|
10. |
Income Taxes |
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “TCJA”). This legislation makes broad and complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal statutory tax rate from a maximum of 35% to 21%; (ii) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (iii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, (iv) limitations on the deductibility of interest expense and executive compensation; (v) creation of new minimum taxes such as the base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”); and (vi) the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system, which requires a one-time U.S. tax liability on earnings which have not previously been repatriated to the U.S. (“transition tax”).
The Company calculated its best estimate of the impact of the TCJA based on its understanding of the TCJA and guidance available as of the filing date and recorded provisional amounts as of December 31, 2017. As a result of the corporate tax rate decreasing to 21%, the Company recorded a provisional estimate of a reduction to its deferred tax assets of $24,196 and a corresponding reduction to its valuation allowance. Because the Company’s foreign entities are in an accumulated earnings deficit, the Company estimates that there will be no one-time transition tax liability. The Company has not completed its accounting for the potential taxes imposed by BEAT, GILTI and executive compensation; however, the potential income tax impact, if any, will be recorded as a component of tax expense in the period incurred for tax year(s) beginning January 1, 2018 and forward. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the TCJA may require changes in our estimates. The final determination of the effects of the TCJA will be completed as additional information becomes available, but no later than one year from the enactment of the TCJA. Any subsequent adjustment to the estimated amounts is not expected to be material to the financial statements.
The Company was subject to taxes in both the U.S. and Switzerland in each of the years in the three-year period ended December 31, 2017. The Company incurred losses for both book and tax purposes for the year ended December 31, 2017, and, accordingly, no income taxes were provided.
Income (loss) before income taxes was derived from the following jurisdictions:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. |
|
$ |
(16,762 |
) |
|
$ |
(24,229 |
) |
|
$ |
(21,831 |
) |
|
Switzerland |
|
|
19 |
|
|
|
(10 |
) |
|
|
1,347 |
|
|
|
|
$ |
(16,743 |
) |
|
$ |
(24,239 |
) |
|
$ |
(20,484 |
) |
Effective tax rates differ from statutory income tax rates in the years ended December 31, 2017, 2016 and 2015 as follows:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Statutory income tax rate |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
State income taxes |
|
|
(6.1 |
) |
|
|
(6.8 |
) |
|
|
(5.7 |
) |
|
Valuation allowance increase |
|
|
(102.0 |
) |
|
|
35.9 |
|
|
|
35.2 |
|
|
Effect of foreign operations |
|
|
— |
|
|
|
— |
|
|
|
(1.3 |
) |
|
Change in unused net operating loss and credit carryforwards |
|
|
(4.0 |
) |
|
|
3.7 |
|
|
|
2.8 |
|
|
Nondeductible items |
|
|
1.6 |
|
|
|
1.6 |
|
|
|
3.9 |
|
|
Impact of Tax Cuts and Jobs Act |
|
|
144.5 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
0.0 |
% |
|
|
0.4 |
% |
|
|
0.9 |
% |
Deferred tax assets (liabilities) as of December 31, 2017 and 2016 consist of the following:
|
|
|
2017 |
|
|
2016 |
|
||
|
Gross deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforward – U.S. |
|
$ |
43,046 |
|
|
$ |
58,206 |
|
|
Net operating loss carryforward – Switzerland |
|
|
67 |
|
|
|
65 |
|
|
Research and development tax credit carryforward |
|
|
6,153 |
|
|
|
5,477 |
|
|
Deferred revenue |
|
|
339 |
|
|
|
438 |
|
|
Stock-based compensation |
|
|
1,882 |
|
|
|
2,678 |
|
|
Inventory reserve |
|
|
140 |
|
|
|
364 |
|
|
Compensation accruals |
|
|
662 |
|
|
|
996 |
|
|
Other |
|
|
575 |
|
|
|
378 |
|
|
|
|
|
52,864 |
|
|
|
68,602 |
|
|
Gross deferred tax liabilities – depreciation and amortization |
|
|
(826 |
) |
|
|
(844 |
) |
|
Less valuation allowance |
|
|
(52,038 |
) |
|
|
(67,758 |
) |
|
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
The valuation allowance for deferred tax assets as of December 31, 2017 and 2016 was $52,038 and $67,758, respectively. The total valuation allowance decreased $15,720 for the year ended December 31, 2017 and increased $8,864 for the year ended December 31, 2016.
At both December 31, 2017 and 2016, the Company had deferred tax assets, net of valuation allowances, of zero. In assessing the realizability of deferred tax assets, management considered 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 temporary differences become deductible or in which net operating loss or tax credit carryforwards can be utilized. Both positive and negative evidence is considered in assessing the realizability of deferred tax assets and determining whether or not to record a valuation allowance. After considering the evidence with respect to the U.S. deferred tax assets, management determined that as of December 31, 2017, it continues to be more likely than not that the U.S. deferred tax assets will not be realized and has recorded a valuation allowance against all U.S. deferred tax assets.
The Company has a U.S. federal net operating loss carryforward at December 31, 2017 of $176,069, which, subject to limitations of Internal Revenue Code (“IRC”) Section 382, is available to reduce income taxes payable in future years. If not used, this carryforward will expire in years 2018 through 2037. Additionally, the Company has research credit carryforwards of $5,617. These credits expire in years 2018 through 2037.
Utilization of U.S. net operating losses and tax credits of the Company may be subject to annual limitations under IRC Sections 382 and 383, respectively. The annual limitations, if any, have not yet been determined. When a review is performed and if any annual limitations are determined, then the gross deferred tax assets for the net operating losses and tax credits would be reduced with a reduction in the valuation allowance of a like amount.
The Company also has a Swiss net operating loss carryforward at December 31, 2017, of $454, which is available to reduce income taxes payable in future years. If not used, $428 of this carryforward will expire in 2018.
As of December 31, 2017 and 2016, there were no unrecognized tax benefits. Accordingly, a tabular reconciliation from beginning to ending periods is not provided. The Company will classify any future interest and penalties as a component of income tax expense if incurred. To date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits.
The Company does not anticipate that the total amount of unrecognized tax benefits will change significantly in the next twelve months. The Company is subject to federal and state examinations for the years 2013 and thereafter. There are no tax examinations currently in progress.