Note 2 – Liquidity and Management Plans
During the three months and nine months ended September 30,
2016, the Company recorded revenue of $1,003,973 and $1,322,155, respectively, and during the three and nine months ended September
30, 2015, the Company recorded revenue of $2,075,000 and $2,500,000, respectively. During the three months and nine months ended
September 30, 2016, the Company recorded a net loss of $10,125,063 and $31,206,160, respectively, and during the three and nine
months ended September 30, 2015, the Company recorded a net loss of $5,605,661 and $18,677,522, respectively. Net cash used in
operating activities was $24,439,565 and $15,460,067 for the nine months ended September 30, 2016 and 2015, respectively. The Company
is currently meeting its liquidity requirements principally through the November 2015 sale of common stock pursuant to a shelf
registration, an August 2016 sale of shares to an investor through a private placement and payments received under product development
projects entered into with a tier one customer.
As of September 30, 2016, the Company had cash on hand of $24,956,255.
On April 24, 2015, the Company filed a “shelf” registration statement on Form S-3, under which the Company may from
time to time, sell any combination of debt or equity securities up to an aggregate of $75,000,000. In November 2015, the Company
consummated an offering under the shelf registration of 3,000,005 shares of common stock through which the Company raised net proceeds
of $19,048,456. In addition, on August 9, 2016, the Company sold 1,618,123 shares of its common stock, and issued a warrant to
purchase up to 1,618,123 shares of common stock at an exercise price of $23.00 per share, to Ascend Legend Master Fund, Ltd. in
a private placement, raising net proceeds of $19,890,644. The Company expects that cash on hand as of September 30, 2016, together
with anticipated revenues, will be sufficient to fund the Company’s operations into the fourth quarter of 2017.
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.
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
(the “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, 2015 included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2015, filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2016. The accounting
policies used in preparing these unaudited condensed interim financial statements are consistent with those described in the December
31, 2015 audited financial statements
.
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.
Reclassification
Certain amounts in prior periods have been reclassified to conform
to the current period presentation. These reconciliations had no effect on previously reported net loss.
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 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.
Note 3 – Summary of Significant Accounting Policies,
continued
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 $7,944,465
and $4,758,590 for the three months ended September 30, 2016 and 2015, respectively, and the Company incurred research and development
costs of $23,080,918 and $13,008,190 for the nine months ended September 30, 2016 and 2015, respectively.
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 September 30, 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 three and nine months ended September 30, 2016 and 2015.
Net (Loss) Income 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 5,546,269 and 4,807,729 for the three months ended September 30, 2016 and 2015, respectively, and 5,546,269
and 4,807,729 for the nine months ended September 30, 2016 and 2015, respectively, because their inclusion would be antidilutive.
Note 3 – Summary of Significant Accounting Policies,
continued
Net (Loss) Income Per Common Share, continued
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 Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Consulting Warrant to purchase common stock
|
|
|
-
|
|
|
|
166,937
|
|
|
|
-
|
|
|
|
166,937
|
|
Financing Warrant to purchase common stock
|
|
|
13,889
|
|
|
|
152,778
|
|
|
|
13,889
|
|
|
|
152,778
|
|
IPO Warrants to purchase common stock
|
|
|
13,200
|
|
|
|
460,000
|
|
|
|
13,200
|
|
|
|
460,000
|
|
IR Consulting Warrant
|
|
|
23,250
|
|
|
|
36,000
|
|
|
|
23,250
|
|
|
|
36,000
|
|
IR Incentive Warrant
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
Warrant issued to private investor
|
|
|
1,618,123
|
|
|
|
-
|
|
|
|
1,618,123
|
|
|
|
-
|
|
Options to purchase common stock
|
|
|
1,333,357
|
|
|
|
1,588,851
|
|
|
|
1,333,357
|
|
|
|
1,588,851
|
|
RSUs
|
|
|
1,443,529
|
|
|
|
1,174,990
|
|
|
|
1,443,529
|
|
|
|
1,174,990
|
|
PSUs
|
|
|
1,070,968
|
|
|
|
1,213,173
|
|
|
|
1,070,968
|
|
|
|
1,213,173
|
|
DSUs
|
|
|
14,953
|
|
|
|
-
|
|
|
|
14,953
|
|
|
|
-
|
|
Total potentially dilutive securities
|
|
|
5,546,269
|
|
|
|
4,807,729
|
|
|
|
5,546,269
|
|
|
|
4,807,729
|
|
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,
2017. 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. Early application
is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption
of this standard is not expected to have a material impact on the Company’s financial position and results of operations.
