During the three and six months ended June 30, 2021, the Company recorded
revenue of $184,960 and $330,025, respectively, and during the three and six
months ended June 30, 2020, the Company recorded $114,375 and $175,850,
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, and during the
three and six months ended June 30, 2020, the Company recorded net losses of
$8,204,666 and $16,802,402, respectively. Net cash used in operating activities
was $12,537,690 and $13,215,844 for the six months ended June 30, 2021 and 2020,
respectively. The Company is currently meeting its liquidity requirements
through the proceeds of securities offerings that raised net proceeds of
$53,556,202 during 2020, along with payments received from customers.
As of June 30, 2021, the Company had cash on hand of $38,226,214. The Company
expects that cash on hand as of June 30, 2021, together with anticipated
revenues, will be sufficient to fund the Company's operations into August 2022.
Research and development of new technologies is by its nature unpredictable.
Although the Company intends to continue its research and development
activities, there can be no assurance that its available resources and revenue
generated from its business operations will be sufficient to sustain its
operations. Accordingly, the Company expects to pursue additional financing,
which could include offerings of equity or debt securities, bank financings,
commercial agreements with customers or strategic partners, and other
alternatives, depending upon market conditions. There is no assurance that such
financing would be available on terms that the Company would find acceptable, or
at all.
The market for products using the Company's technology is broad and evolving,
but remains nascent and unproven, so the Company's success is dependent upon
many factors, including customer acceptance of its existing products, technical
feasibility of future products, regulatory approvals, competition and global
market fluctuations.
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic. The pandemic continues to affect the
United States and the world. The Company is monitoring the ongoing effects of
COVID-19 (including continued outbreaks) and the related business and travel
restrictions and changes to behavior intended to reduce its spread, and
COVID-19's impact on the Company's operations, financial position, cash flows,
inventory, supply chains, global regulatory approvals, purchasing trends,
customer payments, and the industry in general, in addition to the impact on its
employees. Due to the continuing developments and fluidity of this situation,
the magnitude and duration of the pandemic and its impact on the Company's
operations and liquidity are still uncertain as of the date of this report.
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are presented in U.S. dollars and have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"), and pursuant to the accounting and
disclosure rules and regulations of the U.S. Securities and Exchange Commission
("SEC").
These unaudited condensed interim financial statements should be read in
conjunction with the audited financial statements and notes thereto for the
fiscal year ended December 31, 2020 included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on
March 24, 2021. The accounting policies used in preparing these unaudited
condensed interim financial statements are consistent with those described in
the Company's December 31, 2020 audited financial statements.
7
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Note 3 - Summary of Significant Accounting Policies, continued
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent liabilities at the date
of the financial statements as well as the reported expenses during the
reporting periods.
The Company's significant estimates and assumptions include the valuation of
stock-based compensation instruments, recognition of revenue, the useful lives
of long-lived assets, and income tax expense. Some of these judgments can be
subjective and complex, and, consequently, actual results may differ from these
estimates. Although the Company believes that its estimates and assumptions are
reasonable, they are based upon information available at the time the estimates
and assumptions were made. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments with an original
maturity at the date of purchase of three months or less to be cash equivalents.
The Company maintains cash balances that may be uninsured or in deposit accounts
that exceed Federal Deposit Insurance Corporation limits. The Company maintains
its cash deposits with major financial institutions.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09,
"Revenue from Contracts with Customers" (Topic 606).
In accordance with Topic 606, the Company recognizes revenue using the following
five-step approach:
1. Identify the contract with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price of the contract.
4. Allocate the transaction price to the performance obligations in the
contract.
5. Recognize revenue when the performance obligations are met or delivered.
The Company's revenue primarily consists of product development projects revenue
and royalty revenue from Dialog. The Company also provides contract services for
Dialog. During the three months ended June 30, 2021, the Company recognized
$184,960 in product development projects revenue, $0 in royalty revenue and $0
in contract services revenue. During the six months ended June 30, 2021, the
Company recognized $330,025 in product development projects revenue, $0 in
royalty revenue and $0 in contract services revenue. During the three months
ended June 30, 2020, the Company recognized $25,000 in product development
projects revenue, $0 in royalty revenue and $89,375 in contract services
revenue. During the six months ended June 30, 2020, the Company recognized
$45,850 in product development projects revenue, $0 in royalty revenue and
$130,000 in contract services revenue.
The Company records revenue associated with product development projects that it
enters into with certain customers. In general, these product development
projects are complex, and the Company does not have certainty about its ability
to achieve the project milestones. The achievement of a milestone is dependent
on the Company's performance obligation and requires acceptance by the customer.
The Company recognizes this revenue at a point in time based on when the
performance obligation is met. The payment associated with achieving the
performance obligation is generally commensurate with the Company's effort or
the value of the deliverable and is nonrefundable. The Company records the
expenses related to these product development projects in research and
development expense, in the periods such expenses were incurred.
The Company records royalty revenue from its manufacturing partner, Dialog, and
such royalty revenue is recognized at a point in time based on shipments from
Dialog to its customers.
The Company recognizes contract services revenue from Dialog over the period of
time that the services are performed. The costs associated with this revenue are
recognized as the services are performed and are included in cost of services
revenue.
8
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Note 3 - Summary of Significant Accounting Policies, continued
Research and Development
Research and development expenses are charged to operations as incurred. For
internally developed patents, all patent application costs are expensed as
incurred as research and development expense. Patent application costs, which
are generally legal costs, are expensed as research and development costs until
such time as the future economic benefits of such patents become more certain.
The Company incurred research and development costs of $6,103,694 and $4,330,433
for the three months ended June 30, 2021 and 2020, respectively, and the Company
incurred research and development costs of $10,694,938 and $8,905,736 for the
six months ended June 30, 2021 and 2020, respectively.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees, board members
and contractors in accordance with accounting guidance that requires awards to
be recorded at their fair value on the date of grant and are amortized over the
vesting period of the award. The Company recognizes compensation costs on a
straight-line basis over the requisite service period of the award, which is
typically the vesting term of the equity instrument issued.
