Energous Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2015

Note 10 - Income Taxes

As of December 31, 2015 and 2014, the Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:

	December 31,
Deferred tax assets (liabilities):	2015		2014
Tax credit	$	2,958,771	$	877,597
Net operating loss carryovers		7,511,765		2,314,198
Property and equipment		(98,235)		(20,282)
Research and development costs		10,380,961		5,820,399
Start-up and organizational costs		1,333		1,443
Stock-based compensation		1,175,821		448,893
Other accruals		155,472		188,439
Total gross deferred tax assets		22,085,888		9,630,687
Less: valuation allowance		(22,085,888)		(9,630,687)
Deferred tax assets, net	$	-	$	-

The change in the Company’s valuation allowance is as follows:

	2015		2014
January 1,	$	9,630,687	$	1,839,611
Increase in valuation allowance		12,455,201		7,791,076
December 31,	$	22,085,888	$	9,630,687

The Company has a net operating loss carryover of approximately $18,872,000 and a research and development tax credit carryover of approximately $2,041,000 that expire beginning in 2032. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company and may be limited in any one period by alternative minimum tax rules. Although management believes that the Company may have sufficient future taxable income to absorb the net operating loss carryovers and research and development tax credit carryovers before the expiration of the carryover period, there may be circumstances beyond the Company’s control that limit such utilization. Accordingly, management has determined that a full valuation allowance of the deferred tax asset is appropriate at December 31, 2015 and 2014.

Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryovers when the stock ownership of one or more 5% shareholders (shareholders owning 5% or more of the Company’s outstanding capital stock) has increased on a cumulative basis by more than 50 percentage points. Management cannot control the ownership changes occurring as a result of public trading of the Company’s Common Stock. Accordingly, there is a risk of an ownership change beyond the control of the Company that could trigger a limitation of the use of the loss carryover. As of December 31, 2015, the Company has not completed an analysis whether an ownership change occurred under Section 382, which, if it did occur, could substantially limit its ability in the future to utilize its net operating loss and other tax carryforwards.

	For the Year Ended December 31,
	2015			2014
Tax benefit at federal statutory rate		(34.0)	%		(34.0)	%
State income taxes		(5.5)			(5.8)
Permanent difference:
Stock-based compensation		1.3			1.1
Meals and entertainment		0.1			-
Derivative instrument issuance - financing warrant		-			-
Change in fair value of derivative liability		-			22.9
General and administrative expense - consulting warrant		-			-
Amortization of debt discount		-			0.8
Gain on debt extinguishment		-			(1.8)
True-up of state deferred taxes		(0.2)			-
Other		0.7			0.6
Research and development tax credit, federal		(4.4)			(0.9)
Research and development tax credit, state		(3.1)			-
Increase in valuation allowance, federal		36.3			17.1
Increase in valuation allowance, state		8.8			-
Effective income tax rate		0.0	%		0.0	%