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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Taxes [Abstract] |
INCOME TAXES |
14. | INCOME TAXES
Our income tax (benefit) expense aggregated ($270,333) and $249,874 (amounting to (62%) and 33% of our (loss) income before income taxes, respectively) for the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, we had federal net operating loss carryforwards of approximately $1,700,000 that expire in 2034 through 2037 (if not utilized before then) and state net operating loss carryforwards of approximately $429,000 that expire in 2037 (if not utilized before then). Additionally, we had federal general business tax credit carryforwards of approximately $335,000 that expire in 2027 through 2037 (if not utilized before then) and state tax credit carryforwards of approximately $294,000 that expire in 2023 through 2037 (if not utilized before then). The $965,000 licensing payment that we made during the fourth quarter of 2004 was treated as an intangible asset and is being amortized over 15 years, for tax return purposes only. Approximately $1,112,000 of our investment in a small-scale facility to produce the Drug Substance (our Active Pharmaceutical Ingredient, Nisin) was expensed as incurred for our books from 2013 to 2015. Included in this amount is approximately $820,000 that was capitalized and is being depreciated over statutory periods for tax return purposes only. The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the estimated future tax effects of temporary differences between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we consider future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an increase to the valuation allowance would be charged to income in the period such determination was made. Net operating loss carryforwards, credits, and other tax attributes are subject to review and possible adjustment by the Internal Revenue Service. Section 382 of the Internal Revenue Code contains provisions that could place annual limitations on the future utilization of net operating loss carryforwards and credits in the event of a change in ownership of the Company, as defined. The Company files income tax returns in the U.S. federal jurisdiction and several state jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2014. We currently have no tax examinations in progress. We also have not paid additional taxes, interest or penalties as a result of tax examinations nor do we have any unrecognized tax benefits for any of the periods in the accompanying financial statements. The income tax provision consisted of the following:
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |
Federal |  | $ | - |  |  | $ | - |
State |  |  | 14,476 |  |  |  | 13,585 |
Current |  |  | 14,476 |  |  |  | 13,585 |
Federal |  |  | (173,180 | ) |  |  | 252,659 |
State |  |  | (111,629 | ) |  |  | (16,370 | )
Deferred |  |  | (284,809 | ) |  |  | 236,289 |
Total |  | $ | (270,333 | ) |  | $ | 249,874 |
The actual income tax expense differs from the expected tax computed by applying the U.S. federal corporate tax rate of 34% to income before income tax as follows:
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |
|  | $ |  |  | % |  |  | $ |  |  | % |
Computed expected tax expense/rate |  | $ | (149,083 | ) |  |  | (34.00 | %) |  | $ | 257,829 |  |  |  | 34.00 | %
State income taxes, net of federal expense |  |  | 30,089 |  |  |  | 6.86 |  |  |  | 38,855 |  |  |  | 5.12 |
Share-based compensation |  |  | 55,955 |  |  |  | 12.76 |  |  |  | 13,362 |  |  |  | 1.76 |
Tax credits |  |  | (137,983 | ) |  |  | (31.47 | ) |  |  | (70,967 | ) |  |  | (9.36 | )
Deferred tax statutory rate change |  |  | (71,034 | ) |  |  | (16.20 | ) |  |  | - |  |  |  | - |
Other |  |  | 1,723 |  |  |  | 0.40 |  |  |  | 10,795 |  |  |  | 1.43 |
Total income tax expense/rate |  | $ | (270,333 | ) |  |  | (61.65 | %) |  | $ | 249,874 |  |  |  | 32.95 | %
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act. This legislation makes significant change in the U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of 34% to 21%. As a result of the enacted law, we were required to revalue deferred tax assets and liabilities at the enacted rate. This revaluation resulted in a benefit of $71,000 to income tax expense in continuing operations and a corresponding increase in the deferred tax assets. Due to the complexities involved in accounting for the recently enacted 2017 Tax Act, the U.S. Securities and Exchange Commission’s SAB 118 requires that we include in our financial statements a reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. Accordingly, the provision for income tax for 2017 is based on the reasonable estimate guidance provided by SAB 118. We are continuing to assess the impact from the Tax Act and will record adjustments in 2018 if deemed necessary. The significant components of our deferred tax assets, net, consisted of the following:
|  | As of December 31, |
|  | 2017 |  |  | 2016 |
Product rights |  | $ | 29,261 |  |  | $ | 68,197 |
Property, plant and equipment |  |  | (527,186 | ) |  |  | (307,976 | )
Federal and state tax credits |  |  | 335,486 |  |  |  | 292,516 |
Federal net operating loss carryforward |  |  | 359,764 |  |  |  | 8,856 |
State tax credits carryover |  |  | 242,244 |  |  |  | 100,528 |
Interest rate swap |  |  | 233 |  |  |  | 13,437 |
Prepaid expenses and other |  |  | 16,355 |  |  |  | (6,240 | )
UNICAP |  |  | 16,569 |  |  |  | 31,685 |
Deferred tax assets, net |  | $ | 472,726 |  |  | $ | 201,003 |

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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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