Notes to Financial Statements
Note 1 - Business Organization, Nature of Operations
Energous Corporation (the “Company”) was
incorporated in Delaware on October 30, 2012. The Company has developed a technology called WattUp® that consists of
proprietary semiconductor chipsets, software, hardware designs and antennas that can enable RF-based wire-free charging for
electronic devices, providing power at a distance and ultimately enabling charging with mobility under full software control.
Pursuant to a Strategic Alliance Agreement with Dialog Semiconductor plc (“Dialog”), Dialog will manufacture and distribute integrated
circuit (“IC”) products incorporating the Company’s RF-based wire-free charging technology. Dialog will be
the exclusive supplier of these ICs for the general market. The Company believes its proprietary technology can potentially
be utilized in a variety of devices, including wearables, Internet of Things (IoT) devices, smartphones, tablets, e-book
readers, keyboards, mice, remote controls, rechargeable lights, cylindrical batteries and any other device with similar
charging requirements that would otherwise need a battery or a connection to a power outlet.
The Company is developing solutions that charge electronic
devices by surrounding them with a contained three-dimensional (“3D”) radio frequency (“RF”) energy pocket
(“RF energy pocket”). The Company is engineering solutions that are expected to enable the wire-free transmission
of energy from multiple WattUp transmitters to multiple WattUp receiving devices within a range of up to 15 feet in radius or
in a circular charging envelope of up to 30 feet. The Company is also developing a transmitter technology to seamlessly mesh,
(much like a network of WiFi routers) to form a wire-free charging network that will allow users to charge their devices as they
walk from room-to-room or throughout a large space. To date, the Company has developed multiple transmitter prototypes in various
form factors and power capabilities. The Company has also developed multiple receiver prototypes supporting smartphone battery
cases, toys, fitness trackers, Bluetooth headsets and tracking devices, as well as stand-alone receivers.
Note 2 – Liquidity and Management Plans
During the year ended December 31, 2016, the Company has recorded
revenue of $1,451,941. The Company incurred a net loss of $45,817,394, 27,561,702 and $45,603,110 for the years ended December
31, 2016, 2015 and 2014, respectively. Net cash used in operating activities was $33,062,247, 20,005,734 and $15,606,423 for the
years ended December 31, 2016, 2015 and 2014, respectively. The Company is currently meeting its liquidity requirements principally
through sales of shares to three different private investors during August 2016, November 2016 and December 2016, raising net proceeds
of $34,788,311, and payments received under product development projects entered into with a tier one customer.
As of December 31, 2016, the Company had cash on hand of $31,258,637.
The Company expects that cash on hand as of December 31, 2016, together with anticipated revenues, will be sufficient to fund the
Company’s operations into the second quarter of 2018.
Research and development of new technologies is, by its nature,
unpredictable. Although the Company will undertake development efforts with commercially reasonable diligence, there can be no
assurance that its available resources including the net proceeds from the Company’s IPO, secondary offering, shelf registration,
and strategic investor financing will be sufficient to enable it to develop and obtain regulatory approval of its technology to
the extent needed to create future revenues sufficient to sustain its operations. The Company may choose to pursue additional financing,
depending upon the market conditions, which could include follow-on equity offerings, debt financing, co-development agreements
or other alternatives. Should the Company choose to pursue additional financing, there is no assurance that the Company would be
able to do so on terms that it would find acceptable.
E
NERGOUS CORPORATION
Notes to Financial Statements
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 (“U.S. GAAP”),
and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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
The Company recognizes revenue when all of the following criteria
have been met: persuasive evidence of an arrangement exists, services have been rendered, collection of the revenue is reasonably
assured, and the fees are fixed or determinable.
The Company records revenue associated with product development
projects that it enters into with certain customers. In general, these projects are associated with complex technology development,
and as such the Company does not have certainty about its ability to achieve the program milestones. Achievement of the milestone
is dependent on our performance and the milestone typically needs to be accepted by the customer. The payment associated with achieving
the milestone 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 projects, generally included in research and development expense, in the periods
incurred.
The Company also receives nonrefundable payments, typically at the
beginning of a customer relationship, for which there are no milestones. The Company recognizes this revenue ratably over the initial
engineering product development period. The Company records the expenses related to these projects, generally included in research
and development expense, in the periods incurred.
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, 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 $32,832,677, $18,825,041 and
$12,511,647 for the years ended December 31, 2016, 2015 and 2014, respectively.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 3 – Summary of Significant Accounting Policies, continued
Stock-Based Compensation
The Company accounts for equity instruments issued to employees
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.
On April 10, 2015, the Company’s board of directors approved
the Energous Corporation Employee Stock Purchase Plan (the “ESPP”), under which 600,000 shares of common stock were
reserved for purchase by the Company’s employees, subject to approval by the stockholders. On May 21, 2015, the Company’s
stockholders approved the ESPP. Under the plan, 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 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 December 31, 2016, 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 years ended
December 31, 2016, 2015 and 2014. 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 6,975,651, 4,994,425 and 3,261,360 for the years ended December 31, 2016, 2015 and 2014, respectively, because
their inclusion would be antidilutive.
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 Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Consulting Warrant to purchase common stock
|
|
|
-
|
|
|
|
146,252
|
|
|
|
278,228
|
|
Financing Warrant to purchase common stock
|
|
|
13,889
|
|
|
|
152,778
|
|
|
|
152,778
|
|
IPO Warrants to purchase common stock
|
|
|
11,600
|
|
|
|
460,000
|
|
|
|
460,000
|
|
IR Consulting Warrant
|
|
|
23,250
|
|
|
|
36,000
|
|
|
|
36,000
|
|
IR Incentive Warrant
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
-
|
|
Warrants issued to private investors
|
|
|
2,381,675
|
|
|
|
-
|
|
|
|
-
|
|
Options to purchase common stock
|
|
|
1,309,444
|
|
|
|
1,487,785
|
|
|
|
1,607,075
|
|
RSUs
|
|
|
2,052,223
|
|
|
|
1,560,996
|
|
|
|
727,279
|
|
PSUs
|
|
|
1,153,617
|
|
|
|
1,135,614
|
|
|
|
-
|
|
DSUs
|
|
|
14,953
|
|
|
|
-
|
|
|
|
-
|
|
Total potentially dilutive securities
|
|
|
6,975,651
|
|
|
|
4,994,425
|
|
|
|
3,261,360
|
|
ENERGOUS CORPORATION
Notes to Financial Statements
Note 3 – Summary of Significant Accounting Policies, continued
Fair Value Measurements
The carrying amounts of cash and cash equivalents, accounts payable
and accrued expenses, approximate fair value due to the short-term nature of these instruments. Fair value is defined as an exit
price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly
transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that
market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs
in measuring fair value as follows:
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2
|
Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, or other inputs that are observable, either directly or indirectly.
|
|
Level 3
|
Significant unobservable inputs that cannot be corroborated by market data.
|
The assets or liability’s fair value measurement within the
fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.
