15. Income Taxes
The Company has not recorded any net tax provision for the periods presented due to the losses incurred and the need for a full valuation allowance on net deferred tax assets. The difference between the income tax expense at the U.S. federal statutory rate and the recorded provision is primarily due to the valuation allowance provided on all deferred tax assets. The Company’s loss before income tax for the periods presented was generated entirely in the United States.
The significant components of the Company’s deferred tax are as follows (in thousands):
|
|
|
Years Ended December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets (liabilities): |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
11,091 |
|
|
$ |
13,744 |
|
|
Research and development credits |
|
|
2,380 |
|
|
|
1,739 |
|
|
Capitalized start-up and research and development costs |
|
|
43,282 |
|
|
|
47,048 |
|
|
Deferred revenue |
|
|
3,240 |
|
|
|
5,420 |
|
|
Depreciation and amortization |
|
|
(8,610 |
) |
|
|
(10,530 |
) |
|
Accruals |
|
|
534 |
|
|
|
604 |
|
|
Other temporary differences |
|
|
2,530 |
|
|
|
2,298 |
|
|
Deferred tax assets before valuation allowance |
|
|
54,447 |
|
|
|
60,323 |
|
|
Valuation allowances |
|
|
(54,447 |
) |
|
|
(60,323 |
) |
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
The Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely than not. The valuation allowance increased by $13.0 million in 2016, due to the increase in deferred tax assets, primarily due to net operating loss carryforwards and capitalized research and development costs, and decreased by $5.9 million in 2017 due to the decrease in the federal tax rate.
As of December 31, 2017, the Company had approximately $44.9 million and $26.0 million in federal and state Net Operating Losses (“NOLs”), respectively, which expire at various dates through 2037. As of December 31, 2017, the Company had federal and state research credits of $1.6 million and $1.0 million, respectively, which begin to expire in 2021.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 34% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. For the year ended December 31, 2017, we recognized no transition tax.
As a result of the Act, we re-measured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. However, we are still examining certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of our deferred tax asset balance was a decrease of $28.8 million, with a corresponding reduction to the valuation allowance of $28.8 million for a net effect of $0.
Realization of future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Under the Internal Revenue Code provisions, certain substantial changes in the Company’s ownership, including the sale of the Company or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards which could be used annually to offset future taxable income. The Company completed an analysis through March 8, 2016 and determined that on March 30, 2007 and August 21, 2015, ownership changes had occurred. The Company may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside the Company’s control. As a result, the Company’s ability to use our pre-change NOLs to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to the Company. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
As of December 31, 2017 and 2016, the Company had uncertain tax positions of $0.2 million related to capitalized research and development costs and research and development credits, which reduce the deferred tax assets with a corresponding decrease to the valuation allowance. The Company has elected to recognize interest and penalties related to income tax matters as a component of income tax expense, of which no interest or penalties were recorded for the years ended December 31, 2017, 2016 and 2015. The Company expects none of the unrecognized tax benefits to decrease within the next 12 months related to expired statutes or settlement with the taxing authorities. Due to the Company’s valuation allowance as of December 31, 2017, none of the Company’s unrecognized tax benefits, if recognized, would affect the effective tax rate.
A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands):
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|
Years Ended December 31, |
|
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|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Unrecognized tax benefit--beginning of year |
|
$ |
241 |
|
|
$ |
241 |
|
|
$ |
241 |
|
|
Decreases related to prior period positions |
|
|
(78 |
) |
|
|
— |
|
|
|
— |
|
|
Unrecognized tax benefit--end of year |
|
$ |
163 |
|
|
$ |
241 |
|
|
$ |
241 |
|
The Company files tax returns in the United States, Massachusetts, California, Pennsylvania, New Jersey and New York. All tax years since inception (October 11, 2005) remain open to examination by major tax jurisdictions to which the Company is subject, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period. The Company is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years.