12.

Income taxes:

On December 22, 2017, the United States enacted major tax reform legislation, Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act (or 2017 Tax Act). The 2017 Tax Act, among other changes, lowers the general corporate income tax rate to 21% for tax years beginning after December 31, 2017, transitions U.S. international taxation from a worldwide tax system to a territorial system, and provides for a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, which is not applicable to the Company. The Company has calculated its impact of the 2017 Tax Act in its income tax provision during the year ended December 31, 2018, in accordance with its understanding of the 2017 Tax Act and guidance available as of the date of this filing.

The Company recorded federal income tax benefit during 2018 due to the impact of the 2018 Tax Cuts and Jobs Act. For years beginning after December 31, 2017, the Act repeals corporate AMT. The credit becomes refundable in an amount equal to 50% of the excess of the credit for the tax year over the amount of the credit allowable for the year against regular tax liability. The Company recorded state income tax expense of $0.05 million due to state audit findings related to prior periods. The Company has recognized valuation allowances for all deferred tax assets for years ending 2018 and 2017. Reconciliation of the Federal statutory income tax rate of 21% to the effective rate is as follows:


	2018			2017			2016
Federal statutory income (benefit) tax rate		21.00	%		(34.00	%)		34.00	%
2017 Tax Act, net deferred tax remeasurement		—			(626.73	)		—
State taxes, net of federal benefit		(0.11	)		(2.01	)		2.88
Stock compensation		(4.74	)		(5.18	)		(0.61	)
Permanent differences-other		(1.33	)		(13.39	)		(1.00	)
North Carolina tax rate change		—			(32.75	)		—
Research and development (“R&D”) credit		—			5.54			0.98
Valuation release for bargain purchase gain		—			(302.23	)		—
Other		(2.07	)		(1.36	)		(0.47	)
Decrease (increase) in valuation allowance		(12.65	)		709.88			(35.78	)

		0.10	%		(302.23	%)		0.00	%

The tax effects of temporary differences and net operating losses that give rise to significant components of deferred tax assets and liabilities consist of the following:


	December 31,
Deferred tax assets (liabilities)	2018			2017
Deferred revenue	$	—		$	—
Basis difference in equipment		(459	)		(587	)
Basis difference in intangibles		(6,045	)		(8,288	)
Accrued liabilities and other		2,246			654
R&D credit		10,980			11,882
AMT credit		—			79
Stock options		4,360			6,115
Net operating loss carry-forward		64,376			61,660

		75,458			71,515

Less: valuation allowance		(75,458	)		(71,515	)

	$	—		$	—

The Company is required to reduce any deferred tax asset by a valuation allowance if, based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount, which is more likely than not to be realized. As a result, the Company recorded a valuation allowance with respect to all of the Company’s deferred tax assets.

The Company has a federal net operating loss carry forward (“NOLs”) of approximately $279 million as of December 31, 2018. Under Section 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a “loss corporation”, as defined, there are annual limitations on the amount of the NOLs and other deductions, which are available to the Company. The portion of the NOLs incurred prior to May 16, 2006 is subject to this limitation. As such, the use of these NOLs to offset taxable income is limited to approximately $1.5 million per year. The Company’s State NOLS are approximately $264 million as of December 31, 2018. These loss carryforwards expire between 2024 and 2037 for federal NOL and 2030 for state NOL generated prior to December 31, 2017. The federal NOL generated in 2018 of $3.28 million will have an indefinite carryforward life due to tax reform. Management has evaluated all other tax positions that could have a significant effect on the financial statements and determined that the Company has no uncertain income tax positions at December 31, 2018.

One or more of the Company’s legal entities file income tax returns in the U.S. federal jurisdiction and various U.S. state jurisdictions. The Company’s income tax returns are subject to audit by the tax authorities in those jurisdictions. Significant disputes may arise with authorities involving issues of the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and the interpretation of the relevant facts. The Company is no longer subject to U.S. federal or state tax examinations for years ended on or before December 31, 2014.