During the three and six months ended June 30, 2020, the Company recorded
revenue of $114,375 and $175,850, respectively, and during the three and six
months ended June 30, 2019, the Company recorded revenue of $47,500 and
$114,000, respectively. During the three and six months ended June 30, 2020, the
Company recorded net losses of $8,204,666 and $16,802,402, respectively, and
during the three and six months ended June 30, 2019, the Company recorded net
losses of $9,803,996 and $20,823,464, respectively. Net cash used in operating
activities was $13,215,844 and $14,423,911 for the six months ended June 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 under product development projects.
As of June 30, 2020, the Company had cash on hand of $23,408,940. The Company
expects that cash on hand as of June 30, 2020, together with anticipated
revenues and potential financing will be sufficient to fund the Company's
operations into August 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.
7
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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 $4,330,433 and $5,515,017
for the three months ended June 30, 2020 and 2019, respectively, and the Company
incurred research and development costs of $8,905,736 and $12,315,695 for the
six months ended June 30, 2020 and 2019, respectively.
8
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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 June 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 six months ended June 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 6,945,580 and 7,228,185 for the three months
ended June 30, 2020 and 2019, respectively, and 6,945,580 and 7,228,185 for the
six months ended June 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 For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Warrant issued to private
investors 3,938,802 4,702,354 3,938,802 4,702,354
Options to purchase common
stock 550,985 576,293 550,985 576,293
RSUs 1,822,116 1,949,538 1,822,116 1,949,538
PSUs 633,677 - 633,677 -
Total potentially dilutive
securities 6,945,580 7,228,185 6,945,580 7,228,185
9
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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
June 30, 2020, through the date which the financial statements are 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.
10
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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
$1,860,189 during the period from the third quarter of 2020 to the third quarter
of 2022. As of June 30, 2020, the company has total operating lease right-of-use
assets of $1,678,983, current portion operating lease liabilities of $803,760
and long-term portion of operating lease liabilities of $979,660. The weighted
average remaining lease term is 2.2 years as of June 30, 2020.
A reconciliation of undiscounted cash flows to lease liabilities recognized as
of June 30, 2020 is as follows:
Amount
(unaudited)
2020 412,521
2021 863,199
2022 584,469
Total future lease payments 1,860,189
Present value discount (4% weighted average) (76,769 )
Total operating lease liabilities
1,783,420
Hosted Design Solution 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.
11
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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 June 30, 2020, the Company accrued $392,929 in
expense under the Bonus Plan, which will be paid during the third quarter of
2020. During the three months ended June 30, 2019, the Company accrued $209,675
in expense, which was paid during the third quarter of 2019. During the six
months ended June 30, 2020 and 2019, the Company incurred $677,520 and $524,188
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.
12
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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,
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 during the second quarter of 2020, pursuant to this shelf
registration statement, in an "at-the-market" equity offering.
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.
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 June 30, 2020, 1,882,783 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.
As of June 30, 2020, 1,072,794 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.
13
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Note 6 - Stock-Based Compensation, continued
Equity Incentive Plans, continued
As of June 30, 2020, 1,498,274 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 June 30, 2020, 213,776 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 June 30, 2020, 271,380 shares of common stock remain eligible to be issued
under the ESPP. Employees contributed $217,204 through payroll withholdings to
the ESPP for the offering period ended June 30, 2020 and shares were deemed
delivered on June 30, 2020.
Stock Option Activity
The following is a summary of the Company's stock option activity during the six
months ended June 30, 2020:
Weighted
Weighted Average
Average Remaining
Number of Exercise Life In Intrinsic
Options Price Years Value
Outstanding at January 1, 2020 550,985 $ 5.67 4.3 $ 2,538
Granted - - - -
Exercised - - - -
Forfeited - - - -
Outstanding at June 30, 2020 550,985 $ 5.67 3.8 $ 32,232
Exercisable at January 1, 2020 550,985 $ 5.67 4.3 $ 2,538
Vested - - - -
Exercised - - - -
Forfeited - - - -
Exercisable at June 30, 2020 550,985 $ 5.67 3.8 $ 32,232
As of June 30, 2020, the unamortized value of options was $0.
