Item 2. Management’s Discussion and Analysis
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 d/b/a Energous Wireless Power Solutions, 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 scalable, over-the-air wireless power networks (“WPN”) technology, consisting of semiconductor chipsets, software controls, hardware designs and antennas, that enable radio frequency (“RF”) based charging for Internet of Things (“IoT”) devices. The WPN technology has a broad spectrum of capabilities to enable the next generation of wireless power networks, delivering power and data in a seamless device portfolio, enabling unprecedented levels of visibility, control, and intelligent business automation. This includes near field and at-a-distance wireless charging with multiple power levels at various distances. Our wireless power transmitter and receiver technologies deliver continuous access to wireless power, helping drive a new generation of battery-free devices for asset and inventory tracking and management – from retail sensors, electronic shelf labels, and asset trackers, to air quality monitors, motion detectors, and more.
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 WPN end product featuring our technology entered the market in 2019. We started shipping our first at-a-distance wireless PowerBridges for commercial IoT applications and proofs of concept in the fourth quarter of 2021, and we expect additional wireless power enabled products to be released as we move our business forward.
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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 June 30, 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.
Three Months Ended June 30, 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 June 30,
2024
2023
Revenue
$
46
100
%
$
117
100
%
Costs and expenses:
Cost of revenue
122
265
%
83
71
%
Research and development
2,439
5,302
%
2,880
2,462
%
Sales and marketing
819
1,780
%
1,088
930
%
General and administrative
1,586
3,448
%
2,104
1,798
%
Severance expense
(269)
(585)
%
90
77
%
Total operating expenses
4,697
10,211
%
6,245
5,338
%
Loss from operations
(4,651)
(10,111)
%
(6,128)
(5,238)
%
Other income:
Change in fair value of warrant liability
336
730
%
1,897
1,621
%
Interest income
57
124
%
236
202
%
Total other income
393
854
%
2,133
(1,823)
%
Net loss
$
(4,258)
(9,257)
%
$
(3,995)
(3,415)
%
Revenue. During the three months ended June 30, 2024 and 2023, we recorded revenue of $46,000 and $117,000, respectively. The decrease is due to a decrease in transmitter sales volume. While recorded revenue declined during the second quarter of 2024, the Company was in receipt of approximately $0.2 million of additional confirmed orders (“backlog”), the majority of which are scheduled to ship in the third quarter of 2024.
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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 June 30, 2024 and 2023 were $4.7 million and $6.1 million, respectively.
Cost of Revenue:
Three months ended June 30,
2024
2023
$ Change
% Change
Cost of sales
$
122
$
83
$
39
47
%
Percent of total revenue
265
%
71
%
Cost of revenue was $0.1 million and $0.1 million, respectively, for the three months ended June 30, 2024 and 2023. There was a slight increase due to the higher cost of transmitters sold.
Research and Development Costs:
Three months ended June 30,
2024
2023
$ Change
% Change
Research and development
$
2,439
$
2,880
$
(441)
(15)
%
Percent of total revenue
5,302
%
2,462
%
Research and development costs were $2.4 million and $2.9 million, respectively, for the three months ended June 30, 2024 and 2023. The decrease of $0.4 million is primarily due to a $0.6 million decrease in employee compensation, consisting of a $0.4 million decrease in payroll costs and a $0.2 million decrease in stock-based compensation, a $0.1 million decrease in software and legal costs and a $0.1 million decrease in miscellaneous office and facility expenses, partially offset by a $0.3 million increase in engineering components and supplies.
Sales and Marketing Costs:
Three months ended June 30,
2024
2023
$ Change
% Change
Sales and marketing
$
819
$
1,088
$
(269)
(25)
%
Percent of total revenue
1,780
%
930
%
Sales and marketing costs for the three months ended June 30, 2024 and 2023 were $0.8 million and $1.1 million, respectively. The decrease of $0.3 million is primarily due to a $0.3 million decrease in payroll costs due to lower headcount within the department and a decrease in bonuses accrued.
