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, 2014

Note 10 - Income Taxes

As of December 31, 2014 and 2013, the Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:

	December 31,
	2014		2013
Deferred tax assets (liabilities):
Tax credit and net operating loss carryovers	$	3,191,795	$	900,830
Property and equipment		(20,282)		-
Research and development costs		5,820,399		845,900
Start-up and organizational costs		1,443		1,554
Stock-based compensation		448,893		647
Other accruals		188,439		90,680
Total gross deferred tax assets		9,630,687		1,839,611
Less: valuation allowance		(9,630,687)		(1,839,611)
Deferred tax assets, net	$	-	$	-

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

	2014		2013
January 1,	$	1,839,611	$	8,472
Increase in valuation allowance		7,791,076		1,831,139
December 31,	$	9,630,687	$	1,839,611

The Company has a net operating loss carryover of approximately $5,815,000 and a research and development tax credit carryover of approximately $878,000 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, 2014 and 2013.

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, 2014, 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			For the Year
	Ended			Ended
	December 31,			December 31,
	2014			2013
Tax benefit at federal statutory rate		(34.0)	%		(34.0)	%
State income taxes		(5.8)			(5.8)
Permanent difference:
Stock-based compensation		1.1			0.1
Derivative instrument issuance - financing warrant		-			1.3
Change in fair value of derivative liability		22.9			1.3
General and administrative expense - consulting warrant		-			3.9
Amortization of debt discount		0.8			-
Gain on debt extinguishment		(1.8)			-
Other		0.6			-
Federal research and development tax credit		(0.9)			-
Increase in valuation allowance		17.1			33.2
Effective income tax rate		0.0	%		0.0	%

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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