Energous Corporation — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2014. Energous is developing WattUp, a system intended to wirelessly charge multiple devices at a distance, and plans to license the technology rather than manufacture products itself. The company had not completed product development or generated revenue by period-end.
The company reported four ASIC designs submitted for production and a fifth under production. It expected to demonstrate the technology with strategic partners at CES in January 2015 and provide reference designs intended to support consumer products beginning in late Q4 2015. It reported 12 joint development agreements and 80 pending U.S. patent applications or provisional applications.
Financial condition and key metrics
| Metric | Q3 2014 / September 30, 2014 | Comparable period / prior balance-sheet date |
|---|---|---|
| Revenue | None | None in Q3 2013 |
| Operating loss | $5.83 million for Q3; $11.35 million for nine months | $0.80 million for Q3 2013; $2.75 million for nine months 2013 |
| Net loss | $5.85 million for Q3; $36.58 million for nine months | $1.17 million for Q3 2013; $3.24 million for nine months 2013 |
| Net loss per share | $0.62 for Q3; $5.08 for nine months | $0.42 for Q3 2013; $1.26 for nine months 2013 |
| Operating cash flow | $(8.49) million for nine months | $(1.83) million for nine months 2013 |
| Cash and cash equivalents | $18.42 million | $1.95 million at December 31, 2013 |
| Total assets / stockholders’ equity | $20.41 million / $18.46 million | $2.37 million / $(5.35) million at December 31, 2013 |
| Debt and current liabilities | No convertible notes or derivative liabilities; current liabilities $1.95 million | Convertible notes, net, of $0.83 million and derivative liabilities of $6.28 million at December 31, 2013 |
Margins are not meaningful because the company had no revenue. Nine-month net loss included a $26.27 million noncash loss from changes in the fair value of derivative liabilities, partly offset by a $2.08 million gain on debt extinguishment. The convertible notes and accrued interest were converted into common shares in April 2014; the company reported no debt at September 30.
Material changes versus prior comparable periods
- Q3 operating expenses increased to $5.83 million from $0.80 million, driven principally by research and development, staffing and compensation, marketing, and public-company compliance costs. Nine-month R&D rose to $6.18 million from $1.02 million.
- Nine-month net loss rose substantially, principally because of the derivative fair-value charge and higher operating costs; the derivative charge was noncash and related to instruments outstanding before their conversion or modification.
- Cash increased following the April IPO, which generated approximately $24.8 million net, and a strategic-investor share sale that generated $0.9 million net. Financing activities provided $25.77 million during the nine months.
- Common shares outstanding increased to 9.49 million from 2.71 million at year-end 2013, reflecting the IPO, note conversion, strategic-investor issuance, and other share issuances. Potentially dilutive securities were excluded from diluted loss per share as antidilutive.
Outlook, risks, contingencies, and unusual items
- Management estimated that available cash would fund operations into Q4 2015, but said additional financing may be required to fully implement its business plan. Potential sources include equity, debt, and co-development arrangements; no financing was committed, and acceptable financing may not be available.
- Management warned that development is unpredictable and that technology adoption, successful development and commercialization, future revenue, and profitability are uncertain. Product timing and demonstrations are expectations, not guaranteed outcomes.
- The company began a 60-month San Jose lease in October 2014 with initial base rent of $36,720 per month. It issued 41,563 shares valued at $500,000 to the landlord, including $400,000 applied to rent and $100,000 for tenant improvements.
- The company 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.
- Unusual noncash and equity-related items included the derivative remeasurement, note conversion, removal of cash-settlement features from two warrants, and stock-based compensation of $1.66 million for the nine months.
Important facts for investors to verify
- Whether ASIC production, CES demonstrations, strategic-partner reference designs, and the anticipated product-development timetable proceeded as planned.
- Actual cash burn and remaining runway relative to management’s estimate of funding into Q4 2015, and whether additional capital was raised on acceptable terms.
- Progress toward commercial agreements, licensing revenue, and evidence of customer adoption; the filing reports no revenue to date.
- Future dilution from stock options, RSUs, warrants, and any financing; also verify the impact of stock-based compensation on reported expenses.
- The assumptions underlying the $26.27 million derivative fair-value charge and the comparability of reported net losses across periods.