Energous Corp (WATT) 2014 Q3 法說會逐字稿

Good day and welcome to the Energous Corporation third-quarter update call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Matt Hayden, Chairman of MZ North America. Please go ahead, sir.

Thank you, Lisa. Good morning, we would like to thank everyone for joining us today for Energous Corporation's third-quarter update call. Your host today will be Mr. Stephen Rizzone, Chairman, President and CEO. The press release detailing the quarterly update crossed the wire yesterday afternoon, and it is available on the Company's website at Energous.com where you can also find additional information on the Company.

After management's prepared comments today, we will open the floor for your questions. Before we get underway, I would like to ask everyone to take note of the Safe Harbor paragraph in the press release. Also, it appears at the end of the financial results issued yesterday afternoon. Any forward-looking statements that may be made today speak to the date thereof and are subject to inherent risks and uncertainties, included in all of our filings with the SEC. Except as otherwise required by federal securities laws, we disclaim any obligation or undertaking to publicly release updates or revisions to forward-looking statements contained therein or elsewhere to reflect changes in expectations with regards to events, conditions and circumstances.

At this time, I would like to turn the call over to Mr. Rizzone. Steve, the floor is yours.

Thank you, Matt. Good morning. I'd like to welcome everyone to our third-quarter update call. Joining me today are George Holmes, our Senior VP of Sales and Marketing, and Howard Yeaton, our CFO.

Before we get into the details of our third-quarter performance, I would like to take a few minutes for those of you who may be new to Energous and talk about our revolutionary patent and trademark pending solution that delivers intelligent, scalable power via the same frequencies as a Wi-Fi router. We call this technology WattUp. WattUp is a wire free charging technology that will transform the way people charge and power their electronic devices at home, in the office, in the car and beyond. WattUp differs from current wireless charging systems in that it delivers meaningful, usable power at a distance, allowing users to roam while charging, all controlled through a robust software platform. The result is a wire free experience that saves users from having to remember to plug in their devices or place them on a mat. Energous is pursuing a licensing model and has formed relationships with 12 companies, several of them major global players who we are expecting will incorporate WattUp transmitters and receivers into a myriad of consumer facing products, thus creating the initial ecosystem for future WattUp commercialization.

Now I'd like to dive into the overall status of the Company and comment on some of our exciting progress. In November of 2013, just after joining Energous, we put a business plan together which was shared on the IPO roadshow in February and March of 2014. We sought to identify the important milestones for our investors, to gauge our progress during the coming year. One of the most critical milestones surrounded Energous's ability to engage with strategic partners. As a licensing company, engaging with strategic partners who build product for the consumer, it is absolutely essential to the adoption of our WattUp technology, our revenue trajectory and ultimately the overall success of the Company. We laid out what we considered would be a successful 2014 in terms of strategic partnerships. We thought we would first be able to first attract early adopters, OEMs and podiums from Asia who build products and components for the major consumer facing companies and are looking to differentiate from one another. We would then engage consumer facing companies directly. Finally, in two to three years, we would partner with silicon companies as they are typically slower to react than adopt.

As we have mentioned on prior calls, silicon companies are the key to ubiquity as getting our technology into Bluetooth and power management chips that are already integrated in a number of consumer products is the broadest, least expensive way of integrating WattUp into these products.

Our coming out party occurred at CES in January 2014. And after gauging the interest level from the major players at that event, our team knew we had something very special in terms of technology, which was meeting a market opportunity with a major void. From that point through to today, we have been pleasantly surprised by blowing through our initial expectations and currently have more interest from companies who are interested in incorporating WattUp into their products, subassemblies, silicons than we can support. We have over 100 active partner engagements. Let me repeat that. We have over 100 active partner engagements with a veritable Who's Who in the consumer product companies, chip manufacturers, OEMs and ODMs.

I would now like to turn the call over to George Holmes who will provide you with details on the development of our WattUp demand ecosystem and our progress on our joint development agreements, as well as our progress on the regulatory front. George?

Thank you, Steve. As Steve mentioned, we laid out our development plan in late 2013. We began by focusing our efforts on smartphone accessories, wearables and transmitters as a means to ensure the level of discipline in our customer engagements. We were focused on signing Tier 2 players that we felt had a strategic significance because of those partners, channels, product focus and those who were nimble, fast-moving early adopters as the right strategy.

Our plan, once the initial partners were secured and the technology and market model validated, was to focus our efforts on the Tier 1s in each of these segments. Our plan for 2014 was two to four JDAs in total in segments identified.

