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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, 2022

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 11, 2022, there were 77,065,782 shares of our Common Stock, par value $0.00001 per share, outstanding.

 

 

 

 


 

ENERGOUS CORPORATION

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2022

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

 

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

 

35

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Energous Corporation

CONDENSED BALANCE SHEETS

 

 

 

As of

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

42,774,171

 

 

$

49,071,414

 

Accounts receivable, net

 

 

198,924

 

 

 

283,602

 

Inventory

 

 

68,480

 

 

 

 

Prepaid expenses and other current assets

 

 

431,670

 

 

 

874,886

 

Total current assets

 

 

43,473,245

 

 

 

50,229,902

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

484,567

 

 

 

510,197

 

Operating lease right-of-use assets

 

 

432,249

 

 

 

618,985

 

Other assets

 

 

11,991

 

 

 

11,991

 

Total assets

 

$

44,402,052

 

 

$

51,371,075

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

934,913

 

 

$

1,205,957

 

Accrued expenses

 

 

1,342,782

 

 

 

1,523,317

 

Accrued severance expense

 

 

909,873

 

 

 

975,439

 

Operating lease liabilities, current portion

 

 

438,698

 

 

 

628,307

 

Deferred revenue

 

 

16,091

 

 

 

13,364

 

Total current liabilities

 

 

3,642,357

 

 

 

4,346,384

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities, long-term portion

 

 

27,012

 

 

 

40,413

 

Total liabilities

 

 

3,669,369

 

 

 

4,386,797

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   at March 31, 2022 and December 31, 2021; no shares issued or

   outstanding.

 

 

 

 

 

 

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

   at March 31, 2022 and December 31, 2021, respectively;

   77,055,028 and 76,667,205 shares issued and outstanding at

   March 31, 2022 and December 31, 2021, respectively.

 

 

771

 

 

 

767

 

Additional paid-in capital

 

 

384,284,669

 

 

 

383,383,550

 

Accumulated deficit

 

 

(343,552,757

)

 

 

(336,400,039

)

Total stockholders’ equity

 

 

40,732,683

 

 

 

46,984,278

 

Total liabilities and stockholders’ equity

 

$

44,402,052

 

 

$

51,371,075

 

 

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,

 

 

 

2022

 

 

2021

 

Revenue

 

$

215,961

 

 

$

145,065

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenue

 

 

203,249

 

 

 

 

Research and development

 

 

3,527,146

 

 

 

4,591,244

 

Sales and marketing

 

 

1,613,590

 

 

 

1,794,212

 

General and administrative

 

 

2,027,520

 

 

 

2,287,396

 

Total costs and expenses

 

 

7,371,505

 

 

 

8,672,852

 

Loss from operations

 

 

(7,155,544

)

 

 

(8,527,787

)

Other income:

 

 

 

 

 

 

 

 

Interest income

 

 

2,826

 

 

 

2,024

 

Total other income

 

 

2,826

 

 

 

2,024

 

Net loss

 

$

(7,152,718

)

 

$

(8,525,763

)

Basic and diluted loss per common share

 

$

(0.09

)

 

$

(0.14

)

Weighted average shares outstanding, basic and diluted

 

 

76,930,919

 

 

 

61,567,003

 

 

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

 

4


 

Energous Corporation

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2022

 

 

76,667,205

 

 

$

767

 

 

$

383,383,550

 

 

$

(336,400,039

)

 

$

46,984,278

 

Stock-based compensation - options

 

 

 

 

 

 

 

 

10,313

 

 

 

 

 

 

10,313

 

Stock-based compensation - restricted

   stock units ("RSUs")

 

 

 

 

 

 

 

 

745,620

 

 

 

 

 

 

745,620

 

Stock-based compensation - employee

   stock purchase plan ("ESPP")

 

 

 

 

 

 

 

 

40,973

 

 

 

 

 

 

40,973

 

Issuance of shares for RSUs

 

 

387,823

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

Proceeds from contributions to the ESPP

 

 

 

 

 

 

 

 

104,217

 

 

 

 

 

