NOTE 8 – INCOME TAXES
At December 31, 2017, the Company has available approximately $59,943,000 and $62,478,000 of unused NOL carryforwards for federal and state tax purposes, respectively, that may be applied against future taxable income. The Company also has approximately $59,701,000 of unused NOL carryforwards for New York City purposes. The NOL carryforwards will begin to expire in the year 2035 if not utilized prior to that date. There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. The valuation allowance increased by approximately $18,971,000, $10,174,000, and $5,992,200 during the years 2017, 2016, and 2015, respectively, and was approximately $35,285,000, $16,314,000, and $6,140,000 at December 31, 2017, 2016, and 2015, respectively.
The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017. The Act reduces the U.S. corporate rate from 34% to 21% beginning in 2018. The Company re-measured its deferred tax assets based upon the new 21% tax rate. As a result, the Company decreased its deferred tax assets by $10,605,000, with a corresponding adjustment to its valuation allowance for the year ended December 31, 2017
The Company may be subject to the NOL utilization provisions of Section 382 of the Code. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. The Company has not completed a Section 382 analysis to determine if a change in ownership has occurred. Until an analysis is completed, there can be no assurance that the existing net operating loss carry-forwards or credits are not subject to significant limitation.
The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies related to the tax benefit. For the years ended December 31, 2017, 2016, and 2015, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company has not, yet, conducted a study of research and development credit carryforwards. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets/liabilities: |
|
|
|
|
|
|
|
|
|
Net operating loss carryovers |
|
$ |
20,880,120 |
|
|
$ |
11,711,643 |
|
|
Research and development tax credits |
|
|
714,087 |
|
|
|
348,816 |
|
|
Share-based compensation |
|
|
3,392,111 |
|
|
|
2,035,042 |
|
|
Accrued compensation |
|
|
633,745 |
|
|
|
600,663 |
|
|
Depreciation |
|
|
(10,778 |
) |
|
|
(10,318 |
) |
|
Charitable contributions |
|
|
53,038 |
|
|
|
- |
|
|
Intangible assets |
|
|
9,622,535 |
|
|
|
1,628,471 |
|
|
Total gross deferred tax assets/liabilities |
|
|
35,284,858 |
|
|
|
16,314,317 |
|
|
Valuation allowance |
|
|
(35,284,858 |
) |
|
|
(16,314,317 |
) |
|
Net deferred tax assets (liabilities) |
|
$ |
- |
|
|
$ |
- |
|
A reconciliation of the statutory U.S. Federal rate to the company’s effective tax rate is as follows:
|
|
|
December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Federal income tax benefit at statutory rate |
|
|
(34.00 |
) |
|
|
(34.00 |
) |
|
|
(34.00 |
) |
|
State income tax, net of federal benefit |
|
|
(11.77 |
) |
|
|
(11.35 |
) |
|
|
(11.33 |
) |
|
Permanent items |
|
|
0.89 |
|
|
|
1.16 |
|
|
|
0.31 |
|
|
Change in valuation allowance |
|
|
29.18 |
|
|
|
45.64 |
|
|
|
45.45 |
|
|
Research and development tax credits |
|
|
(0.56 |
) |
|
|
(1.26 |
) |
|
|
(0.51 |
) |
|
Deferred re-measurement |
|
|
16.31 |
|
|
|
- |
|
|
|
- |
|
|
Other |
|
|
(0.05 |
) |
|
|
(0.19 |
) |
|
|
0.08 |
|
|
Effective income tax (benefit) expense rate |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |