| 13. | INCOME TAXES |
Income (loss) before provision for income taxes consists of the following:
| December 31, 2016 |
December 31, 2015 |
|||||||
|
United States |
$ | (8,905 | ) | $ | (6,494 | ) | ||
|
Foreign |
129 | 269 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | (8,776 | ) | $ | (6,225 | ) | ||
|
|
|
|
|
|||||
The provision for income taxes for the years ended December 31, 2016 and 2015, consists of the following:
| December 31, 2016 |
December 31, 2015 |
|||||||
|
Current Provision |
||||||||
|
Federal |
$ | — | $ | — | ||||
|
State |
6 | 4 | ||||||
|
Foreign |
263 | 1,553 | ||||||
|
|
|
|
|
|||||
|
Total current provision |
269 | 1,557 | ||||||
|
|
|
|
|
|||||
|
Deferred provision |
||||||||
|
Federal |
(84 | ) | 12 | |||||
|
State |
(12 | ) | 2 | |||||
|
|
|
|
|
|||||
|
Total deferred provision |
(96 | ) | 14 | |||||
|
|
|
|
|
|||||
|
Total provision for income taxes |
$ | 173 | $ | 1,571 | ||||
|
|
|
|
|
|||||
Components of deferred income tax assets and liabilities at December 31, 2016 and, 2015 are as follows:
| December 31, 2016 |
December 31, 2015 |
|||||||
|
Deferred income tax assets: |
||||||||
|
Net operating losses |
$ | 49,736 | $ | 47,618 | ||||
|
Research and development tax credits |
1,462 | 1,462 | ||||||
|
Bad debts |
— | 133 | ||||||
|
Deferred revenue |
2,458 | 3,647 | ||||||
|
Inventories |
238 | 174 | ||||||
|
Intangible assets and property |
2,043 | 2,302 | ||||||
|
Stock-based compensation |
3,555 | 3,358 | ||||||
|
Accrued expenses and other |
1,241 | 1,485 | ||||||
|
|
|
|
|
|||||
| 60,733 | 60,179 | |||||||
|
|
|
|
|
|||||
|
Deferred income tax liabilities: |
||||||||
|
Goodwill |
52 | 175 | ||||||
|
Prepaid expenses |
143 | 177 | ||||||
|
Deferred costs |
133 | 2,421 | ||||||
|
Unremitted Earnings of Foreign Subsidiaries |
27 | — | ||||||
|
|
|
|
|
|||||
| 355 | 2,773 | |||||||
|
|
|
|
|
|||||
|
Net deferred income tax assets |
60,378 | 57,406 | ||||||
|
Valuation allowance |
(60,457 | ) | (57,581 | ) | ||||
|
|
|
|
|
|||||
|
Carrying value of net deferred liability |
$ | (79 | ) | $ | (175 | ) | ||
|
|
|
|
|
|||||
A reconciliation of the U.S. statutory federal income tax rate and the Company’s effective income tax rate for the years ended December 31, 2016 and 2015 is as follows:
| December 31, 2016 |
December 31, 2015 |
|||||||
|
Federal statutory rate |
34.00 | % | 34.00 | % | ||||
|
State taxes — net of federal benefit |
0.12 | (0.06 | ) | |||||
|
Tax credits |
— | 2.40 | ||||||
|
Other permanent items |
(2.35 | ) | (1.45 | ) | ||||
|
Unremitted Earnings of Foreign Subs |
(2.08 | ) | — | |||||
|
Foreign withholding tax |
(1.88 | ) | (15.93 | ) | ||||
|
Valuation allowance |
(29.78 | ) | (44.19 | ) | ||||
|
|
|
|
|
|||||
|
Effective income tax rate |
(1.97 | )% | (25.23 | )% | ||||
|
|
|
|
|
|||||
As of December 31, 2016, the Company had $133,398 of federal net operating loss carryforwards that begin to expire in 2028, approximately $79,177 of state net operating loss carryforwards that expire from 2016 through 2028, and approximately $1,462 of research and development tax credits that begin to expire in 2028. The net operating loss carryforwards include approximately $71 for which a benefit will be recorded in additional paid-in capital when realized. In addition, the amount of the net operating loss and research and development tax credit carryforwards that may be utilized annually to offset future taxable income and tax liability may be limited as a result of certain ownership changes pursuant to Section 382 and 383 of the Internal Revenue Code.
The Company has completed a Section 382 study, through November 30, 2014, to assess if any ownership changes would have caused limitations to our net operating loss carryforwards. Based on that study, the Company has concluded an ownership change occurred on September 19, 2008 and therefore there is potential for $2,600 of net operating loss to be limited. For the period September 20, 2008 through November 30, 2014, the Company has determined that it is more likely than not that there has not been an ownership change under Section 382. We have not completed an updated Section 382 study for periods after November 30, 2014, and as such are not able to assess whether and ownership change has occurred that could cause limitations to our net operating loss carryforwards.
The net increase in the valuation allowance was $2,876 and $3,015 at December 31, 2016 and 2015, respectively. In assessing the realizability of carryforwards and other 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. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. In determining the need for a valuation allowance, we have assessed the available means of recovering deferred tax assets, including the ability to carryback net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies, and available sources of future taxable income. Based upon this analysis, it is not more likely than not that some portion or all of the deferred tax assets will be realized. The net deferred tax liability as of December 31, 2016 and 2015 includes deferred tax liabilities related to amortizable goodwill, which are anticipated to reverse in an indefinite future period and which are not currently available as a source of taxable income.
The Company recognizes in its consolidated financial statements only those tax positions that are “more-likely-than-not” of being sustained upon examination by taxing authorities, based on the technical merits of the position. The Company performed a comprehensive review of its material tax positions in accordance with recognition and measurement standards. Based on this review, the Company has concluded that there are no uncertain tax positions that would require recognition or disclosure within the consolidated financial statements, as of December 31, 2016 and 2015. In addition, there are no amounts required to be included in the financial statements for interest or penalties on uncertain tax positions.
The Company files federal and various state income tax returns. Due to federal and state net operating loss carryforwards, income tax returns from 2008 through 2015 remain open for examination, with limited exceptions. The Company’s 2009 federal return has been audited and the audit was closed without any changes to the return positions. In addition, the statute of limitations remains open for the Company’s Switzerland-based subsidiary for 2009 and subsequent periods.