Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

Note 6 — Income Taxes

 

Income tax (benefit) expense for respective periods noted is as follows:

 

    Year Ended  
    December 31, 2018     December 31, 2017  
             
Current:                
Federal, state, and local   $     $  
Deferred:                
Federal     (2,990,653 )     (105,093 )
State and local     (1,825,988 )     (471,522 )
      (4,816,641 )     (576,616 )
Less: Valuation allowance reserve     4,816,641       576,616  
    $     $  

 

The reconciliation of the federal statutory income tax rate to the effective income tax rate for respective periods noted is as follows:

 

    Year Ended  
    December 31,2018     December 31,2017  
             
U.S. federal statutory rate     21.0 %     35.0 %
U.S. state and local income taxes, net of federal tax benefit     8.3 %     5.6 %
Permanent differences     (2.8 )%     (2.3 )%
Tax credits     %     1.2 %
Change in U.S. federal tax law     %     (19.4 )%
Valuation allowance     (26.5 )%     (20.1 )%
Effective tax rate     0.0 %     0.0 %

 

The approximate tax effects of temporary differences which give rise to the net deferred tax assets for respective periods noted are as follows:

 

    Year Ended  
    December 31,2018     December 31,2017  
Deferred tax assets:                
Net operating loss   $ 7,155,358     $ 4,309,231  
Non-deductible interest expense     247,938        
Debt issue costs     426,817        
Stock-based compensation expense     586,164       201,950  
Patent licenses     15,826       17,077  
Research and development tax credit carryforward     91,535       194,345  
Accrued expenses     12,123       8,981  
Section 195 deferred start-up costs     24,286       26,445  
Deferred tax assets     8,560,047       4,758,029  
                 
Deferred tax liabilities:                
Discount on debt           (1,014,484 )
Depreciation     (2,766 )     (2,904 )
Deferred tax liabilities     (2,766 )     (1,017,388 )
                 
Deferred tax assets, net of deferred tax liabilities     8,557,281       3,740,641  
Less: valuation allowance     (8,557,281 )     (3,740,641 )
Deferred tax assets, net after valuation allowance   $     $  

 

Deferred tax assets and deferred tax liabilities resulting from temporary differences are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of the change in the tax rate is recognized as income or expense in the period the change in tax rate is enacted. As discussed below, the “Tax Cuts and Jobs Act” enacted in December 2017 resulted in a change to future years’ statutory federal corporate tax rate applicable to taxable income. Changes in deferred tax assets and deferred tax liabilities are recorded in the provision for income taxes.

 

The “Tax Cuts and Jobs Act” (Public Law No. 115-97), enacted on December 22, 2017, is a comprehensive revision to federal tax law which makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate to 21% from 35%, eliminating the corporate alternative minimum tax (AMT), and changing how existing AMT credits can be realized; creating a new limitation on deductible interest expense; changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and limitations on the deductibility of certain executive compensation.

 

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses situations where the accounting is incomplete for the income tax effects of the Tax Cut and Jobs Act. SAB 118 directs taxpayers to consider the impact of the Tax Cut and Jobs Act as “provisional” when the Company does not have the necessary information available, prepared, or analyzed, including computations, to finalize the accounting for the changes resulting from the Tax Act of 2017. Companies are provided a measurement period of up to one year to obtain, prepare, and analyze information necessary to finalize the accounting for provisional amounts or amounts that cannot be estimated as of December 31, 2017. With regards to the Tax Cut and Jobs Act impact on our tax provision for the year ended December 31, 2017, we have recognized the provisional impact of the revaluation of deferred tax assets and deferred tax liabilities to 21% from 35%, which was fully offset by a corresponding change in the valuation allowance applied to the net deferred tax assets. Specifically, as of December 31, 2017, the revaluation of deferred tax assets and deferred tax liabilities to 21% from 35%, resulted in the recognition of approximately $1.6 million tax expense, with such tax expense fully offset by a corresponding change in the valuation allowance applied to the net deferred tax assets. As of December 31, 2018, there was no change in such estimated amount.

 

As required by FASB ASC Topic 740, Income Taxes”, (“ASC 740), a “more-likely-than-not” criterion is applied when assessing the estimated realization of deferred tax assets through their utilization to reduce future taxable income, or with respect to a deferred tax asset for tax credit carryforward, to reduce future tax expense. A valuation allowance is established, when necessary, to reduce deferred tax assets, net of deferred tax liabilities, when the assessment indicates it is more-likely-than-not, the full or partial amount of the net deferred tax asset will not be realized. Accordingly, the Company evaluated the positive and negative evidence bearing upon the estimated realizability of the net deferred tax assets, and based on the Company’s history of operating losses, concluded it is more-likely-than-not the deferred tax assets will not be realized, and therefore recognized a valuation allowance reserve equal to the full amount of the deferred tax assets, net of deferred tax liabilities, as of December 31, 2018 and 2017.

 

The Company has total estimated federal and state net operating loss (“NOL”) carryforward of approximately $22.9 million and $13.8 million as of December 31, 2018 and 2017, respectively, which is available to reduce future taxable income and begin to expire in 2035. The Company has total estimated research and development (“R&D”) tax credit carryforward of $91,535 and $194,345 as of December 31, 2018 and 2017, respectively, with the R&D tax credit carryforward available to reduce future tax expense, and begin to expire in 2035.

 

The Company files income tax returns in the United States in federal and applicable state and local jurisdictions. The Company’s tax filings for the years 2015 and thereafter each remain subject to examination by taxing authorities. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. The Company has not recognized any penalties or interest related to its income tax provision.