Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.7.0.1
Income Taxes
12 Months Ended
Dec. 31, 2016
Income Taxes [Abstract]  
Income Taxes

9. Income Taxes



For the years ended December 31, 2016 and 2015 the provisions for income taxes were as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

2016

 

2015

Federal – current

 

$

 -

 

$

 -

State – current

 

 

 -

 

 

 -

Foreign – current

 

 

 -

 

 

 -

Total

 

$

 -

 

$

 -



Under ASC 740, deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.



Significant components of our net deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows:







 

 

 

 

 

 



 

 

 

 

 

 

 

 

2016

 

2015

Deferred tax assets (liabilities):

 

 

 

 

 

 

Net operating loss carryforwards

 

$

11,774,000 

 

$

9,896,000 

Stock based compensation

 

 

4,254,000 

 

 

3,534,000 

Accrued compensation

 

 

68,000 

 

 

54,000 

Depreciation and amortization

 

 

7,148,000 

 

 

6,063,000 

Other

 

 

48,000 

 

 

58,000 

Total deferred tax assets

 

 

23,292,000 

 

 

19,605,000 

Valuation allowance for net deferred tax assets

 

 

(23,292,000)

 

 

(19,605,000)

Total

 

$

 -

 

$

 -



The Company has provided a valuation allowance against deferred tax assets recorded as of December 31, 2016 and 2015 due to uncertainties regarding the realization of such assets.



The net change in the total valuation allowance for the year ended December 31, 2016 was an increase of approximately $3,687,000. The net change in the total valuation allowance for the year ended December 31, 2015 was an increase of approximately $2,351,000. In assessing the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and projections for the taxable income for the future, the Company has determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to zero. There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards, either due to ongoing operating losses or due to ownership changes, which limit the usefulness of the loss carryforwards.



As of December 31, 2016, the Company has available net operating loss carryforwards of approximately $30,000,000 for federal income tax purposes, which will start to expire in 2026. The net operating loss carryforwards for state purposes are approximately $28,000,000 and will start to expire in 2017.



The difference between the provision for income taxes and income taxes computed using the U.S. federal income tax rate for the years ended December 31, 2016 and 2015 was as follows:







 

 

 

 

 

 



 

 

 

 

 

 

 

 

2016

 

2015

Computed expected tax expense

 

$

(3,235,000)

 

$

(2,085,000)

State taxes, net of federal benefit

 

 

(612,000)

 

 

(343,000)

Expiration of NOL carryforwards

 

 

143,000 

 

 

 -

Other

 

 

17,000 

 

 

77,000 

Change in valuation allowance

 

 

3,687,000 

 

 

2,351,000 

Total

 

$

 -

 

$

 -



The Company has determined that during 2010 it experienced a “change of ownership” as defined by Section 382 of the Internal Revenue Code. As such, utilization of net operating loss carryforwards and credits generated before the 2010 change in ownership will be limited to approximately $207,000 per year until such carryforwards are fully utilized. The pre change net operating loss carryforward was approximately $7,000,000.



The Company files income tax returns in the U.S. federal jurisdiction Arizona and California. It also files income tax returns in Nova Scotia, Canada.  Because the Company is carrying forward federal and state net operating losses from 2006, the Company is subject to U.S. federal and state income tax examinations by tax authorities for all years since 2006. The Company does not have a liability for any uncertain tax positions. As of December 31, 2016,  no accrued interest or penalties are recorded in the financial statements.