What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-11 · 62 added, 55 removed, 109 unchanged (52% of the section changed)

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The WattUp technology has a broad spectrum of capabilities, including near field wireless charging and at-a-distance wireless charging at various distances.

In November 2016 we entered into a Strategic Alliance Agreement with Dialog Semiconductor plc (“Dialog”), an industry leader in Bluetooth low energy semiconductors and power management semiconductors.

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 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.

We believe our technology is innovative in its approach, in that we are developing solutions that charge electronic devices with an RF energy zone.

We are developing solutions that deliver wire-free energy for near field charging applications and are also developing at-a-distance charging at distances up to approximately three feet, as well as low-power charging for distances up to 15 feet and beyond, some of which involve mobility charging.

We are developing solutions that deliver wire-free energy for near field charging applications and are also developing at-a-distance charging for distances up to 15 feet and beyond, some of which involve mobility charging.

To-date, we have developed multiple transmitters and receivers, including prototypes as well as partner production designs.

The transmitters vary based on form factor, power specifications and frequencies, while the receivers are designed for applications including Bluetooth tracking tags, IoT sensors, hearing aids, electronic shelf labels, fitness bands, health sensors and devices, smartwatches, smartphones, smartglasses, industrial applications, keyboards, mice, headsets, earbuds, headphones, and more.

We have engagements with companies in the consumer electronics (CE), industrial, military and medical device markets that are in the both evaluation and product cycle pre-production stages of integrating WattUp-technology into devices being developed for the end-user.

The first end product featuring our technology entered the market in 2019 and we expect additional WattUp enabled products to be announced and launched in 2021.

We are also in discussions with potential customers in the consumer and industrial spaces that are considering our solutions to supply low power distance charging for products that could enter the market in 2022.

We have engagements with companies in the consumer electronics (CE), industrial and medical device markets that are in the both evaluation and product cycle pre-production stages of integrating WattUp-technology into devices being developed for the end-user.

The first end product featuring our technology entered the market in 2019 and we expect additional WattUp enabled products to be announced as we move our business forward.

The first end product

featuring our technology entered the market in 2019 and we expect our one Watt Powerbridge enabled transmitters to begin shipping for commercial IOT applications in the fourth quarter of 2021.

In December 2017, we announced Federal Communications Commission (“FCC”) certification of our first-generation WattUp Mid Field transmitter, which simultaneously powers multiple devices at a distance of up to three feet.

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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.

We also intend to continue to invest in improving product performance, efficiency, cost-performance, integration and miniaturization as required to reach multiple markets and expand the power-at-a-distance ecosystem, while maintaining a technology lead on potential competitors.

We intend to continue to invest in improving product performance, efficiency, cost-performance, integration and miniaturization as required to reach multiple markets and expand the power-at-a-distance ecosystem, while maintaining a technology lead on potential competitors.

We sell evaluation kits to potential customers of our technology, to allow their respective engineering and product management departments to test and evaluate the technology.

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

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.

As of October 31, 2021, the Energous IP portfolio contained over 200 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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In addition, we have identified and hired key engineering resources in the areas of IC development, antenna development, hardware, software and firmware engineering as well as integration and testing, which will allow us to continue to expand our technology and intellectual property and to meet our customers’ support requirements.

On September 20, 2021, the Company was notified by Dialog, recently acquired by Renesas Electronics Corporation, that it was terminating the Alliance Agreement between the Company and Dialog.

There is a wind down period included in the Alliance Agreement which will conclude in September 2024.

During the wind down period, the Alliance Agreement’s terms will continue to apply to the Company’s products that are covered by certain existing customer relationships, except that the parties’ respective exclusivity rights have terminated.

Impact of COVID-19 on Our Business

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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.

Several new variants of COVID-19 have emerged including the “delta” variant, which is now widespread, and are reported by health authorities to 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.

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Revenue Recognition

On January 1, 2018 we adopted Accounting Standards Update No.

We follow Accounting Standards Update No.

2014-09, "Revenue from Contracts with Customers" (Topic 606).

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Our revenue currently consists of product development projects revenue and royalty revenue from Dialog.

We also provide contract services for Dialog.

We also provided contract services for Dialog in 2020.

We record revenue associated with product development projects that we enter into with certain customers.

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We record royalty revenue from our manufacturing partner, Dialog, and such royalty revenue is recognized at a point in time based on shipments from Dialog to its customers.

We recognize contract services revenue from Dialog over a period of time as 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.

We recognized contract services revenue from Dialog over a period of time as the services are performed.

The costs associated with this revenue were recognized as the services were performed and were included in cost of services revenue.

Results of Operations

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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.

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, 2021 and 2020

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

Three Months Ended September 30, 2021 and 2020

During the three months ended September 30, 2021 and 2020, we recorded revenue of $201,364 and $61,500, 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 June 30, 2021 and 2020 were $11,016,839 and $8,212,640, respectively.

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

Losses from operations for the three months ended September 30, 2021 and 2020 were $12,465,361 and $7,560,058, respectively.

Research and Development Costs.

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.

Research and development costs were $4,737,159 and $4,003,642, respectively, for the three months ended September 30, 2021 and 2020.

The increase of $733,517 is primarily due to a $317,652 increase in chip design, engineering supplies and components, a $296,335 increase in compensation, consisting of a $284,557 increase in stock-based compensation from the recognition of performance share units (“PSU”) award expense and an $11,778 increase in payroll costs and a $68,824 increase in legal fees associated with patents and intellectual property.

Sales and Marketing Costs.

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.

Sales and marketing costs for the three months ended September 30, 2021 and 2020 were $1,922,128 and $1,500,068, respectively.

The increase of $422,060 is primarily due to a $291,918 increase in compensation, consisting of a $180,196 increase in stock-based compensation from the recognition of performance share units (“PSU”) award expense and a $111,722 increase in payroll costs, a $46,745 increase in marketing and promotional expense and a $23,838 increase in public relations, consulting and third party services.

General and Administrative Expenses.

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.

General and administrative costs for the three months ended September 30, 2021 and 2020 were $1,990,266 and $2,117,848, respectively.

The decrease of $127,582 is primarily due to a $495,425 decrease in compensation, consisting of an $505,950 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and from forfeited equity awards, offset by a $10,525 increase in payroll costs, a $180,198 decrease in annual stockholder meeting costs and stock transfer fees as a result of a special shareholder’s meeting being held during the third quarter of 2020, partially offset by a $241,154 increase in recruiting fees, a $208,988 increase in legal and accounting fees, a $57,169 increase in insurance premiums and a $51,348 increase in investor relations, consulting and third party services.

Severance Expense.

Severance expense for the three months ended September 30, 2021 was $4,017,172 from the separation agreement of former President and Chief Executive Officer, Stephen Rizzone, consisting of expected cash payments and estimated payroll taxes of $3,732,178 and stock-based compensation of $284,994 from the extension of the exercise period for his stock options.

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 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 .

In t e r e s t income fo r t h e three m on t h s e nd e d September 30, 2021 w a s $835 a s c o m p a r e d t o interest income of $3,221 fo r t h e three m on t h s e nd e d September 30, 2020 .

The decrease of $2,386 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 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.

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 September 30 , 2021 was $ 12 , 464 , 526 a s c o m p a r e d t o $ 7 , 556 , 837 fo r t h e three m on t h s e nd e d September 30 , 2020 .

Nine Months Ended September 30, 2021 and 2020

During the nine months ended September 30, 2021 and 2020, we recorded revenue of $531,389 and $237,350, 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.

Operating expenses are made up of research and development, sales and marketing, general and administrative expenses, non-recurring severance expense and cost of services revenue.

Losses from operations for the nine months ended September 30, 2021 and 2020 were $32,009,987 and $24,426,373, 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.

Research and development costs were $15,432,097 and $12,909,378, respectively, for the nine months ended September 30, 2021 and 2020.

The increase of $2,522,719 is primarily due to a $1,947,909 increase in compensation, consisting of a $1,818,040 increase in stock-based compensation from the recognition of PSU award expense and $129,869 increase in payroll costs, a $562,460 increase in engineering supplies, components and chip development costs due to project timing, a $98,606 increase in consulting and third-party services expense and a $68,891 increase in regulatory testing, partially offset by a $112,522 decrease in rent expense and a $96,989 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.

Sales and marketing costs for the nine months ended September 30, 2021 and 2020 were $6,157,697 and $4,386,881, respectively.

The increase of $1,770,816 is primarily due to a $1,424,508 increase in compensation, consisting of an $856,764 increase in stock-based compensation from the recognition of PSU award expense and a $567,743 increase in payroll costs from a higher headcount within the department, a $110,124 increase in legal fees pertaining to marketing and trademarks, a $108,799 increase in marketing and promotional costs, a $91,015 increase in public relations, consulting and third-party services expense and a $58,398 increase in engineering supplies used by the sales and marketing staff for customer demonstrations.

