(12) Income Taxes
The provision (benefit) for income taxes reflects current taxes, deferred taxes, and withholding taxes. The effective tax rates for the years ended December 31, 2017, 2016 and 2015 were 1%, 0% and 0%, respectively. The Company continues to provide for a full valuation allowance to offset its net deferred tax assets until such time it is more likely than not the tax assets or portions thereof will be realized.
The United States (“U.S.”) enacted tax reform legislation on December 22, 2017 commonly known as the Tax Cuts and Jobs Act, (“the Act”), resulting in significant modifications to existing U.S. tax law. Accounting for the income tax effects of the Act has been completed and included in the Company’s financial statements as of December 31, 2017. As a result of the Act, the Company has recorded a one-time tax provision and corresponding reduction to valuation allowance of $10,529, which consisted primarily of the remeasurement of deferred tax assets and liabilities from a tax rate of 35% to a tax rate of 21%. The future impact of the Act is not expected to have a material effect on the Company’s financial results and cash flows in the foreseeable future because the Company has a full valuation allowance recorded against its deferred tax assets.
Components of tax provision (benefit) allocated to continuing operations include the following:
|
|
|
Year Ended |
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|
Year Ended |
|
|
Year Ended |
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|
|
|
December 31, |
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|
December 31, |
|
|
December 31, |
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|||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
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|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
(2 |
) |
|
State |
|
|
30 |
|
|
|
(11 |
) |
|
|
49 |
|
|
Foreign |
|
|
9 |
|
|
|
21 |
|
|
|
19 |
|
|
Sub-total |
|
$ |
47 |
|
|
$ |
10 |
|
|
$ |
66 |
|
|
Deferred: |
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|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(253 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Sub-total |
|
$ |
(253 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
Total tax provision (benefit) |
|
$ |
(206 |
) |
|
$ |
10 |
|
|
$ |
66 |
|
The reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate is as follows:
|
|
|
Year Ended |
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
Year Ended |
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|
|
|
|
|||
|
|
|
December 31, |
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|
|
|
|
|
December 31, |
|
|
|
|
|
|
December 31, |
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|
|
|
|
|||
|
|
|
2017 |
|
|
% |
|
|
2016 |
|
|
% |
|
|
2015 |
|
|
% |
|
||||||
|
Income taxes computed at statutory rates |
|
$ |
(8,834 |
) |
|
|
34 |
% |
|
$ |
(7,369 |
) |
|
|
34 |
% |
|
$ |
(6,081 |
) |
|
|
34 |
% |
|
Increases (decreases) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax benefit |
|
|
(1,576 |
) |
|
|
6 |
% |
|
|
(1,219 |
) |
|
|
6 |
% |
|
|
(1,298 |
) |
|
|
7 |
% |
|
Impact of federal graduated rates |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
|
|
0 |
% |
|
Federal and state research and experimentation credits |
|
|
(1,081 |
) |
|
|
4 |
% |
|
|
(1,112 |
) |
|
|
5 |
% |
|
|
(917 |
) |
|
|
5 |
% |
|
Change in valuation allowance |
|
|
1,216 |
|
|
|
(5 |
)% |
|
|
9,468 |
|
|
|
(44 |
)% |
|
|
8,132 |
|
|
|
(45 |
)% |
|
Impact of expired tax positions |
|
|
7 |
|
|
|
0 |
% |
|
|
(41 |
) |
|
|
0 |
% |
|
|
— |
|
|
|
— |
|
|
Impact of recent U.S. tax reform |
|
|
10,529 |
|
|
|
(40 |
)% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
(467 |
) |
|
|
2 |
% |
|
|
283 |
|
|
|
(1 |
)% |
|
|
234 |
|
|
|
(1 |
)% |
|
Total |
|
$ |
(206 |
) |
|
|
1 |
% |
|
$ |
10 |
|
|
|
0 |
% |
|
$ |
66 |
|
|
|
0 |
% |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising the Company’s deferred tax assets and deferred tax liabilities are as follows:
|
|
|
Year Ended |
|
|
Year Ended |
|
||
|
|
|
December 31, |
|
|
December 31, |
|
||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
$ |
926 |
|
|
$ |
1,524 |
|
|
Federal and state net operating losses |
|
|
26,064 |
|
|
|
21,089 |
|
|
Goodwill |
|
|
423 |
|
|
|
715 |
|
|
Accrued compensation |
|
|
11 |
|
|
|
19 |
|
|
Deferred rent |
|
|
281 |
|
|
|
344 |
|
|
Federal and state research and experimentation credit |
|
|
6,055 |
|
|
|
3,434 |
|
|
AMT credit |
|
|
— |
|
|
|
92 |
|
|
Intangible asset differences |
|
|
222 |
|
|
|
253 |
|
|
Other |
|
|
75 |
|
|
|
39 |
|
|
Total gross deferred tax assets |
|
|
34,057 |
|
|
|
27,509 |
|
|
Less valuation allowance |
|
|
(32,325 |
) |
|
|
(24,888 |
) |
|
Net deferred tax assets |
|
$ |
1,732 |
|
|
$ |
2,621 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Patent expenditures |
|
$ |
(1,427 |
) |
|
$ |
(2,012 |
) |
|
Fixed asset differences |
|
|
(305 |
) |
|
|
(609 |
) |
|
Total gross deferred tax liabilities |
|
$ |
(1,732 |
) |
|
$ |
(2,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
The Company had a valuation allowance of $32,325 and $24,888 on deferred tax assets as of December 31, 2017 and 2016, respectively, an increase of $7,437 during the year ended December 31, 2017.
As of December 31, 2017, the Company has federal and state net operating loss carry-forwards of $91,051 and $112,876, respectively, which have a carry-forward of 5 to 20 years depending on the jurisdiction. The gross deferred tax assets for federal and state net operating loss carryforwards acquired in the Attributor acquisition have been reduced to the amount of losses allowed to be utilized in the post-acquisition period before expiration after considering the applicable limitations of IRC Sec. 382.
As of December 31, 2017, the Company has federal and state research and experimental tax credits of $5,103 and $1,899, respectively, which have a carry-forward of 5 to 20 years depending on the jurisdiction.
The Company records accrued interest and penalties associated with uncertain tax positions in income tax expense in the consolidated statements of operations. For the years ended December 31, 2017, 2016 and 2015, the Company recognized accrued interest and penalties associated with uncertain tax positions of $0, $0 and $4, respectively. The Company does not anticipate any of its unrecognized benefits will significantly increase or decrease within the next 12 months.
A summary reconciliation of the Company’s uncertain tax positions is as follows:
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|||
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Beginning balance |
|
$ |
486 |
|
|
$ |
425 |
|
|
$ |
306 |
|
|
Addition for current year tax positions |
|
|
101 |
|
|
|
100 |
|
|
|
74 |
|
|
Addition for prior year tax positions |
|
|
16 |
|
|
|
2 |
|
|
|
45 |
|
|
Reduction for prior year positions |
|
|
(52 |
) |
|
|
— |
|
|
|
— |
|
|
Reduction for prior year positions resolved during the current year |
|
|
(2 |
) |
|
|
(41 |
) |
|
|
— |
|
|
Ending balance |
|
$ |
549 |
|
|
$ |
486 |
|
|
$ |
425 |
|
Uncertain tax positions are classified as a long-term liability (or a contra deferred tax asset) on the consolidated balance sheets for uncertain tax positions taken (or expected to be taken) on a tax return.
The Company’s open tax years subject to examination in the U.S. federal jurisdiction are 2012 through 2016 and applicable state jurisdictions for the tax years 2012 through 2016. To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or tax credit carryforward.