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 JUNE 30, 2019

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)

(408) 963-0200

(Registrant’s telephone number, including area code)

 

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 

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

As of August 2, 2019, there were 30,637,520 shares of our Common Stock, par value $0.00001 per share, outstanding.

 

 

 

 


ENERGOUS CORPORATION

FORM 10-Q

FOR THE THREE MONTHS ENDED JUNE 30, 2019

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

 

19

 

 

 

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

 

23

 

 

 

Item 4.  Controls and Procedures

 

23

 

 

 

PART II – OTHER INFORMATION

 

24

 

 

 

Item 1.  Legal Proceedings

 

24

 

 

 

Item 1A.  Risk Factors

 

24

 

 

 

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

 

35

 

 

 

Item 3.  Defaults Upon Senior Securities

 

35

 

 

 

Item 4.  Mine Safety Disclosures

 

35

 

 

 

Item 5.  Other Information

 

35

 

 

 

Item 6.  Exhibits

 

35

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Energous Corporation

BALANCE SHEETS

 

 

 

As of

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,208,245

 

 

$

20,106,485

 

Accounts receivable

 

 

47,500

 

 

 

44,550

 

Prepaid expenses and other current assets

 

 

486,360

 

 

 

637,708

 

Operating lease right-of-use assets

 

 

121,216

 

 

 

 

Total current assets

 

 

29,863,321

 

 

 

20,788,743

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

914,964

 

 

 

1,219,016

 

Other assets

 

 

2,410

 

 

 

2,410

 

Total assets

 

$

30,780,695

 

 

$

22,010,169

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,327,261

 

 

$

1,861,385

 

Accrued expenses

 

 

2,111,116

 

 

 

1,778,349

 

Operating lease liabilities

 

 

127,540

 

 

 

 

Total current liabilities

 

 

3,565,917

 

 

 

3,639,734

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   at June 30, 2019 and December 31, 2018; no shares issued or

   outstanding

 

 

 

 

 

 

Common Stock, $0.00001 par value, 50,000,000 shares authorized

   at June 30, 2019 and December 31, 2018; 30,603,534 and

   26,526,303 shares issued and outstanding at June 30, 2019

   and December 31, 2018, respectively.

 

 

306

 

 

 

265

 

Additional paid-in capital

 

 

272,779,507

 

 

 

243,111,741

 

Accumulated deficit

 

 

(245,565,035

)

 

 

(224,741,571

)

Total stockholders’ equity

 

 

27,214,778

 

 

 

18,370,435

 

Total liabilities and stockholders’ equity

 

$

30,780,695

 

 

$

22,010,169

 

 

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Revenue

 

$

47,500

 

 

$

205,773

 

 

$

114,000

 

 

$

230,773

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,515,017

 

 

 

7,639,974

 

 

 

12,315,695

 

 

 

16,361,526

 

 

Sales and marketing

 

 

1,143,910

 

 

 

1,602,137

 

 

 

2,743,362

 

 

 

3,074,533

 

 

General and administrative

 

 

3,335,229

 

 

 

3,268,028

 

 

 

6,097,140

 

 

 

6,548,243

 

 

Total operating expenses

 

 

9,994,156

 

 

 

12,510,139

 

 

 

21,156,197

 

 

 

25,984,302

 

 

Loss from operations

 

 

(9,946,656

)

 

 

(12,304,366

)

 

 

(21,042,197

)

 

 

(25,753,529

)

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

142,660

 

 

 

5,995

 

 

 

218,733

 

 

 

11,701

 

 

Total other income

 

 

142,660

 

 

 

5,995

 

 

 

218,733

 

 

 

11,701

 

 

Net loss

 

$

(9,803,996

)

 

$

(12,298,371

)

 

$

(20,823,464

)

 

$

(25,741,828

)

 

Basic and diluted loss per common share

 

$

(0.32

)

 

$

(0.48

)

 

$

(0.71

)

 

$

(1.03

)

 

Weighted average shares outstanding, basic and diluted

 

 

30,445,438

 

 

 

25,479,861

 

 

 

29,199,225

 

 

 

25,042,529

 

 

 

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, 2019

 

 

26,526,303

 

 

$

265

 

 

$

243,111,741

 

 

$

(224,741,571

)

 

$

18,370,435

 

Stock-based compensation - restricted

   stock units ("RSUs")

 

 

 

 

 

 

 

 

3,083,567

 

 

 

 

 

 

3,083,567

 

Stock-based compensation - employee

   stock purchase plan ("ESPP")

