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17. Income Tax
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
17. Income Tax

 

17. Income Tax

 

The Company files a consolidated federal income tax return including all its domestic subsidiaries. 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 (benefit) consist of the following:

 

    Year Ended December 31,  
    2012     2011  
Current:            
Federal     —       —  
State and local   $ 4,000     $ 3,200  
Foreign     —       —  
      4,000       3,200  
                 
Deferred:                
Federal     (933,849 )     (83,707 )
State and local     (151,408 )     (14,772 )
Foreign     —       —  
Income tax expense/(benefit)   $ (1,081,257 )   $ (95,279 )

 

 

 

The income tax benefit recognized for the year ended December 31, 2012 was the result of the recognition of a deferred tax liability in the acquisition of Cilion. The deferred tax liability resulted in a reduction in the valuation allowance of the Company as the Company believes the reversal of the deferred tax liability will occur prior to the expiration of the NOL carryforward. U.S. loss and foreign loss before income taxes are as follows:

 

  Year Ended December 31,  
  2012   2011  
                 
United States   $ (2,981,086 )   $ (17,188,080 )
Foreign     (2,382,436 )     (1,203,558 )
Loss before income taxes   $ (5,363,522 )   $ (18,391,638 )

 

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

 

    Year Ended December 31,  
    2012     2011  
Income tax expense (benefit) at the federal statutory rate   $ (1,823,598 )   $ (6,253,156 )
Increase (decrease) resulting from:                
State tax expense (benefit)     (476,437 )     (1,441,008 )
Stock-based compensation     25,464       41,703  
Foreign loss     475,342       290,821  
Interest expense     429,673       404,972  
Credits     (150,452 )     (990,000 )
Gain on bargain purchase     (16,727,979 )     —  
Loss on debt extinguishment     3,707,620       —  
Cilion transaction costs     302,271       —  
Other     196,721       9,457  
Valuation allowance     12,960,118       7,841,932  
Income tax expense   $ (1,081,257 )   $ (95,279 )
                 
Effective tax rate     20.16 %     0.52 %

 

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

 

    December 31,  
    2012     2011  
Deferred tax assets (liabilities):            
Organization, start-up costs & intangible assets   $ 9,898,832     $ 8,916,114  
Stock-based compensation     233,365       588,192  
Property, plant and equipment     (14,546,837 )     2,511,067  
Net operating loss carryforward     38,790,667       11,578,808  
Convertible debt     (9,382 )     (103,127 )
Credit carryforward     1,500,000       1,500,000  
Debt extinguishment     1,822,458       —  
Other, net     839,555       589,890  
Total deferred tax assets (liabilities)     38,528,658       25,580,944  
Less valuation allowance   $ (38,528,658 )   $ (25,580,944 )
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, 2012 and 2011, these undistributed earnings (losses) totaled ($9,494,738) and ($7,195,566), 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, 2012, 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, 2012:

 

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

 

As of December 31, 2012, the Company had federal net operating loss carryforwards of approximately $89,600,000 and state net operating loss carryforwards of approximately $90,300,000.  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 2031. 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, 2013, its tax fiscal year end, of approximately ($9,900,000) in US dollars, which expire from March 30, 2016 to March 30, 2020.