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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

COMMISSION FILE NUMBER 001-36379

ENERGOUS CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

46-1318953

(State of incorporation)

 

(I.R.S. Employer Identification No.)

3590 North First Street, Suite 210, San Jose, CA  95134

(Address of principal executive office)        (Zip code)

(408963-0200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.00001 par value

 

WATT

 

The Nasdaq Stock Market

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes           No 

As of May 12, 2021, there were 61,939,578 shares of our Common Stock, par value $0.00001 per share, outstanding.

 

 

 

 


 

ENERGOUS CORPORATION

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2021

INDEX

 

PART I - FINANCIAL INFORMATION

 

3

 

 

 

Item 1.  Financial Statements

 

3

 

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

 

22

 

 

 

Item 4.  Controls and Procedures

 

22

 

 

 

PART II – OTHER INFORMATION

 

23

 

 

 

Item 1.  Legal Proceedings

 

23

 

 

 

Item 1A.  Risk Factors

 

23

 

 

 

Item 2.  Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

 

34

 

 

 

Item 3.  Defaults Upon Senior Securities

 

34

 

 

 

Item 4.  Mine Safety Disclosures

 

34

 

 

 

Item 5.  Other Information

 

34

 

 

 

Item 6.  Exhibits

 

34

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Energous Corporation

BALANCE SHEETS

 

 

 

As of

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,758,397

 

 

$

50,729,661

 

Accounts receivable

 

 

156,775

 

 

 

75,850

 

Prepaid expenses and other current assets

 

 

742,193

 

 

 

636,702

 

Total current assets

 

 

45,657,365

 

 

 

51,442,213

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

449,664

 

 

 

402,711

 

Operating lease right-of-use assets

 

 

1,097,377

 

 

 

1,293,291

 

Other assets

 

 

1,610

 

 

 

1,610

 

Total assets

 

$

47,206,016

 

 

$

53,139,825

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,450,767

 

 

$

1,096,839

 

Accrued expenses

 

 

1,756,286

 

 

 

1,576,287

 

Operating lease liabilities, current portion

 

 

805,557

 

 

 

825,431

 

Deferred revenue

 

 

17,000

 

 

 

12,000

 

Total current liabilities

 

 

4,029,610

 

 

 

3,510,557

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities, long-term portion

 

 

386,424

 

 

 

576,762

 

Total liabilities

 

 

4,416,034

 

 

 

4,087,319

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred Stock, $0.00001 par value, 10,000,000 shares authorized

   at March 31, 2021 and December 31, 2020; no shares issued or

   outstanding

 

 

 

 

 

 

Common Stock, $0.00001 par value, 200,000,000 shares authorized

   at March 31, 2021 and December 31, 2020, respectively; 61,919,824

   and 61,292,412 shares issued and outstanding at March 31, 2021

   and December 31, 2020, respectively.

 

 

620

 

 

 

614

 

Additional paid-in capital

 

 

346,287,871

 

 

 

344,024,638

 

Accumulated deficit

 

 

(303,498,509

)

 

 

(294,972,746

)

Total stockholders’ equity

 

 

42,789,982

 

 

 

49,052,506

 

Total liabilities and stockholders’ equity

 

$

47,206,016

 

 

$

53,139,825

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

3


 

Energous Corporation

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Revenue

 

$

145,065

 

 

$

61,475

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

4,591,244

 

 

 

4,575,303

 

Sales and marketing

 

 

1,794,212

 

 

 

1,447,909

 

General and administrative

 

 

2,287,396

 

 

 

2,652,394

 

Cost of services revenue

 

 

 

 

 

39,544

 

Total operating expenses

 

 

8,672,852

 

 

 

8,715,150

 

Loss from operations

 

 

(8,527,787

)

 

 

(8,653,675

)

Other income:

 

 

 

 

 

 

 

 

Interest income

 

 

2,024

 

 

 

55,939

 

Total other income

 

 

2,024

 

 

 

55,939

 

Net loss

 

$

(8,525,763

)

 

$

(8,597,736

)

Basic and diluted loss per common share

 

$

(0.14

)

 

$

(0.25

)

Weighted average shares outstanding, basic and diluted

 

 

61,567,003

 

 

 

34,816,553

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

4


 

Energous Corporation

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2021

 

 

61,292,412

 

 

$

614

 

 

$

344,024,638

 

 

$

(294,972,746

)

 

$

49,052,506

 

Stock-based compensation - restricted

   stock units ("RSUs")

 

 

 

 

 

 

 

 

2,088,910

 

 

 

 

 

 

2,088,910

 

Stock-based compensation - employee

   stock purchase plan ("ESPP")

 

 

 

 

 

 

 

 

57,316

 

 

 

 

 

 

57,316

 

Issuance of shares for RSUs

 

 

627,412

 

 

 

6

 

 

 

(6

)

 

 

 

 

 

 

Proceeds from contributions to the ESPP

 

 

 

 

 

 

 

 

117,013

 

 

 

 

 

 

117,013

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,525,763

)

 

 

(8,525,763

)

Balance March 31, 2021 (unaudited)

 

 

61,919,824

 

 

 

620

 

 

 

346,287,871

 

 

 

(303,498,509

)

 

 

42,789,982

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2020

 

 

33,203,806

 

 

$

333

 

 

$

282,153,201

 

 

$

(263,140,660

)

 

$

19,012,874

 

Stock-based compensation - restricted

   stock units ("RSUs")

 

 

 

 

 

 

 

 

2,321,820

 

 

 

 

 

 

2,321,820

 

Stock-based compensation - performance

   share units ("PSUs")

 

 

-

 

 

 

-

 

 

 

(88,348

)

 

 

-

 

 

 

(88,348

)

Stock-based compensation - employee

   stock purchase plan ("ESPP")

 

 

 

 

 

 

 

 

42,827

 

 

 

 

 

 

42,827

 

Issuance of shares for RSUs

 

 

396,559

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

Proceeds from contributions to the ESPP

 

 

 

 

 

 

 

 

113,059

 

 

 

 

 

 

113,059

 

Issuance of shares in an at-the-market ("ATM")

   offering, net of $141,322 in issuance costs

 

 

4,351,652

 

 

 

44

 

 

 

5,506,836

 

 

 

 

 

 

5,506,880

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,597,736

)

 

 

(8,597,736

)

Balance, March 31, 2020 (unaudited)

 

 

37,952,017

 

 

$

381

 

 

$

290,049,391

 

 

$

(271,738,396

)

 

$

18,311,376

 

 

The accompanying notes are an integral part of these condensed financial statements.