Additionally, we felt that a long-term validation of and success of our model would be driven by our engagements for semiconductor companies. We felt we should engage early but wouldn't be interested in partnerships until they had seen market validation and volume growth for at least two years.

What we witness has been a strong market demand from all corners of the mobile and battery-powered devices market. Demand has been impressive and even quite overwhelming. When global 100 players are contacting you directly, it confirms that you are doing the right things. So let me give you an accounting of what we have done up until today.

In Q2 we announced relationships with router manufacturers, Hanabit and Pocons, battery manufacturer Dong-Hwa. In Q3 smartphone accessory engagements with Anymode, iPowerUp, and a large Asian consumer electronics company. Wearables engagements with a niche wearables player. Semiconductor engagements with Dialog and a large US power IC company, and the battery segment with a company called Highpower. Since October 1 or the beginning of Q4, we have announced engagements with power router companies Haier and SK Telesys, and we will soon be announcing a relationship with a wearable company.

What these agreements signify is not only have we been able to meet and clearly exceed our original objectives for strategic partnership engagements by greater than 200%, we've also been able to secure relationships with key Tier 1 consumer products companies and semiconductor companies. Although these agreements in and of themselves are exciting, we still have a very strong funnel and are currently engaged with a variety of different levels with greater than 100 companies, as Steve just mentioned.

Our challenge remains focused on prioritization. But we also need to be intelligent and sure we don't miss the next big opportunity to keep our first mover advantage intact.

Let me also give you a brief update on our regulatory progress. In Q3 we expanded our regulatory team to include Hans Mellberg. Hans joins us from BACL, one of the major telecommunications certification bodies, TCBs, where he was a CTO. He was also responsible for their FCC TCB, there IC in Canada, their MIC in Japan, and the OFK in Hong Kong, as well as the CE European agency certifier. Hans is leading our regulatory team and is assisted by Chris Harvey, one of the leading experts in the field of FCC certification.

In Q3 we conducted tests on our early prototypes, which are designed to help us with our test development and planning which was very successful. During the course of Q4, we will be back in the labs continuing testing of our solution and expect to be able to obtain certification for our receivers perhaps as early as the end of this year. We are very happy with our progress, and through our engagements with the regulatory bodies to date, we have received no showstoppers that will stand between us and complete certification in 2015.

Finally, we thought it would be helpful to walk you through a case study that showed the steps involved in the transition from a JDA to a licensing agreement and then through commercialization. This will give you an idea of the resources deliverables required from Energous and steps our partners will take to commercialize and the associated timelines, which will vary from partner to partner and even according to the product verticals they are going after.

The process is as follows: engagement, technology validation, reference designs evaluated, prototypes built, licensing agreements negotiated and finalized, go to market strategies are validated with the channel, products are built, delivered into the channel, and then they are ready for customer purchase. We do this with each customer for each product they intend to integrate WattUp technology. Most if not all customers will be met with many products and many SKUs.

I would like to reiterate today we have 12 JDA partners. Four are major global players.

Now I'd like to turn the call over to our interim CFO, Howard Yeaton, to provide some details on the financial results for the recently completed third quarter. Afterwards we will turn the call back over to Steve for additional comments. Howard?

Thank you, George. As you saw at the close of the market yesterday, we issued a press release announcing our operating and financial results for the third quarter ended September 30, 2014.

Our net loss for the third quarter of 2014 was $5.8 million and net loss for the nine months ended September 30, 2014, was $36.6 million. The nine-month loss included a $26.3 million charge for the change in the market value of derivative liabilities and a $2.1 million gain on debt extinguishment, all related to our Q2 and prior financing events.

Adjusted EBITDA was negative $5 million in the third quarter of 2014 and negative $9.5 million in the nine months ended September 30, 2014. We believe adjusted EBITDA provides useful information to investors by providing a more focused measure of operating results.

To provide some more detail on our expenses, we spent $3.7 million and $6.2 million toward R&D for the three and nine months ended June 30 for the nine months ended September 30. Our G&A marketing expenses were $2.1 million and $5.2 million for the same three- and nine-month periods. We have been expanding both our senior and development teams of engineers as we aggressively pursue our growth strategy.

In terms of cash flows during the nine months ended September 30, 2014, net cash used in operating activities was approximately $8.5 million. Net cash used in investing activities was $0.8 million, and net cash provided by financing activities brought in $25.8 million.

Turning to the balance sheet, we ended September 30, 2014, with $18.4 million in cash and cash equivalents with no debt outstanding. We tend to use our cash principally for research and development, product certifications and sales and marketing efforts. At the end of September 2014, we moved into our new office and lab facility in San Jose, California. As of the end of the third quarter, we had 23 employees and 18 consultants.

