent reporting period until the project is complete. Such revisions revisions could occur at any time and the effects may be material. During the fiscal year ended April 30, 20252026 the Company recognized approximately approximately $4.9$2.4 million in revenue related to performance obligations satisfied at a point in time and approximately $1.0$0.7 million in revenue related to performance obligations satisfied over time as compared to $3.6$4.9 million in revenue related to performance obligations satisfied at a point in time and $1.9$1.0 million in revenue related to performance obligations satisfied over time revenue for the fiscal year ended April 30, 2024.2025.

The Company’s contracts are either cost-plus contracts, fixed-price contracts, time and material agreements, lease agreements or service agreements. agreements. Under cost pluscost-plus contracts, customers are billed for actual expensescosts incurred plus an agreed-upon fee. Under fixed-price contracts, customers are billed based on contractually agreed pricing for specified deliverables or services. Under time-and-materials agreements, customers are billed based on negotiated labor rates for hours worked and the cost of materials, equipment, subcontractors, and other reimbursable expenses incurred in performing the work.

The Company has twoone typestype of fixed-price contracts,contract, firm fixed-price and cost-sharing.fixed-price. Under firm fixed-price contracts, the Company receives an agreed-upon amount for providing products and services specified in the contract, and 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 revenue, resulting in gross profit on these contracts of zero. The Company reports its disaggregation of revenue by contract type since this method best represents the Company’s business. For the fiscal years ended April 30, 2025 2026 and 2024,2025, the majority of the Company’s fixed price contracts were classified as firm fixed-price and the balance were cost-sharing.fixed-price.

The Company’s revenue also includes revenue from certain contracts which do not fall within the scope of ASC 606, but under the scope of ASC 842, “LeasesLeases.”. At inception of a contract for those classified under ASC 842, the Company classifies leases as either operating or financing in accordance with the authoritative accounting guidance contained within ASC 842. If the direct financing or sales-type classification criteria are met, then the lease is accounted for as a financefinancing lease. All others are treated as operating leases. leases. The Company recognizes revenue from operating lease arrangements generally on a straight-line basis over the lease term, or as agreed agreed upon in-use days are utilized, both of which areis presented in Revenues in the Consolidated Statement of Operations. The Company also enters enters into operating lease arrangements for its PowerBuoys® and Wave Adaptive Modular Vessels (“WAM-V®”) with certain customers. customers. Revenue related to multiple-element arrangements is allocated to lease and non-lease elements based on their relative standalone selling selling prices or expected cost plus a margin approach. Lease elements generally include a PowerBuoy®, WAM-V®, and components, while while non-lease elements, which the Company expects to become more prevalent, generally include engineering, monitoring and support services. In the lease arrangement, the customer may be provided with an option to extend the lease term or purchase the leased PowerBuoy® buoy or WAM-V® at some point during and/or at the end of the lease term.

AsIn each of the years ended April 30, 20252026 and 2024,2025, the Company had three and four customers, respectively,customers whose revenue accounted for at least 10% of the Company’s consolidated revenue. These customers accounted for approximately 53%62% and 52%53% of the Company’s total revenue for the2026 respectiveand periods.2025, respectively.

The following table shows the percentage of our revenue by geographical location of our customers headquarters for fiscal 20252026 and 2024 2025:

Our cost of revenue consists primarily of subcontracts, incurredmaterials material,incurred, labor and manufacturing overhead expenses, such as engineering expense,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.

Our selling, general and administrative costs consist primarily of professional fees, salariessalaries, 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.

The simplificationCompany completed the process of OPT’swinding legaldown entityits structureAustralian reducessubsidiary fixedduring costsfiscal 2024 and complianceits complexity,UK enablingsubsidiary aduring morefiscal agile and scalable2025. approach to international market entry and project execution. The unrealized gains or losses resulting from foreign currency balances translation associated with these entities are included in Accumulated Other Comprehensive Loss within Shareholders’ Equity. Foreign currency transaction gains and losses are recognized within the Company’sour Consolidated Statements of Operations.

Revenue for the fiscal years ended April 30, 20252026 anddecrease 2024 were approximately $5.9 million and $5.5 million, respectively, representing an increase of approximately $0.4$2.1 million.million Therelated year-over-yearto increasethe primarily reflects higher levelstiming of revenuedeliveries stemmingon fromcurrent year projects versus the salesprior andyear leases contracts of WAM-Vs.

Interest income,income/(expense), net

OtherInterest (expense)/income for the fiscal yearyears ended April 30, 2026 and 2025 was ($2.8) million and $47,000, respectively, with the change primarily related to interest expenses associated with the May 2025, October 2025 and 2024April was2026 (23,000)convertible and $2,000, respectively.notes.

