Energous Corp 10-K

Item 8. Financial Statements and Supplementary Data. 30 Energous Corporation INDEX TO FINANCIAL STATEMENTS Page(s) Report of Independent Registered Public Accounting Firm (PCAOB ID Number 688 ) 32 Balance Sheets as of December 31, 2021 and 2020 34 Statements of Operations for the years ended December 31, 2021 and 2020 35 Statement of Changes in Stockholders’ Equity for the years ended December 31, 2021 and 2020 36 Statements of Cash Flows for the years ended December 31, 2021 and 2020 37 Notes to Financial Statements 38 31 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Energous Corporation Opinion on the Financial Statements We have audited the accompanying balance sheets of Energous Corporation (the “Company”) as of December 31, 2021 and 2020, the related statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. Capital Transactions Description of the Matter As discussed in Note 7 to the financial statements, the Company sold shares and raised net proceeds of $27,043,751. The Company will rely on these proceeds to fund the Company’s operations for the near future. 32 Based on the significant dollar amount, significant disclosures and use of capital raises to fund its operations, capital transactions is considered to be a critical audit matter. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included the following. We reviewed terms and provisions of the At Market Issuance Sales Agreement. We tested the net proceeds raised, shares sold to underlying stock transfer documents and confirmed share amounts to stock transfer agent. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2013. Melville, NY March 22, 2022 33 Energous Corporation BALANCE SHEETS As of December 31, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 49,071,414 $ 50,729,661 Accounts receivable, net 283,602 75,850 Prepaid expenses and other current assets 874,886 636,702 Total current assets 50,229,902 51,442,213 Property and equipment, net 510,197 402,711 Operating right-of-use lease assets 618,985 1,293,291 Other assets 11,991 1,610 Total assets $ 51,371,075 $ 53,139,825 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,205,957 $ 1,096,839 Accrued expenses 1,523,317 1,576,287 Accrued severance 975,439 — Operating lease liabilities, current portion 628,307 825,431 Deferred revenue 13,364 12,000 Total current liabilities 4,346,384 3,510,557 Long-term liabilities: Operating lease liabilities, long-term portion 40,413 576,762 Total liabilities 4,386,797 4,087,319 Commitments and contingencies Stockholders’ equity: Preferred Stock, $ 0.00001 par value, 10,000,000 shares authorized at December 31, 2021 and December 31, 2020; no shares issued or outstanding — — Common Stock, $ 0.00001 par value, 200,000,000 shares authorized at December 31, 2021 and December 31, 2020; 76,667,205 and 61,292,412 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. 767 614 Additional paid-in capital 383,383,550 344,024,638 Accumulated deficit ( 336,400,039 ) ( 294,972,746 ) Total stockholders’ equity 46,984,278 49,052,506 Total liabilities and stockholders’ equity $ 51,371,075 $ 53,139,825 The accompanying notes are an integral part of these financial statements. 34 Energous Corporation STATEMENTS OF OPERATIONS For the Year Ended December 31, 2021 2020 Revenue $ 756,793 $ 327,350 Operating expenses: Research and development 20,572,580 17,066,122 Sales and marketing 8,598,343 5,880,350 General and administrative 9,001,483 9,153,503 Severance expense 4,017,172 — Cost of services revenue — 126,539 Total operating expenses 42,189,578 32,226,514 Loss from operations ( 41,432,785 ) ( 31,899,164 ) Other income (expense): Interest income 5,492 71,212 Loss on disposal of property and equipment — ( 4,134 ) Total other income 5,492 67,078 Net loss $ ( 41,427,293 ) $ ( 31,832,086 ) Basic and diluted loss per common share $ ( 0.64 ) $ ( 0.76 ) Weighted average shares outstanding, basic and diluted 64,926,524 41,639,916 The accompanying notes are an integral part of these financial statements. 35 Energous Corporation STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock Additional Total Shares Amount Paid-in Capital Accumulated Deficit Stockholders’ Equity Balance, January 1, 2020 33,203,806 $ 333 $ 282,153,201 $ ( 263,140,660 ) $ 19,012,874 Stock-based compensation - restricted stock units (“RSUs”) — — 7,656,857 — 7,656,857 Stock-based compensation - employee stock purchase plan (“ESPP”) — — 329,461 — 329,461 Stock-based compensation - performance share units (“PSUs”) — — ( 88,348 ) — ( 88,348 ) Issuance of shares for RSUs 1,194,439 12 ( 12 ) — — Shares purchased from contributions to the ESPP 275,312 3 417,543 — 417,546 Issuance of shares in an at-the-market ("ATM") placement, net of $ 1,545,139 in issuance costs 26,618,855 266 53,555,936 — 53,556,202 Net loss — — — ( 31,832,086 ) ( 31,832,086 ) Balance, December 31, 2020 61,292,412 614 344,024,638 ( 294,972,746 ) 49,052,506 Stock-based compensation - stock options — — 284,994 — 284,994 Stock-based compensation - restricted stock units (“RSUs”) — — 5,561,698 — 5,561,698 Stock-based compensation - employee stock purchase plan (“ESPP”) — — 252,568 — 252,568 Stock-based compensation - performance share units (“PSUs”) — — 5,831,928 — 5,831,928 Issuance of shares for RSUs 1,431,532 14 ( 14 ) — — Issuance of shares for PSUs 1,420,938 14 ( 14 ) — — Shares purchased from contributions to the ESPP 292,890 3 384,123 — 384,126 Issuance of shares in an at-the-market ("ATM") placement, net of $ 868,122 in issuance costs 12,229,433 122 27,043,629 — 27,043,751 Net loss — — — ( 41,427,293 ) ( 41,427,293 ) Balance, December 31, 2021 76,667,205 $ 767 $ 383,383,550 $ ( 336,400,039 ) $ 46,984,278 The accompanying notes are an integral part of these financial statements. 