Annual report pursuant to Section 13 and 15(d)

Note 20 - Income Taxes

v3.5.0.2
Note 20 - Income Taxes
12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
Note 20
– Income Taxes

Effective June 27, 2014, the Company converted into a C-Corporation.   Going forward, the Company will be subject to federal and state income taxes and will have to recognize income tax expense and deferred taxes for financial statement purposes.   Deferred taxes are computed based on the tax liability or benefit in future years of the reversal of temporary differences in the recognition of income or deduction of expenses between financial and tax reporting purposes, increased by net operating loss carryforwards of which expire through 2035. 

Federal and state net operating loss carryforwards are approximately $6,846,000 and $53,692 at December 31, 2015 and 2014, respectively.  A valuation allowance has been established for the full amount of the net deferred tax assets to reduce such net assets to zero, as a result of the significant uncertainty regarding their ultimate realization.  The aggregate valuation allowance increased $2,570,000 in 2015.  The net difference, if any, between the provision for taxes and taxes currently payable is reflected in the balance sheet as deferred taxes.  Deferred tax assets and/or liabilities, if any, are classified as current and non-current based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability.  Valuation allowances are recorded to reduce deferred tax assets to that amount which is more likely than not to be realized.  The Company has recorded a full valuation allowance against its net deferred tax asset as of December 31, 2015.

The provision for income taxes includes the following:

 
 
December 31, 2015
(Audited)
   
December 31, 2014
(Audited)
 
Current:
           
Federal
 
$
(7,654
)
 
$
-
 
State
   
-
     
-
 
 
               
Total Current Provision
   
(7,654
)
   
-
 
 
               
Deferred:
               
Federal
 
$
(415,969
)
 
$
(136,111
)
State
   
(43,543
)
   
(25,144
)
 
               
Total deferred
   
(459,512
)
   
(161,255
)
 
               
Income tax benefit
 
$
451,858
   
$
161,255
 

The effects of temporary differences and tax loss carryforwards that give rise to significant portions of federal deferred tax assets and deferred tax liabilities are presented below for the periods indicated:

 
 
December 31, 2015
(Audited)
   
December 31, 2014
(Audited)
 
 
           
Deferred tax assets:
           
 
           
Net operating loss carry-forwards
 
$
2,680,597
   
$
53,692
 
                 
Accrued compensated absences
   
-
     
60,164
 
Charitable contributions
   
2,451
     
-
 
Acquisition costs
   
76,705
     
-
 
Deferred revenues
   
-
     
26,294
 
Share based compensation
   
555,504
     
-
 
Deferred rent
   
27,066
     
21,302
 
 
               
Net deferred tax assets
   
3,342,323
     
161,452
 
 
               
Valuation allowance
   
(2,570,190
)
   
-
 
 
               
Deferred tax liabilities:
               
 
               
Property and equipment
   
-
     
(197
)
Prepaid expenses
   
(135,003
)
       
Depreciation and amortization
   
(637,130
)
   
-
 
Total deferred tax liabilities
   
(772,133
)
   
(197
)
 
               
Net deferred tax assets
 
$
-
   
$
161,255
 

On June 25, 2014, Initial Koncepts, Inc. converted from an S-Corporation into a California limited liability company (“LLC”) and changed its name to Six Dimensions, LLC.  From inception through June 26, 2014, the Company was taxed as an S-Corporation under the Internal Revenue Code of 1986, as amended and applicable state statutes.  Under an S-Corporation election, the income of the Company flows through to the stockholders to be taxed at the individual level rather than the corporate level.  Accordingly, the Company had no tax liability at the federal level (with limited exceptions) as long as the S-Corporation election was in effect.  On June 27, 2014, Six Dimensions, LLC converted into a Nevada C-Corporation and changed its name to Six Dimensions, Inc.

When the Company was an S-Corporation, the income allocable to each shareholder is subject to examination by federal and state taxing authorities. In the event of an examination of the income tax returns, the tax liability of the stockholders could be changed if an adjustment in the income is ultimately determined by the taxing authorities.

Deferred taxes are computed based on the tax liability or benefit in future years of the reversal of temporary differences in the recognition of income or deduction of expenses between financial and tax reporting purposes.  The net difference, if any, between the provision for taxes and taxes currently payable is reflected in the balance sheet as deferred taxes.  Deferred tax assets and/or liabilities, if any, are classified as current and non-current based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability.  Valuation allowances are recorded to reduce deferred tax assets to that amount which is more likely than not to be realized.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  The Company’s income tax returns are open to examination by federal, state and foreign tax authorities, generally for the years ended December 31, 2012 and later, with certain state jurisdictions open for audit for earlier years.  The Company has no amount recorded for any unrecognized tax benefits as of December 31, 2015, nor did the Company record any amount for the implementation of ASC 740.  The Company’s policy is to record estimated interest and penalty related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax provision.  The Company did not recognize any interest or penalties in its consolidated statements of operations and there are no accruals for interest or penalties at December 31, 2015.  The Company is not currently under examination by any tax jurisdiction.

The difference between the total income taxes computed at the federal statutory rate and the benefit rom income taxes consists of the following for the periods indicated:

 
 
December 31, 2015
(Audited)
   
December 31, 2014
(Audited)
 
 
           
Federal statutory rate
   
34.00
%
   
34.00
%
 
               
State taxes net of federal benefit
   
2.21
%
   
5.16
%
 
               
Changes in valuation allowance
   
(14.63
)%
   
-
%
                 
Changes in tax filing status
   
-
%
   
8.99
%
 
               
Non-deductible expenses
   
(18.75
)%
   
3.99
%
 
               
Other
   
(0.26
)%
   
-
%
 
               
Income tax benefit – Federal
   
2.57
%
   
52.14
%

The Company is subject to U.S. federal income taxes and income taxes in various states in the U.S. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.  Due to the Company’s NOL’s, all years remain open to examination by the major domestic taxing jurisdictions to which the Company is subject.  In addition, all the NOL’s and credit carryforwards that may be used in future years are still subject to adjustment.  The Company is not currently under examination by any tax jurisdiction.