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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes |
(9) | Income Taxes
| (a) | Income Taxes
The December 31, 2017, 2016 and 2015 income tax provision is as follows:
|  | For the Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 21,272 |  |  | $ | — |  |  | $ | — |
State and local |  |  | 2,608 |  |  |  | 2,015 |  |  |  | 622 |
Total current provision |  |  | 23,880 |  |  |  | 2,015 |  |  |  | 622 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | 483 |  |  |  | 6,124 |  |  |  | — |
State and local |  |  | 1,322 |  |  |  | 42 |  |  |  | — |
Total deferred provision |  |  | 1,805 |  |  |  | 6,166 |  |  |  | — |
Total tax provision |  | $ | 25,685 |  |  | $ | 8,181 |  |  | $ | 622 |
| (b) | Tax Rate Reconciliation
A reconciliation of the total income tax provision tax rate to the statutory federal income tax rate of 34% for the years ended December 31, 2017, 2016 and 2015 is as follows:
|  | For the Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Income taxes at statutory rates |  | $ | 396,760 |  |  | $ | 1,272,242 |  |  | $ | (91,705 | )
State income tax, net of federal benefit |  |  | 3,910 |  |  |  | 2,054 |  |  |  | 411 |
Permanent items |  |  | (5,060 | ) |  |  | 68,944 |  |  |  | 32,530 |
Meals and entertainment |  |  | 74,755 |  |  |  | 54,375 |  |  |  | 40,796 |
Equity based compensation |  |  | (645,512 | ) |  |  | 48,385 |  |  |  | 98,637 |
Warrant liability |  |  | — |  |  |  | (156,498 | ) |  |  | (34,160 | )
Corporate tax rate change - impact on deferred income taxes |  |  | 2,768,458 |  |  |  | — |  |  |  | — |
Research and development credit |  |  | 206,801 |  |  |  | (141,494 | ) |  |  | 628,573 |
Federal NOL adjustment |  |  | (386,441 | ) |  |  | (206,133 | ) |  |  | — |
Federal return to provision |  |  | 53,265 |  |  |  | 11,104 |  |  |  | — |
Other federal credits |  |  | 112,262 |  |  |  | — |  |  |  | — |
Other |  |  | 15,695 |  |  |  | — |  |  |  | — |
Change in federal valuation allowance |  |  | (2,569,208 | ) |  |  | (944,798 | ) |  |  | (674,460 | )
|  | $ | 25,685 |  |  | $ | 8,181 |  |  | $ | 622 |
| (c) | Significant Components of Current and Deferred Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016 are as follows:
|  | For the Year Ended December 31, |
|  | 2017 |  |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 4,584,606 |  |  | $ | 6,786,922 |
Capitalization of patent costs, goodwill and amortization |  |  | 221,593 |  |  |  | 332,901 |
Capitalization of acquisition costs |  |  | 84,640 |  |  |  | 43,523 |
Research and AMT credits |  |  | 1,447,479 |  |  |  | 1,689,883 |
Stock based compensation |  |  | 82,085 |  |  |  | 160,182 |
Deferred lease obligation |  |  | 91,017 |  |  |  | 182,550 |
Other timing differences |  |  | 72,787 |  |  |  | 51,314 |
|  |  | 6,584,207 |  |  |  | 9,247,275 |
Less valuation allowance |  |  | (6,453,466 | ) |  |  | (9,028,241 | )
Total deferred tax assets, net of allowance |  | $ | 130,741 |  |  | $ | 219,034 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Fixed assets |  |  | (104,324 | ) |  |  | (219,034 | )
Goodwill |  |  | (34,388 | ) |  |  | (6,166 | )
Total deferred tax liabilities |  | $ | (138,712 | ) |  | $ | (225,200 | )
Total deferred tax liabilities |  | $ | (7,971 | ) |  | $ | (6,166 | )
The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced. The Company has recorded a valuation allowance of $6,453,466 as of December 31, 2017 as it does not believe it is more likely than not that certain deferred tax assets will be realized due to the recent history of both pre-tax book income and losses, the lack of taxable income available in carryback periods or feasible tax-planning strategies, the limited existing taxable temporary differences, and the subjective nature of forecasting future taxable income into the future. Should the Company continue to achieve substantial pre-tax book income during 2018 or be better able to forecast taxable income into the future, the Company may need to release a portion of their federal valuation allowance during 2018. Due to the Company’s relatively low apportionment in California, a release of state-related valuation allowance is unlikely. The Company decreased its valuation allowance by approximately $2,574,764 during the year ended December 31, 2017. At December 31, 2017, the Company had federal and California tax loss carryforwards of approximately $19,152,650, and $5,715,729, respectively. The federal and state net operating loss carry forwards begin to expire in 2020 and 2028, respectively, if unused. At December 31, 2017, the Company had federal and state tax credit carry forwards of approximately $936,228, and $1,192,688, respectively, after reduction for uncertain tax positions. The Company has not performed a formal research and development credit study with respect to certain of these credits. The federal credits will begin to expire in 2026, if unused, and the state credits carry forward indefinitely. Pursuant to the Internal Revenue Code of 1986, as amended (IRC), specifically IRC §382 and IRC §383, the Company’s ability to use net operating loss and research and development tax credit carry forwards (“tax attribute carry forwards”) to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382 for taxable years ended after December 31, 2012. If ownership changes within the meaning of IRC Section 382 are identified as having occurred subsequent to 2012, the amount of remaining tax attribute carry forwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Further, the Company’s deferred tax assets associated with such tax attributes could be significantly reduced upon realization of an ownership change within the meaning of IRC §382. In December 2017, the Tax Cuts and Jobs Act (the 2017 Tax Act) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning December 31, 2018. The 2017 Tax Act also provides for the acceleration of depreciation for certain assets placed in service after September 27, 2017 as well as prospective changes beginning in 2018, including additional limitations on executive compensation, limitations on the deductibility of interest and capitalization of research and development expenditures. Reduction of the U.S. Corporate Income Tax Rate: The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from the graduated tax rate of 34 percent to a 21 percent flat tax, which resulted in $2.8 million increase in tax expense for the year ended December 31, 2017 and a corresponding $2.8 million decrease in net deferred tax assets as of December 31, 2017. The impact was offset by the Company’s valuation allowance except to the extent of indefinite lived intangibles. The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31, 2017 and 2016:
|  | For the Year Ended December 31, |
|  | 2017 |  |  | 2016 |
Beginning unrecognized tax benefits |  | $ | 1,532,000 |  |  | $ | 1,408,000 |
Decreases related to prior year tax positions |  |  | (1,001,000 | ) |  |  | (53,000 | )
Increases related to current year tax positions |  |  | 179,000 |  |  |  | 177,000 |
Ending unrecognized tax benefits |  | $ | 710,000 |  |  | $ | 1,532,000 |
The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. The Company does not foresee material changes to its uncertain tax benefits within the next twelve months. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company has an accrual for interest or penalties of $785 and $0 on the Company’s balance sheets as of December 31, 2017 and 2016, respectively, and has recognized interest and/or penalties in the Statement of Operations for the year ended December 31, 2017 in the amount of $785. Due to the existence of federal and state net operating loss and credit carryovers, the Company’s tax years that remain open and subject to examination by tax jurisdiction are years 2000 and forward for federal and years 2006 and forward for the state of California.

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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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