General and Administrative Expenses:
Three months ended June 30,
2024
2023
$ Change
% Change
General and administrative
$
1,586
$
2,104
$
(518)
(25)
%
Percent of total revenue
3,448
%
1,798
%
General and administrative costs for the three months ended June 30, 2024 and 2023 were $1.6 million and $2.1 million, respectively. The decrease of $0.5 million is primarily due to a $0.2 million decrease in stock-based compensation from the former CEO’s departure from the Company, a $0.1 million decrease in insurance premiums, a $0.1 million decrease in consulting and third party fees and a $0.1 million decrease in computer software and support.
Severance Expense:
Three months ended June 30,
2024
2023
$ Change
% Change
Severance expense
$
(269)
$
90
$
(359)
(399)
%
Percent of total revenue
(585)
%
77
%
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Severance expense for the three months ended June 30, 2024 and 2023 was $(0.3) million and $0.1 million, respectively. The credit during the three months ended June 30, 2024 was a result of the finalization of the negotiated settlement and payroll taxes for the former CEO. The severance expense for the three months ended June 30, 2023 was related to non-executive employees.
Other income:
Three months ended June 30,
2024
2023
$ Change
% Change
Change in fair value of warrant liability
$
336
$
1,897
$
(1,561)
(82)
%
Interest income
57
236
(179)
(76)
%
Total other income
$
393
$
2,133
$
(1,740)
(82)
%
Other income resulting from the change in fair value of the warrant liability was $0.3 million for the three months ended June 30, 2024 and $1.9 million for the three months ended June 30, 2023. The changes for both periods were due to reduced market value of our common stock.
Interest income for the three months ended June 30, 2024 was $0.1 million as compared to interest income of $0.2 million for the three months ended June 30, 2023. The decrease was due to a lower average cash balance in our savings account during the three months ended June 30, 2024 compared to the prior year period.
Net Loss. As a result of the above, net loss for the three months ended June 30, 2024 was $4.3 million as compared to $4.0 million for the three months ended June 30, 2023.
Six Months Ended June 30, 2024 and 2023
The following table sets forth selected Condensed Statements of Operations data (in thousands) and such data as a percentage of revenue:
Six months ended June 30,
2024
2023
Revenue
$
110
100
%
$
214
100
%
Costs and expenses:
Cost of revenue
231
210
%
222
104
%
Research and development
4,788
4,353
%
5,959
2,785
%
Sales and marketing
1,692
1,538
%
2,300
1,075
%
General and administrative
3,421
3,110
%
4,065
1,900
%
Severance expense
1,294
1,176
%
90
42
%
Total operating expenses
11,426
10,387
%
12,636
5,905
%
Loss from operations
(11,316)
(10,287)
%
(12,422)
(5,805)
%
Other (expense) income, net:
Offering costs related to warrant liability
—
—
(592)
(277)
%
Change in fair value of warrant liability
254
231
%
1,897
886
%
Interest income
205
186
%
469
219
%
Total other (expense) income, net
459
417
%
1,774
829
%
Net loss
$
(10,857)
(9,870)
%
$
(10,648)
(4,976)
%
Revenue. During the six months ended June 30, 2024 and 2023, we recorded revenue of $0.1 million and $0.2 million, respectively. The decrease is due to a decrease in transmitter sales volume. While recorded revenue declined during the first six months of 2024, the Company was in receipt of approximately $0.2 million of additional confirmed orders (“backlog”), the majority of which are scheduled to ship in the third quarter of 2024.
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 six months ended June 30, 2024 and 2023 were $11.3 million and $12.4 million, respectively.
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Cost of Revenue:
Six months ended June 30,
2024
2023
$ Change
% Change
Cost of sales
$
231
$
222
$
9
4
%
Percent of total revenue
210
%
104
%
Cost of revenue was $0.2 million and $0.2 million, respectively, for the six months ended June 30, 2024 and 2023. There was a slight increase due to a higher cost of transmitters sold.