5


Energous Corporation

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,525,763

)

 

$

(8,597,736

)

Adjustments to reconcile net loss to:

 

 

 

 

 

 

 

 

Net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

64,774

 

 

 

121,699

 

Stock based compensation

 

 

2,146,226

 

 

 

2,276,299

 

Changes in operating lease right-of-use assets

 

 

195,914

 

 

 

188,445

 

Bad debt expense

 

 

 

 

 

33,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(80,925

)

 

 

(29,029

)

Prepaid expenses and other current assets

 

 

(105,491

)

 

 

98,212

 

Accounts payable

 

 

353,928

 

 

 

(633,268

)

Accrued expenses

 

 

179,999

 

 

 

(628,052

)

Operating lease liabilities

 

 

(210,212

)

 

 

(169,681

)

Deferred revenue

 

 

5,000

 

 

 

 

Net cash used in operating activities

 

 

(5,976,550

)

 

 

(7,340,111

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(111,727

)

 

 

 

Net cash used in investing activities

 

 

(111,727

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

     Net proceeds from the sales of common stock

 

 

 

 

 

5,506,880

 

Proceeds from contributions to employee stock purchase plan

 

 

117,013

 

 

 

113,059

 

Net cash provided by financing activities

 

 

117,013

 

 

 

5,619,939

 

Net decrease in cash and cash equivalents

 

 

(5,971,264

)

 

 

(1,720,172

)

Cash and cash equivalents - beginning

 

 

50,729,661

 

 

 

21,684,089

 

Cash and cash equivalents - ending

 

$

44,758,397

 

 

$

19,963,917

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

 

Common stock issued for RSUs

 

$

6

 

 

$

4

 

 

The accompanying notes are an integral part of these condensed financial statements.

6


Note 1 - Business Organization, Nature of Operations

Energous Corporation (the “Company”) was incorporated in Delaware on October 30, 2012. The Company has developed its WattUp® technology, consisting of proprietary semiconductor chipsets, software, hardware designs and antennas, that enables radio frequency (“RF”) based charging for electronic devices, providing wire-free contact and non-contact charging solutions, with the potential to enable charging with mobility. The Company believes its proprietary WattUp technology can be utilized in consumer electronics such as wearables, hearing aids, earbuds, Bluetooth headsets, Internet of Things (“IoT”) devices, smartphones, tablets, e-book readers, keyboards, mice, remote controls, rechargeable lights, cylindrical batteries, medical devices and other devices with charging requirements that would otherwise require battery replacement or wired power connection.

Note 2 – Liquidity and Management Plans

During the three months ended March 31, 2021 and 2020, the Company recorded revenue of $145,065 and $61,475, respectively. During the three months ended March 31, 2021 and 2020, the Company recorded a net loss of $8,525,763 and $8,597,736, respectively. Net cash used in operating activities was $5,976,550 and $7,340,111 for the three months ended March 31, 2021 and 2020, respectively. The Company is currently meeting its liquidity requirements through the proceeds of securities offerings that raised net proceeds of $53,556,202 during 2020, along with payments received from customers.

As of March 31, 2021, the Company had cash on hand of $44,758,397. The Company expects that cash on hand as of March 31, 2021, together with anticipated revenues, will be sufficient to fund the Company’s operations into May 2022.

Research and development of new technologies is by its nature unpredictable. Although the Company intends to continue its research and development activities, there can be no assurance that its available resources and revenue generated from its business operations will be sufficient to sustain its operations. Accordingly, the Company expects to pursue additional financing, which could include offerings of equity or debt securities, bank financings, commercial agreements with customers or strategic partners, and other alternatives, depending upon market conditions. There is no assurance that such financing would be available on terms that the Company would find acceptable, or at all.

The market for products using the Company’s technology is broad and evolving, but remains nascent and unproven, so the Company’s success is dependent upon many factors, including customer acceptance of its existing products, technical feasibility of future products, regulatory approvals, competition and global market fluctuations.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The pandemic continues to affect the United States and the world. The Company is monitoring the ongoing effects of COVID-19 (including continued outbreaks) and the related business and travel restrictions and changes to behavior intended to reduce its spread, and COVID-19’s impact on the Company’s operations, financial position, cash flows, inventory, supply chains, global regulatory approvals, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. Due to the continuing developments and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company's operations and liquidity are still uncertain as of the date of this report.

 

Note 3 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

These unaudited condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2020 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 24, 2021.  The accounting policies used in preparing these unaudited condensed interim financial statements are consistent with those described in the Company’s December 31, 2020 audited financial statements.

7


Note 3 – Summary of Significant Accounting Policies, continued

 

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported expenses during the reporting periods.  

The Company’s significant estimates and assumptions include the valuation of stock-based compensation instruments, recognition of revenue, the useful lives of long-lived assets, and income tax expense. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. Although the Company believes that its estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. The Company maintains its cash deposits with major financial institutions.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606).

In accordance with Topic 606, the Company recognizes revenue using the following five-step approach:

 

 

1.

Identify the contract with a customer.

 

2.

Identify the performance obligations in the contract.

 

3.

Determine the transaction price of the contract.

 

4.

Allocate the transaction price to the performance obligations in the contract.

 

5.

Recognize revenue when the performance obligations are met or delivered.

The Company’s revenue primarily consists of product development projects revenue and royalty revenue from Dialog. The Company also provides contract services for Dialog. During the three months ended March 31, 2021, the Company recognized $145,065 in product development projects revenue, $0 in royalty revenue and $0 in contract services revenue. During the three months ended March 31, 2020, the Company recognized $20,850 in product development projects revenue, $0 in royalty revenue and $40,625 in contract services revenue.

The Company records revenue associated with product development projects that it enters into with certain customers. In general, these product development projects are complex, and the Company does not have certainty about its ability to achieve the project milestones. The achievement of a milestone is dependent on the Company’s performance obligation and requires acceptance by the customer. The Company recognizes this revenue at a point in time based on when the performance obligation is met. The payment associated with achieving the performance obligation is generally commensurate with the Company’s effort or the value of the deliverable and is nonrefundable. The Company records the expenses related to these product development projects in research and development expense, in the periods such expenses were incurred.

The Company records royalty revenue from its manufacturing partner, Dialog, and such royalty revenue is recognized at a point in time based on shipments from Dialog to its customers.

The Company recognizes contract services revenue from Dialog over the period of time that the services are performed. The costs associated with this revenue are recognized as the services are performed and are included in cost of services revenue.

 

Research and Development

Research and development expenses are charged to operations as incurred. For internally developed patents, all patent application costs are expensed as incurred as research and development expense. Patent application costs, which are generally legal costs, are expensed as research and development costs until such time as the future economic benefits of such patents become more certain. The Company incurred research and development costs of $4,591,244 and $4,575,303 for the three months ended March 31, 2021 and 2020, respectively.

 

8


 

Note 3 – Summary of Significant Accounting Policies, continued

Stock-Based Compensation

The Company accounts for equity instruments issued to employees, board members and contractors in accordance with accounting guidance that requires awards to be recorded at their fair value on the date of grant and are amortized over the vesting period of the award. The Company recognizes compensation costs on a straight-line basis over the requisite service period of the award, which is typically the vesting term of the equity instrument issued.

Under the Company’s Employee Stock Purchase Plan (“ESPP”), employees may purchase a limited number of shares of the Company’s common stock at a 15% discount from the lower of the closing market prices measured on the first and last days of each half-year period. The Company recognizes stock-based compensation expense for the fair value of the purchase options, as measured on the grant date.

 

 

Income Taxes

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of March 31, 2021, no liability for unrecognized tax benefits was required to be reported. The guidance also discusses the classification of related interest and penalties on income taxes. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the three months ended March 31, 2021 or 2020. The Company files income tax returns with the United States and California governments.

 

Net Loss Per Common Share

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method), the vesting of restricted stock units (“RSUs”) and performance stock units (“PSUs”) and the enrollment of employees in the ESPP. The computation of diluted loss per share excludes potentially dilutive securities of 7,137,741 and 7,206,004 for the three months ended March 31, 2021 and 2020, respectively, because their inclusion would be anti-dilutive.