Steve, let me turn it back over to you now.

Thank you, Howard. Let me provide you with some additional updates on the Company. We met our initial objective for integrating our discrete components used in our second-generation demonstration prototype transmitter and receiver into application-specific integrated circuits, otherwise known as ASICs. And we have either taped out or we are about to tape out our second-generation transmitter and receiver ASICs.

Another major objective for the Company was to show prototypical consumer facing products at the CES show in January. We are on target to meet this objective. I'd like to note that we will be holding an investor night at CES on January 7, 2015, from 5 p.m. to 7 p.m. at the Hard Rock Hotel and Casino in Las Vegas. We will be featuring the product prototypes and offering the opportunity to meet with senior management. This will be a great event, and we hope you will be able to take the time to join us. To RSVP, please contact our IR firm, the MZ Group.

Leading into CES 2015, we will be focused not only on the execution required to demonstrate the wire free home of the future at the Hard Rock in January, but to also begin working our priorities that will ensure a successful 2015 and 2016, which include commercialization of the current products and completing our regulatory requirements to ensure a successful launch of our reference design to our key partners in support of our year-end 2015 objective to have consumer products in retail.

As we have often stated, the core of our Company is its IP and the continuing development of this asset. We met our intellectual property objectives for the third quarter by adding 15 new filings to our previously announced 65, bringing the total portfolio to 80 patents filed.

In addition, we have identified over 75 additional patents that we plan to file at a rate of about five per month. Our objective of filing over 150 patents for the WattUp technology remains on track. We expect our first core patents, which were filed in 2012, to be awarded in 2015.

While we have met our operational objectives, we are facing a significant challenge in that the interest in the WattUp technology has far exceeded our expectations. This being the case, given our current rate of growth and expense, we are at a crossroads as a Company. We can maintain our current rate of development and strategic partner engagement, which means we will have to pass on a number of potentially high-profile opportunities. We will likely lose a number of potential strategic partners to other wireless solutions or encourage other competitive developments to fill the void as we simply do not have enough resources to meet the demand for the technology. Or, we can choose to accelerate the Company, to fully capitalize on our first to market opportunities, which means we would need to raise additional capital in the coming months to expand our development and support teams, as well as significantly expand and accelerate our ASIC integration roadmap.

After careful consideration of all the variables, the board and the management team have decided that we want to take the second option. We want to fully capitalize on our first to market opportunity. As a result, we are considering our options and will likely look to raise additional capital through a registered public offering which will provide sufficient resources to accelerate the Company. While I am not able to speak any further on the contemplated offering, assuming we move forward along this path, once a registration has been filed, we will be able to provide all of the details.

I would also like to mention that management and the board are significant shareholders, and as such, we are very careful. We care very much about creating value across the enterprise.

One final comment on the competitive environment. We are well aware of a number of companies who are trying to catch up to Energous and participate in the 10 watts or less power and distance market. You may have read some of the press surrounding recent capital raises for these companies during the past few weeks and months. However, we, as well as our strategic partners, believe that we have a significant first to market advantage, which we must fully capitalize on. This is yet another justification for our decision to explore our options to raise additional capital to accelerate the Company.

In summary, we have done what we said we are going to do. We are meeting our operational objectives while one of the biggest challenges we face is meeting the demand for our WattUp technology. We are in a competitive environment, but we have a clear first to market advantage which we want to fully capitalize on.

To do this and to significantly increase our ability to meet the demand for WattUp, we will likely be seeking to raise additional capital through a registered public offering, the details of which we will provide if and when they become available. We remain committed to capitalize on this incredible opportunity and build a relevant, predictable business of significance, and we are genuinely excited about the future.

I will now turn the conference over to the operator for any questions. Operator?

(Operator Instructions). [Brent Conrad], [Longboard Capital].

Good morning. (multiple speakers). A question on the JV. So your pipeline is super impressive. You got 100 people dish. I realize it's a lot of work, but congratulations on that. Your ability to scale seems pretty dependent upon your ability to find quality experienced engineers. So I would imagine your move to San Jose is making that easier. I'm just interested in how hard it is to find people to scale up, and has that move helped things? Is the word out, buzz in the valley that you guys are on to something, so you have got people contacting you, or is it just so competitive there that it's difficult to find anyone for any project?

Well, yes. I think there are some significant factors that have positively impacted our ability to recruit what we want in terms of a world-class team.

First, we moved from what was considered a geographically undesirable place in Pleasanton to the heart of the Silicon Valley. We are on North First Street and Tasman, we are right off the light rail, and we looked -- we spent considerable time looking at the geographies of Silicon Valley and the commute route and placed the corporate headquarter strategically right in the center in a very, very effective commute route, surrounded by the types of engineers that we are looking to recruit.

I think the second thing that's positively impacted us is the hiring of our Senior Vice President of Engineering, Cesar Johnston. Caesar is a beacon. He's well experienced in the Valley, he has great contacts, and as a result, in a very, very short period of time, he has been able to bring a number of what we consider to be world-class people into the Company. We have literally doubled the size of our engineering team since we've been here. We made four additional offers yesterday, and so I think we are gaining significant traction.

Also, the word is kind of getting out about the opportunity. It's an exciting opportunity at a very, very early stage, and engineers that come on board with us now have the ability to really do leading-edge work. They also have the ability to come in early and contribute on a daily basis and make an impact.

And finally, I think the other big advantage that we have is that while we are a small company, we are also a public company. And since we are a public company, the RFUs that were given -- the RFUs that we provide as part of our equity package are liquid when they vest. And so this is a very significant recruiting advantage, and we found that the momentum has really started to shift in our favor. We expect to be able to fill the necessary requisitions for our engineering teams, as well as our support teams, and our application engineering teams. And so again, while it was a bit of a slow start, we really gained momentum and are very, very pleased with the progress that we have made. And I also believe that we have the ability to continue to hire the necessary resources as the requisitions become available.

Okay. Great. And then just in terms of timing for actual product releases, say, in about 11 months from now, given where you guys are with the ASICs and the rate of development with these partners, what's your take on that? Is that still pretty much on schedule given that you will have regulatory clearance as well? And is there any -- in terms of regulatory clearance globally, is there any -- do you think there will be any issues in other countries, or do you think once the FCC falls, then the other countries are extremely easy after that normally would be a few weeks? Or does that take months or years or just kind of give us a little bit of color on that.

There's two questions there, so let me answer the first on the products and then let me turn it over to George to speak to the regulatory issues.

On the products, our stated objective is to have consumer products available in the fourth quarter of next year. And, as I said earlier in the remarks, I think we are on target to do that. And then we will see those products continue to ramp, obviously, in 2016.

But we want to get is our early products into the hands of the consumer as quickly as possible because, as we said all along, we believe that once the consumer sees this true wire free solution and understands the utility of this solution, that they are going to aggressively demand adoption of the technology. Again, so our objective, as I said, is the fourth quarter of next year.

George, do you want to touch on the regulatory piece?

Yes, let me do that. So, on the regulatory front, while I mentioned earlier we have a great trajectory, the meetings we've had with the FCC have gone extremely well. So not having any showstoppers from them just really puts us in the hard work category, we believe. So that really does bode well from a regulatory perspective here in the US.

But you mentioned overseas. Each country, each market you go into has its own regulatory environment. In most cases, they heavily rely on the FCC and UL as their underpinnings of their own internal specifications. But they all have their own. So it's key that you have strategic partners in those markets.

So, for example, the announcement of Haier in China. Very, very important. They are very tightly coupled to the regulatory agencies in China and will basically be in charge of driving that through the regulatory process with our support. All of our partnerships in Korea will clearly work to support us in that market as well. SK Telesys, in particular, is very tightly coupled to the regulatory body there, and having companies that are in the telecom space that really understand that regulatory process is going to be key.

So each market has its own requirements. The FCC and the UL are big anchor points for that, but we basically have chosen our strategic partners in those new markets we're trying to address based on their ability to actually help with the certification process. And then clearly we have worldwide partners so they can work those issues in the markets that they are trying to serve.

Okay. Great. That helps a lot. One quick last question. Are you getting interest from laptop and computer makers to embed the transmitters in laptops? That would seem to make sense to me. Just the way people --

Keep in mind, there's two pieces of the puzzle here for us: transmitters and receivers. From a receiver perspective and the amount of power we deliver, it's for devices less than 10 watts. So a laptop is not a target, from a receive perspective.

From a transmit perspective, we have and we are working with companies that have expressed an interest in integrating the transmitter into the bezel of the monitor that would be co-located on your desk for kind of your personal transmitter space. We haven't started talking about potentially putting it into a laptop for a portable transmitter from that standpoint. It's an interesting application, just another great example of the more people you talk to, the more interesting things you find out about. But our partners today haven't expressed an interest in that. They are really focused on the bezels of the monitors as the key place to deliver a portable -- I mean a personal transmitter in your office.

Again, our focus is 10 watts or less. The market opportunity that we have with this focus is huge and difficult really to get our arms around. And the computers, of course, are significantly greater in power.

