Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 12. Income Taxes

The income tax provision consists of the following ($ in thousands):

	As of December 31,
	2018			2017
Federal
Current	$	—		$	—
Deferred		(477	)		14,376
Decrease in valuation allowance		477			(14,376	)
State and local
Current		—			—
Deferred		(92	)		(1,416	)
(Decrease) Increase in valuation allowance		92			1,416
Change in valuation Allowance		569			(12,960	)
Income Tax Provision (Benefit)	$	—		$	—

The following is a reconciliation of the U.S. federal statutory rate to the effective income tax rates for the years ended December 31, 2018 and 2017:

	For the years ended December 31,
	2018			2017
U.S. Statutory Federal Rate		21	%		34	%
Federal tax rate change		—	%		(456.08	)%
State Taxes, Net of Federal Tax Benefit		3.91	%		2.28	%
Other Permanent Differences		1.77	%		3.12	%
State rate change in effect		—	%		—	%
Fair Value of Warrants		8.99	%		(1.23	)%
Increase due to true up of State NOL		—			26.00
Decrease due to change in Federal NOL and other true ups		(2.72	%)		(0.12	)%
Change in Valuation Allowance		(32.94	%)		392.03	%
Income Tax Provision (Benefit)		0.0			0.0

At December 31, 2018 and 2017, the Company’s deferred tax assets and liabilities 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 carryforward	$	12,163		$	9,608
Stock based compensation		5,444			5,368
Patent portfolio and other		9,183			11,244
Total Deferred Tax assets		26,790			26,220
Valuation allowance		(26,790	)		(26,220	)
Deferred Tax Asset, Net of Allowance	$	—		$	—

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 deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. The Company has determined that, based on objective evidence currently available, it is more likely than not the deferred tax assets will not be realized in future periods. Accordingly, the Company has provided a full allowance for the deferred tax assets at December 31, 2018 and 2017. As of December 31, 2018, the change in valuation allowance is approximately $569 thousand.

Under the Act, corporations are no longer subject to the Alternative Minimum Tax (AMT), effective for taxable years beginning after Dec. 31, 2017. However, where a corporation has an AMT credit from a prior taxable year, the corporation will continue to carry the credit forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50 percent of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has an AMT credit carryforward of $40,932 as of December, 31, 2018. The Company will request the following refunds for the tax years ended December 31, 2019 through December 31, 2021:

Tax Year Ended:	AMT Credit Refund Request
December 31, 2019	$	20,466
December 31, 2020		10,233
December 31, 2021		10,233
	$	40,932

On December 22, 2017, “H.R.1”, formerly known as the “Tax Cuts and Jobs Act”, was signed into law. Among other items, H.R.1 reduced the federal corporate tax rate to 21% from the existing maximum rate of 35%, effective January 1, 2018. 

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 $15.08 million, but which was fully and equally offset by a deferred tax benefit related to a corresponding reduction in our valuation allowance. 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 in an immaterial change in the net deferred tax asset, before valuation allowance, as of the enactment date.

As of December 31, 2018, the Company had federal and state net operating loss carryovers (“NOLs”) of approximately $52.53 million, which expire from 2039 through 2038. The NOL carryover may be subject to limitation under Internal Revenue Code section 382, should there be a greater than 50% ownership change as determined under the regulations. 

As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of NOL or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

If applicable, interest costs and penalties related to unrecognized tax benefits are required to be calculated and would be classified as interest and penalties in general and administrative expense in the statement of operations. As of December 31, 2018 and 2017, no liability for unrecognized tax benefit was required to be reported. No interest or penalties were recorded during the years ended December 31, 2018 and 2017. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company files U.S. federal and state income tax returns. As of December 31, 2018, the Company’s U.S. and state tax returns (California, Delaware, Maryland, New York, New York City, Virginia, Pennsylvania and Texas) remain subject to examination by tax authorities beginning with the tax return filed for the year ended December 31, 2015, however, there were no audits pending in any of the above-mentioned jurisdictions during 2018. The Company believes that its income tax positions would be sustained upon an audit and does not anticipate any adjustments that would result in material changes to its consolidated financial position.