Energous Corp 10-Q

Item 1. Financial Statements Energous Corporation BALANCE SHEETS As of September 30, 2020 December 31, 2019 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 17,303,234 $ 21,684,089 At-the-market ("ATM") funds receivable 3,165,868 – Accounts receivable 26,350 63,144 Prepaid expenses and other current assets 781,598 450,231 Total current assets 21,277,050 22,197,464 Property and equipment, net 346,836 626,524 Operating lease right-of-use assets 1,487,116 2,057,576 Other assets 2,410 2,410 Total assets $ 23,113,412 $ 24,883,974 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,045,466 $ 1,671,519 Accrued expenses 1,403,601 2,063,097 Operating lease liabilities, current portion 845,108 722,291 Deferred revenue 12,000 12,000 Total current liabilities 3,306,175 4,468,907 Operating lease liabilities, long-term portion 765,209 1,402,193 Total liabilities 4,071,384 5,871,100 Commitments and contingencies Stockholders’ equity: Preferred Stock, $ 0.00001 par value, 10,000,000 shares authorized at September 30, 2020 and December 31, 2019; no shares issued or outstanding – – Common Stock, $ 0.00001 par value, 200,000,000 and 50,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively; 43,062,944 and 33,203,806 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively. 431 333 Additional paid-in capital 306,541,496 282,153,201 Accumulated deficit ( 287,499,899 ) ( 263,140,660 ) Total stockholders’ equity 19,042,028 19,012,874 Total liabilities and stockholders’ equity $ 23,113,412 $ 24,883,974 The accompanying notes are an integral part of these condensed financial statements. 3 Energous Corporation CONDENSED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Revenue $ 61,500 $ 40,500 $ 237,350 $ 154,500 Operating expenses: Research and development 4,003,642 5,190,056 12,909,378 17,505,751 Sales and marketing 1,500,068 1,242,105 4,386,881 3,985,467 General and administrative 2,117,848 1,910,408 7,240,925 8,007,548 Cost of services revenue – – 126,539 – Total operating expenses 7,621,558 8,342,569 24,663,723 29,498,766 Loss from operations ( 7,560,058 ) ( 8,302,069 ) ( 24,426,373 ) ( 29,344,266 ) Other income: Interest income 3,221 117,842 67,134 336,575 Total other income 3,221 117,842 67,134 336,575 Net loss $ ( 7,556,837 ) $ ( 8,184,227 ) $ ( 24,359,239 ) $ ( 29,007,691 ) Basic and diluted loss per common share $ ( 0.18 ) $ ( 0.27 ) $ ( 0.62 ) $ ( 0.98 ) Weighted average shares outstanding, basic and diluted 41,861,614 30,736,736 39,116,532 29,717,361 The accompanying notes are an integral part of these condensed financial statements. 4 Energous Corporation CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Common Stock Additional Paid-in Accumulated Total Stockholders' Shares Amount Capital Deficit Equity Balance at January 1, 2020 33,203,806 $ 333 $ 282,153,201 $ ( 263,140,660 ) $ 19,012,874 Stock-based compensation - restricted stock units ("RSUs") – – 2,321,820 – 2,321,820 Stock-based compensation - performance share units ("PSUs") – – ( 88,348 ) – ( 88,348 ) Stock-based compensation - employee stock purchase plan ("ESPP") – – 42,827 – 42,827 Issuance of shares for RSUs 396,559 4 ( 4 ) – – Proceeds from contributions to the ESPP – – 113,059 – 113,059 Issuance of shares in an at-the-market ("ATM") offering, net of $ 141,322 in issuance costs 4,351,652 44 5,506,836 – 5,506,880 Net loss – – – ( 8,597,736 ) ( 8,597,736 ) Balance March 31, 2020 (unaudited) 37,952,017 381 290,049,391 ( 271,738,396 ) 18,311,376 Stock-based compensation - restricted stock units ("RSUs") – – 2,028,599 – 2,028,599 Stock-based compensation - employee stock purchase plan ("ESPP") – – 41,308 – 41,308 Issuance of shares for RSUs 232,995 2 ( 2 ) – – Proceeds from contributions to the ESPP 144,370 1 104,144 – 104,145 Issuance of shares in an at-the-market ("ATM") offering, net of $ 236,528 in issuance costs 3,355,928 33 9,216,578 – 9,216,611 Net loss – – – ( 8,204,666 ) ( 8,204,666 ) Balance, June 30, 2020 (unaudited) 41,685,310 $ 417 $ 301,440,018 $ ( 279,943,062 ) $ 21,497,373 Stock-based compensation - restricted stock units ("RSUs") – – 1,876,686 – 1,876,686 Stock-based compensation - employee stock purchase plan ("ESPP") – – 96,056 – 96,056 Issuance of shares for RSUs 361,608 4 ( 4 ) – – Proceeds from contributions to the ESPP – – 121,692 – 121,692 Issuance of shares in an at-the-market ("ATM") offering, net of $ 240,060 in issuance costs 1,016,026 10 3,007,048 – 3,007,058 Net loss – – – ( 7,556,837 ) ( 7,556,837 ) Balance, September 30, 2020 (unaudited) 43,062,944 $ 431 $ 306,541,496 $ ( 287,499,899 ) $ 19,042,028 5 Energous Corporation CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) Common Stock Additional Paid-in Accumulated Total Stockholders' Shares Amount Capital Deficit Equity Balance at January 1, 2019 26,526,303 $ 265 $ 243,111,741 $ ( 224,741,571 ) $ 18,370,435 Stock-based compensation - restricted stock units ("RSUs") – – 3,083,567 – 3,083,567 Stock-based compensation - employee stock purchase plan ("ESPP") – – 87,825 – 87,825 Issuance of shares for RSUs 434,522 4 ( 4 ) – – Shares withheld for payroll tax on RSUs ( 1,329 ) – ( 10,207 ) – ( 10,207 ) Shares withheld for payroll tax on performance share units ("PSUs") ( 44,481 ) – ( 329,159 ) – ( 329,159 ) Exercise of stock options 80,201 1 400,102 – 400,103 Proceeds from contributions to the ESPP – – 173,167 – 173,167 Issuance of shares and warrant in a private placement, net of $ 1,680,844 in issuance costs 3,333,333 33 23,319,123 – 23,319,156 Net loss – – – ( 11,019,468 ) ( 11,019,468 ) Balance, March 31, 2019 (unaudited) 30,328,549 $ 303 $ 269,836,155 $ ( 235,761,039 ) $ 