14
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Note 6 - Stock-Based Compensation, continued
Restricted Stock Units ("RSUs")
During the six months ended June 30, 2020, the Compensation Committee granted
various employees RSUs covering 645,031 shares of common stock under the 2013
Equity Incentive Plan. The awards vest over terms ranging from two to four
years.
During the six months ended June 30, 2020, the Compensation Committee granted
employees RSUs covering 113,000 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 June 30, 2020, the unamortized value of the RSUs was $7,576,429. The
unamortized amount will be expensed over a weighted average period of 1.4 years.
A summary of the activity related to RSUs for the six months ended June 30, 2020
is presented below:
Weighted
Average
Grant
Date Fair
Total Value
Outstanding at January 1, 2020 1,821,852 $ 10.05
RSUs granted 758,031 $ 1.25
RSUs forfeited (128,213 ) $ 8.66
RSUs vested (629,554 ) $ 9.11
Outstanding at June 30, 2020 1,822,116 $ 6.81
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 June
30, 2020 and 2019, respectively and amortization for all PSU awards was
$(88,348) and $0 for the six months ended June 30, 2020 and 2019, respectively.
A summary of the activity related to PSUs for the six months ended June 30, 2020
is presented below:
Weighted
Average Grant
Total Date Fair Value
Outstanding at January 1, 2020 428,000 $ 2.09
PSUs granted 267,677 1.25
PSUs forfeited (62,000 ) 2.09
PSUs vested - -
Outstanding at June 30, 2020 633,677 1.74
15
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Note 6 - Stock-Based Compensation, continued
Employee Stock Purchase Plan ("ESPP")
The most recent 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 $0.57 and $2.43 for
the six months ended June 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 $41,308 and $122,749 for the three months ended June 30, 2020 and 2019,
respectively, and $84,135 and $210,574 for the six months ended June 30, 2020
and 2019, respectively.
The Company estimated the fair value of ESPP purchase options granted during the
six months ended June 30, 2020 and 2019 using the Black-Scholes option pricing
model. The fair values of stock options granted were estimated using the
following assumptions:
Six Months Ended Six Months Ended
June 30, 2020 June 30, 2019
Stock price $ 1.77 $ 5.79
Dividend yield 0 % 0 %
Expected volatility 61 % 96 %
Risk-free interest rate 1.57 % 2.51 %
Expected life 6 months 6 months
Stock-Based Compensation Expense
The following tables summarize total stock-based compensation costs recognized
for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
RSUs $ 2,028,599 $ 2,675,184 $ 4,350,419 $ 5,758,751
PSUs - - (88,348 ) -
ESPP 41,308 122,749 84,135 210,574
Total $ 2,069,907 $ 2,797,933 $ 4,346,206 $ 5,969,325
The total amount of stock-based compensation was reflected within the statements
of operations as:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Research and development $ 1,032,049 $ 1,361,225 $ 2,133,027 $ 3,017,778
Sales and marketing 440,335 343,945 804,793 720,993
General and administrative 597,523 1,092,763 1,408,386 2,230,554
Total $ 2,069,907 $ 2,797,933 $ 4,346,206 $ 5,969,325
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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 June 30, 2020, a total of 654,013 of the
warrants remain outstanding. As of June 30, 2020, Dialog owns approximately 4.2%
of the Company's outstanding common shares and could potentially own
approximately 5.7% of the Company's outstanding common shares if it exercised
all of its warrants for common shares. The Company recorded $0 and $0 for the
three months ended June 30, 2020 and 2019, respectively, and $0 and $7,100 for
the six months ended June 30, 2020 and 2019, respectively, in royalty revenue
pursuant to the Strategic Alliance Agreement. Additionally, the Company recorded
$89,375 and $0 in contract services revenue performed for Dialog during the
three months ended June 30, 2020 and 2019, respectively, and $130,000 and $0 in
contract services revenue performed for Dialog during the six months ended June
30, 2020 and 2019, respectively. The Company recorded $86,995 and $0 in cost of
services revenue associated with the contract services performed for Dialog
during the three months ended June 30, 2020 and 2019, respectively, and $126,539
and $0 in cost of services revenue during the six months ended June 30, 2020 and
2019, respectively.
