| Income Taxes | 10. Income Taxes For the years ended December 31, 2018
and 2017, all of the Company’s loss before income taxes was generated in the United States. The components of federal and state income
tax expense (benefit) are as follows, in thousands:
Years Ended December 31,
2018 2017
Current
Federal $ – $ –
State – –
Total current – –
Deferred
Federal (1,555 ) 2,945
State (639 ) (1,568 )
Total deferred (2,194 ) 1,377
Valuation allowance 2,194 (2,998 )
Total income tax expense (benefit) $ – $ (1,621 ) The Company’s acquisition
of MirImmune resulted in an income tax benefit of $1,621,000 in 2017 and a corresponding increase to acquired in-process
research and development expense resulting from the reduction in the Company’s valuation allowance due to the deferred
tax liability created as a result of the book and tax basis difference. Reconciliation of the effective income tax
rate to the U.S. statutory rate is as follows:
Years Ended December 31,
2018 2017
Federal statutory rate 21% (34 )%
State income taxes, net of federal benefit 5.5 (6.5 )
Non-deductible expenses (1.2 ) 0.5
Income tax credits 4.3 (2.5 )
Deferred rate change – 62.5
Valuation allowance (29.6 ) (31.5 )
Effective tax rate – (11.5 ) The components of net deferred tax assets
(liabilities) are as follows, in thousands:
Years Ending December 31,
2018 2017
Net operating loss carryforwards $ 16,957 $ 14,681
Tax credit carryforwards 1,556 1,322
Stock-based compensation 1,388 1,336
Licensing deduction deferral 3,059 3,393
Other timing differences 140 175
Gross deferred tax assets 23,100 20,907
Valuation allowance (23,100 ) (20,907 )
Net deferred tax asset (liability) $ – $ – The Company’s deferred tax assets
at December 31, 2018 and 2017 consisted primarily of its net operating loss carryforwards, deferred compensation, tax credit
carryforwards, intangible assets capitalized for federal income tax purposes and certain accruals that for tax purposes are not
deductible until future payment is made. The valuation allowance increased $2,194,000 and decreased $4,621,000 for the years ended
December 31, 2018 and 2017, respectively, and is primarily attributable to an increase in net operating losses and tax credits. On December 22, 2017, the President
of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant changes
in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and
a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of
34% to 21%. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the enacted
rate. This revaluation resulted in a decrease to the Company’s net deferred tax assets of approximately $8,800,000 and a
corresponding reduction of the same amount in the valuation allowance against these deferred tax assets in the fourth quarter of
2017. The Company concluded the tax accounting consideration associated with the Tax Cuts and Jobs Act and no material adjustments
were recorded in the year ended December 31, 2018. The Company has incurred net operating losses
since inception. At December 31, 2018, the Company had federal and state net operating loss carryforwards of approximately
$64,000,000 and $56,000,000, respectively, which are available to reduce future taxable income through 2038. In addition, the Company
has federal and state research credits of $1,116,000 and $558,000, respectively, to offset future tax expense through 2038. Based
on an assessment of all available evidence including, but not limited to the Company’s limited operating history in its core
business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation
and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded
that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result,
a full deferred income tax valuation allowance has been recorded against these assets. Under the provisions of the Internal Revenue
Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss
carryforwards and research and development credit carryforwards which could be utilized annually to offset future taxable income
and taxes payable. The Company does not believe any substantial changes in ownership have occurred, however a detailed analysis
would need to be conducted in order to be certain. The Company files income tax returns in
the United States, Massachusetts and New Jersey. The Company is subject to tax examinations for federal and state purposes for
tax years 2012 through 2018. The Company has not recorded any uncertain tax positions as of December 31, 2018 or 2017. The
Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company
has not incurred any interest or penalties. In the event that the Company is assessed interest or penalties at some point in the
future, they will be classified in the financial statements as general and administrative expenses. |
