Ocean Power Technologies, Inc.
Q2 2011 Earnings Call Transcript

Published: 10 Dec 2010

[Operator:]

Good day, everyone, and welcome to Ocean Power Technologies audio webcast for the second quarter of fiscal year 2011. Today's conference is being recorded and webcast. At this time, for opening remarks, I would like to turn the call over to the Chief Financial Officer of Ocean Power Technologies, Mr. Brian Posner. Please proceed.

[Brian Posner:]

Thank you. Welcome to Ocean Power Technologies audio webcast for the second quarter, ended October 31st, 2010 of our fiscal year ending April 30th, 2011. Today, we issued our earnings press release and will file our quarterly report on Form 10-Q with the Securities and Exchange Commission. Our public filings can be viewed on the SEC Website at sec.gov or you may go to our Website, oceanpowertechnologies.com. I will be joined on today's webcast by Charles Dunleavy, our Chief Executive Officer. Please advance to Slide 2. During the course of this conference call, management may make projections or other forward-looking statements regarding future events or financial performance of the company within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. As indicated in the slide, these forward-looking statements are subject to numerous assumptions made by management regarding future circumstances over which the company may have little or no control, and involve risks and uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. We refer you to the company's Form 10-K and other recent filings with the Securities and Exchange Commission for a description of these and other risk factors. I will now turn the call over to Charles Dunleavy.

[Charles Dunleavy:]

