Annual report pursuant to Section 13 and 15(d) 12-31-2018

Income Taxes

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Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

10. Income Taxes

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax expense:

 

    December 31,  
    2018     2017  
Federal statutory rate     (21.0 )%     (35.0 )%
State taxes, net of federal benefit     (2.9 )%     (5.1 )%
Return to provision     0.0 %     (0.2 )%
Equity related expenses     (10.7 )%     (10.4 )%
Change in statutory rate     0.0 %     272.7 %
Change in valuation allowance     17.7 %     (222.1 )%
Goodwill impairment     14.7 %     0.0 %
Other permanent differences     2.2 %     0.1 %
Total income tax expense     0.0 %     0.0 %

 

Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

 

    December 31,  
    2018     2017  
Deferred tax assets:                
Net operating loss carryforwards   $ 46,096     $ 41,840  
Stock-based compensation     2,918       2,907  
Inventory reserve     -       2,340  
Federal R&D credit     2,222       2,222  
Accrued expenses     49       492  
Depreciation     -       -  
Other     98       108  
Total deferred tax assets     51,383       49,909  
                 
Deferred tax liabilities:                
Depreciation     (31 )     (37 )
Intangibles     (134 )     (210 )
                 
Total deferred tax liabilities     (165 )     (247 )
Less valuation allowance     (51,352 )     (49,796 )
Net deferred tax liability   $ (134 )   $ (134 )

 

    December 31,  
    2018     2017  
             
Pre-tax book income at statutory rate   $ (1,845 )   $ (3,265 )
State taxes, net of federal benefit     (252 )     (479 )
Return to provision     4       (21 )
Equity related expenses     501       (970 )
Changer in statutory rate     -       25,447  
Change in valuation allowance     1,556       (20,723 )
Other     36       11  
Total income tax expense   $ -     $ -  

 

As of December 31, 2018 and 2017, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $184.8 million and $167.7 million, respectively. The federal and state net operating loss carryforwards will expire from 2023 to 2037, unless previously utilized. Additionally, the Company believes an ownership change has occurred that would trigger the limitation on usage of net operating losses imposed by Internal Revenue Code section 382. Because of this limitation, a significant portion of the net operating losses would more likely than not expire unused.

 

During the years ended December 31, 2018 and 2017, the Company recognized no amounts related to interest or penalties related to uncertain tax positions. The Company is subject to taxation in the United States and various state jurisdictions. The Company currently has no years under examination by any jurisdiction.

 

A valuation allowance has been established as realization of such deferred tax assets has not met the more likely-than-not threshold requirement. If the Company’s judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense. The tax valuation allowance increased by approximately $1.6 million and decreased by $20.7 million for the years ended December 31, 2018 and 2017, respectively.

 

Recent Tax Legislation

 

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform Act”) was signed into law by the President of the United States. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. federal corporate tax rate from 35% to 21% effective for our calendar year ending December 31, 2018. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.

 

The Tax Reform Act reduces the federal corporate tax rate to 21% effective for our calendar year ending December 31, 2018. We recognized the effects of the Tax Reform Act for the re-measurement of the net deferred tax liabilities during the year ended December 31, 2017.

 

We recognized the income tax effects of the Tax Reform Act in our 2017 financial statements in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Reform Act was signed into law. The guidance addresses how a company recognizes provision amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Reform Act. As such, the financial results reflect the income tax effects of the Tax Reform Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the Tax Reform Act for which the accounting under ASC 740 is incomplete, but a reasonable estimate could be determined. Pursuant to the SAB 118, we are allowed a measurement period of up to one year after the enactment date of the Tax Reform Act to finalize the recording of the related tax impacts.