34,075,419 Stock-based compensation - restricted stock units ("RSUs") – – 2,675,184 – 2,675,184 Stock-based compensation - employee stock purchase plan ("ESPP") – – 122,749 – 122,749 Issuance of shares for RSUs 189,220 2 ( 2 ) – – Proceeds from contributions to the ESPP 85,765 1 145,421 – 145,422 Net loss – – – ( 9,803,996 ) ( 9,803,996 ) Balance, June 30, 2019 (unaudited) 30,603,534 $ 306 $ 272,779,507 $ ( 245,565,035 ) $ 27,214,778 Stock-based compensation - restricted stock units ("RSUs") – – 2,037,620 – 2,037,620 Stock-based compensation - employee stock purchase plan ("ESPP") – – 62,055 – 62,055 Issuance of shares for RSUs 280,053 3 ( 3 ) – – Shares returned ( 38,666 ) – – – - Proceeds from contributions to the ESPP – – 147,809 – 147,809 Net loss – – – ( 8,184,227 ) ( 8,184,227 ) Balance, September 30, 2019 (unaudited) 30,844,921 $ 309 $ 275,026,988 $ ( 253,749,262 ) $ 21,278,035 The accompanying notes are an integral part of these condensed financial statements. 6 Energous Corporation CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ ( 24,359,239 ) $ ( 29,007,691 ) Adjustments to reconcile net loss to: Net cash used in operating activities: Depreciation and amortization 286,990 652,266 Stock based compensation 6,318,948 8,069,000 Changes in operating lease right-of-use assets 570,460 599,582 Bad debt expense 33,000 – Changes in operating assets and liabilities: Accounts receivable 3,794 ( 40,950 ) Prepaid expenses and other current assets ( 331,367 ) ( 15,503 ) Accounts payable ( 626,053 ) ( 556,150 ) Accrued expenses ( 818,306 ) ( 174,603 ) Operating lease liabilities ( 514,167 ) ( 494,768 ) Net cash used in operating activities ( 19,435,940 ) ( 20,968,817 ) Cash flows from investing activities: Purchases of property and equipment ( 7,302 ) ( 183,935 ) Net cash used in investing activities ( 7,302 ) ( 183,935 ) Cash flows from financing activities: Net proceeds from the sales of common stock 14,723,491 23,319,156 Proceeds from the exercise of stock options – 400,103 Proceeds from contributions to employee stock purchase plan 338,896 466,398 Shares repurchased for tax withholdings on vesting of RSUs – ( 10,207 ) Shares repurchased for tax withholdings on vesting of PSUs – ( 329,159 ) Net cash provided by financing activities 15,062,387 23,846,291 Net (decrease) increase in cash and cash equivalents ( 4,380,855 ) 2,693,539 Cash and cash equivalents - beginning 21,684,089 20,106,485 Cash and cash equivalents - ending $ 17,303,234 $ 22,800,024 Supplemental disclosure of non-cash financing activities: At-the-market ("ATM") funds receivable $ 3,165,868 $ – Common stock issued for RSUs $ 10 $ 9 The accompanying notes are an integral part of these condensed financial statements. 7 Note 1 - Business Organization, Nature of Operations Energous Corporation (the “Company”) was incorporated in Delaware on October 30, 2012. The Company has developed its WattUp® technology, consisting of proprietary semiconductor chipsets, software, hardware designs and antennas, that enables radio frequency (“RF”) based charging for electronic devices, providing wire-free contact and non-contact charging solutions, with the potential to enable charging with mobility. The Company believes its proprietary WattUp technology can be utilized in consumer electronics such as wearables, hearing aids, earbuds, Bluetooth headsets, Internet of Things (“IoT”) devices, smartphones, tablets, e-book readers, keyboards, mice, remote controls, rechargeable lights, cylindrical batteries, medical devices and other devices with charging requirements that would otherwise require battery replacement or wired power connection. Note 2 – Liquidity and Management Plans During the three and nine months ended September 30, 2020, the Company recorded revenue of $ 61,500 and $ 237,350 , respectively, and during the three and nine months ended September 30, 2019, the Company recorded revenue of $ 40,500 and $ 154,500 , respectively. During the three and nine months ended September 30, 2020, the Company recorded net losses of $ 7,556,837 and $ 24,359,239 , respectively, and during the three and nine months ended September 30, 2019, the Company recorded net losses of $ 8,184,227 and $ 29,007,691 , respectively. Net cash used in operating activities was $ 19,435,940 and $ 20,968,817 for the nine months ended September 30, 2020 and 2019, respectively. The Company is currently meeting its liquidity requirements through the proceeds of securities offerings that raised net proceeds of $ 23,319,156 in March 2019, $ 4,557,693 during the fourth quarter 2019, $ 5,506,880 during the first quarter 2020 and $ 9,216,611 during the second quarter 2020, along with payments received from customers. As of September 30, 2020, the Company had cash on hand of $ 17,303,234 . The Company expects that cash on hand as of September 30, 2020, together with anticipated revenues and funds raised from the at-the-market (“ATM”) finance offering (see Note 9 – Subsequent Events) will be sufficient to fund the Company’s operations into November 2021. Research and development of new technologies is by its nature unpredictable. Although the Company intends to continue its research and development activities, there can be no assurance that its available resources and revenue generated from its business operations will be sufficient to sustain its operations. Accordingly, the Company expects 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 would be available on terms that the Company would find acceptable, or at all. The market for products using the Company’s technology is broad and evolving, but remains nascent and