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Taxes | 12 Months Ended
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Dec. 31, 2017
Taxes |
Taxes | 13. Taxes (Loss) income from continuing operations before taxes is comprised of the following components for the years ended December 31, 2016 and 2017 (in thousands):
|  |  | Year Ended December 31, |
|  |  | 2016 |  |  | 2017 |
Domestic |  |  |  | $ | (2,011) |  |  |  |  | $ | (127) |  |
Foreign |  |  |  |  | (11,763) |  |  |  |  |  | (8,336) |  |
Loss from continuing operations before taxes |  |  |  | $ | (13,774) |  |  |  |  | $ | (8,463) |  |
The benefit (provision) for income taxes from continuing operations consists of the following (in thousands):
|  |  | Year Ended December 31, |
|  |  | 2016 |  |  | 2017 |
Current – domestic |  |  |  | $ | — |  |  |  |  | $ | — |  |
Current – foreign |  |  |  |  | 1,983 |  |  |  |  |  | 993 |  |
Current – total |  |  |  |  | 1,983 |  |  |  |  |  | 993 |  |
Deferred – domestic |  |  |  |  | — |  |  |  |  |  | — |  |
Income tax benefit |  |  |  | $ | 1,983 |  |  |  |  | $ | 993 |  |
The Company has incurred a taxable loss in each of the operating periods since incorporation. The income tax credits of $2.0 million and $1.0 million for the years ended December 31, 2016 and 2017, respectively, represent UK research and development (“R&D”) tax credits for expenditures in the United Kingdom that are refundable. A reconciliation of the (benefit) provision for income taxes from continuing operations with the amount computed by applying the statutory federal tax rate to loss from continuing operations before income taxes is as follows (in thousands):
|  |  | Year Ended December 31, |
|  |  | 2016 |  |  | 2017 |
Loss from continuing operations before taxes |  |  |  | $ | (13,774) |  |  |  |  | $ | (8,463) |  |
Income tax expense computed at statutory federal tax rate |  |  |  |  | (4,683) |  |  |  |  |  | (2,877) |  |
Disallowed expenses and non-taxable income |  |  |  |  | 12 |  |  |  |  |  | 3 |  |
Loss surrendered to generate R&D credit |  |  |  |  | 1,945 |  |  |  |  |  | 856 |  |
Additional research and development tax relief |  |  |  |  | (2,827) |  |  |  |  |  | (1,262) |  |
Change in valuation allowance |  |  |  |  | 2,029 |  |  |  |  |  | (4,487) |  |
Foreign items, including change in tax rates, and other |  |  |  |  | 1,238 |  |  |  |  |  | 1,901 |  |
Change in US Tax Rate |  |  |  |  | — |  |  |  |  |  | 4,112 |  |
Other foreign items |  |  |  |  | 303 |  |  |  |  |  | 761 |  |
|  |  |  | $ | (1,983) |  |  |  |  | $ | (993) |  |
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“Tax Act”), which made significant changes to U.S. federal income tax law. The Company expects that certain aspects of the Tax Act will positively impact the Company’s future after-tax earnings in the U.S., primarily due to the lower federal statutory tax rate. Set forth below is a discussion of certain provisions of the Tax Act and our preliminary assessment of the effect of such provisions on the Company’s results of operations, cash flows and consolidated financial statements. The Tax Act will affect 2018 and forward, including but not limited to a reduction in the federal corporate rate from 35.0% to 21.0%, elimination of the corporate alternative minimum tax, a new limitation on the deductibility of certain executive compensation, limitations on net operating losses generated after December 31, 2017 and various other items. We do not expect these changes to have a material impact on our financial statements due to the accumulated net operating losses in the U.S. The Tax Act provides for a one-time “deemed repatriation” of accumulated unrepatriated foreign earnings determined as of November 2, 2017, or December 31, 2017, whichever is greater. We do not expect to be subject to this provision due to the accumulated deficit in our foreign earnings for tax purposes. The Tax Act also created a new requirement that certain income earned by controlled foreign corporations must be included currently in the gross income of the U.S. shareholder under the Global Intangible Low-Taxed Income (GILTI) provision. We do not expect that any future foreign earnings will be subject to GILTI due to our US net operating losses. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Act. SAB 118 provides for a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act. Based on our initial analysis of the Tax Act, the Company has made reasonable estimates of its 2017 impact. As a result of the federal corporate tax rate reduction from 35% to 21%, we re-measured certain deferred tax assets and liabilities, which resulted in a reduction in our DTA of approximately $4.1 million, that was offset by a decrease in our valuation allowance. As guidance and technical corrections, if any, are provided in the upcoming quarters, the Company will adjust its provisional estimates as required. The primary difference between the income tax benefit at the statutory rate and the Company’s effective income tax expense for the year ended December 31, 2017 was primarily attributable to the change in our valuation allowance and foreign operations. Significant components of the Company’s deferred tax assets are shown below (in thousands):
