Current report filing

Note 18 - Income Taxes

Note 18 - Income Taxes

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Income Taxes

As of

December 31,

201

and

2015,

our deferred tax assets were approximately

$79.1

million and

$74.2

million, respectively. The components of our deferred tax assets are summarized as follows:

	As of December 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	66,150,646		$	60,129,827
R&D credit carryforwards		9,729,673			9,465,900
Stock compensation		1,368,458			1,898,394
Intangibles		1,720,761			1,921,934
Temporary differences		132,476			801,002
Deferred tax assets before valuation allowance		79,102,014			74,217,057
Valuation allowance		(79,102,014	)		(74,217,057	)
Net deferred tax assets	$	—		$	—

Current accounting standards require a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than

not

that some or all of the deferred tax assets

may

not

be realized. Due to the uncertainty surrounding the realization of these deferred tax assets in future tax returns, all of the deferred tax assets have been fully offset by a valuation allowance at

December 31, 2016

and

2015.

In assessing the realizability of deferred tax assets, management 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 the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than

not

that the Company will

not

realize the benefits of these deductible differences or tax carryforwards as of

December 31, 2016.

As of

December 31, 2016

and

2015,

we had U.S. net operating loss carryforwards of approximately

$193.3

million and

$177.6

million, respectively. Of those amounts,

$15.3

million relates to stock-based compensation tax deductions in excess of book compensation expense (“APIC NOLs”) as of both

December 31, 2016

and

2015,

that will be credited to additional paid-in capital when such deductions reduce taxes payable as determined on a "with-and-without" basis. Accordingly, these APIC NOLs will reduce federal taxes payable if realized in future periods, but NOLs related to such benefits are

not

included in the table above.

As of

December 31, 2016

and

2015,

we also had state net operating loss carryforwards of approximately

$28.2

million and

$24.7

million, respectively. The state net operating loss carryforwards will begin expiring in

2032.

December 31,

201

and

2015,

we had U.S. R&D credit carryforwards of approximately

$9.4

million and

$9.1

million, respectively.

There were

expirations of

U.S. net operating loss carryforwards or R&D credit carryforwards during

2016

2015.

The details of our U.S. net operating loss and federal R&D credit carryforward amounts and expiration dates are summarized as follows:

		As of December 31, 2016
Generated	Expiration	U.S. Net Operating Loss Carryforwards		U.S. R&D Credit Carryforwards
1998	2018	$	17,142,781	$	1,173,387
1999	2019		—		130,359
2000	2020		—		71,713
2001	2021		—		39,128
2002	2022		1,282,447		5,350
2003	2023		337,714		2,905
2004	2024		1,237,146		22,861
2005	2025		2,999,083		218,332
2006	2026		3,049,735		365,541
2007	2027		2,842,078		342,898
2008	2028		2,777,503		531,539
2009	2029		13,727,950		596,843
2010	2030		5,397,680		1,094,449
2011	2031		1,875,665		1,950,744
2012	2032		28,406,659		468,008
2013	2033		37,450,522		681,772
2014	2034		34,088,874		816,116
2015	2035		25,073,846		492,732
2016	2036		15,581,209		358,404
Total carryforwards		$	193,270,891	$	9,363,081

The credit for certain research and experimentation expenses expired at the end of

2014.

The Protecting Americans From Tax Hikes Act of

2015

(the “Act”) was signed into law by President Obama on

December 18, 2015.

The Act extends the credit permanently.

During the years ended

December 31, 2016,

2015

and

2014,

Cardiosonix recorded losses for financial reporting purposes of

$13,000,

$11,000

and

$15,000,

respectively.

As of

December 31, 2016

and

2015,

Cardiosonix had tax loss carryforwards in Israel of approximately

$7.7

million and

$7.6

million, respectively. Under current Israeli tax law, net operating loss carryforwards do

not

expire. Due to the uncertainty surrounding the realization of the related deferred tax assets in future tax returns and the Company’s intent to dissolve Cardiosonix in the near term, all of the deferred tax assets have been fully offset by a valuation allowance at

December 31, 2016

and

2015.

Under Sections

382

and

383

of the IRC of

1986,

as amended, the utilization of U.S. net operating loss and R&D tax credit carryforwards

may

be limited under the change in stock ownership rules of the IRC. The Company previously completed a Section

382

analysis in

2013

and does

not

believe a Section

382

ownership change has occurred since then that would impact utilization of the Company

’s net operating loss and R&D tax credit carryforwards.

Reconciliations between the statutory federal income tax rate and our effective tax rate for continuing operations are as follows:

	Years Ended December 31,
	2016						2015						2014
	Amount			%			Amount			%			Amount			%
Benefit at statutory rate	$	(2,508,264	)		(34.0	)%	$	(7,835,163	)		(34.0	)%	$	(10,322,016	)		(34.0	)%
Adjustments to valuation allowance		2,354,656			31.9	%		8,212,163			35.7	%		11,046,650			36.4	%
Adjustments to R&D credit carryforwards		(239,049	)		(3.2	)%		(612,087	)		(2.7	)%		(340,886	)		(1.1	)%
Disqualified debt interest		188,060			2.5	%		438,007			1.9	%		—			0.0	%
Permanent items and other		204,597			2.8	%		(202,920	)		(0.9	)%		(383,748	)		(1.3	)%
Benefit per financial statements	$	—					$	—					$	—

Certain revenue and expense amounts in the years ended

December 31, 2016,

2015

and

2014

have been reclassified to discontinued operations.

See Note