unproven, so the Company’s success is dependent upon many factors, including customer acceptance of its existing products, technical feasibility of future products, regulatory approvals, competition and global market fluctuations. In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The pandemic continues to affect the United States and the world. The Company is monitoring the ongoing effects of COVID-19 (including continued outbreaks) and the related business and travel restrictions and changes to behavior intended to reduce its spread, and COVID-19’s impact on the Company’s operations, financial position, cash flows, inventory, supply chains, global regulatory approvals, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. Due to the continuing developments and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company's operations and liquidity are still uncertain as of the date of this report. Note 3 – Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2019 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 13, 2020. The accounting policies used in preparing these unaudited condensed interim financial statements are consistent with those described in the Company’s December 31, 2019 audited financial statements . 8 Note 3 – Summary of Significant Accounting Policies, continued Use of Estimates The preparation of financial statements in conformity with US GAAP 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. The Company’s significant estimates and assumptions include the valuation of stock-based compensation instruments, recognition of revenue, the useful lives of long-lived assets, and income tax expense. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. Although the Company believes 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. Cash and Cash Equivalents The Company considers all short-term, highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. The Company maintains its cash deposits with major financial institutions. Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606). In accordance with Topic 606, the Company recognizes revenue using the following five-step approach: 1. Identify the contract with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price of the contract. 4. Allocate the transaction price to the performance obligations in the contract. 5. Recognize revenue when the performance obligations are met or delivered. The Company’s revenue primarily consists of product development projects revenue and royalty revenue from Dialog. The Company also provides contract services for Dialog. The Company records revenue associated with product development projects that it enters into with certain customers. In general, these product development projects are complex, and the Company does not have certainty about its ability to achieve the project milestones. The achievement of a milestone is dependent on the Company’s performance obligation and requires acceptance by the customer. The Company recognizes this revenue at a point in time based on when the performance obligation is met. The payment associated with achieving the performance obligation is generally commensurate with the Company’s effort or the value of the deliverable and is nonrefundable. The Company records the expenses related to these product development projects in research and development expense, in the periods such expenses were incurred. The Company records royalty revenue from its manufacturing partner, Dialog, and such royalty revenue is recognized at a point in time based on shipments from Dialog to its customers. The Company recognizes contract services revenue from Dialog over the period of time that the services are performed. The costs associated with this revenue are recognized as the services are performed and are included in cost of services revenue. Research and Development Research and development expenses are charged to operations as incurred. For internally developed patents, all patent application costs are expensed as incurred as research and development expense. Patent application costs, which are generally legal costs, are expensed as research and development costs until such time as the future economic benefits of such patents become more certain. The Company incurred research and development costs of $ 4,003,642 and $ 5,190,056 for the three months ended September 30, 2020 and 2019, respectively, and the Company incurred research and development costs of $ 12,909,378 and $ 17,505,751 for the nine months ended September 30, 2020 and 2019, respectively. 9 Note 3 – Summary of Significant Accounting Policies, continued Stock-Based Compensation The Company accounts for equity instruments issued to employees, board members and contractors in accordance with accounting guidance that requires awards to be recorded at their fair value on the date of grant and are amortized over the vesting period of the award. The Company recognizes compensation costs on a straight-line basis over the requisite service period of the award, which is typically the vesting term of the equity instrument issued. Under the Company’s Employee Stock Purchase Plan (“ESPP”), employees may purchase a limited number of shares of the Company’s common stock at a 15 % discount from the lower of the closing market prices measured on the first and last days of each half-year period. The Company recognizes stock-based compensation expense for the fair value of the purchase options, as measured on the grant date. Income Taxes Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of September 30, 2020, no liability for unrecognized tax benefits was required to be reported. The guidance also discusses the classification of related interest and penalties on income taxes. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the three or nine months ended September 30, 2020 or 2019. The Company files income tax returns with the United States and California governments. Net Loss Per Common Share Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method), the vesting of restricted stock units (“RSUs”) and performance stock units (“PSUs”) and the enrollment of employees in the ESPP. The computation of diluted loss per share excludes potentially dilutive securities of 5,990,698 and 6,876,595 for the three months ended September 30, 2020 and 2019, respectively, and 5,990,698 and 6,876,595 for the nine months ended September 30, 2020 and 2019, respectively, because their inclusion would be anti-dilutive. Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Warrant issued to private investors 3,284,789 4,702,354 3,284,789 4,702,354 Options to purchase common stock 550,985 566,753 550,985 566,753 RSUs 1,533,247 1,607,488 1,533,247 1,607,488 PSUs 621,677 – 621,677 – Total potentially dilutive securities 5,990,698 6,876,595 5,990,698 6,876,595 10 Note 3 – Summary of Significant Accounting Policies, continued Leases As of January 1, 2019, the Company determines if an arrangement is a lease at the inception of the arrangement. The Company applies the short-term lease recognition exemption and recognizes lease payments in profit or loss at lease commencement for facility or equipment leases that have a lease term of 12 months or less and do not include a purchase option whose exercise is reasonably certain. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are measured and recorded at the later of the adoption date, January 1, 2019, or the service commencement date based on the present value of lease payments over the lease term. The Company uses the implicit interest rate when readily determinable; however, most leases do not establish an implicit rate, so the Company uses an estimate of the incremental borrowing rate based on the information available at the time of measurement. Lease expense for lease payments is recognized on a straight-line basis over the lease term. See Note 4 – Commitments and Contingencies, Operating Leases for further discussion of the Company’s operating leases. Recent Accounting Pronouncements In July 2019, the FASB issued ASU No. 2019-07, “Codification Updates to SEC Sections.” ASU 2019-07 updates the SEC portion of the FASB’s codification literature to reflect the changes the SEC made to simplify disclosures. It is effective immediately. The Company adopted ASU 2019-07 and its adoption had no material impact on its financial statements. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740),” Simplifying the Accounting for Income Taxes . ASU 2019-12 removes certain exceptions under Topic 740 and improves consistent application by clarifying and amending existing guidance. This standard is effective for annual reporting periods beginning after December 15, 2020. The Company does not believe adoption of this standard will have a material impact on its financial statements. Management’s Evaluation of Subsequent Events The Company evaluates events that have occurred after the balance sheet date of September 30, 2020, through the date which the financial statements are available to be issued. Note 4 – Commitments and Contingencies Operating Leases San Jose Lease On September 10, 2014, the Company entered into a lease agreement with Balzer Family Investments, L.P. (the “Landlord”) related to space located at Northpointe Business Center, 3590 North First Street, San Jose, California. The initial term of the lease was 60 months, with initial monthly base rent of $ 36,720 and the lease was subject to certain annual escalations as defined in the agreement. On March 13, 2019, the Company amended its lease agreement with the Landlord which combined both the first-floor space and the second-floor space for the final three months of the original lease term for the second floor, which expired on September 30, 2019 . Effective July 1, 2019 through September 30, 2019, the new monthly rent payment was $ 48,372 . On February 26, 2015, the Company entered into a sub-lease agreement for space in its San Jose location on the first floor and was amended on August 25, 2015 to include additional space. The sub-lease agreement had a term which expired on June 30, 2019 . On July 1, 2019, the Company signed a new lease agreement for the lease of its office space at its corporate headquarters in San Jose, California for an additional three years . The lease agreement includes space on the first floor of the building that had been previously subleased. Upon expiration of the original lease on September 30, 2019, the new monthly lease payment starting October 1, 2019 was $ 52,970 and is subject to annual escalations up to a maximum monthly lease payment of $ 64,941 . 