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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 JUNE 30, 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 August 10, 2022, there were 77,482,564 shares of our Common Stock, par value $0.00001 per share, outstanding.

 

 

 

 


 

ENERGOUS CORPORATION

FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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

 

20

 

 

 

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

 

24

 

 

 

Item 4.  Controls and Procedures

 

24

 

 

 

PART II – OTHER INFORMATION

 

25

 

 

 

Item 1.  Legal Proceedings

 

25

 

 

 

Item 1A.  Risk Factors

 

25

 

 

 

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

 

37

 

 

 

Item 3.  Defaults Upon Senior Securities

 

37

 

 

 

Item 4.  Mine Safety Disclosures

 

37

 

 

 

Item 5.  Other Information

 

37

 

 

 

Item 6.  Exhibits

 

37

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Energous Corporation

CONDENSED BALANCE SHEETS

 

 

 

As of

 

 

 

June 30, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,669,685

 

 

$

49,071,414

 

Accounts receivable, net

 

 

210,283

 

 

 

283,602

 

Inventory

 

 

52,153

 

 

 

 

Prepaid expenses and other current assets

 

 

1,265,895

 

 

 

874,886

 

Total current assets

 

 

37,198,016

 

 

 

50,229,902

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

495,395

 

 

 

510,197

 

Operating lease right-of-use assets

 

 

2,318,717

 

 

 

618,985

 

Other assets

 

 

11,991

 

 

 

11,991

 

Total assets

 

$

40,024,119

 

 

$

51,371,075

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,008,932

 

 

$

1,205,957

 

Accrued expenses

 

 

1,472,763

 

 

 

1,523,317

 

Accrued severance expense

 

 

744,820

 

 

 

975,439

 

Operating lease liabilities, current portion

 

 

721,500

 

 

 

628,307

 

Deferred revenue

 

 

21,345

 

 

 

13,364

 

Total current liabilities

 

 

3,969,360

 

 

 

4,346,384

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities, long-term portion

 

 

1,615,527

 

 

 

40,413

 

Total liabilities

 

 

5,584,887

 

 

 

4,386,797

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   at June 30, 2022 and December 31, 2021; no shares issued or

   outstanding at June 30, 2022 and December 31, 2021.

 

 

 

 

 

 

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

   at June 30, 2022 and December 31, 2021; 77,464,571 and

   76,667,205 shares issued and outstanding at June 30, 2022 and

   December 31, 2021, respectively.

 

 

775

 

 

 

767

 

Additional paid-in capital

 

 

385,008,963

 

 

 

383,383,550

 

Accumulated deficit

 

 

(350,570,506

)

 

 

(336,400,039

)

Total stockholders’ equity

 

 

34,439,232

 

 

 

46,984,278

 

Total liabilities and stockholders’ equity

 

$

40,024,119

 

 

$

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 June 30,

 

 

For the Six Months Ended    June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

232,971

 

 

$

184,960

 

 

$

448,932

 

 

$

330,025

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

271,384

 

 

 

 

 

 

474,633

 

 

 

 

Research and development

 

 

3,209,910

 

 

 

6,103,694

 

 

 

6,737,056

 

 

 

10,694,938

 

Sales and marketing

 

 

1,158,092

 

 

 

2,441,357

 

 

 

2,771,682

 

 

 

4,235,569

 

General and administrative

 

 

2,024,939

 

 

 

2,656,748

 

 

 

4,052,459

 

 

 

4,944,144

 

Severance expense

 

 

633,444

 

 

 

 

 

 

633,444

 

 

 

 

Total costs and expenses

 

 

7,297,769

 

 

 

11,201,799

 

 

 

14,669,274

 

 

 

19,874,651

 

Loss from operations

 

 

(7,064,798

)

 

 

(11,016,839

)

 

 

(14,220,342

)

 

 

(19,544,626

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

47,049

 

 

 

1,010

 

 

 

49,875

 

 

 

3,034

 

Total other income

 

 

47,049

 

 

 

1,010

 

 

 

49,875

 

 

 

3,034

 

Net loss

 

$

(7,017,749

)

 

$

(11,015,829

)

 

$

(14,170,467

)

 

$

(19,541,592

)

Basic and diluted loss per common share

 

$

(0.09

)

 

$

(0.18

)

 

$

(0.18

)

 

$

(0.32

)

Weighted average shares outstanding, basic and diluted

 

 

