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SEC Filings

10-K
SERES THERAPEUTICS, INC. filed this Form 10-K on 03/06/2019
Entire Document
 

 

SERES THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

 

 

As of December 31, 2018, the Company had net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of $185,583 and $185,927, respectively. Federal NOLs of $119,781, generated before 2018, will begin expiring in varying amounts in 2035 unless utilized. The remaining federal NOLs of $65,801, generated after 2017, will be carried forward indefinitely and could be used to offset up to 80% of taxable income of each future tax year. Massachusetts does not follow federal time periods for NOLs and as such the Company’s Massachusetts NOLs of $185,927 will expire in at various times starting in 2035. As of December 31, 2018, the Company also had available research and development tax credit carryforwards for federal and state income tax purposes of $28,638 and $4,916, respectively, which begin to expire in 2031 and 2028, respectively. The federal research and development tax credits include an orphan drug credit carryforward of $17,552. Utilization of the NOLs and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. 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% over a three-year period. Since our formation, the Company has raised capital through the issuance of capital stock on several occasions. These financings, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of control as defined by Section 382 or could result in a change of control in the future upon subsequent disposition. The Company conducted an analysis under Section 382 to determine if historical changes in ownership through August 31, 2015 would limit or otherwise restrict its ability to utilize these NOLs and research and development credit carryforwards. As a result of this analysis, the Company does not believe there are any significant limitations on its ability to utilize these carryforwards. However, future changes in ownership after August 31, 2015 could affect the limitation in future years. Any limitation may result in expiration of a portion of the NOLs or research and development credit carryforwards before utilization.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2018 and 2017. Management reevaluates the positive and negative evidence at each reporting period.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2018, 2017 and 2016 related primarily to the increases in NOLs, research and development tax credit carryforwards, stock-based compensation and decrease of the deferred rate due to tax reform were as follows:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Valuation allowance at beginning of year

 

$

(94,126

)

 

$

(82,994

)

 

$

(32,777

)

Decreases recorded as benefit to income tax provision

 

 

 

 

 

29,546

 

 

 

 

Increases recorded to income tax provision

 

 

(37,883

)

 

 

(40,678

)

 

 

(50,217

)

Valuation allowance as of end of year

 

$

(132,009

)

 

$

(94,126

)

 

$

(82,994

)

 

As of December 31, 2018, 2017, and 2016, the Company had no unrecognized tax benefits.  Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense. The Company does not expect any significant change in its uncertain tax positions in the next 12 months.

During the year ended December 31, 2016, the Company was awarded a tax incentive for job creation from the Massachusetts Life Sciences Center. The program was established in 2008 in order to incentivize life sciences companies to create new sustained jobs in Massachusetts. Jobs must be maintained for at least five years, during which time the grant proceeds can be recovered by the Massachusetts Department of Revenue if the Company does not meet and maintain its job creation commitments. The award was received in 2016 and recorded in other current liabilities as of December 31, 2016 as the Company did not meet the job creation commitments.  During the year ended December 31, 2018, the Company met the job creation commitments and recorded $170 as other income in the consolidated statement of operations for the portion of the award earned through the year ended December 31, 2018. The balance of the incentive award has been recorded in the Company’s consolidated balance sheet as a liability until such time that the award is fully earned.

 

 

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