Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.1
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes
13. Income Taxes
The Company has available approximately $201,264,000 and $217,774,000 of unused operating loss carryforwards for federal and state tax purposes, respectively, that may be applied against future taxable income. The
N
OL
carryforwards will
begin to
expire
in
2028
and research and development (R&D) credits will begin to expire in 2031 if
not utilized prior to that date. The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets. Based on the Company’s history of operating losses since inception, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, no provision for a deferred tax asset has been made for the tax benefits of the net operating loss carryforwards as the entire amount is offset by a valuation allowance. The valuation allowance increased by approximately $7,984,000 and 
$9,006,000
during the years 201
9
and 201
8
, respectively, and was approximately
$62,137,000 and
$54,153,000 at December 31, 201
9
and 201
8
, respectively.
The Internal Revenue Code of 1986, as amended
 
(the “Code”)
provides for a limitation of the annual use of net operating losses and other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes (as defined by the Code) that could 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 may have experienced various ownership changes, as defined by the Code, as a result of past financing transactions. 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 or state income tax purposes.
The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. For the three years ended December 31, 201
9
, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company has not, as yet, conducted a study of R&D credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.
On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act lowered the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the change in the U.S. federal tax rate required the Company to
re-measure
its federal deferred tax assets and liabilities. Effective for tax years beginning on January 1, 2018, the 2017 Tax Act repealed the performance exception permitting certain executive officer compensation greater than $1 million to be deducted. During the fourth quarter of 2017, the Company reduced its net deferred tax asset balance and offsetting valuation allowance by $18,284,538 for the
re-measurement
of its U.S. deferred tax balances. There were no changes to the interim
re-measurement
amount and the Company’s accounting for the 2017 Tax Act is complete.
 
The principal components of the Company’s deferred tax assets and liabilities are as follows:
 
    
December 31,
 
    
201
9
    
201
8
 
Deferred tax assets:
     
Net operating loss carryovers
   $ 56,646,542      $ 49,294,211  
Share-based compensation
     1,770,295        1,754,362  
R&D tax credits
     3,149,249        2,545,920  
Accrued compensation and severance
     454,128        442,090  
Deferred rent
            198,278  
Lease liability
     1,101,248        —    
Intangible assets
     110,178        131,503  
  
 
 
    
 
 
 
Total deferred tax assets
   $ 63,231,640      $ 54,366,364  
Valuation allowance
     (62,136,614      (54,152,886
  
 
 
    
 
 
 
Total deferred tax assets net of valuation allowance
   $ 1,095,026      $ 213,478  
Deferred tax liabilities:
     
Right-of-use asset
     (909,271      —    
Depreciation
     (185,755      (213,478
  
 
 
    
 
 
 
Total deferred tax liabilities
   $ (1,095,026    $ (213,478
  
 
 
    
 
 
 
Net deferred tax asset (liability)
   $    $
  
 
 
    
 
 
 
A reconciliation of the statutory U.S. Federal rate to the company’s effective tax rate is as follows:
 
    
Year Ended December 31,
 
    
201
9
   
201
8
   
201
7
 
Federal income tax benefit at statutory rate
     (21.00 )%      (21.00 )%      (34.00 )% 
State income tax, net of federal benefit
     (15.09     (5.64     (9.95
Permanent items including change in fair value of warrants
     (21.87     4.80       (22.03
Change in valuation allowance
     62.56       23.95       (50.33
R&D tax credits
     (4.72     (2.11     (3.02
Deferred
re-measurement
     —        
 
 
     
118.03
 
Other
    
0.12
     
 
 
      (1.30
  
 
 
   
 
 
   
 
 
 
Effective income tax (benefit) expense rate
     0     0     0