 

104,217

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,152,718

)

 

 

(7,152,718

)

Balance at March 31, 2022

 

 

77,055,028

 

 

 

771

 

 

 

384,284,669

 

 

 

(343,552,757

)

 

 

40,732,683

 

 

 

 

 

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 - RSUs

 

 

 

 

 

 

 

 

2,088,910

 

 

 

 

 

 

2,088,910

 

Stock-based compensation - 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 at March 31, 2021

 

 

61,919,824

 

 

$

620

 

 

$

346,287,871

 

 

$

(303,498,509

)

 

$

42,789,982

 

 

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,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,152,718

)

 

$

(8,525,763

)

Adjustments to reconcile net loss to:

 

 

 

 

 

 

 

 

Net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

70,119

 

 

 

64,774

 

Stock based compensation

 

 

796,906

 

 

 

2,146,226

 

Changes in operating lease right-of-use assets

 

 

186,736

 

 

 

195,914

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

84,678

 

 

 

(80,925

)

Inventory

 

 

(68,480

)

 

 

 

Prepaid expenses and other current assets

 

 

443,216

 

 

 

(105,491

)

Accounts payable

 

 

(271,044

)

 

 

353,928

 

Accrued severance expense

 

 

(65,566

)

 

 

 

Accrued expenses

 

 

(180,535

)

 

 

179,999

 

Operating lease liabilities

 

 

(203,010

)

 

 

(210,212

)

Deferred revenue

 

 

2,727

 

 

 

5,000

 

Net cash used in operating activities

 

 

(6,356,971

)

 

 

(5,976,550

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(44,489

)

 

 

(111,727

)

Net cash used in investing activities

 

 

(44,489

)

 

 

(111,727

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from contributions to employee stock purchase plan

 

 

104,217

 

 

 

117,013

 

Net cash provided by financing activities

 

 

104,217

 

 

 

117,013

 

Net decrease in cash and cash equivalents

 

 

(6,297,243

)

 

 

(5,971,264

)

Cash and cash equivalents – beginning

 

 

49,071,414

 

 

 

50,729,661

 

Cash and cash equivalents – ending

 

$

42,774,171

 

 

$

44,758,397

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

 

Common stock issued for RSUs

 

$

4

 

 

$

6

 

 

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® 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. The Company believes its proprietary WattUp technologies are well suited for many applications, including building and home automation, electronic shelf labels, industrial IoT sensors, surface and implanted medical devices, tracking devices, hearables, wearables, consumer electronics and public safety 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.

Note 2 – Liquidity and Management Plans

During the three months ended March 31, 2022 and 2021, the Company recorded revenue of $215,961 and $145,065, respectively. During the three months ended March 31, 2022 and 2021, the Company recorded net losses of $7,152,718 and $8,525,763, respectively. Net cash used in operating activities was $6,356,971 and $5,976,550 for the three months ended March 31, 2022 and 2021, 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, and $27,043,751 during the fourth quarter of 2021, proceeds from contributions to the Company’s employee stock purchase plan (the “ESPP”), along with payments received from customers.

As of March 31, 2022, the Company had cash on hand of $42,774,171. The Company expects that cash on hand as of March 31, 2022, together with anticipated revenues, will be sufficient to fund the Company’s operations through May 2023.

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 will 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, the development of complementary technologies, 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 (the “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, 2021 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 23, 2022.  The accounting policies used in preparing these unaudited condensed interim financial statements are consistent with those described in the Company’s December 31, 2021 audited financial statements.

 

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.  

7


Note 3 – Summary of Significant Accounting Policies, continued

The Company’s significant estimates and assumptions include the valuation of stock-based compensation instruments, recognition of revenue, inventory valuation, the useful lives of long-lived assets, and the valuation allowance on deferred tax assets. 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

The Company follows Accounting Standards Codification (“ASC”) 606, "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 or as the performance obligations are satisfied.