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.

General and administrative costs for the nine months ended September 30, 2021 and 2020 were $6,934,410 and $7,240,925, respectively.

The decrease of $306,515 is primarily due to a $562,873 decrease in compensation, consisting of a $687,657 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and from forfeited equity awards, offset by a $124,784 increase in payroll costs, a $152,107 decrease in accounting and audit fees, an $80,334 decrease in board stipends, an $80,192 decrease in annual meeting costs, partially offset by a $241,184 increase in recruiting expense, $190,038 increase in insurance premiums and $161,384 increase in general corporate legal fees.

Severance Expense.

Severance expense for the nine months ended September 30, 2021 was $4,017,172 from the separation agreement of former President and Chief Executive Officer, Stephen Rizzone, consisting of expected cash payments and estimated payroll taxes of $3,732,178 and stock-based compensation of $284,994 from the extension of the exercise period for his stock options.

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 .

In t e r e s t income fo r t h e nine m on t h s e nd e d September 30, 2021 w a s $3,869 a s c o m p a r e d t o interest income of $67,134 fo r t h e nine m on t h s e nd e d September 30, 2020 .

The decrease of $63,265 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 .

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 nine m on t h s e nd e d September 30, 2021 was $32,006,118 a s c o m p a r e d t o $24,359,239 fo r t h e nine m on t h s e nd e d September 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 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.

During the nine months ended September 30, 2021 and 2020, we recorded revenue of $531,389 and $237,350, respectively.

We incurred net losses of $32,006,118 and $24,359,239 for the nine months ended September 30, 2021 and 2020, respectively.

Net cash used in operating activities was $22,498,803 and $19,435,940 for the nine months ended September 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, an at-the-market (“ATM”) offering during October 2021, proceeds from contributions to the employee stock purchase plan (“ESPP”), along with payments received from customers.

On October 4, 2021, the Company filed with the Securities and Exchange Commission (“SEC”) a prospectus supplement covering the issuance and sale of shares of the Company’s common stock having an aggregate offering price up to $35,000,000 pursuant to the Company’s at-the-market offering program (the “ATM”).

As of October 31, 2021, the Company has sold 12,229,433 shares for gross proceeds of $27,911,873 under the ATM, and a net of $27,060,301 after approximately $851,572 in broker commissions and issuance costs.

We believe our cash on hand as of September 30, 2021, together with anticipated revenues and with ATM financing during October 2021, will be sufficient to fund our operations into November 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 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.

During the nine months ended September 30, 2021, cash flows used in operating activities were $22,498,803, consisting of a net loss of $32,006,118, less non-cash expenses aggregating $9,391,389 (principally stock-based compensation of $8,591,089, decrease in amortization of operating lease right-of-use assets of $594,089 and depreciation and amortization expense of $195,361) and a $1,102,832 increase in accrued severance expense, partially offset by a $636,984 decrease in operating lease liabilities, a $174,606 decrease in accounts payable, a $111,683 increase in accounts receivable and a $72,074 increase in prepaid expenses and other current assets.

During the nine months ended September 30, 2020, cash flows used in operating activities were $19,435,940, consisting of a net loss of $24,359,239, less non-cash expenses aggregating $7,209,398 (principally stock-based compensation of $6,318,948, amortization of operating lease right-of-use assets of $570,460 and depreciation and amortization expense of $286,990), an $818,306 decrease in accrued expenses, a $626,053 decrease in accounts payable, $514,167 decrease in operating lease liabilities and a $331,367 increase in prepaid expenses and other current assets.

During the nine months ended September 30, 2021 and 2020, cash flows used in investing activities were $310,718 and $7,302, respectively.

The cash used in investing activities for the nine months ended September 30, 2021 consisted of the new website, as well as the purchases of new testing equipment and engineering software.

The cash used in investing activities for the nine months ended September 30, 2020 consisted of the purchase of new lab equipment.

During the nine months ended September 30, 2021, cash flows provided by financing activities were $362,048, which consisted of entirely of proceeds from contributions to the ESPP.

During the nine months ended September 30, 2020, cash flows provided by financing activities were $15,062,387, 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 $338,896 in proceeds from contributions to the ESPP.

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

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Furthermore, since we have no committed source of financing, there can be no assurance that we will be able to raise capital as and when we need it to continue our operations.

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 June 30, 2021.

There has been no material change in our exposure to market risk during the three months ended September 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