10. Income Taxes

On December 22, 2017, the President of the United States signed into law an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (commonly known as “the Tax Cuts and Jobs Act”), which introduced a comprehensive set of tax reforms. The Tax Cuts and Jobs Act significantly revises U.S. tax law by, among other provisions, lowering the Company’s corporate tax rate from 34% to 21% and eliminating or reducing certain income tax deductions.

In December 2017, in accordance with the SEC Staff Accounting Bulletin ("SAB") 118 - - Income Tax Accounting Implications of the TCJA, the Company recorded tax effects on a provisional basis based on a reasonable estimate. The TCJA did not have a material impact on the Company's financial statements because its deferred temporary differences are fully offset by a valuation allowance and the Company does not have any offshore earnings from which to record the mandatory transition tax. During 2018, the Company completed its analysis under SAB 118 and no additional tax effects due to rate-remeasurement were required to be recorded.

As of December 31, 2018, the Company had available net operating loss carryforwards (“NOLs”) of approximately $217.2 million and $78.1 million for federal and state income tax reporting purposes, respectively. Under TCJA, the federal NOL generated in 2018, approximately $16.9 million, can be carried forward indefinitely, while the NOLs generated through taxable years ending December 31, 2017, approximately $200.3 million, are available to offset future federal taxable income, if any, through 2037. The Company also has research and development tax credit carryforwards of approximately $5.8 million and $1.3 million for federal and state income tax reporting purposes, respectively, which are available to reduce federal and state income taxes, if any, through 2037 and state income taxes, if any, through 2033.

The Internal Revenue Code of 1986, as amended (the “Code”) provides for a limitation on the annual use of NOLs and other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes, as defined by the Code that could significantly limit the Company’s ability to utilize these carryforwards. At this time, the Company has not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since the Company’s formation, due to the costs and complexities associated with such a study. The Company is likely to have experienced various ownership changes, as defined by the Code, as a result of past financings. Accordingly, the Company’s ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for federal and state income tax purposes.

The Company does not have any significant unrecognized tax benefits.

As of December 31, 2018, the Company has not accrued interest or penalties related to uncertain tax positions. The Company’s tax returns for the years ended December 31, 2015 through December 31, 2017 are still subject to examination by major tax jurisdictions. However, the Internal Revenue Service (“IRS”) and state tax jurisdictions can audit the NOLs generated in prior years in the years that those NOLs are utilized.

For all years through December 31, 2018, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment in known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below:


	December 31,
	2018		2017
Deferred tax assets:
Net operating loss carryforwards	$	51,240	$	47,427
Research credit carryforward		6,904		6,296
Stock options and other		2,655		2,296
Total gross deferred tax assets		60,799		56,019
Valuation allowance for deferred tax assets		(60,799)		(56,019)
Net deferred tax assets	$	—	$	—

The net change in the valuation allowance for the years ended December 31, 2018 and 2017 was an increase of $4.8 million and a decrease of $14.6 million, respectively. The decrease in 2017 related primarily to the change in the Federal tax rate as discussed earlier under the Act.

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:


	December 31,
	2018		2017		2016
Federal income tax at statutory rate	21.0	%	34.0	%	34.0	%
State income tax benefit, net of federal benefit	6.0	%	6.0	%	6.0	%
Research and development tax credits	3.0	%	3.0	%	2.0	%
Effect of tax rate changes	0.0	%	-94.0	%	0.0	%
Other	-4.0	%	-1.0	%	1.0	%
Decrease (increase) to valuation allowance	-24.0	%	52.0	%	-33.0	%
Effective income tax rate	2.0	%	0.0	%	10.0	%

Sale of New Jersey Net Operating Losses

2018

The Company has participated in the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) sponsored by The New Jersey Economic Development Authority. The Program enables approved biotechnology companies with unused NOLs and unused research and development credits to sell these benefits for at least 80% of the value of the tax benefits to unaffiliated, profitable corporate taxpayers in the State of New Jersey. The Program is administered by The New Jersey Economic Development Authority and the New Jersey Department of the Treasury’s Division of Taxation. In January 2018, the Company completed the sale of NOLs totaling approximately $0.5 million. This amount is a current state tax benefit and is reflected in the statement of operations for the year ended December 31, 2018. The Company has now reached the maximum lifetime benefit of $15.0 million under the Program and will no longer be eligible to participate in the Program.

2016

In December 2016, the Company completed the sale of NOLs totaling approximately $28.2 million and research and development credits totaling approximately $0.8 million for net proceeds of approximately $3.0 million. Such proceeds are reflected as a tax benefit for the year ended December 31, 2016.