ENERGOUS CORPORATION During the three and nine months endedSeptember 30, 2021 , the Company recorded revenue of$201,364 and$531,389 , respectively, and during the three and nine months endedSeptember 30, 2020 , the Company recorded$61,500 and$237,350 , respectively. During the three and nine months endedSeptember 30, 2021 , the Company recorded net losses of$12,464,526 and$32,006,118 , respectively, and during the three and nine months endedSeptember 30, 2020 , the Company recorded net losses of$7,556,837 and$24,359,239 , respectively. Net cash used in operating activities was$22,498,803 and$19,435,940 for the nine months endedSeptember 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, an at-the-market ("ATM") offering duringOctober 2021 (see Note 9 - Subsequent Events), proceeds from contributions to the employee stock purchase plan ("ESPP"), along with payments received from customers.
As of
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, the development of complementary technologies, competition and global market fluctuations. InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The pandemic continues to affectthe 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 inU.S. dollars and have been prepared in accordance with accounting principles generally accepted inthe United States of America ("US GAAP"), and pursuant to the accounting and disclosure rules and regulations of theU.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 endedDecember 31, 2020 included in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , filed with theSEC onMarch 24, 2021 . The accounting policies used in preparing these unaudited condensed interim financial statements are consistent with those described in the Company'sDecember 31, 2020 audited financial statements.
8
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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 exceedFederal Deposit Insurance Corporation limits. The Company maintains its cash deposits with major financial institutions.
Revenue Recognition
The Company follows 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. The Company also provided contract services for Dialog in 2020. During the three months and nine months endedSeptember 30, 2021 , the Company recognized$201,364 and$531,389 , respectively, in product development projects revenue, During the three and nine months endedSeptember 30, 2020 , the Company recognized$61,500 and$107,350 , respectively, in product development projects revenue. During the three and nine months endedSeptember 30, 2021 , the Company did not recognize any contract services revenue. During the three and nine months endedSeptember 30, 2020 , the Company recognized$0 and$130,000 , respectively, 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 recognized contract services revenue from Dialog in 2020 over the period of time that the services are performed. The costs associated with this revenue were recognized as the services were performed and were included in cost of services revenue. 9
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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$4,737,159 and$4,003,642 for the three months endedSeptember 30, 2021 and 2020, respectively, and the Company incurred research and development costs of$15,432,097 and$12,909,378 for the nine months endedSeptember 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 September 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 nine months ended September 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 5,843,167 and 5,990,698 for the three months
ended September 30, 2021 and 2020, respectively, and 5,843,167 and 5,990,698 for
the nine months ended September 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 Nine Months
Ended September 30, Ended September 30,
2021 2020 2021 2020
Warrants issued to private
investors 3,284,789 3,284,789 3,284,789 3,284,789
Options to purchase common
stock 550,985 550,985 550,985 550,985
RSUs 1,183,951 1,533,247 1,183,951 1,533,247
PSUs 823,442 621,677 823,442 621,677
Total potentially dilutive
securities 5,843,167 5,990,698 5,843,167 5,990,698
10
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Note 3 - Summary of Significant Accounting Policies, continued
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. 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
InDecember 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 afterDecember 15, 2020 . The Company adopted this standard, and the adoption did not have a material impact on its financial statements. InMay 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 theFASB 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 afterDecember 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
Note 4 - Commitments and Contingencies
Operating Leases
San Jose Lease
OnJuly 1, 2019 , the Company signed a new lease agreement for the lease of its office space at its corporate headquarters inSan Jose, California for an additional three years. Upon expiration of the original lease onSeptember 30, 2019 , the new monthly lease payment startingOctober 1, 2019 was$52,970 and is subject to annual escalations up to a maximum monthly lease payment of$64,941 . 11
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Note 4 - Commitments and Contingencies, continued
Operating Leases, continuedCosta Mesa Lease
On
OnSeptember 22, 2021 , the Company signed a newCosta Mesa lease to lease a new, distinct office space in a different building with the same landlord. Per the lease, the stated commencement date isOctober 1, 2021 and concludesSeptember 30, 2023 , and the Company did not have control of the new office space untilOctober 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 newCosta Mesa lease has a total$106,688 in lease payments with an initial monthly lease payment of$4,369 startingOctober 1, 2021 and is subject to an annual escalation up to a maximum monthly lease payment of$4,522 . Operating Lease Commitments InFebruary 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 onJanuary 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 onJanuary 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$779,292 during the period from the fourth quarter of 2021 to the third quarter of 2022. As ofSeptember 30, 2021 , the company has total operating lease right-of-use assets of$699,202 , current portion operating lease liabilities of$765,209 and long-term portion of operating lease liabilities of$0 . The weighted average remaining lease term is 1.0 years as ofSeptember 30, 2021 .
