Annual report pursuant to Section 13 and 15(d)

Note 16 - Income Taxes

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Note 16 - Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

Note 16. Income Taxes

 

The components of loss before provision for income taxes for the years ended December 31, 2016 and 2015 are as follows (in thousands):

    For the Year Ended December 31,
    2016   2015
Domestic   $ (3,857 )   $ (52,060 )
Foreign     698       307  
Loss before provision for income taxes   $ (3,159 )   $ (51,753 )

 

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which will be either taxable or deductible when the assets or liabilities are recovered or settled.

 

As of December 31, 2016, the Company has a Federal net operating loss carry-forward of $80.1 million available to offset future taxable income. The Company has estimated state loss carry-forwards of $49.9 million. The Company also has federal research and development credit carryforwards of $0.2 million as of December 31, 2016. Utilization of net operating losses and R&D credits may be limited due to potential ownership changes under Section 382 of the IRS Code. These net operating loss carry-forwards and federal R&D credits have expiration dates starting in 2030 through 2036.

 

Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of $0.5 million as of December 31, 2016 as the Company considers such earnings to be permanently reinvested outside the United States. The additional U.S. income tax that would arise on repatriation of the remaining undistributed earnings could be offset, in part, by foreign tax credits on such repatriation. However, it is impractical to estimate the amount of net income and withholding tax that might be payable.

 

The valuation allowance as of December 31, 2016 was $31.2 million. The net change in valuation allowance for the year ended December 31, 2016 was an increase of $0.4 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2016.

  

The effects of temporary differences that gave rise to significant portions of deferred tax assets as of December 31, 2016 and 2015, are as follows (in thousands):

    As of December 31,
    2016   2015
Deferred tax assets:                
Net operating loss carryforwards   $ 29,359     $ 29,796  
Other     1,794       5,142  
Gross deferred tax assets     31,153       34,938  
Valuation allowance     (31,153 )     (30,834 )
Net deferred tax assets     —         4,104  
Deferred tax liability                
Stock-based compensation     —         (2,370 )
Intangibles     —         (1,734 )
Gross deferred tax liabilities     —         (4,104 )
Net deferred tax assets   $ —       $ —    

The Company incurred income tax expense of $318,000 and $105,000 for the years ended December 31, 2016 and 2015, respectively. Of the total tax provision for the years ended December 31, 2016 and 2015, $134,000 and $12,000 was attributed to taxes for foreign operations, respectively.

 

The income tax provision for the years ended December 31, 2016 and 2015 included the following (in thousands):

 

    For the Year Ended December 31,
    2016   2015
Current income tax expense:                
Federal   $ 145     $ —    
State     39       93  
Foreign     134       12  
      318       105  
Deferred income tax provision:                
Federal     —         —    
State     —         —    
Foreign     —         —    
      —         —    
Provision for income taxes, net   $ 318     $ 105  

  

The income tax provision differs from those computed using the statutory federal tax rate of 34% due to the following (in thousands):

    For the Year Ended December 31,
    2016   2015
Expected provision at statutory federal rate   $ (1,074 )   $ (17,596 )
State tax — net of federal benefit     23       74  
Foreign income/losses taxed at different rates     (38     (43 )
Sale of BioZone     949       —    
Stock-based compensation     —         56  
Other     217       (125 )
Change in valuation allowance     241       17,739  
Income tax expense   $ 318     $ 105  

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTB’s”) is as follows (in thousands):

 

Gross UTB’s as of December 31, 2015   $ 141  
Deductions for tax positions taken in a prior year     (102 )
Additions for tax positions taken in the current year     206  
Gross UTB’s as of December 31, 2016   $ 245  

 

If recognized, none of the Company’s unrecognized tax benefits as of December 31, 2016 would reduce its annual effective tax rate but would result in a corresponding adjustment to its deferred tax valuation allowance. As of December 31, 2016, the Company has not recorded a liability for potential interest or penalties. The Company also does not expect its unrecognized tax benefits to change significantly over the next 12 months. By statute, all tax years are open to examination by the major taxing jurisdictions to which the Company is subject.