Income Taxes

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

11. Income Taxes

Note 11. Income Taxes

The income tax provision consists of the following ($ in thousands):

	For the Years Ended December 31,
	2015			2014
Federal
Current	$	-		$	-
Deferred		16,374			5,453
Increase in valuation allowance		(16,374	)		(5,453
State and Local
Current		-			-
Deferred		837			(44	)
Increase in valuation allowance		(837	)		44
Change in valuation allowance		(17,211	)		(5,409	)
Income tax provision (benefit)	$	-		$	-

The following is a reconciliation of the U.S. federal statutory rate to the effective income tax rates for the years ended December 31, 2015 and 2014:

	For the Years Ended December 31,
	2015			2014
U.S. statutory federal rate		(34.00	)%		(34.00	)%
State income tax, net of federal benefit		(2.52	)		(3.43	)
Other Permanent Differences		(0.01	)		0.11
Change in Derivative Liability		-			(0.06)
State rate change effect		0.75			-
Reduction due to change in NOL and other true ups		2.35			55.1
		(33.43	)		17.72
Valuation Allowance		33.43			(17.72	)
Income tax provision (benefit)		-	%		-	%

At December 31, 2015 and 2014, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following ($ in thousands):

	For the Years Ended December 31,
	2015			2014
Deferred tax assets
Net operating loss carryforward	$	7,843		$	4,992
Stock-based compensation		8,014			8,087
Patent portfolio and other		17,298			2,865
Total deferred tax assets		33,155			15,944
Valuation allowance		(33,155	)		(15,944	)
Deferred tax assets, net of allowance	$	-		$	-

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 period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. The Company has determined that, based on objective evidence currently available, it is more likely than not that the deferred tax assets will not be realized in future periods. Accordingly, the Company has provided a valuation allowance for the full amount of the deferred tax assets at December 31, 2015 and 2014. As of December 31, 2015, the change in valuation allowance is approximately $17.2 million.

As of December 31, 2015, the Company had federal and state net operating loss carryovers (“NOLs”) of approximately $21.5 million, which expire from 2033 through 2035. The NOL carryover may be subject to limitation under Internal Revenue Code section 382, should there be a greater than 50% ownership change as determined under the regulations. The Company has performed a study with respect to Internal Revenue Code section 382 and has determined that an ownership change occurred on September 10, 2013 and accordingly, a portion of the NOL carryovers may never be utilized. At this time, the Company estimates that post change NOLs of $21.5 million are available for potential carryover without any limitations under IRC Section 382. The effect of any subsequent ownership change would be the imposition of another annual limitation on the use of net operating loss carryforwards attributable to periods before the subsequent change. Any subsequent limitation may result in expiration of additional portions of the NOLs before utilization.

As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of NOL 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.

If applicable, interest costs and penalties related to unrecognized tax benefits are required to be calculated and would be classified as interest and penalties in general and administrative expense in the statement of operations. As of December 31, 2015 and 2014, no liability for unrecognized tax benefit was required to be reported. No interest or penalties were recorded during the years ended December 31, 2015 and 2014. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company files U.S. federal and state income tax returns. As of December 31, 2015, the Company’s U.S. and state tax returns (California, Delaware, Maryland, New York, New York City Pennsylvania and Texas) remain subject to examination by tax authorities beginning with the tax return filed for the year ended December 31, 2013. At this time, the Company's 2013 federal tax return has been selected for examination by the Internal Revenue Service. The Company believes that its income tax positions would be sustained upon an audit and does not anticipate any adjustments that would result in material changes to its consolidated financial position.