Under the Company's Employee Stock Purchase Plan ("ESPP"), employees may
purchase a limited number of shares of the Company's common stock at a 15%
discount from the lower of the closing market prices measured on the first and
last days of each half-year period. The Company recognizes stock-based
compensation expense for the fair value of the purchase options, as measured on
the grant date.
Income Taxes
Tax benefits are recognized only for tax positions that are more likely than not
to be sustained upon examination by tax authorities. The amount recognized is
measured as the largest amount of benefit that is greater than 50 percent likely
to be realized upon settlement. A liability for "unrecognized tax benefits" is
recorded for any tax benefits claimed in the Company's tax returns that do not
meet these recognition and measurement standards. As of June 30, 2021, no
liability for unrecognized tax benefits was required to be reported. The
guidance also discusses the classification of related interest and penalties on
income taxes. The Company's policy is to record interest and penalties on
uncertain tax positions as a component of income tax expense. No interest or
penalties were recorded during the three or six months ended June 30, 2021 or
2020. The Company files income tax returns with the United States and California
governments.
Net Loss Per Common Share
Basic net loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed using the
weighted average number of common shares and, if dilutive, potential common
shares outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants (using the treasury stock method), the vesting of restricted stock
units ("RSUs") and performance stock units ("PSUs") and the enrollment of
employees in the ESPP. The computation of diluted loss per share excludes
potentially dilutive securities of 6,323,445 and 6,945,580 for the three months
ended June 30, 2021 and 2020, respectively, and 6,323,445 and 6,945,580 for the
six months ended June 30, 2021 and 2020, respectively, because their inclusion
would be anti-dilutive.
Potentially dilutive securities outlined in the table below have been excluded
from the computation of diluted net loss per share because the effect of their
inclusion would have been anti-dilutive.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2021 2020 2021 2020
Warrants issued to private
investors 3,284,789 3,938,802 3,284,789 3,938,802
Options to purchase common
stock 550,985 550,985 550,985 550,985
RSUs 1,530,216 1,822,116 1,530,216 1,822,116
PSUs 957,455 633,677 957,455 633,677
Total potentially dilutive
securities 6,323,445 6,945,580 6,323,445 6,945,580
9
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Note 3 - Summary of Significant Accounting Policies, continued
Leases
As of January 1, 2019, the Company determines if an arrangement is a lease at
the inception of the arrangement. The Company applies the short-term lease
recognition exemption and recognizes lease payments in profit or loss at lease
commencement for facility or equipment leases that have a lease term of 12
months or less and do not include a purchase option whose exercise is reasonably
certain. Operating leases are included in operating lease right-of-use (ROU)
assets and operating lease liabilities.
ROU assets represent the right to use an underlying asset for the lease term,
and lease liabilities represent the obligation to make lease payments arising
from the lease. Operating lease ROU assets and liabilities are measured and
recorded at the later of the adoption date, January 1, 2019, or the service
commencement date based on the present value of lease payments over the lease
term. The Company uses the implicit interest rate when readily determinable;
however, most leases do not establish an implicit rate, so the Company uses an
estimate of the incremental borrowing rate based on the information available at
the time of measurement. Lease expense for lease payments is recognized on a
straight-line basis over the lease term. See Note 4 - Commitments and
Contingencies, Operating Leases for further discussion of the Company's
operating leases.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740),"
Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain
exceptions under Topic 740 and improves consistent application by clarifying and
amending existing guidance. This standard is effective for annual reporting
periods beginning after December 15, 2020. The Company adopted this standard,
and the adoption did not have a material impact on its financial statements.
In May 2021, the FASB issued ASU No. 2021-04, "Earnings Per Share (Topic 260),
Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own
Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or
Exchanges of Freestanding 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 does not believe the adoption of this standard will 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
June 30, 2021, through the date which the financial statements are available to
be issued.
Note 4 - Commitments and Contingencies
Operating Leases
San Jose Lease
On July 1, 2019, the Company signed a new lease agreement for the lease of its
office space at its corporate headquarters in San Jose, California for an
additional three years. The lease agreement includes space on the first floor of
the building that had been previously subleased. Upon expiration of the original
lease on September 30, 2019, the new monthly lease payment starting October 1,
2019 was $52,970 and is subject to annual escalations up to a maximum monthly
lease payment of $64,941.
10
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Note 4 - Commitments and Contingencies, continued
Operating Leases, continued
Costa Mesa Lease
On July 15, 2019, the Company signed a new lease agreement for the lease of
office space in Costa Mesa, California for an additional two years. Upon
expiration of the original lease on September 30, 2019, the new monthly lease
payment starting October 1, 2019 was $9,773 and is subject to an annual
escalation up to a maximum monthly lease payment of $10,200.
Operating Lease Commitments
In February 2016, the FASB issued its final standard on lease accounting, ASU
No. 2016-02, "Leases (Topic 842)," which superseded Topic 840, "Leases," which
was further modified in ASU No. 2018-10, "Codification Improvements" to clarify
the implementation guidance. The new accounting standard was effective for the
Company beginning on January 1, 2019 and required the recognition on the balance
sheet of right-of-use assets and lease liabilities. The Company elected the
optional transition method and adopted the new guidance on January 1, 2019 on a
modified retrospective basis with no restatement of prior period amounts. The
Company's adoption of the new standard resulted in the recognition of
right-of-use assets of $414,426 and operating lease liabilities of $485,747,
with no material cumulative effect adjustment to equity as of the date of
adoption. The Company anticipates having future total lease payments of
$1,002,084 during the period from the third quarter of 2021 to the third quarter
of 2022. As of June 30, 2021, the company has total operating lease right-of-use
assets of $899,355, current portion operating lease liabilities of $785,484 and
long-term portion of operating lease liabilities of $194,176. The weighted
average remaining lease term is 1.2 years as of June 30, 2021.
