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14. Income Tax
 12 Months Ended
Dec. 31, 2011
Income Tax Disclosure [Abstract]  
14. Income Tax

 

14. Income Tax

 

The Company files a consolidated federal income tax return. This return includes all corporate companies 80% or more owned by the Company as well as the Company’s pro-rata share of taxable income from pass-through entities in which Company holds an ownership interest. On October 14, 2010 AE Biofuels acquired the remaining 49% interest in Energy Enzymes, Inc. During 2011 Energy Enzymes was included as a 100% consolidated entity for financial reporting purposes. State tax returns are filed on a consolidated, combined or separate basis depending on the applicable laws relating to the Company and its subsidiaries.

 

Components of tax expense consist of the following:

 

    Year Ended December 31,  
    2011     2010  
Current:            
Federal     -       -  
State and local   $ 3,200     $ 3,200  
Foreign     -       -  
      3,200       3,200  
                 
Deferred:                
Federal     (83,707 )     -  
State and local     (14,772 )     -  
Foreign     -       -  
Income tax expense/(benefit)     (95,279 )   $ 3,200  

  

U.S. loss and foreign loss before income taxes are as follows:

 

    Year Ended December 31,
    2011     2010  
                 
United States   $ (17,188,080 )   $ (7,635,366 ) 
Foreign     (1,203,558 )     (925,643)3 )
Loss before income taxes   $ (18,391,638 )   $ (8,561,009 )

 

Income tax expense differs from the amounts computed by applying the statutory U.S. federal income tax rate (34%) to income before income taxes as a result of the following:

 

    Year Ended December 31,  
    2011     2010  
                 
Income tax expense at the federal statutory rate   $ (6,253,156 )   $ (2,910,743 )
Increase (decrease) resulting from:                
State tax     (1,441,008 )     (232,303 )
Stock-based compensation     41,703       134,497  
Foreign loss     290,821       244,847  
Interest expense     404,972       10,089  
Credits     (990,000 )     —  
Other     9,456     21,711  
Valuation allowance     7,841,933       2,735,102  
Income tax expense   $ (95,279 )   $ 3,200  
                 
Effective tax rate     0.52 %     (0.04 )%

   

The components of the net deferred tax asset or (liability) are as follows:

 

    December 31,  
    2011     2010  
Deferred tax assets (liabilities):            
Organization, start-up costs & intangible assets   $ 8,916,114     $ 9,113,611  
Stock-based compensation     588,192       749,458  
Property, plant and equipment     2,511,067       2,964,914  
Net operating loss carryforward     11,578,808       5,062,449  
Convertible debt     (103,127 )     (462,471 )
Credit carryforward     1,500,000       —  
Other, net     589,890       492,153  
Total deferred tax assets (liabilities)     25,580,944       17,920,114  
Less valuation allowance   $ (25,580,944 )   $ (17,920,114 )
Deferred tax assets (liabilities)     —       —  

 

Based on the Company’s evaluation of current and anticipated future taxable income, the Company believes it is more likely than not that insufficient taxable income will be generated to realize the net deferred tax assets, and accordingly, a valuation allowance has been set against these net deferred tax assets.

 

We do not provide for U.S. income taxes for any undistributed earnings of the Company’s foreign subsidiaries, as the Company considers these to be permanently reinvested in the operations of such subsidiaries and have a cumulative foreign loss.  At December 31, 2011 and 2010, these undistributed earnings (losses) totaled $(7,195,566), and $(5,980,052), respectively. If any earnings were distributed, some countries may impose withholding taxes. However, due to the Company’s overall deficit in foreign cumulative earnings and its U.S. loss position, the Company does not believe a material net unrecognized U.S. deferred tax liability exists.

 

ASC 740 Income Taxes provides that the tax effects from an uncertain tax position can be recognized in the Company’s financial statements only if the position is more-likely-than-not of being sustained on audit, based on the technical merits of the position. Tax positions that meet the recognition threshold are reported at the largest amount that is more-likely-than-not to be realized. This determination requires a high degree of judgment and estimation. The Company periodically analyzes and adjusts amounts recorded for the Company’s uncertain tax positions, as events occur to warrant adjustment, such as when the statutory period for assessing tax on a given tax return or period expires or if tax authorities provide administrative guidance or a decision is rendered in the courts. The Company does not reasonably expect the total amount of uncertain tax positions to significantly increase or decrease within the next 12 months. As of December 31, 2011, the Company’s uncertain tax positions were not significant for income tax purposes.

 

We conduct business globally and, as a result, one or more of the Company’s subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as India, Mauritius, and the United States. The Company files a U.S. federal income tax return and tax returns in nine U.S. states, as well as in two foreign jurisdictions. Penalties and interest are classified as general and administrative expenses.

 

The following describes the open tax years, by major tax jurisdiction, as of December 31, 2011:

 

United States — Federal 2006 – present
United States — State 2005 – present
India 2006 – present
Mauritius 2006 – present

 

As of December 31, 2011, the Company had federal net operating loss carryforwards of $20,809,989 and state net operating loss carryforwards of $23,075,789.  The Company also has approximately $1,500,000 of alcohol and cellulosic biofuel credit carryforwards. The federal net operating loss and other tax credit carryforwards expire on various dates between 2027 and 2031. The state net operating loss carryforwards expire on various dates between 2027 through 2030. Under the current tax law, net operating loss and credit carryforwards available to offset future income in any given year may be limited by US or India statute regarding net operating loss carryovers and timing of expirations or upon the occurrence of certain events, including significant changes in ownership interests. The Company’s India subsidiary also has net operating loss carryforwards as of March 31, 2012, its tax fiscal year end, of ($7,272,501) in US dollars, which expire from March 30, 2017 to March 30, 2020.