Note 3 – Summary of Significant Accounting Policies,
continued
Recent Accounting Pronouncements, continued
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 adoption of this standard did not have a material
impact on the Company’s financial position and results of operations.
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 has been adopted concurrently with the
adoption of ASU 2015-03. 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 is currently evaluating the impact this standard will
have on its financial statements.
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.
Note 3 – Summary of Significant Accounting Policies,
continued
Recent Accounting Pronouncements, continued
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.
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.
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred after the balance
sheet date of September 30, 2016, through the date which the financial statements are issued. Based upon that review, the Company
did not identify any subsequent events that would have required adjustment or disclosure in the financial statements, except those
described in Note 8 – Subsequent Events.
Note 4 – 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 March 31, 2015, all 36,000 shares under the IR Consulting
Warrant were vested. The Company incurred stock-based compensation expense of $0 for the three and nine months ended September
30, 2016 and $0 and $39,410 for the three and nine months ended September 30, 2015, respectively, in connection with the IR Consulting
Warrant, which was included in general and administrative expense.
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 being amortized over the
six month contract period. The contract was renewed for an additional six month period starting in August 2015 for $25,000. This
initial fee was amortized over the six month renewal period, plus monthly cash payments of $5,000 were made during the renewal
period. The Company incurred amortization expense of $0 and $6,250 during the three and nine months ended September 30, 2016, respectively
and $36,975 and $147,900 during the three and nine months ended September 30, 2015, respectively, which was included in general
and administrative expense.
Operating Leases
On September 10, 2014, the Company entered into a Lease Agreement
(the “Lease”) 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.
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.
Note 4 – Commitments and Contingencies, continued
Operating Leases, continued
The future minimum lease payments for leased locations are as
follows:
For the Years Ended December 31,
|
|
Amount
|
|
2016 (Three Months)
|
|
$
|
137,735
|
|
2017
|
|
|
572,722
|
|
2018
|
|
|
530,531
|
|
2019
|
|
|
372,652
|
|
Total
|
|
$
|
1,613,640
|
|
Development
and Licensing Agreements
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. During the three months and nine months
ended September 30, 2015, the Company recognized $75,000 and $500,000, respectively, of this payment as revenue and fully recognized
the $500,000 payment 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
$69,573 and $387,755 in revenue during the three and nine months ended September 30, 2016, respectively. During the three months
ended September 30, 2016, the Company recognized revenue of $875,000 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.
Note 4 – Commitments and Contingencies, continued
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.
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 6).
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.
Note 4 – Commitments and Contingencies, continued
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.
Patent Infringement Matter
In June 2016, Ossia Inc. filed two post grant review petitions
with the U.S. Patent and Trademark Office (“PTO”) challenging the patentability of one of our issued patents.
The Company intends to defend against these challenges in the PTO. However, there can be no assurance that this patent will not
be invalidated.
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 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.
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.
Note 6 – Stock Based Compensation
Private Placement
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.
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 September 30, 2016, 2,421,782
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 September 30, 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 September 30, 2016, 31,951 shares
of common stock remain eligible to be issued through equity based instruments under the Performance Share Unit Plan.
Note 6 – Stock Based Compensation, continued
Equity Incentive Plans, continued
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 September 30, 2016, 506,292 shares
of common stock remain eligible to be issued through equity based instruments under the ESPP. As of September 30, 2016, eligible
employees have contributed $194,325 through payroll withholdings to the ESPP for the current eligibility period. Shares will be
deemed to be delivered on December 31, 2016 for the current eligibility period.
Stock Option Award Activity
The following is a summary of the Company’s stock option
activity during the nine months ended September 30, 2016:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life In
Years
|
|
|
Intrinsic
Value
|
|
Outstanding at January 1, 2016
|
|
|
1,487,785
|
|
|
$
|
4.43
|
|
|
|
8.0
|
|
|
$
|
5,310,340
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(106,441
|
)
|
|
|
2.54
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(47,987
|
)
|
|
|
2.44
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2016
|
|
|
1,333,357
|
|
|
$
|
4.55
|
|
|
|
7.4
|
|
|
$
|
20,079,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 1, 2016
|
|
|
860,970
|
|
|
$
|
4.34
|
|
|
|
8.0
|
|
|
$
|
3,076,767
|
|
Vested
|
|
|
248,936
|
|
|
|
4.45
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(106,441
|
)
|
|
|
2.54
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(1,932
|
)
|
|
|
2.49
|
|
|
|
-
|
|
|
|
-
|
|
Exercisable at September 30, 2016
|
|
|
1,001,533
|
|
|
$
|
4.56
|
|
|
|
7.4
|
|
|
$
|
15,074,220
|
|
As of September 30, 2016, the unamortized value of options was
$846,248. As of September 30, 2016, the unamortized portion will be expensed over a weighted average period of 1.0 years.
