|
(10) |
Income Taxes: |
For the fiscal years ended June 30, 2016 and 2015, the Company did not record a current or deferred income tax expense or benefit. For the fiscal year ended June 30, 2017, the federal and state income tax provision (benefit) summarized as follows:
|
|
|
At June 30, |
|
|||||
|
In thousands |
|
2017 |
|
|
2016 |
|
||
|
Current provision: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
13,706 |
|
|
$ |
1,199 |
|
|
State |
|
|
1,774 |
|
|
|
127 |
|
|
|
|
|
15,480 |
|
|
|
1,326 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Federal |
|
|
(12,949 |
) |
|
|
(1,199 |
) |
|
State |
|
|
(131) |
|
|
|
(127 |
) |
|
|
|
|
(13,080 |
) |
|
|
(1,326 |
) |
|
Provision for income taxes |
|
$ |
2,400 |
|
|
$ |
— |
|
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets (liabilities) are comprised of the following:
|
|
|
At June 30, |
|
|||||
|
In thousands |
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
9,124 |
|
|
$ |
27,103 |
|
|
Tax credit carryforwards |
|
|
19,195 |
|
|
|
8,771 |
|
|
Accruals and other |
|
|
11,987 |
|
|
|
1,599 |
|
|
Gross deferred tax assets |
|
|
40,306 |
|
|
|
37,473 |
|
|
Deferred tax asset valuation allowance |
|
|
(40,303 |
) |
|
|
(37,412 |
) |
|
Total deferred tax assets, net of valuation allowance |
|
|
3 |
|
|
|
61 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(3 |
) |
|
|
(61 |
) |
|
Total deferred tax liabilities |
|
|
(3 |
) |
|
|
(61 |
) |
|
Net deferred tax asset (liability) |
|
$ |
— |
|
|
$ |
— |
|
As of June 30, 2017, the Company had net operating losses of approximately $24.0 million that may be applied against future taxable income and expire in various years ranging from 2022 to 2037. As of June 30, 2017, the Company also had research and development tax credits of approximately $18.4 million that may provide future tax benefits and expire from 2027 to 2046, and alternative minimum tax credits of approximately $0.7 million, that may provide future tax benefits.
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on its history of operating losses, the Company has concluded that as of June 30, 2017, it is more likely than not that the benefit of its deferred tax assets will not be realized. Therefore, any tax benefits to be realized in future years as a result of the utilization of the Company’s net operating loss carry forwards as of June 30, 2017, computed based on statutory federal and state rates, are completely offset by valuation allowances established because realization of the deferred tax benefits are not considered more likely than not as of that date. On July 1, 2015, the Company entered into a collaboration agreement with Biogen, under which it received a non-refundable upfront payment of $94.0 million. This collaboration agreement is discussed in more detail in Note 7 of notes to the financial statements. As of June 30, 2017, deferred revenue of $25.4 million recorded in the accompanying balance sheets will be recognized as income as required under tax laws. The valuation allowance increased by approximately $2.9 million during the fiscal year ended June 30, 2017, due primarily to the net increase in federal tax credits reduced by the utilization in net operating loss carryforwards from the recognition in deferred revenue.
A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:
|
|
For the years ended June 30, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Federal income tax benefit at statutory rate |
|
34 |
% |
|
|
(34 |
)% |
|
|
(34 |
)% |
|
State income tax, net of federal benefit |
|
4 |
% |
|
|
(4 |
)% |
|
|
(4 |
)% |
|
Permanent differences |
|
130 |
% |
|
|
52 |
% |
|
|
9 |
% |
|
Research and development tax credits |
|
(240 |
)% |
|
|
(60 |
)% |
|
|
(18 |
)% |
|
Other |
|
416 |
% |
|
|
85 |
% |
|
|
1 |
% |
|
Change in valuation allowance |
|
(259 |
)% |
|
|
(39 |
)% |
|
|
46 |
% |
|
Effective income tax rate |
|
85 |
% |
|
|
0 |
% |
|
|
0 |
% |
Under the provisions of the Internal Revenue Code, the Company’s net operating loss and tax credit carry forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carry forwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Since its inception, the Company has completed several financings and sales of common stock which have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code. Subsequent ownership changes may further affect the limitation in future years.
For fiscal years through June 30, 2017, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development tax credit carry forwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position at June 30, 2017 or 2016. A full valuation allowance has been provided against the Company’s research and development tax credits and, if an adjustment were to be required, this adjustment would be offset by an adjustment to the deferred tax asset established for the tax credit carry forwards and the valuation allowance.
The Company files income tax returns in the United States and in multiple states. The federal and state returns are generally subject to tax examinations for the tax years ended June 30, 2013 through June 30, 2017. To the extent the Company has tax attribute carry forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state authorities, to the extent such attributes are utilized in a future period. On December 28, 2015, the United States Internal Revenue Service, or IRS, notified the Company of an income tax audit for the tax period ending June 30, 2014. As of June 30, 2017, the IRS audit was closed and the Company incurred no penalties or payment liabilities for its income tax positions.
The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination. For the year ended June 30, 2017, the Company recorded an uncertain tax position reserve of $950,000. No similar reserve was recorded for the years ended June 30, 2016 and 2015. The entire amount of the reserve would reduce the annual effective tax rate if recognized. The Company does not anticipate that the amount of unrecognized tax benefits as of June 30, 2017 will significantly change within the next twelve months. The Company’s practice is to recognize interest and/or penalties related to uncertain income tax positions in income tax expense. The Company had no interest and/or penalties accrued on the Company’s balance sheets at June 30, 2017 and 2016, and the Company did not recognize any interest and/or penalties in the statement of operations for the years ended June 30, 2017, 2016 and 2015 related to uncertain tax positions.
The following table provides a reconciliation of changes in unrecognized tax benefits (in thousands):
|
|
|
Years Ended June 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Balance at beginning of period |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Additions related to current period tax positions |
|
|
950 |
|
|
|
— |
|
|
|
— |
|
|
Additions related to prior period tax positions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Reductions related to prior period tax positions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Reductions related to lapse of statute of limitations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance at end of period |
|
$ |
950 |
|
|
$ |
— |
|
|
$ |
— |
|