Energous Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires the terms “we,” “us,” “our,” and “Energous” refer to Energous Corporation, a Delaware corporation. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “would,” “should,” “could,” “seek,” “intend,” “plan,” “continue,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding proposed business strategy; market opportunities; regulatory approval; expectations for current and potential business relationships; and expectations for revenues, liquidity cash flows and financial performance, the anticipated results of our research and development efforts, the timing for receipt of required regulatory approvals and product launches; and the impact of geopolitical, macroeconomic, health and other world events. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Forward-looking statements relate to the future and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and generally outside of our control, so actual results and financial condition may differ materially from those indicated in the forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others: our ability to develop commercially feasible technology; timing of customer implementations of our technology in consumer products; timing and receipt of regulatory approvals in the United States and internationally; our ability to find and maintain development partners; market acceptance of our technology; competition in our industry; our ability to protect our intellectual property; competition; and other risks and uncertainties described in the Risk Factors and in Management’s Discussion and Analysis sections of our most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q, including this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update any of our forward-looking statements, whether as a result of new information, future developments or otherwise. Overview We have developed our wireless power networks technology (“WPNT”), consisting of semiconductor chipsets, software controls, hardware designs and antennas, that enable radio frequency (“RF”) based charging for Internet of Things (“IoT”) devices. Our WPNT has a broad spectrum of capabilities to enable the next generation of wireless power networks, delivering power and data in a seamless device portfolio. This includes near field and at-a-distance wireless charging, with multiple power levels at various distances. We believe our WPNTs will facilitate the deployment of the growing universe of IoT applications. According to Statista 2024, the number of IoT connected devices worldwide is forecasted to grow to 29.4 billion units by 2030. The initial IoT applications we are targeting are RF tags for asset tracking and cold chain applications, electronic shelf labeling (“ESL”), and IoT sensors for retail, industrial, healthcare, and logistics markets. We believe our technology is innovative in its approach, in that we are developing solutions that charge IoT devices using RF technology. To date, we have developed and released to production multiple transmitters and receivers, including prototypes and partner production designs. The transmitters vary based on form factor and power specifications and frequencies, while the receivers are designed to support a myriad of wireless charging applications, including: ​ ​ Device Type Application RF Tags Cold Chain, Asset Tracking, Medical IoT IoT Sensors Cold Chain, Logistics, Asset Tracking Electronic Shelf Labels Retail and Industrial IoT ​ The first end product featuring our technology entered the market in 2019. We started shipping our first at-a-distance wireless PowerBridges for commercial IoT applications in the fourth quarter of 2021, and we expect additional wireless power enabled products to be released as we move our business forward. 25 Table of Contents Critical Accounting Policies and Estimates Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported expenses during the reporting periods. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. Although we believe that its estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Actual results could differ from those estimates. During the three months ended March 31, 2024, management believes there have been no significant changes to the items that we disclosed within our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. Results of Operations Costs and Expenses Cost of revenue consists of direct materials, direct labor and overhead for our production-level wireless charging systems. Research and development expenses include costs associated with our efforts to develop our technology, including personnel compensation, consulting, engineering supplies and components, intellectual property costs, regulatory expense and general office expenses specifically related to the research and development department. Sales and marketing expenses include costs associated with selling and marketing our technology to our customers, including personnel compensation, public relations, graphic design, tradeshow, engineering supplies utilized by the sales team and general office expenses specifically related to the sale and marketing department. General and administrative expenses include costs for general and corporate functions, including personnel compensation, facility fees, travel, telecommunications, insurance, professional fees, consulting fees, general office expenses, and other overhead. ​ 26 Table of Contents Three Months Ended March 31, 2024 and 2023 The following table sets forth selected Condensed Statements of Operations data (in thousands) and such data as a percentage of revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2024 ​ 2023 ​ Revenue ​ $ 64 100 % $ 97 100 % Costs and expenses: ​ ​ ​ Cost of revenue ​ 109 170 % 139 143 % Research and development ​ 2,349 3,670 % 3,079 3,174 % Sales and marketing ​ 873 1,364 % 1,212 1,249 % General and administrative ​ 1,835 2,867 % 1,961 2,022 % Severance expense ​ 1,563 2,442 % — — ​ Total operating expenses ​ 6,729 10,514 % 6,391 6,589 % Loss from operations ​ (6,665) (10,414) % (6,294) (6,489) % Other (expense) income: ​ ​ ​ Offering costs related to warrant liability ​ — — ​ (592) (610) % Change in fair value of warrant liability ​ (82) (128) % — — ​ Interest income ​ 148 231 % 233 240 % Total other (expense) income ​ 66 103 % (359) (370) % Net loss ​ $ (6,599) (10,311) % $ (6,653) (6,859) % ​ Revenue. During the three months ended March 31, 2024 and 2023, we recorded revenue of $0.1 million and $0.1 million, respectively. There was a slight decrease due to a decrease in transmitter sales volume. Costs and Expenses and Loss from Operations. Costs and expenses are made up of cost of revenue, research and development, sales and marketing, general and administrative and severance expense. Loss from operations for the three months ended March 31, 2024 and 2023 were $6.7 million and $6.3 million, respectively. Cost of Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ ​ 2024 2023 $Change % Change Cost of sales ​ $ 109 ​ $ 139 ​ $ (30) (22) % Percent of total revenue ​ 170 % 143 % ​ ​ Cost of revenue was $0.1 million and $0.1 million, respectively, for the three months ended March 31, 2024 and 2023. There was a slight decrease due to a lower cost of transmitters sold. Research and Development Costs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2024 2023 $Change % Change Research and development ​ $ 2,349 ​ $ 3,079 ​ $ (730) (24) % Percent of total revenue ​ 3,670 % 3,174 % ​ ​ Research and development costs were $2.3 million and $3.1 million, respectively, for the three months ended March 31, 2024 and 2023. The decrease of $0.7 million is primarily due to a $0.3 million decrease in employee compensation, consisting of a $0.2 million decrease in payroll costs and a $0.1 million decrease in stock-based compensation, a $0.1 million decrease in engineering components and supplies, a $0.1 million decrease in legal fees pertaining to patents, a $0.1 million decrease in test development costs and a $0.1 million decrease in miscellaneous office and facility expenses. 27 Table of Contents Sales and Marketing Costs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2024 2023 $Change % Change Sales and marketing ​ $ 873 ​ $ 1,212 ​ $ (339) (28) % Percent of total revenue ​ 1,364 % 1,249 % ​ ​ Sales and marketing costs for the three months ended March 31, 2024 and 2023 were $0.9 million and $1.2 million, respectively. The decrease of $0.3 million is primarily due to a $0.2 million decrease in payroll costs, a $0.1 million decrease in stock-based compensation and a $0.1 million decrease in marketing, tradeshow and public relations costs, partially offset by a $0.1 million increase in consulting expenses. General and Administrative Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2024 2023 $Change % Change General and administrative ​ $ 1,835 ​ $ 1,961 ​ $ (126) (6) % Percent of total revenue ​ 2,867 % 2,022 % ​ ​ General and administrative costs for the three months ended March 31, 2024 and 2023 were $1.8 million and $2.0 million, respectively. The decrease of $0.1 million is primarily due to a $0.1 million decrease in stock-based compensation, a $0.1 million decrease in legal fees and a $0.1 million decrease in miscellaneous travel, facilities and office expenses, partially offset by a $0.1 million increase in franchise tax. Severance Expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2024 2023 $Change % Change Severance expense ​ $ 1,563 — ​ $ 1,563 100 % Percent of total revenue ​ 2,442 % — ​ ​ ​ Severance expense for the three months ended March 31, 2024 was $1.6 million which was mostly attributed to the departure of our former President and Chief Executive Officer, Cesar Johnston. We did not incur any such costs for the three months ended March 31, 2023. Other (expense) income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2024 2023 $Change % Change Offering costs related to warrant liability — (592) ​ $ 592 — ​ Change in fair value of warrant liability (82) — ​ $ (82) (100) % Interest income 148 233 ​ $ (85) (36) % Total other (expense) income 66 (359) ​ $ 425 118 % ​ Offering costs related to warrant liability were $0.6 million for the three months ended March 31, 2023. We did not incur any such costs for the three months ended March 31, 2024. Other expense resulting from the change in fair value of the warrant liability was $0.1 million for the three months ended March 31, 2024. We did not incur any such expense for the three months ended March 31, 2023. Interest income for the three months ended March 31, 2024 was $0.1 million as compared to interest income of $0.2 for the three months ended March 31, 2023. The decrease was due to a lower average cash balance in our savings account during the three months ended March 31, 2024 compared to the prior year period. 