36 Energous Corporation STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 41,427,293 ) $ ( 31,832,086 ) Adjustments to reconcile net loss to: Net cash used in operating activities: Depreciation and amortization 258,249 356,310 Stock based compensation 11,931,188 7,897,970 Change in operating lease right-of-use assets 674,306 764,285 Bad debt expense 10,850 21,377 Loss on disposal of property and equipment — 4,134 Changes in operating assets and liabilities: Accounts receivable ( 218,602 ) ( 34,083 ) Prepaid expenses and other current assets ( 238,184 ) ( 186,471 ) Other assets ( 10,381 ) 800 Accounts payable 109,118 ( 574,680 ) Accrued expenses ( 52,970 ) ( 486,810 ) Accrued severance expense 975,439 Operating lease liabilities ( 733,473 ) ( 722,291 ) Deferred revenue 1,364 — Net cash used in operating activities ( 28,720,389 ) ( 24,791,545 ) Cash flows used in investing activities: Purchases of property and equipment ( 365,735 ) ( 136,631 ) Net cash used in investing activities ( 365,735 ) ( 136,631 ) Cash flows from financing activities: Net proceeds from an at-the-market ("ATM") offerings 27,043,751 53,556,202 Proceeds from contributions to employee stock purchase plan 384,126 417,546 Net cash provided by financing activities 27,427,877 53,973,748 Net (decrease) increase in cash and cash equivalents ( 1,658,247 ) 29,045,572 Cash and cash equivalents - beginning 50,729,661 21,684,089 Cash and cash equivalents - ending $ 49,071,414 $ 50,729,661 Supplemental disclosure of non-cash financing activities: Common stock issued for RSUs $ 14 $ 12 Common stock issued for PSUs $ 14 $ — The accompanying notes are an integral part of these financial statements. 37 ENERGOUS CORPORATION Notes to Financial Statements Note 1 – Business Organization, Nature of Operations Energous Corporation (the “Company”) was incorporated in Delaware on October 30, 2012. The Company has developed its WattUp® wireless power technology, consisting of proprietary semiconductor chipsets, software controls, hardware designs and antennas, that enables radio frequency (“RF”) based charging for electronic devices. The WattUp technology has a broad spectrum of capabilities, including near field wireless charging and at-a-distance wireless charging at various distances. The Company believes its proprietary WattUp technologies are well suited for many applications, including building and home automation, electronic shelf labels, industrial IoT sensors, surface and implanted medial devices, tracking devices, hearables, wearables, consumer electronics and public safety applications. Potential future applications include smartphones, commercial and industrial robotics, as well as automotive solutions and other devices with charging requirements that would otherwise require battery replacement or a wired power connection. Note 2 – Liquidity and Management Plans During the years ended December 31, 2021 and 2020, the Company has recorded revenue of $ 756,793 and $ 327,350 , respectively. The Company incurred a net loss of $ 41,427,293 and $ 31,832,086 for the years ended December 31, 2021 and 2020, respectively. Net cash used in operating activities was $ 28,720,389 and $ 24,791,545 for the years ended December 31, 2021 and 2020, respectively. The Company is currently meeting its liquidity requirements through the proceeds of securities offerings that raised net proceeds of $ 53,556,202 during 2020 and $ 27,043,751 during the fourth quarter of 2021, proceeds from contributions to the employee stock purchase plan (“ESPP”), along with payments received from customers. As of December 31, 2021, the Company had cash on hand of $ 49,071,414 . The Company expects that cash on hand as of December 31, 2021, together with anticipated revenues, will be sufficient to fund the Company’s operations into March 2023. Research and development of new technologies is by its nature unpredictable. Although the Company intends to continue its research and development activities, there can be no assurance that its available resources and revenue generated from its business operations will be sufficient to sustain its operations. Accordingly, the Company expects to pursue additional financing, which could include offerings of equity or debt securities, bank financings, commercial agreements with customers or strategic partners, and other alternatives, depending upon market conditions. There is no assurance that such financing would be available on terms that the Company would find acceptable, or at all. The market for products using the Company’s technology is broad and evolving, but remains nascent and unproven, so the Company’s success is dependent upon many factors, including customer acceptance of its existing products, technical feasibility of future products, regulatory approvals, the development of complementary technologies, competition and global market fluctuations. 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 (“U.S. GAAP”), and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP 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. 38 Note 3 – Summary of Significant Accounting Policies, continued Use of Estimates, continued 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 valuation of deferred tax assets. 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. 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 follows Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606). In accordance with Topic 606, the Company recognizes revenue using the following five-step approach: 1. Identify the contract with the customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price of the contract. 4. Allocate the transaction price to the performance obligations of the contract. 5. Recognize revenue when the performance obligations are met or delivered. The Company’s revenue primarily consists of product development projects revenue. The Company also provided contract services revenue for Dialog in 2020. During the years ended December 31, 2021 and 2020, the Company recognized $ 756,793 and $ 197,350 in product development projects revenue, respectively. During the years ended December 31, 2021 and 2020, the Company recognized $ 0 and $ 130,000 in contract services revenue. The Company records revenue associated with product development projects that it enters into with certain customers. In general, these product development projects are complex, and the Company does not have certainty about its ability to achieve the project milestones. The achievement of a milestone is dependent on the Company’s performance obligation and requires acceptance by the customer. The Company recognizes this revenue at a point in time based on when the performance obligation is met. The payment associated with achieving the performance obligation 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 product development projects in research and development expense, in the periods such expenses were incurred. The Company recognized contract services revenue from Dialog over the period of time that the services are performed. The costs associated with this revenue were recognized as the services are performed and were included in cost of services revenue. 