Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.7.0.1
INCOME TAXES
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
The provision for (benefit from) income taxes by jurisdiction consist of the following for the years ended December 31, 2015 and 2016:
 
Year Ended December 31, 2015
 
Year Ended December 31, 2016
U.S. federal
 

 
 
Current
$

 
$

Deferred

 

Total U.S. federal

 

U.S. state and local
 
 
 
Current
1,000

 
1,000

Deferred

 

Total U.S. state and local
1,000

 
1,000

Foreign
 
 
 
  Current

 

  Deferred

 
(23,000
)
Total foreign

 
(23,000
)
Provision for (benefit from) income taxes
$
1,000

 
$
(22,000
)

Income taxes differ from the amounts computed by applying the U.S. federal income tax rate to pretax income (loss) before income taxes as a result of the following for the years ended December 31, 2015 and 2016:
 
Year ended December 31, 2015
 
Year ended December 31, 2016
Expected income tax benefit
$
(3,291,000
)
 
$
(5,191,000
)
State income tax (benefit), net of federal benefit
(693,000
)
 
(1,022,000
)
Valuation allowance
4,120,000

 
6,219,000

Permanent differences:
 
 


Stock options
131,000

 
173,000

Transaction costs

 
31,000

Research & development credit
(174,000
)
 
(267,000
)
Adjustment to deferred taxes
(102,000
)
 
(12,000
)
Foreign rate differential

 
28,000

Other
10,000

 
19,000

Provision for (benefit from) for income taxes
$
1,000

 
$
(22,000
)

For year ended December 31, 2015 income tax expense was $1,000. For the year ended December 31, 2016, we recorded a net income tax benefit of $22,000 which included $1,000 of income tax expense offset by $23,000 for the change in deferred foreign taxes. Deferred income tax reflects the tax effects of temporary differences that gave rise to significant portions of our deferred tax assets and liabilities.

Deferred income taxes consisted of the following as of December 31, 2015 and December 31, 2016:
 
 
Year ended December 31, 2015
 
Year ended December 31, 2016
U.S. federal and state deferred tax assets—long term:
 
 
 
 
Accrued payroll
 
$
95,000

 
$
525,000

Fixed assets
 

 
80,000

Intangibles
 
763,000

 
702,000

Research & development credit
 
804,000

 
1,257,000

Net operating loss
 
6,592,000

 
11,515,000

Stock compensation
 
379,000

 
772,000

New jobs credit
 
7,000

 
7,000

Total long-term assets
 
8,640,000

 
14,858,000

Total deferred tax assets
 
8,640,000

 
14,858,000

U.S. federal and state deferred tax liabilities—long term:
 
 
 
 
Fixed assets
 
(1,000
)
 

Total deferred tax liabilities
 
(1,000
)
 

Net deferred tax assets - long term
 
8,639,000

 
14,858,000

 Less: Valuation allowance
 
(8,639,000
)
 
(14,858,000
)
Net deferred tax assets
 
$

 
$

 
 
 
 
 
Foreign deferred tax assets—long term:
 
 
 
 
Net operating loss
 
$

 
$
16,000

Total foreign deferred tax assets
 

 
16,000

Foreign deferred tax liabilities—long term:
 
 
 
 
Intangibles
 

 
(32,000
)
Total foreign deferred tax liabilities
 

 
(32,000
)
Net foreign deferred tax liabilities
 
$

 
$
(16,000
)

We recorded a full valuation allowance against our U.S. federal and state net deferred tax assets at December 31, 2015 and December 31, 2016. In determining the need for a valuation allowance, we reviewed all available evidence pursuant to the requirements of FASB ASC 740. Based upon our assessment of all available evidence, we have concluded that it is more likely than not that the net deferred tax assets will not be realized. For the year ended December 31, 2016, the valuation allowance increased by $6.2 million. For the year ended December 31, 2015, the valuation allowance increased by $4.1 million
As of December 31, 2016, we had federal net operating loss carryforwards of approximately $28.9 million, state net operating loss carryforwards of approximately $28.9 million and foreign net operating loss carryforwards of $103,000 in Switzerland. The federal net operating loss carryforwards will begin to expire in 2033, and the state net operating loss carryforwards will begin to expire in 2033. Our ability to utilize net operating loss carryforwards may be limited in the event that a change in ownership, as defined in Section 382 of the Internal Revenue Code, occurs in the future.  In the event a change of ownership occurs, it will limit the annual usage of the carryforwards in future years.  Management believes that certain changes in control have occurred which resulted in limitations on our net operating loss carryforwards; however, management has determined that these limitations will not impact the ultimate utilization of the net operating loss carryforwards.
We recognize interest and penalties related to income tax matters in income taxes, and there were none during the years ended December 31, 2015 and 2016.
The adoption of ASC 740 guidance required us to identify, evaluate and measure all uncertain tax positions taken or to be taken on tax returns and to record liabilities for the amount of these positions that may not be sustained, or may only partially be sustained, upon examination by the relevant taxing authorities. Although we believe that our estimates and judgments were reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. We have no significant uncertain tax positions for the years ended December 31, 2015 and 2016.
Our annual income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of judgment. Our judgments, assumptions and estimates relative to current income taxes take into account current tax laws, their interpretation of current tax laws and possible outcomes of future audits conducted by domestic tax authorities. We operate within federal and state taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues which may require an extended period of time to resolve.  We are currently not being examined by any tax authorities. We are subject to taxation in the United States, California, Massachusetts and Switzerland. As of December 31, 2016, our tax years remain open to examination by the taxing authorities for all years since our incorporation in 2013.