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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company’s loss before income taxes for the years ended December 31, 2018 and 2017 is comprised of the following (in thousands):
| Year Ended December 31,
| 2018 |  | 2017
Domestic | $ | (7,335 | ) |  | $ | (40,034 | )
Foreign | 7 |  |  | (5,592 | )
Loss before income taxes | $ | (7,328 | ) |  | $ | (45,626 | )
The provision for income taxes for the years ended December 31, 2018 and 2017 is comprised of the following (in thousands):
| Year Ended December 31,
| 2018 |  | 2017
Current: |  |  |
Federal | $ | — |  |  | $ | (760 | )
State | 35 |  |  | 104 |
Foreign | 766 |  |  | 551 |
Total current | 801 |  |  | (105 | )
Deferred: |  |  |
Federal | 12 |  |  | (117 | )
State | — |  |  | — |
Foreign | 2 |  |  | 436 |
Total deferred | 14 |  |  | 319 |
Provision for income taxes | $ | 815 |  |  | $ | 214 |
The Company’s net deferred tax liabilities consist of the following (in thousands):
| December 31,
| 2018 |  | 2017
Deferred tax assets: |  |  |
Accrued expenses | $ | — |  |  | $ | 1,921 |
Provision for excess and obsolete inventory | 2,710 |  |  | 2,577 |
Depreciation and amortization | 1,426 |  |  | 4,610 |
Interest expense limitation | 2,769 |  |  | — |
Net operating loss and tax credit carryforwards | 86,385 |  |  | 86,966 |
Share-based compensation | 1,218 |  |  | 1,034 |
Unrecognized tax benefits | 1,163 |  |  | 1,108 |
Deferred tax assets | 95,671 |  |  | 98,216 |
Deferred tax liabilities: |  |  |
Convertible Notes | — |  |  | (4,353 | )
Purchased intangible assets | (4,485 | ) |  | (6,280 | )
Accrued expenses | (1,799 | ) |  | — |
Deferred tax liabilities | (6,284 | ) |  | (10,633 | )
Valuation allowance | (93,844 | ) |  | (92,844 | )
Net deferred tax liabilities | $ | (4,457 | ) |  | $ | (5,261 | )
The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable to or refundable by tax authorities in the current fiscal year. The Company also recognizes federal, state and foreign deferred tax liabilities or assets based on the Company’s estimate of future tax effects attributable to temporary differences and carryforwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. The Company assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether deferred tax assets will be realized are: (1) future reversals of existing taxable temporary differences (i.e., offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the applicable tax law; (3) tax planning strategies; and (4) future taxable income exclusive of reversing temporary differences and carryforwards. At December 31, 2018 and 2017, the Company recognized valuation allowances of $2.9 million and $16.4 million, respectively, related to its deferred tax assets created in those respective years. As a result, no net income tax benefits resulted in the Company’s statements of operations from the operating losses created during those years. The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, changes rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, eliminates the corporate alternative minimum tax (“AMT”) and changes how existing AMT credits can be realized, creates the base erosion anti-abuse tax (BEAT), a new minimum tax, and creates a new limitation on deductible interest expense. The SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which provided guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period, which ended in the fourth quarter of 2018. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. For certain deferred tax assets, the Company recorded a decrease of approximately $38.8 million, with a corresponding adjustment to valuation allowance for the year ended December 31, 2017. The re-measurement of the Company’s indefinite-lived deferred tax liabilities resulted in an immaterial deferred income tax benefit in 2017. The aggregate income tax benefit recorded by the Company in 2017 as a result of the Tax Act’s impact on its net deferred tax liabilities and the change in how AMT carryforwards are treated and monetized was approximately $1.0 million. This amount was not further adjusted in 2018 when the SAB 118 calculation was finalized. The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. The Company determined that it will not owe a Transition Tax since it has deficit E&P for its foreign subsidiaries that are subject to the tax. This conclusion was confirmed in 2018 when the SAB 118 calculation was finalized. The provision for income taxes reconciles to the amount computed by applying the statutory federal income tax rate of 21% and 34% in 2018 and 2017, respectively, to loss before income taxes as follows (in thousands):
