Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 7 - 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, 2017:

 

    2017     2016  
US Net Income/(loss)   (31,125,181 )   (21,151,022 )
Foreign Net Income (loss)     (208,388 )     (7,677,850 )
    (31,333,569 )   (28,828,872 )

 

    2017     2016  
Current:            
Federal   $ 3,715     $ 53,634  
State   (50,318 )   101,969  
Foreign       4,077  
    $ (46,603 )   $ 159,680  
Deferred:            
Federal   $ (57,349 )   $ 10,182,479  
State       1,996,064  
Foreign       (821,416 )
    $ (57,349 )   $ 11,357,127  
Total provision (benefit)   $ (103,952 )   $ 11,516,807  

 

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate for the years ended December 31, 2017 and 2016.

 

    2017     2016  
Tax benefit computed at “expected” statutory rate   $ (10,838,495 )   $ (6,018,384 )
State income taxes, net of benefit   (2,546,747 )   (406,978 )
Permanent differences:            
Deemed Dividend        
Stock based compensation and consulting       525,774  
Federal Rate Change   8,994,945      
Other permanent differences   423,376     (345,981)  
Foreign rate Differential   6,289     350,180  
Amortization of patents and other        
Change in valuation allowance   3,856,680     17,412,196  
Net income tax benefit   $ (103,952 )   $ 11,516,807  

 

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, 2017 and 2016:

 

    2017     2016  
             
Computed “expected” tax expense (benefit)     (34.00 )%     (34.00 )%
State income taxes     (7.99 )%     (2.30 )%
Permanent differences     1.33 %     2.97 %
Change in federal rate     28.52 %     %
Timing differences     %     %
Change in valuation allowance     12.10 %     98.37 %
                 
Effective tax rate     (0.33 )%     65.04 %

 

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

 

    2017     2016  
Deferred tax assets:            
Total deferred tax assets   $ 21,119,444     $ 17,412,196  
Total deferred tax liabilities        
Less: valuation allowance   (21,062,094 )   (17,412,196)  
Net deferred tax asset   $ 57,349     $  

 

The details of the deferred tax asset and deferred tax liability are as follows:

 

    2017     2016  
Accruals   $ 8,109,756     $ 89,649  
Reserves        
Fixed Assets   (1,627 )   (6,968 )
Intangible Assets   4,945,823     7,005,648  
Inventory        
State Taxes   285,326      
Other   2,032,641     1,839,980  
Charitable Contributions   6,277     4,410  
Net Operating Loss   5,683,900     8,425,843  
AMT Credit   57,349     53,634  
Valuation Allowance   (21,062,096 )   (17,412,196  
Net Deferred Asset/(Liability)   $ 57,349     $  

 

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, 2017, 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 does not believe that it is more likely than not that the net deferred tax assets will be realized; therefore, a full valuation allowance has been recorded against its net deferred tax assets.

 

As of December 31, 2017, the Company had NOL carry-forwards for federal and state purposes of approximately $17.7 million and $12.2 million, respectively, which will begin to expire in 2033. 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.

 

On December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act (the “2017 Tax Act”). Management reviewed and incorporated the new tax bill implications in the 2017 financial statements. The main change is the re-measurement of deferred taxes at the new corporate tax rate of 21%, which reduced the Company’s net deferred tax assets, before valuation allowance, by $9.0 million. Due to full valuation allowance, the change in deferred taxes was fully offset by the change in valuation allowance.

 

As a part of the provisions of the 2017 Act, the corporate alternative minimum tax (AMT) has been repealed for tax years beginning after December 31, 2017. Taxpayers with AMT credit carryforwards that have not yet been used may claim a refund in future years for those credits. Since the AMT credit will now be fully refundable regardless of whether there is a future income tax liability before AMT credits, the benefit of the AMT credit will be realized in the future. Accordingly, a valuation allowance established against AMT credit carryforward balance is no longer necessary and a benefit has been recognized in the amount of $53,000, included in other current assets on the Company’s balance sheet, with respect to the AMT credit carryforward balance. The Company has opted to reflect the balance as part of deferred tax asset balance.

 

As of December 31, 2017 and 2016, the Company has not recorded liability for unrecognized tax benefit. As of December 31, 2017 and 2016 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 2013 through 2016 tax years generally remain subject to examination by federal and state tax authorities.