The other key issue for us is portable versus mobile. The computer is portable. Once you set it down, you typically don't move it. And our big advantage is with full mobility. And so again, the two elements of the market that we work with and are really focusing on are 10 watts or less and mobility or the mobile market.

Okay. Great. Okay. Thank you.

[Glenn Goldman], [Park City Capital].

Hey, guys. A couple questions. Steve, can you just talk a little bit about the capital raised and expectations for timing there?

I really can't. I am precluded from speaking really in any more detail than we have given out already. The only thing we can do is talk about our plans and what we are considering, and any details will have to wait until the registration is filed. I can tell you that if we do elect to do this, as I said, it will be a public offering, and we will file a registration statement.

Okay. But what about timing for a filing?

Again, I have been very specific. I have given very specific instructions in terms of what I can say. And until there is a filing, if there is going to be one, until there is one, I cannot really make any comments at all about timing, size, anything along those lines.

Okay. Fair enough. It sounds like you're trying to be proactive here and get in front of competition. So maybe can you just dive a little deeper in terms of the opportunities that you see that additional cash can really help you attack?

(multiple speakers). I'm sorry?

Anything different along the lines of what you guys are currently doing? What are the kind of touch points you guys could see the need for this cash for?

Well, it's an acceleration of what we're doing now. I mean we are engaging with partners. We have a process, a very specific process that we go through that George alluded to that starts with the general discussions, moves to a GDA -- a JDA, then we go through licensing and commercialization. So we have a very specific process. And while there are some common elements, especially at the beginning, each one of these relationships has unique elements to it.

And so there are resource requirements from a development perspective, there are resource requirements from a support perspective, as well as the core -- continued core development of the technology for the commercialization purposes, and the regulatory efforts. And so really it's a matter of cycles. It's not so much a matter of invention. It's just purely a matter of how many cycles we have. And right now we just do not have enough people and enough cycles to put on the opportunity.

The money that we are talking about here would go to expanding our resources and accelerating our ASIC effort. The ASICs, of course, are the key to the commercialization. And so that's where we would make the investments.

And so it's an acceleration of what we are doing now. We can see, as I said also, the potential expansion into some new markets. We are very, very focused on smartphones and tablets and accessories, but the additional capital will also allow us to expand into toys and batteries and some other markets that we are looking to get into.

And so it's an investment strategy to fully capitalize on the opportunity and to maintain our position as a leader. I mean the time to do this is now. The time to accelerate is now. The wire free charging is getting a lot of visibility. You're seeing more and more about it in the press. It's gaining some solid traction. Major companies are looking at this. And so the time to be the industry leader and to capitalize on our first to market opportunity is now. And that's -- again, that is the reasoning behind the intent to consider raising additional capital.

Okay, Steve. I appreciate that color. And maybe lastly, would that accelerate revenue or pull forward revenue? I know you talked about the guidance for kind of the back end of next fiscal year or next calendar year.

No. It would not accelerate revenue. It would expand our strategic relationships and accelerate the commercialization for second and third generation integration that we are looking to, but it would not -- the earliest that we will see revenues is some small amount of revenue at the end of next year ramping significantly in 2016.

I've got another a little bit of color here and the real thing from a customer acquisition perspective that is important. We announced two weeks ago the relationship with Haier Wireless. This is a great example of an opportunity that we don't want to have to walk away from. This is a company that came in at the end and has been pushing us very, very hard to work with them and to get engaged.

We have -- we are 200% over quota, as it were, based on our plan as it relates to customer engagements. Companies like Haier create a tremendous opportunity to create the ubiquity that Steve has talked about in the past, and there are these Tier 1 companies like that that we continue to be pursued by that we want to have the ability to execute and deliver on the solutions that they are looking for because it will expand the footprint. And that's really what we're trying to do here.

Keep in mind where we started from also. When we went out on the IP roadshow, IPO roadshow in February and March, we talked about standalone transmitters and connecting to battery backpacks. At the CES show in January, you're going to see transmitters now integrated into the bezel of a television. Standalone speakers, speaker bars. We're talking to Haier about incorporating transmitters in refrigerators.

And so, as you can see, this has just kind of snowballed in terms of our original thinking and the opportunity that's been brought to bear here. And so, as I said, it's something that if we don't capitalize on it, given the momentum of the market, somebody else may well do so. So we want to ensure that that doesn't happen. We want to maintain our position of market leadership and capitalize on these opportunities and establish a very, very broad base of acceptance leading to our objective of the ubiquitous solution.

Great. Thanks for the color, guys.

