The Company recorded an income tax benefit of $7,962,100 for the period ended December 31,2016.
The Company's provision for income taxes is summarized as follows:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Current federal income tax expense | $ | - | $ | - | ||||
| Deferred federal income tax benefit | (7,139,565 | ) | - | |||||
| Provision for federal income taxes: | (7,139,565 | ) | - | |||||
| Current state income tax expense | - | - | ||||||
| Deferred state income tax benefit | (822,535 | ) | - | |||||
| Provision for state income taxes: | (822,535 | ) | - | |||||
| Total | $ | (7,962,100 | ) | $ | - | |||
The reconciliation of income tax expenses (benefit) at the statutory federal income tax rate of 34% for the periods ended December 31, 2016 and December 31, 2015 is as follows:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| U.S. federal taxes (benefit) at statutory rate | $ | (17,641,231 | ) | $ | (3,423,108 | ) | ||
| State income tax benefit, net of federal benefit | (2,031,238 | ) | (394,142 | ) | ||||
| Stock compensation | 141,807 | 37,264 | ||||||
| Other nondeductible, including goodwill impairment | 4,160,717 | (15,287 | ) | |||||
| Change in state tax rate | 241,518 | - | ||||||
| Other, including effect of tax rate brackets | (57,490 | ) | (72,808 | ) | ||||
| Change in valuation allowance | 7,223,817 | 3,868,081 | ||||||
| $ | (7,962,100 | ) | $ | - | ||||
The tax effects of temporary differences and carry forwards that give rise to significant portions of the deferred tax assets are as follows:
| December 31, | ||||||||
| Deferred Tax Assets | 2016 | 2015 | ||||||
| Net operating loss carryforwards | $ | 46,227,681 | $ | 39,190,436 | ||||
| Accruals and other | 902,546 | 691,341 | ||||||
| Capital loss carryforwards | 12,395 | - | ||||||
| Valuation allowance | (47,086,442 | ) | (39,862,626 | ) | ||||
| Net deferred tax assets | 56,180 | 19,151 | ||||||
| Deferred Tax Liabilities | ||||||||
| IPR&D | - | (7,962,100 | ) | |||||
| Other liabilities | (56,180 | ) | (19,151 | ) | ||||
| Net Deferred Tax Liabilities | $ | - | $ | (7,962,100 | ) | |||
The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred tax assets. At such time that it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced.
As of December 31, 2016, the Company had Federal and State net operating loss carryforwards of approximately $124.0 million and $101.8 million available to offset future federal and state taxable income, respectively. The federal and state net operating loss carryforwards begin to expire in 2018 and valuation allowances have been provided.
Utilization of the net operating loss carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of the net operating losses before utilization.
Management has evaluated all other tax positions that could have a significant effect on the financial statements and determined the Company had no uncertain income tax positions at December 31, 2016.
The Company files U.S. and state income tax returns with varying statutes of limitations. The tax years 2001 and forward remain open to examination due to the carryover of unused net operating losses or tax credits.