Thank you, Brian, and thanks to everyone who has joined us for today’s webcast. Brian and I will be available to answer questions, following our prepared statements. On Slide Number 3, I would like to note some of the highlights of the first six month of this fiscal year. Several important technical milestones were achieved during this period. We accomplished the grid connection of our PowerBuoy at the Marine Corps Base in Hawaii in conjunction with the US Navy. This is the first grid connection of a wave energy device in the U.S. In Scotland, we successfully completed the integration of the energy conversion and power take-off subassemblies with the new PB150 PowerBuoy structure. For our Reedsport, Oregon project, also for our PB150 PowerBuoy, we finished construction of this steel structure. And in connection with that Oregon project, we signed a ground-breaking agreement with 14 different federal, state and local stakeholders. OPT also made great strides in its two autonomous PowerBuoy projects with the US Navy. OPT achieved strong top line growth, with an increase in revenue for both the three and six months ended October 31, 2010, as well as an increase in contract order backlog to $7.5 million. We announced approximately $10 million of awards from customers in the U.S., UK and Japan, since our current fiscal year 2011 began this past May. Let me now take you through these developments in more detail. Moving to Slide 4. OPT has identified two application-driven markets for its core PowerBuoy technology, the utility or grid-connected markets, which needs large amounts of power and the non-grid connected autonomous market where lower levels of power output are needed for use out in the deep ocean. Good operational progress is made with our utility PowerBuoy projects during the second quarter. In September 2010, we completed grid connection to the Oahu power grid of our PowerBuoy at the Marine Corps Base in Hawaii. This is the first grid connection of the wave energy device in the U.S. and demonstrates the ability of OPT’s PowerBuoy to produce utility grade renewable energy that can be transmitted to the grid in a manner fully compliant with national and international standards. The PowerBuoy has been in operation since December 2009, has withstood a number of severe storms and produces power in accordance with modeled expectations for that location in PowerBuoy configuration. Built under contract from the US Navy, the Hawaii project’s intent is to demonstrate the survivability of OPT’s PowerBuoy as well as the capability of our product to meet design expectations. In addition, significant aspects of the success of the Hawaii PowerBuoy are its delivery of grid quality power and the validation of OPT’s operating and performance models for a scale-up to the PB150 and its progression to the PB500 PowerBuoy products. These highlight the strength of our technical base, which is being leveraged to create valuable intellectual property. Slide 5 shows a picture of the PowerBuoy deployed off the Marine Corps Base in Oahu. Now, turning to Slide 6. Our other utility projects also continued to move ahead steadily. In 2009, OPT signed a commitment agreement with the South West Regional Development Agency or SWRDA to advance development of Wave Hub, one of the world’s largest proposed renewable marine energy projects, and is located in Cornwall, England. OPT’s expected participation in the Wave Hub project includes plans to build, install and operate a 5-megawatt wave power station, comprising an array of its patented PowerBuoy systems. SWRDA has now completed the installation of the cabling and subsea infrastructure of the entire Wave Hub site. In July 2010, OPT received support from SWRDA with a grant of 1.5 million British Pound Sterling, this is approximately $2.3 million. This grant from the UK government is for the development of the PB500 and strengthens our commitment to the region. In Spain, OPT successfully completed in-ocean trials last year of its proprietary Undersea Substation Pod under contact from Iberdrola. Earlier this calendar year, OPT was awarded 2.2 million Euros or about $3 million from the European Commission to develop the wave power device in Spain. We are currently in talks with Iberdrola regarding the next steps for that project. While the PB150 will be our key product for the utility market over the next few years, the commercialization of our intellectual property is also being leveraged by the product development of our next-generation PowerBuoy, the 500-kilowatt rated PB500. The design of this largest scale system is already underway and aimed at further lowering the cost per kilowatt hour of wave power and making it more competitive with other energy sources. The development of the PB500 gained additional momentum this quarter, with the award of $2.4 million from the US Department of Energy or DoE. This is the second award OPT has received from the DoE for the PB500, following the $1.5 million grant received this past April. The combined $6.2 million of awards for the PB500 development work received from the DoE and SWRDA is consistent with OPT’s strategy to seek non-dilutive funding from external parties to fund its development of the PB500. Now, turning to Slide 7. Much of this quarter’s operational activity was focused on the development of our PB150 PowerBuoys. Our first 150-kilowatt rated PowerBuoy in Scotland is nearing completion. The integration of the energy conversion and power take-off subassemblies with the PowerBuoy is complete. I am pleased to say that we remain on track to be ready by the end of this month for deployment off the coast of Scotland for in-ocean trials weather permitting. They are also seeking additional funding for the next stage of the Buoy’s development after this ocean trial phase. The completion of the PB150 in Scotland is a major milestone for the company. It is the first test system for our PB150 product line and a significant engineering achievement. As we have progressed during the construction phase, it has already provided valuable data for the advancement of our technology and its manufacturability. We also have benefited