Note 6 – 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.
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 September 30, 2016, the unamortized value of the RSUs was
$10,232,019. The unamortized amount will be expensed over a weighted average period of 2.7 years. A summary of the activity related
to RSUs for the nine months ended September 30, 2016 is presented below:
|
|
Total
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Outstanding at January 1, 2016
|
|
|
1,560,996
|
|
|
$
|
8.83
|
|
RSUs granted
|
|
|
303,206
|
|
|
$
|
9.76
|
|
RSUs forfeited
|
|
|
(92,637
|
)
|
|
$
|
9.90
|
|
RSUs vested
|
|
|
(328,036
|
)
|
|
$
|
9.41
|
|
Outstanding at September 30, 2016
|
|
|
1,443,529
|
|
|
$
|
8.82
|
|
|
|
|
|
|
|
|
|
|
Note 6 – Stock Based Compensation, continued
Performance Share Units (“PSUs”)
PSUs 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.
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 above. 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
Nine Months Ended
September 30, 2016
|
|
|
Performance Share Units
(PSUs) Granted During the
Nine Months Ended
September 30, 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 grant 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 $3,217,528, and is amortized over the service period of
May 21, 2015 through December 31, 2018, on a straight-line basis. Amortization was $230,276 and $277,031 for the three months ended
September 30, 2016 and 2015, respectively. Amortization was $673,405 and $320,409 for the nine months ended September 30, 2016
and 2015, respectively.
At September 30, 2016, the unamortized value of the PSUs was
approximately $2,054,884. The unamortized amount will be expensed over a weighted average period of 2.3 years. A summary of the
activity related to PSUs for the nine months ended September 30, 2016 is presented below:
|
|
Total
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Outstanding at January 1, 2016
|
|
|
1,135,614
|
|
|
$
|
2.62
|
|
PSUs granted
|
|
|
63,908
|
|
|
$
|
3.15
|
|
PSUs forfeited
|
|
|
-
|
|
|
$
|
-
|
|
PSUs vested
|
|
|
(128,554
|
)
|
|
$
|
2.65
|
|
Outstanding at September 30, 2016
|
|
|
1,070,968
|
|
|
$
|
2.65
|
|
|
|
|
|
|
|
|
|
|
Note 6 – 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 $31,337 and $0 for the three months ended September 30, 2016 and 2015, respectively. Amortization was $92,307 and $0 for the
nine months ended September 30, 2016 and 2015, respectively.
At September 30, 2016, the unamortized value of the DSUs was
$32,700. The unamortized amount will be expensed over a weighted average period of 0.3 years. A summary of the activity related
to DSUs for the nine months ended September 30, 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 September 30, 2016
|
|
|
14,953
|
|
|
$
|
8.36
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan (“ESPP”)
The recently completed offering period for the ESPP was January
1, 2016 through June 30, 2016. The current offering period began July 1, 2016 and runs through December 31, 2016.
The weighted-average grant-date fair value of the purchase option
for each designated share purchased under this plan was approximately $2.57 for the recently completed offering period and is approximately
$5.20 for the current offering period, 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 $97,830
and $220,546 for the three and nine months ended September 30, 2016, respectively, and the Company recognized compensation expense
for the plan of $29,967 during the three and nine months ended September 30, 2015.
The Company estimated the fair value of options granted during
the three and nine months ended September 30, 2016 using the Black-Scholes option pricing model. The fair values of stock options
granted were estimated using the following assumptions:
|
|
Three Months Ended
September 30, 2016
|
|
|
Nine Months Ended
September 30, 2016
|
|
Stock price
|
|
$
|
12.16
|
|
|
|
$8.36 - $12.16
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
100
|
%
|
|
|
56%
- 100
|
%
|
Risk-free interest rate
|
|
|
0.37
|
%
|
|
|
0.37%
- 0.49
|
%
|
Expected life
|
|
|
6 months
|
|
|
|
6 months
|
|
Note 6 – Stock Based Compensation, continued
The following tables summarize total stock-based compensation
costs recognized for the three and nine months ended September 30, 2016 and 2015:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
$
|
296,272
|
|
|
$
|
232,286
|
|
|
$
|
842,569
|
|
|
$
|
724,708
|
|
RSUs
|
|
|
1,204,982
|
|
|
|
968,385
|
|
|
|
3,577,081
|
|
|
|
3,145,520
|
|
IR warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85,831
|
|
PSUs
|
|
|
230,276
|
|
|
|
277,031
|
|
|
|
673,405
|
|
|
|
320,409
|
|
ESPP
|
|
|
97,830
|
|
|
|
29,967
|
|
|
|
220,546
|
|
|
|
29,967
|
|
DSUs
|
|
|
31,337
|
|
|
|
-
|
|
|
|
92,307
|
|
|
|
-
|
|
Total
|
|
$
|
1,860,697
|
|
|
$
|
1,507,669
|
|
|
$
|
5,405,908
|
|
|
$
|
4,306,435
|
|
The total amount of stock-based compensation was reflected within
the statements of operations as:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
$
|
960,362
|
|
|
$
|
582,320
|
|
|
$
|
2,628,454
|
|
|
$
|
2,116,631
|
|
Sales and marketing
|
|
|
89,072
|
|
|
|
185,507
|
|
|
|
213,842
|
|
|
|
516,377
|
|
General and administrative
|
|
|
811,263
|
|
|
|
739,842
|
|
|
|
2,563,612
|
|
|
|
1,673,427
|
|
Total
|
|
$
|
1,860,697
|
|
|
$
|
1,507,669
|
|
|
$
|
5,405,908
|
|
|
$
|
4,306,435
|
|
Note 7 – 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 (See Note 4), replacing Interim Chief Financial Officer Howard Yeaton. Howard Yeaton is
the Managing Principal of Financial Consulting Strategies LLC (“FCS”). During the three and nine months ended September
30, 2016, the Company incurred no fees to FCS in connection with Mr. Yeaton’s services as Interim Chief Financial Officer.
During the three and nine months ended September 30, 2015, the Company incurred fees of $2,500 and $61,848, respectively, in connection
with Mr. Yeaton’s services as Interim Chief Financial Officer. During the three and nine months ended September 30, 2016,
the Company incurred $0 and $13,306, respectively, in fees for other financial advisory and accounting services provided by FCS.
During the three and nine months ended September 30, 2015, the Company incurred fees of $28,405 and $67,751, respectively, in fees
for other financial advisory and accounting services provided by FCS.
Note 8 – Subsequent Events
Strategic Alliance Agreement
On November 7, 2016, Energous Corporation (the “Company”)
and Dialog Semiconductor plc (“Dialog”) 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 Strategic 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.
Note 8 – Subsequent Events, continued
Strategic Alliance Agreement, continued
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.
Securities Purchase Agreement
In connection with the Alliance Agreement, on November 7, 2016,
the Company and Dialog entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) pursuant
to which the Company agreed to sell to Dialog 763,552 shares (“Shares”) of the Company’s common stock (“Common
Stock”) and a warrant (“Warrant”) to purchase up to 763,552 shares (“Warrant Shares”) of Common Stock
for an aggregate purchase price of $10,000,011.00. The Warrant may only be exercised 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
(the “Closing Date”) and the three-year anniversary of the Closing Date.
The Securities Purchase Agreement also provides that, until
the earlier of (i) the three-year anniversary of the Closing Date or (ii) the effective date of termination of the Alliance Agreement
(the “Voting Period”), Dialog and its affiliates agreed to vote all of their shares of Common Stock in the manner recommended
by the Company’s board of directors (the “Board”), with specified exceptions. In elections of Board members,
Dialog and its affiliates are obligated to vote their shares in favor of individuals recommended by the Board for election. During
the Voting Period, Dialog and its affiliates may not acquire any additional voting securities of the Company other than Warrant
Shares without consent of the Board. Dialog also agreed to restrictions on its ability to seek to control the management. Dialog
will not sell, transfer or otherwise dispose of the Shares for a period of six months after the closing of the transaction, and
agreed not to sell more than a specified amount in any calendar week through the end of the Voting Period. The Company agreed to
file registration statements registering the Dialog’s re-offer and resale of the Shares and the Warrant Shares under certain
circumstances.