A reconciliation of undiscounted cash flows to lease liabilities recognized as
of June 30, 2021 is as follows:
Amount
(unaudited)
2021 417,615
2022 584,469
Total future lease payments 1,002,084
Present value discount (4% weighted average) (22,424 )
Total operating lease liabilities
979,660
Hosted Design Software Agreement
On June 25, 2015, the Company entered into a three-year agreement to license
electronic design automation software in a hosted environment. Pursuant to the
agreement, under which services began July 2015, the Company is required to
remit quarterly payments in the amount of approximately $101,000 with the last
payment due March 30, 2018. On December 18, 2015, the agreement was amended to
redefine the hardware and software configuration and the quarterly payments
increased to approximately $198,000. In July 2018, the Company renewed the
agreement for an additional three years, and the Company was required to remit
quarterly payments of approximately $218,000. In June 2021, the Company renewed
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.
11
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Note 4 - Commitments and Contingencies, continued
MBO Bonus Plan
On March 15, 2018, the Company's Board of Directors ("Board"), on the
recommendation of the Board's Compensation Committee ("Compensation Committee"),
approved the Energous Corporation MBO Bonus Plan ("Bonus Plan") for executive
officers of the Company. To be eligible to receive a bonus under the Bonus Plan,
an executive officer must be continuously employed throughout the applicable
performance period, and in good standing, and achieve the performance objectives
selected by the Compensation Committee.
Under the Bonus Plan, the Compensation Committee is responsible for selecting
the amounts of potential bonuses for executive officers, the performance metrics
used to determine whether any such bonuses will be paid and determining whether
those performance metrics have been achieved.
During the three months ended June 30, 2021, the Company accrued $391,578 in
expense under the Bonus Plan, which will be paid during the third quarter of
2021. During the three months ended June 30, 2020, the Company accrued $392,929
in expense under the Bonus Plan, which was paid during the third quarter of
2020. During the six months ended June 30, 2021 and 2020, the Company accrued
$783,156 and $677,520, respectively, in expense under the Bonus Plan.
Severance and Change in Control Agreement
On March 15, 2018, the Compensation Committee approved a form of Severance and
Change in Control Agreement ("Severance Agreement") that the Company may enter
into with executive officers ("Executive").
Under the Severance Agreement, if an Executive is terminated in a qualifying
termination, the Company agrees to pay the Executive six to 12 months of that
Executive's monthly base salary. 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 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 President and Chief
Executive Officer ("Employment Agreement").
The Employment Agreement effective as of January 1, 2015, has an initial term of
four years and automatically renews each year after the initial term. The
Employment Agreement provides for an annual base salary of $365,000, and Mr.
Rizzone is eligible to receive quarterly cash bonuses from the MBO Bonus Plan
with a total target amount equal to 100% of his base salary based upon
achievement of performance-based objectives established by the Board.
On July 9, 2021, the Company announced that Stephen R. Rizzone has retired from
his position as the Company's President and Chief Executive Officer and as a
member of the Board (see Note 9 - Subsequent Event).
Strategic Alliance Agreement
In November 2016, the Company and Dialog Semiconductor plc ("Dialog"), a related
party (see Note 7-Related Party Transactions), entered into a Strategic Alliance
Agreement ("Alliance Agreement") for the manufacture, distribution and
commercialization of products incorporating the Company's wire-free charging
technology ("Licensed Products"). Pursuant to the terms of the Alliance
Agreement, the Company agreed to engage Dialog as the exclusive supplier of the
Licensed Products for specified fields of use, subject to certain exceptions
(the "Company Exclusivity Requirement"). Dialog agreed to not distribute, sell
or work with any third party to develop any competing products without the
Company's approval (the "Dialog Exclusivity Requirement"). In addition, both
parties agreed on a revenue sharing arrangement and will collaborate on the
commercialization of Licensed Products based on a mutually-agreed upon plan.
Each party will retain all of its intellectual property.
12
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Note 4 - Commitments and Contingencies, continued
Strategic Alliance Agreement continued
The Alliance Agreement has an initial term of seven years and will automatically
renew annually thereafter unless terminated by either party upon 180 days' prior
written notice. The Company may terminate the Alliance Agreement at any time
after the third anniversary of the Agreement upon 180 days' prior written notice
to Dialog, or if Dialog breaches certain exclusivity obligations. Dialog may
terminate the Alliance Agreement if sales of Licensed Products do not meet
specified targets. The Company Exclusivity Requirement will terminate upon the
earlier of January 1, 2021 or the occurrence of certain events relating to the
Company's pre-existing exclusivity obligations. The Company Exclusivity
Requirement renews automatically on an annual basis unless the Company and
Dialog agree to terminate the requirement.
Note 5 - Stockholders' Equity
Authorized Capital
The holders of the Company's common stock are entitled to one vote per share.
Holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board out of legally available funds. Upon the
liquidation, dissolution or winding up of the Company, holders of common stock
are entitled to share ratably in all assets of the Company that are legally
available for distribution.
Financing
On August 9, 2018, the Company filed a shelf registration statement on Form S-3
with the SEC, which became effective on August 17, 2018. This shelf registration
statement allows the Company to sell, from time to time, any combination of debt
or equity securities described in the registration statement up to aggregate
proceeds of $75,000,000. Pursuant to this registration statement, in March 2019
the Company raised $23,319,156 (net of $1,680,844 in issuance costs) from an
offering of shares of its common stock and warrants to purchase 1,666,666 shares
of common stock at an exercise price of $10.00 per share. The Company also
raised $4,557,693 (net of $339,081 in issuance costs) during the fourth quarter
of 2019, $5,506,880 (net of $141,322 in issuance costs) during the first quarter
of 2020 and $9,216,611 (net of $236,528 in issuance costs) during the second
quarter of 2020, pursuant to this shelf registration statement.