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive.  

 

 

 

For the Three Months

Ended March 31,

 

 

 

2021

 

 

2020

 

Warrant issued to private investors

 

 

3,284,789

 

 

 

3,938,802

 

Options to purchase common stock

 

 

550,985

 

 

 

550,985

 

RSUs

 

 

1,851,254

 

 

 

2,048,540

 

PSUs

 

 

1,450,713

 

 

 

667,677

 

Total potentially dilutive securities

 

 

7,137,741

 

 

 

7,206,004

 

 

 

9


 

Note 3 – Summary of Significant Accounting Policies, continued

 

Leases

 

As of January 1, 2019, the Company determines if an arrangement is a lease at the inception of the arrangement. The Company applies the short-term lease recognition exemption and recognizes lease payments in profit or loss at lease commencement for facility or equipment leases that have a lease term of 12 months or less and do not include a purchase option whose exercise is reasonably certain. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities.

 

ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are measured and recorded at the later of the adoption date, January 1, 2019, or the service commencement date based on the present value of lease payments over the lease term. The Company uses the implicit interest rate when readily determinable; however, most leases do not establish an implicit rate, so the Company uses an estimate of the incremental borrowing rate based on the information available at the time of measurement. Lease expense for lease payments is recognized on a straight-line basis over the lease term. See Note 4 – Commitments and Contingencies, Operating Leases for further discussion of the Company’s operating leases.

Recent Accounting Pronouncements

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740),” Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions under Topic 740 and improves consistent application by clarifying and amending existing guidance. This standard is effective for annual reporting periods beginning after December 15, 2020. The Company adopted this standard, and the adoption did not have a material impact on its financial statements.

 

Management’s Evaluation of Subsequent Events

The Company evaluates events that have occurred after the balance sheet date of March 31, 2021, through the date which the financial statements are available to be issued.

Note 4 – Commitments and Contingencies

Operating Leases

San Jose Lease

On July 1, 2019, the Company signed a new lease agreement for the lease of its office space at its corporate headquarters in San Jose, California for an additional three years. The lease agreement includes space on the first floor of the building that had been previously subleased. Upon expiration of the original lease on September 30, 2019, the new monthly lease payment starting October 1, 2019 was $52,970 and is subject to annual escalations up to a maximum monthly lease payment of $64,941.

 

10


 

Note 4 – Commitments and Contingencies, continued

Operating Leases, continued

Costa Mesa Lease

 

On July 15, 2019, the Company signed a new lease agreement for the lease of office space in Costa Mesa, California for an additional two years. Upon expiration of the original lease on September 30, 2019, the new monthly lease payment starting October 1, 2019 was $9,773 and is subject to an annual escalation up to a maximum monthly lease payment of $10,200.

 

Operating Lease Commitments

 

In February 2016, the FASB issued its final standard on lease accounting, ASU No. 2016-02, “Leases (Topic 842),” which superseded Topic 840, “Leases,” which was further modified in ASU No. 2018-10, “Codification Improvements” to clarify the implementation guidance. The new accounting standard was effective for the Company beginning on January 1, 2019 and required the recognition on the balance sheet of right-of-use assets and lease liabilities. The Company elected the optional transition method and adopted the new guidance on January 1, 2019 on a modified retrospective basis with no restatement of prior period amounts. The Company’s adoption of the new standard resulted in the recognition of right-of-use assets of $414,426 and operating lease liabilities of $485,747, with no material cumulative effect adjustment to equity as of the date of adoption. The Company anticipates having future total lease payments of $1,224,876 during the period from the second quarter of 2021 to the third quarter of 2022. As of March 31, 2021, the company has total operating lease right-of-use assets of $1,097,377, current portion operating lease liabilities of $805,557 and long-term portion of operating lease liabilities of $386,424. The weighted average remaining lease term is 1.4 years as of March 31, 2021.

A reconciliation of undiscounted cash flows to lease liabilities recognized as of March 31, 2021 is as follows:

 

 

 

Amount

 

 

 

(unaudited)

 

2021

 

 

640,407

 

2022

 

 

584,469

 

Total future lease payments

 

 

1,224,876

 

Present value discount (4% weighted average)

 

 

(32,895

)

Total operating lease liabilities

 

 

1,191,981

 

 

Hosted Design Software Agreement

On June 25, 2015, the Company entered into a three-year agreement to license electronic design automation software in a hosted environment. Pursuant to the agreement, under which services began July 2015, the Company is required to remit quarterly payments in the amount of approximately $101,000 with the last payment due March 30, 2018. On December 18, 2015, the agreement was amended to redefine the hardware and software configuration and the quarterly payments increased to approximately $198,000. In July 2018, the Company renewed the agreement for an additional three years, and the Company is required to remit quarterly payments of approximately $218,000. The current subscription term expires on June 23, 2021.

 

Litigations, Claims, and Assessments

 

The Company is from time to time involved in various disputes, claims, liens and litigation matters arising in the normal course of business. While the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the outcome of these matters will have a material adverse effect on the Company's combined financial position, results of operations or cash flows.

 

11


 

Note 4 – Commitments and Contingencies, continued

MBO Bonus Plan

On March 15, 2018, the Company’s Board of Directors (“Board”), on the recommendation of the Board’s Compensation Committee (“Compensation Committee”), approved the Energous Corporation MBO Bonus Plan (“Bonus Plan”) for executive officers of the Company. To be eligible to receive a bonus under the Bonus Plan, an executive officer must be continuously employed throughout the applicable performance period, and in good standing, and achieve the performance objectives selected by the Compensation Committee.

Under the Bonus Plan, the Compensation Committee is responsible for selecting the amounts of potential bonuses for executive officers, the performance metrics used to determine whether any such bonuses will be paid and determining whether those performance metrics have been achieved.

During the three months ended March 31, 2021, the Company accrued $391,578 in expense under the Bonus Plan, which will be paid during the second quarter of 2021. During the three months ended March 31, 2020, the Company accrued $284,591 in expense, which was paid during the second quarter of 2020.

Severance and Change in Control Agreement

On March 15, 2018, the Compensation Committee approved a form of Severance and Change in Control Agreement (“Severance Agreement”) that the Company may enter into with executive officers (“Executive”).

Under the Severance Agreement, if an Executive is terminated in a qualifying termination, the Company agrees to pay the Executive six to 12 months of that Executive’s monthly base salary. If Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) the Company will pay the full amount of Executive’s premiums under the Company’s health, dental and vision plans, including coverage for the Executive’s eligible dependents, for the six to 12 month period following the Executive’s termination.

Amended Employee Agreement – Stephen Rizzone

On April 3, 2015, the Company entered into an Amended and Restated Executive Employment Agreement with Stephen R. Rizzone, the Company’s President and Chief Executive Officer (“Employment Agreement”).

The Employment Agreement effective as of January 1, 2015, has an initial term of four years and automatically renews each year after the initial term. The Employment Agreement provides for an annual base salary of $365,000, and Mr. Rizzone is eligible to receive quarterly cash bonuses from the MBO Bonus Plan with a total target amount equal to 100% of his base salary based upon achievement of performance-based objectives established by the Board.

 

Mr. Rizzone is also eligible to receive all customary and usual benefits generally available to senior executives of the Company.

