Energous Corporation — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; filed August 13, 2014. Energous is developing technology for wireless power and charging of low-power devices. The company had not completed product development or generated revenue.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $3.50 million | $1.90 million | $5.52 million | $1.95 million |
| Operating loss | $3.50 million | $1.90 million | $5.52 million | $1.95 million |
| Net income (loss) | $278,621 | ($2.02 million) | ($30.73 million) | ($2.07 million) |
| Operating cash flow | Not separately presented for the quarter | ($4.43 million) | ($966,191) |
With no revenue, gross margin is not applicable. Q2 net income reflected non-cash gains, principally a $1.73 million gain from changes in derivative fair value and a $2.08 million gain on debt extinguishment; it should not be read as operating profitability. The six-month net loss was heavily affected by a $26.27 million derivative fair-value charge and $1.03 million net interest expense.
At June 30, cash and cash equivalents were $22.95 million, total current assets $23.35 million, total current liabilities $788,220, and stockholders’ equity $23.06 million. The company reported no debt or derivative liabilities at quarter-end. Its $5.50 million convertible notes and accrued interest were converted into common shares in April. No gross or operating margin was reported because there were no sales.
Material changes versus prior comparable periods
- Q2 operating expenses rose to $3.50 million from $1.90 million, reflecting higher R&D and G&A spending and the addition of $805,429 in marketing expense. Six-month R&D was $2.49 million versus $436,426; G&A was $1.80 million versus $636,009.
- Q2 results shifted from a $2.02 million loss to modest reported income, primarily due to non-operating derivative and debt-extinguishment gains. For the first half, the $30.73 million loss substantially exceeded the prior-year $2.07 million loss, largely because of derivative remeasurement and financing-related accounting.
- Operating cash use increased to $4.43 million for the first half from $966,191. IPO and strategic-investor financing drove cash from $1.95 million at year-end 2013 to $22.95 million at June 30.
Outlook, risks, and notable items
- Management said cash on hand was expected to fund operations through 2015, while cautioning that development may require additional financing and that financing may not be available on acceptable terms.
- Management targeted samples for early strategic partners in late 2014, limited display of partner prototypes in January 2015, general availability to strategic partners in 2015, and consumer availability of enabled products in late 2015. These are targets, not assurances.
- The company described prototype wireless transmission at up to 15 feet, but its test boards were not optimized and were too large for commercial products. Its first-generation receiver chip and product integration remained under development. The company also cited more than 65 pending U.S. patents and provisional applications as of August 12, 2014.
- Key risks include completing development, achieving technical performance and certification, securing licensing partners and market adoption, generating future revenue, and obtaining additional capital if needed. Energous stated it might never generate sufficient revenue or become profitable.
- On June 25, the company removed cash-settlement put features from two warrants; the $5.75 million aggregate fair value was reclassified to additional paid-in capital. It also reported subsequent July grants of RSUs covering 273,336 shares.
- The filing reported no pending legal proceeding believed to have a material adverse effect, no off-balance-sheet transactions, and effective disclosure controls as of June 30.
Important facts for investors to verify
- Whether development, testing, certification, and partner-product timelines remain achievable, and whether the technology meets its projected distance and power specifications.
- Cash burn relative to the stated runway through 2015, including whether additional financing will be needed and on what terms.
- Progress toward licensing agreements, commercial adoption, and revenue generation; the filing reported no revenue to date.
- The composition and non-cash nature of Q2 income and the first-half derivative-related loss, as well as the effect of equity compensation and potential dilution.