from this experience in the development of our second PB150 for a project in Reedsport, Oregon. Construction of the steel structure for the PowerBuoy has been completed. Fabrication of the power take-off and control system is now in process and online testing of that system is expected to commence in the first half of calendar year 2011. Ocean trials of that PB150 off Oregon are due to commence later in calendar year of 2011. OPT intends this PowerBuoy to be the first of the 10-PowerBuoy 1.5-megawatt wave power station at the Reedsport site, which would be America’s first commercial scale grid-connected wave power station. In August of 2010, we announced the signing of a significant agreement with 11 federal and state agencies and three non-governmental stakeholders to support the responsible phase development by OPT of the 10-PowerBuoy wave power station. This agreement represents a key step towards the granting of the license by the Federal Energy Regulatory Commission or FERC, which would be the first such license to be issued for a commercial scale wave power project in the U.S. After receipt of the FERC license and after receipt of additional funding for the project the 10-PowerBuoy wave power station is expected to be connected to the grid. In September 2010, OPT received a $2.4 million award from the DoE in connection with this Reedsport project, which is an addition to our receipt in 2008 of $2 million from DoE to use towards construction of that PB150 PowerBuoy. Slide 8 shows some scenes of the construction of the PB150 in Scotland. The upper left-hand picture is of the bridge assembly which sits atop the float. The upper right-hand photo shows two halves of the float, and the lower picture is of the steel buoy structure in the Scottish fabricator facility. On Slide 9, you see our PB150 in Scotland, next to the dock prior to commencement of the power take-off systems integration process. Similarly, on Slide 10, you can see views of our PB150 under construction for our project in Reedsport, Oregon. Now, turning to Slide 11. While there was significant activity with our utility projects, further progress was also made during the quarter in our autonomous PowerBuoy business, which is targeting the remote ocean applications where there is no access to grid connected power. The US Navy awarded $2.75 million in additional funding to OPT for the second stage under its existing program to provide an autonomous PowerBuoy wave energy conversion system for the Navy’s LEAP program. This is the Littoral Expeditionary Autonomous PowerBuoy program for homeland security and protection. The new reward follows the successful completion during the second quarter by OPT of the first stage of the LEAP program. During that first 12-month stage, OPT successfully completed delivery in September 2010 of the design and on-land testing of a new power take-off system for its autonomous PowerBuoy. In the second stage of the program, also to be performed over a one-year period, the company will build an ocean-test a LEAP PowerBuoy structure, incorporating that new power take-off system off the coast of New Jersey. Progress also continued on OPT’s ongoing project to provide autonomous PowerBuoy technology for the US Navy’s Deep Water Active Detection System or DWADS or ocean data gathering. The building of the enhanced device was completed during the second quarter, and OPT successfully conducted near-shore sea trials of the system. The ocean testing is expected to be conducted at a later time by the US Navy, which is anticipated to provide a ship for that deep-ocean test phase of the DWADS system. Turning now to Slide Number 12, in October 2009, the company announced that OPT in a consortium of the Mitsui Engineering & Shipbuilding or MES, Idemitsu Kosan, and Japan Wind Development Company had signed a memorandum of understanding for the development of wave energy in Japan. Just last month, OPT expanded its relationship with Mitsui Engineering & Shipbuilding with a signing of a new contract to develop its PowerBuoy technology for Japanese sea conditions. Under this contract, the two companies will work together to develop a new mooring system for OPT’s PowerBuoy, customized for wave power stations off the coast of Japan. The new system will undergo testing at MES’ wave tank facilities to verify the results of extensive computer modeling. Following from that work, the identification of a project site and completion of economic assessments, the parties plan to enter into new agreement to conduct ocean trials of a demonstration PowerBuoy system. The trial plant would provide the basis for the expected building of a commercial scale OPT wave power station with an initial capacity of several megawatts scalable to 10 megawatts or more. In Australia, a special purpose company formed by Leighton Contractors Pty Limited or Leighton previously received a 66 million Australian Dollar grant from the Federal Government of Australia towards building a 19-megawatt OPT wave power station off the coast of Victoria, Australia. The award was one of four renewable energy projects approved by the Federal Government of Australia after considering over 30 applications, and is the only wave energy venture to receive a grant. The funding is intended to be used to advance the construction of wave power station to be built in three phases to supply electricity to up to 10,000 homes in Victoria. The grant is conditional on the attainment of the balance of funding needed for the project, which effort is being led by late. As noted on Slide 13, OPT has received awards totaling approximately $10 million since the beginning of our current fiscal year in May 2010. This new business was received from customers in the U.S., UK and Japan. OPT’s $7.5 million contract backlog as of October 31st, 2010, does not yet reflect the two new funding awards we mentioned of $4.8 million from the US Department of Energy, as the contracts for these two awards have not yet been received by the company. With that, I will hand the presentation over to Brian to discuss the financial results for the second quarter and first six months of fiscal 2011.

