Annual report pursuant to Section 13 and 15(d)

Note 18 - INCOME TAXES

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Note 18 - INCOME TAXES
12 Months Ended
Dec. 31, 2013
Notes to Financial Statements  
Note 18 - INCOME TAXES

The components of the income tax provisions for 2013 and 2012 are as follows:

 

    2013     2012  
Current provision:            
Federal   $ -     $ -  
State     1,600       1,600  
      1,600       1,600  
Deferred benefit:                
Federal     (946,991 )     (290,248 )
State     (246,076 )     (75,465 )
      (1,193,068 )     (365,713 )
Change in valuation allowance     1,193,068       365,713  
Total Provision   $ 1,600     $ 1,600  

 

The difference between the income tax provision and income taxes computed using the U. S. federal income tax rate of 34% consisted of the following:

 

    2013     2012  
Provision at statutory rate     34.0 %     34.0 %
State taxes, net of federal benefit     5.8 %     5.8 %
Other     (8.8 %)     1.3 %
Change in valuation allowance     (31.1 %)     (41.4 %)
Total     (0.1 %)     (0.2 %)

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31, 2013 and 2012 are as follows:

 

    2013     2012  
Deferred tax assets:            
Net operating loss carry forwards   $ 1,239,529     $ 818,573  
Share-based compensation     86,806       62,039  
Accural to cash     622,243       -  
Other     11,297       11,298  
Total deferred tax assets     1,959,875       891,910  
Valuation allowance     (1,768,722 )     (664,320 )
      191,153       227,590  
                 
Deferred tax liabilities:                
Tax deductible licensing agreement     (187,645     (132,300 )
Accrual to cash     -       (94,516 )
Other     (3,509     (774 )
                 
Total deferred tax assets (liabilities)     (191,153     (227,590 )
                 
Net deferred tax assets (liabilities)   $ -     $ -  

 

A full valuation allowance has been provided against the Company’s deferred tax assets at December 31, 2013 as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences.

 

The Company has federal and California net operating losses (NOLs) of approximately $2,894,630 and $2,888,633, respectively which begin to expire in the years beginning in 2029 and 2029 for federal and state purposes, respectively.  Pursuant to Section 382 of the Internal Revenue Code, use of the Company’s NOLs and credit carry forwards may be limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three-year period.

 

The Company also has federal credits that begin to expire 2027 and state tax credits that may be carried forward indefinitely.

 

The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards as set forth in ASC Topic 740. Income Taxes, regarding accounting for uncertainty in income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. There are no unrecognized benefits related to uncertain tax positions as of December 31, 2013. The Company does not anticipate that there will be material change in the liability for unrecognized tax benefits within the next 12 months.

 

Interest and penalties associated with the unrecognized tax benefits are recorded in nonoperating income and expenses and selling, general and administrative expenses, respectively.  As of December 31, 2013, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits.  As of December 31, 2013, the Company’s federal tax returns are open to audit under the statute of limitations for the years 2010 and later, and the Company’s state tax returns generally are upon to audit under statues of limitations for the years 2009 and later.  However, if NOLs that originated in earlier years are utilized in the future, the amount of such NOLs from those earlier years remain subject to review by tax authorities.