Entity information:

17. Income Taxes

 

The components of the expense for income taxes are as follows for the years ended December 31, 2017 and 2016:

 

    For the year ended December 31,  
    2017     2016  
Current   $ —     $ —  
Federal     —       —  
State     —       —  
Foreign     (633,530 )     305,320  
Total   $ (633,530 )   $ 305,320  
Deferred   $ —     $ —  
Federal     —       —  
State     —       —  
Foreign     —       —  
Total   $ —     $ —  
Total income tax provision   $ (633,530 )   $ 305,320  

 

The effective tax rate is reconciled to the U.S. federal statutory rate as follows as of December 31, 2017 and 2016, respectively:

 

    For the year ended December 31,  
    2017     2016  
Income tax benefit at the applicable federal rate (34%)   $ (9,377,341 )   $ (5,990,776 )
Permanent difference     348,212       105,246  
Change in valuation allowance     (3,365,900 )     6,041,273  
Deferred true-up     1,785,761       (87,594 )
Remeasurement of deferred taxes for tax law change     7,813,999       18,885  
Currency exchange rate change     2,809,109       —  
Foreign rate differential     3,160       (70,660 )
Employee Retention credit     (17,000 )     —  
Withholding tax     (633,530 )     288,946  
Income tax expense (benefit)   $ (633,530 )   $ 305,320  

 

The tax effects of the temporary differences between financial statement income and taxable income are recognized as deferred tax assets and liabilities. Significant components of the deferred tax assets and liabilities as of December 31, 2017 and 2016 respectively are as follows:

 

    December 31, 2017     December 31, 2016  
Deferred assets                
Stock-based compensation   $ 376,224     $ 363,242  
Accrued vacation     54,335       50,126  
Accrued bonus     235,297       179,178  
Interest limitation     226,664       161,353  
Withholding tax     —       151,982  
Employee retention credit     17,000       —  
R&D credit     46,497       —  
Other accruals     118,500       2,216,408  
Intangible assets     1,396       3,784  
Tax losses     19,005,628       14,788,371  
Total deferred tax assets   $ 20,081,541     $ 17,914,444  
Deferred liability                
Prepaids     (2,758 )     —  
Property, plant and equipment     (6,394,456 )     (586,730 )
Total deferred tax liabilities   $ (6,397,214 )   $ (586,730 )
Net deferred tax asset     13,684,327       17,327,714  
Valuation allowance     (13,684,327 )     (17,327,714 )
Total net deferred tax assets   $ —     $ —  

 

The Company has established a valuation allowance to fully reserve the net deferred tax asset due to the uncertainty of the timing and amounts of future taxable income. At December 31, 2017, the Company has a federal tax loss carry forward of $68,146,909 and a foreign tax loss carry forward of $15,857,215, both of which have been fully reserved.

 

The loss carryforwards expire as follows:

 

Expiration year   Amount  
2018   $ 179,117  
2019     776,313  
2020     2,335,596  
2021     5,004,157  
2022 and forward     75,708,941  
Total   $ 84,004,124  

 

The Company records accrued interest and penalties related to unrecognized tax benefits in general and administrative expense. No amounts of interest expense and penalties have been accrued or recognized related to unrecognized tax benefits since inception. We are currently subject to a three-year statute of limitations by major tax jurisdictions.

 

On June 20, 2017, all convertible debt was converted into approximately 29.5 million shares of the Company’s Common Stock resulting in a change of ownership greater than 50%. As a result, the Company’s ability to offset its income with its U.S. net operating losses are limited by the Internal Revenue Code Section 382.

 

The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate income tax system, including a federal corporate rate reduction from 35% to 21%. In accordance with ASC 740, the impact of a change in tax law is recorded in the period of enactment. There is no impact from the re-measurement of deferred tax assets and liabilities at December 31, 2017 because of the full valuation allowance.