New Equity Award Grants
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. Also, 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.
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
97,500 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 320,400 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.
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.
Note 8 – Subsequent Events, Continued
New Equity Award Grants, continued
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
23,750 shares of the Company’s common stock. The issuance of these awards is subject to employment with the Company on the
first anniversary of their hire date. The awards will vest of four years beginning on the second anniversary of the dates of hire.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
As used in this Form 10-Q, unless the context otherwise requires
the terms “we,” “us,” “our,” and “Energous” refer to Energous Corporation, a Delaware
corporation. This Quarterly Report on Form 10-Q 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,” “should,” “could,”
“seek,” “intend,” “plan,” “estimate,” “anticipate” or other comparable
terms. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q 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 expectations for revenues, cash flows and financial performance,
the anticipated results of our development efforts and 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. Because forward-looking statements relate to the future, they are subject
to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our
control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.
Therefore, you should not rely on any of these 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, the
following: our ability to develop a commercially feasible technology; receipt of necessary regulatory approvals; our ability to
find and maintain development partners, market acceptance of our technology, the amount and nature of competition in our industry;
our ability to protect our intellectual property; and the other risks and uncertainties described in the Risk Factors and in Management's
Discussion and Analysis of Financial Condition and Results of Operations sections of this Quarterly Report on Form 10-Q and our
most recently filed Annual Report on Form 10-K and any subsequently filed Quarterly Reports on Form 10-Q. We undertake no obligation
to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result
of new information, future developments or otherwise.
Overview
We are developing 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. Our
anticipated business model is to supply silicon components with reference designs and license our WattUp technology to device and
chip manufacturers, wireless service providers and other commercial partners to make wire-free charging an affordable, ubiquitous
and convenient option for end users. We believe our 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.
We believe our technology is novel in its approach, in that
we are developing a solution that charges electronic devices by surrounding them with a contained three dimensional (“3D”)
radio frequency (“RF”) energy pocket (“RF energy pocket”). We are engineering solutions that we expect
to enable the wire-free transmission of energy from multiple WattUp transmitters to multiple WattUp receiving devices within a
range of up to fifteen (15) feet in radius or in a circular charging envelope of up to thirty (30) feet. We are also developing
our 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, we have developed
multiple transmitter prototypes in various form factors and power capabilities. We have also developed multiple receiver prototypes
supporting smartphone battery cases, toys, fitness trackers, Bluetooth headsets, as well as stand-alone receivers.
From the beginning we recognized the need to build and design
an enterprise-class network management and control system (“NMS”) that was integral to the architecture and development
of our wire-free charging technology. Our NMS system can be scaled up to control an enterprise consisting of thousands of devices
or scaled down to work in a home or IoT environment.
The power, distance and mobility capabilities of the WattUp
technology were validated independently by Underwriters Laboratories (UL) in October 2015 and the results published in November
2015.
Our technology solution consists principally of transmitter
and receiver application specific standard product integrated circuits (“ASSPs”) and novel antenna designs driven through
innovative algorithms and software applications. We submitted our first ASSP design for wafer fabrication in November 2013 and
have since then been developing multiple generations of transmitter and receiver ASSPs, multiple antenna designs, as well as algorithms
and software designs that we believe, in the aggregate, will optimize our technology by reducing size and cost, while increasing
performance to a level that will enable our technology to be integrated into a broad spectrum of devices. We have developed a “building
block” approach which allows us to scale our product implementations by combining multiple transmitter building blocks and/or
multiple receiver building blocks to provide the power, distance, size and cost performance necessary to meet various application
requirements. While the technology is very scalable, in order to provide the necessary strategic focus to grow the company effectively,
we have defined our market as devices that require 10 watts or less of power to charge. We will continue to invest in ASSP development
as well as in the other components of the WattUp system to improve product performance, efficiency, cost-performance and miniaturization
as required to grow the business and expand the ecosystem while also distancing us from any potential competition.
We believe that if our development, regulatory and commercialization
efforts are successful, our transmitter and receiver technology will support a broad spectrum of charging solutions ranging from
contact-based charging or charging at distances of no more than a few centimeters (“nearfield”) to charging at distances
of up to 15 feet (“farfield”).