A reconciliation of undiscounted cash flows to lease liabilities recognized as
of
Amount
(unaudited)
2021 194,823
2022 584,469
Total future lease payments 779,292Present value discount (4% weighted average) (14,083 ) Total operating lease liabilities
765,209
Hosted Design Software Agreement
OnJune 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 beganJuly 2015 , the Company is required to remit quarterly payments in the amount of approximately$101,000 with the last payment dueMarch 30, 2018 . OnDecember 18, 2015 , the agreement was amended to redefine the hardware and software configuration and the quarterly payments increased to approximately$198,000 . InJuly 2018 , the Company renewed the agreement for an additional three years, and the Company was required to remit quarterly payments of approximately$218,000 . InJune 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.
12
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Note 4 - Commitments and Contingencies, continued
MBO Bonus Plan
OnMarch 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 endedSeptember 30, 2021 , the Company accrued$304,377 in expense under the Bonus Plan, which will be paid during the fourth quarter of 2021. During the three months endedSeptember 30, 2020 , the Company accrued$189,728 in expense under the Bonus Plan, which was paid during the fourth quarter of 2020. During the nine months endedSeptember 30, 2021 and 2020, the Company recorded$1,087,533 and$867,248 , respectively, in expense under the Bonus Plan. The expense under the Bonus Plan is recorded under operating expenses on the Company's Condensed Statement of Operations within each executive's department.
Severance and Change in Control Agreement
OnMarch 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 -
OnApril 3, 2015 , the Company entered into an Amended and Restated Executive Employment Agreement withStephen R. Rizzone , the Company's President and Chief Executive Officer ("Employment Agreement"). The Employment Agreement effective as ofJanuary 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 , andMr. 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. OnJuly 9, 2021 , the Company announced thatStephen 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 withMr. Rizzone's retirement, the Company andMr. Rizzone entered into an Executive Transition Agreement ("Separation Agreement"), providing for continued employment throughAugust 31, 2021 . Upon his termination of employment, the Separation Agreement provides severance payments and benefits toMr. 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 byMr. Rizzone until the one year anniversary of his termination date, and additional benefits related toMr. Rizzone's medical insurance. In addition, the Company will pay-off all amounts owed under a lease agreement relating to a Company Car andMr. Rizzone will receive the title to the vehicle. All compensation under the Separation Agreement will be subject to applicable withholding.
