NOTE J – INCOME TAXES
The components of loss before taxes for the years ended December 31, 2016, 2015 and 2014, consist of the following:
|
|
|
Years ended December 31, |
|
|||||||||
|
(in thousands) |
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Domestic |
|
$ |
(28,337 |
) |
|
$ |
(17,860 |
) |
|
$ |
(6,929 |
) |
|
Foreign |
|
|
(387 |
) |
|
|
(440 |
) |
|
|
— |
|
|
Total loss before income taxes |
|
$ |
(28,724 |
) |
|
$ |
(18,300 |
) |
|
$ |
(6,929 |
) |
Income tax expense differs from the amount computed by applying the statutory federal income tax rate as follows:
|
|
|
Years ended December 31, |
|
|||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Tax at statutory federal rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
State tax, net of federal benefit |
|
|
1.9 |
% |
|
|
1.8 |
% |
|
|
1.1 |
% |
|
Meals and entertainment |
|
|
(1.4 |
%) |
|
|
(2.0 |
% |
) |
|
(4.2 |
%) |
|
Stock-based compensation |
|
|
(1.9 |
%) |
|
|
(1.9 |
% |
) |
|
(0.8 |
%) |
|
Other |
|
|
0.7 |
% |
|
|
(0.3 |
% |
) |
|
0.8 |
% |
|
Change in valuation allowance |
|
|
(33.3 |
%) |
|
|
(31.6 |
% |
) |
|
(30.9 |
%) |
|
Total |
|
|
0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset (liability) were as follows:
|
|
|
Years ended December 31, |
|
|||||
|
(in thousands) |
|
2016 |
|
|
2015 |
|
||
|
Deferred tax asset: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
110 |
|
|
$ |
136 |
|
|
Inventories |
|
|
112 |
|
|
|
71 |
|
|
Accrued expenses |
|
|
363 |
|
|
|
158 |
|
|
Property and equipment |
|
|
44 |
|
|
|
97 |
|
|
Research and development credits generated |
|
|
1,440 |
|
|
|
1,091 |
|
|
Net operating loss carryforward |
|
|
47,883 |
|
|
|
40,185 |
|
|
Stock-based compensation expense |
|
|
2,286 |
|
|
|
780 |
|
|
Other |
|
|
69 |
|
|
|
32 |
|
|
Total deferred tax assets |
|
|
52,307 |
|
|
|
42,550 |
|
|
Valuation allowance |
|
|
(51,899 |
) |
|
|
(42,299 |
) |
|
Total deferred tax assets, net of valuation allowance |
|
|
408 |
|
|
|
251 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Prepaid expense |
|
|
(395 |
) |
|
|
(251 |
) |
|
Definite-lived intangible assets |
|
|
(13 |
) |
|
|
— |
|
|
Goodwill |
|
|
(6 |
) |
|
|
— |
|
|
Total deferred tax liabilities |
|
|
(414 |
) |
|
|
(251 |
) |
|
Net deferred tax liabilities |
|
$ |
(6 |
) |
|
$ |
— |
|
In assessing the realization 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.
Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, the Company has recorded a valuation allowance against its net deferred tax assets, excluding the indefinite-lived goodwill deferred tax liabilities as of December 31, 2016 and 2015. The Company’s valuation allowance increased by $9.6 million and $5.7 million in 2016 and 2015, respectively, due to the increase in total deferred tax assets.
As of December 31, 2016 and 2015, the Company had federal tax net operating loss carryforwards of approximately $138.5 million and $116.4 million, respectively, which will be available to offset earnings during the carryforward period. If not used, these carryforwards begin to expire in 2026. The Company’s research and development credit carryforwards, if not used, begin to expire in 2026.
At December 31, 2016, there were $1.6 million of unrecognized deferred tax assets that arose from tax deductions for equity compensation in excess of compensation recognized for financial reporting during years when net operating losses were created. Since the Company has adopted ASU 2016-09 effective January 1, 2017, these deferred tax assets will become recognized but will be subject to a full valuation allowance. As such, there will be no net impact on the financial statements from this adoption.
At December 31, 2016 and 2015 the total unrecognized tax benefit was zero. The Company does not believe that its unrecognized tax benefits will significantly change within the next 12 months.
The Company’s 2006 to 2016 tax years remain open and subject to examination by the United States. The Company remains subject to possible examination in various other jurisdictions that are not expected to result in material tax adjustments.