Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2014

15. Income Taxes

The Company has the following net deferred tax assets and liabilities at December 31, 2014 and 2013:

	December31,
	2014			2013
Current deferred tax assets:
Accrued expenses	$	58,200		$	-
Current deferred tax asset		58,200			-

Non-current deferred tax assets and liabilities:
Goodwill and intangible assets	$	(5,932,461	)	$	(120,223	)
Developed technology		(126,516	)		(199,840	)
Derivative liability		(124,773	)		(133,959	)
Property and equipment		(160,361	)		(14,544	)
Other deferred tax assets		1,135			617
Stock based compensation		219,293			-
Net operating loss		3,042,072			848,781
Non-current deferred tax asset (liability)		(3,081,611	)		380,832

Net deferred tax asset (liability)	$	(3,023,411	)	$	380,832

The benefit for income taxes for the years ended December 31, 2014 and 2103 consists of the following:

	Year Ended December31,
	2014		2013
Federal:
Current provision	$	-	$	-
Deferred benefit		2,641,731		319,114
		2,641,731		319,144

State:
Current provision	$	-	$	-
Deferred benefit		420,377		61,718
		420,377		61,718

Income tax benefit	$	3,062,108	$	380,832

A reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:

	December31,
	2014			2013
Expected federal statutory rate		34.00	%		34.00	%
State income taxes, net of federal benefit		4.80	%		6.58	%
Effect of tax rate changes		3.81	%		0.00	%
Gain on bargain purchase option		2.50	%		0.00	%
Tax exempt interest income		0.92	%		0.32	%
Meals and entertainment		-0.17	%		-0.38	%
Dividends received deduction		0.00	%		0.12	%
Deferred		0.00	%		-20.95	%
Other		0.06	%		1.26	%
		45.92	%		20.95	%

At December 31, 2014, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $7,840,400. The federal and state net operating loss carryforwards will expire, if not utilized, beginning December 31, 2023. There were no net operating losses in periods prior to the year ended December 31, 2013.

Management has evaluated the deferred tax asset and determined that based on the recent history of the company and income projections, that it will be more likely than not that the deferred tax asset would be realized. A valuation allowance has not been imposed as to the realizability of such assets.

A tax benefit from uncertain tax positions may be recognized when it is more likely than not that the position that a tax position will be sustained upon examination. Management makes judgments as to the interpretation of the tax laws that may be challenged upon an audit and cause a change of tax liability. As of December 31, 2014 and 2013, the Company did not maintain a reserve for uncertain tax positions.

The Company files tax returns in multiple jurisdictions and is subject to examination in these jurisdictions. Significant jurisdictions in the US include New York, Illinois and California. Tax years 2013 remain open for PDN and tax years 2012 and 2013 remain open for NAPW and subject to examination in the Company's major taxing jurisdictions.

Section 382 of the Internal Revenue Code (Section 382) imposes a limitation on a corporation's ability to utilize net operating loss carryforwards (NOLS) if it experiences an “ownership change” as defined within the Code. In general, an ownership change may result from transactions increasing the ownership of certain shareholders in the stock of a corporation by more than 50 percentage points over a three year period. As part of the Merger Consideration in connection with the acquisition of NAPW, the Company issued stock, options and warrants. The Company evaluated the ownership change pertaining to these issuances and determined that in accordance with the rules related to Section 382 and certain built in gain allowances pursuant to the Code and subsequent Internal Revenue Code Rulings and Notices the Company did not experience an ownership change that would limit the Company's ability to utilize its NOLS.

- 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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