5. Income Taxes

12 Months Ended

Dec. 31, 2014

The Company’s U.S. and foreign loss before income taxes are set forth below:

	December 31,
	2014			2013
United States	$	(18,653,576	)	$	(8,745,624	)
Foreign		(1,799,851	)		(387,474	)
Total	$	(20,453,427	)	$	(9,133,098	)

There was no current or deferred income tax provision for the year ended December 31, 2014 or 2013.

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

	December 31,
	2014			2013
Net operating loss carryforwards – Federal	$	12,928,000		$	10,957,000
Net operating loss carryforwards – state		1,531,000			1,331,000
Net operating loss carryforwards –foreign		655,000			116,000
Capitalized licensing fees		2,135,000			2,361,000
Convertible debt and warrants		-			1,106,000
Stock-based compensation		1,457,000			690,000
Other		38,000			3,000
Totals		18,744,000			16,564,000
Less valuation allowance		(18,744,000	)		(16,564,000	)
Deferred tax assets	$	-		$	-

At December 31, 2014, the Company had potentially utilizable Federal, state and foreign net operating loss tax carryforwards of approximately $38,023,000, $25,772,000 and $2,183,000, respectively. The net operating loss tax carryforwards will start to expire in 2026 for Federal purposes and 2015 for state purposes. The foreign net operating loss tax carryforwards do not expire.

The utilization of the Company’s federal and state net operating losses may be subject to a substantial limitation due to the “change of ownership provisions” under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their utilization.

The Company’s foreign earnings are derived from it’s German subsidiary. The Company does not expect any foreign earnings to be repatriated in the U.S. in the near future.

The effective tax rate varied from the statutory rate as follows:

	December 31,
	2014			2013
Statutory Federal tax rate		(34.0	)%		(34.0	)%
State income tax rate (net of Federal)		(0.6	)%		(4.6	)%
Effect of foreign operations		0.4	%		0.2	%
Non-deductible expenses associated with derivative liabilities		23.5	%		-
Other permanent differences		(0.1	)%		(0.6	)%
Effect of valuation allowance		10.8	%		39.0	%
Effective tax rate		0.0	%		0.0	%

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible and the loss carryforwards are available to reduce taxable income. In making its assessment, the Company considered all sources of taxable income including carryback potential, future reversals of existing deferred tax liabilities, prudent and feasible tax planning strategies, and lastly, objectively verifiable projections of future taxable income exclusive of reversing temporary differences and carryforwards. At December 31, 2014 and 2013, the Company maintained a full valuation allowance against its net deferred tax assets. The Company will continue to assess all available evidence during future periods to evaluate the realization of its deferred tax assets.

The net change in the total valuation allowance for the years ended December 31, 2014 and 2013 was $2,180,000 and $3,031,000, respectively.

The following table presents the changes in the deferred tax asset valuation allowance for the periods indicated:

Year Ended	Balance at Beginning of Year		Increase (Decrease) Charged (Credited) to Income Taxes (Benefit)		Increase (Decrease) Charged (Credited) to OCI			Balance at End of Year
December 31, 2014	$	16,564,000	$	2,212,000	$	(32,000	)	$	18,744,000
December 31, 2013		13,533,000		3,031,000		-			16,564,000

Accounting for uncertainty in income taxes requires uncertain tax positions to be classified as non-current income tax liabilities unless they are expected to be paid within one year. The Company has concluded that there are no uncertain tax positions requiring recognition in its consolidated financial statements as of December 31, 2014 and 2013. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.

The Company files income tax returns in the U.S. federal, state and foreign jurisdictions. Tax years 2011 to 2014 remain open to examination for both the U.S. federal and state jurisdictions. Tax years 2013 and 2014 remain open for Germany.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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