XML 45 R16.htm IDEA: XBRL DOCUMENT v3.3.1.900
Income Taxes
12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes

9.

Income Taxes

For the years ended December 31, 2015, 2014 and 2013, all of the loss before provision for income taxes was domestic, and we recorded the following income tax provision:

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Current provision (benefit) for:

 

(in thousands)

 

Federal income taxes

 

$

(1

)

 

$

(36

)

 

$

153

 

State income taxes

 

 

(8

)

 

 

11

 

 

 

17

 

Total current provision (benefit)

 

$

(9

)

 

$

(25

)

 

$

170

 

 

A reconciliation of statutory tax rates to effective tax rates for the years ended December 31, 2015, 2014 and 2013 is as follows:

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Federal income taxes at statutory rate

 

 

34.0

%

 

 

34.0

%

 

 

34.0

%

Non-deductible stock compensation

 

 

(0.6

%)

 

 

(7.3

%)

 

 

(6.8

%)

State income tax, net of federal benefit

 

 

 

 

 

 

 

 

(0.3

%)

Other

 

 

 

 

 

0.1

%

 

 

(0.1

%)

Valuation allowance

 

 

(33.4

%)

 

 

(26.7

%)

 

 

(28.8

%)

Effective tax rate

 

 

0.0

%

 

 

0.1

%

 

 

(2.0

%)

 

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows as of the dates indicated:

 

 

 

As of December 31,

 

 

 

2015

 

 

2014

 

Deferred tax assets:

 

(in thousands)

 

Net operating losses

 

$

24,219

 

 

$

8,220

 

License fees

 

 

5,122

 

 

 

2,279

 

Stock-based compensation

 

 

4,999

 

 

 

1,964

 

Legal fees

 

 

1,436

 

 

 

757

 

Other

 

 

1,249

 

 

 

494

 

Total deferred tax assets

 

 

37,025

 

 

 

13,714

 

Valuation allowance

 

 

(37,025

)

 

 

(13,714

)

Net deferred tax assets

 

$

 

 

$

 

 

We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes, as well as for tax attribute carryforwards. We regularly evaluate the positive and negative evidence in determining the realizability of our deferred tax assets. Based upon the weight of available evidence, which includes our historical operating performance and reported cumulative net losses since inception, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 2015 and 2014. We intend to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. The valuation allowance increased by $23.3 million, $9.2 million and $2.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.

As of December 31, 2015, we had federal and state net operating loss carryforwards for tax return purposes of $68.8 million and $68.7 million, respectively. The federal and state net operating loss carryforwards begin to expire in 2032 in various amounts if not utilized. Included in each of these amounts are unrealized federal and state net operating loss deductions resulting from stock option exercises of $8.9 million. The benefit of these unrealized stock option-related deductions has not been included in the deferred tax assets table above and will be recognized as a credit to additional paid-in capital when realized.

Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we have experienced an “ownership change.” Generally, a Section 382 “ownership change” occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50% over its lowest ownership percentage within a specified testing period. Similar rules may apply under state tax laws.

We have completed a Section 382 study of transactions in our stock through December 31, 2015. The study concluded that we have experienced at least one ownership change since inception and that our utilization of net operating loss carryforwards will be subject to annual limitations. Further, other provisions of the Code may limit our ability to utilize federal net operating losses incurred before our Recapitalization to offset income or gain realized after the Recapitalization unless such income or gain is realized by the same entity that originally incurred such losses. However, it is not expected that these limitations will result in the expiration of tax attribute carryforwards prior to utilization.

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

 

 

(In thousands)

 

Balance as of December 31, 2013

$

-

 

Gross increases for tax positions related to current year

 

1,014

 

Gross increases for tax positions related to prior years

 

629

 

Balance as of December 31, 2014

 

1,643

 

Gross increases for tax positions related to current year

 

2,671

 

Balance as of December 31, 2015

$

4,314

 

 

Of the $4.3 million total unrecognized tax benefits, $0.1 million, if recognized, would affect the effective tax rate due to the valuation allowance that currently offsets deferred tax assets. We recognize interest and penalties related to uncertain tax positions as part of the income tax provision and, to date, such interest and penalties have not been material. We are not aware of any items that will significantly increase or decrease our unrecognized tax benefits in the next 12 months. We file income tax returns in the US federal jurisdiction and California.  All of our tax years remain open to examination by the US federal and California tax authorities.