Income Taxes

12 Months Ended

Dec. 31, 2018

(10)

Income Taxes

The components of the income tax provision are summarized as follows (in thousands):

	Year Ended December 31,
	2018		2017
Current:
Federal	$	-	$	(1,801	)
State and foreign		6		2
Total current		6		(1,799	)
Deferred:
Federal and state		-		3,362

Income tax provision	$	6	$	1,563

The following table represents the reconciliation between the reported income taxes and the income taxes that would be computed by applying the federal statutory rate (

% for year ended December 31, 2018 and 35% for year ended December 31, 2017) to income before taxes (in thousands):

	Year Ended December 31,
	2018			2017
Income tax provision at federal statutory rate	$	1,229		$	2,453
Add (deduct) effect of:
State income taxes, net of federal tax		505			970
Refundable AMT credit		-			(1,801	)
Effect of tax rate change as a result of 2017 Tax Cuts and Jobs Act		-			16,869
Expiration of federal research and development credits		356			-
Expiration of capital loss carryforwards		248			-
Change in valuation allowance		(2,332	)		(14,549	)
Recognition of windfall NOLs		-			(2,379	)

Income tax provision	$	6		$	1,563

No federal income tax expense was incurred in relation to normal operating results due to the utilization of deferred tax assets and related changes in valuation allowance.

As of December 31, 2018 and 2017, the cumulative tax effects of temporary differences that give rise to the deferred tax assets are as follows (in thousands):

	December 31,			December 31,
	2018			2017
Deferred tax assets:
Federal and state net operating loss carryforward	$	22,755		$	24,399
Research and development credits carryforward		16,252			16,608
Capital loss carryforwards		-			332
Total gross deferred tax assets		39,007			41,339
Less valuation allowance		(39,007	)		(41,339	)
Net deferred tax assets	$	-		$	-

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among its numerous changes to the Internal Revenue Code, the Act reduced the U.S. federal corporate tax rate from 35% to 21%. For the year ended December 31, 2017, this resulted in a $15.9 million reduction for the deferred tax assets related to net operating losses and other assets. Such reduction was offset by a corresponding reduction to the Company’s valuation allowance.

In addition, the Act repealed the corporate alternative minimum tax (“AMT”) for years beginning after December 31, 2017 and allowed companies with existing alternative minimum tax credit (“MTC”) carryforwards as of December 31, 2017 to receive refunds of the credits in tax years after 2017 and before 2022 in an amount equal to 50% (100% in 2021) of the excess MTC over the amount of the credit allowable each year against regular tax liability.

As of December 31, 2017, the Company had $1.94 million in minimum tax credits and recorded a long term receivable for the future expected refunds of the credits. As of December 31, 2018, the Company has reclassified $970,000 as a short term receivable, leaving a balance of $970,000 as a long term receivable based on the expected timing of the refunds of the minimum tax credits.

The Company completed the accounting for the tax impact of the Act as of December 31, 2017 and recorded no provisional amounts.

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. For the period ended December 31, 2017, the Company believed that it was more likely than not that future taxable income would not exist to utilize some or all of their deferred tax assets. Accordingly, it recorded a valuation allowance in the amount of its total deferred tax assets for the period ended December 31, 2017. In 2018, the Company generated $5.8 million of taxable income, offset by the utilization of net operating loss carryforwards. The deferred tax expense associated with the net operating loss utilization was offset in full by the tax benefit resulting from the reduction in the associated valuation allowance. The Company has recorded a full valuation allowance against its remaining deferred tax assets as of December 31, 2018, as it believes it is more likely than not that these assets will not be realized.

At December 31, 2018, the Company had federal net operating loss carryforwards of approximately $100.6 million that expire in the years 2025 through 2036, and New Jersey state net operating loss carryforwards of approximately $22.9 million that expire in the years 2030 through 2038. Under the Act, net operating losses generated in tax years beginning after December 31, 2017 have an unlimited carryforward period, and the amount of net operating loss allowed to be utilized each year is limited to 80% of taxable income. The Company does not have federal net operating loss carryforwards generated in years beginning after December 31, 2016.

The Company had federal and state capital loss carryforwards of approximately $1.2 million that expired in 2018. The Company also had federal research and development (“R&D”) credit carryforwards of approximately $400,000 that expired in 2018. The Company has remaining R&D credit carryforwards of approximately $16.2 million that expire in the years 2019 through 2029. These deferred tax assets had been subject to a valuation allowance such that the deferred tax expense incurred as a result of the expiration of the capital loss and R&D credit carryforwards was offset in full by a corresponding deferred tax benefit for the related reduction in valuation allowance.

The Company’s ability to use the net operating loss and R&D tax credit carryforwards may be limited, as it is subject to certain limitations due to ownership changes as defined by rules pursuant to Section 382 of the Internal Revenue Code of 1986, as amended.

The Company has not recorded a liability for unrecognized income tax benefits.