The Company
’s financial statements include a total state tax benefit related to research and development credits of
$43,000,
$15,000
and
$15,000
on a loss before income taxes of
$43.4
million,
$16.5
million and
$54.6
million for the years ended
December 31, 2017,
2016
and
2015,
respectively. A reconciliation of the difference between the benefit for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows (in thousands):
| | | |
| | | | | | | |
| Federal statutory rate | | | 34.00 | % | | | 34.00 | % | | | 34.00 | % |
| Effect of: | | | | | | | | | | | | |
| Change in valuation allowance | | | 13.38 | | | | (69.31 | ) | | | (19.25 | ) |
| Return to provision and deferred true-up | | | 2.18 | | | | (23.83 | ) | | | — | |
| Change in rate | | | (49.06 | ) | | | (14.63 | ) | | | — | |
| State tax benefit (net of federal) | | | 2.71 | | | | 15.64 | | | | 4.06 | |
| Warrant liability | | | (2.42 | ) | | | 68.44 | | | | (15.28 | ) |
| State research and development credit | | | 0.10 | | | | 0.09 | | | | 0.03 | |
| Federal research and development credit | | | 1.50 | | | | 5.65 | | | | 0.84 | |
| Amortization | | | (1.22 | ) | | | (3.15 | ) | | | — | |
Conversion feature and put option on convertible notes | | | — | | | | — | | | | (1.68 | ) |
| Stock-based compensation | | | (1.03 | ) | | | (12.71 | ) | | | (1.28 | ) |
| Other | | | (0.04 | ) | | | (0.10 | ) | | | (1.49 | ) |
| Federal income tax benefit (provision) effective rate | | | 0.10 | % | | | 0.09 | % | | | (0.05 | )% |
The components of deferred tax assets and liabilities are as follows (in thousands):
| | | |
| | | | | | | |
| Deferred tax assets relating to: | | | | | | | | | | | | |
| Net operating loss carryforwards | | $ | 37,028 | | | $ | 44,984 | | | $ | 26,617 | |
| Research and development tax carryforward | | | 3,788 | | | | 3,166 | | | | 2,254 | |
| Other deferred tax assets | | | 2,409 | | | | 715 | | | | 232 | |
| Total gross deferred tax assets | | | 43,225 | | | | 48,865 | | | | 29,103 | |
| Deferred tax liabilities relating to: | | | | | | | | | | | | |
| Property and equipment | | | 260 | | | | 89 | | | | 80 | |
Total gross deferred tax liabilities | | | 260 | | | | 89 | | | | 80 | |
| Deferred tax assets less liabilities | | | 42,965 | | | | 48,776 | | | | 29,023 | |
| Valuation allowance | | | (42,965 | ) | | | (48,776 | ) | | | (29,023 | ) |
| Net deferred tax asset (liability) | | $ | — | | | $ | — | | | $ | — | |
H.R.
1,
“An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year
2018”
(the
"2017
Tax Act") was signed into law on
December 22, 2017.
The
2017
Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from
35%
to
21%,
eliminating certain deductions, imposing a mandatory
one
-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The
2017
Tax Act also enhanced and extended through
2026
the option to claim accelerated depreciation deductions on qualified property.
Also on
December 22, 2017,
the SEC staff issued Staff Accounting Bulletin
No.
118
(“SAB
118”
), which provides guidance on accounting for the tax effects of the
2017
Tax Act. SAB
118
provides a measurement period that should
not
extend beyond
one
year from the
2017
Tax Act enactment date for companies to complete the accounting under ASC
740,
Income Taxes. As of
December 31, 2017,
the Company has
not
completed its accounting related to the enactment of the
2017
Tax Act.
However, the Company has made reasonable estimates of the effects on its income tax provision with respect to certain items, primarily the revaluation of its existing U.S. deferred tax balances as described above.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than
not
that some portion or all of the deferred tax assets will
not
be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than
not
that the Company will
not
realize the benefits of these deductible differences in the future.
The Company had the following federal net operating loss carryforward and research activities credits as of
December 31, 2017 (
in thousands):
| | | | | | | | | |
| | | | | | | |
| 2007 | | $ | 454 | | | $ | 30 | | | | 2027 | |
| 2008 | | | 1,178 | | | | 65 | | | | 2028 | |
| 2009 | | | 3,060 | | | | 176 | | | | 2029 | |
| 2010 | | | 3,423 | | | | 149 | | | | 2030 | |
| 2011 | | | 9,929 | | | | 176 | | | | 2031 | |
| 2012 | | | — | | | | 170 | | | | 2032 | |
| 2013 | | | 4,353 | | | | 133 | | | | 2033 | |
| 2014 | | | 16,265 | | | | 894 | | | | 2034 | |
| 2015 | | | 24,126 | | | | 598 | | | | 2035 | |
| 2016 | | | 40,715 | | | | 745 | | | | 2036 | |
| 2017 | | | 33,828 | | | | 652 | | | | 2037 | |
| | | $ | 137,331 | | | $ | 3,788 | | | | | |
The Company also has certain state net operating loss carryforwards totaling
$134.6
million that expire between
2027
and
2037.
Due to potential ownership changes that
may
have occurred or would occur in the future, Internal Revenue Code Section
382
may
place additional l
imitations on the Company’s ability to utilize the net operating loss carryforward.
ASC
740
-
10,
Accounting for Uncertainty in Income Taxes
, uses the term “more likely than
not”
to evaluate whether or
not
a tax position will be sustained upon examination. The Company has
not
identified any tax positions that do
not
meet the more likely than
not
threshold.