Annual report pursuant to Section 13 and 15(d)

Note 11 - Income Taxes

v3.19.1
Note 11 - Income Taxes
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
11.
Income Taxes
 
No
provision for income taxes has been recorded due to the net operating losses incurred from inception to date, for which
no
benefit has been recorded.
 
A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:
 
   
Year Ended
 
   
December 31,
 
   
2018
   
2017
 
                 
Income tax provision (benefit) at statutory rate
   
(21
)%    
(34
)%
State income taxes, net of federal benefit
   
(4
)%    
(4
)%
Change in valuation allowance
   
23
%    
4
%
Effect of tax legislation
   
0
%    
33
%
Other
   
2
%    
1
%
Effective tax rate
   
0
%    
0
%
 
The components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):
 
   
December 31,
 
   
2018
   
2017
 
Deferred tax assets:
               
Net operating loss carryforwards
  $
31,759
    $
19,699
 
Capitalized start up costs
   
3,555
     
3,963
 
Research and development credits
   
951
     
835
 
Accruals and reserves
   
1,272
     
1,403
 
Fixed assets and depreciation
   
69
     
39
 
Total deferred tax assets
   
37,606
     
25,939
 
Valuation allowance
   
(37,606
)    
(25,939
)
                 
Net deferred tax assets
  $
-
    $
-
 
   
The Company has recorded a full valuation allowance for its deferred tax assets based on it past losses and the uncertainty regarding the ability to project future taxable income. The valuation allowance increased by approximately
$11,667,000
and
$1,501,000
during the years ended
December 31, 2018
and
2017,
respectively.
 
As of
December 31, 2018,
the Company has net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately
$126,893,000
and
$97,677,000,
respectively, which expire beginning in the year
2026.
 
The Company also has federal and California research and development tax credits of approximately
$830,000
and
$668,000,
respectively. The federal research credits will begin to expire in
2026
and the California research and development credits have
no
expiration date.
 
Utilization of the NOL and research and development credit carryforwards
may
be subject to a substantial annual limitation due to ownership changes that have occurred previously or that could occur in the future, as provided by Section
382
of the Internal Revenue Code of
1986,
as well as similar state provisions. Ownership changes
may
limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section
382,
results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than
50
percentage points over a
three
-year period. If the Company has experienced a change of control, utilization of its NOL or tax credits carryforwards would be subject to an annual limitation under Section
382.
Any limitation
may
result in expiration of a portion of the NOL or research and development credit carryforwards before utilization. Subsequent ownership changes could further impact the limitation in future years. Until a Section
382
study is completed and any limitation known,
no
amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s NOL carryforwards and research and development credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be
no
net impact to the consolidated balance sheets or the consolidated statements of operations if an adjustment were required.
 
As of
December 31, 2018,
the Company had
not
accrued any interest or penalties related to uncertain tax positions.
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
 
   
Year Ended
 
   
December 31,
 
   
2018
   
2017
 
                 
Balance at the beginning of the year
  $
397
    $
268
 
Additions based upon tax positions related to the current year
   
53
     
129
 
Balance at the end of the year
  $
450
    $
397
 
 
If the ending balance of
$450,000
of unrecognized tax benefits as of
December 31, 2018
were recognized,
none
of the recognition would affect the income tax rate. The Company does
not
anticipate any material change in its unrecognized tax benefits over the next
twelve
months. The unrecognized tax benefits
may
change during the next year for items that arise in the ordinary course of business.
 
The Company files U.S. federal and state income tax returns with varying statutes of limitations. All tax years since inception remain open to examination due to the carryover of unused net operating losses and tax credits.
 
On
December 22, 2017,
the United States enacted a law commonly known as the Tax Cuts and Jobs Act (“TCJA”) which makes widespread changes to the Internal Revenue Code, including a reduction in the federal corporate tax rate to
21%,
and repatriation of accumulated foreign accumulated earnings and profits, effective
January 1, 2018. 
 
The Company is required to recognize the effect on deferred tax assets and liabilities due to a change in tax rates in the period the tax rate change was enacted. The carrying value of the Company’s U.S. deferred taxes is determined by the enacted U.S. corporate income tax rate. Consequently, the reduction in the U.S. corporate income tax rate impacts the carrying value of our deferred tax assets. Under the new corporate income tax rate of
21%,
the Company’s U.S. net deferred tax asset position has decreased as has the related valuation allowance. The Company has also considered the impact of the transition tax for which it has estimated it does
not
need to accrue a liability as the operations of Viveve BV are immaterial. Uncertainty regarding the impact of tax reform remains, as a result of factors including future regulatory and rulemaking processes, the prospects of additional corrective or supplemental legislation, potential trade or other litigation, and other factors.