What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-16 · 56 added, 48 removed, 88 unchanged (54% of the section changed)

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We believe our WattUp technologies will help facilitate the deployment of the growing IoT applications.

According to the recent report of the International Data Corporation, or the IDC, titled “Worldwide Global DataSphere IoT Device and Data Forecast, 2021–2025,” the IoT market is forecasted to grow to 39.3 billion devices by 2025.

According to the IDC (International Data Corporation) November 2021 IoT Spending Guide Forecast, the IoT market is forecasted to grow to nearly 40 billion devices by 2025.

The initial IoT applications that we are targeting are in the area of RF tags and electronic shelf labeling (“ESL”) for the retail, industrial and healthcare markets.

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Impact of COVID-19 on Our Business

We continue to monitor 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 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.

We continue to monitor the ongoing effects of COVID-19, including 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.

We believe that the COVID-19 pandemic 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.

Further delays in the adoption of our current or future products could result from the ongoing pandemic.

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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 , 2022 and 2021

During the three months ended June 30, 2022 and 2021, we recorded revenue of $232,971 and $184,960, respectively.

The increase of $48,011 is primarily due to an increase in production-level systems revenue.

Three Months Ended September 30 , 2022 and 2021

During the three months ended September 30, 2022 and 2021, we recorded revenue of $223,201 and $201,364, respectively.

The increase of $21,837 is primarily due to an increase in production-level systems sales volume.

Costs and Expenses and Loss from Operations.

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

Losses from operations for the three months ended June 30, 2022 and 2021 were $7,064,798 and $11,016,839, respectively.

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

Losses from operations for the three months ended September 30, 2022 and 2021 were $6,107,715 and $12,465,361, respectively.

Cost of Revenue.

Cost of revenue was $271,384 and $0, respectively, for the three months ended June 30, 2022 and 2021.

For the three months ended June 30, 2022, cost of revenue is for our production-level systems that are sold to customers.

We did not incur any cost of revenue during the three months ended June 30, 2021.

Cost of revenue was $420,060 and $0, respectively, for the three months ended September 30, 2022 and 2021.

For the three months ended September 30, 2022, cost of revenue is for our production-level systems that are sold to customers.

We did not incur any cost of revenue during the three months ended September 30, 2021.

Research and Development Costs.

Research and development costs were $3,209,910 and $6,103,694, respectively, for the three months ended June 30, 2022 and 2021.

The decrease of $2,893,784 is primarily due to a $2,723,973 decrease in compensation, consisting of a $2,221,752 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and the transfer of the current CEO to the General and Administrative Department late last year after his promotion and a $502,221 decrease in payroll costs due to a lower headcount within the department and a $255,204 decrease in chip design and engineering supplies and components, partially offset by an $87,200 increase in recruiting fees.

Research and development costs were $2,885,830 and $4,737,159, respectively, for the three months ended September 30, 2022 and 2021.

The decrease of $1,851,329 is primarily due to a $1,385,345 decrease in compensation, consisting of a $933,492 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and the transfer of the current CEO to the General and Administrative Department late last year after his promotion and a $451,853 decrease in payroll costs due to a lower headcount within the department, a $336,059 decrease in chip design, engineering supplies and components, a $44,370 decrease in regulatory testing, a $43,165 decrease in patent-related legal fees and a $42,717 decrease in regulatory legal fees.

Sales and Marketing Costs.

Sales and marketing costs for the three months ended June 30, 2022 and 2021 were $1,158,092 and $2,441,357, respectively.

The decrease of $1,283,265 is primarily due to a $1,204,406 decrease in compensation, consisting of a $978,015 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and a lower headcount within the department and a $226,391 decrease in payroll costs due to a lower headcount within the department, a $72,994 decrease in legal fees and a $71,697 decrease in public relations, consulting and third party services expenses, partially offset by an $88,720 increase in recruiting fees.

Sales and marketing costs for the three months ended September 30, 2022 and 2021 were $1,093,640 and $1,922,128, respectively.

The decrease of $828,488 is primarily due to a $650,293 decrease in compensation, consisting of a $455,665 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and a lower headcount within the department and a $194,628 decrease in payroll costs due to a lower headcount within the department, a $114,320 decrease in public relations, consulting and third party services expenses and a $51,605 decrease in marketing and promotional expense.