| Year Ended December 31,
| 2018 |  | 2017
Federal tax benefit, at statutory rate | $ | (1,555 | ) |  | $ | (15,513 | )
State benefit, net of federal benefit | 27 |  |  | (211 | )
Foreign tax rate difference | 24 |  |  | 336 |
Change in tax rate of net deferred tax assets | — |  |  | (38,772 | )
Valuation allowances offsetting tax rate change | — |  |  | 38,772 |
Valuation allowance against future tax benefits | 2,878 |  |  | 16,364 |
Research and development credits | (471 | ) |  | (244 | )
Share-based compensation | 121 |  |  | 876 |
Effect of Tax Act | — |  |  | (971 | )
Other | (209 | ) |  | (423 | )
Provision for income taxes | $ | 815 |  |  | $ | 214 |
At December 31, 2018, the Company had U.S. federal net operating loss carryforwards related to tax years 2018 and prior of approximately $350.3 million, which begin to expire in 2021, unless previously utilized, California net operating loss carryforwards of approximately $38.9 million, which begin to expire in 2028, unless previously utilized, and foreign net operating losses for its foreign subsidiaries of approximately $53.1 million, which generally have no expiration date. At December 31, 2018, the Company had California research and development tax credit carryforwards of approximately $10.9 million, which have no expiration date, and federal research and development tax credit carryforwards of approximately $9.4 million, which begin to expire in 2026, unless previously utilized. Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a rolling three-year period. The analysis was performed for the period through December 31, 2018. The analysis did not identify any events of cumulative change in ownership during the review period. The Company will continue monitoring any future changes in stock ownership. The Company entered into a Rights Agreement on January 22, 2018 (as subsequently amended, the “Rights Agreement”) with Computershare Trust Company, N.A., a federally chartered trust company, as rights agent. The Rights Agreement is intended to discourage acquisitions of the Company’s common stock which could result in a cumulative change in ownership of more than 50% within a rolling three-year period, thereby preserving the Company’s current ability to utilize net operating loss carryforwards to offset future income tax obligations; however, there is no assurance that the Rights Agreement will prevent a cumulative change in ownership. It is the Company’s intention to reinvest undistributed earnings of its foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign withholding taxes on U.S. income taxes which may become payable if undistributed earnings of the foreign subsidiary were paid as dividends to the Company. The Company follows the accounting guidance related to financial statement recognition, measurement and disclosure of uncertain tax positions. The Company recognizes the impact of an uncertain income tax position on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. No income tax benefit was recognized during the years ended December 31, 2018 and 2017. At December 31, 2018 and 2017, the Company did not have interest expense related to uncertain tax positions or a liability for unrecognized tax benefits. The Company does not expect changes to its uncertain tax position in the next twelve months. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
Balance at December 31, 2016 | $ | 36,291 |
Increases related to current and prior year tax positions | 291 |
Balance at December 31, 2017 | 36,582 |
Increases related to current and prior year tax positions | 324 |
Balance at December 31, 2018 | $ | 36,906 |
There are no tax benefits that, if recognized, would affect the effective tax rate that are included in the balances of unrecognized tax benefits at December 31, 2018. The Company and its subsidiaries file U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations. The Company’s tax returns are subject to examination by federal, state and foreign taxing authorities. The Company’s federal and state tax returns are subject to examination for the years beginning in 2015 and 2014, respectively. Net operating loss carryforwards arising prior to these years are also open to examination, if and when utilized. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years. However, because audit outcomes and the timing of audit settlements are subject to significant uncertainty, the Company’s current estimate of the total amounts of unrecognized tax benefits could increase or decrease for all open years.

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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