Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.10.0.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

Note 9 – Income Taxes

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the income tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting relating to the TCJA under Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for TCJA-related income tax effects is incomplete, but the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company completed its analysis of the TCJA’s income tax effects. In accordance with SAB 118, the TCJA-related income tax effects that the Company initially reported as provisional estimates were refined as additional analysis was performed. There was no material impact to the Company’s financial statements recorded when its analysis was completed in the 2018 fourth quarter.

As of December 31, 2018 and 2017, the Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Deferred tax assets (liabilities):

 

 

 

 

 

 

 

 

Tax credit

 

$

5,994,401

 

 

$

4,335,394

 

Net operating loss carryforwards

 

 

36,578,319

 

 

 

23,630,008

 

Property and equipment

 

 

144,833

 

 

 

99,756

 

Research and development costs

 

 

16,303,445

 

 

 

15,372,328

 

Start-up and organizational costs

 

 

696

 

 

 

774

 

Stock-based compensation

 

 

4,000,781

 

 

 

2,473,591

 

Other accruals

 

 

326,812

 

 

 

260,113

 

Total gross deferred tax assets

 

 

63,349,287

 

 

 

46,171,964

 

Less: valuation allowance

 

 

(63,349,287

)

 

 

(46,171,964

)

Deferred tax assets, net

 

$

 

 

$

 

 

The change in the Company’s valuation allowance is as follows:

 

 

 

2018

 

 

2017

 

January 1,

 

$

46,171,964

 

 

$

39,719,606

 

Increase in valuation allowance

 

 

17,177,323

 

 

 

6,452,358

 

December 31,

 

$

63,349,287

 

 

$

46,171,964

 

 

Note 9 – Income Taxes, continued

 

The Company has federal and state net operating loss carryforwards of approximately $130,590,000 and $131,084,000, respectively, available to offset future taxable income. The federal and state NOL carryforwards will expire at various dates beginning in 2033. The Company has federal and state research and development tax credit carryforwards of approximately $3,669,000 and $2,944,000, respectively. The federal R&D credit carryforwards will expire beginning in 2032 and state R&D credit carryforwards do not expire. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company. Although management believes that the Company may have sufficient future taxable income to absorb the net operating loss carryforwards and research and development tax credit carryforwards before the expiration of the carryforward period, there may be circumstances beyond the Company’s control that limit such utilization. Accordingly, management has determined that a full valuation allowance of the deferred tax asset is appropriate at December 31, 2018 and 2017.

Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryforwards when the stock ownership of one or more 5% shareholders (shareholders owning 5% or more of the Company’s outstanding capital stock) has increased on a cumulative basis by more than 50 percentage points. Management cannot control the ownership changes occurring as a result of public trading of the Company’s Common Stock. Accordingly, there is a risk of an ownership change beyond the control of the Company that could trigger a limitation of the use of the loss carryforward. The Company completed a Section 382 analysis as of December 31, 2018 and determined that none of its NOLs or R&D credits would be limited.

 

 

 

For the Year Ended December 31,

 

 

 

2018

 

 

2017

 

Tax benefit at federal statutory rate

 

 

(21.0

)%

 

 

(34.0

)%

State income taxes

 

 

(7.7

)

 

 

(10.2

)

Permanent differences:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

(2.2

)

 

 

(2.5

)

Meals and entertainment

 

 

0.1

 

 

 

0.1

 

Executive compensation

 

 

0.2

 

 

 

 

True-up of federal deferred taxes

 

 

0.1

 

 

 

(2.8

)

Change in effective tax rate

 

 

 

 

 

39

 

Research and development tax credit, federal

 

 

(1.9

)

 

 

(1.4

)

Research and development tax credit, state

 

 

(1.4

)

 

 

(1.6

)

Increase in valuation allowance, federal

 

 

24.7

 

 

 

1.3

 

Increase in valuation allowance, state

 

 

9.1

 

 

 

11.7

 

Effective income tax rate

 

 

0.0

%

 

 

0.0

%