Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
The income taxes by jurisdiction consist of the following for the years ended December 31, 2014 and 2015:
 
Year Ended December 31, 2014
 
Year Ended December 31, 2015
U.S. federal
 

 
 
Current
$

 
$

Deferred

 

Total U.S. federal

 

U.S. state and local
 

 
 
Current
1,000

 
1,000

Deferred

 

Total U.S. state and local
1,000

 
1,000

Total income taxes
$
1,000

 
$
1,000


Income taxes differ from the amounts computed by applying the U.S. federal income tax rate to pretax income (loss) before income taxes as a result of the following for the years ended December 31, 2014 and 2015:
 
Year ended December 31, 2014
 
Year ended December 31, 2015
Expected income tax expense
$
(3,308,000
)
 
$
(3,291,000
)
State income tax (benefit), net of federal benefit and federal valuation allowance
1,000

 
1,000

Valuation Allowance (net of state)
2,868,000

 
3,426,000

Permanent Differences:
 

 
 
Stock Options

 
131,000

Change in Fair Market Value — Financing Warrant Expenses
130,000

 

Other
147,000

 
10,000

Interest Expenses — Disqualified Debt
514,000

 

Research & Development Credit
(169,000
)
 
(174,000
)
Adjustment to Deferred Taxes
(182,000
)
 
(102,000
)
Total provision for income taxes
$
1,000

 
$
1,000


For each of the years ended December 31, 2014 and 2015, income tax expense was $1,000. Deferred income tax reflects the tax effects of temporary differences that gave rise to significant portions of our deferred tax assets and liabilities. Deferred income taxes consisted of the following as of December 31, 2014 and December 31, 2015:
 
 
Year ended December 31, 2014
 
Year ended December 31, 2015
Deferred tax assets—current:
 
 

 
 
Accrued Expenses
 
$
3,000

 
$

Accrued Payroll
 
6,000

 

Deferred Rent
 
36,000

 

Total current assets
 
45,000

 

Deferred tax assets—long term:
 
 

 
 
Accrued Payroll
 

 
95,000

Intangibles
 
779,000

 
763,000

Organization Cost
 
17,000

 

Start-up Expenditures
 
1,691,000

 

Research & Development Credit
 
492,000

 
804,000

Net Operating loss
 
1,374,000

 
6,592,000

Stock Compensation
 
140,000

 
379,000

New Jobs Credit
 
7,000

 
7,000

Total long-term assets
 
4,500,000

 
8,640,000

Total deferred tax assets
 
4,545,000

 
8,640,000

Less: Valuation Allowance
 
(4,520,000
)
 
(8,639,000
)
Deferred tax liabilities—current:
 

 

Total current liabilities
 

 

Deferred tax liabilities—long term:
 
 

 
 
Fixed Assets
 
(25,000
)
 
(1,000
)
Total long-term liabilities
 
(25,000
)
 
(1,000
)
Total deferred tax liabilities
 
(25,000
)
 
(1,000
)
Net deferred tax assets
 
$

 
$


We recorded a full valuation allowance against our net deferred tax assets at December 31, 2014 and December 31, 2015. In determining the need for a valuation allowance, we reviewed all available evidence pursuant to the requirements of FASB ASC 740. Based upon our assessment of all available evidence, we have concluded that it is more likely than not that the net deferred tax assets will not be realized. For the year ended December 31, 2015, the valuation allowance increased by $4.1 million.  For the year ended December 31, 2014, the valuation allowance increased by $1.3 million. This net increase included a decrease in valuation allowance of $2.2 million due to the reversal of the deferred tax asset associated with Derivatives, which were recorded to additional paid-in capital during the year.
As of December 31, 2015, we had federal net operating loss carryforwards of approximately $16.7 million and state net operating loss carryforwards of approximately $16.6 million. The federal net operating loss carryforwards will begin to expire in 2033, and the state net operating loss carryforwards will begin to expire in 2033. Our ability to utilize net operating loss carryforwards may be limited in the event that a change in ownership, as defined in Section 382 of the Internal Revenue Code, occurs in the future.  In the event a change of ownership occurs, it will limit the annual usage of the carryforwards in future years.  Management believes that certain changes in control have occurred which resulted in limitations on our net operating loss carryforwards; however, management has determined that these limitations will not impact the ultimate utilization of the net operating loss carryforwards.
We recognize interest and penalties related to income tax matters in income taxes, and there were none during the years ended December 31, 2014 and 2015.
The adoption of ASC 740 guidance required us to identify, evaluate and measure all uncertain tax positions taken or to be taken on tax returns and to record liabilities for the amount of these positions that may not be sustained, or may only partially be sustained, upon examination by the relevant taxing authorities. Although we believe that our estimates and judgments were reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. We have no significant uncertain tax positions for the years ended December 31, 2014 and 2015.
Our annual income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of judgment. Our judgments, assumptions and estimates relative to current income taxes take into account current tax laws, their interpretation of current tax laws and possible outcomes of future audits conducted by domestic tax authorities. We operate within federal and state taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues which may require an extended period of time to resolve.  We are currently not being examined by any tax authorities. The company is subject to taxation in the United States, California, and Massachusetts. As of December 31, 2015 the Company’s tax years remain open to examination by the taxing authorities for all years since the incorporation in 2013.