 

 

 

 

 

 

 

 

87,825

 

 

 

 

 

 

87,825

 

Issuance of shares for RSUs

 

 

434,522

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

Shares withheld for payroll tax on RSUs

 

 

(1,329

)

 

 

 

 

 

(10,207

)

 

 

 

 

 

(10,207

)

Shares withheld for payroll tax on performance share

   units ("PSUs")

 

 

(44,481

)

 

 

 

 

 

(329,159

)

 

 

 

 

 

(329,159

)

Exercise of stock options

 

 

80,201

 

 

 

1

 

 

 

400,102

 

 

 

 

 

 

400,103

 

Proceeds from contributions to the ESPP

 

 

 

 

 

 

 

 

173,167

 

 

 

 

 

 

173,167

 

Issuance of shares and warrant in a private

   placement, net of $1,680,844 in issuance costs

 

 

3,333,333

 

 

 

33

 

 

 

23,319,123

 

 

 

 

 

 

23,319,156

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,019,468

)

 

 

(11,019,468

)

Balance, March 31, 2019 (unaudited)

 

 

30,328,549

 

 

$

303

 

 

$

269,836,155

 

 

$

(235,761,039

)

 

$

34,075,419

 

Stock-based compensation - restricted

   stock units ("RSUs")

 

 

 

 

 

 

 

 

2,675,184

 

 

 

 

 

 

2,675,184

 

Stock-based compensation - employee

   stock purchase plan ("ESPP")

 

 

 

 

 

 

 

 

122,749

 

 

 

 

 

 

122,749

 

Issuance of shares for RSUs

 

 

189,220

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

Proceeds from contributions to the ESPP

 

 

85,765

 

 

 

1

 

 

 

145,421

 

 

 

 

 

 

145,422

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,803,996

)

 

 

(9,803,996

)

Balance, June 30, 2019 (unaudited)

 

 

30,603,534

 

 

$

306

 

 

$

272,779,507

 

 

$

(245,565,035

)

 

$

27,214,778

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2018

 

 

22,584,588

 

 

$

225

 

 

$

185,659,954

 

 

$

(173,901,449

)

 

$

11,758,730

 

Stock-based compensation - restricted

   stock units ("RSUs")

 

 

 

 

 

 

 

 

4,251,961

 

 

 

 

 

 

4,251,961

 

Stock-based compensation - employee

   stock purchase plan ("ESPP")

 

 

 

 

 

 

 

 

154,545

 

 

 

 

 

 

154,545

 

Stock-based compensation - performance

   share units ("PSUs")

 

 

 

 

 

 

 

 

202,702

 

 

 

 

 

 

202,702

 

Issuance of shares for RSUs

 

 

341,936

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

Issuance of shares for PSUs

 

 

80,098

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Exercise of stock options

 

 

179,732

 

 

 

2

 

 

 

981,051

 

 

 

 

 

 

981,053

 

Cashless exercise of warrants

 

 

7,989

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from contributions to the ESPP

 

 

 

 

 

 

 

 

200,935

 

 

 

 

 

 

200,935

 

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

   offering, net of $1,153,715 in issuance costs

 

 

2,221,455

 

 

 

22

 

 

 

38,846,793

 

 

 

 

 

 

38,846,815

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,443,457

)

 

 

(13,443,457

)

Balance, March 31, 2018 (unaudited)

 

 

25,415,798

 

 

$

253

 

 

$

230,297,937

 

 

$

(187,344,906

)

 

$

42,953,284

 

Stock-based compensation - restricted

   stock units ("RSUs")

 

 

 

 

 

 

 

 

3,884,725

 

 

 

 

 

 

3,884,725

 

Stock-based compensation - employee

   stock purchase plan ("ESPP")

 

 

 

 

 

 

 

 

253,201

 

 

 

 

 

 

253,201

 

Stock-based compensation - performance

   share units ("PSUs")

 

 

 

 

 

 

 

 

204,954

 

 

 

 

 

 

204,954

 

Issuance of shares for RSUs

 

 

104,112

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Exercise of stock options

 

 

872

 

 

 

 

 

 

2,171

 

 

 

 

 

 

2,171

 

Cashless exercise of warrants

 

 

11,370

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from contributions to the ESPP

 

 

29,458

 

 

 

 

 

 

169,879

 

 

 

 

 

 

169,879

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,298,371

)

 

 

(12,298,371

)

Balance, June 30, 2018 (unaudited)

 

 

25,561,610

 

 

$

254

 

 