39 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, which are 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 $ 20,572,580 and $ 17,066,122 for the years ended December 31, 2021 and 2020, 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. Under the Company’s Employee Stock Purchase Plan (“ESPP”), employees may purchase a limited number of shares of the Company’s 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 stock-based 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 December 31, 2021, 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 years ended December 31, 2021 and 2020. The Company files income tax returns with the United States and California governments. Net Loss 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 5,519,068 and 5,256,942 for the years ended December 31, 2021 and 2020, respectively, because their inclusion would be antidilutive. 40 Note 3 – Summary of Significant Accounting Policies, continued Net Loss 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 Years Ended December 31, 2021 2020 Warrants issued to private investors 3,284,789 3,284,789 Options to purchase common stock 525,006 550,985 RSUs 1,709,273 1,421,168 Total potentially dilutive securities 5,519,068 5,256,942 The table above includes 1,618,123 warrants expiring October 6, 2022, with an exercise price of $ 23.00 and 1,666,666 warrants expiring March 1, 2024, with an exercise price of $ 10.00 . Leases The Company determines if an arrangement is a lease at the inception of the arrangement. The Company applies the short-term lease recognition exemption and recognizes lease payments in profit or loss at lease commencement for facility or equipment leases that have a lease term of 12 months or less and do not include a purchase option whose exercise is reasonably certain. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are measured and recorded at the later of the adoption date, January 1, 2019, or the service commencement date based on the present value of lease payments over the lease term. The Company uses the implicit interest rate when readily determinable; however, most leases do not establish an implicit rate, so the Company uses an estimate of the incremental borrowing rate based on the information available at the time of measurement. Lease expense for lease payments is recognized on a straight-line basis over the lease term. See Note 6 – Commitments and Contingencies, Operating Leases for further discussion of the Company’s operating leases. Recent Accounting Pronouncements In May 2021, the FASB issued ASU No. 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” ASU 2021-04 clarifies accounting for modifications or exchanges of equity-classified warrants. This standard is effective for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact the planned adoption of this standard will have on its financial statements. In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires business entities to disclose certain types of government assistance they receive in the notes to the financial statements. This standard is effective for annual reporting periods beginning after December 15, 2021. The Company does not believe the adoption of this standard will have a material impact on its financial statements. Management’s Evaluation of Subsequent Events The Company evaluates events that have occurred after the balance sheet date of December 31, 2021, through the date which the financial statements are issued. 41 Note 4 – Property and Equipment Property and equipment are as follows: As of December 31, 2021 2020 Computer software $ 916,498 $ 862,343 Computer hardware 2,211,490 2,012,041 Furniture and fixtures 484,186 508,371 Leasehold improvements 782,538 776,563 4,394,712 4,159,318 Less – accumulated depreciation ( 3,884,515 ) ( 3,756,607 ) Total property and equipment, net $ 510,197 $ 402,711 The Company currently uses the following expected life terms for depreciating property and equipment: computer software – 1 - 2 years , computer hardware – 3 years, furniture and fixtures – 7 years, leasehold improvements – remaining life of the lease. The Company disposed of $ 130,341 and $ 631,608 in property and equipment during the years ended December 31, 2021 and 2020, respectively. Total depreciation and amortization expense of the Company’s property and equipment was $ 258,249 and $ 356,310 for the years ended December 31, 2021 and 2020, respectively. Note 5 – Accrued Expenses Accrued expenses consist of the following: As of December 31, 2021 2020 Accrued compensation $ 1,217,176 $ 1,246,151 Accrued legal expenses 178,236 205,579 Other accrued expenses 127,905 124,557 Total $ 1,523,317 $ 1,576,287 Note 6 – Commitments and Contingencies Operating Leases San Jose Lease On July 1, 2019, the Company signed a new lease agreement for the lease of its office space at its corporate headquarters in San Jose, California for an additional three years . Upon expiration of the original lease on September 30, 2019, the new monthly lease payment starting October 1, 2019 was $ 52,970 and is subject to annual escalations up to a maximum monthly lease payment of $ 64,941 . 