The Company’s revenue comes from its single segment of wireless charging system solutions. The wireless charging system revenue consists of revenue from product development projects and production-level systems. During the three months ended March 31, 2022 and 2021, the Company recognized $215,961 and $145,065, respectively, in 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 the point in time at which 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 revenue associated with the sale of production-level systems at the point in time at which control over the product is transferred to the customer. The Company records the expense related to the sales of these systems as cost of revenue during the period that the product is transferred to the customer.

 

Inventory

 

The Company follows ASC 330, Inventory (“Topic 330”) to account for its inventory, which includes finished goods ready for sale, work in process and raw materials, at the lower of cost or net realizable value. Net realizable value is calculated at the end of each reporting period and adjustment, if needed, is made.

 

Research and Development

Research and development expenses are charged to operations as incurred. For internally developed patents, all patent 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 $3,527,146 and $4,591,244 for the three months ended March 31, 2022 and 2021, 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 amortized over the vesting period of the award. The Company amortizes 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 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, 2022, no liability for unrecognized tax benefits was required to be reported. The guidance from ASC 740, Income Taxes, 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, 2022 or 2021. 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 5,682,499 and 7,137,741 for the three months ended March 31, 2022 and 2021, 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,

 

 

 

2022

 

 

2021

 

Warrants issued to private investors

 

 

3,284,789

 

 

 

3,284,789

 

Options to purchase common stock

 

 

825,006

 

 

 

550,985

 

RSUs

 

 

1,572,704

 

 

 

1,851,254

 

PSUs

 

 

 

 

 

1,450,713

 

Total potentially dilutive securities

 

 

5,682,499

 

 

 

7,137,741

 

 

 

The table above includes 1,618,123 warrants expiring on October 6, 2022, with an exercise price of $23.00 and 1,666,666 warrants expiring on March 1, 2024, with an exercise price of $10.00.

 

Leases

 

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.

9


Note 3 – Summary of Significant Accounting Policies, continued

 

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 May 2021, the FASB issued ASU No. 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Own Equity (Subtopic 815-40Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Extinguishments (Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” ASU 2021-04 clarifies accounting for modifications or exchanges of equity-classified warrants. This standard is effective for annual reporting periods beginning after December 15, 2021. The Company adopted this standard, and the adoption did not have a material impact on its financial statements.

 

In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires business entities to disclose certain types of government assistance they receive in the notes to the financial statements. This standard is effective for annual reporting periods beginning after December 15, 2021. 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, 2022, 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. 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.

 

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.

 

On September 22, 2021, the Company signed a new Costa Mesa lease to lease a new, distinct office space in a different building with the same landlord. Per the lease, the lease commencement date is October 1, 2021 and the expiry date is September 30, 2023. The Company did not have control of the new office space until October 2021, at which time the Company recorded a new right-of-use lease asset of $104,563 and operating lease liability of $104,563. The new Costa Mesa lease has an initial monthly lease payment of $4,369 starting October 1, 2021 and is subject to an annual escalation up to a maximum monthly lease payment of $4,522.

10


 

Note 4 – Commitments and Contingencies, continued

 

Operating Lease Commitments

 

The Company follows ASC 842, Leases, (“Topic 842”) and recognizes the required right-of-use assets and operating lease liabilities on its balance sheet. The Company anticipates having future total lease payments of $470,120 during the period from the second quarter of 2022 to the third quarter of 2023. As of March 31, 2022, the Company has total operating lease right-of-use assets of $432,249, current portion operating lease liabilities of $438,698 and long-term portion of operating lease liabilities of $27,012. The weighted average remaining lease term is 0.7 years as of March 31, 2022.

A reconciliation of undiscounted cash flows to lease liabilities recognized as of March 31, 2022 is as follows:

 

 

 

Amount

 

 

 

(unaudited)

 

2022

 

$

429,425

 

2023

 

 

40,695

 

Total future lease payments

 

 

470,120

 

Present value discount (4% weighted average)

 

 

(4,410

)

Total operating lease liabilities

 

$

465,710

 

 

 

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 June 2021, the Company entered into its latest renewal of the agreement for an additional three years, and the Company is required to remit quarterly payments of approximately $233,000 through the second quarter of 2024.