[Brian Posner:]

Thank you, Chuck. As you will see on Slide 14, our revenues increased 220% for the second quarter of fiscal 2011 to $1.9 million compared to $600,000 for the same period in the prior year. The growth in revenues primarily reflects an increase in revenues from the US Navy under the LEAP program. In addition, there was an increase in revenues from OPT's PB150 PowerBuoy project in Reedsport, Oregon and revenues from OPT's PB500 development project. The growth in these projects was partially offset by a decline in revenues from OPT's PB150 PowerBuoy project in Scotland and its utility PowerBuoy project with the US Navy at the Marine Corps Base in Hawaii, which is now grid-connected. Gross profit was approximately $87,000 for the quarter, as compared to a gross profit of approximately $54,000 for the second quarter of the prior year. Gross profit for the second quarter ended October 31st, 2009 benefited from an approximate $300,000 favorable reduction in provision for contract losses. Our future gross margins will be dependent on the nature of the new contracts, our success at increasing sales of our PowerBuoy systems, and our ability to manage costs incurred on fixed price commercial contracts. Product development costs increased to $3.7 million as compared to $3.4 million for the second quarter of the prior year. These planned cost increases were primarily due to our efforts to increase the power output and reliability of our utility PowerBuoy system, especially the 150-kilowatt PowerBuoy. SG&A costs decreased by 2% to $2.1 million compared with $2.2 million for the previous year. This decrease was largely due to a decrease in employee-related expenses, which will partially offset by increased marketing and business development expenses. Interest income for the quarter decreased to $161,000 compared with $248,000 for the same period last year. This decrease was largely due to the decline in total cash and marketable securities. OPT recognized a foreign exchange gain of $71,000 for the quarter compared to a foreign exchange gain of $101,000 in the same period in the prior year. The difference was primarily due to the relative change in value of the British Pound Sterling and the Euro as compared to the US Dollar during the two periods. Net loss was $5.5 million for the second quarter of the fiscal year ended April 30th, 2011 compared to $5.2 million in fiscal 2010. Turning to the six-month period, our revenues were $3.2 million, a 71% increase compared to revenues of $1.9 million in the six months ended October 31st, 2009. The growth in revenues primarily reflects an increase in revenues from the US Navy under the LEAP program. In addition, there was an increase in revenues from OPT's PB150 PowerBuoy project in Reedsport, Oregon and the company's PB500 development project. The growth in these projects was partially offset by a decline in revenues from OPT's DWADS project with the US Navy, utility-scale project in Spain and utility PowerBuoy project with the US Navy at the Marine Corps Base in Hawaii. Gross loss was approximately $126,000 for the current six-month period as compared to a gross profit of approximately $341,000 for the same period in the prior year. The decrease in gross margin was largely due to a reduction of revenue in the current six-month period by approximately $231,000 due to a change in estimated revenue to be recognized in connection with the conclusion of the current project in Spain. In addition, gross profit for the six-month ended October 31st, 2009 included approximately $400,000 from the favorable reduction in a provision for contract losses. Product development costs increased to $7.7 million as compared to $4.8 million for the first six months of the prior year. As noted in the quarter, the quarter analysis, these planned cost increases were primarily due to our efforts to increase the power output and reliability of a utility PowerBuoy system, especially the 150-kilowatt PowerBuoy. SG&A costs decreased by 4% to $4.2 million compared with $4.4 million for the previous year. This was largely due to a decrease in professional fees, travel and employee-related expenses, which were partially offset by increased marketing and business development expenses. Interest income for the six months decreased to $398,000 compared with $533,000 for the same period last year. This was primarily due to the decline in total cash and marketable securities. The six-month comparison of other income reflects $532,000 received by OPT from a settlement of a claim against the supplier of engineering services during the first six months of the prior fiscal year. OPT recognized the foreign exchange loss of $168,000 for the first half of fiscal 2011 compared to a foreign exchange gain of $502,000 in the same period in the prior year. The difference was primarily due to the relative change in value of the British Pound Sterling and Euro as compared to the US Dollar during the two periods. Net loss was $11.8 million for the first six months of the fiscal year ended April 30th 2011 compared to $7.3 million in fiscal 2010. Turning to Slide 15, at October 31st, 2010, total cash, cash equivalents and investments were $57.7 million. The company’s cash equivalents and investments continue to be high liquid investments consisting primarily of US Treasury notes and term deposits with large commercial banks. While cash used in the second quarter ended October 31st, 2010 was significantly lower than the immediately preceding quarter, we expect cash used in the second half of fiscal 2011 to be consistent with the first half. We believe the rate of cash outflows will decrease in future periods, reflecting completion of significant milestones associated with the construction of our two PB150 systems for Oregon and Scotland and continue the receipt of non-dilutive funding from external sources for development of the PB500. As we noted previously, the company has so far received awards totaling $6.2 million for PB500 development work. Turning to Slide 16, last week, OPT announced that effective January 14th, 2011, its shares will no longer be traded on the AIM Market of the London Stock Exchange. It should be noted that OPT remains fully committed to growing our business in the UK and Europe. OPT has three main reasons behind the decision to de-list from AIM. The trading volume on NASDAQ was significantly higher than the AIM Market, the significant savings of costs associated with the listing, and the ability of shareholders to still trade the company’s stock on NASDAQ. All shareholders on the UK Share register will be moved to the U.S. Share register by our transfer agent, Computershare. We encourage any shareholder with any questions to call Computershare at 44-0-870-703-6162. Now, I will turn the call back over to Chuck for a summary of our view on OPT’s future developments.

[Charles Dunleavy:]