Strategic Alliance Agreement

In November 2016, the Company and Dialog Semiconductor plc (“Dialog”), a related party (see Note 7—Related Party Transactions), entered into a Strategic Alliance Agreement (“Alliance Agreement”) for the manufacture, distribution and commercialization of products incorporating the Company’s wire-free charging technology (“Licensed Products”). Pursuant to the terms of the Alliance Agreement, the Company agreed to engage Dialog as the exclusive supplier of the Licensed Products for specified fields of use, subject to certain exceptions (the “Company Exclusivity Requirement”). Dialog agreed to not distribute, sell or work with any third party to develop any competing products without the Company’s approval (the “Dialog Exclusivity Requirement”). In addition, both parties agreed on a revenue sharing arrangement and will collaborate on the commercialization of Licensed Products based on a mutually-agreed upon plan. Each party will retain all of its intellectual property.

The Alliance Agreement has an initial term of seven years and will automatically renew annually thereafter unless terminated by either party upon 180 days’ prior written notice. The Company may terminate the Alliance Agreement at any time after the third anniversary of the Agreement upon 180 days’ prior written notice to Dialog, or if Dialog breaches certain exclusivity obligations. Dialog may terminate the Alliance Agreement if sales of Licensed Products do not meet specified targets. The Company Exclusivity Requirement will terminate upon the earlier of January 1, 2021 or the occurrence of certain events relating to the Company’s pre-existing exclusivity obligations. The Company Exclusivity Requirement renews automatically on an annual basis unless the Company and Dialog agree to terminate the requirement.

12


Note 5 – Stockholders’ Equity

Authorized Capital

The holders of the Company’s common stock are entitled to one vote per share. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board out of legally available funds. Upon the liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in all assets of the Company that are legally available for distribution.

Financing

On August 9, 2018, the Company filed a shelf registration statement on Form S-3 with the SEC, which became effective on August 17, 2018. This shelf registration statement allows the Company to sell, from time to time, any combination of debt or equity securities described in the registration statement up to aggregate proceeds of $75,000,000. Pursuant to this registration statement, in March 2019 the Company raised $23,319,156 (net of $1,680,844 in issuance costs) from an offering of shares of its common stock and warrants to purchase 1,666,666 shares of common stock at an exercise price of $10.00 per share. The Company also raised $4,557,693 (net of $339,081 in issuance costs) during the fourth quarter of 2019, $5,506,880 (net of $141,322 in issuance costs) during the first quarter of 2020 and $9,216,611 (net of $236,528 in issuance costs) during the second quarter of 2020, pursuant to this shelf registration statement.

On September 15, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which became effective on September 24, 2020, and contains two prospectuses: a base prospectus, which covers the offering, issuance and sale by the Company of up to $75,000,000 of its common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase its common stock, preferred stock or debt securities and/or units consisting of some or all of these securities; and an at-the-market (“ATM”) sales agreement prospectus supplement covering the offering, or the ATM Program, issuance and sale by the Company of up to a maximum aggregate offering price of $40,000,000 of its common stock that may be issued and sold under that certain sales agreement. The $40,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $75,000,000 of the Company’s securities that may be offered, issued and sold by the Company under the base prospectus. Pursuant to this shelf registration statement, the Company sold shares which raised net proceeds of $38,832,711 (net of $1,167,289 in issuance costs) during the third and fourth quarters of 2020. The ATM Program was completed as of the end of 2020 and no further securities were sold during the three months ended March 31, 2021.

Common Stock Outstanding

Our outstanding common shares typically include shares that are deemed delivered under US GAAP. Shares that are deemed delivered currently include shares that have vested, but have not yet been delivered, under tax-deferred equity awards, as well as shares purchased under our Employee Stock Purchase Program (“ESPP”) where actual transfer of shares normally occurs a few days after the completion of the purchase periods. There are no voting rights for shares that are deemed delivered under US GAAP until the actual delivery of shares takes place. On July 24, 2020, the stockholders of the Company approved an increase of the authorized share capital of the Company from 50,000,000 to 200,000,000 shares of common stock.

Note 6 – Stock-Based Compensation

Equity Incentive Plans

2013 Equity Incentive Plan

Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2013 Equity Incentive Plan to increase the number of shares reserved for issuance thereunder by 1,200,000 shares, bringing to 7,285,967 the total number of shares approved for issuance under that plan. 

As of March 31, 2021, 930,611 shares of common stock remain eligible to be issued through equity-based instruments under the 2013 Equity Incentive Plan.

2014 Non-Employee Equity Compensation Plan

Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2014 Non-employee Equity Compensation Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 800,000 shares, bringing to 1,650,000 the total number of shares approved for issuance under that plan.

13


Note 6 – Stock-Based Compensation, continued

Equity Incentive Plans, continued

As of March 31, 2021, 873,971 shares of common stock remain eligible to be issued through equity-based instruments under the 2014 Non-Employee Equity Compensation Plan.

2015 Performance Share Unit Plan

Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2015 Performance Share Unit Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 700,000 shares, bringing to 3,410,104 the total number of shares approved for issuance under that plan.

 

As of March 31, 2021, 681,238 shares of common stock remain eligible to be issued through equity-based instruments under the 2015 Performance Share Unit Plan.

 

2017 Equity Inducement Plan

 

On December 28, 2017, the Board approved the 2017 Equity Inducement Plan. Under the plan, the Board reserved 600,000 shares for the grant of RSUs. These grants will be administered by the Board or a committee of the Board. These awards will be granted to individuals who (a) are being hired as an employee by the Company or any subsidiary and such award is a material inducement to such person being hired; (b) are being rehired as an employee following a bona fide period of interruption of employment with the Company or any subsidiary; or (c) will become an employee of the Company or any subsidiary in connection with a merger or acquisition.

 

As of March 31, 2021, 143,336 shares of common stock remain available to be issued through equity-based instruments under the 2017 Equity Inducement Plan.

Employee Stock Purchase Plan

In April 2015, the Company’s Board approved the ESPP, under which 600,000 shares of common stock have been reserved for purchase by the Company’s employees, subject to the approval by the stockholders. On May 21, 2015, the Company’s stockholders approved the ESPP. Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the Employee Stock Purchase Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 250,000 shares, bring to 850,000 the total number of shares approved for issuance under that plan. Under the ESPP, employees may designate an amount not less than 1% but not more than 10% of their annual compensation for the purchase of Company shares. No more than 7,500 shares may be purchased by an employee under the ESPP during an offering period. An offering period shall be six months in duration commencing on or about January 1 and July 1 of each year. The exercise price of the option will be the lesser of 85% of the fair market of the common stock on the first business day of the offering period and 85% of the fair market value of the common stock on the applicable exercise date.

As of March 31, 2021, 140,438 shares of common stock remain eligible to be issued under the ESPP. Employees contributed $117,013 through payroll withholdings as of March 31, 2021 to the ESPP for the current offering period that will end on June 30, 2021 and shares will be deemed delivered on that date.

14


Note 6 – Stock-Based Compensation, continued

Stock Option Activity

The following is a summary of the Company’s stock option activity during the three months ended March 31, 2021:

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Life In

Years

 

 

Intrinsic

Value

 

Outstanding at January 1, 2021

 

 

550,985

 

 

$

5.67

 

 

 

3.2

 

 

$

3,384

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

550,985

 

 

$

5.67

 

 

 

2.9

 

 

$

78,694

 

Exercisable at January 1, 2021

 

 

550,985

 

 

$

5.67

 

 

 

3.2

 

 

$

3,384

 

Vested

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2021

 

 

550,985

 

 

$

5.67

 

 

 

2.9

 

 

$

78,694

 

 

As of March 31, 2021, the unamortized value of options was $0.

