Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.10.0.1
Income taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income taxes

Note 6 - Income taxes and Tax Deductions at Source (TDS)

 

The domestic and foreign components of income (loss) before income taxes from continuing operations are as follows:

 

    December 31, 2017   December 31, 2016  

December 31,

2015

Domestic   $ (2,618,595 )   $ (2,244,052 )   $ (9,713,671 )
Foreign     (1,462,534 )     (2,087,164 )     (715,095 )
Loss from continuing operations before provision for income taxes   $ (4,081,129 )   $ (4,331,216 )   $ (10,428,766 )

 

 

 

The income tax provision (benefit) consists of the following:

 

    December 31, 2017   December 31, 2016   December 31, 2015
Foreign            
    Current   $ —       $ —       $ —    
    Deferred     (373,577 )     (550,276 )     (136,663 )
U.S. federal                        
    Current     —         —         —    
    Deferred     2,706,079       (1,579,127 )     (3,268,587 )
State & local                        
    Current     —         —         —    
    Deferred     (234,098 )     (19,698 )     (58,656 )
Total     2,098,404       (2,149,101 )     (3,463,906 )
                         
Change in valuation allowance     (2,098,404 )     2,149,101       3,463,906  
                         
Income tax provision (benefit)   $ —       $ —       $ —    

 

 

The provision (benefit) for income taxes using the statutory federal tax rate as compared to the Company’s effective tax rate is summarized as follows:

 

    December 31, 2017   December 31, 2016   December 31, 2015
U.S. federal statutory income tax rate (benefit)     (34.0 %)     (34.0 %)     (34.0 %)
State income taxes, net of federal benefit     (2.7 %)     (0.4 %)     (0.6 %)
Change in fair value of derivative liability     (10.3 %)     (28.5 %)     0.1 %
Permanent differences     0.1 %     1.0 %     2.5 %
Foreign Tax Rate Differential     2.0 %     2.1 %     0.2 %
Research tax credit     0.0 %     (1.7 %)     (2.3 %)
Tax reform impact on deferred taxes     97.8 %                
Other     1.4 %     7.3 %     1.8 %
Change in valuation allowance     (51.4 %)     50.8 %     33.6 %
Effective rate     0.0 %     0.0 %     0.0 %
                         

 

 

The Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following: 

 

    December 31, 2017   December 31, 2016   December 31, 2015
Deferred tax assets                        
Net operating loss carryovers   $ 7,335,196     $ 9,303,936     $ 7,537,193  
R and D credit     489,351       489,351       563,641  
Stock-based compensation     709,218       902,468       491,371  
Derivative liability     59,056       83,674       84,174  
Intangible asset amortization     89,931       66,536       6,634  
Total deferred tax assets     8,682,752       10,845,965       8,683,013  
Valuation allowance     (8,600,408 )     (10,730,878 )     (8,581,777 )
Deferred tax asset, net of valuation allowance     82,344       115,087       101,236  
Deferred tax liabilities                        
Fixed asset depreciation     (23,288 )     (31,413 )     (17,062 )
Intangible asset amortization     —         —         —    
Convertible debt     (59,056 )     (83,674 )     (84,174 )
Total deferred tax liabilities     (82,344 )     (115,087 )     (101,236 )
Net deferred tax asset (liability)   $ —       $ —       $ —    

 

                 

The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act made a significant number of changes to existing U.S. Internal Revenue Code, including a permanent reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017, and it also provides for a one-time transition tax on certain unremitted foreign earnings (the “Transition Tax”). As a result, the Company recorded an income tax of $4.0 million related to the re-measurement of deferred tax assets and liabilities resulting from the reduction of the federal corporate tax rate. This amount was netted against the valuation allowance reserve, thus resulting in no impact in the income statement. The Company has performed an analysis of its post-1986 earnings and profits of its foreign subsidiaries and has estimated an overall accumulated net deficit, therefore no amounts have been recorded relative to the Transition Tax.

 

As of December 31, 2017, 2016 and 2015, the Company had $28,051,471, 24,836,172 and $20,952,494 of U.S. federal and state net operating loss carryovers (“NOL’s”), respectively, to offset future taxable income. In accordance with section 382 of the Internal Revenue Code, deductibility of the Company’s U.S. net operating loss carryovers may be subject to an annual limitation in the event of a change of control. The Company has not performed a section 382 study and has determined that ownership changes may have occurred, therefore the utilization of these NOL's may be subject to limitations based on past and future changes in ownership of the Company. Additionally, at December 31, 2017 and 2016 respectively, the Company had $3,738,577 and $2,498,137 of foreign net operating loss carryforwards. A significant amount of the foreign net operating losses may be carried forward indefinitely.

 

The Company did not have any undistributed earnings in foreign subsidiaries at December 31, 2017 and 2016 respectively. The Company foreign earnings are considered to be indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon.

  

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

 

For the years ended December 31, 2017, December 31, 2016 and December 31, 2015, the changes in the valuation allowance were ($2,098,404), $2,149,101 and $3,463,906, respectively.

  

The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as "unrecognized benefits." A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise's potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

 

Interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as "Interest expense, net" in the consolidated statements of operation. Penalties would be recognized as a component of "General and administrative expenses."

 

No interest or penalties were recorded during the year ended December 31, 2017, December 31, 2016 and December 31, 2015. As of December 31, 2017, December 31, 2016, and December 31, 2015 no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.

 

Foreign earnings are considered to be indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon repatriation of earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits).

 

In fiscal years ended in December 31, 2017 and 2016 in India the Company has failed to remit Tax Deductions at source (TDS) on a timely basis. The Company has accrued principal and interest, and a discretionary penalty of $478,284 as payable at December 31, 2017. In 2016 the principal and interest accrued, and a discretionary penalty was $378,284.  The Company recorded the 2017 penalties of $100,000 in the taxes interest and penalty expense (2016 - $175,000).  The balance of the unpaid TDS and interest amounts in 2017 and 2016 is recorded as general and administrative expenses, and sales and marketing related to payroll.  In addition to penalties assessed, officers of the Company can be prosecuted for failure to remit payments on a timely basis. In addition, the Company has accrued approximately $26,000 for non-filing of annual returns with MCA (Ministry of Corporate Affairs) and not holding Annual General Meetings in India, which was included in $478,284 as payable at December 31, 2017.