42 Note 6 – Commitments and Contingencies, continued Operating Leases, continued Costa Mesa Lease On July 15, 2019, the Company signed a new lease agreement for the lease of office space in Costa Mesa, California for an additional two years . Upon expiration of the original lease on September 30, 2019, the new monthly lease payment starting October 1, 2019 was $ 9,773 and is subject to an annual escalation up to a maximum monthly lease payment of $ 10,200 . On September 22, 2021, the Company signed a new Costa Mesa lease to lease a new, distinct office space in a different building with the same landlord. Per the lease, the stated commencement date was October 1, 2021 and concludes on September 30, 2023, and the Company did not take control of the new office space until October 2021, at which time the Company recorded a new right-of-use asset of $ 104,563 and operating lease liability of $ 104,563 . The new Costa Mesa lease had an initial monthly lease payment of $ 4,369 which started on October 1, 2021 and is subject to an annual escalation up to a maximum monthly lease payment of $ 4,522 . Operating Lease Commitments In February 2016, the FASB issued its updated standard on lease accounting, ASU No. 2016-02, “Leases (Topic 842),” which superseded Topic 840, “Leases,” which was further modified in ASU No. 2018-10, “Codification Improvements” to clarify the implementation guidance. The new accounting standard was effective for the Company beginning on January 1, 2019 and required the recognition on the balance sheet of right-of-use assets and lease liabilities. The Company elected the optional transition method and adopted the new guidance on January 1, 2019 on a modified retrospective basis with no restatement of prior period amounts. The Company’s adoption of the new standard resulted in the recognition of right-of-use assets of $ 414,426 and operating lease liabilities of $ 485,747 , with no material cumulative effect adjustment to equity as of the date of adoption. The Company anticipates having future total lease payments of $ 678,050 during the period from the first quarter of 2022 to the third quarter of 2023. As of December 31, 2021, the Company has total operating lease right-of-use assets of $ 618,985 , current portion operating lease liabilities of $ 628,307 and long-term portion of operating lease liabilities of $ 40,413 . The weighted average remaining lease term is 0.9 years as of December 31, 2021. The future minimum lease payments for leased locations are as follows: For the Year Ended December 31, Amount 2022 $ 637,355 2023 40,695 Total future lease payments 678,050 Present value discount (3.7% weighted average) ( 9,330 ) Total operating lease liabilities $ 668,720 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 2015, the Company is required to remit quarterly payments in the amount of approximately $ 101,000 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 approximately $ 198,000 . In July 2018, the Company renewed the agreement for an additional three years , and the Company is required to remit quarterly payments of approximately $ 218,000 . In June 2021, the Company renewed the agreement for an additional three years , and the Company is required to remit quarterly payments of approximately $ 233,000 through the second quarter of 2024. 43 Note 6 – Commitments and Contingencies, continued Litigations, Claims, and Assessments The Company is from time to time involved in various disputes, claims, liens and litigation matters arising in the normal course of business. While the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the outcome of these matters will have a material adverse effect on the Company's combined financial position, results of operations or cash flows. MBO Bonus Plan On March 15, 2018, the Company’s Board of Directors (“Board”), on the recommendation of the Board’s Compensation Committee (“Compensation Committee”), approved the Energous Corporation MBO Bonus Plan (“Bonus Plan”) for executive officers of the Company. To be eligible to receive a bonus under the Bonus Plan, an executive officer must be continuously employed throughout the applicable performance period, and in good standing, and achieve the performance objectives selected by the Compensation Committee. Under the Bonus Plan, the Compensation Committee is responsible for selecting the amounts of potential bonuses for executive officers, the performance metrics used to determine whether any such bonuses will be paid and determining whether those performance metrics have been achieved. During the years ended December 31, 2021 and 2020, the Company recognized a total of $ 1,433,990 and $ 1,305,723 , respectively, in expense under the Bonus Plan. As of December 31, 2021, $ 346,457 of the 2021 amount was not yet paid and is included in accrued expenses. The expense under the Bonus Plan is recorded under operating expenses on the Company’s Statement of Operations within each executive’s department. Severance and Change in Control Agreement On March 15, 2018, the Compensation Committee approved a form of Severance and Change in Control Agreement (“Severance Agreement”) that the Company may enter into with executive officers (“Executive”). Under the Severance Agreement, if an Executive is terminated in a qualifying termination, the Company agrees to pay the Executive six to 12 months of that Executive’s monthly base salary. If Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) the Company will pay the full amount of Executive’s premiums under the Company’s health, dental and vision plans, including coverage for the Executive’s eligible dependents, for the six to 12 month period following the Executive’s termination. 44 Note 6 – Commitments and Contingencies, continued Executive Employee Agreement – Cesar Johnston On December 9, 2021, the Company announced that Cesar Johnston had been appointed as the Company’s Chief Executive Officer. In connection with Mr. Johnston’s appointment as Chief Executive Officer, the Company and Mr. Johnston executed an offer letter dated as of December 6, 2021. Under the offer letter, Mr. Johnston will receive an annual base salary of $ 400,000 per year. Beginning in year 2022, he will be eligible to receive a discretionary annual bonus of up to 100 % of his base salary, at the recommendation of the Company’s Compensation Committee, with the approval of the Company’s Board of Directors. In add iti on , a s a n i nducemen t to accep t h is appo i n t men t a s Ch i e f Execu ti v e O ffi ce r, M r. J ohn st o n w ill r ece i ve , s ub j ec t to con ti nue d emp l oymen t, ( a ) a s pec i a l one -ti m e si gn - o n bonu s in t h e amoun t o f $ 120 , 000 , payab le in two equa l i n st a ll men ts o f $ 60 , 00 0 eac h o n t h e first pay r o ll da te in 202 2 an d t h e first pay r o ll da te a ft e r Decembe r 6 , 2022 , ( b ) a g r an t o f 150 , 00 0 r e stri c t e d st oc k un its to acqu ire s ha r e s o f t h e Company ’s commo n st ock , on e t h ird o f wh i c h w ill