11. INCOME TAXES
Income tax expense differed from the amount computed by applying the federal statutory income tax rate of 34% to pretax loss as a result of the following (in thousands):
|
|
|
Fiscal Year Ended January 31, |
|
|||||||||||||||||||||
|
|
|
2017 |
|
|
Rate |
|
|
2016 |
|
|
Rate |
|
|
2015 |
|
|
Rate |
|
||||||
|
Federal tax at statutory rate |
|
$ |
(4,403 |
) |
|
|
34 |
% |
|
$ |
(4,787 |
) |
|
|
34 |
% |
|
$ |
(2,350 |
) |
|
|
34 |
% |
|
Change in valuation allowance |
|
|
4,881 |
|
|
|
(38 |
)% |
|
|
4,502 |
|
|
|
(32 |
)% |
|
|
2,132 |
|
|
|
(31 |
)% |
|
State taxes |
|
|
(230 |
) |
|
|
2 |
% |
|
|
(261 |
) |
|
|
2 |
% |
|
|
(437 |
) |
|
|
6 |
% |
|
Stock-based compensation |
|
|
387 |
|
|
|
(3 |
)% |
|
|
691 |
|
|
|
(5 |
)% |
|
|
92 |
|
|
|
(1 |
)% |
|
Research and development credit |
|
|
(738 |
) |
|
|
6 |
% |
|
|
(273 |
) |
|
|
2 |
% |
|
|
(192 |
) |
|
|
3 |
% |
|
Permanent tax adjustment |
|
|
103 |
|
|
|
(1 |
)% |
|
|
128 |
|
|
|
(1 |
)% |
|
|
23 |
|
|
|
— |
|
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
230 |
|
|
|
(3 |
)% |
|
Total |
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
(502 |
) |
|
|
8 |
% |
Income tax expense differs from the amount computed by applying the statutory federal income tax rate primarily as the result of changes in the valuation allowance.
The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities related to the following (in thousands):
|
|
|
As of January 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Accruals and reserves |
|
$ |
2,623 |
|
|
$ |
2,297 |
|
|
Stock-based compensation |
|
|
1,887 |
|
|
|
1,334 |
|
|
Intangible assets amortization |
|
|
101 |
|
|
|
110 |
|
|
Deferred revenue |
|
|
182 |
|
|
|
13 |
|
|
Net operating loss carry forwards |
|
|
28,120 |
|
|
|
24,869 |
|
|
Tax credit carryover |
|
|
2,296 |
|
|
|
1,558 |
|
|
Gross deferred tax assets |
|
|
35,209 |
|
|
|
30,181 |
|
|
Valuation allowance |
|
|
(34,900 |
) |
|
|
(29,868 |
) |
|
Net deferred tax assets |
|
$ |
309 |
|
|
$ |
313 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Acquired intangible assets |
|
$ |
(183 |
) |
|
$ |
(301 |
) |
|
Fixed assets depreciation |
|
|
(126 |
) |
|
|
(12 |
) |
|
Gross deferred tax liabilities |
|
$ |
(309 |
) |
|
$ |
(313 |
) |
|
Total deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (or loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, is not more likely than not to be realized.
Management believes that, based on available evidence, both positive and negative, it is more likely than not that the deferred tax assets will not be utilized, such that a full valuation allowance has been recorded. The valuation allowance for deferred tax assets was $34.9 million, $29.9 million and $25.8 million as of January 31, 2017, 2016 and 2015, respectively. The net change in the total valuation allowance for the year ended January 31, 2017 was an increase of $5.0 million.
On January 31, 2017, the Company had approximately $72.9 million and $57.5 million of net operating loss (NOL) carryforwards available to offset future taxable income for both federal and state purposes, respectively. If not utilized, these available carryforward losses will expire in various amounts for federal and state tax purposes beginning in 2030.
In addition, the Company had approximately $2.4 million and $2.1 million of federal and state research and development tax credits, respectively, available to offset future taxes. If not utilized, the available federal credits will begin to expire in 2030. California state research and development tax credits can be carried forward indefinitely.
Under Section 382 of the Internal Revenue Code of 1986, as amended, utilization of the NOL carryforwards and credits may be subject to substantial annual limitation due to the ownership change limitations and similar state provisions. If there should be an additional ownership change, the annual limitation may result in the expiration of NOLs and credits before utilization.
The Company completed a Section 382 analysis through January 31, 2017 and determined that an ownership change, as defined under Section 382 of the Internal Revenue Code, occurred in prior years. Based on the analysis, the Company determined that it has undergone four ownership changes. The first and second ownership changes occurred in April 2005, the third change occurred in February 2009 and the fourth change occurred in January 2017. NOLs presented account for any limited and potential lost attributes due to such ownership changes and their respective expiration dates.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. The Company early adopted ASU 2016-09 during the third quarter of fiscal 2017. Under ASU 2016-09, excess tax benefits and deficiencies are required to be recognized prospectively as part of provision for income taxes rather than additional paid-in capital. The adoption did not have any material impact on our accounting of provision for income taxes. The Company has adopted this requirement prospectively and accordingly; prior periods have not been adjusted. Excess tax benefits were not material for all periods presented and is fully offset by valuation allowance.
The Company had unrecognized tax benefits (“UTBs”) of approximately $1.8 million as of January 31, 2017. All of the deferred tax assets associated with these UTBs are fully offset by a valuation allowance. The following table summarizes the activity related to UTBs (in thousands):
|
Balance at January 31, 2015 |
|
|
|
$ |
1,029 |
|
|
(Decrease) related to prior year positions |
|
|
|
|
(16 |
) |
|
Increase related to current year tax positions |
|
|
|
|
204 |
|
|
Balance at January 31, 2016 |
|
|
|
|
1,217 |
|
|
(Decrease) related to prior year positions |
|
|
|
|
— |
|
|
Increase related to current year tax positions |
|
|
|
|
598 |
|
|
Balance at January 31, 2017 |
|
|
|
$ |
1,815 |
|
All of these UTBs, if recognized, would not affect the effective tax rate before consideration of the valuation allowance.
The Company’s policy is to classify interest and penalties associated with unrecognized tax benefits as income tax expense. The Company had no interest or penalty accruals associated with uncertain tax benefits in its balance sheets and statements of operations for both fiscal 2017 and 2016.
The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized benefits will increase or decrease within 12 months of the year ended January 31, 2017.
Because the Company has net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine the Company’s tax returns for all years from 2005 through the current period.