On September 15, 2020, the Company filed a shelf registration statement on Form
S-3 with the SEC, which became effective on September 24, 2020, and contains two
prospectuses: a base prospectus, which covers the offering, issuance and sale by
the Company of up to $75,000,000 of its common stock, preferred stock, debt
securities, warrants to purchase our common stock, preferred stock or debt
securities, subscription rights to purchase its common stock, preferred stock or
debt securities and/or units consisting of some or all of these securities; and
an at-the-market ("ATM") sales agreement prospectus supplement covering the
offering, or the ATM Program, issuance and sale by the Company of up to a
maximum aggregate offering price of $40,000,000 of its common stock that may be
issued and sold under that certain sales agreement. The $40,000,000 of common
stock that may be offered, issued and sold under the sales agreement prospectus
is included in the $75,000,000 of the Company's securities that may be offered,
issued and sold by the Company under the base prospectus. Pursuant to this shelf
registration statement, the Company sold shares which raised net proceeds of
$38,832,711 (net of $1,167,289 in issuance costs) during the third and fourth
quarters of 2020. The ATM Program was completed as of the end of 2020 and no
further securities were sold during the three or six months ended June 30, 2021.
Common Stock Outstanding
Our outstanding common shares typically include shares that are deemed delivered
under US GAAP. Shares that are deemed delivered currently include shares that
have vested, but have not yet been delivered, under tax-deferred equity awards,
as well as shares purchased under our Employee Stock Purchase Program ("ESPP")
where actual transfer of shares normally occurs a few days after the completion
of the purchase periods. There are no voting rights for shares that are deemed
delivered under US GAAP until the actual delivery of shares takes place. On July
24, 2020, the stockholders of the Company approved an increase of the authorized
share capital of the Company from 50,000,000 to 200,000,000 shares of common
stock.
13
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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 June 30, 2021, 2,414,623 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 June 30, 2021, 917,013 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 June 30, 2021, 2,379,888 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 June 30, 2021, 138,679 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 Employee Stock
Purchase Plan 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 June 30, 2021, 685,374 shares of common stock remain eligible to be issued
under the ESPP. Employees contributed $237,247 through payroll withholdings to
the ESPP for the offering period ended June 30, 2021 and shares were deemed
delivered on that date.
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Note 6 - Stock-Based Compensation, continued
Stock Option Activity
The following is a summary of the Company's stock option activity during the six
months ended June 30, 2021:
Weighted
Weighted Average
Average Remaining
Number of Exercise Life In Intrinsic
Options Price Years Value
Outstanding at January 1, 2021 550,985 $ 5.67 3.2 $ 3,384
Granted - - - -
Exercised - - - -
Forfeited - - - -
Outstanding at June 30, 2021 550,985 $ 5.67 2.7 $ 33,655
Exercisable at January 1, 2021 550,985 $ 5.67 3.2 $ 3,384
Vested - - - -
Exercised - - - -
Forfeited - - - -
Exercisable at June 30, 2021 550,985 $ 5.67 2.7 $ 33,655
As of June 30, 2021, the unamortized value of options was $0.
Restricted Stock Units ("RSUs")
During the six months ended June 30, 2021, the Compensation Committee granted
various employees RSUs covering 964,885 shares of common stock under the 2013
Equity Incentive Plan. The awards vest over terms ranging from two to four
years.
During the six months ended June 30, 2021, the Compensation Committee and the
Board of Directors granted various non-employees RSUs covering 135,000 shares of
common stock under the 2014 Non-employee Equity Compensation Plan. The awards
vest over terms ranging from one to four years
During the six months ended June 30, 2021, the Board of Directors granted an
employee RSUs covering 7,000 shares of common stock under the 2017 Equity
Inducement Plan. The award vests over a term of four years.
As of June 30, 2021, the unamortized value of the RSUs was $4,763,288. The
unamortized amount will be expensed over a weighted average period of 1.5 years.
A summary of the activity related to RSUs for the six months ended June 30, 2021
is presented below:
Weighted
Average
Grant
Date Fair
Total Value
Outstanding at January 1, 2021 1,421,168 $ 6.43
RSUs granted 1,106,885 $ 3.77
RSUs forfeited (71,784 ) $ 4.33
RSUs vested (926,053 ) $ 6.13
Outstanding at June 30, 2021 1,530,216 $ 4.78
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Note 6 - Stock-Based Compensation, continued
Performance Share Units ("PSUs")
Performance share units ("PSUs") are grants that vest upon the achievement of
certain performance goals. The goals are commonly related to the Company's
revenue, market capitalization or market share price of the common stock.
During the six months ended June 30, 2021, the Compensation Committee of the
Board of Directors granted various employees PSUs covering 1,465,713 shares of
common stock under the Company's 2015 Performance Share Unit Plan.
Amortization for all PSU awards was $2,695,847 for the three and six months
ended June 30, 2021 and $0 and $(88,348) for the three and six months ended June
30, 2020, respectively.
As of June 30, 2021, the unamortized value of the PSUs was $1,198,389. The
unamortized amount will be expensed over a weighted average period of 0.5 years.
A summary of the activity related to PSUs for the six months ended June 30, 2021
is presented below:
Weighted
Average Grant
Total Date Fair Value
Outstanding at January 1, 2021 - $ -
PSUs granted 1,465,713 4.23
PSUs forfeited (13,650 ) 4.29
PSUs vested (494,608 ) 4.51
Outstanding at June 30, 2021 957,455 4.08
Employee Stock Purchase Plan ("ESPP")
The most recent offering period under the ESPP started on January 1, 2021 and
concluded on June 30, 2021. During the year ended December 31, 2020, there were
two offering periods. The first offering period began January 1, 2020 and
concluded on June 30, 2020. The second offering period began on July 1, 2020 and
concluded on December 31, 2020.
The weighted-average grant-date fair value of the purchase option for each
designated share purchased under this plan was approximately $0.75 and $0.57 for
the six months ended June 30, 2021 and 2020, respectively, which represents the
fair value of the option, consisting of three main components: (i) the value of
the discount on the enrollment date, (ii) the proportionate value of the call
option for 85% of the stock and (iii) the proportionate value of the put option
for 15% of the stock. The Company recognized compensation expense for the plan
of $60,651 and $41,308 for the three months ended June 30, 2021 and 2020,
respectively, and the Company recognized compensation expense for the plan of
$117,967 and $84,135 for the six months ended June 30, 2021 and 2020,
respectively.
