Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.19.3.a.u2
Income taxes
12 Months Ended
Dec. 31, 2019
Income Taxes  
Income Taxes

10. Income Taxes

There was no income tax expense for the years ended December 31, 2019 and 2018 due to the Company’s net losses. The Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2019 and 2018 (computed by applying the Federal corporate tax rate of 21% to loss before taxes and 4.74% for blended state income tax rate, the blended rate used was 25.74%), as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Computed “expected” tax-benefit – Federal

 

$

(3,230)

 

$

(2,818)

Computed “expected” tax-benefit – State

 

 

(729)

 

 

(636)

Non-deductible stock-based compensation

 

 

864

 

 

288

Fair Market Value Adjustment – Warrants

 

 

 —

 

 

(1,051)

Change in valuation allowance

 

 

3,095

 

 

4,217

 

 

$

 —

 

$

 —

 

The effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2019 and 2018 are as follows (in thousands ):

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Deferred tax assets:

 

 

  

 

 

  

Stock issued for services

 

$

1,223

 

$

1,998

Accrued compensation

 

 

20

 

 

38

Stock issued for acquisition of program

 

 

1,301

 

 

1,224

Stock issued for license agreement

 

 

1,574

 

 

1,760

Stock issued for milestone payment

 

 

255

 

 

278

Amortizable license fee

 

 

 5

 

 

 5

Net operating loss carry-forward

 

 

48,532

 

 

44,512

Total gross deferred tax assets

 

 

52,910

 

 

49,815

Less: valuation allowance

 

 

(52,910)

 

 

(49,815)

Total net deferred tax assets

 

$

 —

 

$

 —

 

At December 31, 2019, the Company has a net operating loss carry-forward of approximately $188.6 million available to offset future taxable income. The Company’s pre-2018 net operating losses expire on various dates through 2037 while the net operating loss carry-forward originating in the 2018 year and later carry-forward indefinitely and are subject to additional limitations based on taxable income. However, utilization of these net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code.

 

The valuation allowance at December 31, 2019 was approximately $52.9 million. The net change in valuation allowance during the year ended December 31, 2019 was an increase of approximately $3.1 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2019.

 

The Company assesses uncertain tax positions in accordance with the guidance for accounting for uncertain tax positions. This pronouncement prescribes a recognition threshold and measurement methodology for recording within the financial statements uncertain tax positions taken, or expected to be taken, in the Company’s income tax returns. To the extent the uncertain tax positions do not meet the “more likely than not” threshold, the Company has derecognized such positions. To the extent the uncertain tax positions meet the “more likely than not” threshold, the Company has measured and recorded the highest probable benefit, and have established appropriate reserves for benefits that exceed the amount likely to be sustained upon examination. The Company currently has not recorded any uncertain tax positions and does not anticipate that the unrecognized tax benefits will significantly increase or decrease within the next twelve months.