9. Income Taxes
The Company’s financial statements include total tax benefit of $0 on net losses before taxes of $25.1 million and $30.0 million for the years ended December 31, 2017 and 2016, 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):
|
|
|
2017 |
|
|
2016 |
|
||||||||||
|
|
|
Amount |
|
|
Percent of Pretax Income |
|
|
Amount |
|
|
Percent of Pretax Income |
|
||||
|
Income taxes from continuing operations at statutory rate |
|
$ |
(8,520 |
) |
|
|
34.0 |
% |
|
$ |
(10,196 |
) |
|
|
34.0 |
% |
|
State income taxes |
|
|
(1,075 |
) |
|
|
4.3 |
% |
|
|
(1,287 |
) |
|
|
4.3 |
% |
|
State effect of permanent items |
|
|
(112 |
) |
|
|
0.4 |
% |
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
35 |
|
|
|
(0.1 |
)% |
|
|
215 |
|
|
|
(0.8 |
)% |
|
Deferred rate change |
|
|
23,776 |
|
|
|
(94.9 |
)% |
|
|
— |
|
|
|
— |
|
|
R&D tax credits |
|
|
— |
|
|
|
— |
|
|
|
(955 |
) |
|
|
3.2 |
% |
|
Warrants issuance |
|
|
(928 |
) |
|
|
3.7 |
% |
|
|
730 |
|
|
|
(2.4 |
)% |
|
Other |
|
|
828 |
|
|
|
(3.3 |
)% |
|
|
719 |
|
|
|
(2.4 |
)% |
|
Increase in valuation allowance |
|
|
(14,004 |
) |
|
|
55.9 |
% |
|
|
10,774 |
|
|
|
(35.9 |
)% |
|
Total income tax benefit |
|
$ |
— |
|
|
|
— |
% |
|
$ |
— |
|
|
|
— |
% |
The components of deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Current deferred tax assets: |
|
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
182 |
|
|
$ |
215 |
|
|
Stock-based compensation |
|
|
1,309 |
|
|
|
1,664 |
|
|
Other |
|
|
49 |
|
|
|
39 |
|
|
|
|
|
1,540 |
|
|
|
1,918 |
|
|
Noncurrent deferred tax assets (liabilities); |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
|
40,504 |
|
|
|
53,173 |
|
|
Research and development credits |
|
|
3,230 |
|
|
|
4,185 |
|
|
|
|
|
43,734 |
|
|
|
57,358 |
|
|
Total deferred tax assets |
|
|
45,274 |
|
|
|
59,276 |
|
|
Valuation allowances |
|
|
(45,274 |
) |
|
|
(59,276 |
) |
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
As of December 31, 2017 and 2016, the Company had available federal net operating loss ("NOL") carryforwards of approximately $171.5 million and $144.4 million, respectively, North Carolina net economic loss ("NEL") carryforwards of approximately $111.0 million, respectively, and New Jersey NOL carryforwards of approximately $55.4 million and $28.3 million, respectively. The federal NOL and North Carolina NEL carryforwards begin to expire in 2022 and 2017, respectively. The New Jersey NOL carryforwards begin to expire in 2037. As of December 31, 2017, the Company had available federal research and development credit carryforwards of $3.1 million and North Carolina credit carryforwards of $0.2 million, which begin to expire in 2022 and 2017, respectively.
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 a result of the new enacted tax rate, the Company adjusted its deferred tax assets as of December 31, 2017 by applying the new 21% rate, which resulted in a decrease to the deferred tax assets and a decrease to the valuation allowance of approximately $14.0 million. As of December 31, 2017 and 2016, 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 adopted FASB Accounting Standards Codification 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, 2017 and 2016 (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Unrecognized tax benefit—January 1 |
|
$ |
623 |
|
|
$ |
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 |
|
|
$ |
623 |
|
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.