The Company estimated the fair value of ESPP purchase options granted during the
six months ended June 30, 2021 and 2020 using the Black-Scholes option pricing
model. The fair values of stock options granted were estimated using the
following assumptions:
Six Months Ended Six Months Ended
June 30, 2021 June 30, 2020
Stock price $ 1.80 $ 1.77
Dividend yield 0% 0%
Expected volatility 95 % 61 %
Risk-free interest rate 0.09 % 1.57 %
Expected life 6 months 6 months
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Note 6 - Stock-Based Compensation, continued
Stock-Based Compensation Expense
The following tables summarize total stock-based compensation costs recognized
for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30, Six Months Ended June,
2021 2020 2021 2020
RSUs 1,471,826 $ 2,028,599 3,560,736 $ 4,350,419
PSUs 2,695,847 - 2,695,847 (88,348 )
ESPP 60,651 41,308 117,967 84,135
Total $ 4,228,324 $ 2,069,907 $ 6,374,550 $ 4,346,206
The total amount of stock-based compensation was reflected within the statements
of operations as:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Research and development $ 2,517,233 $ 1,032,049 $ 3,666,510 $ 2,133,027
Sales and marketing 1,032,414 440,335 1,481,361 804,793
General and administrative 678,677 597,523 1,226,679 1,408,386
Total $ 4,228,324 $ 2,069,907 $ 6,374,550 $ 4,346,206Note 7 - Related Party Transactions
In November 2016, the Company and Dialog entered into an alliance agreement for
the manufacture, distribution and commercialization of products incorporating
the Company's wire-free charging technology (See Note 4 - Commitments and
Contingencies, Strategic Alliance Agreement). On November 7, 2016 and June 28,
2017, the Company and Dialog entered into securities purchase agreements under
which Dialog acquired a total of 1,739,691 shares and received warrants to
purchase up to 1,417,565 shares. As of June 30, 2021, none of the warrants
remain outstanding. As of June 30, 2021, Dialog owns approximately 2.8% of the
Company's outstanding common shares. The Company recorded $0 and $0 for the
three months ended June 30, 2021 and 2020, respectively, and $0 and $0 in for
the six months ended June 30, 2021 and 2020, respectively, in royalty revenue.
Additionally, the Company recorded $0 and $89,375 in contract services revenue
performed by Dialog during the three months ended June 30, 2021 and 2020,
respectively, and the Company recorded $0 and $130,000 in contract services
revenue performed by Dialog during the six months ended June 30, 2021 and 2020,
respectively. The Company recorded $0 and $86,995 in cost of services revenue
associated with contract services performed for Dialog during the three months
ended June 30, 2021 and 2020, respectively, and the Company recorded $0 and
$126,539 in cost of services revenue associated with contract services performed
for Dialog during the six months ended June 30, 2021 and 2020, respectively.
Additionally, the Company incurred $183,000 and $0 in chip development expense
from Dialog, during the three months ended June 30, 2021 and 2020, respectively,
and the Company incurred $183,000 and $0 in chip development expense from Dialog
during the six months ended June 30, 2021 and 2020, respectively.
Note 8 - Customer Concentrations
Three customers accounted for approximately 64% of the Company's revenue for the
three months ended June 30, 2021, and two customers accounted for approximately
96% of the Company's revenue for the three months ended June 30, 2020. Four
customers accounted for approximately 72% of the Company's revenue for the six
months ended June 30, 2021, and two customers accounted for approximately 85% of
the Company's revenue for the six months ended June 30, 2020. Three customers
accounted for approximately 62% of the accounts receivable balance as of June
30, 2021. Four customers accounted for approximately 92% of the accounts
receivable balance as of December 31, 2020.
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Note 9 - Subsequent Event
On July 9, 2021, the Company announced that Stephen R. Rizzone has 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 ("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 restricted stock units 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 will
pay-off all amounts owed under a lease agreement relating to a Company Car and
Mr. Rizzone will receive the title to the vehicle. All compensation under the
Separation Agreement will be subject to applicable withholding.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
As used in this Quarterly Report on Form 10-Q, unless the context otherwise
requires the terms "we," "us," "our," and "Energous" refer to Energous
Corporation, a Delaware corporation. This report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that are intended to be covered by the "safe harbor" created by those sections.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, can generally be identified by
the use of forward-looking terms such as "believe," "expect," "may," "will,"
"would," "should," "could," "seek," "intend," "plan," "continue," "estimate,"
"anticipate" or other comparable terms. All statements other than statements of
historical facts included in this report regarding our strategies, prospects,
financial condition, operations, costs, plans and objectives are forward-looking
statements. Examples of forward-looking statements include, among others,
statements we make regarding proposed business strategy; market opportunities;
regulatory approval; expectations for current and potential business
relationships; the impact of COVID-19 on our business and our response to it;
and expectations for revenues, liquidity cash flows and financial performance,
the anticipated results of our research and development efforts, the timing for
receipt of required regulatory approvals and product launches. Forward-looking
statements are neither historical facts nor assurances of future performance.
Instead, they are based only on our current beliefs, expectations and
assumptions regarding the future of our business, future plans and strategies,
projections, anticipated events and trends, the economy and other future
conditions. Forward-looking statements relate to the future and are subject to
inherent uncertainties, risks and changes in circumstances that are difficult to
predict and generally outside of our control, so actual results and financial
condition may differ materially from those indicated in the forward-looking
statements. Important factors that could cause our actual results and financial
condition to differ materially from those indicated in the forward-looking
statements include, among others: our ability to develop commercially feasible
technology; timing of customer implementations of our technology in consumer
products; timing and receipt of regulatory approvals in the United States and
internationally; our ability to find and maintain development partners; market
acceptance of our technology; competition in our industry; our ability to
protect our intellectual property; competition; and other risks and
uncertainties described in the Risk Factors and in Management's Discussion and
Analysis sections of our most recently filed Annual Report on Form 10-K and
subsequently filed Quarterly Reports on Form 10-Q, including this Quarterly
Report on Form 10-Q. We undertake no obligation to publicly update any of our
forward-looking statements, whether as a result of new information, future
developments or otherwise.