As of December 31, 2014, the Company no longer had financial instruments
which were derivative liabilities.
The following table sets forth a summary of the changes in the fair
value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:
|
|
For the Year
Ended
December 31,
2014
|
|
Beginning balance
|
|
$
|
6,277,000
|
|
Change in fair value of conversion feature and warrants
|
|
|
26,265,177
|
|
Extinguishment of derivative liability upon conversion of Convertible Notes
|
|
|
(26,790,177
|
)
|
Extinguishment of derivative liability upon modification of Financing Warrant
|
|
|
(1,733,000
|
)
|
Extinguishment of derivative liability upon modification of Consulting Warrant
|
|
|
(4,019,000
|
)
|
Ending balance
|
|
$
|
-
|
|
The conversion feature of the Convertible Notes immediately prior
to conversion was measured at fair value using a Monte Carlo simulation (which also represented the intrinsic value of the conversion
feature) and was classified within Level 3 of the valuation hierarchy. The warrant liabilities for the Financing Warrant and the
Consulting Warrant, immediately prior to modification were measured at fair value using a Monte Carlo simulation and were classified
within Level 3 of the valuation hierarchy. The significant assumptions and valuation methods that the Company used to determine
fair value and the change in fair value of the Company’s derivative financial instruments are discussed in Note 6 –
Private Placement.
Level 3 liabilities are valued using unobservable inputs to the
valuation methodology that are significant to the measurement of the fair value of the derivative liabilities. For fair value measurements
categorized within Level 3 of the fair value hierarchy, the Company’s Chief Financial Officer determined its valuation policies
and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value
calculations are the responsibility of the Company’s Chief Financial Officer with support from the Company’s financial
staff and consultants and which are approved by the Chief Financial Officer.
Level 3 financial liabilities consist of the derivative liabilities
for which there is no current market for these securities such that the determination of fair value requires significant judgment
or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period
based on changes in estimates or assumptions and recorded as appropriate.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 3 – Summary of Significant Accounting Policies, continued
Fair Value Measurements, continued
The Company used a Monte Carlo model to value Level 3 financial
liabilities at inception and on subsequent valuation dates, except that the conversion feature of the convertible notes immediately
prior to conversion was valued at intrinsic value. This simulation incorporates transaction details such as the Company’s
stock price, contractual terms, maturity, risk free rates, as well as, volatility. The Company also used a binomial simulation
and Black-Scholes economic model as supplemental valuation tools in order to validate the reasonableness of the results of the
Monte Carlo simulation when measuring the Financing Warrant and the Consulting Warrant.
A significant increase in the volatility or a significant increase
in the Company’s stock price, in isolation, would result in a significantly higher fair value measurement. Changes in the
values of the derivative liabilities were recorded in Change in Fair Value of Derivative Liabilities within Other Expense (Income)
on the Company’s Statements of Operations.
Management determined that the results of its valuations are reasonable.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606),
which supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition," and most industry-specific
guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to
obtain or fulfill a contract. The amendments in the ASU must be applied using one of two retrospective methods and are effective
for annual and interim periods beginning after December 15, 2016. On July 9, 2015, the FASB modified ASU 2014-09 to be effective
for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. As modified,
the FASB permits the adoption of the new revenue standard early, but not before the annual periods beginning after December 15,
2016. A public organization would apply the new revenue standard to all interim reporting periods within the year of adoption.
The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.
In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial
Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern. This standard is intended to define management’s responsibility to evaluate whether there is substantial doubt
about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under U.S. GAAP,
financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern,
except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis
of accounting.
The going concern basis of accounting is critical to financial reporting
because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance
about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to
continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management,
with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly
provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after
December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. The Company adopted ASU 2014-15
and management has made the appropriate evaluations and disclosures in Note 2 – Liquidity and Management Plans.
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying
the Presentation of Debt Issuance Costs.” This standard amends existing guidance to require the presentation of debt issuance
costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge.
It is effective for annual reporting periods beginning after December 15, 2015. The Company has adopted ASU 2015-03 and the adoption
of this standard did not have a material impact on the Company’s financial position and results of operations.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 3 – Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements, continued
In August 2015, the FASB issued ASU No. 2015-15, “Presentation
and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” – Amendments to SEC
Paragraphs Pursuant to Staff Announcement at June 18, 2015, which clarified the SEC staff’s position on presenting and measuring
debt issuance costs incurred in connection with line-of-credit arrangements. ASU 2015-15 should be adopted concurrent with the
adoption of ASU 2015-03. The Company has adopted ASU 2015-15 and the adoption of this standard did not have a material impact on
the Company’s financial position and results of operations.
In November 2015, the FASB issued ASU No. 2015-17, “Balance
Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The standard requires that deferred tax assets and liabilities
be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for fiscal years and interim
periods within those years, beginning after December 15, 2016. Early adoption is permitted. ASU 2015-17 may be applied either prospectively,
for all deferred tax assets and liabilities, or retrospectively. The Company has early adopted ASU 2015-17 effective December 31,
2015, retrospectively. Adoption had no impact on the results of operations.
In January 2016, the FASB issued ASU No. 2016-01, “Financial
Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”
(“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of
financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December
15, 2017. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements.
In January 2016, the FASB issued ASU No. 2016-02, “Leases
(Topic 842).” (“ASU 2016-02”) This standard requires that a lessee recognize the assets and liabilities that
arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments
(the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases
with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not
to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases
at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact
the adoption of this new standard will have on its financial statements.
In March 2016, the FASB issued ASU No. 2016-08, “Revenue from
Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”
(“ASU 2016-08”). ASU No. 2016-08 maintains the core principles of Topic 606 on revenue recognition, but clarifies whether
an entity is a principal or an agent in a contract and the appropriate revenue recognition principles under each of these circumstances.
The amendments in ASU 2016-08 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects,
if any, that adoption of this guidance will have on its financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation
— Stock Compensation (Topic 718) — Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09
includes provisions to simplify certain aspects related to the accounting for share-based awards and the related financial statement
presentation. This ASU includes a requirement that the tax effect related to the settlement of share-based awards be recorded in
income tax benefit or expense in the statements of earnings. This change is required to be adopted prospectively in the period
of adoption. In addition, the ASU modifies the classification of certain share-based payment activities within the statements of
cash flows and these changes are required to be applied retrospectively to all periods presented, or in certain cases prospectively,
beginning in the period of adoption. ASU No. 2016-09 is effective for annual reporting periods beginning after December 15, 2016,
including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact
the adoption of this new standard will have on its financial statements.