 

 

Restricted Stock Units (“RSUs”)

During the three months ended March 31, 2021, the Compensation Committee granted various employees RSUs covering 941,635 shares of common stock under the 2013 Equity Incentive Plan. The awards vest over terms ranging from two to three years.

During the three months ended March 31, 2021, the Compensation Committee and the Board of Directors granted various non-employees RSUs covering 125,000 shares of common stock under the 2014 Non-employee Equity Compensation Plan. The awards vest over one year.

 

 

As of March 31, 2021, the unamortized value of the RSUs was $6,355,220. The unamortized amount will be expensed over a weighted average period of 1.6 years. A summary of the activity related to RSUs for the three months ended March 31, 2021 is presented below:

 

 

 

Total

 

 

Weighted

Average

Grant

Date Fair

Value

 

Outstanding at January 1, 2021

 

 

1,421,168

 

 

$

6.43

 

RSUs granted

 

 

1,066,635

 

 

$

3.81

 

RSUs forfeited

 

 

(9,137

)

 

$

9.97

 

RSUs vested

 

 

(627,412

)

 

$

7.33

 

Outstanding at March 31, 2021

 

 

1,851,254

 

 

$

4.60

 

 

 

15


 

Note 6 – Stock-Based Compensation, continued

 

Performance Share Units (“PSUs”)

Performance share units (“PSUs”) are grants that vest upon the achievement of certain performance goals. The goals are commonly related to the Company’s revenue, market capitalization or market share price of the common stock.

During the three months ended March 31, 2021, the Compensation Committee of the Board of Directors granted various employees PSUs covering 1,450,713 shares of common stock under the Company’s 2015 Performance Share Unit Plan.

Amortization for all PSU awards was $0 and $(88,348) for the three months ended March 31, 2021 and 2020, respectively.

A summary of the activity related to PSUs for the three months ended March 31, 2021 is presented below:

 

 

 

Total

 

 

Weighted

Average Grant

Date Fair Value

 

Outstanding at January 1, 2021

 

 

 

 

$

 

PSUs granted

 

 

1,450,713

 

 

 

4.51

 

PSUs forfeited

 

 

 

 

 

 

PSUs vested

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

1,450,713

 

 

 

4.51

 

 

Employee Stock Purchase Plan (“ESPP”)

The current offering period under the ESPP started on January 1, 2021 and will conclude on June 30, 2021. During the year ended December 31, 2020, there were two offering periods. The first offering period began January 1, 2020 and concluded on June 30, 2020. The second offering period began on July 1, 2020 and concluded on December 31, 2020.

The weighted-average grant-date fair value of the purchase option for each designated share purchased under this plan was approximately $0.75 and $0.57 for the three months ended March 31, 2021 and 2020, respectively, which represents the fair value of the option, consisting of three main components: (i) the value of the discount on the enrollment date, (ii) the proportionate value of the call option for 85% of the stock and (iii) the proportionate value of the put option for 15% of the stock. The Company recognized compensation expense for the plan of $57,316 and $42,827 for the three months ended March 31, 2021 and 2020, respectively.

The Company estimated the fair value of ESPP purchase options granted during the three months ended March 31, 2021 and 2020 using the Black-Scholes option pricing model. The fair values of stock options granted were estimated using the following assumptions:

 

 

 

Three Months Ended

March 31, 2021

 

 

Three Months Ended

March 31, 2020

 

Stock price

 

$

1.80

 

 

$

1.77

 

Dividend yield

 

 

0%

 

 

 

0%

 

Expected volatility

 

 

95

%

 

 

61

%

Risk-free interest rate

 

 

0.09

%

 

 

1.57

%

Expected life

 

6 months

 

 

6 months

 

 

 

16


 

Note 6 – Stock-Based Compensation, continued

 

Stock-Based Compensation Expense

The following tables summarize total stock-based compensation costs recognized for the three months ended March 31, 2021 and 2020:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

RSUs

 

 

2,088,910

 

 

$

2,321,820

 

PSUs

 

 

 

 

 

(88,348

)

ESPP

 

 

57,316

 

 

 

42,827

 

Total

 

$

2,146,226

 

 

$

2,276,299

 

 

The total amount of stock-based compensation was reflected within the statements of operations as:

 

 

 

Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

Research and development

 

$

1,149,277

 

 

$

1,100,978

 

Sales and marketing

 

 

448,947

 

 

 

364,458

 

General and administrative

 

 

548,002

 

 

 

810,863

 

Total

 

$

2,146,226

 

 

$

2,276,299

 

 

 

Note 7 – Related Party Transactions

In November 2016, the Company and Dialog entered into an alliance agreement for the manufacture, distribution and commercialization of products incorporating the Company’s wire-free charging technology (See Note 4 – Commitments and Contingencies, Strategic Alliance Agreement). On November 7, 2016 and June 28, 2017, the Company and Dialog entered into securities purchase agreements under which Dialog acquired a total of 1,739,691 shares and received warrants to purchase up to 1,417,565 shares. As of March 31, 2021, none of the warrants remain outstanding. As of March 31, 2021, Dialog owns approximately 2.8% of the Company’s outstanding common shares. The Company recorded $0 and $0 for the three months ended March 31, 2021 and 2020, respectively, in royalty revenue. Additionally, the Company recorded $0 and $40,625 in contract services revenue performed by Dialog during the three months ended March 31, 2021 and 2020. The Company recorded $0 and $39,544 in cost of services revenue associated with contract services performed for Dialog during the three months ended March 31, 2021 and 2020, respectively.

 

Note 8 – Customer Concentrations

 

One customer accounted for approximately 69% of the Company’s revenue for the three months ended March 31, 2021, and two customers accounted for approximately 82% of the Company’s revenue for the three months ended March 31, 2020. One customer accounted for approximately 64% of the accounts receivable balance as of March 31, 2021. Four customers accounted for approximately 92% of the accounts receivable balance as of December 31, 2020.

 

17


 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires the terms “we,” “us,” “our,” and “Energous” refer to Energous Corporation, a Delaware corporation.  This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “would,” “should,” “could,” “seek,” “intend,” “plan,” “continue,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding proposed business strategy; market opportunities; regulatory approval; expectations for current and potential business relationships; the impact of COVID-19 on our business and our response to it; and expectations for revenues, liquidity cash flows and financial performance, the anticipated results of our research and development efforts, the timing for receipt of required regulatory approvals and product launches. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Forward-looking statements relate to the future and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and generally outside of our control, so actual results and financial condition may differ materially from those indicated in the forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others: our ability to develop commercially feasible technology; timing of customer implementations of our technology in consumer products; timing and receipt of regulatory approvals in the United States and internationally; our ability to find and maintain development partners; market acceptance of our technology; competition in our industry; our ability to protect our intellectual property; competition; and other risks and uncertainties described in the Risk Factors and in Management's Discussion and Analysis sections of our most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q, including this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update any of our forward-looking statements, whether as a result of new information, future developments or otherwise.

