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EisnerAmper Blog

Technology and Life Sciences Blog

Uber Drivers Classified as Independent Contractors

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April 27, 2016

By David Katz, CPA

Online transportation giant Uber recently dodged a bullet that will allow it to continue with its on-demand business model. 

 

Facing a June trial, Uber settled lawsuits in both California and Massachusetts that will let it continue to categorize its drivers in those states as independent contractors. Why is that significant? By not having to reclassify its workers as employees, Uber won’t have to offer employee benefits such as minimum wage, paid sick time and overtime; reimburse drivers for expenses such as gas and/or maintenance; and pay a portion of drivers’ Social Security  and FICA.

 

Under the terms of the settlement, Uber will pay $84 million to approximately 385,000 plaintiffs. Should the company undergo an IPO and increase its valuation 1.5 times the first-year IPO valuation, it will pay the plaintiffs an additional $16 million. In December 2015, Uber was valued at $62.5 billion. The settlement funds will be distributed to drivers in California and Massachusetts based on how many Uber miles they’ve driven. Drivers with more than 25,000 miles may receive an average of $8,000 each.

 

Uber also agreed to initiate a progressive system in order to deactivate drivers and provide an appeals process for those deactivated drivers. There are approximately 450,000 Uber drivers in the U.S. Uber will also let drivers post signs in their cars indicating drivers can accept tips.

 

While it’s a big win for Uber, the company still faces similar litigation in Florida, Arizona and Pennsylvania. Recently, a federal judge rejected a similar deal between Uber competitor Lyft and California drivers because the judge felt the $12 million settlement was insufficient. One concern is that ongoing litigation could negatively impact on-demand companies’ efforts to raise additional capital from investors.

 

Uber was a pioneer in the “gig economy,” where people accept tasked-based freelance work via the web. More than 50 million American found work via the gig economy in 2015.

In Memoriam – Intel’s Andrew S. Grove 1936-2016

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April 22, 2016

By Marc Fogarty  

Techies around the world lost a champion recently when former Intel CEO and Chair Andrew S. Grove passed away at the age of 79. Engineer, author, scientist, entrepreneur, educator and philanthropist, Grove’s death marks the passing of one of the most influential people of the 20th century. 

Grove lived through scarlet fever, as well as both the Nazi and Soviet occupations of Hungary. Fleeing Eastern Europe in 1956, Grove settled in New York City and taught himself English in between shifts working as a busboy. 

After earning a bachelor's degree in chemical engineering from the City College of New York in 1960 and a Ph.D. in chemical engineering from UC Berkeley in 1963, Grove went to work for Fairchild Semiconductors. In 1968, he became part of a group that founded Intel. He was pivotal in a pair of moves by Intel, first changing the company’s focus from memory chips to microprocessors and then negotiating with IBM to feature Intel microprocessors in its PCs.  

Intel microprocessors were found in a host of everyday items, including computers, digital cameras, appliances, toys and more. This led to Intel becoming the world’s seventh largest company, with 64,000 employees and $26 billion in annual revenues. 

Apple’s Steve Jobs often turned to Grove for advice, and in 1997 Grove was named Time magazine’s “Man of the Year.” He authored books on science, Physics and Technology of Semiconductor Devices; business operations, High Output Management; and management, Only the Paranoid Survive. 

Grove’s philanthropic efforts included multimillion dollar donations to his alma mater, City College of NY, and to fight Parkinson’s disease. 

Look! Up in the Sky! Drones for Commercial Use

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April 21, 2016

By David Katz, CPA

Unmanned aerial vehicles (aka drones) are fast-becoming a tool for businesses to operate and promote themselves. For instance, Amazon Prime Air hopes to take your parcels to the air by 2020. The Association for Unmanned Vehicle Systems International (“AUVSI”) predicts that in the coming decade drones will create 100,000 jobs and add $82 billion to the economy. Commercial uses for drone aircraft can be seen in real estate, entertainment, journalism, engineering, mining, agriculture and public safety, to name just a few. There are also ancillary commercial markets such as drone services and drone pilot certification programs.

While flying drones may seem like the Wild West with respect to rules, the Federal Aviation Administration (“FAA”) is actively trying to keep up. According to the FAA, someone wishing to operate a drone for commercial purposes will need (1) a Section 333 grant of exemption; (2) a Certificate of Waiver or Authorization; (3) an aircraft registered with the FAA, and; (4) a pilot with either an airline transport, commercial, private, recreational, or sport pilot certificate. The FAA also requires registration numbers on drones.

A company’s owners that hold the Section 333 exemption do not need to be licensed pilots, but the person actually flying the drone must have the appropriate pilot certificate. If someone is flying a drone recreationally or as a hobby, then no Section 333 exemption is required. Drone operators need to be aware that they cannot fly above 400 feet, must fly during daylight hours, cannot fly near airports or in national parks, and must be in the line of sight of their drones.

Drone technology, along with corresponding regulations, will continue to evolve.  The question is will those rules inhibit growth and innovation in this fast-moving sector?  

 Projected Annual Drone Sales in Units
2016 70,000
2017 105,000
2018 110,000
2019 118,000
2020 125,000
Source: AUVSI  


Using Technology to Fight the Zika Virus

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April 15, 2016

By Marc Fogarty, CPA

The World Health Organization (WHO) called Zika an “explosive” epidemic that could infect more than four million people by the end of 2016. While traditional boots-on-the-ground treatments, such as spraying insecticides and eliminating pools of standing water, are being aggressively pursued, technology may have a key role to play. 

History

Zika, first reported in 1947, features mild symptoms but can cause microcephaly, a condition in which children are born with small heads. There is currently no vaccine for the virus—one might be several years away at best. As such, The U.S. Centers for Disease Control and Prevention (CDC) issued a warning to pregnant women thinking of traveling to 27 countries and regions. 

Tracking

Cell phones and mobile apps have proven useful in tracking malaria in Africa and dengue fever in Asia. 

HealthMap, based in Boston, captures information on diseases globally (including Zika) from the press, medical personnel, researchers, social media and individuals. The volumes of data are mined and researchers are able to determine outbreaks, hot spots and disease movements.

The CDC developed an Epi Info viral hemorrhagic fever (VHF) app that lets people input information on those exposed to Zika, including names, gender, ages, locations, patient status and case classification. This allows expedited patient reports, more accurate predictive data models and better allocation of resources. However, identifying Zika symptoms has proven challenging. According to a CDC source, it is working on modeling activities, however the limited amount of available data on Zika virus infection makes it challenging.

Brazilian startup Colab.re launched an app that allows citizens to report symptoms and locations that may be ripe for harboring the disease. The app geolocates citizens’ reports, directs them to the relevant authorities and lets the government consult with residents.  

Genetic Modification

Successful tests in the Caribbean and South America have shown that the introduction of genetically modified mosquitoes can cause local populations to crash. Research by British biotech company Oxitec indicated that by releasing 3.3 million engineered mosquitoes in Grand Cayman Island, the mosquito population decreased by 80%. 

The genetic modification technology can involve inserting genes into an organism in such a way that it sterilizes the male mosquito, makes them less resistant to disease or makes them perish if they don’t receive a predetermined “antidote.”  The Brazilian city of Piracicaba recently said it would expand the use of genetically modified mosquitoes to help fight the Zika virus. 

Ethical Dilemma?

Genetic modification is fraught with ethical questions. Will greatly reducing or eliminating an invasive species impact other indigenous species? Would genetic modification be used for less-than-life-saving pursuits, such as creating a child or house pet with a desired color eyes? An expert panel of the National Academy of Sciences is working on a report on responsible use of the technology. 

 

Number of Zika Cases in Latin America

Brazil  1,500,000
Colombia 20,297
Venezuela 4,700
Honduras 3,700
El Salvador 3,302
Guatemala 105
Panama 50
Mexico 37
Ecuador 23
Nicaragua 21
Bolivia 4
Argentina 3
Chile 3
Costa Rica 2
Peru 1
Source: Agence France Presse  

 

 
 
 
 
 

4 Things You Need to Know About Crowdfunding Regulations

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April 11, 2016

By Alan Wink

In a real-time, 140-character, social media world, crowdfunding (the practice of funding a venture by raising contributions from a broad base of investors, often electronically) has become the method du jour to raise capital. Whether equity crowdfunding will ever replace angel investing is another matter. 

Title III of Regulation Crowdfunding is scheduled to take effect on May 16, 2016. Hopefully, this will enhance the legitimacy of the crowdfunding process as well as make it easier for issuers, portals and investors. Key elements of Title III outline (1) the maximum amount of money that can be raised in any 12-month period; (2) issuer disclosure requirements; (3) investor limitations; and (4) the regulatory framework for broker-dealers and portals. 

  1. Funding Limits
    The amount an issuer can raise via crowdfunding is limited to $1 million during any 12-month period.  
  2. Disclosure Requirements
    All companies raising more than $100,000 must have CPA-reviewed financial statements; funding above $500,000 requires audited financial statements. Companies using equity crowdfunding must disclose securities pricing, method for determining price, target offering amount, management’s discussion of company’s financial condition, business description, and use of proceeds analysis, along with information on officers, directors and others owning 20% or more of equity.  
  3. Investor Limitations
    Investor limitations depend on annual income and/or net worth. Individual investors may not invest more than $100,000 annually across all crowdfunding platforms. 
  4. Broker-Dealer and Portal Framework 
    Crowdfunding portals must be registered with the Securities and Exchange Commission and be members of the Financial Industry Regulatory Authority. Portals are used to educate investors. However, they must give investors all of the information concerning the offerings and cannot provide investment advice. Portals are also responsible for ensuring that investors are in compliance with income and net worth limitations. A company can only use one portal at a time when raising capital. 

New Tax Inversion Regulations Doom Pfizer-Allergen Deal

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April 7, 2016

By John Pennett  

New tax inversion regulations introduced by the U.S. Treasury on April 4 thwarted a proposed $160 billion merger between Pfizer and Allergen. Both corporations mutually agreed to walk away from the merger, which was announced in October 2015. Pfizer will reportedly pay Allergen a break-up fee upwards of $150 million.

 

What about the Treasury’s new regulations prevented a deal that would have created the world's largest drug maker?

 

The Treasury’s regulations—the third in a series of changes—imposed a 3-year limit on foreign companies amassing U.S. assets to avoid ownership limits for a subsequent inversion deal. This is designed to curtail serial inversions by companies, which made it more difficult and less profitable for these 2 parties.

 

The new regulations would curtail another tax-reduction strategy known as earnings stripping. This involves a U.S. subsidiary borrowing from its overseas parent company. The U.S. subsidiary then deducts interest payments from its earnings. Going forward, the U.S. will treat this debt as stock, eliminating the interest payments and taxing the American subsidiary on the full amount of its earnings here. The new inversion regulations are just one of the measures the U.S. is taking to prevent tax-base erosion.

 

Allergen, famous for Botox and Restasis, has its headquarters listed as Ireland. By changing its domicile from the U.S. to Ireland, it is estimated Pfizer could have cut its corporate tax rate from 24% to 17% and it would have gained access to billions of dollars it was keeping overseas to avoid U.S. taxation.

 

This was the second recent attempt by Pfizer to shift its tax domicile overseas. It had previously tried to acquire AstraZeneca, which is based in Great Britain. That attempt, however, was unsuccessful. Stay tuned for more updates from EisnerAmper on tax inversions.

 

Using Digital Forensics to Crack the Case

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April 6, 2016

By Marc Fogarty, CPA  

It appears the FBI has succeeded in unlocking the iPhone of one of the San Bernardino terrorists. Just how did it crack the code?

The Bureau was said to be working with a third-party expert, believed to Israeli-based mobile forensic software and solutions provider Cellebrite, to access the phone’s data without destroying it after the Apple-standard 10 failed password attempts. What did this third-party expert have up its sleeve?

NAND Mirroring

Mobile forensics and security expert Jonathan Zdziarski has a theory and it has to do with NAND mirroring. Zdziarski says this is where the NAND chip is de-soldered and dumped into a file, likely by a chip reader/programmer (picture a CD burner for chips), and multiple copies are made. A copy of the original chip is attached to the phone with a harness, and the FBI could then try passcodes until 10 incorrect guesses are made. 

The copy could be discarded and a fresh version re-copied onto a chip for another 10 guesses, essentially giving the FBI an unlimited number of attempts to find the password. While trying to guess all the permutations of a four-digit passcode might seem a monumental task, much—if not all—of the process would surely be automated.

NAND mirroring does have risks. Someone must de-solder the NAND chip to remove it without damaging the chip and then install a device between the phone and the chip. 

De-Capping

This process involves using acid and lasers to dissolve the processor’s casing and then using a probe to extract the password off the chip. However, the irreversible risks of using acid and lasers most likely precluded this option. 

The FBI isn’t saying, but reportedly whatever procedure it used has been successful. The question then becomes: What will be the privacy and security issues for Apple’s 900 million iPhone customers?


EisnerAmper is an independent member of Allinial Global.
EisnerAmper is an independent member of EisnerAmper Global.