What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-11 compared with 2021-05-17 · 53 added, 30 removed, 111 unchanged (43% of the section changed)

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In conjunction with the Strategic Alliance Agreement, Dialog manufactures and is the exclusive distributor of integrated circuit (“IC”) products that incorporate our designs and provides sales and logistic support to customers on a global basis.

We believe our proprietary WattUp technologies are well suited for many applications, including home automation, surface and implanted medical devices, electronic shelf labels, industrial IoT sensors, tracking devices, hearables, wearables, consumer electronics, public safety and military applications.

We believe our proprietary WattUp technologies are well suited for many applications, including building and home automation, electronic shelf labels, industrial IoT sensors, surface and implanted medical devices, tracking devices, hearables, wearables, consumer electronics, public safety and military applications.

Potential future applications include smartphones, commercial and industrial robotics, as well as automotive solutions and other devices with charging requirements that would otherwise require battery replacement or a wired power connection.

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Our technology is readily scalable because the same ICs that are used for contact-based charging can be used for distance-based charging solutions.

We have developed two classes of chip solutions, a CMOS-based technology focused on low cost, small footprint and low power (less than 5 watts) and a GaAs/GaN-based technology capable of delivering higher power with greater efficiency.

We have developed two classes of chip solutions, a CMOS-based technology focused on low cost, small footprint and low power (1 watt) and a GaAs/GaN-based technology capable of delivering higher power (greater than 1 watt) with greater efficiency.

We intend to continue to invest in research and development with high power capabilities of 20 watts and beyond at high levels of efficiency.

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Once our customers begin to sell products to end customers that incorporate our technology, we would expect the commercialization cycle to shorten over time as the technology matures and market acceptance grows.

We maintain exclusive rights to all intellectual property in our technology.

We maintain the rights to all intellectual property in our technology.

We have implemented an aggressive intellectual property strategy and are continuing to pursue patent protection for new innovations.

As of May 10, 2021, the Energous IP portfolio contained 236 awarded patents in the United States, which are organized along five (5) critical paths to implementation that we believe a competitor may have to navigate to commercialize WPT technology.

As of July 30, 2021, the Energous IP portfolio contained 240 awarded patents in the United States, which are organized along five (5) critical paths to implementation that we believe a competitor may have to navigate to commercialize WPT technology.

The paths are:

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We are 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 its impact on our 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 our employees.

The pandemic of COVID-19 has delayed adoption of our technology by potential customers who temporarily shut down their workforce and supply chain based in China, and who continue to evaluate their future prospects and business models, including partnerships with us.

The COVID-19 pandemic has delayed adoption of our technology by potential customers who have experienced workforce and supply chain disruptions, and who continue to evaluate their future prospects and business models, including partnerships with us.

For example, in one case, the pandemic delayed the spring launch of a new product that incorporates our technology.

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The effects of state executive orders, local shelter-in-place orders, government-imposed quarantines and our work-from-home policies could negatively impact productivity, disrupt our research and development or other operations, and delay the planned launch of our customers’ new products that incorporate our technology, the magnitude of which will depend, in part, on the length and severity of the continuing restrictions and other limitations on our ability to conduct our business in the ordinary course.

Several vaccines have been approved for use since the fourth quarter of 2020, with vaccination rates increasing through early 2021.

Several new variants of COVID-19 have emerged including the “delta” variant, which is now widespread, and may be more transmissible than other variants.

Vaccines approved to date have lower efficacy in combating the transmission of some of these new variants, though vaccines appear to protect against severe illness.

Due to the continuing developments and fluidity of this situation, the magnitude and duration of the pandemic and its impact on our operations and liquidity are still uncertain as of the date of this report.

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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.

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 March 31, 2021 and 2020

During the three months ended March 31, 2021 and 2020, we recorded revenue of $145,065 and $61,475, respectively.

Three Months Ended June 30, 2021 and 2020

During the three months ended June 30, 2021 and 2020, we recorded revenue of $184,960 and $114,375, respectively.

Operating Expenses and Loss from Operations.

Operating expenses are made up of research and development, sales and marketing, general and administrative expenses and cost of services revenue.

Losses from operations for the three months ended March 31, 2021 and 2020 were $8,527,787 and $8,653,675, respectively.

Losses from operations for the three months ended June 30, 2021 and 2020 were $11,016,839 and $8,212,640, respectively.