Overview

We have developed our WattUp® wireless power technology, consisting of proprietary semiconductor chipsets, software controls, hardware designs and antennas, that enables radio frequency (“RF”) based charging for electronic devices. The WattUp technology has a broad spectrum of capabilities, including near field wireless charging and at-a-distance wireless charging at various distances. In November 2016 we entered into a Strategic Alliance Agreement with Dialog Semiconductor plc (“Dialog”), an industry leader in Bluetooth low energy semiconductors and power management semiconductors. In conjunction with the Strategic Alliance Agreement, Dialog manufactures and is the exclusive distributor of integrated circuit (“IC”) products that incorporate our designs and provides sales and logistic support to customers on a global basis. We believe our proprietary WattUp technologies are well suited for many applications, including home automation, surface and implanted medical devices, electronic shelf labels, industrial IoT sensors, tracking devices, hearables, wearables, consumer electronics, public safety and military applications. Potential future applications include smartphones, commercial and industrial robotics, as well as automotive solutions and other devices with charging requirements that would otherwise require battery replacement or a wired power connection.

 

We believe our technology is innovative in its approach, in that we are developing solutions that charge electronic devices with an RF energy zone. We are developing solutions that deliver wire-free energy for near field charging applications and are also developing at-a-distance charging at distances up to approximately three feet, as well as low-power charging for distances up to 15 feet and beyond, some of which involve mobility charging.

 

To-date, we have developed multiple transmitters and receivers, including prototypes as well as partner production designs. The transmitters vary based on form factor, power specifications and frequencies, while the receivers are designed for applications including Bluetooth tracking tags, IoT sensors, hearing aids, electronic shelf labels, fitness bands, health sensors and devices, smartwatches, smartphones, smartglasses, industrial applications, keyboards, mice, headsets, earbuds, headphones, and more.

 

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We have engagements with companies in the consumer electronics (CE), industrial, military and medical device markets that are in the both evaluation and product cycle pre-production stages of integrating WattUp-technology into devices being developed for the end-user. The first end product featuring our technology entered the market in 2019 and we expect additional WattUp enabled products to be announced and launched in 2021. We are also in discussions with potential customers in the consumer and industrial spaces that are considering our solutions to supply low power distance charging for products that could enter the market in 2022.

 

In December 2017, we announced Federal Communications Commission (“FCC”) certification of our first-generation WattUp Mid Field transmitter, which simultaneously powers multiple devices at a distance of up to three feet. This transmitter underwent rigorous, multi-month testing to verify that it met consumer safety and regulatory requirements. We believe this was the first certification of a Part 18 FCC-approved non-contact wireless charging transmitter, and that it establishes engineering design precedents that can streamline future regulatory approvals for our technology and for our customers’ end-products that employ our technology.

 

Our technology solution consists principally of transmitter controller ICs, power amplifier ICs and receiver ICs, as well as novel antenna designs, application prototypes and proprietary software algorithms. We submitted our first IC design for wafer fabrication in 2013 and since then have developed subsequent generations of transmitter and receiver ICs, antenna designs, and software algorithms.  We have endeavored to optimize our technology by reducing size and cost, while at the same time increasing performance which enables our designs to be integrated into a broad range of devices. We have developed a “building block” approach that allows us to scale our product implementations by combining multiple transmitter building blocks or multiple receiver building blocks to meet the power, distance, size and cost requirements of customer applications requirements. Our technology is readily scalable because the same ICs that are used for contact-based charging can be used for distance-based charging solutions. We have developed two classes of chip solutions, a CMOS-based technology focused on low cost, small footprint and low power (less than 5 watts) and a GaAs/GaN-based technology capable of delivering higher power with greater efficiency. We intend to continue to invest in research and development with high power capabilities of 20 watts and beyond at high levels of efficiency. We also intend to continue to invest in improving product performance, efficiency, cost-performance, integration and miniaturization as required to reach multiple markets and expand the power-at-a-distance ecosystem, while maintaining a technology lead on potential competitors.

 

We sell evaluation kits to potential customers of our technology, to allow their respective engineering and product management departments to test and evaluate the technology. Our customers’ product development, technology integration and product introduction cycles occur over multiple quarters and generally span a period of more than a year to two years and can elapse before first evaluation and final shipment of the customer’s product. Once our customers begin to sell products to end customers that incorporate our technology, we would expect the commercialization cycle to shorten over time as the technology matures and market acceptance grows.

 

We maintain exclusive rights to all intellectual property in our technology. We have implemented an aggressive intellectual property strategy and are continuing to pursue patent protection for new innovations. As of May 10, 2021, the Energous IP portfolio contained 236 awarded patents in the United States, which are organized along five (5) critical paths to implementation that we believe a competitor may have to navigate to commercialize WPT technology. The paths are: Processing Algorithms, Antenna Designs, Transmitter and Receiver ASICs, Other Software Controls (e.g., Bluetoothâ Management and Hardware (e.g., Board Layout). In addition to the inventions covered by these patents, we have also identified specific inventions that we believe are novel and patentable. We intend to file for patent protection for the most valuable of these, and for other inventions that we expect to develop. This is a significant annual expense and we continually monitor the costs and benefits of each patent application and pursue those that we believe are most protective for our business and expand the core value of the Company.

 

Our seasoned management team has both private and public company experience, as well as relevant industry experience. In addition, we have identified and hired key engineering resources in the areas of IC development, antenna development, hardware, software and firmware engineering as well as integration and testing, which will allow us to continue to expand our technology and intellectual property and to meet our customers’ support requirements.

 

Impact of COVID-19 on Our Business

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. The pandemic continues to affect the United States and the world. We are monitoring the ongoing effects of COVID-19 (including continued outbreaks) and the related business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on our operations, financial position, cash flows, inventory, supply chains, global regulatory approvals, purchasing trends, customer payments, and the industry in general, in addition to the impact on our employees.

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The pandemic of COVID-19 has delayed adoption of our technology by potential customers who temporarily shut down their workforce and supply chain based in China, and who continue to evaluate their future prospects and business models, including partnerships with us. For example, in one case, the pandemic delayed the spring launch of a new product that incorporates our technology. Further delays in this or other products could result from the ongoing pandemic.  These changes are due in part to changes in how business is conducted as a result of the pandemic, including state executive orders, local shelter-in-place orders, government-imposed quarantines and work-from-home policies in China, the United States, and elsewhere. We have implemented work-from-home policies for our employees that will likely be in place through the end of the year and possibly longer. The effects of state executive orders, local shelter-in-place orders, government-imposed quarantines and our work-from-home policies  could negatively impact productivity, disrupt our research and development or other operations, and delay the planned launch of our customers’ new products that incorporate our technology, the magnitude of which will depend, in part, on the length and severity of the continuing restrictions and other limitations on our ability to conduct our business in the ordinary course.  Due to the continuing developments and fluidity of this situation, the magnitude and duration of the pandemic and its impact on our operations and liquidity are still uncertain as of the date of this report.

Critical Accounting Policies and Estimates

Revenue Recognition

On January 1, 2018 we adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606).

In accordance with Topic 606, we recognize revenue using the following five-step approach:

 

 

1.

Identify the contract with a customer.

 

2.

Identify the performance obligations in the contract.

 

3.

Determine the transaction price of the contract.

 

4.

Allocate the transaction price to the performance obligations in the contract.

 

5.

Recognize revenue when the performance obligations are met or delivered.

Our revenue currently consists of product development projects revenue and royalty revenue from Dialog. We also provide contract services for Dialog.  

