Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
15.
Income Taxes
 
The Company files corporate income tax returns in U.S. federal, state and local jurisdictions, including Pennsylvania, and has tax returns subject to examination by tax authorities generally beginning in the year ended December 31, 2013 and through December 31, 2017. However, to the extent the Company utilizes its net operating loss (“NOL”) carryforwards in the future, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities of the future period tax return in which the attribute is utilized.
 
The income tax (benefit) provision consists of the following (in thousands):
 
 
 
For The Years Ended
 
 
 
December 31,
 
 
 
2017
 
2016
 
Federal:
 
 
 
 
 
 
 
Current
 
$
-
 
$
-
 
Deferred
 
 
(664)
 
 
(627)
 
 
 
 
 
 
 
 
 
State and local:
 
 
 
 
 
 
 
Current
 
 
6
 
 
4
 
Deferred
 
 
(85)
 
 
(92)
 
 
 
 
 
 
 
 
 
Income tax provision
 
$
(743)
 
$
(715)
 
 
For the years ended December 31, 2017 and 2016, the expected tax expense based on the federal statutory rate reconciled with the actual tax expense is as follows:
 
 
 
For The Years Ended
 
 
 
December 31,
 
 
 
2017
 
2016
 
U.S. federal statutory rate
 
 
34.0
%
 
34.0
%
State tax rate, net of federal benefit
 
 
3.0
%
 
4.5
%
Permanent differences
 
 
 
 
 
 
 
- Change in fair value of warrant liability
 
 
(0.1)
%
 
0.9
%
- Change in fair value of contingent consideration
 
 
0.0
%
 
10.4
%
- Intangible impairment
 
 
(12.0)
%
 
(9.3)
%
- Other
 
 
(0.3)
%
 
(0.4)
%
Adjustments to deferred taxes
 
 
(4.6)
%
 
(8.2)
%
Tax Reform - Federal Rate Change
 
 
(50.9)
%
 
0.0
%
Tax Reform - Change in valuation allowance
 
 
50.9
%
 
0.0
%
Change in valuation allowance
 
 
(17.4)
%
 
(29.7)
%
 
 
 
 
 
 
 
 
Income tax provision
 
 
2.6
%
 
2.2
%
 
On December 22, 2017 the U.S. government enacted significant changes to federal tax law following the passage of the Tax Cuts and Jobs Act (“the Act”). The Act significantly changes the U.S. corporate tax system. The Company has reasonably estimated the accounting for the effects of the Act during the year ended December 31, 2017. The Company’s financial statements for the year ended December 31, 2017 reflect certain effects of the Act including a reduction in the corporate tax rate from 34% to 21% and changes to limitations on the deductibility of executive compensation. As the Company has recorded a full valuation allowance against its net deferred tax assets as of December 31, 2017, these changes have no impact on the income tax benefit for year ended December 31, 2017. The Company has recorded changes to its deferred tax assets and liabilities due to enactment of the Act. As a result of the change in U.S. corporate income tax rate, the Company recorded a decrease in its net deferred tax asset of approximately $14.6 million, which was offset by a decrease in valuation allowance. In addition, the Company analyzed changes in the executive compensation rules pursuant to the Act and determined that approximately $1.3 million of the deferred tax asset for stock compensation may not be realizable. The Company has previously recorded a valuation allowance against the deferred tax asset so this adjustment has no impact on the 2017 provision. Given the significant changes resulting from and complexities associated with the Act, the financial impacts for the fourth quarter and full year 2017 are provisional and subject to further analysis, interpretation and clarification of the Act, which could result in changes to these estimates during 2018. In order to complete the accounting for these items the Company will need to further analyze executive compensation awards and prepare its 2017 corporate income tax return. The Company will reflect any adjustments to the provisional amounts in the period the accounting is completed, and expects to complete this analysis within the one-year measurement period provided by SAB 118.
 
As of December 31, 2017 and 2016, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following (in thousands):
 
 
 
As of December 31,
 
 
 
2017
 
2016
 
Deferred tax assets:
 
 
 
 
 
 
 
Net operating loss carryforwards
 
$
29,580
 
$
40,117
 
Stock-based compensation
 
 
5,598
 
 
8,671
 
Goodwill and Tradename
 
 
32
 
 
-
 
Accruals
 
 
694
 
 
541
 
Transaction costs
 
 
39
 
 
732
 
Other
 
 
364
 
 
861
 
Total deferred tax assets
 
 
36,307
 
 
50,922
 
Valuation allowance
 
 
(30,864)
 
 
(41,482)
 
Deferred tax assets, net of valuation allowance
 
$
5,443
 
$
9,440
 
 
 
 
 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
 
 
 
Property and equipment
 
 
(65)
 
 
(281)
 
Intangible assets
 
 
(5,378)
 
 
(9,159)
 
Goodwill
 
 
-
 
 
(749)
 
Total deferred tax liabilities
 
 
(5,443)
 
 
(10,189)
 
 
 
 
 
 
 
 
 
Net deferred tax liabilities
 
$
-
 
$
(749)
 
 
For the years ended December 31, 2017 and 2016, the Company had approximately $114.6 million and $104.9 million of federal NOL carryovers, respectively, which substantially begin to expire in 2020 and through 2037. The company also has state NOL carryovers in multiple jurisdictions, including most materially in Pennsylvania, $26.4 million and $24.6 million, and in Florida, $11.3 million and $10.9 million, as of December 31, 2017 and December 31, 2016, respectively, which substantially begin to expire in 2020 and through 2037. During 2016 the Company performed a 382 study, and as a result of the study, reduced its NOL carryforwards by $4.8 million, which is the amount of the NOL carryforwards that are expected to expire unutilized pursuant to the Section 382 study. On May 29, 2015 the Company acquired Celleration, Inc. and the company has performed a Section 382 study for Celleration, Inc. The amount of federal NOL carryforwards as of December 31, 2017 and December 31, 2016 disclosed above do not include $47.9 million of Celleration, Inc. NOL carryforwards that are expected to expire unutilized pursuant to the Section 382 study. The Celleration, Inc. state NOL carryforwards have also been reduced accordingly. On May 5, 2014 the Company acquired the equity interests of Choice and the Company believes the Choice NOL carryforwards as of that date are subject to Section 382 limitations. The amount of federal NOL carryforwards as of December 31, 2017 and December 31, 2016 disclosed above do not include $2.5 million of Choice NOL carryforwards that the Company has estimated will expire unutilized pursuant to this limitation. Additionally, an ownership change pursuant to Section 382 may have occurred since 2016, or could occur in the future, such that the NOLs available for utilization could be further limited.
 
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the future generation of taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. As of December 31, 2016, the deferred tax liabilities related to goodwill and to a tradename could not be used in this determination since both assets were considered to be assets with an indefinite life for financial reporting purposes. After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance against net deferred tax assets at December 31, 2017 and December 31, 2016 because management has determined that it is more likely than not that these deferred tax assets will not be realized. The valuation allowance decreased by $10.6 million and increased by $8.5 million during the years ended December 31, 2017 and December 31, 2016, respectively. The decrease in tax year ended December 31, 2017 is primarily related to the decrease in the corporate tax rate from 34% to 21% due to the enactment of the Act, $14.7 million, offset by increases in NOL carryforwards, $3.7 million. Included in the current year increases to the valuation allowance is a $0.7 million increase related to discontinued operations. The increase in tax year ended December 31, 2016 is primarily related to increases in NOL carryforwards.