GENOCEA BIOSCIENCES, INC. - 10-K filing on 2020-02-13

Income taxes

12 Months Ended

Dec. 31, 2019

For the years ended December 31, 2019 and 2018, the Company did not record a current or deferred income tax expense or benefit. The Company’s losses before income taxes consist solely of domestic losses. The significant components of the Company’s deferred tax assets are comprised of the following:



	December 31,
	2019			2018
Deferred tax assets:
U.S. and state net operating loss carryforwards	$	56,906		$	49,614
Capitalized R&D	28,427			25,366
Research and development credits	11,717			10,445
Lease liability	1,779			—
Stock-based compensation	1,053			1,989
Depreciation and amortization	545			640
Accrued expenses	507			450
Other temporary differences	38			85
Total deferred tax assets	100,972			88,589
Less valuation allowance	(99,249		)	(88,589		)
Deferred tax assets less valuation allowance	$	1,723		$	—

Deferred tax liabilities:
ROU asset	$	(1,723	)	$	—
Total deferred tax liabilities	(1,723		)	—
Net deferred tax assets (deferred tax liabilities)	$	—		$	—

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2019 and 2018. The valuation allowance increased approximately $10.7 million during the year ended December 31, 2019 due primarily to the generation of net operating losses.

A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes as reflected in the consolidated financial statements is as follows:



	Years ended December 31,
	2019		2018
Federal income tax expense at statutory rate	21.0	%	21.0	%
State income tax, net of federal benefit	6.3	%	8.9	%
Permanent differences	0.0	%	9.0	%
Research and development credit	3.3	%	6.7	%
Change in valuation allowance	(27.4	)%	(43.1	)%
Other, net	(3.2	)%	(2.5	)%
Effective tax rate	0.0	%	0.0	%

As of December 31, 2019 and 2018, the Company had U.S. federal net operating loss carryforwards of approximately $211.5 million and $184.8 million, respectively, which may be available to offset future income tax liabilities and expire at various dates through 2038. The federal net operating losses generated in tax years after December 31, 2017 can be carried forward indefinitely. As of December 31, 2019 and 2018, the Company also had U.S. state net operating loss carryforwards of approximately $197.7 million and $171.1 million, respectively, which may be available to offset future income tax liabilities and expire at various dates through 2039.

As of December 31, 2019 and 2018, the Company had federal research and development tax credit carryforwards of approximately $8.9 million and $7.8 million, respectively, available to reduce future tax liabilities which expire at various dates through 2039. As of December 31, 2019 and 2018, the Company had state research and development tax credit carryforwards of approximately $3.5 million and $3.2 million, respectively, available to reduce future tax liabilities which expire at various dates through 2034.

Under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financings since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Code, or could result in a change in control in the future.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2019 and 2018, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations and comprehensive loss.

For all years through December 31, 2019, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards. However, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position for these years. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

The Company files income tax returns in the United States and the Commonwealth of Massachusetts. The federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2015 through December 31, 2019. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state, or foreign tax authorities to the extent utilized in a future period.