Kiora Pharmaceuticals, Inc. 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]

12. Income Taxes

The components of income (loss) before income taxes are as follows:

	Year Ended December 31,
	2015		2014
Domestic	$	(8,755,011)	$	(1,996,387)
Foreign		367,038		444,879
Total	$	(8,387,973)	$	(1,551,508)

The difference between the effective rate reflected in the provision for income taxes on loss before taxes and the amounts determined by applying the applicable statutory U.S. tax rate are analyzed below:

	Year Ended December 31,
	2015			2014
United States federal income tax rate		34.00	%		34.00	%
State taxes, net of federal benefit		6.27	%		6.27	%
Permanent differences		(10.88)	%		50.55	%
Change in valuation allowance		(29.55)	%		(84.54)	%
Expiration of state net operating loss carryforward		(0.03)	%		(16.20)	%
Research and development credits		0.43	%		0	%
Change in State Rate		0	%		12.52	%
Other		(0.24)	%		(2.60)	%
Effective tax rate		0.00	%		0.00	%

The Company’s deferred tax assets consist of the following:

	2015		2014
Net operating loss carryforwards	$	18,050,019	$	15,491,353
Research and development credit carryforwards		1,226,384		1,190,024
Capitalized research and development		4,452,114		4,823,160
Nonqualified stock option		164,292		100,712
Warrants issued for services		587		587
Depreciation and amortization		137		0
Start-up costs/organization costs		17,959		26,938
Cash versus accrual adjustments		2,179,356		1,979,847
Total deferred tax assets		26,090,848		23,612,621
Valuation allowance		(26,090,848)		(23,612,621)
Net deferred tax asset	$	-	$	-

As of December 31, 2015, the Company has federal, and state net operating loss carryforwards of approximately $43,017,000, and $30,203,000, respectively, to offset future federal and state taxable income, which expire at various times through 2035. The Company has foreign net operating loss carryforwards of $4,638,000 as of December 31, 2015, which can be carried forward indefinitely. As of December 31, 2015, the Company also has federal, state and foreign research and development tax credit carryforwards of approximately $920,000, $282,000, and $25,000, respectively, to offset future income taxes, which expire at various times through 2035. The federal and state net operating loss and research tax credit carryforwards may be subject to the limitations provided in the Internal Revenue Code (“IRC”) Sections 382 and 383.

The Company files United States federal income tax returns and income tax returns in the Commonwealth of Massachusetts as well as foreign tax returns for its subsidiary in France. The Company is not under examination by any jurisdiction for any tax year.

The Company has recorded a valuation allowance against its United States deferred tax assets in each of the years ended December 31, 2015 and 2014 because the Company’s management believes that it is more likely than not that these assets will not be realized. The valuation allowance increased by approximately $2,478,000 and $1,312,000 during the year ended December 31, 2015 and 2014, respectively, primarily as a result of net operating losses.

As of December 31, 2015, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company will recognize interest and penalties related to tax positions in income tax expense. The Company has not, as yet, conducted a study of R&D credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards, however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position.

The net operating loss and tax credit carryforwards are subject to review by the Internal Revenue Service in accordance with the provisions of Section 382 of the Internal Revenue Code. Under this Internal Revenue Code section, substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset the Company’s taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the Company’s net operating loss carryforwards before they expire. The closing of the Company’s initial public offering, alone or together with transactions that have occurred or that may occur in the future, may trigger an ownership change pursuant to Section 382, which could limit the amount of research and development and net operating loss carryforwards that could be utilized annually in the future to offset the Company’s taxable income, if any. Any such limitation, whether as the result of the Company’s initial public offering, sales of common stock by the Company’s existing stockholders or additional sales of common stock by the Company after its initial public offering, could have a material adverse effect on the Company’s results of operations in future years.