The Company accounts for income taxes under FASB ASC 740 ("ASC 740"). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

		Year Ended December 31,
		2017			2016			2015
Domestic		$	(6,071,009)		$	(9,300,042)		$	(6,853,093)
Foreign			(3,066,529)			(2,781,964)			(2,948,541)
Total		$	(9,137,538)		$	(12,082,006)		$	(9,801,634)

 

The benefit from income taxes consists of the following:

 

		Year Ended December 31,
		2017			2016			2015
State Tax, including sale of New Jersey losses & credits		$	676,739		$	318,550		$	324,606
Foreign tax provision			—			—			—
		$	676,739		$	318,550		$	324,606

 

 

The NOL carry forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. The NOLs may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. In addition to the new provisions enacted under the Tax Cuts and Jobs Act, this could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will generally be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.

  

 

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("Tax Reform Legislation"), which made significant changes to U.S. federal income tax law. The Company expects that certain aspects of the Tax Reform Legislation will positively impact the Company’s future after-tax earnings in the U.S., primarily due to the lower federal statutory tax rate. Set forth below is a discussion of certain provisions of the Tax Reform Legislation and our preliminary assessment of the effect of such provisions on the Company’s results of operations, cash flows and consolidated financial statements.

 

Beginning January 1, 2018, the Company’s U.S. income, if any, will be taxed at a 21 percent federal corporate rate. Further, the Company is required to recognize the effect of this rate change on our deferred tax assets and liabilities, and deferred tax asset valuation allowances in the period the tax rate change is enacted. The Company does not expect any material non-cash impact from this rate change, with adjustments to deferred tax balances offset by adjustments to deferred tax valuation allowances.

 

Further, the Tax Reform Legislation provides for a one-time “deemed repatriation” of accumulated foreign earnings for the year ended December 31, 2017. The Company does not expect to pay U.S. federal cash taxes on the deemed repatriation due to an accumulated deficit in foreign earnings for tax purposes. The Company does not expect that our future foreign earnings will be subject to U.S. federal income tax.

 

In addition, the Tax Reform Legislation provides for 100 percent bonus depreciation on tangible property expenditures through 2022. The bonus depreciation percentage is phased down from 100 percent beginning in 2023 through 2026. We do not expect this to have a material impact to the Company.

 

 Sale of Net Operating Losses (NOLs)

The Company may be eligible, from time to time, to receive cash from the sale of its New Jersey Net Operating Losses and R&D tax credits under the State of New Jersey Technology Business Tax Certificate Transfer Program.

 

 

The principal components of the Company's deferred tax assets and liabilities are as follows:

  

		Year Ended December 31,
		2017			2016			2015
Current and long term deferred tax assets:
Net operating loss carry forward		$	12,517,356		$	15,227,562		$	13,041,156
Stock Options			479,033			498,287			486,726
Warrants			—			108,594			120,329
Research and development credit carryforward			1,096,308			1,121,722			1,113,151
Accruals and others			74,477			213,791			(12,065)
Gross deferred tax assets			14,167,174			17,169,956			14,749,297
Less valuation allowance			(14,147,354)			(17,152,066)			(14,746,091)
			19,820			17,890			3,206
Deferred tax liability:
Fixed Assets			(19,820)			(17,890)			(3,206)
Net deferred tax assets		$	—		$	—		$	—

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on this assessment, management has established a full valuation allowance against all of the deferred tax assets for each period because it is more likely than not that all of the deferred tax assets will not be realized.

 

 

A reconciliation of income tax (expense) benefit at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows:

 

		Year Ended December 31,
		2017			2016			2015
Federal statutory rate			34.0	%		34.0	%		34.0	%
State taxes, net of federal benefit			(2.6)			(4.1)			3.1
Foreign rate differential			(1.4)			(1.0)			(1.5)
Permanent items			(5.1)			(8.4)			2.9
Rate change and true-up			(62.7)			(6.0)			5.1
Timing differences			—			—			—
Change in valuation allowance			44.3			(13.7)			(43.4)
R&D credit			0.8			1.8			3.6
Effective income tax rate			7.3	%		2.6	%		3.8	%