Research and Development Costs.

Research and development costs were $4,591,244 and $4,575,303, respectively, for the three months ended March 31, 2021 and 2020.

The increase of $15,941 is primarily due to a $182,294 increase in compensation, consisting of a $133,995 increase in payroll costs and a $48,299 increase in stock-based compensation, a $40,368 increase in consulting and third party services expense, a $20,870 increase in regulatory testing and a $20,286 increase in regulatory legal costs, partially offset by a $64,807 decrease in legal costs pertaining to patent and intellectual property management, a $64,351 decrease in allocated rent, a $56,585 decrease in depreciation, a $36,917 decrease in engineering supplies, components and chip development costs due to project timing and a $31,150 decrease in travel expense due to a reduction in travel, meals and entertainment as a result of COVID-19 restrictions.

Research and development costs were $6,103,694 and $4,330,433, respectively, for the three months ended June 30, 2021 and 2020.

The increase of $1,773,261 is primarily due to a $1,469,281 increase in compensation, consisting of a $1,485,184 increase in stock-based compensation from the recognition of performance share units (“PSU”) award expense, offset by a $15,903 decrease in payroll costs, a $281,725 increase in engineering supplies, components and chip development costs due to project timing and a $51,174 increase in consulting and third-party services.

Sales and Marketing Costs.

Sales and marketing costs for the three months ended March 31, 2021 and 2020 were $1,794,212 and $1,447,909, respectively.

The increase of $346,303 is primarily due to a $379,486 increase in compensation, consisting of a $294,997 increase in payroll costs from a higher headcount within the department and an $84,489 increase in stock-based compensation, and a $54,514 increase in engineering supplies used by the sales and marketing staff for customer demonstrations, partially offset by a $54,505 decrease in tradeshow expense and a $20,238 decrease in consulting, public relations and third party services expense.

Sales and marketing costs for the three months ended June 30, 2021 and 2020 were $2,441,357 and $1,438,904, respectively.

The increase of $1,002,453 is primarily due to a $753,103 increase in compensation, consisting of a $592,079 increase in stock-based compensation from the recognition of PSU award expense and a $161,024 increase in payroll costs from a higher headcount within the department, an $87,415 increase in public relations, consulting and third-party services expense and a $73,137 increase in legal fees pertaining to marketing and trademarks.

General and Administrative Expenses.

General and administrative costs for the three months ended March 31, 2021 and 2020 were $2,287,396 and $2,652,394, respectively.

The decrease of $364,998 is primarily due to a $177,284 decrease in compensation, consisting of a $262,861 decrease in stock-based compensation as a result of having fewer outstanding equity awards after the retirement of three board members during the previous year, offset by an $85,577 increase in payroll costs, a $193,825 decrease in accounting and auditing fees, a $40,682 decrease in travel, meals and entertainment as a result of COVID-19 restrictions and a $37,678 decrease in consulting expense, partially offset by an $83,894 increase in insurance premiums.

General and administrative costs for the three months ended June 30, 2021 and 2020 were $2,656,748 and $2,470,683, respectively.

The increase of $186,065 is primarily due to a $109,837 increase in compensation, consisting of an $81,154 increase in stock-based compensation and a $28,683 increase in payroll costs, a $107,643 increase in annual stockholder meeting costs, a $48,975 increase in insurance premiums, a $36,808 increase in accounting and auditing fees and a $30,869 increase in software and general office expense, partially offset by $78,120 decrease in legal fees and a $69,935 decrease in investor relations, consulting and third-party services.

In t e r e s t Income .

In t e r e s t income fo r t h e three m on t h s e nd e d March 31, 2021 w a s $2,024 a s c o m p a r e d t o interest income of $55,939 fo r t h e three m on t h s e nd e d March 31, 2020 .

In t e r e s t income fo r t h e three m on t h s e nd e d June 30, 2021 w a s $1,010 a s c o m p a r e d t o interest income of $7,974 fo r t h e three m on t h s e nd e d June 30, 2020 .

The decrease of $6,964 is primarily due to lower savings interest rates.

N e t L o ss .

A s a r e s u l t o f t h e a bov e , n e t l o s s fo r t h e three m on t h s e nd e d March 31, 2021 was $8,525,763 a s c o m p a r e d t o $8,597,736 fo r t h e three m on t h s e nd e d March 31, 2020 .