13
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Note 4 - Commitments and Contingencies, continued
During the three months ended
Strategic Alliance Agreement
InNovember 2016 , the Company and Dialog Semiconductor plc ("Dialog"), a related party (see Note 7-Related Party Transactions), entered into aStrategic Alliance Agreement ("Alliance Agreement") for the manufacture, distribution and commercialization of products incorporating the Company's wire-free charging technology ("Licensed Products"). Pursuant to the terms of the Alliance Agreement, the Company agreed to engage Dialog as the exclusive supplier of the Licensed Products for specified fields of use, subject to certain exceptions (the "Company Exclusivity Requirement"). Dialog agreed to not distribute, sell or work with any third party to develop any competing products without the Company's approval (the "Dialog Exclusivity Requirement"). In addition, both parties agreed on a revenue sharing arrangement and will collaborate on the commercialization of Licensed Products based on a mutually-agreed upon plan. Each party will retain all of its intellectual property. The Alliance Agreement has an initial term of seven years and will automatically renew annually thereafter unless terminated by either party upon 180 days' prior written notice. The Company may terminate the Alliance Agreement at any time after the third anniversary of the Agreement upon 180 days' prior written notice to Dialog, or if Dialog breaches certain exclusivity obligations. Dialog may terminate the Alliance Agreement if sales of Licensed Products do not meet specified targets. The Company Exclusivity Requirement will terminate upon the earlier ofJanuary 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. OnSeptember 20, 2021 , the Company was notified by Dialog, recently acquired by Renesas Electronics Corporation, that it was terminating the Alliance Agreement between the Company and Dialog. There is a wind down period included in the Alliance Agreement which will conclude inSeptember 2024 . During the wind down period, the Alliance Agreement's terms will continue to apply to the Company's products that are covered by certain existing customer relationships, except that the parties' respective exclusivity rights have terminated. Note 5 - Stockholders' EquityAuthorized 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
OnAugust 9, 2018 , the Company filed a shelf registration statement on Form S-3 with theSEC , which became effective onAugust 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, inMarch 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. 14
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Note 5 - Stockholders' Equity, continued
OnSeptember 15, 2020 , the Company filed a shelf registration statement on Form S-3 with theSEC , which became effective onSeptember 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 nine months endedSeptember 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. OnJuly 24, 2020 , the stockholders of the Company approved an increase of the authorized share capital of the Company from 50,000,000 to 200,000,000 shares of common stock.
Note 6 - Stock-Based Compensation
Equity Incentive Plans
2013 Equity Incentive Plan
Effective on
As of
2014 Non-Employee Equity Compensation Plan
Effective onMay 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
2015 Performance Share Unit Plan
Effective onJune 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 ofSeptember 30, 2021 , 2,513,901 shares of common stock remain eligible to be issued through equity-based instruments under the 2015 Performance Share Unit Plan. 15
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Note 6 - Stock-Based Compensation, continued
2017 Equity Inducement Plan
OnDecember 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 individualswho (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
Employee Stock Purchase Plan
InApril 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. OnMay 21, 2015 , the Company's stockholders approved the ESPP. Effective onJune 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 aboutJanuary 1 andJuly 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 ofSeptember 30, 2021 , 685,374 shares of common stock remain eligible to be issued under the ESPP. Employees contributed$124,801 through payroll withholdings to the ESPP as ofSeptember 30, 2021 for the current offering period that will end onDecember 31, 2021 and shares will be deemed delivered on that date. Stock Option Activity
The following is a summary of the Company's stock option activity during the
nine months ended
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 September 30, 2021 550,985 $ 5.67 0.9 $ 11,279
Exercisable at January 1, 2021 550,985 $ 5.67 3.2 $ 3,384
Vested - - - -
Exercised - - - -
Forfeited - - - -
Exercisable at September 30, 2021 550,985 $ 5.67 0.9 $ 11,279 As of
Restricted Stock Units ("RSUs")
During the nine months endedSeptember 30, 2021 , the Compensation Committee granted various employees RSUs covering 979,385 shares of common stock under the 2013 Equity Incentive Plan. The awards vest over terms ranging from two to four years. 16
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Note 6 - Stock-Based Compensation, continued
During the nine months endedSeptember 30, 2021 , the Compensation Committee and the Board of Directors granted various non-employees RSUs covering 172,091 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 nine months endedSeptember 30, 2021 , the Board of Directors granted an employee RSUs covering 34,000 shares of common stock under the 2017 Equity Inducement Plan. The award vests over a term of four years. As ofSeptember 30, 2021 , the unamortized value of the RSUs was$3,237,533 . 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 nine months endedSeptember 30, 2021 is presented below: Weighted Average Grant Date Fair Total Value
Outstanding at
1,185,476 $ 3.67
RSUs forfeited (209,505 ) $ 4.61
RSUs vested (1,213,188 ) $ 5.51 Outstanding at
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 and achievement of sales and marketing goals.