Note 8 - Customer Concentrations
Two customers accounted for approximately 96% of the Company's revenue for the
three months ended June 30, 2020, and two customers accounted for approximately
95% of the Company's revenue for the three months ended June 30, 2019. Two
customers accounted for approximately 85% of the Company's revenue for the six
months ended June 30, 2020 and three customers accounted for approximately 75%
of the Company's revenue for the six months ended June 30, 2019. One customer
accounted for approximately 85% of the accounts receivable balance, which is
Dialog, a related party, as of June 30, 2020. The accounts receivable balance
for Dialog was $89,375 as of June 30, 2020. Four customers accounted for nearly
100% of the accounts receivable balance as of December 31, 2019.
Note 9 - Subsequent Event
On July 24, 2020, the Company held a special meeting of stockholders via a live
webcast during which the stockholders approved an increase of total authorized
shares from 60,000,000 to 210,000,000 and the number of authorized shares of
common stock from 50,000,000 to 200,000,000 shares.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
As used in this Quarterly Report on Form 10-Q, unless the context otherwise
requires the terms "we," "us," "our," and "Energous" refer to Energous
Corporation, a Delaware corporation. This report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that are intended to be covered by the "safe harbor" created by those sections.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, can generally be identified by
the use of forward-looking terms such as "believe," "expect," "may," "will,"
"would," "should," "could," "seek," "intend," "plan," "continue," "estimate,"
"anticipate" or other comparable terms. All statements other than statements of
historical facts included in this report regarding our strategies, prospects,
financial condition, operations, costs, plans and objectives are forward-looking
statements. Examples of forward-looking statements include, among others,
statements we make regarding proposed business strategy; market opportunities;
regulatory approval; expectations for current and potential business
relationships; the impact of COVID-19 on our business and our response to it;
and expectations for revenues, liquidity cash flows and financial performance,
the anticipated results of our research and development efforts, the timing for
receipt of required regulatory approvals and product launches. Forward-looking
statements are neither historical facts nor assurances of future performance.
Instead, they are based only on our current beliefs, expectations and
assumptions regarding the future of our business, future plans and strategies,
projections, anticipated events and trends, the economy and other future
conditions. Forward-looking statements relate to the future and are subject to
inherent uncertainties, risks and changes in circumstances that are difficult to
predict and generally outside of our control, so actual results and financial
condition may differ materially from those indicated in the forward-looking
statements. Important factors that could cause our actual results and financial
condition to differ materially from those indicated in the forward-looking
statements include, among others: our ability to develop commercially feasible
technology; timing of customer implementations of our technology in consumer
products; timing and receipt of regulatory approvals in the United States and
internationally; our ability to find and maintain development partners; market
acceptance of our technology; competition in our industry; our ability to
protect our intellectual property; competition; and other risks and
uncertainties described in the Risk Factors and in Management's Discussion and
Analysis sections of our most recently filed Annual Report on Form 10-K and
subsequently filed Quarterly Reports on Form 10-Q, including this Quarterly
Report on Form 10-Q. We undertake no obligation to publicly update any of our
forward-looking statements, whether as a result of new information, future
developments or otherwise.
Overview
We have developed our WattUp® wireless power technology, consisting of
proprietary semiconductor chipsets, software controls, hardware designs and
antennas, that enables radio frequency ("RF") based charging for electronic
devices. The WattUp technology has a broad spectrum of capabilities, including
contact-based wireless charging and wireless charging at various distances. We
have demonstrated that, for non-contact applications, our transmitter technology
is able to mesh into a wire-free charging network that is expected to allow
users to charge their devices even as the devices are moved about in
three-dimensional space ("mobility charging"). 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 technology can be
utilized in consumer electronics such as wearables, hearing aids, earbuds,
Bluetooth headsets, Internet of Things ("IoT") devices, smartphones, tablets,
smartwatches, fitness bands, keyboards, mice, remote controls, rechargeable
lights, batteries, medical devices, 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 by surrounding them with a
focused RF energy pocket. We are engineering solutions that deliver wire-free
energy for contact-based charging applications and are also developing
non-contact charging at distances up to approximately three feet, as well as
low-power charging for distances up to 15 feet and in some use cases 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 hearing aids, fitness bands,
smartwatches, smartphones, smartglasses, sensors, industrial applications,
keyboards, mice, headsets, earbuds, headphones, Bluetooth tracking tags and
more. We are engaged with several consumer electronics (CE) and medical device
companies that are in the pre-production stage of WattUp-based product
development. In 2019, our first end customer product entered the market and we
expect additional partner products to be announced and launched in 2020. We are
also in discussion 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 2021.
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When the company was founded in 2012, we recognized the need to design and build
an enterprise-class network management and control software ("NMS") system that
would be integral to supporting our customers' rapid and cost-effective
deployment of our wire-free charging technology. Our NMS system is robust and
flexible enough to both scale up to control thousands of devices across an
enterprise, or scale down to meet the needs of a home or IoT environment.
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. This
transmitter underwent rigorous, multi-month testing to verify that it met
consumer safety and regulatory requirements. We believe this was the first
certification of a Part 18 FCC-approved non-contact wireless charging
transmitter, and that it establishes engineering design precedents that can
streamline future regulatory approvals for our technology and for our customers'
end-products that employ our technology. In April 2020, we announced an FCC
certification for a new over-the-air charging transmitter technology which we
believe will offer our partners a lower-cost, smaller size transmitter
technology for lower power applications.
Our technology solution consists principally of transmitter controller ICs,
power amplifier ICs and receiver ICs, as well as novel antenna designs,
application prototypes and proprietary software algorithms. We submitted our
first IC design for wafer fabrication in 2013 and have developed many
generations of transmitter and receiver ICs, antenna designs, and software
algorithms. We have endeavored to optimize our technology by reducing size and
cost, while at the same time increasing performance which enables our designs to
be integrated into a broad range of devices. We have developed a "building
block" approach that allows us to scale our product implementations by combining
multiple transmitter building blocks or multiple receiver building blocks to
meet the power, distance, size and cost requirements of customer applications
requirements. 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 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 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 deliver evaluation kits to potential licensees of our technology, to allow
their respective engineering and product management departments to test and
evaluate the technology. Our customers' product development, technology
integration and product introduction cycles occur over multiple quarters and
generally more than a year can elapse before first evaluation and final shipment
of the customer's product. 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 generally maintain exclusive 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 July 30,
2020, we had more than 65 pending patent applications in the U.S. and abroad.
Additionally, the U.S. Patent and Trademark Office and international patent
offices have issued 224 patents to us. In addition to the inventions covered by
these patents, we have also identified specific inventions that we believe are
novel and patentable. In addition to the inventions covered by these patents and
patent applications, we have also identified specific inventions that we believe
are novel and patentable. We intend to file for patent protection for the most
valuable of these, and for other inventions that we expect to develop. This is a
significant annual expense and we continually monitor the costs and benefits of
each patent application and pursue those that we believe are most protective for
our business and expand the core value of the Company.
Our seasoned management team has both private and public company experience, as
well as relevant industry experience. 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.
The market for products using our technology is nascent and unproven, so our
success is sensitive to many factors, including technological feasibility,
regulatory approval, customer acceptance, competition and global market
fluctuations.
Impact of COVID-19 on Our Business
In March 2020, the World Health Organization declared the outbreak of COVID-19
as a pandemic. The pandemic continues to affect the United States and the world.
We are monitoring the ongoing effects of COVID-19 (including
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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 outbreak 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. For example, in one case, the outbreak earlier
in the spring delayed the launch of a new product that incorporates our
technology. Further delays in this or other products could result from the
pandemic. These changes are due in part to changes in how business is conducted
as a result of the pandemic, including state executive orders, local
shelter-in-place orders, government-imposed quarantines and work-from-home
policies in China, the United States, and elsewhere. We have implemented
work-from-home policies for our employees that will likely be in place until the
end of the year. 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. 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.
