Note 6 – Income Taxes

 

Income tax benefit resulting from applying statutory rates in jurisdictions in which Ampio is taxed (Federal and State of Colorado) differs from the income tax provision (benefit) in Ampio’s financial statements. The following table reflects the reconciliation for the respective periods:

  

		Years Ended December 31,
		2017			2016			2015
Benefit at federal statutory rate			(34.0)	%		(34.0)	%		(34.0)	%
State, net of federal income tax impact			(0.9)	%		(2.9)	%		(3.0)	%
Change in federal tax rate			35.8	%		0.0	%		0.0	%
Stock-based compensation			0.0	%		0.4	%		1.2	%
Registered offering loss / warrant expense			23.7	%		1.5	%		0.0	%
Aytu change from subsidiary to investee			0.0	%		(3.5)	%		0.0	%
Change in valuation allowance			(24.6)	%		38.5	%		35.8	%
Effective tax rate			0.0	%		0.0	%		0.0	%

 

Deferred income taxes arise from temporary differences in the recognition of certain items for income tax and financial reporting purposes. The approximate tax effects of significant temporary differences which comprise the deferred tax assets and liabilities are as follows for the respective periods:

 

		Years Ended December 31,
		2017			2016			2015
Long-term deferred income tax assets (liabilities):
Accrued liabilities		$	247,000		$	506,000		$	328,000
Deferred rent			147,000			240,000			255,000
Net operating loss carryforward			32,766,000			41,478,000			35,487,000
Share-based compensation			3,192,000			4,661,000			4,182,000
Unrealized loss on trading security			771,000			1,118,000			-
Property and equipment			(236,000)			(233,000)			(180,000)
Warrants			82,000			33,000			-
Less: Valuation allowance			(36,969,000)			(47,803,000)			(40,072,000)
Total long-term deferred income tax assets (liabilities)		$	-		$	-		$	-

 

During the year ended December 31, 2015, Ampio adopted the guidance issued in ASU 2015-17 on presentation of deferred tax liabilities and assets. The guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Adoption of this new guidance did not have a material impact on the Company’s financial statements and adoption served to simplify the presentation of the Company’s deferred income taxes while maintaining the usefulness of the information provided. For the years ended December 31, 2017, 2016 and 2015, Ampio’s net provision for income taxes was zero for all jurisdictions.

 

As of December 31, 2017, Ampio has approximately $132.8 million in net operating loss (“NOL”) carryforwards that, subject to limitation, may be available in future tax years to offset taxable income. These net operating loss carryforwards expire in 2019 through 2037. Under the provisions of the Internal Revenue Code, substantial changes in the Company’s ownership may result in limitations on the amount of NOL carryforwards that can be utilized in future years.

 

Ampio has provided a full valuation allowance against its deferred tax assets as it has determined that it is not more likely than not that recognition of such deferred tax assets will be utilized in the foreseeable future. The amount of income taxes and related income tax positions taken are subject to audits by federal and state tax authorities. Ampio has adopted accounting guidance for uncertain tax positions which provides that to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon recognition of the benefit. Ampio believes that it has no material uncertain tax positions and has fully reserved against Ampio’s future tax benefit with a valuation allowance and does not expect significant changes in the amount of unrecognized tax benefits to occur within the next twelve months. Ampio’s policy is to record a liability for the difference between benefits that are both recognized and measured pursuant to GAAP and tax positions taken or expected to be taken on the tax return. Then, to the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. Ampio reports tax-related interest and penalties as a component of income tax expense. During the periods reported, management of Ampio has concluded that no significant tax position requires recognition. Ampio files income tax returns in the United States federal and various state jurisdictions. The Company is no longer subject to income tax examinations for federal income taxes before 2014 or for Colorado before 2013. Net operating loss carryforwards are subject to examination in the year they are utilized regardless of whether the tax year in which they are generated has been closed by statute. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOL's generated as such NOL's are utilized.

 

In December 2017, the Tax Cuts and Jobs Act (the "2017 Tax Act") was enacted. The 2017 Tax Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. In accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, the Company recognized the income tax effects of the 2017 Tax Act in its financial statements in the year the 2017 Tax Act was signed into law. As such, the Company's 2017 financial statements reflect the income tax effects of the 2017 Tax Act for which the accounting is complete and provisional amounts for those specific income tax effects for which the accounting is incomplete but a reasonable estimate could be determined. The Company did not identify items for which the income tax effects of the 2017 Tax Act have not been completed and a reasonable estimate could not be determined as of December 31, 2017.

 

As a result of the 2017 Tax Act, the Company recorded a provisional tax expense of $18.6 million for the year ended December 31, 2017

related to the remeasurement of deferred tax assets and liabilities to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%. The Company recognized a corresponding $18.6 million decrease in net deferred tax assets as of December 31, 2017. The $18.6 million tax expense recognized was fully offset by a reduction in valuation allowance, resulting in zero net tax expense for the year ended December 31, 2017 related to the reduction in tax rates and zero net decrease in the net deferred tax assets as of December 31, 2017.