Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.1.9
INCOME TAXES
 12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
NOTE 10 – INCOME TAXES
 
Components of the Net Loss consist of the following:
 
 
 
December 31,
 
 
 
2014
 
2013
 
Foreign
 
 
(14,692,723)
 
 
(502,052)
 
Domestic
 
 
(12,923,447)
 
 
(10,381,992)
 
 
 
 
(27,616,170)
 
 
(10,884,044)
 
 
In 2014, the foreign losses were primarily comprised of $8,975,522 related to the Bermudan operations of Tonix International Holding, which includes a licensing fee of $8,000,000 charged by Tonix Sub and $5,728,347 related to Tonix Barbados pursuant to a cost sharing agreement with Tonix Sub. In 2013, the foreign losses are comprised of $498,017 related to Tonix Canada and $4,035 related to Tonix Barbados.
 
The operations and management of Tonix International Holding are located in Bermuda, and accordingly, are not subject to income taxes in Ireland, which is its country of incorporation. The operations of Tonix International Holding and Tonix Barbados are not subject to income tax in Bermuda and Barbados, respectively.
 
There is no income tax benefit for the years ended December 31, 2014 and 2013 since the Company has established a valuation allowance equal to the total deferred tax asset related to losses incurred during such periods.
 
Deferred tax assets and liabilities and related valuation allowance as of December 31, 2014 and 2013 are as follows:
 
 
 
December 31,
 
 
 
2014
 
2013
 
Deferred tax assets:
 
 
 
 
 
 
 
Research and development credit carryforward (1)
 
 
6,188
 
 
6,188
 
Net operating loss carryforwards
 
 
11,320,229
 
 
9,040,045
 
Stock-based compensation
 
 
1,335,776
 
 
-
 
Accrued bonuses
 
 
200,113
 
 
223,397
 
Other
 
 
363,868
 
 
159,656
 
 
 
 
 
 
 
 
 
Total deferred tax assets
 
 
13,226,174
 
 
9,429,286
 
 
 
 
 
 
 
 
 
Valuation allowance
 
 
(13,226,174)
 
 
(9,429,286)
 
 
 
 
 
 
 
 
 
Net deferred tax assets
 
$
0
 
$
0
 
  
 
(1)
The Company has incurred research and development (“R&D”) expenses, a portion of which may qualify for tax credits. The Company has not conducted an R&D credit study to quantify the amount of credits and has not claimed an R&D credit on its federal tax returns filed except for $6,188 in 2007. The Company may conduct the study in future years and may establish the R&D credit carryforward for prior years. In such event, the net operating loss carryforward will be correspondingly reduced by the amount of the credit.
 
Based on the Company's historical losses and its expectation of continuation of losses for the foreseeable future, the Company has determined that it is not more likely than not that the deferred tax assets will be realized and accordingly, has provided a valuation allowance. The increase in the valuation allowance for the years ended December 31, 2014 and 2013 was $3.8 million and $4.1 million, respectively.
 
At December 31, 2014, the Company has available unused net operating loss (“NOL”) carryforwards of approximately $25 million that expire from 2027 to 2034 for federal tax purposes. The Company also has approximately $25 million of NOL carryforwards for New York State and New York City purposes expiring from 2030 to 2034. At December 31, 2014, the Company has a research and development carryforward of $6,188 for federal tax purposes that expires in 2027. A portion of these NOL and research and development credit carryforwards are subject to annual limitations in their use in accordance with Internal Revenue Code (“IRC”) section 382. The NOL carryforwards at December 31, 2014 have been reduced to reflect IRC section 382 ownership changes through December 31, 2013 and the resultant inability due to annual limitations, to utilize a portion of the NOL prior to its expiration. Additional adjustments may be required based on ownership activity during 2014.
 
The Company's federal and state tax returns remain open and subject to examination by the tax authorities for the tax years 2011 and after.
 
A reconciliation of the effect of applying the federal statutory rate to the net loss and the effective income tax rate used to calculate the Company's income tax provision is as follows:
 
 
 
Year Ended
December 31,
 
 
 
2014
 
 
2013
 
Statutory federal income tax
 
 
(35.0)
%
 
 
(34.0)
%
State income tax, net of federal tax effect
 
 
(10.2)
%
 
 
(10.5)
%
Permanent difference
 
 
0.3
%
 
 
6.7
%
Increase in valuation allowance
 
 
22.0
%
 
 
37.8
%
Foreign loss not subject to income tax
 
 
24.0
%
 
 
0.0
%
Other
 
 
(1.1)
%
 
 
0.0
%
 
 
 
 
 
 
 
 
 
Income tax provision
 
 
0
%
 
 
0
%