Axogen, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2017

11. Income Taxes

The Tax Reform, which was signed into law on December 22, 2017, has resulted in significant changes in the U.S. corporate income tax system. The Tax Reform reduces the corporate income tax rate from 35% to 21%. The effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. As a result, we have remeasured our deferred tax assets and liabilities at December 31, 2017 based on the new Federal income tax rate of 21%. The Company has temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their respective income tax basis, as measured by enacted state and federal rates as follows:


December 31	2017		2016		2015

Deferred tax assets:
Net operating loss carryforwards	$	27,578,200	$	38,299,400	$	33,424,100
Charitable contributions		300		500		500
Inventory reserves		205,800		361,300		267,700
Amortization		22,800		89,500		51,400
Allowance for doubtful accounts		116,900		102,300		72,300
Stock-based compensation		519,900		341,400		260,600
Total deferred tax assets		28,443,900		39,194,400		34,076,600
Deferred tax liabilities:
Depreciation		(80,500)		(83,300)		(62,400)
Deferred revenue		(6,400)		-		-
Net deferred tax assets		28,357,000		39,111,100		34,014,200
Valuation allowance	$	(28,357,000)	$	(39,111,100)	$	(34,014,200)

As of December 31, 2017, the Company had net operating loss carry forwards of approximately $108.8 million to offset future taxable income which expire in various years through 2037. A valuation allowance is recorded to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more-likely-than-not that a portion or none of the deferred tax assets will be realized. After consideration of all the evidence, including reversal of deferred tax liabilities, future taxable income and other factors, management has determined that a full valuation allowance is necessary as of December 31, 2017, 2016 and 2015. The valuation allowance decreased by $10.8 million during 2017, primarily due to the remeasurement of our deferred tax assets and liabilities as a result of the Tax Reform, which amounted to $14.5 million, offset by the current year’s net operating loss of $3.7 million. During 2016 and 2015, the valuation allowance increased $5.1 million and $4.5 million, respectively, to offset the deferred tax benefit in the respective years. The difference between the financial statement income tax and the income tax benefit using statutory rates is primarily due to the decrease in the valuation allowance.

The Company had no income tax expense or income tax benefit for 2015, 2016 and 2017 due to incurrence of net operating losses. The Company does not believe there are any additional tax refund opportunities currently available.