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WATT? 'Be Prepared To Lose All Of Your Investment'

Summary

WATT's wireless charging technology is unlikely to reach commercial feasibility in the foreseeable future given lack of capital investment, regulatory barriers, and technology hurdles.

While WATT's expense base is growing, its business model is not expected to generate revenue anytime soon.

Barring an improbable technology breakthrough, the company may face insolvency without future rounds of equity dilution.

WATT's equity has been pumped up and may face strong selling pressure when the IPO lock-up expires in two months. Insiders have made tremendous returns on paper.

Outperforming even GoPro (NASDAQ:GPRO) as the best-performing IPO of the 2014 vintage, Energous Corp. (NASDAQ:WATT) has seen its share price more than double in less than four months of trading. Even more impressive, since the company was seeded with $10,000 out of WATT founder Michael Leabman's parents' house in October, 2012, the value of that initial investment has skyrocketed 25,970% in 19 months to over $25 million in gains. This return compares to outlier best-in-class returns of 4,000% in Apple's (NASDAQ:AAPL) share price and a 1,100% increase in Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) share price over 10 years of booming, profitable growth!

A simple reading of WATT's S-1 shows us that there is very little business here other than a catchy ticker symbol. We agree with WATT's own SEC filings that warn investors that the company's equity may end up being worthless.

WATT claims to be a company that is developing technology that can enable wireless charging or powering of electronic devices at distance. WATT's technology powers devices by surrounding them with a three-dimensional ("3D") pocket of energy formed by radio frequencies.

Sound almost as intriguing as 3D (NYSE:DDD) and 3D printing? As CEO Steve Rizzone describes to Fox Business News, "Energous has the technology that is going to fundamentally change the way the consumer charges their wireless device." In this video, WATT shows an impressive demonstration of how consumers could charge their smartphones wirelessly without any battery pack accessory using WATT's technology.

What are the problems with the WATT wireless charging vision?

  • As we learn later in the Fox interview Q&A session with Rizzone, WATT does not actually possess the technology to wirelessly charge devices without a battery pack.
    where WATT's founder and chief technology officer, Michael Leabman demonstrates what WATT's technology can actually do.
  • As we can see, WATT's current prototype, which is not yet commercially available, is expected to cost $75-125 for a battery pack, and an additional $300 for a wireless router with a 15-foot diameter range that will transmit power to the battery pack.
  • We wonder why a consumer would pay ~$375-425 for this set of accessories when consumers today already have the following cheaper options to charge their devices:
    1. Plug their device into a wall outlet for free using OEM-provided accessories.
    2. Purchase one of dozens of extended battery charging sleeves or charging blocks that exist today. WATT's cumbersome solution costs ~4-10x more than these accessories.

To be fair to WATT, the company claims that these initial prototypes are just the first step towards the dream of true wireless charging. The company has announced four JDAs (joint-development agreements) with Korean electronic accessory companies, and promises investors more partnership announcements in the future. WATT hopes that some of these partners will develop wireless charging accessories to display at CES in 2015. However, JDAs are common in the consumer electronics industry and do not require partners to make significant investments. Many JDAs do not result in the commercialization of any new products, but end up being merely research & development exercises.

We would not get very excited about JDAs or the next generation of WATT's "technology" for several reasons outlined in WATT's own S-1:

WATT has no working commercial technology:

  • "Our efforts may never demonstrate the feasibility of our technology... the technology concepts we are applying to develop commercial applications of wireless power for fixed and mobile low-power rechargeable devices have not been previously successfully applied by anyone else... our business may fail."
  • Lack of technology should not be too surprising to investors, since the company has only spent a cumulative $3 million on research and development activities since inception as of March 31, 2014.

WATT has no revenue, yet growing expenses:

  • "We have not yet demonstrated our ability to generate revenue, and we may never be able to produce material revenues or operate on a profitable basis. As a result, we have incurred losses since our inception and expect to experience operating losses and negative cash flow for the foreseeable future."
  • From the company's first earnings call in May 2014: "We understand that for the first two years we are not going to have EBITDA and earnings growth that you would expect from a public company."
  • As of the first quarter 2014, WATT has $2 million of quarterly operating expenses, up 20% quarter-over-quarter, with plans to grow up to 39 employees. At just the current $2MM quarterly burn rate, WATT will have spent all of its cash balance from the IPO in only three years, but the business plan includes increasing expenses, growing the employee count up to 39.

FCC regulatory approval will be required for power transmission for consumer product use cases that have never been granted before in the history of the industry:

  • "Our remote charging technology involves the transmission of power using RF energy waves, which are subject to regulation by the Federal Communications Commission ("FCC")... because our technology involves the transmission of power greater than the power threshold limits of Part 15, we also expect to need to obtain FCC Part 18 approval. To our...

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