Energous Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Energous is developing WattUp, a radio-frequency wire-free charging technology, with the goal of licensing it to device makers and other commercial partners. The company reported prototypes and laboratory validation, but said the technology was not yet optimized and might be too large or costly for commercial products.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $200,000 | $0 |
| Research and development | $4.15 million | $929,213 |
| General and administrative | $1.96 million | $669,289 |
| Marketing | $1.03 million | $422,031 |
| Total operating expenses | $7.13 million | $2.02 million |
| Operating loss | $6.93 million | $2.02 million |
| Net loss | $6.93 million | $31.01 million |
| Basic and diluted loss per share | $0.54 | $11.45 |
| Cash used in operating activities | $4.78 million | $1.25 million |
| Cash and cash equivalents, March 31 | $26.50 million | $730,279 |
The filing does not present a gross margin measure. Operating expenses increased substantially, chiefly due to higher engineering headcount and ASIC development, as well as public-company costs, expanded facilities and staffing, and increased trade-show activity. Q1 2014 net loss included a $27.99 million loss from the change in fair value of derivative liabilities and $998,190 of net interest expense, including debt-discount amortization. Those convertible notes were extinguished in April 2014; therefore, the large year-over-year reduction in net loss does not indicate improved operating performance.
Balance sheet and liquidity
At March 31, 2015, total assets were $29.25 million, current assets were $27.41 million, and current liabilities were $3.02 million, including $300,000 of deferred revenue. Stockholders’ equity was $26.22 million. The filing shows no outstanding debt at quarter-end; convertible notes had converted to common stock in April 2014. Operating and investing activities used $4.78 million and $210,000 of cash, respectively; there was no financing cash flow in Q1 2015.
The company said its cash was expected to fund operations into the second quarter of 2016, but that additional financing might be needed to fully implement its business plan. A Form S-3 shelf registration, filed April 24 and effective April 30, allows potential sales of debt or equity securities up to $75 million; it does not represent proceeds already raised.
Business developments, outlook and risks
- In January 2015, Energous entered a funded development and licensing agreement with a tier-one consumer electronics company. It received a nonrefundable $500,000 payment in March, recognized $200,000 as Q1 revenue, and recorded the remaining $300,000 as deferred revenue. The agreement includes development milestones and a limited time-to-market advantage for the customer. An April 3 amendment added joint transmitter development and a license back to Energous.
- Management expects continued operating losses while it develops the technology. It described the research effort as unpredictable and cautioned that available resources may not be sufficient to develop technology capable of generating sustainable revenue.
- Key risks include achieving commercial feasibility and regulatory approval, securing and retaining development partners, market acceptance, competition, intellectual-property protection, and access to additional capital. Energous had more than 125 pending U.S. patent and provisional applications at quarter-end.
- The filing reported no pending legal proceedings believed likely to have a material adverse effect and no off-balance-sheet transactions. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
- Subsequent items include the April shelf registration and an April 3 amended CEO employment agreement. The agreement provides a $365,000 annual base salary, target cash bonuses equal to 100% of base salary, and proposed performance share units subject to stockholder approval of a new equity plan.
Important facts for investors to verify
- Progress on customer milestones, product integration, regulatory requirements, and any resulting revenue; the initial customer payment is not equivalent to recurring product sales.
- Actual cash burn and remaining runway relative to management’s estimate, including whether the company uses the shelf registration to raise capital and the resulting dilution or debt burden.
- Whether WattUp can be reduced in size and cost, achieve the described performance, and reach commercial adoption.
- How rising research, staffing, marketing, and stock-based compensation costs evolve, and whether they produce measurable development or commercialization progress.
- The terms and approval status of the CEO’s proposed performance share units and the effects of outstanding options, warrants, and restricted stock units on potential dilution.