ZEVRA THERAPEUTICS, INC. - 10-K filing on 2017-03-10

Note M - Income Taxes

12 Months Ended

Dec. 31, 2016

M.	Income Taxes

The Company

’s financial statements include a total state tax benefit of

$15,000,

$15,000

and

$22,000

on a loss before income taxes of

$16.5

million,

$54.6

million and

$24.5

million for the years ended

December

31,

2016,

2015

and

2014,

respectively. A reconciliation of the difference between the benefit for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows (in thousands):

	Year ended December 31,
	2016			2015			2014
Federal statutory rate		34.00	%		34.00	%		34.00	%
Effect of:
Change in valuation allowance		(69.31	)		(19.25	)		(32.88	)
Return to provision and deferred true-up		(23.83	)		—			0.36
Change in rate		(14.63	)		—			—
State tax benefit (net of federal)		15.64			4.06			5.96
Warrant liability		68.44			(15.28	)		(9.39	)
State research and development credit		0.09			0.03			0.09
Federal research and development credit		5.65			0.84			3.29
Amortization		(3.15	)		—			—
Conversion feature and put option on 2013 convertible notes		—			(1.68	)		(1.26	)
Interest expense		—			—			0.21
Stock-based compensation		(12.71	)		(1.28	)		—
Other		(0.10	)		(1.42	)		(0.29	)
Federal income tax provision effective rate		0.09	%		0.02	%		0.09	%

The components of deferred tax assets and liabilities are as follows (in thousands):

	December 31,			December 31,			December 31,
	2016			2015			2014
Deferred tax assets relating to:
Net operating loss carryforwards	$	44,984		$	26,617		$	16,390
Research and development tax carryforward		3,166			2,254			1,793
Compensation		715			232			83
Total gross deferred tax assets		48,865			29,103			18,266
Deferred tax liabilities relating to:
Property and equipment		89			80			170
Total gross deferred tax liabilities		89			80			170
Deferred tax assets less liabilities		48,776			29,023			18,096
Valuation allowance		(48,776	)		(29,023	)		(18,096	)
Net deferred tax asset (liability)	$	—		$	—		$	—

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax

assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences in the future.

The Company had the following federal net operating loss carryforward and research activities credits as of

December

31,

2016

(in thousands):

	Net Operating		Research
Year Incurred	Loss Carryforwards		Activities Credit		Expiration
2007	$	454	$	30		2027
2008		1,178		65		2028
2009		3,060		176		2029
2010		3,423		149		2030
2011		9,929		176		2031
2012		—		170		2032
2013		4,353		133		2033
2014		15,819		894		2034
2015		24,189		461		2035
2016		40,959		912		2036
	$	103,364	$	3,166

The Company also has certain state net operating loss carryforwards totaling

$108.6

million that expire between

2027

and

2036.

Due to potential ownership changes that

may

have occurred or would occur in the future, IRC Section

382

may

place additional l

imitations on the Company’s ability to utilize the net operating loss carryforward.

Financial Interpretation No.

(“

FIN

48”),

Accounting for Uncertainty in Income Taxes

, uses the term “more likely than not” to evaluate whether or not a tax position will be sustained upon examination. The Company has not identified any tax positions that do not meet the more likely than not threshold.