General and Administrative Expenses.

General and administrative costs for the three months ended June 30, 2022 and 2021 were $2,024,939 and $2,656,748, respectively.

The decrease of $631,809 is primarily due to a $482,890 decrease in compensation, consisting of a $452,432 decrease in stock-based compensation from forfeited equity awards and a lower headcount within the department and a $30,458 decrease in payroll costs due to a lower headcount within the department, a $128,942 decrease in legal and accounting fees and a $77,556 decrease in annual meeting costs, partially offset by a $47,970 increase in recruiting fees.

General and administrative costs for the three months ended September 30, 2022 and 2021 were $1,931,386 and $1,990,266, respectively.

The decrease of $58,880 is primarily due to a $245,166 decrease in recruiting fees, a $134,169 decrease in investor relations, consulting and third-party services and a $40,422 decrease in annual meeting costs, partially offset by a $242,884 increase in compensation, consisting of a $155,834 increase in stock-based compensation from recently granted executive equity awards and an $87,052 increase in payroll costs due to the former CEO and former CFO only receiving partial pro-rated bonus payments during the third quarter of 2021, a $50,286 increase in travel costs, a $30,447 increase in accounting and audit fees, a $25,432 increase in software and training expense and a $15,108 increase in supplies.

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, 2022 w a s $47,049 a s c o m p a r e d t o interest income of $1,010 fo r t h e three m on t h s e nd e d June 30, 2021 .

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, 2022 w a s $142,840 a s c o m p a r e d t o interest income of $835 fo r t h e three m on t h s e nd e d September 30, 2021 .

The increase of $142,005 is primarily due to higher 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, 2022 was $7,017,749 a s c o m p a r e d t o $11,015,829 fo r t h e three m on t h s e nd e d June 30, 2021 .

Six Months Ended June 30, 2022 and 2021

During the six months ended June 30, 2022 and 2021, we recorded revenue of $448,932 and $330,025, respectively.

The increase is primarily from sales to our production-level customer.

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, 2022 was $5,964,875 a s c o m p a r e d t o $12,464,526 fo r t h e three m on t h s e nd e d September 30, 2021 .

Nine Months Ended September 30, 2022 and 2021

During the nine months ended September 30, 2022 and 2021, we recorded revenue of $672,133 and $531,389, respectively.

The increase of $140,744 is primarily due to an increase in production-level systems sales volume.

Costs and Expenses and Loss from Operations.

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

Losses from operations for the six months ended June 30, 2022 and 2021 were $14,220,342 and $19,544,626, respectively.

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

Losses from operations for the nine months ended September 30, 2022 and 2021 were $20,328,057 and $32,009,987, respectively.

Cost of Revenue.

Cost of revenue was $474,633 and $0, respectively, for the six months ended June 30, 2022 and 2021.

For the six months ended June 30, 2022, cost of revenue is for our production-level systems that are sold to customers.

We did not incur any cost of revenue during the six months ended June 30, 2021.

Cost of revenue was $894,693 and $0, respectively, for the nine months ended September 30, 2022 and 2021.

For the nine months ended September 30, 2022, cost of revenue is for our production-level systems that are sold to customers.

We did not incur any cost of revenue during the nine months ended September 30, 2021.

Research and Development Costs.

Research and development costs were $6,737,056 and $10,694,938, respectively, for the six months ended June 30, 2022 and 2021.

The decrease of $3,957,882 is primarily due to a $3,834,747 decrease in compensation, consisting of a $3,017,986 decrease in stock-based compensation from the recognition of PSU award expense in 2021 and the transfer of the current CEO to the General and Administrative department towards the end of 2021 after his promotion and $816,761 decrease in payroll costs from a lower headcount within the department, a $267,023 decrease in consulting and third party expense and a $178,084 decrease in engineering

supplies, components and chip development costs due to project timing, partially offset by a $112,850 increase in recruiting fees and an $89,221 increase in postage.

Research and development costs were $ 9,622,886 and $ 15,432,097 , respectively, for the nine months ended September 30, 2022 and 2021 .

The de crease of $ 5,809,211 is primarily due to a $ 5,220,092 decrease in compensation, consisting of a $ 3,951,478 decrease in stock-based compensation from the recognition of PSU award expense in 2021 and the transfer of the current CEO to the General and Administrative department towards the end of 2021 after his promotion and $ 1,268,614 decrease in payroll costs from a lower headcount within the department, a $ 514,143 decrease in chip design, engineering supplies and components, a $99,947 decrease in consulting and third party services and an $82,062 decrease in regulatory legal fees, partially offset by a $130,125 increase in recruiting fees and a $124,228 increase in postage from shipping components and demonstration units for customer demonstrations and regulatory testing .

Sales and Marketing Costs.

Sales and marketing costs for the six months ended June 30, 2022 and 2021 were $2,771,682 and $4,235,569, respectively.

The decrease of $1,463,887 is primarily due to a $1,535,539 decrease in compensation, consisting of a $1,246,585 decrease in stock-based compensation from the recognition of PSU award expense during 2021 and a lower headcount within the department and a $288,954 decrease in payroll costs from a lower headcount within the department, a $156,242 decrease in public relations, consulting and third party services expense, a $90,087 decrease in legal fees and a $63,633 decrease in marketing and promotional expenses, partially offset by a $228,424 increase in tradeshow expense and an $88,720 increase in recruiting fees.

Sales and marketing costs for the nine months ended September 30, 2022 and 2021 were $3,865,322 and $6,157,697, respectively.

The decrease of $2,292,375 is primarily due to a $2,185,832 decrease in compensation, consisting of a $1,702,250 decrease in stock-based compensation from the recognition of PSU award expense during 2021 and a lower headcount within the department and a $483,582 decrease in payroll costs from a lower headcount within the department, a $270,562 decrease in public relations, consulting and third party services, a $115,238 decrease in marketing and promotional expenses and a $63,091 decrease in legal fees, partially offset by a $234,303 increase in tradeshow expense and an $88,720 increase in recruiting fees.

General and Administrative Expenses.

General and administrative costs for the six months ended June 30, 2022 and 2021 were $4,052,459 and $4,944,144, respectively.

The decrease of $891,685 is primarily due to a $924,192 decrease in compensation, consisting of a $736,948 decrease in stock-based compensation from the recognition of PSU award expense during 2021 and a $187,244 decrease in payroll costs from a lower headcount within the department, a $258,951 decrease in legal fees, a $45,309 decrease in rent and a $41,308 decrease in annual meeting costs, partially offset by a $157,964 increase in recruiting fees, a $42,228 increase in accounting and audit fees, a $38,202 increase in insurance premiums, a $37,279 increase in travel costs and a $32,627 increase in training, dues and subscriptions.

General and administrative costs for the nine months ended September 30, 2022 and 2021 were $5,983,845 and $6,934,410, respectively.

The decrease of $950,565 is primarily due to a $681,306 decrease in compensation, consisting of a $581,114 decrease in stock-based compensation primarily from company-wide PSU expense during 2021 and a $100,192 decrease in payroll costs from a lower headcount within the department, a $255,009 decrease in legal fees, an $87,202 decrease in recruiting fees, an $83,178 decrease in annual meeting costs and a $65,505 decrease in investor relations, consulting and third party services, partially offset by an $87,564 increase in travel costs, a $72,674 increase in accounting and audit fees, a $47,480 increase in training, dues and subscriptions and a $35,102 increase in insurance premiums.

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, 2022 w a s $49,875 a s c o m p a r e d t o interest income of $3,034 fo r t h e six m on t h s e nd e d June 30, 2021 .

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, 2022 w a s $192,715 a s c o m p a r e d t o interest income of $3,869 fo r t h e nine m on t h s e nd e d September 30, 2021 .

The increase of $188,846 is primarily due to higher 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, 2022 was $14,170,467 a s c o m p a r e d t o $ 19,541,592 fo r t h e six m on t h s e nd e d June 30, 2021 .

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, 2022 was $20,135,342 a s c o m p a r e d t o $ 32,006,118 fo r t h e nine m on t h s e nd e d September 30, 2021 .

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, 2022 and 2021, we recorded revenue of $448,932 and $330,025, respectively.