Thank you, Brian. Now, turning to Slide Number 17. The board and management of OPT are committed to the company becoming profitable as soon as possible. We believe we have two paths to profitability with each of the two major market areas we mentioned earlier. The first path with our utility PowerBuoy product target to market size of approximately $50 billion per annum and it’s all about large amounts of power being provided to the grid. This utility market opportunity is driving our product development and investment to increase the power output rating for PowerBuoy to 150-kilowatts and further to 500-kilowatts. As we stated earlier, we are pleased with the progress that we continue to make with this product. We also have made very strong progress with our autonomous PowerBuoy contract, the ability of the PowerBuoy to operate autonomously in remote locations is truly an enabling technology. In addition to homeland security, we believe there is strong potential for our systems to be used for offshore oil and gas platforms, aquaculture or fish farming, and ocean-based communication and data gathering such as for tsunami warnings. We estimate this market size to be approximately $10 billion per annum worldwide. It’s important to note that the fundamental PowerBuoy technology is the same for both of these markets. The difference in the PowerBuoy is addressing the two market areas primarily lies in the size and rated power output of the systems. In the slide, we have also shown how our present project as well as our ongoing marketing initiatives support progress along both paths to profitability. We believe that either of these paths alone can move us to profitability and positive cash generation from operations. Turning to Slide 18, we are excited about our longer-term prospects and we also believe OPT remains on track to achieve the near-term milestones we had set for a number of key projects in the forthcoming months. We would like to give you a quick status report. First, we plan to be ready by the end of this month to conduct in-ocean trials of our first PB150 device off the coast of Scotland weather permitting. We also will continue to make progress with our second PB150, which we plan to deploy in the second half of calendar 2011 off the coast of Reedsport, Oregon. In September 2010, we accomplished grid connection of the Hawaii buoy at the Marine Corps Base on Oahu. Our autonomous PowerBuoy projects with US Navy continue to make great progress. We conducted near-shore ocean trials of our enhanced autonomous PowerBuoy for the DWADS program, and also completed the design and the testing on-schedule of the new power take-off system under the first stage of the LEAP project. We have added a new near-term goal for ourselves which is for the design, build and ocean testing of a PowerBuoy structure, which will house the new power take-off system for the second stage of the LEAP program. The primary focus of OPT’s engineering and development efforts for the utility market area is to continue making improvements to the 150-kilowatt PowerBuoy system, which will be our workhorse over the next few years, and to facilitate our longer-term transition to the 500-kilowatt PowerBuoy. With several key developments due to come to fruition in the near future, along with important steps being taken for the longer term, OPT has the momentum that many levels to accelerate the adoption of our PowerBuoy wave energy technology in the years ahead. Now, this concludes our prepared statement for our second quarter review. I will now turn the call over to the operator for questions.

[Operator:]

(Operator instructions) And our first question comes from the line of Winnie Clark with UBS. Please proceed.

[Winnie Clark:]

Good morning.

[Charles Dunleavy:]

Hi, Winnie, how are you?

[Winnie Clark:]

Good. Congratulations first of all on a good quarter.

[Charles Dunleavy:]

Thank you.

[Winnie Clark:]

And first, I would like to ask about your goal of accelerating the sales of your autonomous buoys to new markets that you talked about again today. Any development in your efforts there worth highlighting to us this morning?

[Charles Dunleavy:]

We have been conducting a very aggressive marketing activity from business development side, and I think one thing that’s different over this past quarter is that we have broadened the scope of those efforts. We had previously been focusing largely on homeland security and related markets, particularly with Department of Defense and DHS, Homeland Security, but we are now broadening that as I noted to some of the other areas we mentioned in the prepared portion of our call, which includes oil and gas applications for the offshore platforms, and as well looking to engage in greater conversation and dialog with some of the providers of devices internationally for oceanographic data generation, such as for storm warnings including tsunamis, and also a lot of the very active programs that are out there with respect to monitoring such things as any changes in salinity. So, as a result of these efforts, we have noted great substantiation of the market estimates that we have made for these. There are some very substantial markets out there. So, from the view of our activity, it’s broadened, and that definitely is a change. No specific contracts to report yet, of course we will make those known publicly as soon as we do have something in hand.

[Winnie Clark:]

Okay, great. Thanks for that. And then, on the Australia project, it seems, obviously it would be one of your largest potential projects, do you have a sense of when you could obtain the additional funding needed to move forward there?

[Charles Dunleavy:]

Sorry, I missed that. Do we have a sense of when –?

[Winnie Clark:]

On when you could obtain the additional funding you need to move forward?

[Charles Dunleavy:]

Sure. When we put out our press announcement about that, we highlighted two major steps that needed to be accomplished. One was the signing of a funding deed, which is now been signed and sets out the terms of the grants including funding milestones. The second big milestone or accomplishment that needs to follow on is exactly the one you asked about, which is with respect to funding. Now, the special purpose company that had been set up by Leighton called the Victorian Wave Partners is the entity that actually received the grant from the Commonwealth government, and in addition, it is that entity which is seeking to raise the balance of funds, but clearly, it is Leighton that is leading that effort. And I think it looks really interesting from our view to give you a little more color about it is that Leighton has a very sophisticated in-house project finance team with whom we have had meetings and they are taking a lead as I noted in this. With respect to timing, which I think was another part of your question, the target is for the middle or latter part of this coming calendar year 2011 within which we would bring in additional funding. So, we have seen interest on that, and for this project, and what’s also interesting to note is that not only within the Australasian region, but other parts of the world, we have been following a lot of new project-financed deals that are actually being closed, which is counterintuitive as you take a look at the credit market scene.