77,125,105

 

 

 

62,080,250

 

 

 

77,028,549

 

 

 

61,825,044

 

 

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 (unaudited)

 

 

77,055,028

 

 

 

771

 

 

 

384,284,669

 

 

 

(343,552,757

)

 

 

40,732,683

 

Stock-based compensation - options

 

 

 

 

 

 

 

 

21,330

 

 

 

 

 

 

21,330

 

Stock-based compensation - RSUs

 

 

 

 

 

 

 

 

601,029

 

 

 

 

 

 

601,029

 

Stock-based compensation - ESPP

 

 

 

 

 

 

 

 

41,428

 

 

 

 

 

 

41,428

 

Issuance of shares for RSUs

 

 

215,746

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

Proceeds from contributions to the ESPP

 

 

193,797

 

 

 

2

 

 

 

60,509

 

 

 

 

 

 

60,511

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,017,749

)

 

 

(7,017,749

)

Balance at June 30, 2022 (unaudited)

 

 

77,464,571

 

 

$

775

 

 

$

385,008,963

 

 

$

(350,570,506

)

 

$

34,439,232

 

 

 

 

 

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 (unaudited)

 

 

61,919,824

 

 

 

620

 

 

 

346,287,871

 

 

 

(303,498,509

)

 

 

42,789,982

 

Stock-based compensation - RSUs

 

 

 

 

 

 

 

 

1,471,826

 

 

 

 

 

 

1,471,826

 

Stock-based compensation - performance share units ("PSUs")

 

 

 

 

 

 

 

 

2,695,847

 

 

 

 

 

 

2,695,847

 

Stock-based compensation - ESPP

 

 

 

 

 

 

 

 

60,651

 

 

 

 

 

 

60,651

 

Issuance of shares for RSUs

 

 

298,641

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

Issuance of shares for PSUs

 

 

494,608

 

 

 

5

 

 

 

(5

)

 

 

 

 

 

 

Proceeds from contributions to the ESPP

 

 

155,064

 

 

 

2

 

 

 

120,232

 

 

 

 

 

 

120,234

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,015,829

)

 

 

(11,015,829

)

Balance at June 30, 2021 (unaudited)

 

 

62,868,137

 

 

$

630

 

 

$

350,636,419

 

 

$

(314,514,338

)

 

$

36,122,711

 

 

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,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(14,170,467

)

 

$

(19,541,592

)

Adjustments to reconcile net loss to:

 

 

 

 

 

 

 

 

Net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

127,311

 

 

 

126,385

 

Stock based compensation

 

 

1,460,693

 

 

 

6,374,550

 

Changes in operating lease right-of-use assets

 

 

371,604

 

 

 

393,936

 

Bad debt expense

 

 

17,500

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

55,819

 

 

 

(46,120

)

Inventory

 

 

(52,153

)

 

 

 

Prepaid expenses and other current assets

 

 

(391,009

)

 

 

(10,769

)

Accounts payable

 

 

(197,025

)

 

 

555,702

 

Accrued severance expense

 

 

(230,619

)

 

 

 

Accrued expenses

 

 

(50,554

)

 

 

31,251

 

Operating lease liabilities

 

 

(403,029

)

 

 

(422,533

)

Deferred revenue

 

 

7,981

 

 

 

1,500

 

Net cash used in operating activities

 

 

(13,453,948

)

 

 

(12,537,690

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(112,509

)

 

 

(203,004

)

Net cash used in investing activities

 

 

(112,509

)

 

 

(203,004

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from contributions to employee stock purchase plan

 

 

164,728

 

 

 

237,247

 

Net cash provided by financing activities

 

 

164,728

 

 

 

237,247

 

Net decrease in cash and cash equivalents

 

 

(13,401,729

)

 

 

(12,503,447

)

Cash and cash equivalents - beginning

 

 

49,071,414

 

 

 

50,729,661

 

Cash and cash equivalents - ending

 

$

35,669,685

 

 

$

38,226,214

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Increase in operating lease right-of-use assets and operating lease liabilities

 

$

2,071,336

 

 

$

 

Common stock issued for RSUs

 

$

6

 

 

$

9

 

Common stock issued for PSUs

 

$

 

 

$

5

 

 