ve st o n Decembe r 6 , 202 2 an d t h e r ema i n i n g t w o t h ir d s o f wh i c h w ill ve st in e i gh t equa l i n st a ll men ts o f 12 , 50 0 eac h o n eac h qua rt e rly ann i ve rs a ry t he r ea ft e r an d ( c ) a g r an t o f a n op ti o n to pu r cha se 300,000 s ha r e s o f t h e Company ’s commo n st oc k a t a n exe r c ise p ri c e equa l to t h e f a ir ma r ke t va l u e o f t h e Company ’s commo n st oc k o n t h e g r an t da t e , ha lf o f wh i c h s ha ll ve st o n Decembe r 31 , 2023 , a qua rt e r o f wh i c h s ha ll ve st o n Decembe r 31 , 202 4 an d t h e r ema i nde r o f wh i c h s ha ll ve st o n Decembe r 31 , 2025 . Mr. Johnston will further be eligible for (a) an additional equity award in the amount of 287,000 performance share units to acquire shares of the Company’s common stock, which will vest up to one third per year over a three year period commencing January 1, 2022 and ending December 31, 2024, upon the achievement of performance criteria to be mutually established by Mr. Johnston and the Compensation Committee, and (b) an additional equity award of up to 25,000 performance share units per calendar year for 2022, 2023 and 2024, respectively, based on outperformance per calendar year, as determined by the Compensation Committee with approval of the Board of Directors. In connec ti o n w ith M r. J ohn st on ’s appo i n t men t a s Ch i e f Execu ti v e O ffi ce r, t h e Compan y an d M r. J ohn st o n add iti ona lly en t e r e d i n to a n amende d and r e st a t e d s eve r anc e an d chang e in con tr o l ag r eemen t, da t e d a s o f Decembe r 6 , 2021 . I n t h e even t o f a termination t ha t is no t a change-in-control qualifying termination, Mr. Johnston is entitled to ( a ) a one -ti m e l um p s u m paymen t b y t h e Compan y in a n amoun t equa l to 1 8 mon t h s o f h is mon t h ly ba se s a l a ry p l u s a n amoun t equa l to 100 % o f h is t a r ge t bonu s p l u s, if ag r ee d b y t h e Compen s a ti o n Comm itt ee , a d is c r e ti ona ry bonu s f o r t h e yea r in wh i c h t h e termination occu rs, ( b ) an y ou tst and i n g unve st e d equ ity awa r d s he ld b y M r. J ohn st o n t ha t wou ld ve st in t h e nex t 1 8 mon t h s o f con ti nu i n g emp l oymen t ( o t he r t ha n an y equ ity awa r d s t ha t ve st upo n s a tisf ac ti o n o f pe rf o r manc e c rit e ri a ) w ill acce l e r a te an d becom e ve st e d an d ( c ) if M r. J ohn st o n ti me ly e l ec ts con ti nue d cove r ag e unde r t h e Con s o li da t e d Omn i bu s Budge t Reconc ili a ti o n Ac t o f 1985 , a s amende d ( “COBRA” ), t h e Compan y o r its s ucce ss o r w ill pa y t h e f u ll amoun t o f M r. J ohn st on ’s COBR A p r em i um s o n h is beha lf f o r 1 8 mon t h s. The Johnston A&R CIC Agreement additionally provides that, in the event of a change-in-control qualifying termination, Mr. Johnston is entitled to (a) a one-time lump sum payment by the Company in an amount equal to 18 months of his monthly base salary plus an amount equal to 150 % of his target bonus plus a prorated bonus for the year in which the termination occurs, (b) any outstanding unvested equity awards held by Mr. Johnston (including any equity awards that vest upon satisfaction of performance criteria) will accelerate in full and become vested and (c) if Mr. Johnston timely elects continued coverage under COBRA, the Company or its successor will pay the full amount of Mr. Johnston’s COBRA premiums on his behalf for 18 months Mr. Johnston is also eligible to receive all customary and usual benefits generally available to senior executives of the Company. 45 Note 6 – Commitments and Contingencies, continued Executive Transition 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 (“Employment Agreement”). The Employment Agreement effective as of January 1, 2015 , has an initial term of four years and automatically renews each year after the initial term. The Employment Agreement provides for an annual base salary of $ 365,000 , and Mr. Rizzone is eligible to receive quarterly cash bonuses from the MBO Bonus Plan with a total target amount equal to 100 % of his base salary based upon achievement of performance-based objectives established by the Board. On July 9, 2021, the Company announced that Stephen R. Rizzone has retired from his position as the Company’s President and Chief Executive Officer and as a member of the Board. In connection with Mr. Rizzone’s retirement, the Company and Mr. Rizzone entered into an Executive Transition Agreement (“Separation Agreement”), providing for continued employment through August 31, 2021. Upon his termination of employment, the Separation Agreement provides severance payments and benefits to Mr. Rizzone consistent with the terms of his existing employment agreement with the Company, including without limitation: compensation-based payments of $ 1,460,000 in the aggregate, payable under a certain payment scheme as set forth therein, an additional lump sum cash payment of $ 2,000,000 , a pro-rated bonus payment for the two months of employment during the current quarterly bonus period payable at the same time bonus payments are made to other executives of the Company, settlement of deferred vested restricted stock units and an extension of the exercise periods of all stock options held by Mr. Rizzone until the one year anniversary of his termination date, and additional benefits related to Mr. Rizzone’s medical insurance. In addition, the Company will pay-off all amounts owed under a lease agreement relating to a Company Car and Mr. Rizzone will receive the title to the vehicle. All compensation under the Separation Agreement will be subject to applicable withholding. During the year ended December 31, 2021, the Company recognized $ 4,017,172 in severance expense associated with the separation agreement, including $ 284,994 in additional stock-based compensation as a result of the extension of the exercise periods on the stock options. As of December 31, 2021, the Company had unpaid accrued severance expense of $ 975,439 . 46 Note 6 – Commitments and Contingencies, continued Strategic Alliance Agreement In November 2016, the Company and Dialog Semiconductor plc (“Dialog”), a related party (see Note 10—Related Party Transactions), 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 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. 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 Alliance 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 Company Exclusivity Requirement renews automatically on an annual basis unless the Company and Dialog agree to terminate the requirement. On September 20, 2021, the Company was notified by Dialog, recently acquired by Renesas Electronics Corporation, that it was terminating the Alliance Agreement between the Company and Dialog. There is a wind down period included in the Alliance Agreement which will conclude in September 2024. During the wind down period, the Alliance Agreement’s terms will continue to apply to the Company’s products that are covered by certain existing customer relationships, except that the parties’ respective exclusivity rights have terminated. Note 7 – 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. 47 Note 7 – Stockholders’ Equity, continued Financing On August 9, 2018, the Company filed a shelf registration statement on Form S-3, which became effective on August 17, 2018. This shelf registration statement allows the Company to sell, from time to time, any combination of debt or equity securities described in the registration statement up to aggregate proceeds of $ 75,000,000 . Pursuant to this registration statement, in March 2019 the Company raised $ 23,319,156 (net of $ 1,680,844 in issuance costs) from an offering of shares of its common stock and warrants to purchase 1,666,666 shares of common stock at an exercise price of $ 10.00 per share. The Company also raised $ 4,557,693 (net of $ 339,081 in issuance costs) during the fourth quarter of 2019, $ 5,506,880 (net of $ 141,322 in issuance costs) during the first quarter of 2020 and $ 9,216,611 (net of $ 236,528 in issuance costs) during the second quarter of 2020, pursuant to this shelf registration statement. On September 15, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which became effective on September 24, 2020, and contains two prospectuses: a base prospectus, which covers the offering, issuance and sale by the Company of up to $ 75,000,000 of its common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase its common stock, preferred stock or debt securities and/or units consisting of some or all of these securities; and a sales agreement prospectus covering the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $ 40,000,000 of its common stock that may be issued and sold under a sales agreement. The $40,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $75,000,000 of securities that may be offered, issued and sold by the Company under the base prospectus. Pursuant to this shelf registration statement, the Company sold shares which raised net proceeds of $ 38,832,711 (net of $ 1,167,289 in issuance costs) during the third and fourth quarter of 2020. On October 4, 2021, the Company filed a prospectus supplement covering the issuance and sale of shares of the Company’s common stock having an additional aggregate offering price of $ 35,000,000 pursuant to the Company’s at-the-market (“ATM”) securities offering. The Company raised net proceeds of $ 27,043,751 (net of $ 868,122 in issuance costs), during the fourth quarter of 2021 under the ATM. On November 15, 2021, the Company filed a shelf registration statement on Form S-3 with the SEC, which became effective on December 16, 2021. This shelf registration statement allows the Company to sell, from time to time, any combination of debt or equity securities described in the registration statement up to aggregate proceeds of $ 100,000,000 . Common Stock Outstanding Our outstanding common shares typically include shares that are deemed delivered under U.S. GAAP. Shares that are deemed delivered currently include shares that have vested, but have not yet been delivered, under tax-deferred equity awards, as well as shares purchased under our Employee Stock Purchase Program (“ESPP”) where actual transfer of shares normally occurs a few days after the completion of the purchase periods. There are no voting rights for shares that are deemed delivered under U.S. GAAP until the actual delivery of shares takes place. On July 24, 2020, the stockholders of the Company approved an increase of common shares authorized from 50,000,000 shares to 200,000,000 shares. 48 Note 8 – Stock Based Compensation Equity Incentive Plans 2013 Equity Incentive Plan Effective on June 16, 2021, 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 1,500,000 shares, bringing to 8,785,967 the total number of shares approved for issuance under that plan. As of December 31, 2021, 1,779,806 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 Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2014 Non-employee Equity Compensation Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 800,000 shares, bringing to 1,650,000 the total number of shares approved for issuance under that plan. As of December 31, 2021, 872,422 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 Effective on June 16, 2021, the Company’s stockholders approved the amendment and restatement of the 2015 Performance Share Unit Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 1,700,000 shares, bringing to 5,110,104 the total number of shares approved for issuance under that plan. As of December 31, 2021, 2,411,013 shares of common stock remain eligible to be issued through equity-based instruments under the 2015 Performance Share Unit Plan. 49 Note 8 – Stock Based Compensation, continued Equity Incentive Plans, continued 2017 Equity Inducement Plan On December 28, 2017, the Board approved the 2017 Equity Inducement Plan. Under the plan, the Board reserved 600,000 shares for the grant of RSUs. These grants will be administered by the Board or a committee of the Board. These awards will be granted to individuals who (a) are being hired as an Employee by the Company or any Subsidiary and such Award is a material inducement to such person being hired; (b) are being rehired as an Employee following a bona fide period of interruption of employment with the Company or any Subsidiary; or (c) will become an Employee of the Company or any Subsidiary in connection with a merger