In February 2015 we signed a Development and License Agreement
with one of the top consumer electronic companies in the world based on total worldwide revenues. The agreement is milestone-based
and, while there are no guarantees that the WattUp® technology will ever be integrated into our strategic partner’s consumer
devices, we continue to progress the relationship as evidenced by the achievement of our first revenues in late 2015 from engineering
services resulting from the achievement of certain milestones under the agreement. We anticipate continued progress with the relationship
which we expect will result in additional engineering ervices revenue and ultimately, if fully executed, significant revenues from
royalties based on the WattUp® technology being integrated into products being shipped to the consumer.
In January 2016 we unveiled a new Miniature WattUp Transmitter
design, as well as a small form factor receiver, both of which were developed as a direct result of our efforts to reduce cost
and size. Due to its low cost and small size, the miniature transmitter is anticipated to be bundled in-box with WattUp-enabled
receivers replacing alternative charging solutions like power adapters and charging cables. The ability to bundle and provide a
low cost, portable charging solution for receivers provides portability to the WattUp solution and is anticipated to accelerate
the ecosystem build out.
In February 2016 we began delivering Miniature WattUp evaluation
kits to potential licensees to allow their respective engineering and product management departments to test and evaluate our technology.
We expect that the testing and evaluations currently taking place will lead to an expansion of our licensing partners and will
result in products with our nearfield technology embedded beginning to be shipped to the consumer in late 2016 or early 2017. In
May 2016 our Miniature WattUp transmitter reference design received FCC approval.
In March 2016 we entered into a development agreement with Pegatron,
a worldwide leader in electronic and computing design and manufacturing service (DMS), in April 2016 we entered into a joint development
and licensing agreement with a specialty battery company in the hearing devices and wearables market and in May 2016 we entered
into a joint development and licensing agreement with a leading commercial and industrial supply company for industrial and commercial
applications for the full-size WattUp transmitter.
We have implemented an aggressive intellectual property strategy
and are continuing to pursue patent protection for new innovations. As of September 30, 2016, we had in excess of 250 pending patent
applications in the US and abroad. Additionally, the U.S. Patent and Trademark Office (“PTO”) has issued our first
nine patents and notified us of the allowance of seven additional patent applications. In June 2016, Ossia Inc. filed two post
grant review petitions with the PTO challenging the patentability of one of our issued patents. We intend to defend against
these challenges in the PTO. However, there can be no assurance that this patent will not be invalidated. In addition to
the inventions covered by these patents and patent applications, we have identified a significant number of additional specific
inventions we believe are novel and patentable. We intend to file for patent protection for the most valuable of these, as well
as for other new inventions that we expect to develop. Our strategy is to continually monitor the costs and benefits of each patent
application and pursue those that will best protect our business and expand the core value of the Company.
We have recruited and hired a seasoned management team with
both private and public company experience and relevant industry experience to develop and execute our operating plan. In addition,
we have identified and hired key engineering resources in the areas of ASSP 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 as well as meet the support requirements of our licensees.
Critical Accounting Policies and Estimates
Revenue Recognition
We recognize revenue when 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.
We record revenue associated with product development projects
that we enter into with certain customers. In general, these projects are associated with complex technology development,
and as such we do not have certainty about our 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 our effort or the value of the deliverable and is nonrefundable. We record the expenses
related to these projects, generally included in research and development expense, in the periods incurred.
We also receive nonrefundable payments, typically at the beginning
of a customer relationship, for which there are no milestones. We recognize this revenue ratably over the initial engineering product
development period. We record the expenses related to these projects, generally included in research and development expense, in
the periods incurred.
During the three months ended September 30, 2016 and 2015, we
recorded revenue of $1,003,973 and $2,075,000, respectively. During the nine months ended September 30, 2016 and 2015, we recorded
revenue of $1,322,155 and $2,500,000, respectively.
Results of Operations
Three Months Ended September 30, 2016 and 2015
Revenues.
During the three months ended September
30, 2016 and 2015, we recorded revenue of $1,003,973 and $2,075,000, respectively.
Operating Expenses and Loss from Operations.
Operating
expenses are made up of research and development, sales and marketing and general and administrative expenses. Loss from operations
for the three months ended September 30, 2016 and 2015 were $10,128,021 and $5,608,317, respectively.
Research and Development Costs.
Research and development
costs, which include costs for developing our technology, were $7,944,465 and $4,758,590, respectively, for the three months ended
September 30, 2016 and 2015. The increase in research and development costs of $3,185,875 is primarily due to a $1,137,953 increase
in compensation, including a $378,041 increase in stock-based compensation, an $868,558 increase in chip development costs tied
to our multi-chip development program, a $313,454 increase in engineering consulting costs, a $565,778 increase in patent filing
and legal costs tied to our portfolio of over 250 domestic and international filings and a $190,376 increase in design tools software
spending.