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 and six months ended June 30, 2022, the Company recorded revenue of $232,971 and $448,932, respectively. During the three and six months ended June 30, 2021, the Company recorded revenue of $184,960 and $330,025, respectively. During the three and six months ended June 30, 2022, the Company recorded net losses of $7,017,749 and $14,170,467, respectively. During the three and six months ended June 30, 2021, the Company recorded net losses of $11,015,829 and $19,541,592, respectively. Net cash used in operating activities was $13,453,948 and $12,537,690 for the six months ended June 30, 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 June 30, 2022, the Company had cash on hand of $35,669,685. The Company expects that cash on hand as of June 30, 2022, together with anticipated revenues, will be sufficient to fund the Company’s operations through August 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 and six months ended June 30, 2022, the Company recognized $232,971 and $448,932, respectively, in revenue. During the three and six months ended June 30, 2021, the Company recognized $184,960 and $330,025, 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 $3,209,910 and $6,103,694 for the three months ended June 30, 2022 and 2021, respectively. The Company incurred research and development costs of $6,737,056 and $10,694,938 for the six months ended June 30, 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 June 30, 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 and six months ended June 30, 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 6,212,707 and 6,323,445 for the three months ended June 30, 2022 and 2021, respectively, and 6,212,707 and 6,323,445 for the six months ended June 30, 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 June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Warrants issued to private investors

 

 

3,284,789

 

 

 

3,284,789

 

 

 

3,284,789

 

 

 

3,284,789

 

Options to purchase common stock

 

 

825,006

 

 

 

550,985

 

 

 

825,006

 

 

 

550,985

 

RSUs

 

 

2,102,912

 

 

 

1,530,216

 

 

 

2,102,912

 

 

 

1,530,216

 

PSUs

 

 

 

 

 

957,455

 

 

 

 

 

 

957,455

 

Total potentially dilutive securities

 

 

6,212,707

 

 

 

6,323,445

 

 

 

6,212,707

 

 

 

6,323,445

 

 

 

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.

 

Management’s Evaluation of Subsequent Events

The Company evaluates events that have occurred after the balance sheet date of June 30, 2022, through the date which the financial statements are available to be issued.

Note 4 – Commitments and Contingencies

Operating Leases

San Jose Lease

On May 20, 2022, the Company signed a lease amendment to the existing lease of its office space at its corporate headquarters in San Jose, California, extending the term of the lease for an additional three years. Upon signing the new lease amendment, the Company recorded a new right-of-use lease asset of $2,071,336 and operating lease liability of $2,071,336, using a present value discount rate of 3.0%. Upon expiration of the original lease on September 30, 2022, the new monthly lease payment starting October 1, 2022 will be $58,903, subject to annual escalations up to a maximum monthly lease payment of $62,490.

 

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 $2,446,936 during the period from the third quarter of 2022 to the third quarter of 2025. As of June 30, 2022, the Company has total operating lease right-of-use assets of $2,318,717, current portion of operating lease liabilities of $721,500 and long-term portion of operating lease liabilities of $1,615,527. The weighted average remaining lease term is 3.2 years as of June 30, 2022.

A reconciliation of undiscounted cash flows to lease liabilities recognized as of June 30, 2022 is as follows:

 

 

 

Amount

 

 

 

(unaudited)

 

2022

 

$

398,203

 

2023

 

 

752,828

 

2024

 

 

733,497

 

2025

 

 

562,408

 

Total future lease payments

 

 

2,446,936

 

Present value discount (2.9% weighted average)

 

 

(109,909

)

Total operating lease liabilities

 

$

2,337,027

 

 

 

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 in 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 June 30, 2022, the Company accrued $275,990 in expense under the Bonus Plan, which will be paid during the third quarter of 2022. During the three months ended June 30, 2021, the Company accrued $391,578 in expense under the Bonus Plan, which was paid during the third quarter of 2021. During the six months ended June 30, 2022 and 2021, the Company accrued $501,792 and $783,156 in expense under the Bonus Plan, respectively. The expense under the Bonus Plan is recorded under operating expenses on the Company’s Condensed Statement of Operations within each executive’s department.

11


Note 4 – Commitments and Contingencies, continued

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”).

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 June 30, 2022, the PSUs had not yet been granted. On July 20, 2022, the Compensation Committee approved by unanimous written consent, the PSU grants to Mr. Johnston pursuant to the terms of Mr. Johnston’s offer letter and subject to the outperformance of certain performance metrics as determined by the Compensation Committee.

 

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.

 

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Note 4 – Commitments and Contingencies, continued

 

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.

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 a