 

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 March 31, 2022, the Company accrued $225,802 in expense under the Bonus Plan, which will be paid during the second quarter of 2022. During the three months ended March 31, 2021, the Company accrued $391,578 in expense under the Bonus Plan, which was paid during the second quarter of 2021. The expense under the Bonus Plan is recorded under operating expenses on the Company’s Condensed Statement of Operations within each executive’s department.

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 (each, an “Executive”).

11


Note 4 – Commitments and Contingencies, continued

Under the Severance Agreement, if an Executive is terminated in a qualifying change in control 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.

Executive Employee Agreement – Cesar Johnston

On December 9, 2021, the Company announced that Cesar Johnston had been appointed as the Company’s Chief Executive Officer. In connection with Mr. Johnston’s appointment as Chief Executive Officer, the Company and Mr. Johnston executed an offer letter dated as of December 6, 2021.

Under the terms of his offer letter, Mr. Johnston will receive an annual base salary of $400,000 per year. Beginning in year 2022, he will be eligible to receive a discretionary annual bonus of up to 100% of his base salary, at the recommendation of the Company’s Compensation Committee, with the approval of the Company’s Board. In addition, as an inducement to accept his appointment as Chief Executive Officer, Mr. Johnston will receive, subject to continued employment, (a) a special one-time sign-on bonus in the amount of $120,000, payable in two equal installments of $60,000 each on the first payroll date in 2022 and the first payroll date after December 6, 2022, (b) a grant of 150,000 RSUs to acquire shares of the Company’s common stock, one third of which will vest on December 6, 2022 and the remaining two thirds of which will vest in eight equal installments of 12,500 each on each quarterly anniversary thereafter and (c) a grant of an option to purchase 300,000 shares of the Company’s common stock at an exercise price equal to the fair market value of the Company’s common stock on the grant date, half of which shall vest on December 31, 2023, a quarter of which shall vest on December 31, 2024 and the remainder of which shall vest on December 31, 2025.

 

Mr. Johnston will further be eligible for (a) an additional equity award in the amount of 287,000 PSUs to acquire shares of the Company’s common stock, which vest up to one third per year over a three year period commencing January 1, 2022 and ending December 31, 2024, upon the achievement of performance criteria to be mutually established by Mr. Johnston and the Compensation Committee, and (b) an additional equity award of up to 25,000 PSUs per calendar year for 2022, 2023 and 2024, respectively, based on outperformance of agreed upon goals per calendar year, as determined by the Compensation Committee with approval of the Board. As of March 31, 2022, the PSUs have not yet been granted.

 

In connection with Mr. Johnston’s appointment as Chief Executive Officer, the Company and Mr. Johnston additionally entered into an amended and restated severance and change in control agreement, dated as of December 6, 2021. In the event of a termination that is not a change-in-control qualifying termination, Mr. Johnston is entitled to (a) a one-time lump sum payment by the Company in an amount equal to 18 months of his monthly base salary plus an amount equal to 100% of his target bonus plus, if agreed by the Compensation Committee, a discretionary bonus for the year in which the termination occurs, (b) any outstanding unvested equity awards held by Mr. Johnston that would vest in the next 18 months of continuing employment (other than any equity awards that vest upon satisfaction of performance criteria) will accelerate and become vested and (c) if Mr. Johnston timely elects continued coverage under COBRA, the Company or its successor will pay the full amount of Mr. Johnston’s COBRA premiums on his behalf for 18 months.

 

Mr. Johnston’s agreement additionally provides that, in the event of a change-in-control qualifying termination, Mr. Johnston is entitled to (a) a one-time lump sum payment by the Company in an amount equal to 18 months of his monthly base salary plus an amount equal to 150% of his target bonus plus a prorated bonus for the year in which the termination occurs, (b) any outstanding unvested equity awards held by Mr. Johnston (including any equity awards that vest upon satisfaction of performance criteria) will accelerate in full and become vested and (c) if Mr. Johnston timely elects continued coverage under COBRA, the Company or its successor will pay the full amount of Mr. Johnston’s COBRA premiums on his behalf for 18 months.

