Entity information:

• Entity registrant name: HTG Molecular Diagnostics, Inc
• CIK: 0001169987
• SEC filing page: http://www.sec.gov/Archives/edgar/data/1169987/000156459018006602/0001564590-18-006602-index.htm
• XBRL Instance: http://www.sec.gov/Archives/edgar/data/1169987/000156459018006602/htgm-20171231.xml
• XBRL Cloud Viewer: https://edgardashboard.xbrlcloud.com/flex/viewer/XBRLViewer.html#instance=http://www.sec.gov/Archives/edgar/data/1169987/000156459018006602/htgm-20171231.xml
• EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001169987
• Generator: Donnelley Financial Solutions
• Total assets: 21,256,300
• Income tax expense (benefit): 2,921
• Found reconcilation from statutory to effective rates: True
• Found income tax policy: Coming soon!

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Note 14. Income Taxes

The Company provides for income taxes based upon management’s estimate of taxable income or loss for each respective period. The Company recognizes an asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These temporary differences would result in deductible or taxable amounts in future years, when the reported amounts of the assets are recovered or liabilities are settled, respectively.

In each period since inception, the Company has recorded a valuation allowance for the full amount of its net deferred tax assets, as the realization of the net deferred tax assets is uncertain. As a result, the Company has not recorded any federal or state income tax benefit in the statements of operations; however, state income tax expense has been recorded for state minimum taxes.

The Company periodically reviews its filing positions for all open tax years in all U.S. federal, state and international jurisdictions where the Company is or might be required to file tax returns or other required reports.

The Company applies a two-step approach to recognizing and measuring uncertain tax positions. The Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is “more likely than not” that the position will be sustained on audit, including resolution of related appeals or litigation process, if any. The term “more likely than not” means a likelihood of more than 50 percent. If the tax position is not more likely than not to be sustained in a court of last resort, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the more likely than not criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect the Company’s results of operations, financial position and cash flows. The Company has not identified any uncertain tax positions at December 31, 2017 or 2016.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at December 31, 2017 or 2016, and has not recognized interest or penalties during the years ended December 31, 2017 and 2016, since there are no material unrecognized tax benefits. Management of the Company does not expect a material change to the amount of unrecognized tax benefits to occur within the next 12 months.

The components of income tax expense are as follows:

 

 

The Company’s actual income tax expense for the years ended December 31, 2017 and 2016 differ from the expected amount computed by applying the statutory federal income tax rate of 34% to loss before income taxes as follows:

 

Deferred tax assets and liabilities comprise the following:

 

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which makes broad and complex changes to the IRC. Certain of these changes may be applicable to the Company, including but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%, creating a new limitation on deductible interest expense, eliminating the corporate alternative minimum tax, modifying the rules related to uses and limitations of net operating loss carryforwards generated in tax years ending after December 31, 2017, and changing the rules pertaining to the taxation of profits earned abroad. Changes in tax rates and tax laws are accounted for in the period of enactment. The Tax Act reduces the corporate tax rate to 21% effective January 1, 2018. Consequently, we have recorded a decrease related to deferred tax assets of $16,232,211, exclusive of the corresponding change in the valuation allowance, as of December 31, 2017. Due to the full valuation allowance on the deferred tax assets, there is no net adjustment to deferred tax expense or benefit due to the reduction of the corporate tax rate.

As of December 31, 2017, the Company has estimated federal and state net operating loss (“NOL”) carryforwards of approximately $121,980,841 and $79,222,187 for federal and state income tax purposes, respectively. The Company’s federal NOLs are scheduled to expire from 2021 through 2037. The Company’s state NOLs are scheduled to expire from 2027 through 2037. The Company’s federal and state tax credit carryforwards begin expiring in 2021 and 2018, respectively. The Company’s federal NOL carryforwards have the following expiration dates:

 

 

For financial reporting purposes, valuation allowances of $35,008,331 and $43,478,986 at December 31, 2017 and 2016, respectively, have been established to offset deferred tax assets relating primarily to NOLs and research and development credits. The decrease in the valuation allowance of $8,470,655 for the year ended December 31, 2017 was due to an increase of $7,761,556 related to additional operating losses, and a decrease of $16,232,211 related to the impact of the Tax Act on the deferred balances as of the enactment date. The Company has established a valuation allowance against its entire tax asset. As a result, the Company does not recognize any tax benefit until it is in a taxpaying position or there is sufficient positive evidence leading to the conclusion that it is more likely than not to realize the tax benefit.

A preliminary analysis of past and subsequent equity offerings by the Company, and other transactions that have an impact on the Company’s ownership structure, concluded that the Company may have experienced one or more ownership changes under Sections 382 and 383 of the IRC. Provisions of the IRC place special limitations on the usage of NOLs and credits following an ownership change. Such limitations may limit or eliminate the potential future tax benefit to be realized by the Company from its accumulated NOLs and research and development credits.

The Company files income tax returns in the United States, Arizona, California, Texas and various other state jurisdictions, with varying statutes of limitations. As of December 31, 2017, the earliest year subject to examination is 2014 for U.S. federal tax purposes. The earliest year subject to examination is 2013 for Arizona, California and Texas, and 2009 for the remaining state jurisdictions. However, the Company’s NOL carryforwards for periods ending December 31, 2001 and thereafter remain subject to examination by the United States and certain states.