Sales and Marketing Costs.
Sales and marketing costs
for the three months ended September 30, 2016 and 2015 were $736,751 and $767,762, respectively. The decrease in sales and marketing
costs of $31,011 is primarily due to a decrease of $96,436 in stock-based compensation which is primarily due to the resignation
of the Chief Commercial Officer during 2015 and a $35,635 decrease in consulting costs which is a result of employees now performing
certain marketing duties previously performed by consultants, partially offset by minor increases in recruiting, travel and tradeshow
expenses.
General and Administrative Expenses.
General and administrative
expenses include costs for general and corporate functions, including facility fees, travel, telecommunications, insurance, professional
fees, consulting fees and other overhead. General and administrative costs for the three months ended September 30, 2016 and 2015
were $2,450,778 and $2,156,965, respectively. The increase in general administrative costs of $293,813 is primarily due to a $178,570
increase in compensation, including stock-based compensation of $71,421, attributable in part to increased headcount within the
department, a $132,835 increase in legal and accounting expenses and a $127,247 increase in telecommunications costs from servicing
a larger staff and increased video conferencing costs, partially offset by a $109,371 decrease in consulting costs which is a result
of employees now performing duties previously performed by consultants.
Interest Income, Net.
Interest income for the three months
ended September 30, 2016 was $2,958 as compared to interest income of $2,656 for the three months ended September 30, 2015.
Net Loss.
As a result of the above, net loss for the
three months ended September 30, 2016 was $10,125,063 as compared to $5,605,661 for the three months ended September 30, 2015.
Nine Months Ended September 30, 2016 and 2015
Revenues.
During the nine months ended September,
2016 and 2015, we recorded revenue of $1,322,155 and $2,500,000, respectively.
Operating Expenses and Loss from Operations.
Operating
expenses are made up of research and development, sales and marketing and general and administrative expenses. Loss from operations
for the nine months ended September 30, 2016 and 2015 were $31,215,601 and $18,689,887, respectively.
Research and Development Costs.
Research and development
costs, which include costs for developing our technology, were $23,080,918 and $13,008,190, respectively, for the nine months ended
September 30, 2016 and 2015. The increase in research and development costs of $10,072,728 is primarily due to a $2,956,158 increase
in compensation from increased engineering headcount within the department, including $511,823 in stock-based compensation, a $3,327,528
increase in chip design costs tied to our multi-chip development effort, a $1,357,833 increase in patent filing and legal costs
tied to our portfolio of over 250 domestic and international filings, a $739,439 increase in software spending, primarily from
our hosted design solution package and a $557,140 increase in consulting fees, primarily from additional assistance in quality
assurance engineering.
Sales and Marketing Costs.
Sales and marketing costs
for the nine months ended September 30, 2016 and 2015 were $2,189,995 and $2,518,114, respectively. The decrease in sales and marketing
costs of $328,119 is primarily due to a decrease of $321,140 in compensation, including a decrease in stock-based compensation
of $302,535, primarily due to the resignation of the Chief Commercial Officer in October 2015.
General and Administrative Expenses.
General and administrative
expenses include costs for general and corporate functions, including facility fees, travel, telecommunications, insurance, professional
fees, consulting fees and other overhead. General and administrative costs for the nine months ended September 30, 2016 and 2015
were $7,266,843 and $5,663,583, respectively. The increase in general administrative costs of $1,603,260 is primarily due to a
$1,190,897 increase in compensation, including an increase in stock-based compensation of $890,185, attributable in part to increased
headcount within the department, including the CFO position now being filled, and recognition of a full nine months of the CEOs
RSU agreement during 2016, a $282,591 increase in telecommunications and supplies expense in order to accommodate a larger corporate
staff and a $158,943 increase in legal and accounting fees.
Interest Income, Net.
Interest income for the nine months
ended September 30, 2016 was $9,441 as compared to interest income of $12,365 for the nine months ended September 30, 2015. The
change in interest income is primarily due to a lower average cash balance during the nine months ended September 30, 2016.
Net Loss.
As a result of the above, net loss for the
nine months ended September 30, 2016 was $31,206,160 as compared to $18,677,522 for the nine months ended September 30, 2015.