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

12


Note 4 – Commitments and Contingencies, continued

Executive Transition 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 former President and Chief Executive Officer (“Employment Agreement”).

The Employment Agreement effective as of January 1, 2015, had an initial term of four years and automatically renewed each year after the initial term. The Employment Agreement provided for an annual base salary of $365,000, and Mr. Rizzone was 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.

 

On July 9, 2021, the Company announced that Stephen R. Rizzone had retired from his position as the Company’s President and Chief Executive Officer and as a member of the Board.

 

In connection with Mr. Rizzone’s retirement, the Company and Mr. Rizzone entered into an Executive Transition Agreement (the “Separation Agreement”), providing for continued employment through August 31, 2021. Upon his termination of employment, the Separation Agreement provides severance payments and benefits to Mr. Rizzone consistent with the terms of his existing employment agreement with the Company, including without limitation: compensation-based payments of $1,460,000 in the aggregate, payable under a certain payment scheme as set forth therein, an additional lump sum cash payment of $2,000,000, a pro-rated bonus payment for the two months of employment during the current quarterly bonus period payable at the same time bonus payments are made to other executives of the Company, settlement of deferred vested RSUs and an extension of the exercise periods of all stock options held by Mr. Rizzone until the one year anniversary of his termination date, and additional benefits related to Mr. Rizzone’s medical insurance. In addition, the Company agreed to pay-off all amounts owed under a lease agreement relating to a Company Car and that Mr. Rizzone would receive the title to the vehicle. All compensation under the Separation Agreement has been or will be subject to applicable withholding.

 

As of March 31, 2022, the Company had unpaid accrued severance expense of $909,873 which is expected to be paid through August 31, 2023.

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. 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, with automatic renewal 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 Alliance 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 had a termination date of 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 renewed automatically on an annual basis unless the Company and Dialog agree to terminate the requirement.

On September 20, 2021, the Company was notified by Dialog, recently acquired by Renesas Electronics Corporation, that it was terminating the Alliance Agreement between the Company and Dialog. There is a wind down period included in the Alliance Agreement which will conclude in September 2024. During the wind down period, the Alliance Agreement’s terms will continue to apply to the Company’s products that are covered by certain existing customer relationships, except that the parties’ respective exclusivity rights have terminated.

 

13


 

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. This shelf registration statement has expired and no additional shares will be sold thereunder.

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 sales agreement prospectus supplement covering the offering, 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 “ATM Program”). The $40,000,000 of common stock to be offered, issued and sold under the sales agreement prospectus is included in the $75,000,000 of 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 under the ATM Program.

On October 4, 2021, the Company filed a prospectus supplement covering the offering, issuance and sale of up to an additional $35,000,000 of shares of the Company’s common stock pursuant to the ATM Program. The Company raised net proceeds of $27,043,751 (net of $868,122 in issuance costs), during the fourth quarter of 2021 under the ATM Program. As of March 31, 2022, the Company has $7,088,127 remaining on this shelf registration statement.

On November 15, 2021, the Company filed a shelf registration statement on Form S-3 with the SEC, which became effective on December 16, 2021. 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 $100,000,000.

Common Stock Outstanding

Our outstanding shares of common stock 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 the 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. There are currently 200,000,000 shares of common stock authorized for issuance.

 

14


 

Note 6 – Stock-Based Compensation

Equity Incentive Plans

2013 Equity Incentive Plan

Effective on June 16, 2021, 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 1,500,000 shares, bringing to 8,785,967 the total number of shares approved for issuance under that plan. 

As of March 31, 2022, 1,362,773 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.

 

As of March 31, 2022, 741,326 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 June 16, 2021, 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 1,700,000 shares, bringing to 5,110,104 the total number of shares approved for issuance under that plan.

