Note 10.

Income Taxes

The provision for income taxes consists of the following for the years ended December 31 (in thousands).

	2014		2013
Federal	$	129	$	19
State and local		—		—
Foreign		(25)		—

Total income tax expense	$	104	$	19

	2014		2013
Current		152		51
Deferred		(48)		(32)

Total Income Tax Expense		104		19

At December 31, 2013, Medite had a deferred tax asset on the books of its US subsidiary of approximately $129,000, mostly as a result of prior year net operating loss carryforwards. Upon the consummation of the merger, the Company determined that the deferred tax asset had to be allowed for due to the subsidiary now be consolidated with the former CytoCore for income tax reporting purposes in the United States. The effect was to increase current year income tax expense by $129,000.

For the years ended December 31, 2014 and 2013, the provision for income taxes differs from the expected tax provision computed by applying the U.S. federal statutory rate to income before taxes as a result of the following:

	2014			2013

Statutory U.S. federal rate		(35.0)	%		25.0	%
Permanent differences		—			—
Change in estimate of German tax rates		(10)	%		—
Application of valuation allowance to US deferred tax assets upon merger		18	%		—
Other		—			—
Valuation allowance		44.0	%		—	%
Provision for income tax expense(benefit)		17	%		25	%

The significant components of the Company’s deferred tax assets and liabilities are as follows:

	2014		2013
	(in thousands)
Deferred Tax Assets:
Net Operating Loss Carryforwards	$	24,500		129
Accounts receivable timing differences		115		156
Property, plant and equipment		93
Total Deferred Tax Assets		24,708		285

Deferred Tax Liabilities:
Inventory Adjustment		-		(16)
Other		(39)		-
Total Deferred Tax Liabilities		(39)		(16)
Net Deferred Tax Asset		24,669		269
Valuation Allowance		(24,500)		-
Net Deferred Tax Asset	$	169		269

At December 31, 2014, the former CytoCore had net operating loss carry forwards for U.S. federal income tax of approximately $70 million, which will begin to expire in 2018. In 2013 and 2014 the former CytoCore allowed its wholly owned subsidiaries to be administratively dissolved which resulted in the probable loss of their net operating loss carryforwards of approximately $3 million.

For financial reporting purposes, the entire amount of deferred tax assets related principally to the net operating loss carry forwards has been offset by a valuation allowance due to uncertainty regarding the realization of the assets.

In 2013 and 2014 the former CytoCore had a change in ownership greater than 50%. The result of these changes is that the net operating loss carryforwards derived from US tax losses have become subject to the limitation requirements of Section 382 of the Internal Revenue Code in the United States. Section 382 requires that the Company obtain a special valuation that will allow it to calculate the yearly allowable percentage of its net operating loss carryforwards that will be usable in a given year over the next 20 years.

Tax Uncertainties

The Company follows the provisions of FASC 740-10 in accounting for uncertainty in income taxes. This guidance prescribes recognition and measurement parameters for the financial statement recognition and measurement of tax positions taken or expected to be taken in the Company’s tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement.

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. The periods subject to examination for the Company’s tax returns are for the years 2012, 2012 and 2013. The Company believes that its income tax filing positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in thousands):

	Amount
Gross Unrecognized tax benefits at December 31, 2013	$	—
Increases in tax positions for current year		—
Settlements		—
Lapse in statute of limitations		—

Gross Unrecognized tax benefits at December 31, 2014	$	—

The Company is subject to U.S. federal income tax including state and local jurisdictions. Currently, no federal or state income tax returns are under examination by the respective taxing jurisdictions.

The Company’s accounting policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company has not accrued interest for any periods.