Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
 
As of December 31, 2013 and 2012, our deferred tax assets were approximately $49.2 million and $33.7 million, respectively. The components of our deferred tax assets are summarized as follows:
 
As of December 31,
 
2013
 
2012
Deferred tax assets:
 

 
 

Net operating loss carryforwards
$
37,191,826

 
$
24,767,569

R&D credit carryforwards
7,388,463

 
6,546,049

Temporary differences
4,624,832

 
2,408,108

Deferred tax assets before valuation allowance
49,205,121

 
33,721,726

Valuation allowance
(49,205,121
)
 
(33,721,726
)
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, 2013 and 2012.

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, 2013.
 
As of December 31, 2013 and 2012, we had U.S. net operating loss carryforwards of approximately $118.5 million and $80.9 million, respectively. Of that amount, $15.2 million and $14.1 million relates to stock-based compensation tax deductions in excess of book compensation expense (APIC NOLs) as of December 31, 2013 and 2012, respectively, 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.
 
At December 31, 2013 and 2012, we had U.S. R&D credit carryforwards of approximately $7.4 million and $6.5 million, respectively.
  
U.S. net operating loss carryforwards of $20.8 million and R&D credit carryforwards of $1.1 million expired during 2012. There were no expirations during 2013. The details of our U.S. net operating loss and R&D credit carryforward amounts and expiration dates are summarized as follows:
 
 
 
 
 
As of December 31, 2013
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
 
3,246,062

 
218,332

2006
 
2026
 
3,127,238

 
365,541

2007
 
2027
 
2,863,443

 
342,898

2008
 
2028
 
2,826,656

 
531,539

2009
 
2029
 
13,753,769

 
596,843

2010
 
2030
 
5,425,105

 
1,094,449

2011
 
2031
 
1,904,744

 
1,950,744

2012
 
2032
 
28,541,353

 
468,008

2013
 
2033
 
36,840,453

 
374,406

Total carryforwards
 
$
118,528,911

 
$
7,388,463


 
During the years ended December 31, 2013, 2012, and 2011, Cardiosonix recorded losses for financial reporting purposes of $13,000, $14,000, and $19,000, respectively. As of December 31, 2013 and 2012, Cardiosonix had tax loss carryforwards in Israel of approximately $7.6 million. 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, all of the deferred tax assets have been fully offset by a valuation allowance at December 31, 2013 and 2012.
 
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. During 2013, a Section 382 study was completed and the Company does not believe that a Section 382 ownership change has occurred 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,
 
2013
 
2012
 
2011
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
Benefit at statutory rate
$
(14,517,816
)
 
(34.0
)%
 
$
(9,913,450
)
 
(34.0
)%
 
$
(8,516,176
)
 
(34.0
)%
Adjustments to valuation allowance
15,399,021

 
36.1
 %
 
8,604,147

 
29.5
 %
 
—

 
—

Adjustments to R&D credit carryforwards
(842,414
)
 
(2.0
)%
 
1,064,623

 
3.7
 %
 
—

 
—

Permanent items and other
(38,791
)
 
(0.1
)%
 
244,680

 
0.8
 %
 
636,033

 
2.5
 %
Benefit per financial statements
$
—

 
 
 
$
—

 
 

 
$
(7,880,143
)