$

234,812,866

 

 

$

(199,643,277

)

 

$

35,169,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5


Energous Corporation

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(20,823,464

)

 

$

(25,741,828

)

Adjustments to reconcile net loss to:

 

 

 

 

 

 

 

 

Net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

476,863

 

 

 

574,815

 

Stock based compensation

 

 

5,969,325

 

 

 

8,952,088

 

Amortization of operating lease right-of-use assets

 

 

293,210

 

 

 

 

Amortization of prepaid rent from stock issuance to landlord

 

 

 

 

 

40,392

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,950

)

 

 

(205,773

)

Prepaid expenses and other current assets

 

 

94,681

 

 

 

436,360

 

Accounts payable

 

 

(534,124

)

 

 

361,302

 

Accrued expenses

 

 

332,767

 

 

 

211,518

 

Operating lease liabilities

 

 

(230,219

)

 

 

 

Net cash used in operating activities

 

 

(14,423,911

)

 

 

(15,371,126

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(172,811

)

 

 

(548,800

)

Net cash used in investing activities

 

 

(172,811

)

 

 

(548,800

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

     Net proceeds from the sales of common stock

 

 

23,319,156

 

 

 

38,846,815

 

Proceeds from the exercise of stock options

 

 

400,103

 

 

 

983,224

 

Proceeds from contributions to employee stock purchase plan

 

 

318,589

 

 

 

370,814

 

Shares repurchased for tax withholdings on vesting of RSUs

 

 

(10,207

)

 

 

 

Shares repurchased for tax withholdings on vesting of PSUs

 

 

(329,159

)

 

 

 

Net cash provided by financing activities

 

 

23,698,482

 

 

 

40,200,853

 

Net increase in cash and cash equivalents

 

 

9,101,760

 

 

 

24,280,927

 

Cash and cash equivalents – beginning

 

 

20,106,485

 

 

 

12,795,254

 

Cash and cash equivalents – ending

 

$

29,208,245

 

 

$

37,076,181

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

 

Common stock issued for RSUs

 

$

6

 

 

$

4

 

Common stock issued for PSUs

 

$

 

 

$

1

 

 

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 and six months ended June 30, 2019, the Company recorded revenue of $47,500 and $114,000, respectively, and during the three and six months ended June 30, 2018, the Company recorded revenue of $205,773 and $230,773, respectively. During the three and six months ended June 30, 2019, the Company recorded net losses of $9,803,996 and $20,823,464, respectively, and during the three and six months ended June 30, 2018, the Company recorded net losses of $12,298,371 and $25,741,828, respectively. Net cash used in operating activities was $14,423,911 and $15,371,126 for the six months ended June 30, 2019 and 2018, respectively. The Company is currently meeting its liquidity requirements through the proceeds of securities offerings that raised net proceeds of $23,319,156 in March 2019 and $38,846,815 in January 2018, along with payments received under product development projects.

As of June 30, 2019, the Company had cash on hand of $29,208,245. The Company expects that cash on hand as of June 30, 2019, together with anticipated revenues, will be sufficient to fund the Company’s operations into the third quarter of 2020.

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 business operations will generate revenues sufficient to sustain operations. Accordingly, the Company will likely 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 our existing products, technical feasibility of future products, regulatory approval, competition and global market fluctuations.

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, 2018 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 28, 2019.  The accounting policies used in preparing these unaudited condensed interim financial statements are consistent with those described in the Company’s December 31, 2018 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), which is described below in Recent Accounting Pronouncements.

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 records revenue associated with product development projects that it enters into with certain customers. In general, these 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 revenue based on when the performance obligation is met. However, the Company does not recognize revenue in excess of that payable upon achievement of an accepted milestone, as there would be uncertainty of payment for work that has not been accepted. 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 projects in research and development expense, in the periods such expenses were incurred.

The Company records royalty revenue from its manufacturing partner, Dialog, based on shipments from Dialog to its customers.

Currently, other than royalty revenue from Dialog, the Company’s other revenue source is product development projects.

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 $5,515,017 and $7,639,974 for the three months ended June 30, 2019 and 2018, respectively, and the Company incurred research and development costs of $12,315,695 and $16,361,526 for the six months ended June 30, 2019 and 2018, 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 Energous Corporation 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 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 June 30, 2019, no liability for unrecognized tax benefits was required to be reported. 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 or six months ended June 30, 2019 and 2018.