Research and Development Costs:
Six months ended June 30,
2024
2023
$ Change
% Change
Research and development
$
4,788
$
5,959
$
(1,171)
(20)
%
Percent of total revenue
4,353
%
2,785
%
Research and development costs were $4.8 million and $6.0 million, respectively, for the six months ended June 30, 2024 and 2023. The decrease of $1.2 million is primarily due to a $0.9 million decrease in employee compensation, consisting of a $0.7 million decrease in payroll costs and a $0.3 million decrease in stock-based compensation, 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 software and support, partially offset by a $0.2 million increase in engineering components and supplies.
Sales and Marketing Costs:
Six months ended June 30,
2024
2023
$ Change
% Change
Sales and marketing
$
1,692
$
2,300
$
(608)
(26)
%
Percent of total revenue
1,538
%
1,075
%
Sales and marketing costs for the six months ended June 30, 2024 and 2023 were $1.7 million and $2.3 million, respectively. The decrease of $0.6 million is primarily due to a $0.5 million decrease in payroll costs due to a lower headcount within the department and a decrease in bonuses accrued, a $0.1 million decrease in tradeshow expense and a $0.1 million decrease in software, travel and miscellaneous office expenses, partially offset by a $0.2 million increase in consulting fees.
General and Administrative Expenses:
Six months ended June 30,
2024
2023
$ Change
% Change
General and administrative
$
3,421
$
4,065
$
(644)
(16)
%
Percent of total revenue
3,110
%
1,900
%
General and administrative costs for the six months ended June 30, 2024 and 2023 were $3.4 million and $4.1 million, respectively. The decrease of $0.6 million is primarily due to a $0.3 million decrease in stock-based compensation, a $0.2 million decrease in insurance premiums, a $0.1 million decrease in consulting and third-party service fees, a $0.1 million decrease in legal fees and a $0.1 million decrease in computer software and support, partially offset by a $0.1 million increase in public relations and annual meeting costs.
Severance Expense:
Six months ended June 30,
2024
2023
$ Change
% Change
Severance expense
$
1,294
$
90
$
1,204
1,338
%
Percent of total revenue
1,176
%
42
%
Severance expense for the six months ended June 30, 2024 and 2023 was $1.3 million and $0.1 million, respectively. The increase of $1.2 million is primarily due to the departure of the former CEO during 2024 for which $1.2 million in severance expense was recorded.
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Other (expense) income, net:
Six months ended June 30,
2024
2023
$ Change
% Change
Offering costs related to warrant liability
$
—
$
(592)
$
592
100
%
Change in fair value of warrant liability
254
1,897
(1,643)
(87)
%
Interest income
205
469
(264)
(56)
%
Total other (expense) income, net
$
459
$
1,774
$
(1,315)
(74)
%
Offering costs related to warrant liability were $0.6 million for the six months ended June 30, 2023. We did not incur such cost during the six months ended June 30, 2024.
Other income resulting from the change in fair value of the warrant liability was $0.3 million for the six months ended June 30, 2024 and $1.9 million for the six months ended June 30, 2023. The changes for both periods were due to reduced market value of our common stock
Interest income for the six months ended June 30, 2024 was $0.2 million as compared to interest income of $0.5 million for the six months ended June 30, 2023. The decrease was due to a lower average cash balance in our savings account during the six months ended June 30, 2024 compared to the prior year period.
Net Loss. As a result of the above, net loss for the six months ended June 30, 2024 was $10.9 million as compared to $10.6 million for the six months ended June 30, 2023.