28 Table of Contents Net Loss. As a result of the above, net loss for the three months ended March 31, 2024 was $6.6 million as compared to $6.7 million for the three months ended March 31, 2023. Liquidity and Capital Resources During the three months ended March 31, 2024 and 2023, we recorded revenue of $0.1 million and $0.1 million, respectively. We incurred net losses of $6.6 million and $6.7 for the three months ended March 31, 2024 and 2023, respectively. Net cash used in operating activities was $5.1 million and $5.4 million for the three months ended March 31, 2024 and 2023, respectively. We are currently meeting our liquidity requirements through the proceeds of securities offerings that raised net proceeds of $27.0 million during 2021, $0.7 million during 2022, $5.4 million during 2023 and $1.8 million during the first quarter of 2024. We believe our current cash on hand, together with proceeds from additional future equity financing, implementation of cost and expense reductions and anticipated revenues, will be sufficient to fund our operations through at least the next twelve months. Although we intend to continue our research and development activities and transition to commercial production, there can be no assurance that our available resources will be sufficient to enable us to generate revenues sufficient to sustain operations. Accordingly, we will likely pursue additional financing, which could include offerings of equity or debt securities, bank financings, commercial agreements with customers or strategic partners, and other alternatives, depending upon market conditions. There is no assurance that such financing will be available on terms that we would find acceptable, or at all. Research and development of new technologies is, by its nature, unpredictable. Although we intend to continue our research and undertake development activities, there can be no assurance that our available resources will be sufficient to enable us to generate revenues sufficient to sustain operations. Furthermore, since we have no committed source of financing, there can be no assurance that we will be able to raise capital as and when we need it to continue our operations. February 2024 Equity Offering On February 15, 2024, we entered into a securities purchase agreement with an institutional investor, providing for the issuance and sale by us, in a registered direct offering (the “Offering”), of (i) 570,000 shares of our common stock, (ii) pre-funded warrants to purchase up to 450,409 shares of common stock, and (iii) warrants to purchase up to an aggregate of 1,020,409 shares of common stock. Each share of common stock and pre-funded warrant was offered and sold together with an accompanying warrant at a combined price of $1.96 per share of common stock or pre-funded warrant, as applicable. Each pre-funded warrant and other warrants are exercisable at any time on or after the date of issuance to purchase one share of common stock at a price of either $0.001 per share, in the case of the pre-funded warrants, or $1.84 per share, in the case of the other warrants. The pre-funded warrants expire when they are exercised in full, and the other warrants expire five years from the date of issuance. We received net proceeds of approximately $1.8 million from the Offering, after deducting placement agent fees and estimated offering expenses. Cash Flows Operating Activities - During the three months ended March 31, 2024, cash flows used in operating activities were $5.1 million, consisting of a net loss of $6.6 million, less adjustments to reconcile net loss to net cash used in operating activities aggregating $0.6 million (principally stock-based compensation of $0.4 million and change in fair value of warrant liability of $0.1 million), a $0.3 million decrease in accounts payable, a $0.2 million increase in inventory and a $0.1 million decrease in accrued expenses, partially offset by a $1.3 million increase in accrued severance expense, a $0.2 decrease in prepaid expenses and other current assets and a $0.1 decrease in accounts receivable. During the three months ended March 31, 2023, cash flows used in operating activities were $5.4 million, consisting of a net loss of $6.7 million, less adjustments to reconcile net loss to net cash used in operating activities aggregating $1.3 million (principally issuance costs allocated to warrant liability of $0.6 million, stock-based compensation of $0.5 million and an inventory net realizable adjustment of $0.1 million), a $0.4 million decrease in accrued expenses and a $0.2 million decrease in accrued severance expense, partially offset by a $0.5 million increase in accounts payable and a $0.2 million decrease in prepaid expenses and other current assets. 29 Table of Contents Investing Activities - During the three months ended March 31, 2024 and 2023, cash flows used in investing activities were not material. During the three months ended March 31, 2024, a small amount of testing equipment was purchased. No assets were purchased during the three months ended March 31, 2023. Financing Activities - During the three months ended March 31, 2024, cash flows provided by financing activities were $1.9 million, which primarily consisted of $1.8 million in net proceeds from a registered direct offering that included the sale of common stock, pre-funded warrants and warrants. During the three months ended March 31, 2023, cash flows provided by financing activities were $5.4 million, which consisted of $2.7 million in net proceeds from the issuance and sale of common stock and warrants, $2.7 million in net proceeds from the sale of shares of our common stock in an at-the-market (“ATM”) offering and $0.1 million in proceeds from the ESPP. Item 3. Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, we are not required to provide this information.