The Company’s deferred tax assets as of December 31, 2017 and 2016 consist of the following:

 

		As of December 31,
		2017			2016
Deferred tax assets:
Net-operating loss carryforward		$	43,577,000		$	59,926,000
Stock-based compensation			5,726,000			9,279,000
In-Process R&D			2,259,000			4,050,000
Deferred revenue			11,064,000			-
R&D credit			5,604,000			3,962,000
Change in unrealized loss on marketable securities			46,000			178,000
Other			314,000			316,000
Total Deferred Tax Assets			68,590,000			77,711,000
Valuation allowance			(63,718,000)			(77,711,000)
Deferred Tax Asset, Net of Allowance		$	4,872,000		$	-
In-process research and development (Assembly Merger)			7,007,802			11,119,651
Net Deferred Tax Liability		$	2,135,802		$	11,119,651

  

On December 22, 2017, the Tax Act, was signed into law. Among other items, the Tax Act reduces the federal corporate tax rate to 21% from the existing applicable rate of 34%, effective January 1, 2018. As a result, the Company has recorded a decrease to its deferred tax assets of $24.7 million and to valuation allowance of $28.4 million, resulting in a net tax benefit of $3.7 million.

 

The Tax Act also permits an indefinite carry forward of net operating losses generated in taxable years ending after December 31, 2017, subject to a utilization limitation of 80% of taxable income. Due to the change in the carryforward period for post-2017 net operating losses, the Company has determined that it would be able to use the deferred tax liability associated with certain in-process research and development as a source of income in determining the realizability of its deferred tax assets. As a result, the Company recorded a $4.9 million income tax benefit from the reduction of its valuation allowance.

 

 

The Company maintains a valuation allowance on deferred tax assets due to the uncertainty regarding the ability to utilize these deferred tax assets in the future. The deferred tax liability was recorded in connection with the acquisition of Assembly Pharmaceuticals in 2014 and relates to the difference between the carrying amount of in-process research and development for financial statement purposes relative to the amount used for income tax purposes.

 

The following is a reconciliation of the U.S. federal statutory rate to the effective income tax rates for the year ended December 31, 2017, 2016 and 2015:

 

		As of December 31,
		2017			2016			2015
Statutory Federal Income Tax Rate			(34.0)	%		(34.0)	%		(34.0)	%
State Taxes, Net of Federal Tax Benefit			(2.6)	%		(4.3)	%		(11.0)	%
Merger Cost			-	%		-	%		0.9	%
Stock based Compensation			-	%		3.4	%		16.7	%
Credits			(2.1)	%		(1.8)	%		-	%
Federal Rate Change			47.7	%		-	%		-	%
State Rate Change			0.2	%		7.5	%		-	%
Other			0.3	%		2.3	%		0.1	%
Change in Valuation Allowance			(27.0)	%		25.5	%		27.3	%
Income Taxes Provision (Benefit)			(17.5)	%		(1.4)	%		-	%