Liquidity and Capital Resources
During the six months ended June 30, 2024 and 2023, we recorded revenue of $110,000 and $214,000, respectively. We incurred net losses of $10.9 million and $10.6 million for the six months ended June 30, 2024 and 2023, respectively. Net cash used in operating activities was $10.8 million and $11.7 million for the six months ended June 30, 2024 and 2023, respectively. We are currently meeting our liquidity requirements through the proceeds of securities offerings that raised net proceeds of $6.9 million during 2023 and $1.8 million during the first quarter of 2024.
As of June 30, 2024, the Company had cash and cash equivalents of $4.9 million. We believe our current cash on hand, together with additional anticipated proceeds from the ATM Program and other financing transactions during 2024, continued cost and expense reductions and collections generated by anticipated revenues, will be sufficient to fund the Company’s operations through at least the next twelve months.
As we gain traction in the market with our new technology and continue to invest capital in transitioning and scaling the business from research and development of new technologies to commercial production, there can be no assurance that our available resources and revenue generated from our business operations will be sufficient to sustain our operations.
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Accordingly, we expect to 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. If we are unsuccessful in implementing this plan, we will be required to make further cost and expense reductions or modifications to our on-going and strategic plans.
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 “February 2024 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. The pre-funded warrants were exercised at a price of $0.001 per share during April 2024. The other warrants to purchase 1,020,409 shares of common stock are still outstanding and have an exercise price of $1.84 per share. These warrants expire five years from the date of issuance. We received net proceeds of approximately $1.8 million from the February 2024 Offering, after deducting placement agent fees and estimated offering expenses.
2024 ATM Offering Program
On June 21, 2024, the Company entered into the At the Market Offering Agreement, dated June 21, 2024, with H.C. Wainwright & Co., LLC as sales agent, pursuant to which the Company may issue and sell of up to $3.5 million in shares of the Company’s common stock (the “ATM Program”). No sales were made under the ATM Program in the six months ended June 30, 2024. After June 30, 2024, the Company received gross proceeds of $0.2 million from the sale of an aggregate of 240,112 shares of common stock under the ATM Program during the period from July 1, 2024 through August 9, 2024.
Cash Flows
Operating Activities - During the six months ended June 30, 2024, cash flows used in operating activities were $10.8 million, consisting of a net loss of $10.9 million, less adjustments to reconcile net loss to net cash used in operating activities aggregating $0.4 million (principally stock-based compensation of $0.5 million, depreciation and amortization of $0.1 million, offset by a change in fair value of warrant liability of $0.3 million), a $0.3 million decrease in accrued expenses, a $0.1 million increase in inventory and a $0.1 million decrease in accounts payable, partially offset by a $0.1 million decrease in prepaid expenses and other current assets.
During the six months ended June 30, 2023, cash flows used in operating activities were $11.7 million, consisting of a net loss of $10.6 million, plus adjustments to reconcile net loss to net cash used in operating activities aggregating $0.1 million (principally stock-based compensation of $1.0 million, issuance costs allocated to warrant liability of $0.6 million, inventory net realizable adjustment of $0.1 million and depreciation and amortization expense of $0.1 million, partially offset by a decrease in fair value of the warrant liability of $1.9 million), a $0.4 million increase in prepaid expenses and other current assets, a $0.4 million decrease in operating lease liabilities, a $0.3 million decrease in accrued expenses, a $0.2 million increase in inventory and a $0.2 million decrease in accrued severance, partially offset by a $0.2 million increase in accounts payable.
Investing Activities - During the six months ended June 30, 2024 and 2023, cash flows used in investing activities were $0.1 million and $0.1 million, respectively. During the six months ended June 30, 2024, a small amount of testing and computer equipment was purchased. During the six months ended June 30, 2023, a small amount of testing equipment was purchased.
Financing Activities - During the six months ended June 30, 2024, cash flows provided by financing activities were $1.8 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 six months ended June 30, 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.
Backlog
We are in receipt of approximately $0.2 million of additional confirmed orders (“backlog”), the majority of which are scheduled to ship in the third quarter of 2024.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
As a smaller reporting company, we are not required to provide this information.
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