Liquidity and Capital Resources
During the three months ended September 30, 2016 and 2015, we
recorded revenue of $1,003,973 and $2,075,000, respectively. During the nine months ended September 30, 2016 and 2015, we recorded
revenue of $1,322,155 and $2,500,000, respectively. We incurred a net loss of $10,125,063 and $5,605,661 for the three months ended
September 30, 2016 and 2015, respectively. We incurred a net loss of $31,206,160 and $18,677,522 for the nine months ended September
30, 2016 and 2015, respectively. Net cash used in operating activities was $24,439,565 and $15,460,067 for the nine months ended
September 30, 2016 and 2015, respectively. The Company is currently meeting its liquidity requirements principally through proceeds
from the November 2015 sale of common stock pursuant to a shelf registration statement, proceeds from an investor through a private
sale of common stock and payments received under product development projects entered into with a customer.
As of September 30, 2016, we had cash and cash equivalents of
$24,956,255.
We believe our current cash on hand, together with anticipated
payments received under current and future product development projects entered into with customers, will be sufficient to fund
our operations into the fourth quarter of 2017. However, depending on how soon we are able to achieve meaningful commercial revenues,
we may require additional financing to fully implement our business plan, the ultimate goal of which is to license our technology
to device manufacturers, wireless service providers and other commercial partners to make wire-free charging an affordable, ubiquitous
and convenient option for end users. Potential financing sources could include follow-on equity offerings, debt financing, co-development
agreements or other alternatives. Depending upon market conditions, we may choose to pursue additional financing to, among other
reasons, accelerate our product development efforts, regulatory activities and business development and support functions with
a view to capitalizing on the market opportunity we see for our wire-free charging technology. On April 24, 2015, we 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. In November 2015, the Company consummated an offering under the shelf registration of 3,000,005
shares of common stock through which the Company raised net proceeds of $19,048,456. In August 2016, the Company sold shares in
a private placement in which the Company raised net proceeds of $19,890,644.
During the nine months ended September 30, 2016, cash flows
used in operating activities were $24,439,565, consisting of a net loss of $31,206,160, less non-cash expenses aggregating $6,095,109
(representing principally stock-based compensation of $5,405,908 and depreciation expense of $628,613), a $625,000 increase in
accounts receivable, a $484,284 increase in prepaid and other current assets, partially offset by a $948,700 increase in accounts
payable from the timing of invoice payments, a $717,002 increase in accrued expenses and a $112,245 increase in deferred revenue.
During the nine months ended September 30, 2015, cash flows used in operating activities were $15,460,067, consisting of a net
loss of $18,677,522, less non-cash expenses aggregating $4,984,540 (representing principally stock-based compensation of $4,306,435
and depreciation expense of $617,517), a $2,000,000 increase in accounts receivable and a $4,338 increase in prepaid expenses and
other current assets, partially offset by an increase of $58,591 in accounts payable and an increase of $194,945 in accrued expenses.
During the nine months ended September 30, 2016 and 2015, cash
flows used in investing activities were $858,445 and $732,634, respectively. The cash used in investing activities for the nine
months ended September 30, 2016 consisted of the purchase of laboratory equipment and building fixtures. The increase for the nine
months ended September 30, 2015 consisted primarily of the purchases of laboratory equipment, computer hardware and engineering
software to support newly hired employees.
During the nine months ended September 30, 2016, cash flows
provided by financing activities were $20,381,701, which consisted of $19,890,660 in net proceeds from the sale of stock in a private
placement with an investor, $533,005 in proceeds from contributions to the employee stock purchase program (“ESPP”)
and $270,716 in proceeds from the exercise of stock options, offset by $266,217 in shares withheld to cover payroll taxes on vested
RSUs and $46,463 in shares withheld to cover payroll taxes on vested PSUs. During the nine months ended September 30, 2015, cash
flows provided by financing activities were $208,298, which consisted of proceeds from contributions to the ESPP, proceeds from
the exercise of stock options and disgorgement of profit from the sale of stock.
Research and development of new technologies is, by its nature,
unpredictable. Although we will undertake development efforts with commercially reasonable diligence, there can be no assurance
that our available resources including the net proceeds from our public offerings will be sufficient to enable us to develop our
technology to the extent needed to create future revenues to sustain our operations.
We cannot assure that our technology will
be adopted, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. 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 September 30, 2016, 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 and nine months ended September 30, 2016.