APLS 2017 Annual Report

98 royalties based on net sales of each licensed product and with minimum quarterly royalty thresholds. In addition, the Company is obligated to pay a specified portion of income it receives from sublicensees. In addition, the Company is also party to a 2010 license agreement with Penn for an exclusive, worldwide license to specified patent rights for the development and commercialization of products in fields of use, as defined therein. The Company is required to pay annual maintenance fees of $100,000 until the first sale of a licensed product. The Company is required to make milestone payments aggregating up to $1,650,000, based upon the achievement of development and regulatory approval milestones, and up to $2,500,000, based upon the achievement of annual sales milestones with respect to each of the first two licensed products. There have been no events to date that would trigger milestone obligations under the agreement. The license agreement also requires the Company to pay low single digit royalties based on net sales of each licensed product, subject to minimum quarterly royalty thresholds. In addition, the Company is obligated to pay a specified portion of income it receives from sublicensees. 9. 401(k) Profit Sharing Plan and Trust In July 2010, the Company adopted an employee profit-sharing plan (the “401(k) Plan”), qualified under Section 401(k) of the Internal Revenue Code (the “IRC”). All of the Company’s full-time employees who have attained the age of 21 are eligible to participate in the 401(k) Plan immediately upon employment. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and have the amount of the reduction contributed to the 401(k) Plan. In 2016 and 2017, the Company recorded $50,867 and $123,264, respectively, for employer contributions made to the 401(k) Plan. 10. Refundable Research Development and Income Taxes The Company earns non-income related refundable Australian research and development credits that are settled and paid to the Company annually. The associated income from the credits are an offset to research and development expenses. The Company’s income tax provision is computed based on the federal statutory rate and the average state statutory rates, net of the related federal benefit. For the years ended December 31, 2016 and 2017, there was no current or deferred income tax expense or benefit due to the Company’s net losses and increases in its deferred tax asset valuation allowance. The Company’s effective income tax provision differs from the amount calculated using the statutory U.S. federal income tax rate, principally due to the following: Year Ended December 2017 2016 2015 Amount Percentage of income before income taxes Amount Percentage of income before income taxes Amount Percentage of income before income taxes Statutory U.S. federal income tax $(17,852,133) 35.0% $ (9,222,377) 34.0% $(15,815,425) 34.0% State income taxes, net of federal benefit (1,634,924) 3.3 (992,768) 3.5 (685,158) 1.5 Change in valuation allowances 11,176,291 (20.8) 12,923,538 (46.4) 6,932,927 (14.9) Re-measurement of deferred taxes 15,659,916 (31.9) — — — — Tax credits (3,316,729) 7.7 (2,933,836) 10.8 (488,588) 1.1 Acquisition Accounting — — — — 9,005,240 (19.4) Permanent and other (4,032,421) 6.7 225,443 (1.9) 1,051,004 (2.3) Effective income tax provision $ — —% $ — —% $ — —%