Note 9 – Income Taxes

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows:

 

		2016				2015
Deferred tax assets:
Net operating losses carry forward		$	38,874,255			$	24,008,932
Share-based compensation			8,081,711				6,197,439
Others			846,415				-
Less: valuation allowance			(47,802,380	)			(28,910,183	)
Deferred tax assets, net		$	-			$	-

The Company has recorded a valuation allowance of $47,802,380 and $28,910,183 against its deferred tax assets at December 31, 2016 and 2015, respectively, because management determined that it is not more-likely-than not that those assets will be realized.

 

For federal income tax purposes, the Company has approximately $105.1 million of unused net operating losses ("NOLs") at December 31, 2016 available for carry forward to future years. These NOLs will begin to expire if unused in 2018.

 

For state income tax purposes, the Company has approximately $60.7 million of unused NOLs at December 31, 2016 available for carry forward to future years. These NOLs will begin to expire if unused in 2035.

 

The Company has Federal Research and Development tax credits of approximately $830,000 at December 31, 2016 which will begin to expire if unused in 2033.

 

Federal and state tax laws impose limitations on the utilization of net operating losses and credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company's ability to utilize these carryforwards may be limited as a result of an ownership change which may have already happened or may happen in the future. Such an ownership change could result in a limitation in the use of the net operating losses in future years and possibly a reduction of the net operating losses available.

 

The difference between the income tax provision and the amount that would result if the U.S. Federal statutory rate of 34% were applied to pre-tax loss for the years ended December 31, 2016, 2015 and 2014 are as follows:

 

		For the year ended
		December 31, 2016								December 31, 2015								December 31, 2014
Federal income taxes at 34%		$	(8,269,386	)			(34.00	)%		$	(7,148,607	)			(34.00	)%		$	(8,393,753	)			(34.00	)%
Deferred true-up			(5,946,655	)			(24.45	)%			1,104,763				5.25	%			2,885,487				11.69	%
Research and Development Tax Credit			(141,769	)			(0.58	)%			-				-	%			-				-	%
Unrealized derivative gain/loss			(860,460	)			(3.54	)%
Other			12,259				0.05	%			-				-	%			526,224				2.13	%
Change in valuation allowance			15,206,011				62.52	%			6,043,844				28.75	%			4,982,042				20.18	%
Provision for income tax		$	-				-			$	-				-			$	-				-