Energous Corporation — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Energous, formerly DvineWave, was a development-stage technology company developing wireless power and charging technology. It had not completed its product development or generated revenue.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.02 million | $54,340 |
| Operating loss | $2.02 million | $54,340 |
| Net loss | $31.01 million; $11.45 per share | $54,324; $0.02 per share |
| Operating cash used | $1.25 million | $28,066 |
The filing gives operating loss as both $2,020,533 in the financial statements and $2,020,553 in MD&A; it does not provide a clear reconciled value. No revenue or profit margins are available because the company had no revenue.
- Research and development expense was $929,213, general and administrative expense was $669,289, and marketing expense was $422,031. The company attributed the increased spending primarily to staffing and compensation, ASIC and other technology development, marketing, and public-company legal and accounting costs.
- Net loss included a $27.99 million noncash charge from the increase in fair value of derivative liabilities and $998,190 of net interest expense, including $920,739 of debt-discount amortization. These items substantially exceeded the $2.02 million operating loss.
- Cash and cash equivalents were $730,279 at quarter-end, down from $1.95 million at December 31, 2013. Total assets were $1.59 million; total liabilities were $37.45 million, including $34.27 million of derivative liabilities. Stockholders’ deficit was $35.86 million.
- Convertible notes had principal and accrued interest of $5.79 million at March 31; the balance sheet reported notes, net of discount, of $1.75 million. The notes bore 6% interest and were due to mature in August 2014.
Material developments and outlook
- After quarter-end, the company completed an IPO on April 2, 2014, selling 4.6 million shares at $6.00 per share. It reported net proceeds of approximately $24.8 million after offering costs.
- In connection with the IPO, $5.79 million of note principal and interest converted into approximately 1.93 million common shares, extinguishing the note debt. A strategic investor also purchased 210,527 shares for $1.0 million, with the final $700,000 received and shares issued on April 4.
- Management expected post-IPO cash to fund operations through 2015, but cautioned that development costs and financing needs were uncertain and additional financing might be required. The company stated there was no assurance it could raise capital on acceptable terms or develop technology capable of sustaining operations.
- Management aimed to make its technology available to potential licensees in Q4 2014 and expected licensees could need one to two years to incorporate it into commercial products. These were forward-looking targets, not demonstrated commercial results. The reported laboratory prototype had transmitted energy up to 15 feet; the planned initial product goal was up to 1.5 watts at distances up to 30 feet.
- The company planned to use IPO proceeds for technology and reference-design development, certification, intellectual-property protection, licensing efforts, hiring, and working capital. It anticipated potentially adding up to approximately 39 employees, depending on development progress.
- All derivative liabilities were valued using Level 3 estimates and unobservable assumptions. The company said higher assumed stock prices or volatility could increase fair value; changes were recorded in earnings. No material legal proceedings were reported, and management said disclosure controls were effective.
Important facts for investors to verify
- Reconcile the filing’s two reported Q1 operating-loss amounts and assess the accounting and valuation assumptions behind the $34.27 million derivative liability and related noncash loss.
- Confirm the post-IPO cash position, offering costs, note conversion, and subsequent strategic-investment proceeds; quarter-end cash alone was only $730,279.
- Track actual development, certification, licensing, and product-commercialization progress against the Q4 2014 availability target and the stated one-to-two-year licensee integration timeline.
- Assess whether expected funding through 2015 remains sufficient given the company’s ongoing losses, planned hiring and development spending, and potential need for additional capital.