|
9. |
Income Taxes |
Income tax expense (benefit) from continuing operations consists of the following for the years ended December 31, 2017 and 2016:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Current: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(6,138,798 |
) |
|
$ |
(4,029,121 |
) |
|
State |
|
|
(2,060,635 |
) |
|
|
(364,340 |
) |
|
|
|
$ |
(8,199,433 |
) |
|
$ |
(4,393,461 |
) |
|
Change in federal tax rate |
|
|
9,539,678 |
|
|
|
— |
|
|
Valuation allowance |
|
|
(1,340,245 |
) |
|
|
4,393,461 |
|
|
Total income tax expense (benefit) |
|
$ |
— |
|
|
$ |
— |
|
The reconciliations of the U.S. federal statutory tax rate to the effective income tax rate for the years ended December 31, 2017 and 2016 are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Tax provision at U.S. Federal statutory rates |
|
|
34 |
% |
|
|
34 |
% |
|
State income taxes net of federal benefit |
|
|
10 |
% |
|
|
3 |
% |
|
Non-deductible permanent items |
|
|
(4 |
)% |
|
|
(7 |
)% |
|
Stock options |
|
|
(1 |
)% |
|
|
— |
|
|
Enactment of the Tax Cuts and Jobs Act |
|
|
(46 |
)% |
|
|
— |
|
|
Change in valuation allowance |
|
|
7 |
% |
|
|
(30 |
)% |
|
Effective income tax rate |
|
|
— |
|
|
|
— |
|
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31, 2017 and 2016 are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
53,032 |
|
|
$ |
59,333 |
|
|
Intangible assets |
|
|
14,696,888 |
|
|
|
16,388,591 |
|
|
Net operating loss carryforwards |
|
|
4,948,795 |
|
|
|
4,558,964 |
|
|
Share-based compensation |
|
|
1,030,457 |
|
|
|
1,289,957 |
|
|
Credits |
|
|
265,588 |
|
|
|
— |
|
|
Other |
|
|
6,679 |
|
|
|
3,017 |
|
|
Total deferred tax assets |
|
|
21,001,439 |
|
|
|
22,299,862 |
|
|
Valuation Allowance |
|
|
(20,775,747 |
) |
|
|
(22,115,992 |
) |
|
Total deferred tax assets, net of allowance |
|
$ |
225,692 |
|
|
$ |
183,870 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Debt conversion feature |
|
$ |
(225,692 |
) |
|
$ |
(183,870 |
) |
|
Total deferred tax liabilities: |
|
$ |
(225,692 |
) |
|
$ |
(183,870 |
) |
|
Net deferred tax assets (liabilities): |
|
$ |
— |
|
|
$ |
— |
|
The Tax Cuts and Jobs Act was enacted on December 22, 2017 and reduced the U.S. federal corporate rate to 21 percent, effective January 1, 2018. As such, the Company has recorded a decrease in its deferred tax assets, deferred tax liabilities and valuation allowance of $9,645,000, $105,000 and $9,540,000, respectively, for the year ended December 31, 2017.
A valuation allowance of $20,775,747 and $22,115,992 at December 31, 2017 and December 31, 2016, respectively, has been recorded to offset net deferred tax assets, as the Company is unable to conclude that it is more likely than not that such deferred tax assets will be realized.
At December 31, 2017, the Company had federal and state net operating loss carryforwards of approximately $17,773,000 and $17,419,000, respectively. The federal and state net operating loss carryforwards will begin to expire in 2032. The Company’s ability to utilize its federal net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). Specifically, this limitation may arise in the event of an “ownership change,” which is defined by Section 382 of the Code as a cumulative change in ownership of the Company of more than 50% within a three-year period. If the Company undergoes one or more ownership changes in connection with any future transactions in its stock, the Company’s ability to utilize net operating loss carryforwards to offset federal taxable income, if any, could potentially result in increased future tax liability to the Company. An ownership change under Section 382 of the Code occurred during the year ended December 31, 2015 in connection with the Company’s initial public offering. However, the Company is able to utilize all of its net operating losses. The Company conducted a further assessment of ownership changes and determined that, through December 31, 2017, there have not been any additional ownership changes in accordance with Section 382 of the Code.
The Company is subject to U.S. federal income tax as well as income tax in various state jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state agencies for the years ended December 31, 2013 through December 31, 2017.
The differences between the Company’s effective income tax rate and the statutory federal rate for the year ended December 31, 2017 and the year ended December 31, 2016 relate primarily to losses incurred for which no tax benefit was recognized, due to the uncertainty of realization. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making this assessment. At each of December 31, 2017 and December 31, 2016, the Company provided a full valuation allowance against its deferred tax assets due to uncertainty surrounding the realization of those assets as a result of historical taxable net losses.
At December 31, 2017, the Company has federal and state research and development tax credit carry-forwards of approximately $74,000 and $192,000, respectively. The federal credits begin to expire in 2036. The state credits do not expire.
The Company has reviewed its operations and has not identified any material uncertain tax positions. As a result, there is no liability for uncertain tax positions in the income tax provision as of December 31, 2017 or December 31, 2016.