Rosetta Stone 2014 Annual Report Download - page 71

Table of Contents
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For the years ended December 31, 2014, 2013 and 2012, the Company capitalized $8.8 million, $4.8 million, and $2.2 million in internal-use software,
respectively.
For the years ended December 31, 2014, 2013 and 2012, the Company recorded amortization expense relating to internal-use software of $3.4 million,
$1.8 million, and $0.9 million, respectively.
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The Company accounts for income taxes in accordance with ASC topic 740, ("ASC 740"), which provides for an asset and liability
approach to accounting for income taxes. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial
statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for
deductible temporary differences, and operating loss and tax credit carryforwards. Deferred liabilities are recognized for taxable temporary differences.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is
enacted.
ASC 740 requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on available evidence, it is more likely
than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on
the ASC 740 more-likely-than-not realization ("MLTN") threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given
to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature,
frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's
experience with operating loss and tax credit carryforwards not expiring unused, tax credits, and tax planning alternatives.
Significant judgment is required to determine whether a valuation allowance is necessary and the amount of such valuation allowance, if appropriate.
The valuation allowance is reviewed at each reporting period and is maintained until sufficient positive evidence exists to support a reversal.
When assessing the realization of the Company's deferred tax assets, the Company considers all available evidence, including:
• the nature, frequency, and severity of cumulative financial reporting losses in recent years;
• the carryforward periods for the net operating loss, capital loss, and foreign tax credit carryforwards;
• predictability of future operating profitability of the character necessary to realize the asset;
• prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax assets; and
• the effect of reversing taxable temporary differences.
The evaluation of the recoverability of the deferred tax assets requires that the Company weigh all positive and negative evidence to reach a
conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. The weight given to the evidence is
commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the
more difficult it is to support a conclusion that a valuation allowance is not needed.
The establishment of a valuation allowance has no effect on the ability to use the deferred tax assets in the future to reduce cash tax payments. The
Company will continue to assess the likelihood that the deferred tax assets will be realizable at each reporting period and the valuation allowance will be
adjusted accordingly, which could materially affect the Company's financial position and results of operations.
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The Company accounts for its stock-based compensation in accordance ASC topic 718,  ("ASC 718"). Under ASC
718, all stock-based awards, including employee stock option grants, are recorded at
F-14