[Lou Percentage], [Disruptive Deck Research].

Hey, guys. Just a couple of quick questions. You're talking about the reference designs for CES. Can you just give us an idea of how many reference designs you expect out of those 12 JD hits to be at CES?

So to be clear of what we are doing at CES, these are validations of the technology with our strategic partners. Some of them are going to be bringing their own products, mostly in the case area. Many of the companies are coming with industrial designs of what future transmitters will look like. Most of them are using the platforms that we have worked on with them and we are demonstrating that we are building here for them to demonstrate and use internally.

So it's a combination of those different aspects. And as Steve described, we have been asked to build four major platforms, and those are the ones that we're focused on for CES, and then a multitude of receiver-based technologies.

So four different manufacturers of cases, a couple of different manufacturers of wearables we are doing, as well as some other demonstrations of wearable designs.

So there's a combination of both, but it is lots of activity and a lot of what's going to be happening here over the course of the next four to six weeks is the collaboration up to CES to make sure that we've got storylines and basically demonstrations for each of these companies.

What's happening for most of them is they are actually signing up to bring their customers to our suites over at the Hard Rock. So we have given timeslots to each of our partners in allowing them to book demonstrations for their customers at our suite so they can see the full functionality. Because in any case, even with a given OEM or ODM partner, they have a single point solution. What we are demonstrating at CES is more of a wireless home. So a fully integrated solution. So that's really where they want to bring their partners to and their customers to to see the demonstration.

One other quick point I'd like to make on that, it's not only are we going to be demonstrating the prototypical devices. We're going to be demonstrating a very, very robust cloud-based software management system. This is becoming more and more of a factor with our strategic partners. The fact that we will have mobile apps available for demonstration purposes at the show to be able to download our interfaces that we will be demonstrating a cloud -- an enterprise cloud capability and the ability to interface with third-party management and billing systems. And so, again, not only will this be a demonstration of the prototypical devices themselves, but also a significant demonstration of our whole software architecture and capability, which is, I think, a very compelling element of our total package solution.

So not just one or two, a good range across the lot. I appreciate that color. One other quick question. Excuse me if I got the line item number wrong here, but I think it was about $3.6 million in R&D spending. Is the majority of that related to work on the reference designs, and more significantly, is that spend being matched by your JDA partners? Are you seeing them invest similar resources? Any color on that?

The bulk of the investment is on our end now because we are still developing the technology. As this begins to roll out and move from the additional prototypical devices to commercialization, the burden shifts to our strategic partners.

So the investments that we've made are in two categories. One is in the core capability itself, which, of course, is transferable across the entire range of our opportunities. And then the second category is for the prototypical devices themselves. And, as I said, the majority of investments for these is on our end initially, and then as we passed CES and move into the commercialization phases in 2015, that burden rests with our strategic -- the majority of that burden will then rest with our strategic partners.

Okay. And then one last question if you've got time, probably for George on the regulatory front. Can you just give some more color on what's involved with PART 18? I think there's some questions about whether it's star ratings versus interference. I know you mentioned in the prepared remarks that you were confident in complete certification, but can you give us some more color and why you're confident in relation to those?

Yes. So it's a couple things. And not to confuse it, you have PART 15, which is the interference spec. You have PART 18, which is in large part safety. And then you have SAR. You also have CEC testing.

So, as we go through the process, I think, as we stated in the past, PART 15 has been very, very predictable. There's very well-defined specs. We can actually go through and get ourselves certified to be a self-certifier of that specification. We will have, we believe, kind of early indication, maybe even approval on our receivers for PART 15 this year.

From a SAR testing perspective, that's typically -- that's kind of one of the anchor points for safety is the anchor point for cell phones and tablets and other transmitting electronic devices. We've already done reference sample testing of SAR. We are working with the local labs. We've got a great trajectory on that. So when we look at the SAR testing, have a plan, execute a plan, we didn't see anything that were showstoppers when we went through and did our initial testing. That testing will take longer. It is something that will take a little bit longer to complete and probably happen sometime in the first half of next year. Because we will be doing it with multiple devices and it has to be end-to-end, and we will also be showing a variety of different applications that we have to get certified.

On PART 18, it's developing the use case and the test methodology for the entire end-to-end system. And so what we did and what you have to do is you clearly -- the first thing you do is you can't throw it over the bow and just throw your request into the FCC. Smart money is you go meet with them. You meet with the OET, the Office of Engineering and Technology. You get all of their key thought leaders in the room, which we did. You have -- you explain to them what your technology is, how you're planning on testing it and what your methodology for testing is. They either give you a, hey, we are really concerned, or hey, okay, we understand. We would really like to see you do a -- take the next step and move this forward so that we can work with you.