In April 2016, the FASB issued ASU No. 2016-10, “Revenue from
Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing.” ASU No. 2016-10 maintains the
core principles of Topic 606 on revenue recognition, but clarifies identification of performance obligations and licensing implementation
guidance. The amendments in ASU 2016-10 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate
the effects, if any, that adoption of this guidance will have on its financial statements.
In May 2016, the FASB issued ASU No. 2016-12, “Revenue
from Contracts with Customers (Topic 606) - Narrow- Scope Improvements and Practical Expedients.” ASU No. 2016-12
maintains the core principles of Topic 606 on revenue recognition, but addresses collectability, sales tax presentation,
noncash consideration, contract modifications at transition and completed contracts at transition. The amendments in ASU
2016-12 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that
adoption of this guidance will have on its financial statements.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 3 – Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements, continued
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.” ASU No. 2016-13
provides financial statement reader more decision-useful information about the expected credit losses on financial instruments
and other commitments to extend credit held by a reporting entity at each reporting date. The Company will evaluate the effects,
if any, that adoption of this guidance will have on its financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement
of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.” ASU No. 2016-15 addresses eight
specific cash flow issues with the objective of reducing the existing diversity in practice. It is effective for annual reporting
periods beginning after December 15, 2017. The Company is currently evaluating the impact this standard will have on its financial
statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement
of Cash Flows (230) – Restricted Cash.” ASU No. 2016-18 requires an entity to include amounts described as restricted
cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statement of cash flows. It is effective for annual reporting periods beginning after December 15, 2018.
The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of
operations.
In December 2016, the FASB issued ASU No. 2016-20, “Technical
Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” ASU No. 2016-20 amends certain aspects
of ASU No. 2014-09 and clarifies, rather than changes, the core revenue recognition principles in ASU No. 2014-09. It is effective
for annual reporting periods beginning after December 15, 2018. The adoption of this standard is not expected to have a material
impact on the Company’s financial position and results of operations.
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred after the balance
sheet date of December 31, 2016, through the date which the financial statements are issued. Based upon the review, the Company
did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 4 – Property and Equipment
Property and equipment are as follows:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Computer software
|
|
$
|
1,085,258
|
|
|
$
|
650,386
|
|
Computer hardware
|
|
|
2,109,983
|
|
|
|
1,203,021
|
|
Furniture and fixtures
|
|
|
533,175
|
|
|
|
457,887
|
|
Leasehold improvements
|
|
|
613,111
|
|
|
|
593,287
|
|
|
|
|
4,341,527
|
|
|
|
2,904,581
|
|
Less – accumulated depreciation
|
|
|
(2,132,052
|
)
|
|
|
(1,174,216
|
)
|
Total property and equipment, net
|
|
$
|
2,209,475
|
|
|
$
|
1,730,365
|
|
The Company currently uses the following expected life terms for
depreciating property and equipment: computer software – 1 year, computer hardware – 3 years, furniture and fixtures
– 7 years, leasehold improvements – remaining life of the lease.
Total depreciation and amortization expense of the Company’s
property and equipment was $957,836, $817,729 and $371,189 for the years ended December 31, 2016, 2015 and 2014, respectively.
Note 5 – Accrued Expenses
Accrued expenses consist of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued compensation
|
|
$
|
997,908
|
|
|
$
|
739,782
|
|
Accrued legal expenses
|
|
|
283,160
|
|
|
|
-
|
|
Accrued equipment cost
|
|
|
299,500
|
|
|
|
-
|
|
Other accrued expenses
|
|
|
287,427
|
|
|
|
336,097
|
|
Total
|
|
$
|
1,867,995
|
|
|
$
|
1,075,879
|
|
ENERGOUS CORPORATION
Notes to Financial Statements
Note 6 – Commitments and Contingencies
Investor Relations Agreements
Effective January 13, 2014, the Company entered into an agreement
with a vendor (“IR Firm”) to provide investor relations services to the Company. Pursuant to the agreement, in addition
to monthly cash compensation of $8,000 per month, on March 27, 2014 the Company issued to the IR firm a consulting warrant (“IR
Consulting Warrant”) for the purchase of 36,000 shares of common stock. The IR Consulting Warrant has a strike price of $7.80,
representing 130% of the IPO price. The IR Consulting Warrant had an initial catch up vesting equivalent to 3,000 shares per month
of service, partial months to be prorated on a thirty (30) day basis, from the effective date of this agreement until March 27,
2014. Thereafter, the IR Consulting Warrant vested at a rate of 3,000 shares per month of service. On February 26, 2015, the Company
issued to the IR Firm incentive warrants (“IR Incentive Warrants”) to purchase 15,000 shares of common stock with a
strike price of $7.80 based upon certain qualified investors and/or institutional or brokerage firms having purchased at least
$250,000 in value of the Company’s common shares at the IPO price or greater in the open market on or after the 46
th
day following March 27, 2014. All IR Incentive Warrants granted during a six-month period will collectively vest at each six-month
anniversary. Both the IR Consulting Warrant and IR Incentive Warrants will have an expiration date four (4) years from the grant
date. The shares underlying both the IR Consulting Warrant and the IR Incentive Warrants may be exercised on a cashless basis if
at the time of exercise, such warrant shares have not been registered.
As of December 31, 2015, and 2014, 36,000 and 34,800 shares under
the IR Consulting Warrant were vested. The Company incurred stock-based compensation expense of $0, $7,522 and $263,972 for the
years ended December 31, 2016, 2015 and 2014, respectively in connection with the IR Consulting Warrant, which was included in
general and administrative expense.
As of December 31, 2014, a total of 15,000 IR Incentive Warrants
were deemed to have vested. Accordingly, as of December 31, 2014, the Company recorded the accrued value of the IR Incentive Warrant
of approximately $92,000 in general and administrative expenses, since the Company does not record stock-based compensation until
the associated warrant is approved by the Board of Directors and issued. On February 26, 2015, the Board of Directors approved
the issuance of a warrant to purchase 15,000 shares of the Company’s common stock and the Company recorded stock-based compensation
of $78,309.
On February 4, 2015, the Company entered into a six-month consulting
agreement with a consultant to provide the Company with investor relations services. Compensation under the agreement included
the Company’s issuance on February 26, 2015, of 15,000 shares of common stock valued at $147,900 and monthly cash payments
of $5,000. The total value of the common stock compensation was recorded as a prepaid expense and was amortized over the six-month
contract period. The Company incurred amortization expense of $147,900 during the year ended December 31, 2015, which was included
in general and administrative expense. There was no amortization expense during the year ended December 31, 2016.
Operating Leases
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 is 60 months, with initial monthly base
rent of $36,720 and the lease is subject to certain annual escalations as defined in the agreement. On October 1, 2014,
the Company relocated its headquarters to this new location. The Company issued to the Landlord 41,563 shares of the
Company’s common stock valued at $500,000, of which $400,000 will be applied to reduce the Company’s monthly base
rent obligation by $6,732 per month and of which $100,000 was for certain tenant improvements. The Company recorded $400,000
as prepaid rent on its balance sheet, which is being amortized over the term of the lease and recorded $100,000 as leasehold
improvements.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 6 – Commitments and Contingencies, continued
Operating Leases, continued
On February 26, 2015, the Company entered into a sub-lease agreement
for additional space in the San Jose area. The agreement has a term which expires on June 30, 2019 and an initial monthly rent
of $6,109 per month. On August 25, 2015 the Company entered into an additional amended sub-lease agreement for additional space
in San Jose, CA. The agreement has a term which expires on June 30, 2019 and an initial monthly rent of $4,314 per month. These
leases are subject to certain annual escalations as defined in the agreements.
On July 9, 2015, the Company entered into a sub-lease agreement
for additional space in Costa Mesa, CA. The agreement has a term which expires on September 30, 2017 and a monthly rent of $6,376
per month.
The future minimum lease payments for leased locations are as follows:
For the Years Ended December 31,
|
|
Amount
|
|
2017
|
|
|
572,722
|
|
2018
|
|
|
530,531
|
|
2019
|
|
|
372,652
|
|
Total
|
|
$
|
1,475,905
|
|
Development and Licensing
Agreement
Effective January 28, 2015,
the Company signed a development and licensing agreement with a consumer electronics company to embed WattUp wire-free charging
receiver technology in various products including, but not limited to certain mobile consumer electronics and related accessories.
During the development phase and through customer shipment of its first product, Energous will afford this customer an exclusive
“time to market advantage” in the licensed product categories.
This development and licensing agreement contains
both invention and development milestones that the Company will need to achieve during the next two years. Pursuant to the Agreement,
on March 23, 2015, the Company received an initial non-refundable payment of $500,000 which was recognized as revenue during the
year ended December 31, 2015. The agreement provides for additional amounts to be received by the Company based upon its achievement
of certain milestones. During the year ended December 31, 2015, the Company recognized revenue of $2,000,000 upon the achievement
of additional milestones under the agreement.
Effective April 3, 2015, the Company entered into
an amendment of the development and license agreement with this consumer electronics company to include joint development of wire-free
transmitter technology and technology license back to the Company. On June 5, 2015, the Company entered into a second amendment
of the development and license agreement with this consumer electronics company to conform the agreement for technical changes
in the product delivery milestones. Effective October 1, 2015, the Company entered into a third amendment of the development and
license agreement with this consumer electronics company to make certain changes to, among other things, intellectual property
ownership, payment terms and the products covered by the agreement. On March 31, 2016, the Company received payment of $500,000
pursuant to the February 15, 2016 commencement of the second phase described in the third amendment, of which the Company recorded
$391,041 in revenue during the year ended December 31, 2016. During the year ended December 31, 2016, the Company recognized revenue
of $1,000,000 upon the achievement of additional milestones under the second phase of the agreement.
Effective May 27, 2016, the Company entered into
an agreement with a commercial and industrial supply company, under which the Company will develop wire-free charging solutions.
Under the first phase of the associated Statement of Work, the Company made certain deliverables for fees totaling $60,000. The
first invoice for $30,000 was sent to the customer in June 2016 and revenue was initially deferred until completion of the first
phase. The second invoice for $30,000 was issued upon successful completion of the first phase during September 2016 and revenue
for the total fees of $60,000 was then recognized. In December 2016, the Company issued an invoice for $22,500 to this customer
for the first installment of the second phase of this agreement. Revenue for this invoice has been deferred until completion of
the second phase which is anticipated to occur during the first quarter of 2017.
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 13, 2015, the Company is required to remit quarterly payments in the amount of $100,568 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 $198,105.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 6 – Commitments and Contingencies, continued
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 (the “Employment
Agreement”).
The Employment Agreement has an effective date of January 1, 2015
and an initial term of four years (the “Initial Employment Period”). The Employment Agreement provides for an annual
base salary of $365,000, and Mr. Rizzone is eligible to receive quarterly cash bonuses with a total target amount equal to 100%
of his base salary based upon achievement of performance-based objectives established by the Company’s board of directors.
Pursuant to Mr. Rizzone’s prior employment agreement, on December
12, 2013 Mr. Rizzone was granted a ten year option to purchase 275,689 shares of common stock at an exercise price of $1.68 vesting
over four years in 48 monthly installments beginning October 1, 2013 (the “First Option”). Mr. Rizzone was also granted
a second option award to purchase 496,546 shares of common stock at an exercise price of $6.00 (the “Second Option”).
The Second Option vests over the same vesting schedule as the First Option.
Effective with the approval on May 21, 2015 by the Company’s
stockholders of its new performance-based equity plan, the Employment Agreement provided and Mr. Rizzone received, a grant of 639,075
Performance Share Units (the “PSUs”). The PSUs, which represent the right to receive shares of common stock, shall
be earned based on the Company’s achievement of market capitalization growth between the effective date of the Employment
Agreement and the end of the Initial Employment Period. If the Company’s market capitalization is $100 million or less, no
PSUs will be earned. If the Company reaches a market capitalization of $1.1 billion or more, 100% of the PSUs will be earned. For
market capitalization between $100 million and $1.1 billion, the percentage of PSUs earned will be determined on a quarterly basis
based on straight line interpolation. PSUs earned as of the end of a calendar quarter will be paid 50% immediately and 50% will
be deferred until the end of the Initial Employment Period subject to Mr. Rizzone’s continued employment with the Company
(See Note 9).
Mr. Rizzone is also eligible to receive all customary and usual
benefits generally available to senior executives of the Company.
The Employment Agreement provides that if Mr. Rizzone’s employment
is terminated due to his death or disability, if Mr. Rizzone’s employment is terminated by the Company without cause or if
he resigns for good reason, twenty-five percent (25%) of the shares subject to the First Option and the Second Option shall
immediately vest and become exercisable, he will have a period of one year post-termination to exercise the First Option and the
Second Option, and if a Liquidation Event (as defined in the Employment Agreement) shall occur prior to the termination of the
First Option and the Second Option, one hundred percent (100%) of the shares subject to the First Option and Second Option shall
immediately vest and become exercisable effective immediately prior to the consummation of the Liquidation Event. In addition,
any outstanding deferred PSUs shall be immediately vested and paid, but any remaining unearned portion of the PSUs shall immediately
be canceled and forfeited.
Offer Letter – Brian Sereda
Effective July 13, 2015, the Company appointed Brian Sereda to serve
as Vice President and Chief Financial Officer, replacing Interim Chief Financial Officer Howard Yeaton.
In connection with Mr. Sereda’s appointment as Vice President
and Chief Financial Officer, the Company and Mr. Sereda executed an offer letter effective July 13, 2015 (the “Sereda Offer
Letter”). Under the Sereda Offer Letter, Mr. Sereda will receive an annual base salary of $250,000 per year, and is eligible
to earn an annual performance bonus of up to 75% of his then current base salary in accordance with performance objectives established
by the Company’s independent compensation committee or the Board of Directors. In addition, under the Sereda Offer Letter
and as an inducement to join the Company, Mr. Sereda received an inducement restricted stock unit award covering a total of 120,000
shares of common stock. This restricted stock unit award vests over a period of four years in four equal annual installments on
July 13 of each of 2016, 2017, 2018 and 2019, subject to Mr. Sereda’s continued employment with the Company through each
vesting date.
In the event Mr. Sereda is terminated without cause, he is entitled
to (1) six months of his then-current base salary and (2) payment of COBRA premiums for up to six months. In the event of a liquidation
event and termination of employment, except for cause, 100% of the inducement award shall immediately vest.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 6 – Commitments and Contingencies, continued
Patent Validity Challenge
In June 2016, Ossia Inc. filed two post grant review petitions with
the U.S. Patent and Trademark Office (“PTO”) requesting proceedings to challenge the validity of one of our issued
patents. One of the post grant reviews was denied completely, and the other was terminated when the Company voluntarily cancelled
two claims of the patent. There was no other material impact on the Company’s intellectual property or patent portfolio as
a result of these petitions.
Strategic Alliance Agreement
On November 7, 2016, the Company and Dialog Semiconductor plc
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 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. The Dialog Exclusivity
Requirement will terminate if no Licensed Products have received the necessary Federal Communications Commission approvals within
specified timeframes.
Note 7 – 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
of directors 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.
Disgorgement of Short Swing Profits
On April 11, 2015, $12,611 of proceeds was received from an officer
of the Company who had purchased shares in the December 2014 secondary offering, representing the disgorgement of a short swing
profit on the officer’s April 2015 sale of the Company’s stock.
Filing of registration statement
On April 24, 2015, the Company filed a “shelf” registration
statement on Form S-3, which became effective on April 30, 2015. The “shelf” registration statement allows the Company
from time to time to sell any combination of debt or equity securities described in the registration statement up to aggregate
proceeds of $75,000,000.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 7 – Stockholders’ Equity, continued
Consummation of Offering under Shelf Registration
Pursuant to the shelf registration, on November 17, 2015, the Company
consummated an offering of 3,000,005 shares of common stock at $6.90 per share and received from the underwriters’ net proceeds
of $19,333,032 (net of underwriters’ discount of $1,242,002 and underwriters’ offering expenses of $125,000). The Company
incurred additional offering expenses of $284,576, yielding net proceeds from the offering under shelf registration of $19,048,456.
Private Placements
On August 9, 2016, the Company entered into a securities purchase
agreement with Ascend Legend Master Fund, Ltd. pursuant to which the Company agreed to sell to Ascend Legend Master Fund, Ltd.
1,618,123 shares of common stock at a price of $12.36 per share and a warrant to purchase up to 1,618,123 shares of common stock
at an exercise price of $23.00 per share. The aggregate proceeds from the sale of shares of common stock was $20,000,000.
On November 7, 2016, the Company and Dialog Semiconductor entered
into a securities purchase agreement pursuant to which the Company agreed to sell to Dialog Semiconductor 763,552 shares of common
stock at a price of $13.0967 per share and a warrant to purchase up to 763,552 shares of common stock that may be exercised only
on a cashless basis at a price of $17.0257 per share, and may be exercised at any time between the date that is six months and
a day after the closing date of the transaction and the three-year anniversary of the Closing Date. The aggregate proceeds from
the sale of shares of common stock was 10,000,011.
On December 30, 2016, the Company and JT Group entered into a securities
purchase agreement pursuant to which the Company agreed to sell to JT Group 292,056 shares of common stock at a price of $17.12
per share. The aggregate proceeds from the sale of shares of common stock was $4,999,975.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 8 – Stock Based Compensation
Equity Incentive Plans
2013 Equity Incentive Plan
In December 2013 the Company’s board
and stockholders approved the “2013 Equity Incentive Plan”, providing for the issuance of equity based instruments
covering up to an initial total of 1,042,167 shares of common stock.
Effective on March 10, 2014, the Company’s
board of directors and stockholders approved the First Amendment to the 2013 Equity Incentive Plan which provided for an increase
in the aggregate number of shares of common stock that may be issued pursuant to the Plan to equal 18% of the total number of shares
of common stock outstanding immediately following the completion of the IPO (assuming for this purpose the issuance of all shares
issuable under the Company’s equity plans, the conversion into common stock of all outstanding securities that are convertible
by their terms into common stock and the exercise of all options and warrants exercisable for shares of common stock and including
shares and warrants issued to the underwriters for such IPO upon exercise of its over-allotment options).
Effective March 27, 2014, the aggregate
total shares which may be issued under the 2013 Equity Incentive Plan were increased to 2,335,967.
Effective on May 19, 2016, 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 2,150,000 shares, bringing the total number of approved shares to 4,485,967 under the 2013 Equity Incentive
Plan.
As of December 31, 2016, 1,562,832 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
On March 6, 2014, the Company’s board
of directors and stockholders approved the 2014 Non-Employee Equity Compensation Plan for the issuance of equity-based instruments
covering up to 250,000 shares of common stock to directors and other non-employees.
Effective on May 19, 2016, the Company’s
stockholders approved the amendment and restatement of the 2014 Equity Incentive Plan to increase the number of shares reserved
for issuance thereunder by 350,000 shares, bringing the total number of approved shares to 600,000 under the 2014 Non-Employee
Equity Compensation Plan.
As of December 31, 2016, 349,899 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
On April 10, 2015, the Company’s
board of directors approved the Energous Corporation 2015 Performance Share Unit Plan (the “Performance Share Plan”),
under which 1,310,104 shares of common stock became available for issuance as PSUs to a select group of employees and directors,
subject to approval by the stockholders. On May 21, 2015 the Company’s stockholders approved the Performance Share Plan.
As of December 31, 2016, 31,951 shares
of common stock remain eligible to be issued through equity based instruments under the Performance Share Unit Plan.
Employee Stock Purchase Plan
On April 10, 2015, the Company’s
board of directors approved the ESPP, under which 600,000 shares of common stock have been reserved for purchase by the Company’s
employees, subject to approval by the stockholders. On May 21, 2015, the Company’s stockholders approved the ESPP. Employees
may designate an amount not less than 1% but not more than 10% of their annual compensation, but for not more than 7,500 shares
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 December 31, 2016, 468,621 shares
of common stock remain eligible to be issued through equity based instruments under the ESPP. For the year ended December 31, 2016,
eligible employees contributed $727,784 through payroll deductions to the ESPP and 85,356 shares were deemed delivered for the
year ended December 31, 2016.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 8 – Stock Based Compensation,
continued
Stock Option Award Activity
The following is a summary of the Company’s stock option activity
during the year ended December 31, 2016:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life In
Years
|
|
|
Intrinsic
Value
|
|
Outstanding at January 1, 2016
|
|
|
1,487,785
|
|
|
$
|
4.34
|
|
|
|
8.0
|
|
|
$
|
5,310,340
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(130,354
|
)
|
|
|
2.93
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(47,987
|
)
|
|
|
2.49
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2016
|
|
|
1,309,444
|
|
|
$
|
4.55
|
|
|
|
7.1
|
|
|
$
|
16,107,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
1,057,187
|
|
|
$
|
4.55
|
|
|
|
7.1
|
|
|
$
|
12,998,601
|
|
As of December 31, 2016, the unamortized value of options was $638,910.
As of December 31, 2016, the unamortized portion will be expensed over a weighted average period of 0.8 years.
The aggregate intrinsic value of options exercised was $984,144,
$92,728 and $0 for the years ended December 31, 2016, 2015 and 2014, respectively.
No options were granted during the years ended December 31, 2016
and 2015. The weighted average grant date fair value per share of options granted during the year ended December 31, 2014 was $2.60.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 8 – Stock Based Compensation, continued
Restricted Stock Units (“RSUs”)
On January 4, 2016, the compensation committee of the board of
directors granted to various directors, RSUs under which the holders have the right to receive an aggregate of 26,916 shares of
the Company’s common stock. These awards were granted under the 2014 Non-Employee Equity Compensation Plan. The awards granted
vest fully on the first anniversary of the grant date.
On January 4, 2016, the compensation committee of the board of
directors granted to John Gaulding, director and chairman of the board, RSUs under the 2014 Non-Employee Equity Compensation Plan
for which Mr. Gaulding has the right to receive 25,000 shares of the Company’s common stock. These shares were issued to
Mr. Gaulding in connection with his role as an independent director and chairman of the Board of Directors. The award granted
vests fully on the first anniversary of the grant date.
On February 25, 2016, the compensation committee of the board of
directors granted certain employees inducement RSU awards under which the holders have the right to receive an aggregate 38,000
shares of the Company’s common stock. The awards granted vest over four years beginning on the first anniversary of the
date of hire.
On March 4, 2016, the compensation committee of the board of directors
granted an employee inducement RSU awards under which the holder has the right to receive an aggregate of 12,500 shares of the
Company’s common stock. The award granted vests over four years beginning on the first anniversary of the date of hire and
is contingent upon meeting certain job performance milestones.
On May 19, 2016, the compensation committee of the board of directors
granted certain employees inducement RSU awards under which the holders have the right to receive an aggregate of 126,000 shares
of the Company’s common stock. The awards granted vest over four years beginning on the first anniversary of the dates of
hire.
On May 19, 2016, the compensation committee of the board of directors
granted a consultant an RSU award under the 2013 Equity Incentive Plan for which the holder has the right to receive an aggregate
of 3,250 shares of the Company’s common stock. The award granted vests immediately.
On June 10, 2016, the board of directors granted non-employee directors
RSU awards under the 2014 Non-Employee Equity Compensation Plan under which the holders have the right to receive an aggregate
of 70,040 shares of the Company’s common stock. These awards vest annual over three years beginning on June 13, 2017.
On October 24, 2016, the board of directors granted Stephen Rizzone,
the Company’s President, Chief Executive Officer and Director an RSU award under the 2013 Equity Incentive Plan under which
Mr. Rizzone has the right to receive 150,000 shares of the Company’s common stock. The shares of this award vest over four
years beginning on August 18, 2017.
On October 24, 2016, the compensation committee of the board of
directors approved an RSU award for Brian Sereda, Chief Financial Officer, covering a total of 45,000 shares of common stock. This
restricted stock unit award vests over a period of four years in four equal installments on August 18 of each of 2017, 2018, 2019
and 2020.
On October 24, 2016, the compensation committee of the board of
directors granted certain employees inducement RSU awards under which the holders have the right to receive an aggregate of 95,000
shares of the Company’s common stock. The awards granted vest over four years beginning on the first anniversary of the dates
of hire.
On October 24, 2016, the compensation committee of the board of
directors granted various employees RSU awards under which the holders have the right to receive an aggregate of 331,950 shares
of the Company’s common stock. These awards vest over a period of four years in four equal installments on August 18 of each
of 2017, 2018, 2019 and 2020.
On October 24, 2016, the compensation committee of the board of
directors granted Cesar Johnston, Senior Vice President of Engineering, an RSU award under which Mr. Johnston has the right to
receive 85,000 shares of the Company’s common stock. A total of 25% of the shares vest immediately upon grant, while the
remaining shares vest annually over three years beginning August 18, 2017.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 8 – Stock Based Compensation, continued
Restricted Stock Units (“RSUs”), continued
On October 24, 2016, the compensation committee of the board of
directors granted Michael Leabman, Founder, Chief Technology Officer and Director, an RSU award under which Mr. Leabman has the
right to receive 100,000 shares of the Company’s common stock. This restricted stock unit award vests over a period of four
years in four equal installments on August 18 of each of 2017, 2018, 2019 and 2020.
The Company accounts for RSUs granted to consultants using the accounting
guidance included in ASC 505-50 “Equity-Based Payments to Non-Employees” (“ASC 505-50”). In accordance
with ASC 505-50, the Company estimates the fair value of the unvested portion of the RSU award each reporting period using the
closing price of the Company’s common stock.
At December 31, 2016, the unamortized value of the RSUs was $20,635,176.
The unamortized amount will be expensed over a weighted average period of 3.1 years. A summary of the activity related to RSUs
for the year ended December 31, 2016 is presented below:
|
|
Total
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Outstanding at January 1, 2016
|
|
|
1,560,996
|
|
|
$
|
8.83
|
|
RSUs granted
|
|
|
1,110,156
|
|
|
$
|
14.18
|
|
RSUs forfeited
|
|
|
(107,529
|
)
|
|
$
|
9.62
|
|
RSUs vested
|
|
|
(511,400
|
)
|
|
$
|
9.16
|
|
Outstanding at December 31, 2016
|
|
|
2,052,223
|
|
|
$
|
11.58
|
|
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 market capitalization
or market share price of the common stock.
The PSUs originally issued during 2015 to certain board members
and senior management shall be earned based on the Company’s achievement of market capitalization growth between the effective
date of the Employment Agreement and the end of the Initial Employment Period. If the Company’s market capitalization is
$100 million or less, no PSUs will be earned. If the Company reaches a market capitalization of $1.1 billion or more, 100% of the
PSUs will be earned. For market capitalization between $100 million and $1.1 billion, the percentage of PSUs earned will be determined
on a quarterly basis based on straight line interpolation.
On March 4, 2016, the compensation committee of the board of directors
granted an executive inducement PSUs under which the executive is eligible to receive 63,908 shares of the Company’s common
stock based on similar market capitalization criteria indicated above.
The Company determined that the PSUs were equity awards with both
market and service conditions. The Company utilized a Monte Carlo simulation to determine the fair value of the market condition,
as described below. Grantees of PSUs are required to be employed through December 31, 2018 in order to earn the entire award, if
and when vested.
|
|
Performance Share
Units (PSUs) Granted
During the Year Ended
December 31, 2016
|
|
|
Performance Share
Units (PSUs) Granted
During the Year Ended
December 31, 2015
|
|
Market capitalization
|
|
$
|
102,600,000
|
|
|
$
|
106,270,000
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
75
|
%
|
|
|
60
|
%
|
Risk-free interest rate
|
|
|
1.04
|
%
|
|
|
0.95
|
%
|
The fair value of the grants of PSUs to purchase a total of 1,342,061
shares of common stock (including 1,278,153 PSUs granted under the 2015 Performance Share Unit Plan and 63,908 granted as an inducement)
was determined to be approximately $3,218,000, and is amortized over the service period of May 21, 2015 through December 31, 2018,
on a straight-line basis.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 8 – Stock Based Compensation, continued
Performance Share Units (“PSUs”), continued
On October 24, 2016, the compensation committee of the board of
directors granted Mr. Rizzone a PSU award under the 2013 Equity Incentive Plan under which Mr. Rizzone has the right to receive
150,000 shares of the Company’s common stock. The shares of this award vest upon the Company’s stock price meeting
specific targets.
For the PSU award grant issued to Stephen Rizzone, Chief Executive
Officer, a Monte Carlo simulation was used to determine the fair value at each of the five target prices of the Company’s
common stock, using a market capitalization of $298,857,000, dividend yield of 0%, expected volatility of 75% and a risk-free interest
rate of 0.66%.
The fair value of the PSUs granted to Mr. Rizzone under the 2013
Equity Incentive Plan was determined to be $2,332,000, and is amortized over the estimated service period from October 24, 2016
through October 30, 2017.
Amortization for all PSU awards was $2,285,683 and $489,239 for
the years ended December 31, 2016 and 2015, respectively.
At December 31, 2016, the unamortized value of all PSUs was approximately
$2,774,507. The unamortized amount will be expensed over a weighted average period of 1.16 years. A summary of the activity related
to PSUs for the year ended December 31, 2016 is presented below:
|
|
Total
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Outstanding at January 1, 2016
|
|
|
1,135,614
|
|
|
$
|
2.62
|
|
PSUs granted
|
|
|
213,908
|
|
|
$
|
11.84
|
|
PSUs forfeited
|
|
|
-
|
|
|
$
|
-
|
|
PSUs vested
|
|
|
(195,905
|
)
|
|
$
|
6.60
|
|
Outstanding at December 31, 2016
|
|
|
1,153,617
|
|
|
$
|
3.66
|
|
ENERGOUS CORPORATION
Notes to Financial Statements
Note 8 – Stock Based Compensation, continued
Deferred Stock Units (“DSUs”)
On January 4, 2016, the compensation committee of the board of directors
granted to John Gaulding, director and chairman of the board, DSUs under the 2014 Non-Employee Equity Compensation Plan for which
Mr. Gaulding has the right to receive 14,953 shares of the Company’s common stock. These shares were issued to Mr. Gaulding
in lieu of $125,000 of his anticipated compensation for his services on the board, including $75,000 worth of DSUs and $50,000
of his regular board stipends. The award granted vests fully on the first anniversary of the grant date. Amortization was $123,644
for the year ended December 31, 2016.
At December 31, 2016, the unamortized value of the DSUs was $1,362.
A summary of the activity related to DSUs for the year ended December 31, 2016 is presented below:
|
|
Total
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Outstanding at January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
DSUs granted
|
|
|
14,953
|
|
|
$
|
8.36
|
|
DSUs forfeited
|
|
|
-
|
|
|
$
|
-
|
|
DSUs vested
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at December 31, 2016
|
|
|
14,953
|
|
|
$
|
8.36
|
|
Employee Stock Purchase Plan (“ESPP”)
During the year ended December 31, 2016, there were two offering
periods for the ESPP. The first offering period started on January 1, 2016 and concluded on June 30, 2016. The second offering
period started on July 1, 2016 and concluded on December 31, 2016. During the year ended December 31, 2015, there was one initial
offering period for the ESPP, which started on July 1, 2015 and concluded on December 31, 2015.
The weighted-average grant-date fair value of the purchase option
for each designated share purchased under this plan was approximately $5.20 and $2.46 during the years ended December 31, 2016
and 2015, 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 $318,735 and $113,217
for the years ended December 31, 2016 and 2015, respectively.
