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Note 13 - Income Taxes | 12 Months Ended
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Dec. 31, 2017
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 13. Income Taxes Prior to the Merger, the Company was treated as a partnership for federal income tax purposes. In December 2017, the 2017 Tax Act was enacted, which includes a number of changes to previously existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The 2017 Tax Act also provides for a one -time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse. In 2016, the Company recorded a deferred tax liability of $3.6 million for the basis differences associated with indefinite-lived in-process R&D assets. In August 2016, the Company abandoned future development efforts for the IPR&D asset associated with RES- 440 and recorded an impairment charge of $1.0 million which is equal to its acquired value. Upon recognizing the impairment, the Company recognized an income tax benefit of $0.4 million and reduced the carrying value of the related deferred tax liability as of December 31, 2016 (See Note 4 ). In 2017, this deferred tax liability was further reduced by $1.1 million as a result of the 2017 Tax Act. Significant components of the Company's deferred tax assets for federal income taxes consisted of the following:
|  | December 31, 2017 |  |  | December 31, 2016 |
Deferred tax assets |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 5,310,628 |  |  | $ | 7,547,296 |
Stock option compensation |  |  | 2,141,973 |  |  |  | 2,720,186 |
Orphan Drug credits |  |  | 2,537,039 |  |  |  | 1,218,069 |
Capitalized start-up costs and other |  |  | 5,247,469 |  |  |  | 4,690,843 |
Valuation allowance |  |  | (15,237,109 | ) |  |  | (16,176,394 | )
Net deferred tax asset |  |  | — |  |  |  |  |
Deferred tax liabilities |  |  |  |  |  |  |  |
Intangible assets |  |  | (2,223,678 | ) |  |  | (3,279,363 | )
Net deferred tax liability |  |  | (2,223,678 | ) |  |  | (3,279,363 | )
The Company does not have unrecognized tax benefits as of December 31, 2017 or December 31, 2016. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company had net operating loss carryforwards (“NOL”) for federal and state income tax purposes at December 31, 2017 of approximately:
Combined NOL Carryforwards: |  | December 31, 2017 |
Federal |  | $ | 20,629,817 |
State |  |  | 20,640,700 |
The net operating loss carryforwards begin expiring in 2034 for federal income tax purposes and 2034 for state income tax purposes. In January 2016, the number of outstanding shares of RestorGenex common stock increased in connection with the Merger discussed in note 4. This increase in the number of shares outstanding resulted in a change of ownership, under the provisions of Internal Revenue Code Section 382 and similar state provisions, and limits the Company’s ability to utilize these net operating loss carryforwards to offset future income. The amounts above reflect the amount of NOLs that the Company expects to be able to utilize as a result of the limitation. The Company's 2017 and 2018 financings may have also triggered an ownership change, which could further limit the Company's ability to utilize its NOL carryforwards. The Company has yet to determine this potential limitation. The Company recorded a 100% valuation allowance of the deferred tax assets as of December 31, 2017, because of the uncertainty of their realization. A reconciliation of income tax benefit at the statutory federal income tax rate and income taxes as reflected in the financial statements as of December 31, 2017 and 2016 is as follows:
Rate reconciliation: |  | December 31, 2017 |  |  | December 31, 2016 |
Federal tax benefit at statutory rate |  |  | (34.0 | )% |  |  | (34.0 | )%
State tax, net of Federal benefit |  |  | (16.3 | )% |  |  | (2.3 | )%
Change in fair value of warrant |  |  | (126.1 | )% |  |  | — | %
Change in tax rate |  |  | 205.5 | % |  |  | — | %
Litigation settlement charge |  |  | — | % |  |  | 4.6 | %
Acquisition costs |  |  | — | % |  |  | 2.8 | %
Orphan drug credit |  |  | (36.0 | )% |  |  | (4.4 | )%
Change in valuation allowance |  |  | (38.8 | )% |  |  | 27.2 | %
Stock compensation |  |  | 1.2 | % |  |  | 4.2 | %
Other |  |  | 1.0 | % |  |  | (0.1 | )%
Total provision |  |  | (43.5 | )% |  |  | (2.0 | )%
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company ’s 2014 to 2016 tax years remain open and subject to examination.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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