Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
12 Months Ended
Dec. 31, 2015
INCOME TAXES  
INCOME TAXES

NOTE 8 - INCOME TAXES

 

The Company accounts for income taxes under ASC Topic 740: Income Taxes, which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry-forwards.  ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

 

The following table presents the current and deferred provision (benefit) for income taxes for the years ended December 31, 2015:

 

 

 

2015

 

2014

 

Current:

 

 

 

 

 

Federal

 

(28,000

)

 

State

 

48,188

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

$

20,188

 

$

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

Federal

 

(6,046,674

)

(3,942,754

)

State

 

(1,171,260

)

(824,804

)

Foreign

 

(958,702

)

(184,751

)

 

 

 

 

 

 

 

 

(8,176,636

)

(4,952,309

)

 

 

 

 

 

 

 

 

$

(8,156,448

)

$

(4,952,309

)

 

 

 

 

 

 

 

 

 

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate for the years ended December 31, 2015 and 2014.

 

 

 

2015

 

2014

 

Tax benefit computed at “expected” statutory rate 

 

$

(8,533,296

)

$

(2,742,728

)

State income taxes, net of benefit

 

(818,432

)

(48,135

)

Permanent differences :

 

 

 

 

Deemed Dividend

 

 

432,307

 

Stock based compensation and consulting

 

738,904

 

581,216

 

Transaction Cost

 

208,481

 

 

 

Other permanent differences

 

247,895

 

2,535

 

Timing differences

 

 

 

 

Amortization of patents and other

 

 

 

Change in valuation allowance 

 

 

(3,177,504

)

 

 

 

 

 

 

Net income tax benefit 

 

$

(8,156,448

)

$

(4,952,309

)

 

 

 

 

 

 

 

 

 

The table below summarizes the differences between the Companies’ effective tax rate and the statutory federal rate as follows for the years ended December 31, 2015 and 2014:

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Computed “expected” tax expense (benefit)

 

-34.00

%

(34.00 

)%

State income taxes

 

(3.26 

)%

(0.60 

)%

Permanent differences

 

4.75 

%

12.60 

%

Timing differences

 

%

%

Change in valuation allowance

 

%

(39.39 

)%

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

(32.51 

)%

(61.39 

)%

 

 

 

 

 

 

 

The Company has a deferred tax asset, which is summarized as follows at December 31:

 

 

 

2015

 

2014

 

Deferred tax assets:

 

 

 

 

 

Total deferred tax assets

 

$

12,437,741

 

$

4,789,293

 

Total deferred tax liabilities

 

(1,044,997

)

(1,823,884

)

Less: valuation allowance

 

 

 

 

 

 

 

 

 

Net deferred tax asset

 

$

11,392,744

 

$

2,965,409

 

 

 

 

 

 

 

 

 

 

The Company does not have any taxable income in carryback years in which net operating losses (“NOLs”) can be carried back to. At December 31, 2015, the Company did not have any taxable temporary differences that will reverse and generate taxable income and was still in a cumulative loss position. Based on all the available information, including tax planning strategies and future forecast, the Company believes that it is more likely than not that the net deferred tax assets will be realized; therefore, valuation allowance is not needed.

 

As of December 31, 2015, the Company had NOL carry-forwards for federal and state purposes of approximately $21.6 million and $20.2 million, respectively, which will begin to expire in 2032. The utilization of NOL and credit carry-forwards may be limited under the provisions of the Internal Revenue Code (“IRC”) Section 382 and similar state provisions. IRC Section 382 generally imposes an annual limitation on the amount of NOL carry-forwards that may be used to offset taxable income where a corporation has undergone significant changes in stock ownership. The Company has not analyzed whether an ownership change has taken place that could limit the utilization of NOL. An analysis may be required at the time the Company begins utilizing any of its net operating losses to determine if there is an IRC Section 382 limitation.

 

As of December 31, 2015 and 2014, the Company does not increase or decrease liability for unrecognized tax benefit. As of December 31, 2015 and 2014 the Company did not increase or decrease penalties or interest in connection with liability for unrecognized tax benefit. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company files U.S. and state income tax returns with varying statutes of limitations. The 2011 through 2014 tax years generally remain subject to examination by federal and state tax authorities.

 

The Company has not recognized a deferred tax liability on foreign earnings that it has declared as indefinitely reinvested. This amount may become taxable upon repatriation of assets from the subsidiaries or a sale or liquidation of the subsidiaries.  The amount of earnings designated as indefinitely reinvested offshore is based upon our expectations of the future cash needs of the Company’s foreign entities.