The Company estimated the fair value of the purchase options granted
during the years ended December 31, 2016 and 2015 using the Black-Scholes option pricing model. The fair values of the purchase
options granted were estimated using the following assumptions:
|
|
For the Year Ended
December 31, 2016
|
|
Stock price range
|
|
$
|
8.36 - 12.16
|
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility range
|
|
|
56 - 100
|
%
|
Risk-free interest rate range
|
|
|
0.37 – 0.49
|
%
|
Expected life
|
|
|
6 months
|
|
|
|
For the Year Ended
December 31, 2015
|
|
Stock price
|
|
$
|
7.41
|
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
65
|
%
|
Risk-free interest rate
|
|
|
0.13
|
%
|
Expected life
|
|
|
6 months
|
|
ENERGOUS CORPORATION
Notes to Financial Statements
Note 8 – Stock Based Compensation, continued
Stock-Based Compensation Expense
The following tables summarize total stock-based compensation costs
recognized for years ended December 31, 2016, 2015 and 2014:
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Stock options
|
|
$
|
1,045,081
|
|
|
$
|
1,037,399
|
|
|
$
|
1,333,943
|
|
RSUs
|
|
|
5,735,032
|
|
|
|
4,225,728
|
|
|
|
900,063
|
|
PSUs
|
|
|
2,285,683
|
|
|
|
489,239
|
|
|
|
-
|
|
DSUs
|
|
|
123,644
|
|
|
|
-
|
|
|
|
-
|
|
ESPP
|
|
|
318,735
|
|
|
|
113,217
|
|
|
|
-
|
|
IR warrants
|
|
|
-
|
|
|
|
85,831
|
|
|
|
263,972
|
|
Shares issued to consultant for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Total
|
|
$
|
9,508,175
|
|
|
$
|
5,951,414
|
|
|
$
|
2,547,978
|
|
The total amount of stock-based compensation was reflected within
the statements of operations as:
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research and development
|
|
$
|
4,226,304
|
|
|
$
|
2,816,707
|
|
|
$
|
924,702
|
|
Sales and marketing
|
|
|
328,760
|
|
|
|
729,329
|
|
|
|
583,238
|
|
General and administrative
|
|
|
4,953,111
|
|
|
|
2,405,378
|
|
|
|
1,040,038
|
|
Total
|
|
$
|
9,508,175
|
|
|
$
|
5,951,414
|
|
|
$
|
2,547,978
|
|
ENERGOUS CORPORATION
Notes to Financial Statements
Note 9 – Income Taxes
As of December 31, 2016, and 2015, the Company’s deferred
tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
Tax credit
|
|
$
|
2,802,573
|
|
|
$
|
2,958,771
|
|
Net operating loss carryovers
|
|
|
16,174,712
|
|
|
|
7,511,765
|
|
Property and equipment
|
|
|
(58,747
|
)
|
|
|
(98,235
|
)
|
Research and development costs
|
|
|
18,628,913
|
|
|
|
10,380,961
|
|
Start-up and organizational costs
|
|
|
1,222
|
|
|
|
1,333
|
|
Stock-based compensation
|
|
|
1,829,843
|
|
|
|
1,175,821
|
|
Other accruals
|
|
|
341,090
|
|
|
|
155,472
|
|
Total gross deferred tax assets
|
|
|
39,719,606
|
|
|
|
22,085,888
|
|
Less: valuation allowance
|
|
|
(39,719,606
|
)
|
|
|
(22,085,888
|
)
|
Deferred tax assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
The change in the Company’s valuation allowance is as follows:
|
|
2016
|
|
|
2015
|
|
January 1,
|
|
$
|
22,085,888
|
|
|
$
|
9,630,687
|
|
Increase in valuation allowance
|
|
|
17,633,718
|
|
|
|
12,455,201
|
|
December 31,
|
|
$
|
39,719,606
|
|
|
$
|
22,085,888
|
|
The Company has federal and state net operating loss carryovers
of approximately $44,563,000 and $44,661,000, respectively, available to offset future taxable income. The federal and state NOL
carryforwards will expire at various dates beginning in 2033. The Company has federal and state research and development tax credit
carryovers of approximately $1,931,000 and $1,321,000, respectively. The federal R&D credit carryovers will expire beginning
in 2032 and state R&D credit carryovers do not expire. The ultimate realization of the net operating loss is dependent upon
future taxable income, if any, of the Company and may be limited in any one period by alternative minimum tax rules. Although management
believes that the Company may have sufficient future taxable income to absorb the net operating loss carryovers and research and
development tax credit carryovers before the expiration of the carryover period, there may be circumstances beyond the Company’s
control that limit such utilization. Accordingly, management has determined that a full valuation allowance of the deferred tax
asset is appropriate at December 31, 2016 and 2015.
Internal Revenue Code Section 382 imposes limitations on the use
of net operating loss carryovers when the stock ownership of one or more 5% shareholders (shareholders owning 5% or more of the
Company’s outstanding capital stock) has increased on a cumulative basis by more than 50 percentage points. Management cannot
control the ownership changes occurring as a result of public trading of the Company’s Common Stock. Accordingly, there is
a risk of an ownership change beyond the control of the Company that could trigger a limitation of the use of the loss carryover. The
Company completed a Section 382 analysis as of December 31, 2016, and determined that none of its NOLs or R&D credits would
be limited.
ENERGOUS CORPORATION
Notes to Financial Statements
Note 9 – Income Taxes, continued
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Tax benefit at federal statutory rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State income taxes
|
|
|
(5.7
|
)
|
|
|
(5.5
|
)
|
Permanent differences:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
0.8
|
|
|
|
1.3
|
|
Meals and entertainment
|
|
|
0.1
|
|
|
|
0.1
|
|
True-up of federal deferred taxes
|
|
|
1.7
|
|
|
|
|
|
True-up of state deferred taxes
|
|
|
1.2
|
|
|
|
(0.2
|
)
|
Other
|
|
|
-
|
|
|
|
0.7
|
|
Research and development tax credit, federal
|
|
|
(1.5
|
)
|
|
|
(4.4
|
)
|
Research and development tax credit, state
|
|
|
(1.1
|
)
|
|
|
(3.1
|
)
|
Increase in valuation allowance, federal
|
|
|
32.9
|
|
|
|
36.3
|
|
Increase in valuation allowance, state
|
|
|
5.6
|
|
|
|
8.8
|
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Note 10 – Related Party
On July 14, 2014, the Company’s Board of Directors appointed
Howard Yeaton as the Company’s Interim Chief Financial Officer. On July 13, 2015, the Company appointed Brian Sereda as the
Company’s Chief Financial Officer, replacing Interim Chief Financial Officer Howard Yeaton. Howard Yeaton is the Managing
Principal of Financial Consulting Strategies LLC (“FCS”). During the year ended December 31, 2016, the Company had
incurred fees of $0 in connection with Mr. Yeaton’s services as Interim Chief Financial Officer and $13,306 for other financial
advisory and accounting services provided by FCS. During the year ended December 31, 2015, the Company incurred fees of $61,848
in connection with Mr. Yeaton’s services as Interim Chief Financial Officer and $88,813 for other financial advisory and
accounting services provided by FCS. During the year ended December 31, 2014, the Company incurred fees of $68,413 in connection
with Mr. Yeaton’s services as Interim Chief Financial Officer and $126,153 for other financial advisory and accounting services
provided by FCS.
Note 11 – Unaudited Quarterly Financial Information
Summarized quarterly information for the years ended December 31,
2016 and 2015 is listed below:
|
|
For the quarter ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
136,364
|
|
|
$
|
181,818
|
|
|
$
|
1,003,973
|
|
|
$
|
129,786
|
|
Operating expenses
|
|
$
|
10,936,772
|
|
|
$
|
10,468,990
|
|
|
$
|
11,131,994
|
|
|
$
|
14,744,905
|
|
Net loss
|
|
$
|
(10,796,542
|
)
|
|
$
|
(10,284,555
|
)
|
|
$
|
(10,125,063
|
)
|
|
$
|
(14,611,234
|
)
|
Loss per share, basic and diluted
|
|
$
|
(0.66
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
200,000
|
|
|
$
|
225,000
|
|
|
$
|
2,075,000
|
|
|
$
|
-
|
|
Operating expenses
|
|
$
|
7,131,600
|
|
|
$
|
6,374,970
|
|
|
$
|
7,683,317
|
|
|
$
|
8,887,452
|
|
Net loss
|
|
$
|
(6,925,279
|
)
|
|
$
|
(6,146,582
|
)
|
|
$
|
(5,605,661
|
)
|
|
$
|
(8,884,180
|
)
|
Loss per share, basic and diluted
|
|
$
|
(0.54
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.61
|
)
|