 

As of March 31, 2022, 2,411,013 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, 2022, 130,426 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 June 16, 2021, the Company’s stockholders approved the amendment and restatement of the ESPP to increase the number of shares reserved for issuance through equity-based instruments thereunder by 700,000 shares, bring to 1,550,000 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, 2022, 547,548 shares of common stock remain eligible to be issued under the ESPP. Employees contributed $104,217 through payroll withholdings to the ESPP as of March 31, 2022 for the current offering period that will end on June 30, 2022 and shares will be deemed delivered on that date.

15


Note 6 – Stock-Based Compensation, continued

 

Stock Option Activity

During the three months ended March 31, 2022, the Board granted our Chief Executive Officer 300,000 stock options under the 2013 Equity Incentive Plan at an exercise price of $1.27 per share with half of the options vesting on the second anniversary of the vesting start date and a quarter of the options vesting on each of the two following anniversaries.

The Company estimated the fair value of stock options granted during the three months ended March 31, 2022 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, 2022

 

 

Stock price

 

$

1.27

 

 

Dividend yield

 

 

0

%

 

Expected volatility

 

 

108

%

 

Risk-free interest rate

 

 

1.92

%

 

Expected life

 

5.6 years

 

 

 

The following is a summary of the Company’s stock option activity during the three months ended March 31, 2022:

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Life In

Years

 

 

Intrinsic

Value

 

Outstanding at January 1, 2022

 

 

525,006

 

 

$

5.77

 

 

 

0.7

 

 

$

 

Granted

 

 

300,000

 

 

 

1.27

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2022

 

 

825,006

 

 

$

4.13

 

 

 

3.8

 

 

$

 

Exercisable at January 1, 2022

 

 

525,006

 

 

$

5.77

 

 

 

0.7

 

 

$

 

Vested

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2022

 

 

525,006

 

 

$

5.77

 

 

 

0.4

 

 

$

 

 

As of March 31, 2022, the unamortized fair value of options was $298,147. The unamortized amount will be expensed over a weighted average period of 3.2 years.

 

 

Restricted Stock Units (“RSUs”)

During the three months ended March 31, 2022, the Board granted various employees RSUs covering 152,500 shares of common stock under the 2013 Equity Incentive Plan. The awards vest over terms ranging from three to four years.

During the three months ended March 31, 2022, the Compensation Committee and the Board granted various non-employees RSUs covering 131,096 shares of common stock under the 2014 Non-employee Equity Compensation Plan. The awards vest on the one year anniversary of the grant date.

During the three months ended March 31, 2022, the Board granted an employee RSUs covering 10,000 shares of common stock under the 2017 Equity Inducement Plan. The award vests over a term of four years.

16


Note 6 – Stock-Based Compensation, continued

 

As of March 31, 2022, the unamortized fair value of the RSUs was $3,155,703. The unamortized amount will be expensed over a weighted average period of 1.7 years. A summary of the activity related to RSUs for the three months ended March 31, 2022 is presented below:

 

 

 

Total

 

 

Weighted

Average

Grant

Date Fair

Value

 

Outstanding at January 1, 2022

 

 

1,709,273

 

 

$

3.72

 

RSUs granted

 

 

293,596

 

 

 

1.29

 

RSUs forfeited

 

 

(42,342

)

 

 

2.45

 

RSUs vested

 

 

(387,823

)

 

 

5.97

 

Outstanding at March 31, 2022

 

 

1,572,704

 

 

$

2.75

 

 

 

Employee Stock Purchase Plan (“ESPP”)

The current offering period under the ESPP started on January 1, 2022 and will conclude on June 30, 2022. During the year ended December 31, 2021, there were two offering periods. The first offering period began on January 1, 2021 and concluded on June 30, 2021. The second offering period began on July 1, 2021 and concluded on December 31, 2021.

The weighted-average grant-date fair value of the purchase option for each designated share purchased under this plan was approximately $0.40 and $0.75 for the three months ended March 31, 2022 and 2021, 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 ESPP of $40,973 and $57,316 for the three months ended March 31, 2022 and 2021, respectively.