During the nine months endedSeptember 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$843,741 and$3,539,588 for the three and nine months endedSeptember 30, 2021 , respectively, and$0 and$(88,348) for the three and nine months endedSeptember 30, 2020 , respectively.
As of
A summary of the activity related to PSUs for the nine months endedSeptember 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 (147,663 ) 4.12 PSUs vested (494,608 ) 4.51 Outstanding at September 30, 2021 823,442 4.08
Employee Stock Purchase Plan ("ESPP")
The current offering period under the ESPP started onJuly 1, 2021 and will conclude onDecember 31, 2021 . The recently completed offering period under the ESPP started onJanuary 1, 2021 and concluded onJune 30, 2021 . During the year endedDecember 31, 2020 , there were two offering periods. The first offering period beganJanuary 1, 2020 and concluded onJune 30, 2020 . The second offering period began onJuly 1, 2020 and concluded onDecember 31, 2020 .
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Note 6 - Stock-Based Compensation, continued
The weighted-average grant-date fair value of the purchase option for each designated share purchased under this plan was approximately$1.05 and$1.11 for the nine months endedSeptember 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$76,814 and$96,056 for the three months endedSeptember 30, 2021 and 2020, respectively, and the Company recognized compensation expense for the plan of$194,781 and$180,191 for the nine months endedSeptember 30, 2021 and 2020, respectively. The Company estimated the fair value of ESPP purchase options granted during the nine months endedSeptember 30, 2021 and 2020 using the Black-Scholes option pricing model. The fair values of ESPP purchase options granted were estimated using the following assumptions: Nine Months Ended Nine Months Ended September 30, 2021 September 30, 2020 Stock price$1.80 -$2.78 $1.77 -$2.96 Dividend yield 0 % 0 % Expected volatility 95% - 143% 61% - 182% Risk-free interest rate 0.05% - 0.09% 0.17% - 1.57% Expected life 6 months 6 months
Stock-Based Compensation Expense
The following tables summarize total stock-based compensation costs recognized
for the three and nine months ended
Three Months Ended September 30 , Nine Months Ended September,
2021 2020 2021 2020
Stock options $ 284,994 $ - $ 284,994 $ -
RSUs 1,010,990 1,876,686 4,571,726 6,227,105
PSUs 843,741 - 3,539,588 (88,348 )
ESPP 76,814 96,056 194,781 180,191
Total $ 2,216,539 $ 1,972,742 $ 8,591,089 $ 6,318,948
The total amount of stock-based compensation was reflected within the statements
of operations as:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Research and development $ 1,207,415 $ 922,858 $ 4,873,925 $ 3,055,885
Sales and marketing 565,367 385,171 2,046,728 1,189,964
General and administrative 158,763 664,713 1,385,442 2,073,099
Severance expense 284,994 - 284,994 -
Total $ 2,216,539 $ 1,972,742 $ 8,591,089 $ 6,318,948
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Note 7 - Related Party Transactions
InNovember 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). OnNovember 7, 2016 andJune 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 ofSeptember 30, 2021 , none of the warrants remain outstanding. As ofSeptember 30, 2021 , Dialog owns approximately 2.8% of the Company's outstanding common shares. The Company recorded$0 and$0 for the three months endedSeptember 30, 2021 and 2020, respectively, and$0 and$0 in for the nine months endedSeptember 30, 2021 and 2020, respectively, in royalty revenue. Additionally, the Company recorded$0 and$0 in contract services revenue performed for Dialog during the three months endedSeptember 30, 2021 and 2020, respectively, and the Company recorded$0 and$130,000 in contract services revenue performed for Dialog during the nine months endedSeptember 30, 2021 and 2020, respectively. The Company recorded$0 and$0 in cost of services revenue associated with contract services performed for Dialog during the three months endedSeptember 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 nine months endedSeptember 30, 2021 and 2020, respectively. Additionally, the Company incurred$225,000 and$0 in chip development expense from Dialog, during the three months endedSeptember 30, 2021 and 2020, respectively, and the Company incurred$408,000 and$0 in chip development expense from Dialog during the nine months endedSeptember 30, 2021 and 2020, respectively. OnSeptember 20, 2021 , the Company was notified by Dialog, recently acquired by Renesas Electronics Corporation, that it was terminating the strategic alliance agreement between the Company and Dialog.