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”), performance stock units (“PSUs”) and the shares issuable from the enrollment of employees in the ESPP. The computation of diluted loss per share excludes potentially dilutive securities of 7,228,185 and 7,403,916 for the three months ended June 30, 2019 and 2018, respectively, and 7,228,185 and 7,403,916 for the six months ended June 30, 2019 and 2018, 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 June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Warrant issued to private investors

 

 

4,702,354

 

 

 

3,035,688

 

 

 

4,702,354

 

 

 

3,035,688

 

 

Options to purchase common stock

 

 

576,293

 

 

 

856,635

 

 

 

576,293

 

 

 

856,635

 

 

RSUs

 

 

1,949,538

 

 

 

2,640,034

 

 

 

1,949,538

 

 

 

2,640,034

 

 

PSUs

 

 

-

 

 

 

871,559

 

 

 

-

 

 

 

871,559

 

 

Total potentially dilutive securities

 

 

7,228,185

 

 

 

7,403,916

 

 

 

7,228,185

 

 

 

7,403,916

 

 

 

 

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 January 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified approach. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company has adopted ASU 2016-02 and its adoption had no material impact on its financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (230) – Restricted Cash.” ASU No. 2016-18 requires an entity to include amounts described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. It is effective for annual reporting periods beginning after December 15, 2018. The Company has adopted ASU 2016-18 and its adoption had no material impact on its financial statements.

In July 2017, the FASB issued a two-part ASU No. 2017-11, I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 amends guidance in FASB ASC 260, Earnings Per Share, FASB ASC 480, Distinguishing Liabilities from Equity, and FASB ASC 815, Derivatives and Hedging. The amendments in Part I of ASU 2017-11 change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II of ASU 2017-11 re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. ASU 2017-11 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company has adopted ASU 2017-11 and its adoption had no material impact on its financial statements.

 

10


Note 3 – Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements, continued

 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting.” ASU 2018-07 aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, “Equity – Equity-based Payments to Nonemployees.” It is effective for annual reporting periods beginning after December 15, 2018. The Company adopted ASU 2018-07 and its adoption had no 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 June 30, 2019, through the date which the financial statements are issued. Based upon the review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

Note 4 – Commitments and Contingencies

Operating Leases

On September 10, 2014, the Company entered into a Lease Agreement with Balzer Family Investments, L.P. (the “Landlord”) related to space located at Northpointe Business Center, 3590 North First Street, San Jose, California. The initial term of the lease is 60 months, with initial monthly base rent of $36,720 and the lease is subject to certain annual escalations as defined in the agreement.

On February 26, 2015, the Company entered into a sub-lease agreement for space in its San Jose location on the first floor and was amended on August 25, 2015 to include additional space. The agreement had a term which expired on June 30, 2019.

On March 13, 2019, the Company amended its Lease Agreement with the Landlord which combined both the first-floor space and the second-floor space for the final three months of the original lease term for the second floor, which expires on September 30, 2019. Effective July 1, 2019 through September 30, 2019, the new monthly rent payment will be $48,372. A lease renewal agreement was signed on July 1, 2019 for the first and second floor spaces of the San Jose property. Additional information is provided in Note 9 – Subsequent Events.

On May 31, 2017, the Company renewed a lease agreement for the Company’s space in Costa Mesa, California. The agreement has a term that expires on September 30, 2019 with initial monthly rent of $9,040 and is subject to certain annual escalations as defined in the agreement. On July 15, 2019, the Company signed an agreement for the renewal of the property in Costa Mesa, California. Additional information is provided in Note 9 – Subsequent Events

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. As of June 30, 2019, the Company’s remaining weighted average operating lease terms were approximately 3 months. The weighted average discount rate used to measure the outstanding operating lease liabilities was 10% as of June 30, 2019.

A reconciliation of undiscounted cash flows to lease liabilities recognized as of June 30, 2019 is as follows:

 

 

 

Amount

 

 

 

(unaudited)

 

2019

 

 

129,566

 

Present value discount (10% weighted average)

 

 

(2,026

)

Total operating lease liabilities

 

$

127,540

 

11


Note 4 – Commitments and Contingencies, continued

Hosted Design Solution Agreement

In June 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 in July 2015, the Company is required to remit quarterly payments in the amount of approximately $101,000 with the last payment due in March 2018. In December 2015, the agreement was amended to update and redefine the hosted hardware and software licensed by the Company and the quarterly payments increased to approximately $198,000. In July 2018, the Company renewed the three-year agreement, and the Company is required to remit quarterly payments in the amount of approximately $218,000, with the last payment due in March 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.