We got the latter. We have a very collaborative working relationship with the OET. I think that's in large part due to the team we have on board. And so we are going through the process. I mean we have some work that we have to do as it relates to filing paperwork with them, which we are going to be doing over the course of the next couple of months. Once we do that, we will be meeting with -- the likelihood we will meet with all the commissioners at CES and give them a real live demonstration. And then that will really be the kickoff to the deep intense work that we will be doing with them in the first and second quarter, which will be to complete our test plan and then conduct testing.

And so it is a process. I mean the first thing first is you go sit down with them and make sure that there aren't any gotchas, which are really pre-existing indications that they have made for other technologies and that they want to impose on your technology. We got none of those when we met with them, and now it's just a matter of working through the process. And we are going to be publishing a paper on our roadmap for regulatory here in the coming weeks.

Okay. Great. I think that's great color. I appreciate it.

[Daniel Emir], Ladenburg.

Thanks for taking my call. So I had one question here. With regard to the regulatory, with the JV that you are assigning, how much is it that these companies have a certain knowledge of the process? Is this a major concern of theirs with regards to the FCC approval, or do they just have a high confidence level that this is already approved? They have done the due diligence, and they just think it's a matter of time given that they signed these agreements with you? Thanks.

No worries. So fundamentally, one of the first things we do when we sit down with these JDA partners is we talk about our regulatory plan. All of these companies being consumer-electronics companies themselves have gone through this process. Clearly the big consumer-electronics companies, this is what they do every day because every product they put in the market has to go through FCC or UL certification.

So it's a process. They wanted to make sure that we understood the process, that we had a plan. We want to make sure there weren't any holes in the plan. And basically everybody we have met with up to this point has approved our process that we are going through to the degree that they have signed a JDA with us.

So that's one of the first things they look at. It's one of the first things that they ask us questions about, and they know full well that once we get through our process and they integrate this technology into theirs, they have to go through and capitalize on our approval to get their products approved.

So I think it's a good leading economic indicator of the fact that we have 12 companies, four of which are global powerhouses that have looked at this technology, understood our roadmap, understood our regulatory plan, and know that once we get through with that, they're going to go through and do the exact same thing, and they feel confident about it.

Okay. Great. Thanks for the clarification. Appreciate it.

Clarence Mitchell, EMC.

Hello, yes. My quick question really is more around the installation of the product. I've been seeing that there's a few different competitors out there developing similar products such as (inaudible) and I'm sure you all are aware of that. I just wanted to know what are your differentiation strategies coming up, and what will you plan to do if they are planning on releasing their products?

Thanks for the question. First and foremost, I think we would want to start off by saying we are very excited that we are seeing folks like Kota and uBeam and others enter the uncoupled wireless power market because it's further validation that that is a segment that is really what consumers are looking for. Having the ability to move around and charge, we do believe is going to be fundamental to getting real deep consumer adoption. But here's the thing.

We have been at this for about two years now. We have a product that is very close to being fully commercialized. It's small. It's compact. It does what it's targeted to do. We look at that comparatively to our competitors, specifically the two that you mentioned, and they are great companies, and they have got a great opportunity ahead of them. But they've got a long way to go to catch up to where we are. I mean if you look at the transmitters that they demonstrate either on their YouTube videos or in person, they are much larger. They are a long way from commercialization. They've got some challenges ahead of them, and just like every company, they've got a lot of work to do to get them where they are to where they want to be.

I think for us, we are very mindful of these companies. We watch their behaviors in the marketplace. Most importantly, we watch with our customers and to see if they are looking at those technologies and comparing us to those technologies.

And so far every JDA that we've signed, they evaluated the other competitors, both uBeam and Osia. And at this juncture, the JDAs have been signed with us. We've got to do -- as Steve said, we've got to do everything we can do to keep our first to market advantage and to keep pressing this technology forward aggressively and quickly. Because the devil is in the details, and it's not what you know, it's what you don't know that gets you. And we are always looking over our shoulder and making sure we understand what our competitors are doing. But today I think we have a clear market advantage. And from a technology implementation perspective, I think we deliver on the promise of true mobility while charging better than anybody in this space at this point.

Steve, any comments?

No, I just think that this is, again, reaffirmation of our intent to accelerate the Company. We do have -- and this doesn't come from us. This comes from our strategic partners and also from the potential strategic partners that we engage with. It's their job to understand the market, to understand the status of technology in the space that we occupy. And they have made it very clear to us that we are the only real technology that's ready for prime time from a commercialization perspective.