We record revenue associated with product development projects that we enter into with certain customers. In general, these product development projects are complex, and we do not have certainty about our ability to achieve the project milestones. The achievement of a milestone is dependent on our performance obligation and requires acceptance by the customer. We recognize this revenue at a point in time based on when the performance obligation is met. The payment associated with achieving the performance obligation is generally commensurate with our effort or the value of the deliverable and is nonrefundable. We record the expenses related to these product development projects in research and development expense, in the periods such expenses were incurred.

We record royalty revenue from our manufacturing partner, Dialog, and such royalty revenue is recognized at a point in time based on shipments from Dialog to its customers.

We recognize contract services revenue from Dialog over a period of time as the services are performed. The costs associated with this revenue are recognized as the services are performed and are included in cost of services revenue.

Results of Operations

Operating Expenses

Research and development expenses include costs associated with our efforts to develop our technology, including personnel compensation, consulting, engineering supplies and components, intellectual property costs, regulatory expense and general office expenses specifically related to the research and development department. Sales and marketing expenses include costs associated with selling and marketing our technology to our customers, including personnel compensation, public relations, graphic design, tradeshow, engineering supplies utilized by the sales team and general office expenses specifically related to the sale and marketing department. General and administrative expenses include costs for general and corporate functions, including personnel compensation, facility fees, travel, telecommunications, insurance, professional fees, consulting fees, general office expenses, and other overhead.

20


Three Months Ended March 31, 2021 and 2020

Revenue.  During the three months ended March 31, 2021 and 2020, we recorded revenue of $145,065 and $61,475, respectively.

Operating Expenses and Loss from Operations.  Operating expenses are made up of research and development, sales and marketing, general and administrative expenses and cost of services revenue. Losses from operations for the three months ended March 31, 2021 and 2020 were $8,527,787 and $8,653,675, respectively.

Research and Development Costs.  Research and development costs were $4,591,244 and $4,575,303, respectively, for the three months ended March 31, 2021 and 2020. The increase of $15,941 is primarily due to a $182,294 increase in compensation, consisting of a $133,995 increase in payroll costs and a $48,299 increase in stock-based compensation, a $40,368 increase in consulting and third party services expense, a $20,870 increase in regulatory testing and a $20,286 increase in regulatory legal costs, partially offset by a $64,807 decrease in legal costs pertaining to patent and intellectual property management, a $64,351 decrease in allocated rent, a $56,585 decrease in depreciation, a $36,917 decrease in engineering supplies, components and chip development costs due to project timing and a $31,150 decrease in travel expense due to a reduction in travel, meals and entertainment as a result of COVID-19 restrictions.

Sales and Marketing Costs.  Sales and marketing costs for the three months ended March 31, 2021 and 2020 were $1,794,212 and $1,447,909, respectively. The increase of $346,303 is primarily due to a $379,486 increase in compensation, consisting of a $294,997 increase in payroll costs from a higher headcount within the department and an $84,489 increase in stock-based compensation, and a $54,514 increase in engineering supplies used by the sales and marketing staff for customer demonstrations, partially offset by a $54,505 decrease in tradeshow expense and a $20,238 decrease in consulting, public relations and third party services expense.

General and Administrative Expenses.  General and administrative costs for the three months ended March 31, 2021 and 2020 were $2,287,396 and $2,652,394, respectively. The decrease of $364,998 is primarily due to a $177,284 decrease in compensation, consisting of a $262,861 decrease in stock-based compensation as a result of having fewer outstanding equity awards after the retirement of three board members during the previous year, offset by an $85,577 increase in payroll costs, a $193,825 decrease in accounting and auditing fees, a $40,682 decrease in travel, meals and entertainment as a result of COVID-19 restrictions and a $37,678 decrease in consulting expense, partially offset by an $83,894 increase in insurance premiums.

Interest Income. Interest income for the three months ended March 31, 2021 was $2,024 as compared to interest income of $55,939 for the three months ended March 31, 2020. The decrease of $53,915 is primarily due to lower savings interest rates.

Net Loss. As a result of the above, net loss for the three months ended March 31, 2021 was $8,525,763 as compared to $8,597,736 for the three months ended March 31, 2020.

Liquidity and Capital Resources

During the three months ended March 31, 2021 and 2020, we recorded revenue of $145,065 and $61,475, respectively. We incurred net losses of $8,525,763 and $8,597,736 for the three months ended March 31, 2021 and 2020, respectively. Net cash used in operating activities was $5,976,550 and $7,340,111 for the three months ended March 31, 2021 and 2020, respectively. We are currently meeting our liquidity requirements through the proceeds from securities offerings that raised net proceeds of $53,556,202 during 2020, along with payments received from customers.

We believe our current cash on hand, together with anticipated revenues and funds raised from the at-the-market (“ATM”) finance offering will be sufficient to fund our operations into May 2022. Although we intend to continue our research and development activities, there can be no assurance that our available resources will be sufficient to enable us to generate revenues sufficient to sustain operations. Accordingly, we may pursue additional financing, which could include offerings of equity or debt securities, bank financings, commercial agreements with customers or strategic partners, and other alternatives, depending upon market conditions. There is no assurance that such financing would be available on terms that we would find acceptable, or at all.

During the three months ended March 31, 2021, cash flows used in operating activities were $5,976,550, consisting of a net loss of $8,525,763, less non-cash expenses aggregating $2,406,914 (principally stock-based compensation of $2,146,226, decrease in amortization of operating lease right-of-use assets of $195,914 and depreciation and amortization expense of $64,774), a $210,212 decrease in operating lease liabilities, a $105,491 increase in prepaid expenses and other current assets and an $80,925 increase in accounts receivable, partially offset by a $353,928 increase in accounts payable and a $179,999 increase in accrued expenses.

21


During the three months ended March 31, 2020, cash flows used in operating activities were $7,340,111, consisting of a net loss of $8,597,736, less non-cash expenses aggregating $2,619,443 (principally stock-based compensation of $2,276,299, decrease in amortization of operating lease right-of-use assets of $188,445 and depreciation and amortization expense of $121,699), a $633,268 decrease in accounts payable, a $628,052 decrease in accrued expenses and a $169,681 decrease in operating lease liabilities, partially offset by a $98,212 decrease in prepaid expenses and other current assets.

During the three months ended March 31, 2021 and 2020, cash flows used in investing activities were $111,727 and $0, respectively. The cash used in investing activities for the three months ended March 31, 2021 consisted of the purchase of new testing equipment and engineering software.

During the three months ended March 31, 2021, cash flows provided by financing activities were $117,013, which consisted of $117,013 in proceeds from contributions to the ESPP. During the three months ended March 31, 2020, cash flows provided by financing activities were $5,619,939, which consisted of $5,506,880 in net proceeds from the sale of shares of our common stock to the public in an ATM offering and $113,059 in proceeds from contributions to the ESPP.

Research and development of new technologies is, by its nature, unpredictable. Although we intend to continue our research and undertake development activities, there can be no assurance that our available resources will be sufficient to enable us to generate revenues sufficient to sustain operations.

Furthermore, since we have no committed source of financing, there can be no assurance that we will be able to raise capital as and when we need it to continue our operations.

Off Balance Sheet Transactions

As of March 31, 2021, we did not have any off-balance sheet transactions.