|  |  | Year Ended December 31, |
|  |  | 2016 |  |  | 2017 |
Net operating loss and tax credit carryforwards |  |  |  | $ | 42,851 |  |  |  |  | $ | 38,948 |  |
Depreciation, amortization and impairment of property and equipment |  |  |  |  | 137 |  |  |  |  |  | 111 |  |
Stock options |  |  |  |  | 2,365 |  |  |  |  |  | 1,807 |  |
Research and development credits |  |  |  |  | 4,021 |  |  |  |  |  | 4,021 |  |
Other |  |  |  |  | — |  |  |  |  |  | — |  |
Deferred tax assets |  |  |  |  | 49,374 |  |  |  |  |  | 44,887 |  |
Valuation allowance for deferred tax assets |  |  |  |  | (49,374) |  |  |  |  |  | (44,887) |  |
Net deferred tax assets |  |  |  | $ | — |  |  |  |  | $ | — |  |
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. The Company adopted a 17% tax rate as of December 31, 2017 in respect of the measurement of deferred taxes arising in the United Kingdom, which reflects the currently enacted tax rate and the anticipated timing of the unwinding of the deferred tax balances. In respect of the measurement of deferred taxes arising in the U.S, the Company has adopted a 21% tax rate as of December 31, 2017. This has reduced from 34% as of December 31, 2016 due to changes in U.S. tax laws enacted in December 2017. The effect of the change in tax rates on the consolidated statement of operations is $nil, after consideration of the change in valuation allowance. A valuation allowance has been established, as realization of such assets is uncertain. The Company’s management evaluated the positive and negative evidence bearing upon the realizability of its deferred assets, and has determined that, at present, the Company may not be able to recognize the benefits of the deferred tax assets under the more likely than not criteria. Accordingly, a valuation allowance of approximately $44.9 million has been established at December 31, 2017. The valuation allowance has decreased by approximately $4.5 million in 2017. In certain circumstances, as specified in the Tax Reform Act of 1986, due to ownership changes, the Company’s ability to utilize its net operating loss (“NOL”) carryforwards may be limited. The benefit of deductions from the exercise of stock options is included in the NOL carryforwards. As of December 31, 2016 and 2017, the Company had federal NOLs of $28.4 million and $28.4 million and foreign NOLs of $178.2 million and $186.2 million, respectively. The Company’s federal NOLs will start to expire in 2026, and the state NOLs totaling $18.7 million will start expiring in 2023. The Company’s foreign NOL’s do not expire under UK tax law. However, for losses created after April 1, 2017 the use of these NOLs is restricted to an annual £5 million allowance in each standalone company or group and above this allowance, there will be a 50% restriction in the profits that can be covered by losses brought forward. The amount of profits restricted for the year ended December 31, 2017 is $0. As of December 31, 2017, the Company had a US R&D credit carryforward of $4.0 million which will start expiring in 2019. Utilization of the NOLs may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed a Section 382 study as of June 30, 2014 noting there was no ownership change from the Company’s formation through that date. No update to this study has been performed through December 31, 2017. Management has evaluated all significant tax positions at December 31, 2016 and 2017 and concluded that there are no material uncertain tax positions. The Company would recognize both interest and penalties related to unrecognized benefits in income tax expense. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception. Tax year 2016 remains open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United Kingdom and the United States, as carryforward attributes generated in years past may still be adjusted upon examination by the United Kingdom’s H.M. Revenue & Customs, the Internal Revenue Service (“IRS”) or state tax authorities. The Company is currently not under examination by the IRS or any other jurisdictions for any tax years. We have not provided a deferred tax liability on the cumulative amount of unremitted foreign earnings of international subsidiaries because it is our intent to permanently reinvest such earnings outside of the United States. The Company has an aggregate deficit in foreign earnings and therefore has not provided any deferred tax liability on its outside book-tax basis difference in its foreign subsidiaries and because it is also our intent to permanently reinvest any earnings outside of the United States. We would recognize this deferred tax liability if we were to experience a change in circumstances producing a change in that intention. As a result of the repeal of the Section 902 foreign tax credit under the Tax Act, future distributions would not be offset by a foreign tax credit.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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