Note 8 - Customer Concentrations
Two customers accounted for approximately 61% of the Company's revenue for the three months endedSeptember 30, 2021 , and four customers accounted for approximately 81% of the Company's revenue for the three months endedSeptember 30, 2020 . Four customers accounted for approximately 62% of the Company's revenue for the nine months endedSeptember 30, 2021 , and three customers accounted for approximately 78% of the Company's revenue for the nine months endedSeptember 30, 2020 . Two customers accounted for approximately 70% of the accounts receivable balance as ofSeptember 30, 2021 . Four customers accounted for approximately 92% of the accounts receivable balance as ofDecember 31, 2020 . Note 9 - Subsequent Events OnOctober 4, 2021 , the Company filed with theSecurities and Exchange Commission ("SEC") a prospectus supplement covering the issuance and sale of shares of the Company's common stock having an aggregate offering price up to$35,000,000 pursuant to the Company's at-the-market offering program (the "ATM").
As of
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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 toEnergous Corporation , aDelaware 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 inthe 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. 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 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.
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 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.
We have engagements with companies in the consumer electronics (CE), industrial
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 as we move our business forward. The first end product
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featuring our technology entered the market in 2019 and we expect our one Watt Powerbridge enabled transmitters to begin shipping for commercial IOT applications in the fourth quarter of 2021.
InDecember 2017 , we announcedFederal 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 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 ofOctober 31, 2021 , the Energous IP portfolio contained over 200 awarded patents inthe 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.
In
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OnSeptember 20, 2021 , the Company was notified by Dialog, recently acquired by Renesas Electronics Corporation, that it was terminating the Alliance Agreement between the Company and Dialog. There is a wind down period included in the Alliance Agreement which will conclude inSeptember 2024 . During the wind down period, the Alliance Agreement's terms will continue to apply to the Company's products that are covered by certain existing customer relationships, except that the parties' respective exclusivity rights have terminated.
Impact of COVID-19 on Our Business
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a pandemic. The pandemic continues to affectthe 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. The COVID-19 pandemic has delayed adoption of our technology by potential customerswho have experienced workforce and supply chain disruptions, andwho 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 inChina ,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 are reported by health authorities to 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
We follow 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 provided contract services for Dialog in 2020.
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.
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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 recognized contract services revenue from Dialog over a period of time as the services are performed. The costs associated with this revenue were recognized as the services were performed and were included in cost of services revenue. Results of Operations Operating Expenses Research and development expenses include costs associated with our efforts to develop our technology, including personnel compensation, consulting, engineering supplies and components, intellectual property costs, regulatory expense and general office expenses specifically related to the research and development department. Sales and marketing expenses include costs associated with selling and marketing our technology to our customers, including personnel compensation, public relations, graphic design, tradeshow, engineering supplies utilized by the sales team and general office expenses specifically related to the sale and marketing department. General and administrative expenses include costs for general and corporate functions, including personnel compensation, facility fees, travel, telecommunications, insurance, professional fees, consulting fees, general office expenses, and other overhead.
Three Months Ended
Revenue. During the three months ended
Operating Expenses and Loss from Operations. Operating expenses are made up of research and development, sales and marketing, general and administrative expenses, severance expense and cost of services revenue. Losses from operations for the three months endedSeptember 30, 2021 and 2020 were$12,465,361 and$7,560,058 , respectively. Research and Development Costs. Research and development costs were$4,737,159 and$4,003,642 , respectively, for the three months endedSeptember 30, 2021 and 2020. The increase of$733,517 is primarily due to a$317,652 increase in chip design, engineering supplies and components, a$296,335 increase in compensation, consisting of a$284,557 increase in stock-based compensation from the recognition of performance share units ("PSU") award expense and an$11,778 increase in payroll costs and a$68,824 increase in legal fees associated with patents and intellectual property. Sales and Marketing Costs. Sales and marketing costs for the three months endedSeptember 30, 2021 and 2020 were$1,922,128 and$1,500,068 , respectively. The increase of$422,060 is primarily due to a$291,918 increase in compensation, consisting of a$180,196 increase in stock-based compensation from the recognition of performance share units ("PSU") award expense and a$111,722 increase in payroll costs, a$46,745 increase in marketing and promotional expense and a$23,838 increase in public relations, consulting and third party services. General and Administrative Expenses. General and administrative costs for the three months endedSeptember 30, 2021 and 2020 were$1,990,266 and$2,117,848 , respectively. The decrease of$127,582 is primarily due to a$495,425 decrease in compensation, consisting of an$505,950 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and from forfeited equity awards, offset by a$10,525 increase in payroll costs, a$180,198 decrease in annual stockholder meeting costs and stock transfer fees as a result of a special shareholder's meeting being held during the third quarter of 2020, partially offset by a$241,154 increase in recruiting fees, a$208,988 increase in legal and accounting fees, a$57,169 increase in insurance premiums and a$51,348 increase in investor relations, consulting and third party services. Severance Expense. Severance expense for the three months endedSeptember 30, 2021 was$4,017,172 from the separation agreement of former President and Chief Executive Officer,Stephen Rizzone , consisting of expected cash payments and estimated payroll taxes of$3,732,178 and stock-based compensation of$284,994 from the extension of the exercise period for his stock options. Interest Income. Interest income for the three months endedSeptember 30, 2021 was$835 as compared to interest income of$3,221 for the three months endedSeptember 30, 2020 . The decrease of$2,386 is primarily due to lower savings interest rates. 23
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Net Loss. As a result of the above, net loss for the three months ended
Nine Months Ended
Revenue. During the nine months ended
Operating Expenses and Loss from Operations. Operating expenses are made up of research and development, sales and marketing, general and administrative expenses, non-recurring severance expense and cost of services revenue. Losses from operations for the nine months endedSeptember 30, 2021 and 2020 were$32,009,987 and$24,426,373 , respectively. Research and Development Costs. Research and development costs were$15,432,097 and$12,909,378 , respectively, for the nine months endedSeptember 30, 2021 and 2020. The increase of$2,522,719 is primarily due to a$1,947,909 increase in compensation, consisting of a$1,818,040 increase in stock-based compensation from the recognition of PSU award expense and$129,869 increase in payroll costs, a$562,460 increase in engineering supplies, components and chip development costs due to project timing, a$98,606 increase in consulting and third-party services expense and a$68,891 increase in regulatory testing, partially offset by a$112,522 decrease in rent expense and a$96,989 decrease in depreciation. Sales and Marketing Costs. Sales and marketing costs for the nine months endedSeptember 30, 2021 and 2020 were$6,157,697 and$4,386,881 , respectively. The increase of$1,770,816 is primarily due to a$1,424,508 increase in compensation, consisting of an$856,764 increase in stock-based compensation from the recognition of PSU award expense and a$567,743 increase in payroll costs from a higher headcount within the department, a$110,124 increase in legal fees pertaining to marketing and trademarks, a$108,799 increase in marketing and promotional costs, a$91,015 increase in public relations, consulting and third-party services expense and a$58,398 increase in engineering supplies used by the sales and marketing staff for customer demonstrations. General and Administrative Expenses. General and administrative costs for the nine months endedSeptember 30, 2021 and 2020 were$6,934,410 and$7,240,925 , respectively. The decrease of$306,515 is primarily due to a$562,873 decrease in compensation, consisting of a$687,657 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and from forfeited equity awards, offset by a$124,784 increase in payroll costs, a$152,107 decrease in accounting and audit fees, an$80,334 decrease in board stipends, an$80,192 decrease in annual meeting costs, partially offset by a$241,184 increase in recruiting expense,$190,038 increase in insurance premiums and$161,384 increase in general corporate legal fees. Severance Expense. Severance expense for the nine months endedSeptember 30, 2021 was$4,017,172 from the separation agreement of former President and Chief Executive Officer,Stephen Rizzone , consisting of expected cash payments and estimated payroll taxes of$3,732,178 and stock-based compensation of$284,994 from the extension of the exercise period for his stock options. Interest Income. Interest income for the nine months endedSeptember 30, 2021 was$3,869 as compared to interest income of$67,134 for the nine months endedSeptember 30, 2020 . The decrease of$63,265 is primarily due to lower savings interest rates. Net Loss. As a result of the above, net loss for the nine months endedSeptember 30, 2021 was$32,006,118 as compared to$24,359,239 for the nine months endedSeptember 30, 2020 .
