Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes [Abstract]

INCOME TAXES

10. INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition. There were no unrecognized tax benefits as of January 1, 2014 and during the years ended December 31, 2015 and 2014.

The Company has identified its federal tax return and its state tax return in New York as "major" tax jurisdictions, as defined in ASC 740. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's consolidated financial statements. The Company's evaluation was performed for tax years ended 2012 through 2015. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its consolidated financial position.

The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the year ended December 31, 2015. For the year ended December 31, 2015, the Company determined that, more likely than not, its deferred tax assets would be not be realized and, accordingly, increased the valuation allowance. The increase in the valuation allowance is included in the income tax provision in the accompanying consolidated statement of operations for the year ended December 31, 2015. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The provision for income tax consists of the following:

	For the Years Ended December 31,
	2015			2014
Current:
Federal	$	8,141		$	38,000
Foreign		146,372			176,136
State and Local		-			-
Total Current		154,513			214,136
Deferred
Federal		(1,269,000	)		(1,003,000	)
Foreign		-			-
State and Local		(187,000	)		(147,000	)
Adjustment to valuation allowance related to net deferred tax assets		1,456,000			1,150,000
Total Deferred		-			-
Provision for income taxes	$	154,513		$	214,136

The provision for income taxes for the year ended December 31, 2015 of approximately $154,000. Approximately $146,000 is a result of certain licensing revenues that are subject to withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned while approximately $8,000 is the result of certain alternative minimum taxes. The provision related to foreign taxes is deductible, while the provision relating to alternative minimum taxes is able to be offset by future tax benefits. Since the Company records a full valuation against deferred tax assets, the provision relating to alternative minimum taxes of approximately $8,000 will not be reduced by such future tax benefits. The provision for income taxes for the year ended December 31, 2014 of approximately $214,000. Approximately $176,000 is a result of certain licensing revenues that are subject to withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned while approximately $38,000 is the result of certain alternative minimum taxes.

Income (loss) before income taxes is comprised of the following:

	For the Years Ended December 31,
	2015		2014
Foreign	$	2,466,823	$	(3,568,897	)
Domestic		731,860		890,440
Net income (loss) before income taxes	$	3,198,683	$	(2,678,457	)

A reconciliation between the effective rate for income taxes and the amount computed by applying the statutory Federal income tax rate to income (loss) before provision for income taxes is as follows:

	For the Years Ended December 31,
	2015		2014
Tax provision at statutory rate	34	%	(34	)%
State and local taxes	5	%	(5	)%
Foreign taxes	5	%	7	%
Foreign tax deduction	1	%	-	%
Incentive Stock Option Expense	(1	)%	-	%
Change in valuation allowance for net deferred tax assets	(39	)%	40	%
	5	%	8	%

The components of temporary differences that give rise to significant portions of the deferred tax asset, net, are as follows:

	For the Years Ended December 31,
	2015			2014
Deferred tax assets:
Accrued expenses	$	361,000		$	35,000
Allowance for doubtful accounts		6,000			7,000
Deferred Revenue		2,000			3,000
Reserve for obsolescence		72,000			109,000
Expense associated with non-qualified stock options		115,000			100,000
Revenue Sharing Agreement		681,000			1,781,000
General business credit		1,258,000			1,156,000
NOL carryforward		15,139,000			12,987,000
		17,634,000			16,178,000
Less: valuation allowance		(17,634,000	)		(16,178,000	)
Deferred tax asset, net	$	-		$	-

The change in the valuation allowance for deferred tax assets are summarized as follows:

	For the Years Ended December 31,
	2015		2014
Beginning Balance	$	16,178,000	$	15,028,000
Change in Allowance		1,456,000		1,150,000
Ending Balance	$	17,634,000	$	16,178,000

As of December 31, 2015, Andrea had net operating loss and credit carryforwards of approximately $38.8 million expiring in varying amounts beginning in 2018 through 2033. Andrea has General Business Credits of approximately $1.3 million expiring in varying amounts beginning in 2016 through 2030. The Company has elected the “with and without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach the windfall tax benefit would be recognized in additional paid-in-capital only if an incremental tax benefit is realized after considering all other benefits presently available.