11. INCOME TAXES
|12 Months Ended|
Dec. 31, 2018
|Income Tax Disclosure [Abstract]|
|11. INCOME TAXES||
A reconciliation of income taxes at the U.S. Federal statutory rate to the benefit for income taxes is as follows:
A summary of the Company’s deferred tax assets is as follows:
As of December 31, 2018, the Company had federal and state (post-apportioned basis) net operating losses (“NOLs”) of $108.5 million and $72.3 million, respectively, as well as federal research and development tax credit carryforwards of approximately $0.5 million. The NOLs will begin to expire at various dates beginning in 2027, if not limited by triggering events prior to such time. Under the provisions of the Internal Revenue Code, changes in ownership of the Company, in certain circumstances, will limit the amount of federal NOLs that can be utilized annually in the future to offset taxable income. In particular, section 382 of the Internal Revenue Code imposes limitations on an entity’s ability to use NOLs upon certain changes in ownership. If the Company is limited in its ability to use its NOLs in future years in which it has taxable income, then the Company will pay more taxes than if it were otherwise able to fully utilize its NOLs. The Company may experience ownership changes in the future as a result of subsequent shifts in ownership of the Company’s capital stock that the Company cannot predict or control that could result in further limitations being placed on the Company’s ability to utilize its federal NOLs. As of December 31, 2018, the Company performed a preliminary analysis of limitations imposed by section 382 of the Internal Revenue Code and as a result has written off $57.6 million of federal NOLs, $4.3 million of federal research and development tax credits, and $10.9 million of state NOL’s which are limited by historical ownership changes. As a result, there was a $16.9 million reduction to the Company’s deferred tax assets. However, as discussed below, the Company maintains a full valuation allowance against its deferred tax assets. Therefore, the $16.9 million reduction to the Company’s deferred tax assets is offset by a corresponding $16.9 million reduction to the Company’s valuation allowance for its net deferred tax assets, resulting in no net impact to the Company’s tax provision for the year ended December 31, 2018.
A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carry-back and carry-forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income, exclusive of reversing taxable temporary differences, to outweigh objective negative evidence of recent financial reporting losses. Based on these criteria and the relative weighting of both the positive and negative evidence available, management continues to maintain a full valuation allowance against its net deferred tax assets.
On December 22, 2017, the U.S. Government enacted the TCJA. The TCJA made broad changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S federal corporate tax rate from 35% to 21%; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; (4) creating the base erosion and anti-abuse tax, a new minimum tax; (5) limitation on the deductibility of certain executive compensation; (6) enhancing the option to claim accelerated depreciation deductions on qualified property, and (7) changing the rules related to uses and limitations of NOLs in tax years beginning after December 31, 2017.
The TCJA reduced the corporate tax rate to 21%, effective January 1, 2018, resulting in a reduction to the net deferred tax assets, along with a corresponding reduction to the valuation allowance for such deferred tax assets, of $17.3 million for the year ended December 31, 2017.
The TCJA contains significant limitations on the ability of a taxpayer to deduct interest paid or accrued. The accounting for this portion of the TCJA resulted in an increase to the net deferred tax assets, with a corresponding increase to the valuation allowance, of $1.2 million for the year ended December 31, 2018.
In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. The amount of the liability for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position. Components of the liability are classified as either a current or a long-term liability in the accompanying consolidated balance sheets based on when the Company expects each of the items to be settled. The Company does not have any unrecognized tax benefits as of December 31, 2018 and 2017, and does not anticipate a significant change in unrecognized tax benefits during the next 12 months.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef