Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

Note 9 – Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the company, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in a $19,432,000 decrease in net deferred tax assets for the year ended December 31, 2017 and a corresponding $19,432,000 decrease in valuation allowance as of December 31, 2017.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting for the income tax effects of certain elements of the 2017 Tax Act. In accordance with SAB 118, we have recognized the provisional tax impacts related to the remeasurement of deferred tax assets and liabilities and included these amounts in our financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the 2017 Tax Act.

 

As of December 31, 2017, and 2016, the Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:

 

     December 31,  
     2017      2016  

Deferred tax assets (liabilities):

     

Tax credit

   $ 4,335,394      $ 2,802,573  

Net operating loss carryovers

     23,630,008        16,174,712  

Property and equipment

     99,756        (58,747

Research and development costs

     15,372,328        18,628,913  

Start-up and organizational costs

     774        1,222  

Stock-based compensation

     2,473,591        1,829,843  

Other accruals

     260,113        341,090  
  

 

 

    

 

 

 

Total gross deferred tax assets

     46,171,964        39,719,606  

Less: valuation allowance

     (46,171,964      (39,719,606
  

 

 

    

 

 

 

Deferred tax assets, net

   $ —        $ —    
  

 

 

    

 

 

 

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

 

     2017      2016  

January 1,

   $ 39,719,606      $ 22,085,888  

Increase in valuation allowance

     6,452,358        17,633,718  
  

 

 

    

 

 

 

December 31,

   $ 46,171,964      $ 39,719,606  
  

 

 

    

 

 

 

The Company has federal and state net operating loss carryovers of approximately $84,418,000 and $85,515,000, 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 carryovers of approximately $2,686,000 and $2,088,000, respectively. The federal R&D credit carryovers will expire beginning in 2032 and state R&D credit carryovers do not expire. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company and may be limited in any one period by alternative minimum tax rules. Although management believes that the Company may have sufficient future taxable income to absorb the net operating loss carryovers and research and development tax credit carryovers before the expiration of the carryover 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, 2017 and 2016.

 

Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryovers 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 carryover. The Company completed a Section 382 analysis as of December 31, 2017 and determined that none of its NOLs or R&D credits would be limited.

 

     For the Year Ended December 31,  
             2017                     2016          

Tax benefit at federal statutory rate

     (34.0 )%      (34.0 )% 

State income taxes

     (10.2     (5.7

Permanent differences:

    

Stock-based compensation

     (2.5     0.8  

Meals and entertainment

     0.1       0.1  

True-up of federal deferred taxes

     (2.8     1.7  

True-up of state deferred taxes

     —         1.2  

Change in effective tax rate

     39.4       —    

Research and development tax credit, federal

     (1.4     (1.5

Research and development tax credit, state

     (1.6     (1.1

Increase in valuation allowance, federal

     1.3       32.9  

Increase in valuation allowance, state

     11.7       5.6  
  

 

 

   

 

 

 

Effective income tax rate

     0.0     0.0