Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.7.0.1
Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
6.
Income Taxes
 
The provision for income taxes consists of the following components (in thousands):
 
 
 
December 31,
 
December 31,
 
 
 
2016
 
2015
 
Current Expense (Benefit):
 
 
 
 
 
 
 
Federal
 
$
0
 
$
0
 
State
 
 
0
 
 
0
 
Current Income Tax Expense
 
$
0
 
$
0
 
 
 
 
 
 
 
 
 
Deferred Expense (Benefit):
 
 
 
 
 
 
 
Federal
 
$
0
 
$
0
 
State
 
 
0
 
 
0
 
Deferred Income Tax Expense
 
$
0
 
$
0
 
Net Deferred Taxes
 
$
0
 
$
0
 
 
The following summarizes activity related to the Company’s valuation allowance (in thousands):
 
 
 
December 31,
 
December 31,
 
 
 
2016
 
2015
 
Valuation Allowance at Beginning of Period
 
$
155
 
$
0
 
Income Tax Benefit
 
 
1,242
 
 
155
 
Release of Valuation Allowance
 
 
0
 
 
0
 
Valuation Allowance at End of Period
 
$
1,397
 
$
155
 
 
A reconciliation of the income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows:
 
 
 
December 31, 2016
 
 
December 31, 2015
 
 
 
Amount
 
Percent
 
 
Amount
 
Percent
 
Federal Tax Benefit at Statutory Rate
 
$
1,335
 
 
34.00
%
 
$
254
 
 
34.00
%
State Tax Benefit Net of Federal
 
 
137
 
 
3.48
%
 
 
0
 
 
0.00
%
IPO Costs
 
 
(227)
 
 
(5.78)
%
 
 
(99)
 
 
(13.24)
%
Other Permanent Differences
 
 
(3)
 
 
(0.08)
%
 
 
0
 
 
0.00
%
Increase in Valuation Allowance
 
 
(1,242)
 
 
(31.62)
%
 
 
(155)
 
 
(20.76)
%
Total Tax (Expense) / Benefit
 
$
0
 
 
0.00
%
 
$
0
 
 
0.00
%
 
The principal components of the Company’s deferred tax assets and liabilities consist of the following at December 31, 2016 and 2015 (in thousands):
 
 
 
December 31,
 
December 31,
 
 
 
2016
 
2015
 
Deferred Tax Assets:
 
 
 
 
 
 
 
Start Up Costs
 
$
798
 
$
67
 
Federal Net Operating Loss Carryforwards
 
 
520
 
 
89
 
State Tax Loss Carryforwards
 
 
50
 
 
0
 
Deferred Compensation
 
 
33
 
 
0
 
Total Deferred Tax Assets
 
$
1,401
 
$
155
 
Less Valuation Allowance
 
 
(1,397)
 
 
(155)
 
Net Deferred Tax Assets
 
$
4
 
$
0
 
Deferred Tax Liabilities:
 
 
 
 
 
 
 
Fixed Assets
 
 
(4)
 
 
0
 
Total Deferred Tax Liabilities
 
$
(4)
 
$
0
 
Net Deferred Taxes
 
$
0
 
$
0
 
 
The Company has incurred net operating losses since inception. As of December 31, 2016, the Company had total federal operating loss carry forwards of approximately $1.53 million which expire commencing in 2035. The value of these carryforwards depends on the Company’s ability to generate taxable income. Additionally, because federal tax laws limit the time during which the net operating loss carryforwards may be applied against future taxes, if the Company fails to generate taxable income prior to the expiration dates of the carry forwards the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes. Finally, the Company has not undertaken a detailed analysis of the application of IRC Section 382 with respect to limitations on the utilization of net operating loss carryforwards and other deferred tax assets. However, the Company believes that this matter is not material to the overall tax position within the financial statements due to the full valuation allowance against the net operating losses and the lack of utilization of the net operating losses during tax years open under statute.
 
The Company conducts business in various locations and, as a result, files income tax returns in the United States Federal jurisdiction and in multiple state jurisdictions. As of December 31, 2016, the Company had state operating losses of approximately $1.27 million which expire commencing in 2036. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.
 
Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company has cumulative losses and there is no assurance of future taxable income, therefore, valuation allowances have been recorded to fully offset the deferred tax asset at December 31, 2016. Management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, and as a result, a valuation allowance of $1.40 million and $0.16 million has been established at December 31, 2016 and 2015, respectively. The change in the valuation allowance for the year ended December 31, 2016 was primary due to additional operating losses and capitalized research costs. The Company may be eligible to claim research and development tax credits in the future, but has not conducted a study to date.
 
There are no unrecognized tax benefits from any federal, state or foreign jurisdictions. The only tax year open under statute for the Company is December 31, 2015.
 
The Company’s policy is to recognize interest and penalties related to any unrecognized tax liabilities as additional tax expense. No interest or penalties have been accrued at December 31, 2016 and 2015, as the Company has not recorded any uncertain tax positions. The Company believes it has appropriate and adequate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.
 
Although the Company believes its recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore the Company’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. Although the Company believes that the estimates and assumptions supporting its assessments are reasonable, the final determination of tax audit settlements and any related litigation could be materially different from that which is reflected in historical income tax provisions and recorded assets and liabilities. If the Company were to settle an audit or a matter under litigation, it could have a material effect on the income tax provision, net income, or cash flows in the period or periods for which that determination is made. Any accruals for tax contingencies are provided for in accordance with U.S. GAAP.
 
  The Company does not believe that its tax positions will significantly change due to any settlement and/or expiration of statutes of limitations prior to December 31, 2017.