Critical Accounting Policies and Estimates
Revenue Recognition
On January 1, 2018 we adopted Accounting Standards Update No. 2014-09, "Revenue
from Contracts with Customers" (Topic 606).
In accordance with Topic 606, we recognize 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.
Our revenue currently consists of product development projects revenue and
royalty revenue from Dialog. We also provide contract services for Dialog.
We record revenue associated with product development projects that we enter
into with certain customers. In general, these product development projects are
complex, and we do not have certainty about our ability to achieve the project
milestones. The achievement of a milestone is dependent on our performance
obligation and requires acceptance by the customer. We recognize 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 our effort or the value of the deliverable and is nonrefundable. We record
the expenses related to these product development projects in research and
development expense, in the periods such expenses were incurred.
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.
Results of Operations
Three Months Ended June 30, 2020 and 2019
Revenue. During the three months ended June 30, 2020 and 2019, we recorded
revenue of $114,375 and $47,500, 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, 2020 and 2019 were $8,212,640 and $9,946,656,
respectively.
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Research and Development Costs. Research and development costs were $4,330,433
and $5,515,017, respectively, for the three months ended June 30, 2020 and 2019.
The decrease of $1,184,584 is primarily due to an $867,935 decrease in
compensation, consisting of a $538,759 decrease in payroll costs and a $329,176
decrease in stock-based compensation from a lower headcount within the
department, a $121,436 decrease in depreciation and a $102,950 decrease in
engineering supplies, components and chip development costs due to project
timing.
Sales and Marketing Costs. Sales and marketing costs for the three months ended
June 30, 2020 and 2019 were $1,438,904 and $1,143,910, respectively. The
increase of $294,994 is primarily due to a $273,339 increase in compensation,
consisting of a $176,949 increase in payroll costs and a $96,390 increase in
stock-based compensation from a higher headcount within the department, a
$70,013 increase in consulting and third party services, partially offset by an
$86,317 decrease in travel, meals and entertainment as a result of COVID-19
restrictions.
General and Administrative Expenses. 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. General and
administrative costs for the three months ended June 30, 2020 and 2019 were
$2,470,683 and $3,335,229, respectively. The decrease of $864,546 is primarily
due to a $495,240 decrease in stock-based compensation due to certain equity
awards reaching full expense amortization during the previous year and
forfeitures of awards from former board members, a $345,519 decrease in legal
expense and a $66,799 decrease in travel, meals and entertainment as a result of
COVID-19 restrictions, partially offset by a $97,552 increase in insurance
premiums.
Cost of Services Revenue. During the three months ended June 30, 2020 and 2019,
we recorded cost of services revenue of $86,995 and $0, respectively. These
costs are related to our contract services performed for Dialog.
Interest Income. Interest income for the three months ended June 30, 2020 was
$7,974 as compared to interest income of $142,660 for the three months ended
June 30, 2019. The decrease of $134,686 is primarily due to lower savings
interest rates and a lower average cash balance.
Net Loss. As a result of the above, net loss for the three months ended June 30,
2020 was $8,204,666 as compared to $9,803,996 for the three months ended June
30, 2019.
Six Months Ended June 30, 2020 and 2019
Revenue. During the six months ended June 30, 2020 and 2019, we recorded revenue
of $175,850 and $114,000, 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, 2020 and 2019 were $16,866,315 and $21,042,197, respectively.
Research and Development Costs. Research and development costs were $8,905,736
and $12,315,695, respectively, for the six months ended June 30, 2020 and 2019.
The decrease of $3,409,959 is primarily due to a $2,521,821 decrease in
compensation, consisting of a $1,637,070 decrease in payroll costs and an
$884,751 decrease in stock-based compensation from a lower headcount within the
department, a $631,844 decrease in engineering supplies, components and chip
development costs due to project timing, a $211,874 decrease in depreciation, a
$125,324 decrease in consulting fees and an $84,468 decrease in regulatory
testing fees, partially offset by a $212,714 increase in legal fees pertaining
to patents and intellectual property.