or acquisition. As of December 31, 2021, 133,551 shares of common stock remain available to be issued through equity-based instruments under the 2017 Equity Inducement Plan. Employee Stock Purchase Plan In April 2015, the Company’s Board 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. Effective on June 16, 2021, the Company’s stockholders approved the amendment and restatement of the Employee Stock Purchase Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 700,000 shares, bringing to 1,550,000 the total number of shares approved for issuance under that plan. Under the ESPP, employees may designate an amount not less than 1 % but not more than 10 % of their annual compensation for the purchase of Company shares. No more than 7,500 shares may be purchased by an employee under the ESPP 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 December 31, 2021, 547,548 shares of common stock remain eligible to be issued under the ESPP. For the year ended December 31, 2021, eligible employees contributed $ 384,126 through payroll deductions to the ESPP and 292,890 shares were deemed delivered for the year ended December 31, 2020. For the year ended December 31, 2020, eligible employees contributed $ 417,546 through payroll deductions to the ESPP and 275,312 shares were deemed delivered for the year ended December 31, 2020. Stock Option Award Activity The following is a summary of the Company’s stock option activity during the year ended December 31, 2021: Number of Options Weighted Average Exercise Price Weighted Average Remaining Life In Years Intrinsic Value Outstanding at January 1, 2021 550,985 $ 5.67 3.2 $ 3,384 Granted — — — — Exercised — — — — Forfeited ( 25,979 ) 3.63 — — Outstanding at December 31, 2021 525,006 $ 5.77 0.7 $ — Exercisable at December 31, 2021 525,006 $ 5.77 0.7 $ — As of December 31, 2021, the unamortized value of options was $ 0 . The aggregate intrinsic value of options exercised was $ 0 for the years ended December 31, 2021 and 2020. No options were granted during the years ended December 31, 2021 and 2020. 50 Note 8 – Stock Based Compensation, continued Restricted Stock Units (“RSUs”) During the year ended December 31, 2021, the Compensation Committee of the Board (“Compensation Committee”) granted various employees RSUs under which the holders have the right to receive an aggregate 1,849,985 shares of common stock. The majority of these awards, granted under the 2013 Equity Incentive Plan, vest over terms ranging from two to four years . During the year ended December 31, 2021, the Compensation Committee granted various directors and consultants RSUs under which the holders have the right to receive an aggregate 179,591 shares of common stock. These awards were granted under the 2014 Non-Employee Equity Compensation Plan. The awards granted vest over terms from one year to four years . During the year ended December 31, 2021, the Compensation Committee granted employees RSUs under which the holders have the right to receive 38,500 shares of common stock. The awards, granted under the 2017 Equity Inducement Plan, vest over four years beginning on the anniversary of the grant date. At December 31, 2021, the unamortized value of the RSUs was $ 3,626,770 . The unamortized amount will be expensed over a weighted average period of 1.8 years. A summary of the activity related to RSUs for the year ended December 31, 2021 is presented below: Total Weighted Average Grant Date Fair Value Outstanding at January 1, 2021 1,421,168 $ 6.43 RSUs granted 2,068,076 $ 2.95 RSUs forfeited ( 348,439 ) $ 3.97 RSUs vested ( 1,431,532 ) $ 5.24 Outstanding at December 31, 2021 1,709,273 $ 3.72 Performance Share Units (“PSUs”) Performance share units (“PSUs”) are grants that vest upon the achievement of certain performance goals. The goals are commonly related to the Company’s revenue and achievement of sales and marketing goals. During the year ended December 31, 2021, the Compensation Committee granted various employees PSUs under which the holders have the right to receive an aggregate 1,465,713 shares of common stock. These awards were granted under the 2015 Performance Share Unit Plan. Compensation expense amortization for all PSU awards was $ 5,831,928 and $( 88,348 ) for the years ended December 31, 2021 and 2020, respectively. 51 Note 8 – Stock Based Compensation, continued Performance Share Units (“PSUs”), continued At December 31, 2021, the unamortized value of all PSUs was $ 0 . A summary of the activity related to PSUs for the year ended December 31, 2021 is presented below: Total Weighted Average Grant Date Fair Value Outstanding at January 1, 2021 — $ — PSUs granted 1,617,601 $ 4.22 PSUs forfeited ( 196,663 ) $ 4.11 PSUs vested ( 1,420,938 ) $ 4.24 Outstanding at December 31, 2021 — $ — Employee Stock Purchase Plan (“ESPP”) During the years ended December 31, 2021 and 2020, there were two offering periods per year for the ESPP. The first offering period started on January 1 of each year and concluded on June 30 of each year. The second offering period started on July 1 of each year and concluded on December 31 of each year. The weighted-average grant-date fair value of the purchase option for each designated share purchased under this plan was approximately $ 1.10 and $ 1.18 during the years ended December 31, 2021 and 2020, respectively, 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 stock-based compensation expense for the plan of $ 252,568 and $ 329,461 for the years ended December 31, 2021 and 2020, respectively. The Company estimated the fair value of the purchase options granted during the years ended December 31, 2021 and 2020 using the Black-Scholes option pricing model. The fair values of the purchase options granted were estimated using the following assumptions: For the Year Ended December 31, 2021 Stock price range $ 1.80 – 2.78 Dividend yield 0 % Expected volatility range 95 – 143 % Risk-free interest rate range 0.05 – 0.09 % Expected life 6 months For the Year Ended December 31, 2020 Stock price range $ 1.77 – 2.96 Dividend yield 0 % Expected volatility range 61 – 182 % Risk-free interest rate range 0.17 – 1.57 % Expected life 6 months 52 Note 8 – Stock Based Compensation, continued Stock-Based Compensation Expense The following tables summarize total stock-based compensation costs recognized for years ended December 31, 2021 and 2020: For the Years Ended December 31, 2021 2020 Options $ 284,994 $ — RSUs 5,561,698 7,656,857 PSUs 5,831,928 ( 88,348 ) ESPP 252,568 329,461 Total $ 11,931,188 $ 7,897,970 The total amount of stock-based compensation was reflected within the statements of operations as: For the Years Ended December 31, 2021 2020 Research and development $ 6,582,873 $ 3,933,292 Sales and marketing 3,099,232 1,504,724 General and administrative 1,964,089 2,459,954 Severance expense 284,994 — Total $ 11,931,188 $ 7,897,970 Note 9 – Income Taxes On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, net operating loss carryback periods, alternative minimum tax refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The CARES Act has an immaterial impact on the Company’s income taxes. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax bases of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. As of December 31, 2021 and 2020, deferred tax assets consisted principally of net operating loss and tax credit carryforwards, research and development costs and stock-based compensation, and such deferred tax assets were fully reserved. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. As of December 31, 2021, the Company has recorded a full valuation allowance. 53 Note 9 – Income Taxes, continued As of December 31, 2021 and 2020, the Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following: December 31, 2021 2020 Deferred tax assets: Research and development tax credits $ 9,475,588 $ 8,371,302 Net operating loss carryovers 67,785,680 57,563,810 Property and equipment 189,271 219,461 Research and development costs 10,923,959 12,578,612 Start-up and organizational costs 462 540 Stock-based compensation 4,659,555 4,041,136 Operating lease liability 187,132 245,811 Other accruals 670,065 270,912 Total gross deferred tax assets 93,891,712 83,291,584 Less: valuation allowance ( 93,718,497 ) ( 82,929,675 ) Total deferred tax assets 173,215 361,909 Deferred tax liabilities: Operating lease right-of-use asset ( 173,215 ) ( 361,909 ) Total deferred tax liabilities ( 173,215 ) ( 361,909 ) Total deferred taxes, net $ 0 $ — The change in the Company’s valuation allowance is as follows: 2021 2020 January 1, $ 82,929,675 $ 73,892,063 Increase in valuation allowance 10,788,822 9,037,612 December 31, $ 93,718,497 $ 82,929,675 The Company has federal and state net operating loss carryforwards of approximately $ 241,988,000 and $ 242,972,000 , respectively, available to offset future taxable income. The federal and state NOL carryforwards will expire at various dates beginning in 2033 . The Company has federal and state research and development tax credit carryforwards of approximately $ 5,748,000 and $ 4,718,000 , respectively. The federal R&D credit carryforwards will expire beginning in 2032 and state R&D credit carryforwards do not expire. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company. Although management believes that the Company may have sufficient future taxable income to absorb the net operating loss carryforwards and research and development tax credit carryforwards before the expiration of the carryforward 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, 2021 and 2020. 54 Note 9 – Income Taxes, continued Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryforwards when the stock ownership of one or more 5% stockholders (stockholders 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 carryforward. The Company completed a Section 382 analysis as of December 31, 2021 and determined that none of its NOLs or R&D credits would be limited. For the Year Ended December 31, 2021 2020 Tax benefit at federal statutory rate ( 21.0 )% ( 21.0 )% State income taxes ( 5.8 ) ( 6.7 ) Permanent differences: Stock-based compensation 1.8 3.6 Executive compensation 1.6 ( 1.2 ) True-up of state deferred taxes — 0.1 Change in effective tax rate — ( 0.1 ) Research and development tax credit, federal ( 1.6 ) ( 2.0 ) Research and development tax credit, state ( 1.1 ) ( 1.3 ) Increase in valuation allowance, federal 19.2 20.6 Increase in valuation allowance, state 6.9 8.0 Effective income tax rate 0.0 % 0.0 % Note 10 – Related Party Transactions In November 2016, the Company and Dialog entered into an alliance agreement for the manufacture, distribution and commercialization of products incorporating the Company’s wire-free charging technology (See Note 6 – Commitments and Contingencies, Strategic Alliance Agreement ). On November 7, 2016 and June 28, 2017, the Company and Dialog entered into securities purchase agreements under which Dialog acquired a total of 1,739,691 shares and received warrants to purchase up to 1,417,565 shares. As of December 31, 2021, none of the warrants remain outstanding. Dialog presently owns approximately 2.3 % of the Company’s outstanding common shares. The Company recorded $ 0 in royalty revenue for the each of the years ended December 31, 2021 and 2020, pursuant to the Strategic Alliance Agreement. Additionally, the Company recorded $ 0 and $ 130,000 in contract services revenue during the years ended December 31, 2021 and 2020, respectively. The Company also recorded related expenses of $ 0 and $ 126,539 in cost of services revenue during the years ended December 31, 2021 and 2020, respectively. Additionally, the Company incurred $ 408,000 and $ 0 in chip development expense from Dialog during the years ended December 31, 2021 and 2020, respectively. On September 20, 2021, the Company was notified by Dialog, recently acquired by Renesas Electronics Corporation, that it was terminating the strategic alliance agreement between the Company and Dialog. Note 11 – Customer Concentration Three customers accounted for approximately 42 % of the Company’s revenue for the year ended December 31, 2021 and three customers accounted for approximately 66 % of the Company’s revenue for the year ended December 31, 2020. Four customers accounted for approximately 68 % of the Company’s accounts receivable balance as of December 31, 2021. Four customers accounted for approximately 92 % of the Company’s accounts receivable balance as of December 31, 2020. 55 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.