Overview
We have developed our WattUp® wireless power technology, consisting of
proprietary semiconductor chipsets, software controls, hardware designs and
antennas, that enables radio frequency ("RF") based charging for electronic
devices. The WattUp technology has a broad spectrum of capabilities, including
near field wireless charging and at-a-distance wireless charging at various
distances. In November 2016 we entered into a Strategic Alliance Agreement with
Dialog Semiconductor plc ("Dialog"), an industry leader in Bluetooth low energy
semiconductors and power management semiconductors. In conjunction with the
Strategic Alliance Agreement, Dialog manufactures and is the exclusive
distributor of integrated circuit ("IC") products that incorporate our designs
and provides sales and logistic support to customers on a global basis. We
believe our proprietary WattUp technologies are well suited for many
applications, including building and home automation, electronic shelf labels,
industrial IoT sensors, surface and implanted medical devices, tracking devices,
hearables, wearables, consumer electronics, public safety and military
applications. Potential future applications include smartphones, commercial and
industrial robotics, as well as automotive solutions and other devices with
charging requirements that would otherwise require battery replacement or a
wired power connection.
We believe our technology is innovative in its approach, in that we are
developing solutions that charge electronic devices with an RF energy zone. We
are developing solutions that deliver wire-free energy for near field charging
applications and are also developing at-a-distance charging at distances up to
approximately three feet, as well as low-power charging for distances up to 15
feet and beyond, some of which involve mobility charging.
To-date, we have developed multiple transmitters and receivers, including
prototypes as well as partner production designs. The transmitters vary based on
form factor, power specifications and frequencies, while the receivers are
designed for applications including Bluetooth tracking tags, IoT sensors,
hearing aids, electronic shelf labels, fitness bands, health sensors and
devices, smartwatches, smartphones, smartglasses, industrial applications,
keyboards, mice, headsets, earbuds, headphones, and more.
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We have engagements with companies in the consumer electronics (CE), industrial,
military and medical device markets that are in the both evaluation and product
cycle pre-production stages of integrating WattUp-technology into devices being
developed for the end-user. The first end product featuring our technology
entered the market in 2019 and we expect additional WattUp enabled products to
be announced and launched in 2021. We are also in discussions with potential
customers in the consumer and industrial spaces that are considering our
solutions to supply low power distance charging for products that could enter
the market in 2022.
In December 2017, we announced Federal Communications Commission ("FCC")
certification of our first-generation WattUp Mid Field transmitter, which
simultaneously powers multiple devices at a distance of up to three feet. This
transmitter underwent rigorous, multi-month testing to verify that it met
consumer safety and regulatory requirements. We believe this was the first
certification of a Part 18 FCC-approved non-contact wireless charging
transmitter, and that it establishes engineering design precedents that can
streamline future regulatory approvals for our technology and for our customers'
end-products that employ our technology.
Our technology solution consists principally of transmitter controller ICs,
power amplifier ICs and receiver ICs, as well as novel antenna designs,
application prototypes and proprietary software algorithms. We submitted our
first IC design for wafer fabrication in 2013 and since then have developed
subsequent generations of transmitter and receiver ICs, antenna designs, and
software algorithms. We have endeavored to optimize our technology by reducing
size and cost, while at the same time increasing performance which enables our
designs to be integrated into a broad range of devices. We have developed a
"building block" approach that allows us to scale our product implementations by
combining multiple transmitter building blocks or multiple receiver building
blocks to meet the power, distance, size and cost requirements of customer
applications requirements. Our technology is readily scalable because the same
ICs that are used for contact-based charging can be used for distance-based
charging solutions. We have developed two classes of chip solutions, a
CMOS-based technology focused on low cost, small footprint and low power (1
watt) and a GaAs/GaN-based technology capable of delivering higher power
(greater than 1 watt) with greater efficiency. We intend to continue to invest
in research and development with high power capabilities of 20 watts and beyond
at high levels of efficiency. We also intend to continue to invest in improving
product performance, efficiency, cost-performance, integration and
miniaturization as required to reach multiple markets and expand the
power-at-a-distance ecosystem, while maintaining a technology lead on potential
competitors.
We sell evaluation kits to potential customers of our technology, to allow their
respective engineering and product management departments to test and evaluate
the technology. Our customers' product development, technology integration and
product introduction cycles occur over multiple quarters and generally span a
period of more than a year to two years and can elapse before first evaluation
and final shipment of the customer's product. Once our customers begin to sell
products to end customers that incorporate our technology, we would expect the
commercialization cycle to shorten over time as the technology matures and
market acceptance grows.
We maintain the rights to all intellectual property in our technology. We have
implemented an aggressive intellectual property strategy and are continuing to
pursue patent protection for new innovations. As of July 30, 2021, the Energous
IP portfolio contained 240 awarded patents in the United States, which are
organized along five (5) critical paths to implementation that we believe a
competitor may have to navigate to commercialize WPT technology. The paths are:
Processing Algorithms, Antenna Designs, Transmitter and Receiver ASICs, Other
Software Controls (e.g., Bluetoothâ Management and Hardware (e.g., Board
Layout). In addition to the inventions covered by these patents, we have also
identified specific inventions that we believe are novel and patentable. We
intend to file for patent protection for the most valuable of these, and for
other inventions that we expect to develop. This is a significant annual expense
and we continually monitor the costs and benefits of each patent application and
pursue those that we believe are most protective for our business and expand the
core value of the Company.
Our seasoned management team has both private and public company experience, as
well as relevant industry experience. In addition, we have identified and hired
key engineering resources in the areas of IC development, antenna development,
hardware, software and firmware engineering as well as integration and testing,
which will allow us to continue to expand our technology and intellectual
property and to meet our customers' support requirements.
Impact of COVID-19 on Our Business
In March 2020, the World Health Organization declared the outbreak of COVID-19
as a pandemic. The pandemic continues to affect the United States and the world.