There's just an awful lot to do from moving from an experimental stage when you are demonstrating a technology to positioning it from an integration and a cost and a testing and validation and replication perspective and commercializing it. So we understand full well firsthand all of the issues and problems associated with that.

And so our strategic partners and potential strategic partners have told us that we have the clear lead, and this is something, as I said, that we really want to capitalize on. We believe that a first mover market advantage here is very, very significant to lay the groundwork for the ubiquitous solution that we want to move forward into a combination of a Wi-Fi router and power router in the not-too-distant future and again to work with silicon companies to provide the technology in the form of chips that are integrated in all sorts of devices. And so again, lots to do, but we've got a clear advantage. We are ahead in the marketplace, and we intend to maintain that advantage.

Does that answer your question?

Thank you very much. I appreciate it.

[John Shaw], private investor.

Good morning. Can you give me a little bit more detail, drill down on the partner's role in financing the development? When you talk about the burden of shifting next year somewhere between January and full commercialization, but what does that actually look like? When does that start to begin? And to your JDA partners, is there any exclusivity provision in those agreements?

None of the agreements at this juncture have any exclusivity to them, nor do they have any claims on the technology. Part of the reason we have chosen to fund the development of the technology as we complete the technology is we don't want to have any overriding -- overbearing rights given to any of our partners.

So we are carrying the load on completing the development. They are investing in their own products that they will integrate the technology into. We have some partners that are further ahead in that, and you'll see them demonstrating either proof of concepts or actual real product at CES. We have some customers that are waiting on the demonstration at CES to make the full-blown investment to move forward.

So there are different stages of the engagement, but clearly if we look at the different partners that we have and the amount of funding that will be required for them to go develop products in and around our technology, it will be significant, and we expect that to start in Q1. I think Q2 for next year.

Thank you.

[Tom Hudson], [Wida].

I want to go back to PART 18. Do you guys feel right now that you are complying with PART 18 or that you are going to have to ask for some sort of modification, waiver or something for PART 18?

No, we don't. We do not expect to have to ask for a waiver on PART 18.

I don't mean a waiver (multiple speakers). Some sort of modification. Do you think the existing technology as you guys are developing it right now you think meets all of the standards of PART 18? There isn't in all of the standards of PART 18. PART 18 is a very loosely defined set of standards.

So what you do when you go through and go to get certification under PART 18, you can ask for a rule change, which is a long, drawn out process. We don't want to ask for a rule change and the commissioners that we met with at the OET don't believe a rule change would be required, they believe a KDB would be required, and that's what they've asked us to participate in. That's the standard process by which you get approved under PART 18 is submitting a KDB, which defines your use case and divines how your products will be used and how you intend to deliver them to the consumer. And that's what we're working on right now in collaboration with the OET.

Great. Now I assume that before any product comes to market, obviously you would have to have all the regulatory approvals. And assuming the PART 18 is not received until -- I think you've mentioned it could be as late as the second half of next year, is it reasonable to have products sort of ready for Christmas with leadtimes and so forth if 18 wasn't received until late in the quarter, second quarter of next year?

Well, I can tell you that history is kind of on our side in that regard. If you look at all of the major consumer electronics companies, they tend to go back and forth with the OET up until the time of shipment and products hitting the shelves. You only have to have PART 18 certification by the time the product is on the shelf. We do believe we will have it sooner than that, but keep in mind, our job is to get our reference design certified, and we intend to have that done in the first half of next year. And when we come to integration with our partners' products, they have a tremendous amount of additional resources, and they tend to have people on site with these different regulatory agencies. So their ability to get through the process is much faster than our ability to get through the process, which is why in some cases we are partnering with them to get the regulatory approvals in the different markets that we are going after.

Okay. Great. Thank you, gentlemen.

Yes, no worries.

And this concludes today's question-and-answer session. I would like to turn the conference back over to Steve Rizzone for any additional comments or closing remarks.

Thank you very much for your attention today. Again, as I said, we believe that we have a tremendous opportunity here, a significant first to market advantage with a market that has a tremendous TAM to it. And so we are looking to capitalize on those markets. We thank you for your support. We will continue to provide information as it becomes available in terms of our financing plans, and again we will look forward to reporting favorable results at the end of next quarter.

Finally, I hope that if it is at all possible, if you are going to be attending CES, that you will let us know. We would very much like as many of our investors as possible to see firsthand the home of the future.

So thank you very much, we appreciate your attention, and we will talk to you again soon.

Ladies and gentlemen, this does conclude today's conference, and we do thank you for your participation.