11 Note 4 – Commitments and Contingencies, continued Operating Leases, continued Costa Mesa Lease On May 31, 2017, the Company renewed a lease agreement for the Company’s space in Costa Mesa, California. The agreement had a term that expired on September 30, 2019 with initial monthly rent of $ 9,040 and was subject to certain annual escalations as defined in the agreement. On July 15, 2019, the Company signed a new lease agreement for the lease of office space in Costa Mesa, California for an additional two years . Upon expiration of the original lease on September 30, 2019, the new monthly lease payment starting October 1, 2019 was $ 9,773 and is subject to an annual escalation up to a maximum monthly lease payment of $ 10,200 . Operating Lease Commitments In February 2016, the FASB issued its final standard on lease accounting, ASU No. 2016-02, “Leases (Topic 842),” which superseded Topic 840, “Leases,” which was further modified in ASU No. 2018-10, “Codification Improvements” to clarify the implementation guidance. The new accounting standard was effective for the Company beginning on January 1, 2019 and required the recognition on the balance sheet of right-of-use assets and lease liabilities. The Company elected the optional transition method and adopted the new guidance on January 1, 2019 on a modified retrospective basis with no restatement of prior period amounts. The Company’s adoption of the new standard resulted in the recognition of right-of-use assets of $ 414,426 and operating lease liabilities of $ 485,747 , with no material cumulative effect adjustment to equity as of the date of adoption. The Company anticipates having future total lease payments of $ 1,670,460 during the period from the fourth quarter of 2020 to the third quarter of 2022. As of September 30, 2020, the company has total operating lease right-of-use assets of $ 1,487,116 , current portion operating lease liabilities of $ 845,108 and long-term portion of operating lease liabilities of $ 765,209 . The weighted average remaining lease term is 1.9 years as of September 30, 2020. A reconciliation of undiscounted cash flows to lease liabilities recognized as of September 30, 2020 is as follows: Amount (unaudited) 2020 222,792 2021 863,199 2022 584,469 Total future lease payments 1,670,460 Present value discount ( 4 % weighted average) ( 60,143 ) Total operating lease liabilities 1,610,317 Hosted Design Software Agreement On June 25, 2015, the Company entered into a three-year agreement to license electronic design automation software in a hosted environment. Pursuant to the agreement, under which services began July 2015, the Company is required to remit quarterly payments in the amount of approximately $ 101,000 with the last payment due March 30, 2018. On December 18, 2015, the agreement was amended to redefine the hardware and software configuration and the quarterly payments increased to approximately $ 198,000 . In July 2018, the Company renewed agreement for an additional three years , and the Company is required to remit quarterly payments of approximately $ 218,000 , with the last payment due in March 2021. Litigations, Claims, and Assessments The Company is from time to time involved in various disputes, claims, liens and litigation matters arising in the normal course of business. While the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the outcome of these matters will have a material adverse effect on the Company's combined financial position, results of operations or cash flows. 12 Note 4 – Commitments and Contingencies, continued MBO Bonus Plan On March 15, 2018, the Company’s Board of Directors (“Board”), on the recommendation of the Board’s Compensation Committee (“Compensation Committee”), approved the Energous Corporation MBO Bonus Plan (“Bonus Plan”) for executive officers of the Company. To be eligible to receive a bonus under the Bonus Plan, an executive officer must be continuously employed throughout the applicable performance period, and in good standing, and achieve the performance objectives selected by the Compensation Committee. Under the Bonus Plan, the Compensation Committee is responsible for selecting the amounts of potential bonuses for executive officers, the performance metrics used to determine whether any such bonuses will be paid and determining whether those performance metrics have been achieved. During the three months ended September 30, 2020, the Company accrued $ 189,728 in expense under the Bonus Plan, which will be paid during the fourth quarter of 2020. During the three months ended September 30, 2019, the Company accrued $ 167,740 in expense, which was paid during the fourth quarter of 2019. During the nine months ended September 30, 2020 and 2019, the Company incurred $ 867,248 and $ 691,928 in expense under the Bonus Plan. Severance and Change in Control Agreement On March 15, 2018, the Compensation Committee approved a form of Severance and Change in Control Agreement (“Severance Agreement”) that the Company may enter into with executive officers (“Executive”). Under the Severance Agreement, if an Executive is terminated in a qualifying termination, the Company agrees to pay the Executive six to 12 months of that Executive’s monthly base salary. If Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) the Company will pay the full amount of Executive’s premiums under the Company’s health, dental and vision plans, including coverage for the Executive’s eligible dependents, for the six to 12 month period following the Executive’s termination. Amended Employee Agreement – Stephen Rizzone On April 3, 2015, the Company entered into an Amended and Restated Executive Employment Agreement with Stephen R. Rizzone, the Company’s President and Chief Executive Officer (“Employment Agreement”). The Employment Agreement effective as of January 1, 2015 , has an initial term of four years and automatically renews each year after the initial term. The Employment Agreement provides for an annual base salary of $ 365,000 , and Mr. Rizzone is eligible to receive quarterly cash bonuses from the MBO Bonus Plan with a total target amount equal to 100 % of his base salary based upon achievement of performance-based objectives established by the Board. Mr. Rizzone is also eligible