[Winnie Clark:]

Okay, great. And then, on the – so you successfully raised 6.2 million for the PB500. How much in total do you need to raise, and can you give us any color on a realistic timeframe for that development completion?

[Charles Dunleavy:]

Sure. Just to give you a view, I will start with the second part of your question, which is to just set context as to timing. We have begun just this fiscal year 2011 the concept work, the design efforts, we are well into it, and further steps to be undertaken with the front-end design stage includes wave tank testing, a lot of modeling effort and generally speaking, that design phase should be completed at the tail end of calendar 2012. In 2013, by the end of that calendar year, we expect to build the first PB500 system itself, that would be a demonstration system obviously being the very first one. But it’s a three-year program, we are targeting from the cold start if you will, of the initial design and culminating in the ocean testing of the PB500. I will also add, I mentioned it was a cold start, but we have benefited tremendously from the work that’s now being conducted in connection with our PB150s, not just structural mechanical, engineering and hydrodynamic issues, but also with respect to the tuning capability of our system, which we think is a real game changer and a discriminator of our technology, the capability to do electronic tuning. So, those are elements of the task before us, but which are being facilitated by work done today particularly on the PB150. The first part of your question in terms of overall cost picture, the guidance we are giving at this point is that the 6.2 million is a very substantial proportion of the total we need, we are well along the way to what we need to complete that full three-year cycle that I just mentioned.

[Winnie Clark:]

Okay, great. And then, I will just sneak one more if I can. A fair amount of your funding comes from government and military sources, any indication of recent government austerity measures around the world could make attaining additional funding more challenging for you?

[Charles Dunleavy:]

Really great point, and we are asked that question quite a bit. The visibility that we have had is, and I say this to your point, internationally. So, we are talking with parties not just within the U.S. legislative and regulatory contacts but in other nations as well that there is still a very strong compelling interest and as well existing legislation that we think can provide in a very short term of continuing underpinning or support of renewable energy. Our view is that you just can’t rely on that though, we are trying to engineer a product that does not need subsidies and grants in order to have real legs to it on an international basis and being able to compete with other choices our customers can make. So, our experience has been on the BD, business development side that there is still a tremendous amount of interest in our product, we think as well, it extends to other technologies within the marine energy sector, which includes tidal and ocean thermal. So, there is nothing that we see specifically that would indicate, I will call it a threat or in any way a jeopardy to our ongoing business plan. And so, we are still quite confident about not only the fund-raising we have done in the current difficult environment, but also as we look ahead and to the prospects of additional funding.

[Winnie Clark:]

Okay, great. And thanks again, and congratulations again on good progress in the quarter.

[Charles Dunleavy:]

Thanks for joining the call, Winnie.

[Operator:]

And our next question comes from the line of George Santana with New Earth Capital Group. Please proceed.

[George Santana:]

Hi good morning, and thanks for taking my question.

[Charles Dunleavy:]

Sure, good morning, George.

[George Santana:]

Could you speak a bit to the competitive landscape you are seeing there? You mentioned there were about four winners of a contract in Australia. So, what are you seeing out there, and how far along are you? And congratulations, by the way, on excellent progress in the quarter.

[Charles Dunleavy:]

Thank you, appreciate it. Just to the specific aspect of your question as it related to Australia, the other three technologies were very much unrelated to marine technology, they were more focused on solar and biomass. So, not only were we the only wave power company, but the four grants really focused on, in addition to OPT, those other areas. The competitive landscape to which you referred is something that we are pleased to see is actually improving. And (inaudible) our belief, and we have really said this for sometime is we think that for this industry to attain the multi-billion dollar status that we are firmly convinced can achieve, there’s got to be more than just one player within it. There needs to be competent competition within this space, and we welcome the fact that there are some other companies, particularly there has been new funding announced for some companies within the marine energy space just over the last six months, which we take as a very positive sign. So, we do see competition out there with our engineering staff and our business development staff, aim to keep very much on top of what the developments are out there, and we do welcome the competition because that’s exactly what you need to grow a new industry. It helps to accrete the infrastructure that facilitates it, which includes not only companies that help in the fabrication but also such things as insurance products and finance. OPT has been very fortunate, we have had coverage, insurance coverage from the Lloyd’s syndicates really for a little over 10 years. So, again, a broadening of the competition I think is healthy. Obviously as a company, we aim to stay on top of that and we seek to maintain a leadership role within that sector.