We are monitoring the ongoing effects of COVID-19 (including continued
outbreaks) and the related business and travel restrictions and changes to
behavior intended to reduce its spread, and its impact on our operations,
financial position, cash flows, inventory, supply chains, global regulatory
approvals, purchasing trends, customer payments, and the industry in general, in
addition to the impact on our employees.
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The 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. For example, in one case, the pandemic delayed the spring
launch of a new product that incorporates our technology. Further delays in this
or other products could result from the ongoing pandemic. These changes are due
in part to changes in how business is conducted as a result of the pandemic,
including state executive orders, local shelter-in-place orders,
government-imposed quarantines and work-from-home policies in China, the United
States, and elsewhere. We have implemented work-from-home policies for our
employees that will likely be in place through the end of the year and possibly
longer. The effects of state executive orders, local shelter-in-place orders,
government-imposed quarantines and our work-from-home policies could negatively
impact productivity, disrupt our research and development or other operations,
and delay the planned launch of our customers' new products that incorporate our
technology, the magnitude of which will depend, in part, on the length and
severity of the continuing restrictions and other limitations on our ability to
conduct our business in the ordinary course. Several vaccines have been approved
for use since the fourth quarter of 2020, with vaccination rates increasing
through early 2021. Several new variants of COVID-19 have emerged including the
"delta" variant, which is now widespread, and may be more transmissible than
other variants. Vaccines approved to date have lower efficacy in combating the
transmission of some of these new variants, though vaccines appear to protect
against severe illness. Due to the continuing developments and fluidity of this
situation, the magnitude and duration of the pandemic and its impact on our
operations and liquidity are still uncertain as of the date of this report.
Critical Accounting Policies and Estimates
Revenue Recognition
On January 1, 2018 we adopted Accounting Standards Update No. 2014-09, "Revenue
from Contracts with Customers" (Topic 606).
In accordance with Topic 606, we recognize revenue using the following five-step
approach:
1. Identify the contract with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price of the contract.
4. Allocate the transaction price to the performance obligations in the
contract.
5. Recognize revenue when the performance obligations are met or delivered.
Our revenue currently consists of product development projects revenue and
royalty revenue from Dialog. We also provide contract services for Dialog.
We record revenue associated with product development projects that we enter
into with certain customers. In general, these product development projects are
complex, and we do not have certainty about our ability to achieve the project
milestones. The achievement of a milestone is dependent on our performance
obligation and requires acceptance by the customer. We recognize this revenue at
a point in time based on when the performance obligation is met. The payment
associated with achieving the performance obligation is generally commensurate
with our effort or the value of the deliverable and is nonrefundable. We record
the expenses related to these product development projects in research and
development expense, in the periods such expenses were incurred.
We record royalty revenue from our manufacturing partner, Dialog, and such
royalty revenue is recognized at a point in time based on shipments from Dialog
to its customers.
We recognize contract services revenue from Dialog over a period of time as the
services are performed. The costs associated with this revenue are recognized as
the services are performed and are included in cost of services revenue.
Results of Operations
Operating Expenses
Research and development expenses include costs associated with our efforts to
develop our technology, including personnel compensation, consulting,
engineering supplies and components, intellectual property costs, regulatory
expense and general office expenses specifically related to the research and
development department. Sales and marketing expenses include costs associated
with selling and marketing our technology to our customers, including personnel
compensation, public relations, graphic design, tradeshow, engineering supplies
utilized by the sales team
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and general office expenses specifically related to the sale and marketing
department. General and administrative expenses include costs for general and
corporate functions, including personnel compensation, facility fees, travel,
telecommunications, insurance, professional fees, consulting fees, general
office expenses, and other overhead.
Three Months Ended June 30, 2021 and 2020
Revenue. During the three months ended June 30, 2021 and 2020, we recorded
revenue of $184,960 and $114,375, respectively.
Operating Expenses and Loss from Operations. Operating expenses are made up of
research and development, sales and marketing, general and administrative
expenses and cost of services revenue. Losses from operations for the three
months ended June 30, 2021 and 2020 were $11,016,839 and $8,212,640,
respectively.
Research and Development Costs. Research and development costs were $6,103,694
and $4,330,433, respectively, for the three months ended June 30, 2021 and 2020.
The increase of $1,773,261 is primarily due to a $1,469,281 increase in
compensation, consisting of a $1,485,184 increase in stock-based compensation
from the recognition of performance share units ("PSU") award expense, offset by
a $15,903 decrease in payroll costs, a $281,725 increase in engineering
supplies, components and chip development costs due to project timing and a
$51,174 increase in consulting and third-party services.
Sales and Marketing Costs. Sales and marketing costs for the three months ended
June 30, 2021 and 2020 were $2,441,357 and $1,438,904, respectively. The
increase of $1,002,453 is primarily due to a $753,103 increase in compensation,
consisting of a $592,079 increase in stock-based compensation from the
recognition of PSU award expense and a $161,024 increase in payroll costs from a
higher headcount within the department, an $87,415 increase in public relations,
consulting and third-party services expense and a $73,137 increase in legal fees
pertaining to marketing and trademarks.
General and Administrative Expenses. General and administrative costs for the
three months ended June 30, 2021 and 2020 were $2,656,748 and $2,470,683,
respectively. The increase of $186,065 is primarily due to a $109,837 increase
in compensation, consisting of an $81,154 increase in stock-based compensation
and a $28,683 increase in payroll costs, a $107,643 increase in annual
stockholder meeting costs, a $48,975 increase in insurance premiums, a $36,808
increase in accounting and auditing fees and a $30,869 increase in software and
general office expense, partially offset by $78,120 decrease in legal fees and a
$69,935 decrease in investor relations, consulting and third-party services.
Interest Income. Interest income for the three months ended June 30, 2021 was
$1,010 as compared to interest income of $7,974 for the three months ended June
30, 2020. The decrease of $6,964 is primarily due to lower savings interest
rates.
