Entity information:

NOTE 12: INCOME TAXES

 

The Company accounts for income taxes under ASC Topic 740: Income Taxes which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards.  ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has a net operating loss carryforward for tax purposes totaling approximately $53,858 at December 31, 2016, expiring through the year 2036. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after certain ownership shifts.

 

The table below summarizes the differences between the tax benefit computed at the statutory federal tax rate and the Company’s net income tax benefit for the years ended December 31:

 

  2016  2015 
Tax benefit computed at expected statutory rate $(8,619) $(3,570)
State income taxes, net of benefit  -   - 
Permanent differences:        
Meals and entertainment  15   10 
Research and development expenses  115   33 
Share-based compensation  -   60 
Goodwill impairment  232   - 
Other adjustments  191   20 
Increase in valuation allowance  8,066   3,447 
Net income tax benefit $-  $- 

 

The table below summarizes the differences between the statutory federal rate and the Company’s effective tax rate as follows for the years ended December 31:

 

  2016  2015 
Federal statutory rate (benefit)  (34.0)%  (34.0)%
State income taxes  -   - 
Permanent differences  (2.2)%  1.2%
Change in valuation allowance  31.8%  32.8%
Effective Tax Rate  0%  0%

 

The Company has deferred tax assets which are summarized as follows at December 31:

 

  2016  2015 
Net operating loss carryover $18,311  $8,883 
Depreciable and amortizable assets  1,489   2,178 
Share-based compensation  802   -  
Accrued liabilities  144   51 
Inventory reserve  115   211 
Allowance for bad debts  47   -  
Other  4   4 
Less: valuation allowance  (20,912)  (11,327)
Net deferred tax asset $-  $- 

 

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2016, due to the uncertainty of realizing the deferred income tax assets. The valuation was increased by approximately $9,585 as a result of $8,066 of differences relating to 2016 operations plus the impact of the Merger and acquisition of Sable of $1,519. The Company has not identified any uncertain tax positions and has not received any notices from tax authorities.