to receive all customary and usual benefits generally available to senior executives of the Company. Strategic Alliance Agreement In November 2016, the Company and Dialog Semiconductor plc (“Dialog”), a related party (see Note 7—Related Party Transactions), entered into a Strategic Alliance Agreement (“Alliance Agreement”) for the manufacture, distribution and commercialization of products incorporating the Company’s wire-free charging technology (“Licensed Products”). Pursuant to the terms of the Alliance Agreement, the Company agreed to engage Dialog as the exclusive supplier of the Licensed Products for specified fields of use, subject to certain exceptions (the “Company Exclusivity Requirement”). Dialog agreed to not distribute, sell or work with any third party to develop any competing products without the Company’s approval (the “Dialog Exclusivity Requirement”). In addition, both parties agreed on a revenue sharing arrangement and will collaborate on the commercialization of Licensed Products based on a mutually-agreed upon plan. Each party will retain all of its intellectual property. The Alliance Agreement has an initial term of seven years and will automatically renew annually thereafter unless terminated by either party upon 180 days’ prior written notice. The Company may terminate the Alliance Agreement at any time after the third anniversary of the Agreement upon 180 days’ prior written notice to Dialog, or if Dialog breaches certain exclusivity obligations. Dialog may terminate the Alliance Agreement if sales of Licensed Products do not meet specified targets. The Company Exclusivity Requirement will terminate upon the earlier of January 1, 2021 or the occurrence of certain events relating to the Company’s pre-existing exclusivity obligations. 13 Note 5 – Stockholders’ Equity Authorized Capital The holders of the Company’s common stock are entitled to one vote per share. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board out of legally available funds. Upon the liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in all assets of the Company that are legally available for distribution. Financing On August 9, 2018, the Company filed a shelf registration statement on Form S-3 with the SEC, which became effective on August 17, 2018. This shelf registration statement allows the Company to sell, from time to time, any combination of debt or equity securities described in the registration statement up to aggregate proceeds of $ 75,000,000 . Pursuant to this registration statement, in March 2019 the Company raised $ 23,319,156 (net of $ 1,680,844 in issuance costs) from an offering of shares of its common stock and warrants to purchase 1,666,666 shares of common stock at an exercise price of $ 10.00 per share. The Company also raised $ 4,557,693 (net of $ 339,081 in issuance costs) during the fourth quarter of 2019, $ 5,506,880 (net of $ 141,322 in issuance costs) during the first quarter of 2020 and $ 9,216,611 (net of $ 236,528 in issuance costs) during the second quarter of 2020. On September 15, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which became effective on September 24, 2020, and contains two prospectuses: a base prospectus, which covers the offering, issuance and sale by the Company of up to $ 75,000,000 of its common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase its common stock, preferred stock or debt securities and/or units consisting of some or all of these securities; and a sales agreement prospectus covering the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $ 40,000,000 of its common stock that may be issued and sold under a sales agreement. The $40,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $75,000,000 of securities that may be offered, issued and sold by the Company under the base prospectus. Pursuant to this shelf registration statement, the Company sold shares which raised net proceeds of $ 3,165,868 (before legal and issuance costs of $ 158,810 ) on September 30, 2020 which were recorded as a receivable on the accompanying balance sheet on September 30, 2020. Common Stock Outstanding Our outstanding common shares typically include shares that are deemed delivered under US GAAP. Shares that are deemed delivered currently include shares that have vested, but have not yet been delivered, under tax-deferred equity awards, as well as shares purchased under our Employee Stock Purchase Program (“ESPP”) where actual transfer of shares normally occurs a few days after the completion of the purchase periods. There are no voting rights for shares that are deemed delivered under US GAAP until the actual delivery of shares takes place. As of September 30, 2020, a total of 200,000,000 common shares are authorized . In August 2019, an aggregate of 38,666 shares of common stock were returned to the Company and retired in connection with the rescission of restricted stock unit agreements. Note 6 – Stock-Based Compensation Equity Incentive Plans 2013 Equity Incentive Plan Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2013 Equity Incentive Plan to increase the number of shares reserved for issuance thereunder by 1,200,000 shares, bringing to 7,285,967 the total number of shares approved for issuance under that plan. As of September 30, 2020, 1,893,044 shares of common stock remain eligible to be issued through equity-based instruments under the 2013 Equity Incentive Plan. 2014 Non-Employee Equity Compensation Plan Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2014 Non-employee Equity Compensation Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 800,000 shares, bringing