Sales and Marketing Costs. Sales and marketing costs for the six months ended
June 30, 2020 and 2019 were $2,886,813 and $2,743,362, respectively. The
increase of $143,451 is primarily due to a $156,813 increase in compensation,
consisting of a $73,013 increase in payroll costs and an $83,800 increase in
stock-based compensation from a higher headcount within the department and a
$262,271 increase in consulting and third party services, partially offset by a
$101,265 decrease in tradeshow expenses, a $91,665 decrease in supplies utilized
for customer demonstrations and an $86,317 decrease in travel, meals and
entertainment as a result of COVID-19 restrictions.
General and Administrative Expenses. 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. General and
administrative costs for the six months ended June 30, 2020 and 2019 were
$5,123,077 and $6,097,140, respectively. The decrease of $974,063 is primarily
due to a $926,955 decrease in compensation, consisting of a $822,168 decrease in
stock-based compensation due to
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certain equity awards reaching full expense amortization during the previous
year and a $104,786 decrease in payroll costs, a $327,138 decrease in legal
costs, a $74,650 decrease in travel, meals and entertainment as a result of
COVID-19 restrictions and a $51,399 decrease in general office expenses,
partially offset by a $206,116 increase in accounting and auditing fees, a
$155,653 increase in insurance premiums and a $112,570 increase in consulting
expense.
Cost of Services Revenue. During the six months ended June 30, 2020 and 2019, we
recorded cost of services revenue of $126,539 and $0, respectively. These costs
are related to our contract services performed for Dialog.
Interest Income. Interest income for the six months ended June 30, 2020 was
$63,913 as compared to interest income of $218,733 for the six months ended June
30, 2019. The decrease of $154,820 is primarily due to lower savings interest
rates and a lower average cash balance.
Net Loss. As a result of the above, net loss for the six months ended June 30,
2020 was $16,802,402 as compared to $20,823,464 for the six months ended June
30, 2019.
Liquidity and Capital Resources
During the six months ended June 30, 2020 and 2019, we recorded revenue of
$175,850 and $114,000, respectively. We incurred net losses of $16,802,402 and
$20,823,464 for the six months ended June 30, 2020 and 2019, respectively. Net
cash used in operating activities was $13,215,844 and $14,423,911 for the six
months ended June 30, 2020 and 2019, respectively. We are currently meeting our
liquidity requirements through the proceeds from 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 under product development
projects.
We believe our current cash on hand, together with anticipated revenues and
potential financing, will be sufficient to fund our operations into August 2021.
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. Accordingly, we will
likely 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 we
would find acceptable, or at all.
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, 2019, cash flows used in operating
activities were $14,423,911, consisting of a net loss of $20,823,464, less
non-cash expenses aggregating $6,739,398 (principally stock-based compensation
of $5,969,325 and depreciation and amortization expense of $476,863), a $534,124
decrease in accounts payable, partially offset by a $332,767 increase in accrued
expenses.
During the six months ended June 30, 2020 and 2019, cash flows used in investing
activities were $0 and $172,811, respectively. The cash used in investing
activities for the six months ended June 30, 2019 primarily consisted of
leasehold improvements related to the construction of a regulatory testing
chamber within our office space.
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 six months ended
June 30, 2019, cash flows provided by financing activities were $23,698,482,
which consisted of $23,319,156 in net proceeds from a private offering of shares
and warrants pursuant to a shelf registration, $400,103 in proceeds from the
exercise of stock options and $318,589 in proceeds from contributions to the
ESPP, partially offset by $339,366 in shares withheld for the payment of payroll
taxes for the delivery of RSUs and PSUs.
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Research and development of new technologies is, by its nature, unpredictable.
Although we intend to continue our research and undertake development
activities, there can be no assurance that our available resources will be
sufficient to enable us to generate revenues sufficient to sustain operations.
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, 2020, we did not have any off-balance sheet transactions.
Material Changes in Specified Contractual Obligations
A table of our specified contractual obligations was provided in the
Management's Discussion and Analysis of Financial Condition and Results of
Operation of our most recent Annual Report on Form 10-K. There were no material
changes outside the ordinary course of our business in the specified contractual
obligations during the three months ended June 30, 2020.
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