12. INCOME TAXES
The geographical breakdown of loss before provision for income taxes is as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Domestic |
|
$ |
(17,732 |
) |
|
$ |
(21,696 |
) |
|
$ |
(22,535 |
) |
|
Foreign |
|
|
(54 |
) |
|
|
(150 |
) |
|
|
(436 |
) |
|
Net loss before provision for income taxes |
|
$ |
(17,786 |
) |
|
$ |
(21,846 |
) |
|
$ |
(22,971 |
) |
The components of the provision for income taxes are as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current tax provision: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
Foreign |
|
|
56 |
|
|
|
16 |
|
|
|
17 |
|
|
Total current tax provision |
|
|
60 |
|
|
|
20 |
|
|
|
21 |
|
|
Deferred tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
State |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
Foreign |
|
|
— |
|
|
|
(16 |
) |
|
|
(17 |
) |
|
Total deferred tax provision (benefit) |
|
$ |
(4 |
) |
|
$ |
(20 |
) |
|
$ |
(21 |
) |
|
Total provision for income taxes |
|
$ |
56 |
|
|
$ |
— |
|
|
$ |
— |
|
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.
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset net deferred tax assets for all periods presented due to the uncertainty of realizing future tax benefits from net operating loss carryforwards and other deferred tax assets. The valuation allowance decreased by $13,888 and increased by $7,634 for the years ended December 31, 2017 and 2016. The decrease in valuation allowance in 2017 was due to the change in the corporate tax rate from 35% to 21% and the resulting revaluation of the deferred tax assets.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was enacted into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. ASC 740 requires the Company to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff has issued SAB 118 which will allow the Company to record provisional amounts during a measurement period.
The Company has concluded that a reasonable estimate could be developed for the effects of the tax reform. However, due to the short time frame between the enactment of the reform and the year end, its fundamental changes, the accounting complexity, and the expected ongoing guidance and accounting interpretations over the next 12 months, the Company considers the accounting of the deferred tax remeasurement and other items to be reasonable estimates. These effects have been included in the consolidated financial statements for the year ended December 31, 2017 as provisional amounts, which had no effect on the benefit from taxes on income due to the valuation allowance.
During the measurement period, the Company might need to reflect adjustments to the provisional amounts upon obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts. The measurement period will end when the Company obtains, prepares, and analyzes the information needed in order to complete the accounting requirements under ASC Topic 740 or on December 22, 2018, whichever is earlier. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.
Our effective tax rate substantially differed from the federal statutory tax rate of 34% primarily due to the change in the valuation allowance for our deferred tax assets. The reconciliation between income taxes computed at the federal statutory income tax rate and the provision for income taxes is as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. federal statutory income tax at 34% |
|
$ |
(6,046 |
) |
|
$ |
(7,306 |
) |
|
$ |
(7,973 |
) |
|
Research tax credits |
|
|
(75 |
) |
|
|
(99 |
) |
|
|
(82 |
) |
|
Stock-based compensation |
|
|
85 |
|
|
|
102 |
|
|
|
125 |
|
|
Adjustment of deferred tax balances following changes in tax rates |
|
|
20,748 |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
303 |
|
|
|
117 |
|
|
|
599 |
|
|
Change in valuation allowance |
|
|
(14,955 |
) |
|
|
7,206 |
|
|
|
7,352 |
|
|
Total current tax provision |
|
|
60 |
|
|
|
20 |
|
|
|
21 |
|
|
Total deferred tax benefit |
|
|
(4 |
) |
|
|
(20 |
) |
|
|
(21 |
) |
|
Total provision for income taxes |
|
$ |
56 |
|
|
$ |
— |
|
|
$ |
— |
|
The components of the deferred tax assets are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
37,173 |
|
|
$ |
51,104 |
|
|
Research and development credits |
|
|
2,823 |
|
|
|
2,456 |
|
|
Accrual and reserves |
|
|
1,251 |
|
|
|
1,575 |
|
|
Total deferred tax assets |
|
|
41,247 |
|
|
|
55,135 |
|
|
Less: valuation allowance |
|
|
(41,247 |
) |
|
|
(55,135 |
) |
|
Total net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
As of December 31, 2017, the Company has federal and state net operating loss (“NOL) carryforwards of approximately $154,250 and $96,696. The use of these NOL carryforwards might be subject to limitation under the rules regarding a change in stock ownership as determined by the IRC and similar state provisions (the “Code”); however, a complete analysis of the limitation of the NOL carryforwards will not be complete until the time the Company projects it will be able to utilize such NOLs. The NOL carryforwards expire between 2018 and 2037, and valuation allowances have been reserved, where necessary. In addition, as of December 31, 2017, the Company also had NOL carryforwards in South Korea of approximately $1,102 which begin to expire in 2025.
The Company also had federal and state research and development credit carryforwards of approximately $1,490 and $1,687, as of December 31, 2017. The federal credit will expire starting in 2025 if not utilized. The state credits have no expiration date.
Utilization of the research and development credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Code. However, the Company has not conducted a formal study to determine the extent of the limitations, which could impact the realizability of these credit carryforwards in future periods. The annual limitations may result in the expiration of the net operating losses and research and development credits before utilization.
The Company has not provided for U.S. income taxes on undistributed earnings of its foreign subsidiaries because it intends to permanently re-invest these earnings outside the U.S. The cumulative amount of such undistributed earnings upon which no U.S. income taxes have been provided was $122 as of December 31, 2017. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be repatriated to the U.S.
Uncertain Tax Positions
The activity related to the gross amount of unrecognized tax benefits is as follows:
|
|
|
Year Ended December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Balance as of the beginning of the year |
|
$ |
1,283 |
|
|
$ |
1,186 |
|
|
Increases related to tax positions in prior period |
|
|
5 |
|
|
|
16 |
|
|
Increases related to tax positions taken during the current period |
|
|
74 |
|
|
|
81 |
|
|
Balance at the end of the year |
|
$ |
1,362 |
|
|
$ |
1,283 |
|
These amounts are related to certain deferred tax assets with a corresponding valuation allowance. If recognized, the impact on the Company’s effective tax rate would not be material due to the full valuation allowance. Management believes that there will not be any significant changes in our unrecognized tax benefits in the next 12 months.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated statement of operations. Accrued interest and penalties, if applicable, are included in accrued liabilities in the consolidated balance sheet. For the years ended December 31, 2017, 2016 and 2015, the Company did not recognize any accrued interest and penalties.
The Company files income tax returns in the United States and in various state jurisdictions with varying statutes of limitations. Tax years 2002 through 2017 remain open to examination by the United States and various state jurisdictions. The Company is not currently under examination by the Internal Revenue Service or any other jurisdiction for any year.