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
13. Income Taxes

 

The components of the provision for income taxes are as follows:

 

    For the years ended
December 31,
 
    2018     2017  
Current:            
Federal   $ -     $ -  
State     374       800  
      374       800  
Deferred:                
Federal     -       -  
State     -       -  
      -       -  
Total provision for (benefit from) income taxes   $ 374     $ 800  

 

Deferred tax assets (liabilities) consist of the following:

 

    For the years ended
December 31,
 
    2018     2017  
Deferred Tax Assets:            
Net operating loss carryforwards   $ 2,218,360     $ 3,551,327  
Research and development credits     146,322       144,305  
Accruals, reserves and other     77,270       59,006  
Depreciation and amortization     -       -  
Stock-based compensation     445,806       628,289  
Total deferred tax asset     2,887,758       4,382,927  
                 
Valuation allowance     (2,906,301 )     (4,376,733 )
                 
Deferred tax liabilities                
Depreciation and amortization     18,543       (6,194 )
Net deferred tax assets   $ -     $ -  

 

Reconciliation of the statutory federal income tax to the Company’s effective tax:

 

    For the year ended
December 31,
 
    2018     2017  
    %     %  
Statutory federal tax rate     21.00 %     34.00 %
State taxes, net of federal benefit     6.50 %     0.00 %
Valuation allowance     (27.50 )%     25.14 %
Other     0 %     8.89 %
Provision for income taxes     0.00 %     0.00 %

 

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets of the Company will not be fully realizable for the year ended December 31, 2018 and 2017. Accordingly, management had applied a full valuation allowance against net deferred tax assets as of December 31, 2018 and 2017.

 

The valuation allowance decreased by approximately $1.4 million and increased approximately $1.1 million during the years ended December 31, 2018 and 2017.

 

As of December 31, 2018, the Company had approximately $13.0 million of federal and $12.1 million of state net operating loss carryforwards available to reduce future taxable income which will begin to expire in 2033 for both federal and state purposes.

 

As of December 31, 2018, the Company had research & development (“R&D”) credits carryforward of approximately $43,600 and $43,600 for federal and California income tax purposes, respectively. If not utilized, the federal R&D credits carryforward will begin to expire in 2034. The California credits can be carried forward indefinitely.

 

The Company is filing income tax returns with the United States federal government, and the state of California. The Company’s tax years 2014 through 2018 will remain open for examination by the federal and state authorities for three and four years, respectively, from the utilization of any net operating loss credits.

 

On December 22, 2017, the Tax Cuts and Jobs Act pf 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code of 1986, as amended (the “Code”). The Act reduces the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. ASC 470 requires the Company to remeasure the existing net deferred tax asset in the period of enactment. The Act also provides for immediate expensing of 100% or the costs of qualified property that is incurred and placed in service during the period from September 27, 2017 to December 31, 2022. Beginning January 1, 2023, the immediate expensing provision is phased down by 20% per year until it is completely phased out as of January 1, 2027. Additionally, effective January 1, 2018, the Act imposes possible limitations on the deductibility of interest expense. As a result of the provisions of the Act, the Company’s deduction for interest expense could be limited in future years. The effects of other provisions of the Act are not expected to have a material impact on the Company’s financial statements.

 

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that begins in the reporting period that includes the Act’s enactment date and ends when an entity has obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements under ASC 720. However, in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. SAB 118 provides that to the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

 

The Company does not reflect a deferred tax asset in its financial statements but includes that calculation and valuation in its footnotes. We are still analyzing the impact of certain provisions of the Act and refining our calculations. The Company will disclose any change in the estimates as it refines the accounting for the impact of the Act.