to 1,650,000 the total number of shares approved for issuance under that plan. 14 Note 6 – Stock-Based Compensation, continued Equity Incentive Plans, continued As of September 30, 2020, 1,047,794 shares of common stock remain eligible to be issued through equity-based instruments under the 2014 Non-Employee Equity Compensation Plan. 2015 Performance Share Unit Plan Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2015 Performance Share Unit Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 700,000 shares, bringing to 3,410,104 the total number of shares approved for issuance under that plan. As of September 30, 2020, 1,510,274 shares of common stock remain eligible to be issued through equity-based instruments under the 2015 Performance Share Unit Plan. 2017 Equity Inducement Plan On December 28, 2017, the Board approved the 2017 Equity Inducement Plan. Under the plan, the Board reserved 600,000 shares for the grant of RSUs. These grants will be administered by the Board or a committee of the Board. These awards will be granted to individuals who (a) are being hired as an employee by the Company or any subsidiary and such award is a material inducement to such person being hired; (b) are being rehired as an employee following a bona fide period of interruption of employment with the Company or any subsidiary; or (c) will become an employee of the Company or any subsidiary in connection with a merger or acquisition. As of September 30, 2020, 155,776 shares of common stock remain available to be issued through equity-based instruments under the 2017 Equity Inducement Plan. Employee Stock Purchase Plan In April 2015, the Company’s Board approved the ESPP, under which 600,000 shares of common stock have been reserved for purchase by the Company’s employees, subject to the approval by the stockholders. On May 21, 2015, the Company’s stockholders approved the ESPP. Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the Employee Stock Purchase Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 250,000 shares, bring to 850,000 the total number of shares approved for issuance under that plan. Under the ESPP, employees may designate an amount not less than 1 % but not more than 10 % of their annual compensation for the purchase of Company shares. No more than 7,500 shares may be purchased by an employee under the ESPP during an offering period. An offering period shall be six months in duration commencing on or about January 1 and July 1 of each year. The exercise price of the option will be the lesser of 85 % of the fair market of the common stock on the first business day of the offering period and 85 % of the fair market value of the common stock on the applicable exercise date. As of September 30, 2020, 271,380 shares of common stock remain eligible to be issued under the ESPP. Employees contributed $ 121,692 through payroll withholdings as of September 30, 2020 to the ESPP for the current offering period that will end on December 31, 2020 and shares were deemed delivered on that date. 15 Note 6 – Stock-Based Compensation, continued Stock Option Activity The following is a summary of the Company’s stock option activity during the nine months ended September 30, 2020: Number of Options Weighted Average Exercise Price Weighted Average Remaining Life In Years Intrinsic Value Outstanding at January 1, 2020 550,985 $ 5.67 4.3 $ 2,538 Granted – – – – Exercised – – – – Forfeited – – – – Outstanding at September 30, 2020 550,985 $ 5.67 3.5 $ 35,932 Exercisable at January 1, 2020 550,985 $ 5.67 4.3 $ 2,538 Vested – – – – Exercised – – – – Forfeited – – – – Exercisable at September 30, 2020 550,985 $ 5.67 3.5 $ 35,932 As of September 30, 2020, the unamortized value of options was $ 0 . Restricted Stock Units (“RSUs”) During the nine months ended September 30, 2020, the Compensation Committee granted various employees RSUs covering 648,781 shares of common stock under the 2013 Equity Incentive Plan. The awards vest over terms ranging from two to four years . During the nine months ended September 30, 2020, the Compensation Committee and the Board of Directors granted various non-employees RSUs covering 25,000 shares of common stock under the 2014 Non-employee Equity Compensation Plan. The awards vest over terms ranging from one to three years . During the nine months ended September 30, 2020, the Compensation Committee granted employees RSUs covering 171,000 shares of common stock under the 2017 Equity Inducement Plan. The awards vest over four years beginning on the anniversary of the grant date. As of September 30, 2020, t h e un am or ti ze d v a l u e o f t h e R SUs w a s $ 5,921,305 . T h e un am or ti ze d am oun t w il l b e e xp e n s e d ov e r a weighted average p e r i o d o f 1.3 y ea r s . A summary of the activity related to RSUs for the nine months ended September 30, 2020 is presented below: Total Weighted Average Grant Date Fair Value Outstanding at January 1, 2020 1,821,852 $ 10.05 RSUs granted 844,781 $ 1.27 RSUs forfeited ( 142,224 ) $ 8.47 RSUs vested ( 991,162 ) $ 8.44 Outstanding at September 30, 2020 1,533,247 $ 6.52 16 Note 6 – Stock-Based Compensation, continued Performance Share Units (“PSUs”) Performance share units (“PSUs”) are grants that vest upon the achievement of certain performance goals. The goals are commonly related to the Company’s revenue, market capitalization or market share price of the common stock. Amortization for all PSU awards was $ 0 and $ 0 for the three months ended September 30, 2020 and 2019, respectively and amortization for all PSU awards was $( 88,348 ) and $ 0 for the nine months ended September 30, 2020 and 2019, respectively. A summary of the activity related to PSUs for the nine months ended September 30, 2020 is presented below: Total Weighted Average Grant Date Fair Value Outstanding at January 1, 2020 428,000 $ 2.09 PSUs granted 267,677 1.27 PSUs forfeited ( 74,000 ) 2.09 PSUs vested – – Outstanding at September 30, 2020 621,677 1.74 Employee Stock Purchase Plan (“ESPP”) The current offering period under the ESPP started on July 1, 2020 and will conclude on December 31, 2020. The recently completed offering period under the ESPP started on January 1, 2020 and concluded on June 30, 2020. During the year ended December 31, 2019, there were two offering periods for the ESPP. The first offering period started on January 1, 2019 and concluded on June 30, 2019. The second offering period started on July 1, 2019 and concluded on December 31, 2019. The weighted-average grant-date fair value of the purchase option for each designated share purchased under this plan was approximately $ 1.11 and $ 2.05 for the nine months ended September 30, 2020 and 2019, respectively, which represents the fair value of the option, consisting of three main components: (i) the value of the discount on the enrollment date, (ii) the proportionate value of the call option for 85 % of the stock and (iii) the proportionate value of the put option for 15 % of the stock. The Company recognized compensation expense for the plan of $ 96,056 and $ 62,055 for the three months ended September 30, 2020 and 2019, respectively, and $ 180,191 and $ 272,629 for the nine months ended September 30, 2020 and 2019, respectively. The Company estimated the fair value of ESPP purchase options granted during the nine months ended September 30, 2020 and 2019 using the Black-Scholes option pricing model. The fair values of stock options granted were estimated using the following assumptions: Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Stock price $1.77 - $2.96 $4.27 - $5.79 Dividend yield 0 % 0 % Expected volatility 61% - 182% 83% - 96% Risk-free interest rate 0.17% - 1.57% 2.10% - 2.51% Expected life 6 months 6 months 17 Note 6 – Stock-Based Compensation, continued Stock-Based Compensation Expense The following tables summarize total stock-based compensation costs recognized for the three and nine months ended September 30, 2020 and 2019: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 RSUs 1,876,686 $ 2,037,620 6,227,105 $ 7,796,371 PSUs – – ( 88,348 ) – ESPP 96,056 62,055 180,191 272,629 Total $ 1,972,742 $ 2,099,675 $ 6,318,948 $ 8,069,000 The total amount of stock-based compensation was reflected within the statements of operations as: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Research and development $ 922,858 $ 1,154,680 $ 3,055,885 $ 4,172,458 Sales and marketing 385,171 390,192 1,189,964 1,111,185 General and administrative 664,713 554,803 2,073,099 2,785,357 Total $ 1,972,742 $ 2,099,675 $ 6,318,948 $ 8,069,000 Note 7 – Related Party Transactions In November 2016, the Company and Dialog entered into an alliance agreement for the manufacture, distribution and commercialization of products incorporating the Company’s wire-free charging technology (See Note 4 – Commitments and Contingencies, Strategic Alliance Agreement ). On November 7, 2016 and June 28, 2017, the Company and Dialog entered into securities purchase agreements under which Dialog acquired a total of 1,739,691 shares and received warrants to purchase up to 1,417,565 shares. As of September 30, 2020, none of the warrants remain outstanding. As of September 30, 2020, Dialog owns approximately 4.0 % of the Company’s outstanding common shares. The Company recorded $ 0 and $ 0 for the three months ended September 30, 2020 and 2019, respectively, and $ 0 and $ 7,100 for the nine months ended September 30, 2020 and 2019, respectively, in royalty revenue pursuant to the Strategic Alliance Agreement. Additionally, the Company recorded $ 0 and $ 0 in contract services revenue performed for Dialog during the three months ended September 30, 2020 and 2019, respectively, and $ 130,000 and $ 0 in contract services revenue performed for Dialog during the nine months ended September 30, 2020 and 2019, respectively. The Company recorded $ 0 and $ 0 in cost of services revenue associated with the contract services performed for Dialog during the three months ended September 30, 2020 and 2019, respectively, and $ 126,539 and $ 0 in cost of services revenue during the nine months ended September 30, 2020 and 2019, respectively. Note 8 – Customer Concentrations Four customers accounted for approximately 81 % of the Company’s revenue for the three months ended September 30, 2020, and three customers accounted for 100 % of the Company’s revenue for the three months ended September 30, 2019. Three customers accounted for approximately 78 % of the Company’s revenue for the nine months ended September 30, 2020 and three customers accounted for approximately 55 % of the Company’s revenue for the nine months ended September 30, 2019. Four customers accounted for approximately 95 % of the accounts receivable balance as of September 30, 2020. Four customers accounted for nearly 100 % of the accounts receivable balance as of December 31, 2019. Note 9 – Subsequent Events On October 2, 2020, the Company received $ 3,165,868 in ATM proceeds, which were recorded as a receivable as of September 30, 2020 (see Note 5 – Stockholders’ Equity). Subsequent to October 2, 2020, and through November 4, 2020, the Company received an additional $ 4,206,475 in net ATM proceeds from the issuance of 1,605,810 common shares. 18