Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

12. Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (2017 Tax Act) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate tax rate from 34% to 21%, for tax years beginning after December 31, 2017. The 2017 Tax Act also provides for the implementation of a territorial tax system, a one-time transition tax on certain foreign earnings, the acceleration of depreciation for certain assets placed into service after September 27, 2017 and other prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.

Pursuant to the SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, the Company has calculated as final its re-measurement of deferred taxes and has no uncertain tax positions. This includes a provisional amount related to the re-measurement of deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally 21% plus the applicable state tax rate, with a corresponding change to the valuation allowance as of December 31, 2017. No further adjustments were recorded in the years ended December 31, 2019 or 2018.

The components of the net deferred tax assets are as follows at December 31:

	2019			2018
	(in thousands)
Operating loss carryforwards	$	39,982		$	36,417
Tax credit carryforwards		910			1,195
Other temporary differences		5,278			4,678
		46,170			42,290
Less valuation allowance		(46,170	)		(42,290	)
Net deferred tax asset	$	—		$	—

The primary factors affecting the Company’s income tax rates were as follows:

	2019			2018
Tax benefit at U.S. statutory rates		(21	%)		(21	%)
State tax benefit		(4.7	%)		(4.7	%)
Permanent differences		0.8	%		4.0	%
Impact of the 2017 Tax Act		—			—
Other		(4.2	%)		1.1	%
Expiring state NOL’s		—			—
Changes in valuation allowance		29.1	%		20.6	%
		0	%		0	%

As of December 31, 2019, the Company has federal and state net operating loss carryforwards totaling $20,938,000 which will never expire as a result of the 2017 Tax Act. As of December 31, 2019, the Company has federal and state net operating loss carryforwards totaling $136,202,000 and $116,218,000 respectively, which expire through 2037. The net operating losses include Federal and State excess benefits related to stock options of $2,120,000 that will be charged to additional paid-in capital when utilized. In addition, the Company has federal and state research and development credits of $733,000 and $176,000, respectively, which expire through 2034. Ownership changes, as defined by Section 382 of the Internal Revenue Code, may have limited the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income. Past and subsequent ownership changes could further affect the limitation in future years. Because of the Company’s limited operating history and its recorded losses, management has provided, in each of the last two years, a 100% valuation allowance against the Company’s net deferred tax assets.

The Company is subject to taxation in the U.S. and various states. Based on the history of net operating losses all jurisdictions and tax years are open for examination until the operating losses are utilized or the statute of limitations expires. As of December 31, 2019 and 2018, the Company does not have any significant uncertain tax positions.