Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

10.

Income Taxes

The Company’s financial statements include total tax benefit of $6.7 million and $0 on loss before taxes of $19.2 million and $25.1 million for the years ended December 31, 2018 and 2017, respectively. Reconciliations of the differences between the benefit for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows (dollars in thousands):

 

 

 

2018

 

 

2017

 

 

 

Amount

 

 

Percent of Pretax Income

 

 

Amount

 

 

Percent of Pretax Income

 

Income taxes from continuing operations at statutory rate

 

$

(4,033

)

 

 

21.0

%

 

$

(8,520

)

 

 

34.0

%

State income taxes

 

 

(985

)

 

 

5.1

%

 

 

(1,075

)

 

 

4.3

%

State effect of permanent items

 

 

(585

)

 

 

3.0

%

 

 

(112

)

 

 

0.4

%

Stock-based compensation

 

 

94

 

 

 

(0.5

)%

 

 

35

 

 

 

(0.1

)%

Deferred rate change

 

 

438

 

 

 

(2.3

)%

 

 

23,776

 

 

 

(94.9

)%

Warrants issuance

 

 

(2,492

)

 

 

13.0

%

 

 

(928

)

 

 

3.7

%

Other

 

 

71

 

 

 

(0.34

)%

 

 

828

 

 

 

(3.3

)%

NOL sale

 

 

(3,938

)

 

 

20.5

%

 

 

 

 

 

 

Increase in valuation allowance

 

 

4,694

 

 

 

(24.4

)%

 

 

(14,004

)

 

 

55.9

%

Total income tax benefit

 

$

(6,736

)

 

 

35.1

%

 

$

 

 

 

%

 

The components of deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows (in thousands):

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Current deferred tax assets:

 

 

 

 

 

 

 

 

Accrued expenses

 

$

 

 

$

182

 

Stock-based compensation

 

 

 

 

 

1,309

 

Other

 

 

 

 

49

 

 

 

 

 

 

 

1,540

 

Noncurrent deferred tax assets (liabilities)

 

 

 

 

 

 

 

 

Accrued expenses

 

 

132

 

 

 

 

Stock-based compensation

 

 

1,911

 

 

 

 

Other

 

 

(31

)

 

 

 

Net operating loss carryforwards

 

 

44,730

 

 

 

40,504

 

Research and development credits

 

 

3,226

 

 

 

3,230

 

 

 

 

49,968

 

 

 

43,734

 

Total deferred tax assets

 

 

49,968

 

 

 

45,274

 

Valuation allowances

 

 

(49,968

)

 

 

(45,274

)

Net deferred tax assets

 

$

 

 

$

 

 

As of December 31, 2018 and 2017, the Company had available federal net operating loss ("NOL") carryforwards of approximately $194.9 million and $171.5 million, respectively, and state loss carryforwards of approximately $150.8 million and $166.4 million, respectively.  Approximately $171.9 million of the federal NOLs can be carried forward to future tax years and expire in 2038. The federal NOL generated in December 31, 2018 of approximately $23.0 million is carried forward indefinitely and does not expire.  The Company’s state loss carryforwards began to expire in 2017.  As of December 31, 2018, the Company had available federal research and development credit carryforwards of $3.1 million which begin to expire in 2022.

The Company was eligible to receive cash from the sale of its Net Operating Losses under the New Jersey Technology Business Tax Certificate Transfer (NOL) Program. In January 2019, the Company received a cash receipt of approximately $6.7 million from the sale of its state NOLs and recognized an income tax benefit of $6.7 million for the year ended December 31, 2018 in the statement of operations.

On December 22, 2017, the President signed into law the "Tax Cuts and Jobs Act.”  The new tax reform has the following effects on the company: (1) permanently reduces the maximum corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017 (2) allows temporary 100% expensing for certain business assets and property placed in service after September 27, 2017 and before January 1, 2023 (3) disallows NOL carrybacks but allows for the indefinite carryforward of those NOLs which applies to losses arising in tax years beginning after December 31, 2017 and (4) limits NOL deductions for each year equal to the lesser of the available carryover or 80% of a taxpayer's pre-NOL deduction taxable income. This applies to losses arising in tax years beginning after December 31, 2017.  As of December 31, 2018 and 2017, the Company has concluded that it is more likely than not that the Company will not realize the benefit of its deferred tax assets due to its history of losses. Accordingly, the net deferred tax assets have been fully reserved.

 

In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% within a three-year period results in an annual limitation on the Company’s ability to utilize its NOL carryforwards created during the tax periods prior to the change in ownership. The Company has determined that ownership changes have occurred and as a result, a portion of the Company’s NOL carryforwards are limited.  Because the Company has incurred cumulative net operating losses since inception, all tax years remain open to examination by U.S. federal and state income tax authorities.

The Company applies ASC 740-10-25-5, Income Taxes, formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as amended, on January 1, 2009. The difference between the tax benefit recognized in the financial statements and the tax benefit claimed in the tax return is referred to as an unrecognized tax benefit.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits as of December 31, 2018 and 2017 (in thousands):

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Unrecognized tax benefit—January 1

 

$

436

 

 

$

623

 

Additions for tax positions of current period

 

 

 

 

 

 

Additions for tax positions of prior periods

 

 

 

 

 

 

Deferred rate change

 

 

 

 

 

(187

)

Unrecognized tax benefit—December 31

 

$

436

 

 

$

436

 

 

None of the unrecognized tax benefits would, if recognized, affect the effective tax rate because the Company has recorded a valuation allowance to fully offset federal and state deferred tax assets. The Company has no tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the coming year. The Company has $0 provided for interest and penalties associated with uncertain tax positions.