10. Income Taxes

        On December 22, 2017, the President of the United States signed into law an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (commonly known as "the Tax Cuts and Jobs Act"), which introduced a comprehensive set of tax reforms. The Tax Cuts and Jobs Act significantly revises U.S. tax law by, among other provisions, lowering the Company's corporate tax rate from 34% to 21% and eliminating or reducing certain income tax deductions.

        The effects of changes in tax laws are required to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the Tax Cuts and Jobs Act's provisions, the Company recorded the tax effects of the Tax Cuts and Jobs Act on a provisional basis based on a reasonable estimate, and will, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment.

        The Tax Cuts and Jobs Act did not have a material impact on the Company's financial statements since its net deferred tax assets are fully offset by a valuation allowance and the Company does not have any off shore earnings from which to record the mandatory transition tax. However, given the significant complexity of the Tax Cuts and Jobs Act, anticipated guidance from the U.S. Treasury about implementing the Tax Cuts and Jobs Act, and the potential for additional guidance from the FASB related to the Tax Cuts and Jobs Act, these estimates may be adjusted during the measurement period. The provisional amounts were based on the Company's present interpretations of the Tax Cuts and Jobs Act and currently available information, including assumptions and expectations about future events, such as its projected financial performance, and are subject to further refinement as additional information becomes available (including the Company's actual results of operations for the year ending December 31, 2017, as well as potential new or interpretative guidance issued by the FASB or the Internal Revenue Service and other tax agencies) and further analyses are completed. The Company continues to analyze the changes in certain income tax deductions, and gather additional data to compute the full impacts on the Company's deferred and current tax assets and liabilities.

        As of December 31, 2017, the Company had available net operating loss carryforwards ("NOLs") of approximately $202.1 million and $68.8 million for federal and state income tax reporting purposes, respectively, which are available to offset future federal and state taxable income, if any, through 2037. The Company also has research and development tax credit carryforwards of approximately $5.4 million and $0.9 million for federal and state income tax reporting purposes, respectively, which are available to reduce federal and state income taxes, if any, through 2037 and state income taxes, if any, through 2032.

        The Internal Revenue Code of 1986, as amended (the "Code") provides for a limitation on the annual use of NOLs and other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes, as defined by the Code that could significantly limit the Company's ability to utilize these carryforwards. At this time, the Company has not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since the Company's formation, due to the costs and complexities associated with such a study. The Company is likely to have experienced various ownership changes, as defined by the Code, as a result of past financings. Accordingly, the Company's ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for federal and state income tax purposes.

        The Company does not have any significant unrecognized tax benefits.

        As of December 31, 2017, the Company has not accrued interest or penalties related to uncertain tax positions. The Company's tax returns for the years ended December 31, 2014 through December 31, 2016 are still subject to examination by major tax jurisdictions. However, the Internal Revenue Service ("IRS") and state tax jurisdictions can audit the NOLs generated in prior years in the years that those NOLs are utilized.

        For all years through December 31, 2017, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company's research and development credit carryforwards; however, until a study is completed and any adjustment in known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

        The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below:

                                                                                                                                                                                    

 

        The gross deferred tax assets and the valuation allowance shown above represent the items which reduce the income tax benefit which would result from applying the federal statutory tax rate to the pretax loss and cause no income tax expense or benefit to be recorded for the years ended December 31, 2017 and 2016.

        The net change in the valuation allowance for the years ended December 31, 2017 and 2016 was a decrease of $14.6 million and an increase of $10.4 million, respectively. The decrease in 2017 related primarily to the change in the Federal tax rate as discussed earlier under the Act. The increase in 2017 related primarily to net operating losses incurred by the Company which are not currently deductible.

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

                                                                                                                                                                                    

 

Sale of New Jersey Net Operating Losses

        The Company received approval to sell a portion of the Company's New Jersey NOLs as part of the Technology Business Tax Certificate Program sponsored by The New Jersey Economic Development Authority. Under the program, emerging biotechnology companies with unused NOLs and unused research and development credits are allowed to sell these benefits to other companies. In December 2016, the Company completed the sale of NOLs totaling approximately $28.2 million and research and development credits totaling approximately $0.8 million for net proceeds of approximately $3.0 million. Such proceeds are reflected as a tax benefit for the year ended December 31, 2016. On November 30, 2015, the Company completed the sale of NOLs totaling approximately $59.8 million and research and development credits totaling $1.1 million for net proceeds of approximately $6.0 million. Such proceeds are reflected as a tax benefit for the year ended December 31, 2015. On February 27, 2014, the Company completed the sale of NOLs totaling approximately $39.1 million and research and development credits totaling approximately $0.4 million for net proceeds of approximately $3.6 million. Such proceeds are reflected as a tax benefit for year ended December 31, 2014.