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Income Taxes
12 Months Ended
Dec. 31, 2014
Income Taxes  
Income Taxes

12. Income Taxes

The components of the income tax expense/(benefit) were as follow, in thousands:

                                                                                                                                                                                    

 

 

Year Ended
December 31,

 

 

 

2014

 

2013

 

2012

 

Current

 

 

 

 

 

 

 

 

 

 

Federal

 

$

 

$

 

$

 

State

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

 

 

 

Federal

 

 

 

 

 

 

 

State

 

 

 

 

 

 

—  

 

​  

​  

​  

​  

​  

​  

Total

 

$

 

$

 

$

—  

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

For the years ended December 31, 2014, 2013 and 2012, there was no expense (benefit) for U.S. Federal or state income taxes based on continuing operations, due to the Company's valuation allowance applied against its net deferred income tax asset. A reconciliation of the expected income tax expense/(benefit) computed using the U.S. Federal statutory income tax rate to the Company's effective income tax rate is as follows, in thousands:

                                                                                                                                                                                    

 

 

Year Ended December 31,

 

 

 

2014

 

2013

 

2012

 

Income tax expense/(benefit) computed at U.S. Federal statutory tax rate

 

$

6,955

 

$

(32,286

)

$

(16,270

)

Permanent items

 

 

610

 

 

340

 

 

396

 

State income taxes

 

 

627

 

 

(4,772

)

 

(2,487

)

Change in valuation allowance

 

 

(10,604

)

 

31,526

 

 

18,754

 

Uncertain income tax position

 

 

(960

)

 

5,411

 

 

(64

)

Research and development credits

 

 

(535

)

 

(156

)

 

 

Other

 

 

(125

)

 

(63

)

 

(329

)

Deferred rate change

 

 

4,032

 

 

 

 

—  

 

​  

​  

​  

​  

​  

​  

Income tax expense (benefit)

 

$

 

$

 

$

—  

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

The Company recorded a change in our deferred income tax rate due to changes in state apportionment factors. The deferred income tax expense/(benefit) have been entirely offset by the net change in valuation allowances. The significant components of the Company's deferred income tax assets (liabilities) were as follow, in thousands:

                                                                                                                                                                                    

 

 

As of December 31,

 

 

 

2014

 

2013

 

Deferred tax assets:

 

 

 

 

 

 

 

Net operating loss carryforward

 

$

42,800

 

$

58,047

 

Deferred rent credit

 

 

506

 

 

615

 

Accrued compensation and non-qualified stock options

 

 

3,392

 

 

1,986

 

Deferred financing costs

 

 

244

 

 

319

 

Depreciation and amortization

 

 

474

 

 

337

 

Research and development credits

 

 

4,725

 

 

4,167

 

Capitalized overhead into inventory (UNICAP §263A)

 

 

675

 

 

282

 

Other

 

 

552

 

 

151

 

Valuation allowance

 

 

(49,914


)

 

(59,823


)

​  

​  

​  

​  

Net deferred tax asset

 

 

3,454

 

 

6,081

 

Deferred tax liability:

 

 


 

 

 


 

 

Debt discount on convertible notes

 

 

(3,454

)

 

(6,081

)

​  

​  

​  

​  

Net deferred taxes

 

$

 

$

—  

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some or all of the deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the net operating loss (NOL) and tax credit carryforwards are available. Management considers projected future taxable income, the scheduled reversal of deferred income tax liabilities, and available tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the NOL and credit carryforwards are available to reduce income taxes payable, management has established a full valuation allowance as the Company is not more likely than not to realize such net deferred tax assets. The net decrease during the year ended December 31, 2014 in total valuation allowance of approximately ($10.1) million is due to the pretax book income which was generated in the current year and an adjustment in the Company's deferred income tax rate.

As of December 31, 2014, the US Federal and state NOL carryforwards amounted to approximately $114.3 million ($42.8 million tax effected) and will expire in various years beginning in 2030. As of December 31, 2014, the Company has available research and development credit carryforwards of approximately $4.7 million, which expire, if unused, starting in 2026. The use of the Company's U.S. Federal and state NOL carryforwards and research and development credits are restricted in annual use due to changes in the Company's ownership. As of December 31, 2014 the Company had available NOL's of approximately $31.8 million and expects the remaining $82.5 million of NOL carryforwards to become available over the years from 2015 to 2019, in amounts ranging from $7.8 million to $20.3 million per year. In addition, the Company had available research and development credits of approximately .5 million and expects the remaining $4.2 million to become available in 2019 to 2020. The Company's state NOL's will have a similar limitation to the amount noted for US Federal. Additionally, despite the NOL carryforwards, the Company may have a future tax liability due to state and local income tax requirements. The Company paid no income taxes in the years ended December 31, 2014, 2013 or 2012.

The Company accounts for uncertain income tax positions pursuant to the guidance in FASB ASC Topic 740, Income Taxes. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. As of December 31, 2014 and 2013, the Company did not accrue any interest related to uncertain tax positions. The Company's income taxes have not been subject to examination by any tax jurisdictions since its inception in 2005. Due to NOL and research and development credit carryforwards, all U.S. Federal and state income tax returns filed by the Company are subject to examination by the taxing jurisdictions. Any uncertain income tax position liability has been recorded to the Company's deferred income tax assets to offset such tax attribute carryforwards.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows, in thousands:

                                                                                                                                                                                    

 

 

Year Ended
December 31,

 

 

 

2014

 

2013

 

2012

 

Balance as of January 1

 

$

9,828

 

$

688

 

$

752

 

Gross (decrease) increases related to prior-year tax positions

 

 

(1,040

)

 

23

 

 

 

Gross increases (decrease) related to current-year tax positions

 

 

80

 

 

9,117

 

 

(64

)

Change in tax rates

 

 

(526

)

 

 

 

—  

 

​  

​  

​  

​  

​  

​  

Balance as of December 31

 

$

8,342

 

$

9,828

 

$

688

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

The Company believes that its uncertain income tax positions would not result in adjustments to its effective income tax rate because a corresponding adjustments to deferred income tax assets would be offset by adjustments to recorded valuation allowances. The Company does not anticipate a significant increase or decrease in the uncertain income tax benefits within the next 12 months.