Income taxes - Note 12

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Income taxes - Note 12

12. INCOME TAXES

A provision for income taxes has not been recorded for 2017, 2016 and 2015, due to the valuation allowances placed against the net operating losses and deferred tax assets arising during such periods. A valuation allowance has been recorded for all deferred tax assets. Based on our history of losses since inception, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets.

At December 31, 2017, we have net operating loss carryforwards of approximately $391.5 million for federal income tax reporting purposes. In addition, we have research and development tax credits of $7.4 million. The net operating loss carryforwards and research and development credits available to offset future taxable income, if any, will expire in varying amounts from 2018 to 2037, if not previously used.

On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act, or the Tax Act, was signed in to law. The Tax Act, among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, requires taxpayers to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. On December 31, 2017, we did not have any foreign subsidiaries and the international aspects of the Tax Act are not applicable.

In connection with the initial analysis of the impact of the Tax Act, we 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%. As a result, we recorded a decrease in net deferred tax assets of $64.3 million with a corresponding net adjustment to deferred income tax expense of $64.3 million. These adjustments were fully offset by a decrease in the valuation allowance for the year ended December 31, 2017. We have completed and recorded the adjustments necessary under Staff Accounting Bulletin No. 118 related to the Tax Act.

In certain circumstances, as specified in the Internal Revenue Code, a 50% or more ownership change by certain combinations of our shareholders during any three year period would result in limitations on our ability to use a portion of our net operating loss carryforwards.

Deferred tax assets are summarized as follows (in thousands):

		December 31,
		2017		2016
Deferred tax assets
Reserves	$	1,561	$	2,351
Net operating loss carryforwards		82,210		126,335
R&D credit carryforwards		7,435		6,998
Depreciation/amortization deferred		13,005		20,024
Deferred revenue		1,081		2,091
Other		5,944		9,045
Net deferred taxes before valuation allowance		111,236		166,844
Less: Valuation allowance		(111,236)		(166,844)
Deferred tax assets	$	-	$	-

Certain net operating losses arise from the deductibility for tax purposes of compensation under nonqualified stock options equal to the difference between the fair value of the stock on the date of exercise and the exercise price of the options. For financial reporting purposes, the tax effect of this deduction, when recognized, is accounted for as a credit to shareholders' equity.

We did not have any unrecognized tax benefits at December 31, 2017 or 2016.

We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2017, 2016, and 2015, we did not recognize any interest or penalties.

We file income tax returns in the U.S. federal jurisdiction and various states. Due to our operating loss and credit carryforwards, the U.S. federal statute of limitations remains open for 1998 and onward.