Net Loss. As a result of the above, net loss for the three months ended June 30,
2021 was $11,015,829 as compared to $8,204,666 for the three months ended June
30, 2020.
Six Months Ended June 30, 2021 and 2020
Revenue. During the six months ended June 30, 2021 and 2020, we recorded revenue
of $330,025 and $175,850, respectively.
Operating Expenses and Loss from Operations. Operating expenses are made up of
research and development, sales and marketing, general and administrative
expenses and cost of services revenue. Losses from operations for the six months
ended June 30, 2021 and 2020 were $19,544,626 and $16,866,315, respectively.
Research and Development Costs. Research and development costs were $10,694,938
and $8,905,736, respectively, for the six months ended June 30, 2021 and 2020.
The increase of $1,789,202 is primarily due to a $1,651,575 increase in
compensation, consisting of a $1,533,483 increase in stock-based compensation
from the recognition of PSU award expense and $118,092 increase in payroll
costs, a $244,808 increase in engineering supplies, components and chip
development costs due to project timing, a $100,326 increase in consulting and
third-party services expense and a $62,484 increase in regulatory testing,
partially offset by an $89,479 decrease in depreciation.
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Sales and Marketing Costs. Sales and marketing costs for the six months ended
June 30, 2021 and 2020 were $4,235,569 and $2,886,813, respectively. The
increase of $1,348,756 is primarily due to a $1,132,589 increase in
compensation, consisting of a $676,568 increase in stock-based compensation from
the recognition of PSU award expense and a $456,021 increase in payroll costs
from a higher headcount within the department, a $98,780 increase in legal fees
pertaining to marketing and trademarks, a $67,178 increase in public relations,
consulting and third-party services expense and a $45,242 increase in
engineering supplies used by the sales and marketing staff for customer
demonstrations, partially offset by a $45,248 decrease in tradeshow expense.
General and Administrative Expenses. General and administrative costs for the
six months ended June 30, 2021 and 2020 were $4,944,144 and $5,123,077,
respectively. The decrease of $178,933 is primarily due to a $157,017 decrease
in accounting and auditing fees, a $67,447 decrease in compensation, consisting
of a $181,707 decrease in stock-based compensation, offset by a $114,260
increase in payroll costs, a $76,124 decrease in board member fees, a $57,851
decrease in general corporate legal fees, a $44,763 decrease in investor
relations, consulting and third-party services expense and a $40,344 decrease in
travel and entertainment as a result of COVID-19 restrictions, partially offset
by a $132,869 increase in insurance premiums and a $101,650 increase in annual
meeting costs.
Interest Income. Interest income for the six months ended June 30, 2021 was
$3,034 as compared to interest income of $63,913 for the six months ended June
30, 2020. The decrease of $60,879 is primarily due to lower savings interest
rates.
Net Loss. As a result of the above, net loss for the six months ended June 30,
2021 was $19,541,592 as compared to $16,802,402 for the six months ended June
30, 2020.
Liquidity and Capital Resources
During the six months ended June 30, 2021 and 2020, we recorded revenue of
$330,025 and $175,850, respectively. We incurred net losses of $19,541,592 and
$16,802,402 for the six months ended June 30, 2021 and 2020, respectively. Net
cash used in operating activities was $12,537,690 and $13,215,844 for the six
months ended June 30, 2021 and 2020, respectively. We are currently meeting our
liquidity requirements through the proceeds from securities offerings that
raised net proceeds of $53,556,202 during 2020, along with payments received
from customers and employees through ESPP purchases.
We believe our current cash on hand, together with anticipated revenues will be
sufficient to fund our operations into August 2022. Although we intend to
continue our research and development activities, there can be no assurance that
our available resources will be sufficient to enable us to generate revenues
sufficient to sustain operations. Accordingly, we may pursue additional
financing, which could include offerings of equity or debt securities, bank
financings, commercial agreements with customers or strategic partners, and
other alternatives, depending upon market conditions. There is no assurance that
such financing would be available on terms that we would find acceptable, or at
all.
During the six months ended June 30, 2021, cash flows used in operating
activities were $12,537,690, consisting of a net loss of $19,541,592, less
non-cash expenses aggregating $6,894,871 (principally stock-based compensation
of $6,374,550, decrease in amortization of operating lease right-of-use assets
of $393,936 and depreciation and amortization expense of $126,385) and a
$555,702 increase in accounts payable, partially offset by a $422,533 decrease
in operating lease liabilities and a $46,120 increase in accounts receivable.
During the six months ended June 30, 2020, cash flows used in operating
activities were $13,215,844, consisting of a net loss of $16,802,402, less
non-cash expenses aggregating $4,975,428 (principally stock-based compensation
of $4,346,206, amortization of operating lease right-of-use assets of $378,593
and depreciation and amortization expense of $217,629), a $429,460 decrease in
accrued expenses, a $341,064 decrease in operating lease liabilities, a $330,537
decrease in accounts payable, a $212,727 increase in prepaid expenses and other
current assets and a $75,082 increase in accounts receivable.
During the six months ended June 30, 2021 and 2020, cash flows used in investing
activities were $203,044 and $0, respectively. The cash used in investing
activities for the six months ended June 30, 2021 consisted of the purchases of
new testing equipment and engineering software.
During the six months ended June 30, 2021, cash flows provided by financing
activities were $237,247, which consisted of entirely of proceeds from
contributions to the ESPP. During the six months ended June 30, 2020, cash flows
provided by financing activities were $14,940,695, which consisted of
$14,723,491 in net proceeds from the sale of shares of our common stock to the
public in an ATM offering and $217,204 in proceeds from contributions to the
ESPP.
Research and development of new technologies is, by its nature, unpredictable.
Although we intend to continue our research and undertake development
activities, there can be no assurance that our available resources will be
sufficient to enable us to generate revenues sufficient to sustain operations.
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Furthermore, since we have no committed source of financing, there can be no
assurance that we will be able to raise capital as and when we need it to
continue our operations.
Off Balance Sheet Transactions
As of June 30, 2021, we did not have any off-balance sheet transactions.
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