[George Santana:]

Thank you. And I will jump back in the queue.

[Charles Dunleavy:]

Okay, thanks George.

[Operator:]

Our next question comes from the line of Robert Littlehale with JP Morgan. Please proceed.

[Charles Dunleavy:]

Good morning, Bob.

[Robert Littlehale:]

The technological transition that obviously you are making from the PB150 to the PB500, is it safe to say that those technological hurdles perhaps are not as great as the ones that you faced when you went from the PB40 to the PB150, just given all the inherent knowledge and experience that you have garnered already, or is it too early to say?

[Charles Dunleavy:]

No, no, it’s definitely not too early. And it’s an important point, I think, goes a lot as one thinks about the prospects for OPT, not only for improving the technology, but also just cash burn. It is a start to a PB500 development process, which has truly been greatly facilitated by our learning, not only the PB40, but also the 150. And to get to the PB500, we don’t have to create or invent any wheels. We are building on the tuning capability, which we have already demonstrated. That tuning capability to which I refer is the ability of our system to using electronic and electrical means, not just brute force mechanical, but electronically enabling our system to amend its behavior as wave conditions change, which just simply translates to our customers to more kilowatt hours per ton steel that they have bought. So, we have done a tremendous amount of learning about that to date. And as we look at the transition from the PB150 to the 500, while it’s a two-year design phase, what we are looking at in that process again is not any new wheels that have to be invented, but instead the expression mechanically and electrically as well as hydrodynamically of some tremendous lessons that we have learned with our almost 13 years of experience of system in and out of the ocean. So, we are doing the 500, conducting the 500 development product in a very deliberate way and that is a part of our – the way we are managing the company just to make sure that we are very thorough, we call it stage gate process of our product development, but does not require any new technology and definitely is a process as much facilitated by our learning to date.

[Robert Littlehale:]

Great. The other quick question I had was in Reedsport, you have faced 11 federal and state agencies that obviously you have had to obviously work with. How does that break down, that 11, between federal and state?

[Charles Dunleavy:]

Sure. There is basically three federal, Fish and Wildlife, Marine Fisheries, Forest Service. There is the balance then of eight Oregon state groups such as Department of State Lands, Environmental Quality, Water Resources, Fish and Wildlife, the Department of Energy. I am not mentioning all of them, but that gives you a feeling for –

[Robert Littlehale:]

Yes, okay.

[Charles Dunleavy:]

What also is really neat, Bob, in terms of this so-called settlement agreement that we signed is that we are very, very careful to try to engage with and involve some other groups that may not necessarily be in the form of state or federal regulatory chain, but instead speak volumes for the interest of local stakeholders. So, in addition to those groups, the 11 or so, which are strictly governmental, there is also the (inaudible) foundation represented, a group called the Southern, if I remember this, correct me now, it’s the Southern Oregon Ocean Resource Coalition that includes a lot of the fishermen’s groups. And so, we are very proud about that, the inclusiveness of the settlement agreement, but I got to tell you, but it’s nothing that we take for granted. We are not done just because these groups are assigned to this. We, as part of our engagement in this agreement, have agreed that we would conduct our work, our projects in a way that’s very responsive and sensitive to not only environmental but also cultural concerns. There are a number of tribal groups that have very keen interest in the land over which some of our cabling would pass. So, again, I just want to give you, to answer your question, just give you a little feeling of some of the breadth of what we did to achieve this.

[Robert Littlehale:]

Great, thank you. Appreciate it, Chuck.

[Charles Dunleavy:]

Thanks for coming on the call, Bob.

[Operator:]

Thank you very much. That concludes our questioning period. I will now turn the call back over to Charles Dunleavy for any closing remarks.

[Charles Dunleavy:]

Thank you. And with that, I would like to thank you all for attending today’s webcast, and for your continued support and interest. We look forward to giving you another update after the completion of our third fiscal quarter.

[Operator:]

Thank you, everyone. That concludes today’s webcast. You may now disconnect, and everyone have a great day.