Tonix Pharmaceuticals Holding Corp. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 11 – INCOME TAXES

Components of the Net Loss consist of the following (in thousands):

	Year Ended
	December 31,
	2015		2014		2013
Foreign		(45,303)		(14,693)	(502)
Domestic		(2,751)		(12,923)	(10,382)
		(48,054)		(27,616)	(10,884)

In 2015, the foreign losses were primarily comprised of $43.9 million related to the Bermudan operations of Tonix International Holding, which included a licensing fee of $4.0 million charged by Tonix Sub pursuant to a licensing agreement with Tonix Sub. In 2014, the foreign losses are comprised of $9.0 million related to the Bermudan operations of Tonix International Holding, which included a licensing fee of $8.0 million charged by Tonix Sub and $5.7 million related to Tonix Barbados pursuant to a cost sharing agreement with Tonix Sub. In 2013, the foreign losses are primarily comprised of $0.5 million related to Tonix Canada.

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 are not subject to income tax in Bermuda.

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,
	2015			2014			2013
Statutory federal income tax		(35.0)	%		(35.0)	%		(34.0)	%
State income tax, net of federal tax effect		(0.6)	%		(10.2)	%		(10.5)	%
Permanent difference		0.2	%		0.3	%		6.7	%
Change in valuation allowance		4.6	%		22.0	%		37.8	%
Foreign loss not subject to income tax		32.7	%		24.0	%		0.0	%
Other		(1.9)	%		(1.1)	%		0.0	%

Income tax provision		0	%		0	%		0	%

Deferred tax assets and liabilities and related valuation allowance as of December 31, 2015 and 2014 are as follows (in thousands):

	December 31,
	2015		2014
Deferred tax assets:
Research and development credit carryforward (1)		6		6
Net operating loss carryforwards		11,645		11,320
Stock-based compensation		3,186		1,336
Accrued bonuses		388		200
Other		224		364

Total deferred tax assets		15,449		13,226

Valuation allowance		(15,449)		(13,226)

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 $6,000 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.

At December 31, 2015, the Company had available unused net operating loss (“NOL”) carryforwards of approximately $24 million that expire from 2027 to 2035 for federal tax purposes. The Company also has approximately $27 million of NOL carryforwards for New York State and New York City purposes expiring from 2030 to 2035. Additionally, the Company has $0.2 million of foreign NOL balances in various jurisdictions with various expiration periods. At December 31, 2015, the Company has a research and development carryforward of $6,000 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, 2015 have been reduced to reflect IRC section 382 ownership changes through December 31, 2014 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 2015.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2015. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. As such, 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 full valuation allowance against its gross deferred tax assets. The increase in the valuation allowance for the years ended December 31, 2015, 2014 and 2013 was $2.2 million, $3.8 million and $4.1 million, respectively.

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. However, as of December 31, 2015 there are no unrecognized tax benefits recorded. The Company is subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2015, the Company's tax returns remain open and subject to examination by the tax authorities for the tax years 2012 and after.