 

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

There has been no material change in our exposure to market risk during the three months ended March 31, 2021. Please refer to "Quantitative and Qualitative Disclosures about Market Risk" contained in Part II, Item 7A of our Form 10-K for the year ended December 31, 2020 for a discussion of our exposure to market risk.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us is made known to the officers who certify our financial reports and the Board.

Based on their evaluation as of March 31, 2021, our principal executive and principal financial officers have concluded that these disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of March 31, 2021 to provide reasonable assurance that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in Securities and Exchange Commission rules and forms and that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

For the quarter ended March 31, 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

22


PART II – OTHER INFORMATION

We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.

Item 1A.  Risk Factors

We are subject to many risks that may harm our business, prospects, results of operations and financial condition. This discussion highlights some of the risks that might adversely affect our future operating results in material ways. We believe these are the risks and uncertainties that are the most important ones we face. We cannot be certain that we will successfully address these risks, and if we are unable to address them, our business may not grow, our stock price may suffer and you could lose the value of your investment in our company. Other risks and uncertainties that we do not currently recognize as material risks, or that are similar to risks faced by other companies in our industry, may also impair our business, prospects, results of operations and financial condition. The risks discussed below include forward-looking statements, and our actual results may differ substantially from what is in these forward-looking statements.

Risks Related to Our Financial Condition

We have no history of generating meaningful product revenue, and we may never achieve or maintain profitability.

We have a limited operating history upon which investors may rely in evaluating our business and prospects. We have generated limited revenues to date, and as of March 31, 2021, we had an accumulated deficit of approximately $303 million. Our ability to generate revenues and achieve profitability will depend on our ability to execute our business plan, complete the development and approval of our technology, incorporate the technology into products that customers wish to buy, and if necessary, secure additional financing. There can be no assurance that our technology will be adopted widely, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. Furthermore, there can be no assurance that we will be able to raise capital as and when we need it to continue our operations. If we are unable to raise sufficient additional capital, we may be required to delay, reduce or severely curtail our research and development or other operations, which could have a material adverse effect on our business, operating results, financial condition, long-term prospects and ability to continue as a viable business. If we are unable to generate revenues of significant scale to cover our costs of doing business, our losses will continue and we may not achieve profitability, which could negatively impact the value of your investment in our securities.

We may need additional financing to achieve our long-term business plans, and there is no guarantee that it will be available on acceptable terms, or at all.

We may not have sufficient funds to fully implement our long-term business plans. It is likely that we will need to raise additional capital through new financings, even if we begin to generate meaningful commercial revenue. For example, new product development for business partners may require considerable expense in advance of substantial revenue for such products. Such financings could include equity financing, which may be dilutive to stockholders, or debt financing, which could restrict our ability to borrow from other sources. In addition, such securities may contain rights, preferences or privileges senior to those of current stockholders. As a result of economic conditions, general global economic uncertainty (including as a result of actual or perceived disruption caused by COVID-19, or other infectious diseases), political change, and other factors, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic uncertainty or other factors, we may be required to curtail development of our technology or reduce operations as a result, or to sell or dispose of assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on our business, results of operations and financial condition, including the possibility that a lack of funds could cause our business to fail and liquidate with little or no return to investors.

23


Risks Related to Our Technology and Products

We may not be able to develop all the features we seek to include in our technology.

We have developed commercial products, as well as working prototypes, that utilize our technology. Additional features and performance specifications we seek to include in our technology have not yet been developed. For example, some customer applications may require specific combinations of cost, footprint, efficiencies and capabilities at various frequencies, charging power levels and distances. We believe our research and development efforts will yield additional functionality and capabilities over time. However, there can be no assurance that we will be successful in achieving all the features we are targeting and our inability to do so may limit the appeal of our technology to consumers.

We may be unable to demonstrate the commercial feasibility of the full capability of our technology.

We have developed both commercial products, as well as working prototypes, that use our technology at differing power levels and charging distances, but additional research and development is required to realize the potential of our technology for applications at increasing power levels and distances that can be successfully integrated into commercial products. Research and development of new technologies is, by its nature, unpredictable.  We could encounter unanticipated technical problems, the inability to identify products utilizing our technology that will be in demand with customers, getting our technology designed into those products, designing new products for manufacturability, regulatory hurdles and achieving acceptable price points for final products. Although we intend to undertake development efforts with commercially reasonable diligence, there can be no assurance that our available resources will be sufficient to enable us to develop our technology to the extent needed to create future revenues to sustain our operations.

Our technology must satisfy customer expectations and be suitable for them to use in consumer applications. Any delays in developing our technology that arise from factors of this sort would aggravate our exposure to the risk of having inadequate capital to fund the research and development needed to complete development of these products. Technical problems leading to delays would cause us to incur additional expenses that would increase our operating losses. If we experience significant delays in developing our technology and products based on it for use in potential commercial applications, particularly after incurring significant expenditures, our business may fail, and you could lose the value of your investment in our company. If we fail to develop practical and economical commercial products based on our technology, our business may fail and you could lose the value of your investment in our stock.

 

The outbreak of health epidemics, such as COVID-19, has and may further adversely affect our business, results of operations and financial condition.

 

Any outbreaks of contagious diseases and other adverse public health developments in countries where we, our customers and suppliers operate could have a material and adverse effect on our business, results of operations and financial condition. For example, COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, manufacturing restrictions, declarations of states of emergency, business shutdown and restrictions on the movement of employees in China, the United States and many other countries. A majority of our potential customers have a significant dependence on the Chinese manufacturing and supply chain infrastructure. We believe the COVID-19 pandemic has delayed adoption of our technology by potential customers who temporarily shut down their workforce and supply chain based in China. In the United States, COVID-19 has resulted in travel and other restrictions in order to reduce the spread of the disease, including executive orders in California and several other state and local orders across the country, which, among other things, direct individuals to shelter at their places of residence, direct businesses and governmental agencies to cease non-essential operations at physical locations, prohibit certain non-essential gatherings, and order cessation of non-essential travel. As a result of these developments, we have implemented work-from-home policies for our employees that will likely be in place until at least the second half of 2021. The effects of state executive orders, local shelter-in-place orders, government-imposed quarantines and our work-from-home policies could negatively impact productivity, disrupt our research and development or other operations and delay the planned launch of our customers’ new products that incorporate our technology, the magnitude of which will depend, in part, on the length and severity of the continuing restrictions and other limitations on our ability to conduct our business in the ordinary course. Due to the continuing developments and fluidity of this situation, the magnitude and duration of the pandemic and its impact on our operations and liquidity are still uncertain as of the date of this report.

 

24


 

In addition, COVID-19 has resulted and may continue to result in a widespread health crisis that could contribute to increased market volatility and adversely affect the economies and financial markets of many countries, resulting in a global economic downturn that could affect interest in our products or demand by potential customers. Any of these events could materially and adversely affect our business, results of operations and financial condition. The extent of the impact will depend on future developments, which are highly uncertain and cannot be predicted.

 

Expanding our business operations as we intend will impose new demands on our financial, technical, operational and management resources.

To date we have operated primarily in the research and development phase of our business. If we are successful, we will need to expand our business operations, which will impose new demands on our financial, technical, operational and management resources. If we do not upgrade our technical, administrative, operating and financial control systems, or if unexpected expansion difficulties arise, including issues relating to our research and development activities, then retention of experienced scientists, managers and enginee