Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.10.0.1
Income Taxes
12 Months Ended
Dec. 31, 2018
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, 2015 and through December 31, 2018. However, to the extent we utilize our 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,
 
 
 
2018
 
 
2017
 
Federal:
 
 
 
 
 
 
 
 
Current
 
$
     -
 
 
$
 -
 
Deferred
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
State and local:
 
 
 
 
 
 
 
 
Current
 
 
-
 
 
 
-
 
Deferred
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
Income tax provision
 
$
-
 
 
$
-
 
 
For the years ended December 31, 2018 and 2017, 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,
 
 
 
2018
 
 
2017
 
U.S. federal statutory rate
 
 
21.00
%
 
 
34.00
%
State tax rate, net of federal benefit
 
 
4.33
%
 
 
4.45
%
Permanent differences
 
 
 
 
 
 
 
 
- Change in fair value of warrant liability
 
 
(0.08
)%
 
 
5.80
%
- Other
 
 
(0.05
)%
 
 
(0.14
)%
Adjustments to deferred taxes
 
 
(27.61
)%
 
 
(41.01
)%
Tax Reform - Federal Rate Change
 
 
0.00
%
 
 
(321.36
)%
Tax Reform - Change in valuation allowance
 
 
0.00
%
 
 
321.36
%
Change in valuation allowance
 
 
2.41
%
 
 
(3.10
)%
 
 
 
 
 
 
 
 
 
Income tax provision
 
 
(0.00
)%
 
 
0.00
%
 
The United States enacted the Tax Cuts and Jobs Act (“Act”) on December 22, 2017, most provisions of which took effect in years beginning after December 31, 2017. The Act made substantial changes to U.S. taxation of corporations, including a reduction in the U.S. federal corporate income tax rate from 34% to 21% and changes to limitations on the deductibility of executive compensation. The effect on deferred tax assets and liabilities of a change in law or tax rates is recognized in income in the period that includes the enactment date. 
 
After the enactment of the Act, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In our financial statements for the period ended December 31, 2017, we calculated an estimate of the impact of the Act related to the remeasurement of our net U.S. deferred tax asset due to the change in U.S. federal corporate income tax rate.   The provisional amount recorded was deferred tax expense of $14.6 million, but which was fully and equally offset by a deferred tax benefit related to a corresponding reduction in our valuation allowance.  In addition, due to changes in executive compensation rules pursuant to the Act, the Company determined that approximately $1.3 million of deferred tax asset for stock compensation may not be realizable. The Company had previously recorded a valuation allowance against the deferred tax asset so this adjustment had no impact on the financial statements for the period ended December 31, 2017. During the quarter ended December 31, 2018, the completed the accounting for the income tax effects of the Act, which resulted in an immaterial change in the net deferred tax asset, before valuation allowance, as of the enactment date.
 
As of December 31, 2018 and 2017, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following (in thousands):
 
 
 
As of December 31,
 
 
 
2018
 
 
2017
 
Deferred tax assets:
 
 
 
 
 
 
 
 
Net operating loss carryforwards
 
$
26,498
 
 
$
29,580
 
Stock-based compensation
 
 
3,673
 
 
 
5,598
 
Goodwill and Tradename
 
 
29
 
 
 
32
 
Accruals
 
 
135
 
 
 
694
 
Transaction costs
 
 
214
 
 
 
39
 
Other
 
 
171
 
 
 
364
 
Total deferred tax assets
 
 
30,720
 
 
 
36,307
 
Valuation allowance
 
 
(30,695
)
 
 
(30,864
)
Deferred tax assets, net of valuation allowance
 
$
25
 
 
$
5,443
 
 
 
 
 
 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
 
 
 
 
Property and equipment
 
 
(25
)
 
 
(65
)
Intangible assets
 
 
-
 
 
 
(5,378
)
Total deferred tax liabilities
 
 
(25
)
 
 
(5,443
)
 
 
 
 
 
 
 
 
 
Net deferred tax liabilities
 
$
-
 
 
$
-
 
 
For the years ended December 31, 2018 and 2017, the Company had approximately $
102.6
million and $
114.6
million of federal NOL carryovers, respectively, which substantially begin to expire in 2021 and through 2037. The Company also has state NOL carryovers in multiple jurisdictions, including most materially in Pennsylvania, $23.5 million and $26.4 million, and in Florida, $11.1 million and $11.3 million, as of December 31, 2018 and December 31, 2017, respectively. 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, 2018 and December 31, 2017 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. 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, 2018 and December 31, 2017 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 $0.2 million and decreased by $10.6 million during the years ended December 31, 2018 and December 31, 2017, respectively. Included in the current year decrease to the valuation allowance is a $0.1 million increase related to discontinued operations. Included in the prior year decrease to the valuation allowance is a $2.3 million decrease related to discontinued operations. The decrease in tax year ended December 31, 2018 is primarily related to impacts of the sale of assets to Celularity, offset by a reduction to stock compensation deferred tax asset associated with cancelled awards and utilization of net operating losses. 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, offset by increases in net operating loss carryforwards.