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 June 30, 2019, the Company accrued $209,675 in expense under the Bonus Plan, which will be paid during the third quarter of 2019. During the three months ended June 30, 2018, the Company accrued $492,818 in expense, which was paid during the third quarter of 2018. During the six months ended June 30, 2019 and 2018, the Company incurred $524,188 and $760,114 in expense under the Bonus Plan.

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 and bonuses, in under some circumstances. If the Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) the Company agrees to 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.

 

12


Note 4 – Commitments and Contingencies, continued

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 was effective as of January 1, 2015, had an initial term of four years and renews automatically 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 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 Dialog Exclusivity Requirement will terminate if no Licensed Products have received the necessary Federal Communications Commission approvals within specified timeframes.

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.

Note 5 – Stockholders’ Equity, continued

Public Offerings

Pursuant to a shelf registration statement on Form S-3 filed on April 24, 2015, in January 2018, the Company raised $38,846,815 (net of $1,153,715 in underwriter’s discount and issuance costs) from the sale of stock in an “at-the-market” offering of its common stock.

On August 9, 2018, the Company filed a shelf registration statement on Form S-3, 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.

13


Note 6 – Stock-Based Compensation

Equity Incentive Plans

2013 Equity Incentive Plan

Effective on May 16, 2018, the Company’s stockholders approved the amendment and restatement of the 2013 Equity Incentive Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 1,600,000 shares, bringing to 6,085,967 the total number of shares approved for issuance under that plan. 

As of June 30, 2019, 1,628,225 shares of common stock remain available to be issued under the 2013 Equity Incentive Plan.

2014 Non-Employee Equity Compensation Plan

Effective on May 16, 2018, the Company’s stockholders approved the amendment and restatement of the 2014 Equity Incentive Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 250,000 shares, bringing to 850,000 the total number of shares approved for issuance under that plan.

As of June 30, 2019, 208,842 shares of common stock remain available to be issued through equity-based instruments under the 2014 Non-Employee Equity Compensation Plan.

2015 Performance Share Unit Plan

Effective on May 16, 2018, 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 1,400,000 shares, bringing to 2,710,104 the total number of shares approved for issuance under that plan.

 

As of June 30, 2019, 1,431,951 shares of common stock remain available 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 of common stock for the grant of RSUs. These grants will be administered by a committee of the Board or the Board acting as a committee. 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 June 30, 2019, 308,469 shares of common stock remain available to be issued through equity-based instruments under the 2017 Equity Inducement Plan.

14


Note 6 – Stock-Based Compensation, continued

Equity Incentive Plans, continued

Employee Stock Purchase Plan

In April 2015, the Company’s Board approved the ESPP, under which 600,000 shares of common stock were reserved for purchase by the Company’s employees, and on May 21, 2015, the Company’s stockholders approved the ESPP. 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 purchase 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 June 30, 2019, 257,988 shares of common stock remain available to be issued under the ESPP. As of June 30, 2019, employees have contributed $318,589 through payroll withholdings to the ESPP for the current offering period. Shares will be deemed delivered on June 30, 2019 for the current offering period.

Stock Option Activity

The following is a summary of the Company’s stock option activity during the six months ended June 30, 2019:

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Life In

Years

 

 

Intrinsic

Value

 

Outstanding at January 1, 2019

 

 

656,494

 

 

$

5.57

 

 

 

4.6

 

 

$

252,887

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(80,201

)

 

 

4.99

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2019

 

 

576,293

 

 

$

5.65

 

 

 

4.8

 

 

$

104,601

 

Exercisable at January 1, 2019

 

 

656,494

 

 

$

5.57

 

 

 

4.6

 

 

$

252,887

 

Vested

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(80,201

)

 

 

4.99

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2019

 

 

576,293

 

 

$

5.65

 

 

 

4.8

 

 

$

104,601

 

 

As of June 30, 2019, the unamortized value of options was $0.     

 

 

15


Note 6 – Stock Based Compensation, continued

Restricted Stock Units (“RSUs”)                                                          

During the six months ended June 30, 2019, the Compensation Committee granted various directors and consultants RSUs covering 157,987 shares of common stock under the 2014 Non-Employee Equity Compensation Plan. The awards vest over terms from one to three years.

During the six months ended June 30, 2019, the Compensation Committee granted various employees RSUs covering 311,750 shares of common stock under the 2013 Equity Incentive Plan. The awards vest over terms ranging from one to four years.

During the six months ended June 30, 2019, the Compensation Committee granted employees RSUs covering 25,500 shares of common stock under the 2017 Equity Inducement Plan. The awards vest over four years.

As of June 30, 2019, the unamortized value of the RSUs was $18,182,223. The unamortized amount will be expensed over a weighted average period of 1.9 years. A summary of the activity related to RSUs for the six months ended June 30, 2019 is presented below:

 

 

 

Total

 

 

Weighted

Average

Grant

Date Fair

Value

 

Outstanding at January 1, 2019

 

 

2,469,174

 

 

$

15.07

 

RSUs granted

 

 

495,237

 

 

$

6.15

 

RSUs forfeited

 

 

(391,130

)

 

$

14.99

 

RSUs vested

 

 

(623,743

)

 

$

14.94

 

Outstanding at June 30, 2019

 

 

1,949,538

 

 

$

12.86

 

 

Performance Share Units (“PSUs”)

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

Amortization for all PSU awards was $0 and $204,954 for the three months ended June 30, 2019 and 2018, respectively, and $0 and $407,656 for the six months ended June 30, 2019 and 2018, respectively.

At June 30, 2019, all PSUs had either vested or expired and were no longer outstanding.

    

Employee Stock Purchase Plan (“ESPP”)

The recently completed offering period under the ESPP was January 1, 2019 through June 30, 2019. During the year ended December 31, 2018, there were two offering periods for the ESPP. The first offering period started on January 1, 2018 and concluded on June 30, 2018. The second offering period started on July 1, 2018 and concluded on December 31, 2018.  

The weighted-average grant-date fair value of the purchase option for each designated share purchased under this plan was approximately $2.43 and $13.84 for the six months ended June 30, 2019 and 2018, 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 $122,749 and $253,201 for the three months ended June 30, 2019 and 2018, respectively, and $210,574 and $407,746 for the six months ended June 30, 2019 and 2018, respectively.

16


Note 6 – Stock Based Compensation, continued

Employee Stock Purchase Plan (“ESPP”), continued

The Company estimated the fair value of ESPP purchase options granted during the six months ended June 30, 2019 and 2018 using the Black-Scholes option pricing model. The fair values of stock options granted were estimated using the following assumptions:

 

 

 

Six Months Ended

June 30, 2019

 

 

Six Months Ended

June 30, 2018

 

Stock price

 

$

5.79

 

 

$

22.34

 

Dividend yield

 

 

0

%

 

 

0

%

Expected volatility

 

 

96

%

 

 

177

%

Risk-free interest rate

 

 

2.51

%

 

 

1.61

%

Expected life

 

6 months

 

 

6 months

 

 

 

Stock-Based Compensation Expense

The following tables summarize total stock-based compensation costs recognized for the three and six months ended June 30, 2019 and 2018:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

RSUs

 

 

2,675,184

 

 

$

3,884,725

 

 

 

5,758,751

 

 

$

8,136,686

 

 

PSUs

 

 

 

 

 

204,954

 

 

 

 

 

 

407,656

 

 

ESPP

 

 

122,749

 

 

 

253,201

 

 

 

210,574

 

 

 

407,746

 

 

Total

 

$

2,797,933

 

 

$

4,342,880

 

 

$

5,969,325

 

 

$

8,952,088

 

 

 

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

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Research and development

 

$

1,361,225

 

 

$

2,483,693

 

 

$

3,017,778

 

 

$

5,542,223

 

 

Sales and marketing

 

 

343,945

 

 

 

388,533

 

 

 

720,993

 

 

 

669,891

 

 

General and administrative

 

 

1,092,763

 

 

 

1,470,654

 

 

 

2,230,554

 

 

 

2,739,974

 

 

Total

 

$

2,797,933

 

 

$

4,342,880

 

 

$

5,969,325

 

 

$

8,952,088

 

 

 

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 June 30, 2019, Dialog owns approximately 5.7% of the Company’s outstanding common shares and could potentially own 9.9% of the Company’s outstanding common shares if it exercised all of its warrants for common shares. The Company did not pay Dialog for chip development costs for the three or six months ended June 30, 2019. For the three and six months ended June 30, 2018, the Company paid $0 and $43,700, respectively, to Dialog for chip development costs incurred, which is recorded under research and development expense. The Company recorded $0 and $7,100 in revenue pursuant to the Strategic Alliance Agreement for the three and six months ended June 30, 2019, respectively, and $5,773 in revenue pursuant to the Strategic Alliance Agreement for both the three and six months ended June 30, 2018.

 

17


Note 8 – Customer Concentratio