A s a r e s u l t o f t h e a bov e , n e t l o s s fo r t h e three m on t h s e nd e d June 30, 2021 was $11,015,829 a s c o m p a r e d t o $8,204,666 fo r t h e three m on t h s e nd e d June 30, 2020 .

Six Months Ended June 30, 2021 and 2020

During the six months ended June 30, 2021 and 2020, we recorded revenue of $330,025 and $175,850, respectively.

Operating Expenses and Loss from Operations.

Operating expenses are made up of research and development, sales and marketing, general and administrative expenses and cost of services revenue.

Losses from operations for the six months ended June 30, 2021 and 2020 were $19,544,626 and $16,866,315, respectively.

Research and Development Costs.

Research and development costs were $10,694,938 and $8,905,736, respectively, for the six months ended June 30, 2021 and 2020.

The increase of $1,789,202 is primarily due to a $1,651,575 increase in compensation, consisting of a $1,533,483 increase in stock-based compensation from the recognition of PSU award expense and $118,092 increase in payroll costs, a $244,808 increase in engineering supplies, components and chip development costs due to project timing, a $100,326 increase in consulting and third-party services expense and a $62,484 increase in regulatory testing, partially offset by an $89,479 decrease in depreciation.

Sales and Marketing Costs.

Sales and marketing costs for the six months ended June 30, 2021 and 2020 were $ 4,235,569 and $ 2,886,813 , respectively.

The increase of $ 1,348 , 756 is primarily due to a $1,132,589 increase in compensation, consisting of a $676,5 68 increase in stock-based compensation from the recognition of PSU award expense and a $456,021 increase in payroll costs from a higher headcount within the department, a $98,780 increase in legal fees pertaining to marketing and trademarks, a $67,178 increase in public relations, consulting and third-party services expense and a $45,242 increase in engineering supplies used by the sales and marketing staff for customer demonstrations, partially offset by a $45,248 decrease in tradeshow expense.

General and Administrative Expenses.

General and administrative costs for the six months ended June 30, 2021 and 2020 were $4,944,144 and $5,123,077, respectively.

The decrease of $178,933 is primarily due to a $157,017 decrease in accounting and auditing fees, a $67,447 decrease in compensation, consisting of a $181,707 decrease in stock-based compensation, offset by a $114,260 increase in payroll costs, a $76,124 decrease in board member fees, a $57,851 decrease in general corporate legal fees, a $44,763 decrease in investor relations, consulting and third-party services expense and a $40,344 decrease in travel and entertainment as a result of COVID-19 restrictions, partially offset by a $132,869 increase in insurance premiums and a $101,650 increase in annual meeting costs.

In t e r e s t Income .

In t e r e s t income fo r t h e six m on t h s e nd e d June 30, 2021 w a s $3,034 a s c o m p a r e d t o interest income of $63,913 fo r t h e six m on t h s e nd e d June 30, 2020 .

The decrease of $60,879 is primarily due to lower savings interest rates.

N e t L o ss .

A s a r e s u l t o f t h e a bov e , n e t l o s s fo r t h e six m on t h s e nd e d June 30, 2021 was $19,541,592 a s c o m p a r e d t o $16,802,402 fo r t h e six m on t h s e nd e d June 30, 2020 .

L i q u i d it y a n d Cap it a l R e s o ur ces

During the three months ended March 31, 2021 and 2020, we recorded revenue of $145,065 and $61,475, respectively.

We incurred net losses of $8,525,763 and $8,597,736 for the three months ended March 31, 2021 and 2020, respectively.

Net cash used in operating activities was $5,976,550 and $7,340,111 for the three months ended March 31, 2021 and 2020, respectively.

We are currently meeting our liquidity requirements through the proceeds from securities offerings that raised net proceeds of $53,556,202 during 2020, along with payments received from customers.

We believe our current cash on hand, together with anticipated revenues and funds raised from the at-the-market (“ATM”) finance offering will be sufficient to fund our operations into May 2022.

During the six months ended June 30, 2021 and 2020, we recorded revenue of $330,025 and $175,850, respectively.

We incurred net losses of $19,541,592 and $16,802,402 for the six months ended June 30, 2021 and 2020, respectively.

Net cash used in operating activities was $12,537,690 and $13,215,844 for the six months ended June 30, 2021 and 2020, respectively.

