Energous Corporation — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Energous is developing WattUp, an RF-based wire-free charging technology, and expects to commercialize it through component sales and technology licensing. Revenue remained primarily tied to customer development projects.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $181,818 | $225,000 | $318,182 | $425,000 |
| Operating expenses | $10.47 million | $6.37 million | $21.41 million | $13.51 million |
| Operating loss | $10.29 million | $6.15 million | $21.09 million | $13.08 million |
| Net loss | $10.28 million | $6.15 million | $21.08 million | $13.07 million |
| Loss per share, basic and diluted | $0.62 | $0.48 | $1.27 | $1.02 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $15.95 million | $10.50 million |
- Six-month revenue declined about 25%; net loss increased about 61%, while operating expenses rose about 58% year over year. Revenue was insufficient to meaningfully offset development and operating costs; the filing does not provide a gross-margin figure.
- Research and development expense rose to $15.14 million for the first half, mainly from chip development, engineering headcount, patent costs and design tools. General and administrative expense increased; sales and marketing expense decreased.
- Cash and cash equivalents were $14.19 million at June 30, down from $29.87 million at December 31, 2015. Current assets were $15.12 million and current liabilities $4.70 million. The balance sheet reports no debt; liabilities shown were current operating liabilities.
- Six-month investing cash use was $0.33 million and financing cash inflow was $0.59 million. Stock-based compensation was $3.55 million for the first half.
Developments, outlook and risks
- Management said cash on hand plus anticipated customer-project receipts was expected to fund operations into Q3 2017. It cautioned that additional financing might be needed depending on commercial revenue timing; there is no assurance financing will be available on acceptable terms.
- Management expected evaluation of miniature WattUp kits to support potential licensing partners and anticipated nearfield-enabled products shipping in late 2016 or early 2017. These are forward-looking expectations, not assured outcomes. The miniature transmitter reference design received FCC approval in May 2016.
- The company reported development or licensing relationships with a major consumer electronics company, Pegatron, a specialty battery company and a commercial and industrial supply company. The strategic consumer-electronics agreement includes milestones and exclusivity during development and through the customer’s first shipment in specified product categories; future royalty revenue depends on products being commercialized.
- As of June 30, Energous reported more than 250 pending patent applications and nine issued U.S. patents. Ossia filed two post-grant review petitions challenging one Energous patent; Energous said it intended to defend the patent, but acknowledged it could be invalidated.
- On August 9, 2016, after quarter-end, Energous agreed to sell 1,618,123 shares at $12.36 per share and issue a warrant for up to 1,618,123 additional shares at $23.00. The share sale represents approximately $20 million gross proceeds before costs; potential warrant exercise and share issuance could dilute existing holders.
- Lease commitments totaled $1.74 million. The company reported no material off-balance-sheet transactions, no material changes to contractual obligations, and no pending legal proceedings it believed would materially adversely affect the business or financial condition.
Important facts for investors to verify
- Reconcile revenue and prior-period net-loss discrepancies in the filing text: the financial statements report first-half 2016 revenue of $318,182 and Q2 2015 net loss of $6,146,582, while Note 2 contains different figures.
- Track cash burn against management’s stated Q3 2017 runway, including the timing and collectability of customer milestone payments and the impact of the August financing.
- Confirm whether development partners complete milestones, adopt WattUp in commercial products and generate material licensing or royalty revenue.
- Monitor regulatory, technical and market-adoption progress, patent challenges, and dilution from equity compensation, the August share sale and any warrant exercises.