The Company estimated the fair value of ESPP purchase options granted during the three months ended March 31, 2022 and 2021 using the Black-Scholes option pricing model. The fair values of ESPP purchase options granted were estimated using the following assumptions:

 

 

 

Three Months Ended

March 31, 2022

 

 

Three Months Ended

March 31, 2021

 

Stock price

 

$

1.25

 

 

$

1.80

 

Dividend yield

 

 

0

%

 

 

0

%

Expected volatility

 

 

61

%

 

 

95

%

Risk-free interest rate

 

 

0.19

%

 

 

0.09

%

Expected life

 

6 months

 

 

6 months

 

 

 

Stock-Based Compensation Expense

The following tables summarize total stock-based compensation costs recognized for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Stock options

 

$

10,313

 

 

$

 

RSUs

 

 

745,620

 

 

 

2,088,910

 

ESPP

 

 

40,973

 

 

 

57,316

 

Total

 

$

796,906

 

 

$

2,146,226

 

 

17


 

Note 6 – Stock-Based Compensation, continued

 

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

Research and development

 

$

353,043

 

 

$

1,149,277

 

 

Sales and marketing

 

 

180,377

 

 

 

448,947

 

 

General and administrative

 

 

263,486

 

 

 

548,002

 

 

Total

 

$

796,906

 

 

$

2,146,226

 

 

 

 

Note 7 – Related Party Transactions

In November 2016, the Company and Dialog entered into the 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, 2022, none of the warrants remain outstanding. As of March 31, 2022, Dialog owns approximately 2.3% of the Company’s outstanding common shares. The Company did not record any revenue or expense related to Dialog during the three months ended March 31, 2022 and 2021.

On September 20, 2021, the Company was notified by Dialog, recently acquired by Renesas Electronics Corporation, that it was terminating the Alliance Agreement between the Company and Dialog.

 

Note 8 – Customer Concentrations

 

Two customers accounted for approximately 53% of the Company’s revenue for the three months ended March 31, 2022, and one customer accounted for approximately 69% of the Company’s revenue for the three months ended March 31, 2021. Two customers accounted for approximately 63% of the accounts receivable balance as of March 31, 2022. Four customers accounted for approximately 68% of the accounts receivable balance as of December 31, 2021.

 

18


 

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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 and our response thereto on our business; 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 semiconductor chipsets, software controls, hardware designs and antennas, that enables RF based charging for electronic devices. The WattUp technology has a broad spectrum of capabilities to enable the next generation of wireless power networks, delivering power and data in a seamless device portfolio. This includes near field and at-a-distance wireless charging with multiple power levels at various distances. We believe our WattUp technologies will help facilitate the deployment of the growing IoT applications. According to the recent report of the International Data Corporation, or the IDC, titled “Worldwide Global DataSphere IoT Device and Data Forecast, 2021–2025,” the IoT market is forecasted to grow to 39.3 billion devices by 2025. The initial IoT applications that we are targeting are in the area of RF tags and electronic shelf labeling (“ESL”) for the retail, industrial and healthcare markets.

 

We believe our technology is innovative in its approach, in that we are developing solutions that charge electronic devices using RF. 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 support a myriad of wireless charging applications including Bluetooth tracking tags, IoT sensors, ESLs, beacons, stock management devices, security cameras, handheld devices, smart automation, wearables and hearables.

 

19


 

The first end product featuring our technology entered the market in 2019. We started shipping our first at-a-distance WattUp PowerBridge enabled transmitters for commercial IoT applications in the fourth quarter of 2021, and we expect additional WattUp-enabled products to be announced as we move our business forward.

 

Impact of COVID-19 on Our Business

We continue to monitor 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.

 

The COVID-19 pandemic has delayed adoption of our technology by potential customers who have experienced workforce and supply chain disruptions, and who continue to evaluate their future prospects and business models, including partnerships with us. Further delays in the adoption of our current or future products could result from the ongoing pandemic.  At times, certain of our outsourcing partners, component suppliers and logistical service providers have experienced disruptions, resulting in supply shortages that have affected and may continue to affect our sales. Similar disruptions could occur in the future.

 

Critical Accounting Policies and Estimates

Revenue Recognition

We follow Accounting Standards Codification (“ASC”) 606, "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.