Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.6.0.2
Income Taxes
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

10. Income Taxes

The components of loss before income taxes are as follows:
 
 
 
Year Ended December 31,
  
 
2016
 
2015
Domestic
 
$
(13,831,191
) 
 
$
(8,755,011
) 
Foreign
 
 
487,754
 
 
 
367,038
 
Total
 
$
(13,343,437
) 
 
$
(8,387,973
) 
The difference between the effective rate reflected in the provision for income taxes on loss before taxes and the amounts determined by applying the applicable statutory U.S. tax rate are analyzed below:
 
 
 
Year Ended December 31,
  
 
2016
 
2015
United States Federal Income Tax Rate
 
 
34.00
% 
 
 
34.00
% 
State taxes, Net of Federal Benefit
 
 
1.84
% 
 
 
6.27
% 
Permanent Differences
 
 
(2.47
)% 
 
 
(10.88
)% 
Change in Valuation Allowance
 
 
(35.02
)% 
 
 
(29.55
)% 
Expiration of State Net Operating Loss Carryforward
 
 
(0.00
)% 
 
 
(0.03
)% 
Research and Development Credits
 
 
2.95
% 
 
 
0.43
% 
Tax Rate Differential
 
 
0.13
% 
 
 
0.00
% 
Other
 
 
(1.43
)% 
 
 
(0.24
)% 
Effective Tax Rate
 
 
0.00
% 
 
 
0.00
% 
The Company’s deferred tax assets and liabilities consist of the following:
 
 
2016
 
2015
Net Deferred Tax Assets:
 
 
  
 
 
 
  
 
Net Operating Loss Carryforwards
 
$
18,146,381
 
 
$
18,050,019
 
Research and Development Credit Carryforwards
 
 
1,640,669
 
 
 
1,226,384
 
Capitalized Research and Development
 
 
6,398,050
 
 
 
4,452,114
 
Nonqualified Stock Option
 
 
323,832
 
 
 
164,292
 
Warrants Issued for Services
 
 
—
 
 
 
587
 
Depreciation and Amortization
 
 
3,478
 
 
 
137
 
Start-up Costs/Organization Costs
 
 
—
 
 
 
17,959
 
Cash Versus Accrual Adjustments
 
 
4,387,806
 
 
 
2,179,356
 
Total Deferred Tax Assets
 
 
30,900,216
 
 
 
26,090,848
 
Valuation Allowance
 
 
(30,900,216
) 
 
 
(26,090,848
) 
Net Deferred Tax Asset
 
$
—
 
 
$
—
 
  
 
 
 
2016
 
2015
Net Deferred Tax Liability:
 
 
  
 
 
 
  
 
Net Deferred Tax Liability
 
 
1,525,896
 
 
 
—
 
Net Deferred Tax Liability
 
$
1,525,896
 
 
$
—
 
 
As of December 31, 2016, the Company has federal, and state net operating loss carryforwards of approximately $45,115,000, and $33,545,000, respectively, to offset future federal and state taxable income, which expire at various times through 2036. The Company has foreign net operating loss carryforwards of $3,363,000 as of December 31, 2016, which can be carried forward indefinitely. As of December 31, 2016, the Company also has federal, state and foreign research and development tax credit carryforwards of approximately $1,313,000, $459,000, and $25,000, respectively, to offset future income taxes, which expire at various times through 2036. The federal and state net operating loss and research tax credit carryforwards may be subject to the limitations provided in the Internal Revenue Code (“IRC”) Sections 382 and 383. A portion of the federal net operating loss attributable to Jade is subject to a Section 382 limitation. Jade’s carryover of its research and development credits will be subject to the Section 383 limitation.
The Company files United States federal income tax returns and income tax returns in the Commonwealth of Massachusetts and Utah, as well as foreign tax returns for its subsidiary in France. The Company is not under examination by any jurisdiction for any tax year.
The Company has recorded a valuation allowance against its United States deferred tax assets in each of the years ended December 31, 2016, and 2015 because the Company’s management believes that it is more likely than not that these assets will not be realized. The valuation allowance increased by approximately $4,809,000 and $2,478,000 during the years ended December 31, 2016 and 2015, respectively, primarily as a result of adjustments for accrual to cash basis items and capitalized research and development expenses.
As of December 31, 2016 and 2015, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company will recognize interest and penalties related to tax positions in income tax expense. The Company has not, as yet, conducted a study of R&D credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards, however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position.
The net operating loss and tax credit carryforwards are subject to review by the Internal Revenue Service in accordance with the provisions of Section 382 of the Internal Revenue Code. Under this Internal Revenue Code section, substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset the Company’s taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the Company’s net operating loss carryforwards before they expire. The closing of the Company’s initial public offering, alone or together with transactions that have occurred or that may occur in the future, may trigger an ownership change pursuant to Section 382, which could limit the amount of research and development tax credit and net operating loss carryforwards that could be utilized annually in the future to offset the Company’s taxable income, if any. Any such limitation as the result of the Company’s additional sales of common stock by the Company could have a material adverse effect on the Company’s results of operations in future years.