Liquidity and Capital Resources
During the nine months endedSeptember 30, 2021 and 2020, we recorded revenue of$531,389 and$237,350 , respectively. We incurred net losses of$32,006,118 and$24,359,239 for the nine months endedSeptember 30, 2021 and 2020, respectively. Net cash used in operating activities was$22,498,803 and$19,435,940 for the nine months endedSeptember 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, an at-the-market ("ATM") offering duringOctober 2021 , proceeds from contributions to the employee stock purchase plan ("ESPP"), along with payments received from customers. 24
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OnOctober 4, 2021 , the Company filed with theSecurities and Exchange Commission ("SEC") a prospectus supplement covering the issuance and sale of shares of the Company's common stock having an aggregate offering price up to$35,000,000 pursuant to the Company's at-the-market offering program (the "ATM").
As of
We believe our cash on hand as ofSeptember 30, 2021 , together with anticipated revenues and with ATM financing duringOctober 2021 , will be sufficient to fund our operations intoNovember 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 nine months endedSeptember 30, 2021 , cash flows used in operating activities were$22,498,803 , consisting of a net loss of$32,006,118 , less non-cash expenses aggregating$9,391,389 (principally stock-based compensation of$8,591,089 , decrease in amortization of operating lease right-of-use assets of$594,089 and depreciation and amortization expense of$195,361 ) and a$1,102,832 increase in accrued severance expense, partially offset by a$636,984 decrease in operating lease liabilities, a$174,606 decrease in accounts payable, a$111,683 increase in accounts receivable and a$72,074 increase in prepaid expenses and other current assets. During the nine months endedSeptember 30, 2020 , cash flows used in operating activities were$19,435,940 , consisting of a net loss of$24,359,239 , less non-cash expenses aggregating$7,209,398 (principally stock-based compensation of$6,318,948 , amortization of operating lease right-of-use assets of$570,460 and depreciation and amortization expense of$286,990 ), an$818,306 decrease in accrued expenses, a$626,053 decrease in accounts payable,$514,167 decrease in operating lease liabilities and a$331,367 increase in prepaid expenses and other current assets. During the nine months endedSeptember 30, 2021 and 2020, cash flows used in investing activities were$310,718 and$7,302 , respectively. The cash used in investing activities for the nine months endedSeptember 30, 2021 consisted of the new website, as well as the purchases of new testing equipment and engineering software. The cash used in investing activities for the nine months endedSeptember 30, 2020 consisted of the purchase of new lab equipment. During the nine months endedSeptember 30, 2021 , cash flows provided by financing activities were$362,048 , which consisted of entirely of proceeds from contributions to the ESPP. During the nine months endedSeptember 30, 2020 , cash flows provided by financing activities were$15,062,387 , 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$338,896 in proceeds from contributions to the ESPP.
Research and development of new technologies is, by its nature, unpredictable. Although we intend to continue our research and undertake development activities, there can be no assurance that our available resources will be sufficient to enable us to generate revenues sufficient to sustain operations.
Furthermore, since we have no committed source of financing, there can be no assurance that we will be able to raise capital as and when we need it to continue our operations.
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