We are currently meeting our liquidity requirements through the proceeds from securities offerings that raised net proceeds of $53,556,202 during 2020, along with payments received from customers and employees through ESPP purchases.

We believe our current cash on hand, together with anticipated revenues will be sufficient to fund our operations into August 2022.

Although we intend to continue our research and development activities, there can be no assurance that our available resources will be sufficient to enable us to generate revenues sufficient to sustain operations.

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There is no assurance that such financing would be available on terms that we would find acceptable, or at all.

During the three months ended March 31, 2021, cash flows used in operating activities were $5,976,550, consisting of a net loss of $8,525,763, less non-cash expenses aggregating $2,406,914 (principally stock-based compensation of $2,146,226, decrease in amortization of operating lease right-of-use assets of $195,914 and depreciation and amortization expense of $64,774), a $210,212 decrease in operating lease liabilities, a $105,491 increase in prepaid expenses and other current assets and an $80,925 increase in accounts receivable, partially offset by a $353,928 increase in accounts payable and a $179,999 increase in accrued expenses.

During the three months ended March 31, 2020, cash flows used in operating activities were $7,340,111, consisting of a net loss of $8,597,736, less non-cash expenses aggregating $2,619,443 (principally stock-based compensation of $2,276,299, decrease in amortization of operating lease right-of-use assets of $188,445 and depreciation and amortization expense of $121,699), a $633,268 decrease in accounts payable, a $628,052 decrease in accrued expenses and a $169,681 decrease in operating lease liabilities, partially offset by a $98,212 decrease in prepaid expenses and other current assets.

During the three months ended March 31, 2021 and 2020, cash flows used in investing activities were $111,727 and $0, respectively.

The cash used in investing activities for the three months ended March 31, 2021 consisted of the purchase of new testing equipment and engineering software.

During the three months ended March 31, 2021, cash flows provided by financing activities were $117,013, which consisted of $117,013 in proceeds from contributions to the ESPP.

During the three months ended March 31, 2020, cash flows provided by financing activities were $5,619,939, which consisted of $5,506,880 in net proceeds from the sale of shares of our common stock to the public in an ATM offering and $113,059 in proceeds from contributions to the ESPP.

During the six months ended June 30, 2021, cash flows used in operating activities were $12,537,690, consisting of a net loss of $19,541,592, less non-cash expenses aggregating $6,894,871 (principally stock-based compensation of $6,374,550, decrease in amortization of operating lease right-of-use assets of $393,936 and depreciation and amortization expense of $126,385) and a $555,702 increase in accounts payable, partially offset by a $422,533 decrease in operating lease liabilities and a $46,120 increase in accounts receivable.

During the six months ended June 30, 2020, cash flows used in operating activities were $13,215,844, consisting of a net loss of $16,802,402, less non-cash expenses aggregating $4,975,428 (principally stock-based compensation of $4,346,206, amortization of operating lease right-of-use assets of $378,593 and depreciation and amortization expense of $217,629), a $429,460 decrease in accrued expenses, a $341,064 decrease in operating lease liabilities, a $330,537 decrease in accounts payable, a $212,727 increase in prepaid expenses and other current assets and a $75,082 increase in accounts receivable.

During the six months ended June 30, 2021 and 2020, cash flows used in investing activities were $203,044 and $0, respectively.

The cash used in investing activities for the six months ended June 30, 2021 consisted of the purchases of new testing equipment and engineering software.

During the six months ended June 30, 2021, cash flows provided by financing activities were $237,247, which consisted of entirely of proceeds from contributions to the ESPP.

During the six months ended June 30, 2020, cash flows provided by financing activities were $14,940,695, which consisted of $14,723,491 in net proceeds from the sale of shares of our common stock to the public in an ATM offering and $217,204 in proceeds from contributions to the ESPP.

Research and development of new technologies is, by its nature, unpredictable.

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Off Balance Sheet Transactions

As of March 31, 2021, we did not have any off-balance sheet transactions.

As of June 30, 2021, we did not have any off-balance sheet transactions.

Quantitative and Qualitative Disclosure About Market Risk

There has been no material change in our exposure to market risk during the three months ended March 31, 2021.

There has been no material change in our exposure to market risk during the three months ended June 30, 2021.

Please refer to "Quantitative and Qualitative Disclosures about Market Risk" contained in Part II, Item 7A of our Form 10-K for the year ended December 31, 2020 for a discussion of our exposure to market risk.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis