Income Taxes

12 Months Ended

Dec. 31, 2016

Income Taxes

Income Taxes

15. Income Taxes

Tax Rate Reconciliation

The income tax benefit differed from the amounts computed by applying the federal statutory income tax rate of 34% to pretax income from operations as a result of the following:

	Year Ended December 31,
	2016			2015
Income tax benefit at statutory federal rate	$	(3,723	)	$	(6,179	)
Increase (reduction) in income taxes resulting from:
Nondeductible expenses		7			69
Fair value adjustment on convertible notes		2			226
State and local income taxes, net of federal income tax benefit		(505	)		(799	)
Federal valuation allowance		3,714			5,884
State valuation allowance		505			799
	$	—		$	—

Significant Components of Current and Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below:

	At December 31,
	2016			2015
Deferred tax assets:
Deferred rent	$	25		$	11
Deferred revenue		-			85
Federal and state net operating loss carryforwards		10,818			10,727
Stock-based compensation		4,831			6,493
Compensation accruals and other		553			36
Total deferred tax assets		16,227			17,352
Valuation allowance		(16,144	)		(17,277	)
Net deferred tax assets		83			75
Deferred tax liabilities:
Total deferred tax liabilities		(83	)		(75	)
Net deferred tax asset (liability)	$	-		$	-
Property and equipment		(83	)		(75	)

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 taxes will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of the deferred tax liabilities including the impact of available carryback and carryforward periods and does not believe it is more-likely-than-not the Company will realize the benefits of the deferred tax assets. Accordingly, a valuation allowance has been recorded against the deferred tax assets. The valuation allowance decreased by approximately $1.1 million for the year ended December 31, 2016 and increased $6.7 million for the year ended December 31, 2015.

At December 31, 2016 and 2015, the Company had federal and state net operating loss carryforwards of $34.0 million and $27.8 million, respectively. The state loss carryforwards will begin expiring in 2016 and the federal loss carryforwards will begin expiring in 2021, unless previously utilized.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more 5% stockholders increase their ownership, in the aggregate, by more than 50% percentage points over a 36-month time period testing period, or the beginning the day after the most recent ownership change, if shorter. The annual limitation may result in the expiration of net operating losses and credit before utilization.

The Company files a federal income tax return. For taxable years ending before 2012, the Company is no longer subject to U.S. federal examination; however, the Internal Revenue Service has the ability to review years prior to 2012 to the extent the Company utilizes tax attributes carried forward from those prior years. The statute of limitations on the Company’s state filings is four years.