Entity information:

• Entity registrant name: Dare Bioscience, Inc.
• CIK: 0001401914
• SEC filing page: http://www.sec.gov/Archives/edgar/data/1401914/000156459018006989/0001564590-18-006989-index.htm
• XBRL Instance: http://www.sec.gov/Archives/edgar/data/1401914/000156459018006989/dare-20171231.xml
• XBRL Cloud Viewer: https://edgardashboard.xbrlcloud.com/flex/viewer/XBRLViewer.html#instance=http://www.sec.gov/Archives/edgar/data/1401914/000156459018006989/dare-20171231.xml
• EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001401914
• Generator: Donnelley Financial Solutions
• Total assets: 14,259,828
• Income tax expense (benefit):
• Found reconcilation from statutory to effective rates: True
• Found income tax policy: Coming soon!

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The components of loss from continuing operations before provision for income taxes consists of the following (in thousands):

 

The difference between the provision for income taxes (benefit) and the amount computed by applying the U.S. federal income tax rate for the years ended December 31, 2017 and 2016 are as follows

The major components of the Company’s deferred tax assets as of December 31, 2017 and 2016 are shown below (in thousands).

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets.  Under applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not the Company will not recognize the benefits of federal and state deferred tax assets.  Accordingly, a valuation allowance of $55.9 million and $290,000 was established at December 31, 2017 and 2016 respectively, to offset the net deferred tax assets. When and if management determines that it is more likely than not that the Company will be able to utilize the deferred tax assets prior to their expiration, the valuation allowance may be reduced or eliminated. The increase in valuation allowance to $55.9 million for the year ending December 31, 2017 is primarily related to acquired deferred tax assets in the transaction with Cerulean Pharma Inc, offset by a reduction in deferred tax assets revalued at the reduced federal tax rate under the U.S. Tax Cuts and Jobs Act enacted in December of 2017.  The increase in valuation of approximately $141,000 for the year ending December 31, 2016 is primarily related to an increase in net operating losses generated during the year.

The Company has U.S. federal net operation loss, or NOL, carryforwards available at December 31, 2017 of approximately $122.5 million (2016 – $700,000) that will begin to expire in 2027. The Company has state net operating loss carryforwards of $102.7 million (2016 – $700,000) that will begin to expire in 2030.  The Company has U.S. federal research credit carryforwards available at December 31, 2017 of approximately $2.5 million (2016 – $0) that will begin to expire in 2027. The Company has state research credits of $1.6 million (2016 – $0) that will begin to expire in 2022. The difference between federal and state net operating loss carryforwards is primarily due to previously expired state carryforwards.  

Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future.  These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.  The Company has not yet completed an evaluation of ownership changes.  To the extent an ownership change occurs, the net operating loss, credit carryforwards and other deferred tax assets may be subject to limitations.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act,” or TCJA, which significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system.  

The TCJA permanently lowers the corporate federal income tax rate to 21% from the existing maximum rate of 35%, effective for tax years including or commencing on January 1, 2018.  As a result of the reduction of the corporate federal income tax rate to 21%, U.S. GAAP requires companies to revalue their deferred tax assets and deferred tax liabilities as of the date of enactment, with the resulting tax effects accounted for in the reporting period of enactment.  This revaluation resulted in a provision of $23.6 million to income tax expense in continuing operations and a corresponding reduction of the Company’s valuation allowance.  As a result of the offsetting valuation allowance, there is no impact to the Company’s income statement for the year ended December 31, 2017 from the reduction in federal income tax rates.  The Company’s preliminary estimate of the TCJA and the remeasurement of its deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the TCJA, changes to certain estimates and the filing of its tax returns.  U.S. Treasury regulations, administrative interpretations or court decisions interpreting TCJA may require further adjustments and changes to the Company’s estimates.  The final determination of TCJA and the remeasurement of the Company’s deferred tax assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the TCJA.

A reconciliation of the beginning and ending amount of uncertain tax benefits is as follows:

 

Included in the balance of uncertain tax benefits at December 31, 2017 are $846,000 of tax benefits that, if recognized, would impact the effective tax rate.  We anticipate that no material amounts of unrecognized tax benefits will be settled within 12 months of the reporting date.

The Company’s policy is to record estimated interest and penalties related to uncertain tax benefits as income tax expense.  As of December 31, 2017, and 2016, the Company had no accrued interest or penalties recorded related to uncertain tax positions.

The tax years 2014 through 2017 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the U.S. The statute of limitations for U.S. net operating losses utilized in future years will remain open beginning in the year of utilization.

No additional provision has been made for U.S. income taxes related to undistributed foreign earnings of the Company’s wholly owned Australian subsidiary or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries.  As such, earnings are expected to be permanently reinvested, the investments are permanent in duration, or the Company has estimated that no additional tax liability will arise as a result of the distribution of such earnings.  A liability could arise if amounts are distributed by the subsidiary or if the subsidiary is ultimately disposed.  It is not practical to estimate the additional income taxes, if any, related to permanently reinvested earnings.  There are no unremitted earnings as of December 31, 2017.