Entity information:
15.   Income Taxes
 
Income tax expense for the years ended September 30, 2017 and 2016 consists of the following:
     
Year Ended September 30,
  
     
2017
    
2016
  
State tax
       $ 1,500         $ 3,000    
Foreign tax provision
         500,000           100,000    
        $ 501,500         $ 103,000    
 
The Company incurred $0.5 million and $0.1 million of foreign withholding taxes in connection with the Company’s collaboration and licensing agreements during the years ended September 30, 2017 and 2016, respectively.
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 September 30,
  
     
2017
    
2016
  
U.S. federal statutory rate
         (34.0)%           (34.0)%    
State taxes, net of federal benefit
         (6.4)           (5.9)    
Foreign witholding tax
         1.3           0.2    
Permanent differences
         (2.8)           —    
Foreign tax credits
         (1.6)           —    
Change in valuation allowance
         44.8           40.0    
Other         —           (0.1)    
Effective income tax rate
         1.3%           0.2%    
 
The tax effects of the temporary differences that gave rise to deferred taxes were as follows:
     
September 30,
  
     
2017
    
2016
  
Deferred tax assets      
Net operating loss carryforwards
       $ 48,828,141         $ 36,146,789    
Stock compensation
         14,098,985           11,249,314    
Deferred revenue
         3,017,238           2,542,558    
Research and development credit carryforward
         757,701           757,701    
Foreign tax credits
         2,857,309           2,257,309    
Accruals and others
         1,539,943           1,287,592    
Gross deferred tax assets
         71,099,317           54,241,263    
Less: valuation allowance
         (69,902,446)           (52,737,104)    
          1,196,871           1,504,159    
Deferred tax liability:      
Fixed assets
         (1,196,871)           (1,504,159)    
Net deferred tax assets
       $ —         $ —    
 
As of September 30, 2017, the Company has approximately $131.5 million and $69.6 million of Federal and New Jersey net operating losses (“NOLs”) that will begin to expire in 2030 and 2036, respectively. As of September 30, 2017, the Company has federal and state research and development (“R&D”) tax credit carryforwards of  $0.8 million available to reduce future tax liabilities, which will begin to expire in 2031. As of September 30, 2017, the Company has Federal foreign tax credit carryforwards of  $2.9 million available to reduce future tax liabilities which will begin to expire starting in 2023. $2.4 million of the Federal foreign tax credit carryforward is included in the balance of unrecognized tax benefits. Realization of the deferred tax asset is contingent on future taxable income and based upon the level of historical losses, management has concluded that the deferred tax asset does not meet the more-likely-than-not threshold for realizability. Accordingly, a full valuation allowance continues to be recorded against the Company’s deferred tax assets as of September 30, 2017 and 2016. The valuation allowance increased $17.1 million and $14.1 million during the years ended September 30, 2017 and 2016, respectively.
When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely-than-not be realized. The determination as to whether the tax benefit will more-likely-than-not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes interest and penalties accrued on any unrecognized tax benefits within the provision for income taxes in its consolidated statements of operations.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
     
Year Ended September 30,
  
     
2017
    
2016
  
Balance at beginning of year
       $ 1,854,629         $ 1,754,629    
Additions based on tax positions related to the current year
         497,500           100,000    
Balance at end of year
       $ 2,352,129         $ 1,854,629    
 
The Company does not anticipate material change in the unrecognized tax benefits in the next 12 months. These unrecognized tax benefits, if recognized, would affect the annual effective tax rate. The Company’s income tax returns for the years from 2011 through 2016 remain open for examination by the Internal Revenue Service as well as various state, local and foreign jurisdictions.
Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s NOL carryforwards may be subject to annual limitations against taxable income in future periods, which could substantially limit the eventual utilization of such carryforwards. The Company has not analyzed the historical or potential impact of its equity financings on beneficial ownership and therefore no determination has been made whether the NOL carry forward is subject to any Internal Revenue Code Section 382 limitation. To the extent there is a limitation, there would be a reduction in the deferred tax assets with an offsetting reduction in the valuation allowance.