|12 Months Ended|
Dec. 31, 2016
|Income Tax Disclosure [Abstract]|
NOTE 5 — INCOME TAXES
The Company accounts for income taxes under the asset and liability method, whereby 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply 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. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.
The following table presents the current and deferred provision for income taxes for the years ended December 31 (in thousands):
The provision for income taxes differs from the amount that would result from applying the federal statutory rate as follows for the years ended December 31:
The components of the deferred income tax assets and liabilities as of December 31 (in thousands):
Based upon the Company’s operating losses incurred for each of three years ended December 31, 2016, and the available evidence, the Company has established a valuation allowance against its net deferred tax assets in the amount of $54.3 million as of December 31, 2016. Management considered factors such as the Company’s earnings history, future projected earnings, and tax planning strategies. If sufficient evidence of the Company’s ability to generate sufficient future taxable income tax benefits becomes apparent, the valuation allowance may be reduced, thereby resulting in tax benefits in the statement of operations and additional paid-in-capital. Management evaluates the potential realization of the Company’s deferred tax assets and assesses the need for reducing the valuation allowance periodically.
As of December 31, 2016, the Company had net operating loss (“NOL”) carryforwards for federal and state purposes of approximately $124.0 million and $75.2 million, respectively, which expire in 2019 through 2036. The utilization of NOL and credit carryforwards may be limited under the provisions of the Internal Revenue Code (“IRC”) Section 382 and similar state provisions. IRC Section 382 generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income where a corporation has undergone significant changes in stock ownership. As of December 31, 2016, the Company had research and development tax credit carryforwards for federal and state purposes of approximately $1.5 million and $1.2 million, respectively, which will begin to expire in 2019 through 2036 for federal purposes and will carry forward indefinitely for state purposes. An updated analysis may be required at the time the Company begins utilizing any of its net operating losses to determine if there is an IRC Section 382 limitation.
In addition to the NOL carryforwards included in the deferred tax asset and liability schedule are excess tax deductions relating to stock options that have not been realized. As of December 31, 2016 and 2015, the cumulative unrealized excess tax deductions amounted to approximately $7.1 million and $6.9 million, respectively. These amounts have been excluded from the Company’s NOL carryforwards. In connection with the adoption of ASU 2015-09 effective January 1, 2017, the effects of such excess tax deductions of the awards will be recognized in the income statement when the awards vest or are settled. The Company follows the appropriate ordering rules to determine when such NOLs have been realized.
The following table summarizes the activity related to the Company’s unrecognized tax benefits during the year ended December 31, 2016 (in thousands):
The Company expects resolution of unrecognized tax benefits, if created, would occur while the full valuation allowance of deferred tax assets is maintained. The Company does not expect to have any unrecognized tax benefits that, if recognized, would affect the effective tax rate. As of December 31, 2016 and 2015, the Company does not have liability for potential penalties or interest. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2012 through 2016 tax years generally remain subject to examination by federal and most state tax authorities. In foreign jurisdictions, the 2010 through 2016 tax years remain subject to examination by their respective tax authorities.
U.S. income taxes or withholding taxes were provided for all the distributed earnings for the Company’s foreign subsidiaries as of December 31, 2016. There were no undistributed earnings from foreign subsidiaries as of December 31, 2016 or 2015. The Company intends to reinvest any earnings until such time a decision is made to liquidate the foreign operations.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef