Income Taxes
The following is a summary of the components of income tax expense applicable to loss before income taxes (in thousands): |
| | | | | | | | | | | |
| Years ended December 31, |
| 2016 | | 2015 | | 2014 |
Current: | | | | | |
Federal | $ | — |
| | $ | — |
| | $ | — |
|
State | (9 | ) | | — |
| | — |
|
Foreign | 88 |
| | 318 |
| | 1,812 |
|
Total current tax expense | $ | 79 |
| | $ | 318 |
|
| $ | 1,812 |
|
Deferred: | | | | | |
Federal | $ | — |
| | $ | — |
| | $ | — |
|
State | — |
| | — |
| | — |
|
Foreign | 1,408 |
| | (86 | ) | | (432 | ) |
Total deferred tax expense | $ | 1,408 |
| | $ | (86 | ) | | $ | (432 | ) |
Total tax expense | $ | 1,487 |
| | $ | 232 |
| | $ | 1,380 |
|
A reconciliation of the expected tax expense (benefit) to the actual tax expense is as follows (in thousands): |
| | | | | | | | | | | |
| Years ended December 31, |
| 2016 | | 2015 | | 2014 |
Expected tax expense (benefit) at statutory rate (e.g. 34%) | $ | (4,644 | ) | | $ | (929 | ) | | $ | 1,094 |
|
State taxes, net of Federal effect | (348 | ) | | — |
| | — |
|
Foreign rate differential | 391 |
| | 328 |
| | (386 | ) |
Valuation allowance | 7,004 |
| | 218 |
| | 260 |
|
Permanent differences | 687 |
| | 40 |
| | 237 |
|
Tax credit carry-forwards | (896 | ) | | (674 | ) | | — |
|
Tax on accumulated earnings from prior year | 29 |
| | 1,348 |
| | — |
|
Tax paid to overseas | 71 |
| | — |
| | — |
|
Tax expense adjustments after tax return for prior | (837 | ) | | — |
| | — |
|
Foreign currency translation | 124 |
| | — |
| | — |
|
Other | (94 | ) | | (99 | ) | | 175 |
|
Total tax expense | $ | 1,487 |
| | $ | 232 |
| | $ | 1,380 |
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows (in thousands):
|
| | | | | | | |
| 2016 | | 2015 |
Deferred tax assets: | | | |
Net operating loss, capital loss, and tax credit carryforwards | $ | 14,243 |
| | $ | 1,907 |
|
Reduction of gross deferred tax assets due to built-in loss limitation | (4,402 | ) | | — |
|
Fixed assets and intangible assets | 3,775 |
| | 217 |
|
Inventory and other reserves | 4,573 |
| | 513 |
|
Other | 2,661 |
| | 197 |
|
Gross deferred tax assets | 20,850 |
| | 2,834 |
|
Less valuation allowance | (20,850 | ) | | (1,449 | ) |
Total net deferred tax assets | $ | — |
| | $ | 1,385 |
|
For the years ended December 31, 2016 and 2015, the net changes in the valuation allowance were an increase of $19.4 million and $0.2 million, respectively. The Company recorded a full valuation allowance against the net deferred tax assets at December 31, 2016 since it is more likely than not that the net deferred tax assets will not be realized due to the lack of previously paid taxes and anticipated taxable income.
As of December 31, 2016, the Company had net operating loss carryforwards for federal, state, and foreign income tax purposes of approximately $29.0 million, $43.9 million, and $2.1 million, respectively. The federal losses begin to expire in 2025. The state losses begin to expire in 2017. The foreign losses begin to expire in 2026.
As of December 31, 2016, the Company had research credit carryforwards of approximately $0.1 million, $0.1 million, and $1.2 million for federal, state, and foreign income tax purposes, respectively. If not utilized, the federal carryforward will expire in various amounts beginning in 2036. The state credit can be carried forward indefinitely. If not utilized, the foreign credit carryforward will expire in 2021.
As of December 31, 2016, the Company also had alternative minimum tax credit carryforward for federal income tax purposes of approximately $0.1 million which are available to reduce future income taxes, if any over an indefinite period.
Pursuant to Sections 382 and 383 of the Code, annual use of the Company's net operating losses and tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year-period. The Company had an ownership change in September 2016, which resulted in an annual limitation on the amount of net operating losses and tax credit carryforwards which arose prior to that date that the Company can utilize.
In accordance with ASC 740 the Company is require to inventory, evaluate, and measure all uncertain tax positions taken or to be taken on tax returns, and to record liabilities for the amount of such positions that may not be sustained, or may only be partially sustained, upon examination by the relevant taxing authorities. At December 31, 2016, the Company had gross unrecognized tax benefits of $0.1 million, none of which if recognized, would reduce the effective tax rate in a future period, due to the Company's full valuation allowance.
A reconciliation of the beginning and ending unrecognized tax benefit amounts for 2016 and 2015 are as follows (in thousands):
|
| | | |
Balance at December 31, 2014 | $ | — |
|
Increases related to prior year tax positions | — |
|
Decreases related to prior year tax positions | — |
|
Increases related to current year tax positions | — |
|
Settlements | — |
|
Lapse of statute of limitations | — |
|
Balance at December 31, 2015 | — |
|
Increases related to prior year tax positions | — |
|
Decreases related to prior year tax positions | — |
|
Increases related to current year tax positions | 77 |
|
Settlements | — |
|
Lapse of statute of limitations | — |
|
Balance at December 31, 2016 | $ | 77 |
|
It is the Company's policy to account for interest and penalties related to uncertain tax positions as interest expense and general administrative expense, respectively in its statement of operations. The Company did not record any interest and penalty (benefit) expense during the year ended December 31, 2016 and 2015.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The open tax years for the major jurisdictions are as follows:
|
| |
• Federal | 2013 - 2016 |
• California and Canada | 2012 - 2016 |
• Brazil | 2011 - 2016 |
• Germany | 2012 - 2016 |
• Japan | 2011 - 2016 |
• Korea | 2015 - 2016 |
• United Kingdom | 2014 - 2016 |
• Vietnam | 2016 |
However, due to the fact the Company had net operating losses and credits carried forward in most jurisdictions, certain items attributable to closed years are still subject to adjustment by the relevant taxing authority through an adjustment to tax attributes carried forward to open years.
The Company estimates that its foreign income will generally be subject to taxation in the United States on a current basis and that its foreign subsidiaries and representative offices will therefore not have any material untaxed earnings subject to deferred taxes. In addition, to the extent the Company is deemed to have sufficient connection to a particular taxing jurisdiction to enable that jurisdiction to tax the Company but the Company has not filed an income tax return in that jurisdiction for the year(s) at issue, the jurisdiction would typically be able to assert a tax liability for such years without limitation on the number of years it may examine.
The Company is not currently under examination for income taxes in any material jurisdiction.