10. Income Taxes
The components of loss before income taxes are as follows:
|
|
|
Fiscal Years Ended September 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Domestic |
|
$ |
(43,753 |
) |
|
$ |
(34,527 |
) |
|
$ |
(20,292 |
) |
|
Foreign |
|
|
921 |
|
|
|
1,751 |
|
|
|
1,181 |
|
|
Loss before taxes |
|
$ |
(42,832 |
) |
|
$ |
(32,776 |
) |
|
$ |
(19,111 |
) |
The Company has made no provision for U.S. income taxes on approximately $4.4 million of cumulative undistributed earnings of certain foreign subsidiaries at September 30, 2017 because it is the Company's intention to reinvest such earnings permanently. The determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
The components of the provision (benefit) for income taxes are as follows:
|
|
|
Fiscal Years Ended September 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
State |
|
$ |
37 |
|
|
$ |
23 |
|
|
$ |
13 |
|
|
Foreign |
|
|
647 |
|
|
|
140 |
|
|
|
482 |
|
|
|
|
|
684 |
|
|
|
163 |
|
|
|
495 |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(3,436 |
) |
|
|
150 |
|
|
|
27 |
|
|
State |
|
|
(533 |
) |
|
|
22 |
|
|
|
6 |
|
|
|
|
|
(3,969 |
) |
|
|
172 |
|
|
|
33 |
|
|
Total provision (benefit) for income taxes |
|
$ |
(3,285 |
) |
|
$ |
335 |
|
|
$ |
528 |
|
Reconciliation of the statutory federal income tax to the Company’s effective tax:
|
|
|
Fiscal Years Ended September 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Tax at statutory federal rate |
|
$ |
(14,563 |
) |
|
$ |
(11,147 |
) |
|
$ |
(6,498 |
) |
|
State tax, net of federal benefit |
|
|
37 |
|
|
|
23 |
|
|
|
13 |
|
|
Permanent differences |
|
|
96 |
|
|
|
571 |
|
|
|
729 |
|
|
Foreign tax rate differential |
|
|
334 |
|
|
|
(453 |
) |
|
|
81 |
|
|
Change in valuation allowance |
|
|
15,279 |
|
|
|
12,008 |
|
|
|
6,648 |
|
|
Research and development tax credits |
|
|
(656 |
) |
|
|
(834 |
) |
|
|
(450 |
) |
|
Foreign tax credits |
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
|
Change in deferred tax liabilities |
|
|
(3,390 |
) |
|
|
173 |
|
|
|
33 |
|
|
Other |
|
|
(422 |
) |
|
|
(6 |
) |
|
|
(21 |
) |
|
Total provision (benefit) for income taxes |
|
$ |
(3,285 |
) |
|
$ |
335 |
|
|
$ |
528 |
|
The Company is subject to income taxes in U.S. federal and various state, local and foreign jurisdictions. The tax years ended from September 2000 to September 2017 remain open to examination due to the carryover of unused net operating losses or tax credits.
Deferred tax assets and liabilities consisted of the following:
|
|
|
As of September 30, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
842 |
|
|
$ |
436 |
|
|
Accruals and other |
|
|
5,541 |
|
|
|
2,616 |
|
|
Deferred revenue |
|
|
3,288 |
|
|
|
4,295 |
|
|
NOL carry-forward |
|
|
68,190 |
|
|
|
35,885 |
|
|
Stock compensation |
|
|
4,840 |
|
|
|
4,389 |
|
|
Research and development tax credits |
|
|
9,792 |
|
|
|
8,492 |
|
|
Total deferred tax assets |
|
|
92,493 |
|
|
|
56,113 |
|
|
Valuation allowance |
|
|
(78,003 |
) |
|
|
(56,113 |
) |
|
Net deferred tax assets |
|
$ |
14,490 |
|
|
$ |
— |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Intangibles |
|
|
(14,983 |
) |
|
|
(295 |
) |
|
Net deferred tax liabilities |
|
$ |
(493 |
) |
|
$ |
(295 |
) |
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company had established a valuation allowance to offset net deferred tax assets at September 30, 2017, 2016, and 2015 due to the uncertainty of realizing future tax benefits from its net operating loss carry-forwards and other deferred tax assets. In the second quarter of fiscal 2017, as a result of acquiring Revitas, we recorded an income tax benefit of $4.2 million due to a partial release of valuation allowance. The net change in the total valuation allowance for the year ended September 30, 2017 was an increase of approximately $21.9 million.
At September 30, 2017, the Company has federal and California net operating loss carry-forwards of approximately $191.3 million and $45.2 million, respectively. The federal and California net operating losses will begin expiring in 2021 and 2018, respectively. At September 30, 2017, the Company also had other state net operating loss carry-forwards of approximately $5.2 million which will begin expiring in 2018. At September 30, 2017, the Company had federal and state research credit carry forwards of approximately $5.3 million and $6.5 million, respectively. The federal research and development credit carry-forwards will begin expiring in 2020. The California tax credit can be carried forward indefinitely.
The Company is tracking its deferred tax assets attributable to stock option benefits in a separate memo account pursuant to ASC 718. Therefore, these amounts are not included in the Company's gross or net deferred tax assets. As of September 30, 2017, 2016 and 2015, the Company had stock option benefits of approximately $4.7 million, $3.9 million and $3.7 million, respectively. Pursuant to ASC 718-740-25-10, the stock option benefits will be recorded to equity when they reduce cash taxes payable.
As of September 30, 2017, the Company had unrecognized tax benefits of approximately $3.1 million. It is unlikely that the amount of liability for unrecognized tax benefits will significantly change over the next twelve months. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of September 30, 2017, there was a liability of $0.2 million related to uncertain tax positions recorded on the financial statements.
Internal Revenue Code section 382 places a limitation (the "Section 382 Limitation") on the amount of taxable income can be offset by net operating ("NOL") carry-forwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has similar rules. The Company's capitalization described herein may have resulted in such a change. Generally, after a control change, a loss corporation cannot deduct NOL carry-forwards in excess of the Section 382 limitation. An IRC Section 382 analysis has been performed as of September 30, 2017 and determined there would be no effect on the NOL Deferred Tax Asset if ownership changes occurred.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
Fiscal Years Ended September 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Unrecognized tax benefits at the beginning of the period |
|
$ |
3,310 |
|
|
$ |
3,119 |
|
|
$ |
2,513 |
|
|
Gross decrease based on tax positions during the prior period |
|
|
(584 |
) |
|
|
(147 |
) |
|
|
— |
|
|
Gross increase based on tax positions during the prior period |
|
|
— |
|
|
|
— |
|
|
$ |
58 |
|
|
Gross increase based on tax positions during the current period |
|
|
417 |
|
|
|
338 |
|
|
548 |
|
|
|
Unrecognized tax benefits at the end of the period |
|
$ |
3,143 |
|
|
$ |
3,310 |
|
|
$ |
3,119 |
|