The loss on extinguishment of debt of $1.2 million as of April 30, 2026 relates to convertible notes that were issued in May and October 2025 and were repaid in full in April 2026. The loss on extinguishment of debt of $0.8 million as of April 30, 2025 relates to convertible notes that were issued in December 2024 and were converted to common stock in December 2024 loss on disposition of assets.

Income tax benefit reflects the sale by the Company of New Jersey State net operating losses and research development credits under the New Jersey Economic Development Authority Tax Transfer programs, resulting in $1.0 million and $1.3 million of tax benefit related to the fiscal year ended April 30, 2025. The Company did not sell any net operating losses in the fiscal year ended April 30, 2025 and 2024, respectively.2026.

During the fiscal year ended April 30, 2025,2026, net cash flows used in operating activities was $18.6$20.8 million, aan decreaseincrease of $11.1$2.1 million compared to net cash used in operating activities during the fiscal year ended April 30, 2024.2025 of 18.6 million. This primarily reflects aan decrease increase in the net loss of $5.4$24.4 millionmillion, prepaid expenses, and increasesinventory on hand, partially offset an increase in accounts payable, contract liabilities, and equity compensation and decreases in accounts receivable in the current year onversus non-cashthe expenses,prior such as depreciation and stock-based compensation.year.

Net cash used in/provided in investing activities

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the year ended April 30, 20252026 and set forth below in this Quarterly Report on Form 10-Q. These risk factors describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. Except as noted below, thereThere have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K filed with the SEC on July 24,August 2025.19, 2026.

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, 2025,2026, filed with the SEC on JulyAugust 24,19, 2025, and our Quarterly Report on Form 10-Q for the quarter ended July 31, 2025, filed with the SEC on September 15, 2025, except as noted below.2026.

During the ninethree months ended JanuaryJuly 31, 2026, the Company incurred a net loss of approximately $29.6$10.5 million and used cash in operations of approximately approximately $19.9$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 concentration of customers and suppliers, pending or threatened litigation and deployment risks and integration of acquisitions.

As of JanuaryJuly 31, 2026, backlog was $19.9$19.1 million, compared to $7.5$15.0 million at JanuaryJuly 31, 2025. BacklogThe backlog represents unfulfilledthe value of unfulfilled, purchase orders and agreements with commercial and governmental customers. TheIf Companyany expectsof our contracts were to convertbe allterminated, currentour backlog would withinbe reduced by the next 12expected to 36 months. The amount and timingvalue of backlogthe conversionremaining toterms revenueof issuch subject to change.contract.

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, 2025.2026 other than noted below.

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 MarchDecember 15, 2025, 17, 2026, and interim reporting periods in those years. Entities that elect the practical expedient and, if applicable, make the accounting policy policy election are required to apply the amendments prospectively. WeThe areCompany currently evaluating the potential impact of adoptingadopted ASU 2025-05 on ourMay 1, 2026 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.statements.

WeThe currently focus our sales efforts in key global markets in North America, South America, Europe and Asia. The following table shows the percentage of our revenues by geographical location of our customers for the three and three months ended JanuaryJuly 31, 2026 and 2025.

Our cost of revenue consists primarily of subcontracts, incurredmaterials 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.

Foreign exchange gain (loss)

Three months ended JanuaryJuly 31, 2026 compared to the three months ended JanuaryJuly 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 JanuaryJuly 31, 2026 and 2025.

Cost of revenues for the three months ended JanuaryJuly 31, 2026 and 2025 increased toapproximately $1.3$3.3 million from $0.6 million, respectively. The year-over-year increaseand is related primarily to full the recognition of one-time losses associated with contracts in strategically important markets.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 are now substantially complete, although they will continue to generate revenue over the next several months. Importantly, our core programs and commercial pipeline continue to demonstrate improving margin quality and operating leverage.

Operating expenses for the three months ended JanuaryJuly 31, 2026 andincreased 2025approximately were $8.4$5.2 million and $6.1 million, respectively. The increase of approximately $2.3 million was primarily the result of the significant increases in share-basedproduct compensationdevelopment of $1.8$2.6 millionmillion, one-time non-cash losses on abandonment of assets and warrant acquisition expense of $1.4 million, and increases in employee relatedemployee-related expenses of $0.5$0.8 million compared to prior year.million.

Interest (expense)/income

Interest (expense)/income for the three months ended JanuaryJuly 31, 2026 and 2025 was $(726,000)$373,000 and $6,000,$310,000, respectively, with the change primarily related related to interest expenses associated with the May and October 2025 convertible notes.notes and the April 2026 convertible note.

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 $29.6$10.5 million and $15.1$7.4 million for the ninethree months ended JanuaryJuly 31, 2026 and 2025, respectively. Refer to “Liquidity Outlook” below below for additional information.