We incurred net losses of $14,170,467 and $19,541,592 for the six months ended June 30, 2022 and 2021, respectively.

Net cash used in operating activities was $13,453,948 and $12,537,690 for the six months ended June 30, 2022 and 2021, respectively.

During the nine months ended September 30, 2022 and 2021, we recorded revenue of $672,133 and $531,389, respectively.

We incurred net losses of $20,135,342 and $32,006,118 for the nine months ended September 30, 2022 and 2021, respectively.

Net cash used in operating activities was $18,838,453 and $22,498,803 for the nine months ended September 30, 2022 and 2021, respectively.

We are currently meeting our liquidity requirements through the proceeds of securities offerings that raised net proceeds of $53,556,202 during 2020 and $27,043,751 during the fourth quarter of 2021, proceeds from contributions to the ESPP and payments received from customers.

We believe our cash on hand as of June 30, 2022, together with anticipated revenues, will be sufficient to fund our operations through August 2023.

We believe our cash on hand as of September 30, 2022, together with anticipated revenues, will be sufficient to fund our operations through November 2023.

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 will be available on terms that we would find acceptable, or at all.

During the six months ended June 30, 2022, cash flows used in operating activities were $13,453,948, consisting of a net loss of $14,170,467, less non-cash expenses aggregating $1,977,108 (principally stock-based compensation of $1,460,693, amortization of operating lease right-of-use assets of $371,604 and depreciation and amortization expense of $127,311), a $403,029 decrease in operating lease liabilities, a $391,009 increase in prepaid expenses and other current assets, a $230,619 decrease in accrued severance expense, a $197,025 decrease in accounts payable, a $52,153 increase in inventory and a $50,554 decrease in accrued expenses, partially offset by a $55,819 decrease in accounts receivable.

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, 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, 2022 and 2021, cash flows used in investing activities were $112,509 and $203,004, respectively.

The cash used in investing activities for the six months ended June 30, 2022 consisted of the purchase of new testing equipment and engineering software.

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

During the six months ended June 30, 2022, cash flows provided by financing activities were $164,728, which consisted of entirely of proceeds from contributions to the ESPP.

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

During the nine months ended September 30, 2022, cash flows used in operating activities were $18,838,453, consisting of a net loss of $20,135,342, less non-cash expenses aggregating $2,940,282 (principally stock-based compensation of $2,158,915, amortization of operating lease ROU assets of $550,372 and depreciation and amortization expense of $200,995), a $594,703 decrease in operating lease liabilities, a $395,405 decrease in accrued severance expense, a $312,174 decrease in accounts payable, a $230,368 increase in prepaid expenses and other current assets and a $164,426 increase in inventory, partially offset by a $42,477 increase in deferred revenue.

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, amortization of operating lease ROU 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, 2022 and 2021, cash flows used in investing activities were $127,198 and $310,718, respectively.

The cash used in investing activities for the nine months ended September 30, 2022 consisted of the purchase of new testing equipment and engineering software.

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

During the nine months ended September 30, 2022, cash flows provided by financing activities were $249,705, which consisted of entirely of proceeds from contributions to the ESPP.

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

On October 11, 2019, we entered into the At Market Issuance Sales Agreement between the Company, B.

Riley Securities, Inc., Roth Capital Partners LLC and Ladenburg Thalmann & Co.

Inc., as amended by that certain Amendment No.

1 to the At Market Issuance Sales Agreement, dated as of September 14, 2022, and that certain Amendment No.

2 to the At Market Issuance Sales Agreement, dated as of October 4, 2021, through which it may offer and sell up to $75,000,000 of shares of our common stock (the “ATM Program”).

During the three months ended September 30, 2022, we did not sell any shares under the ATM Program.

As of September 30, 2022, $7,088,127 remains available for sale under the ATM Program.

We sold 438,411 shares of common stock under the ATM Program during the period from October 1, 2022 through November 7, 2022.

Net proceeds from such sales were $453,180, after deducting issuance costs.

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

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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, 2022.

There has been no material change in our exposure to market risk during the three months ended September 30, 2022.

See "Quantitative and Qualitative Disclosures about Market Risk" in Part II, Item 7A of our Form 10-K for the year ended December 31, 2021 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