INCOME TAXES - Note 13

12 Months Ended

Dec. 31, 2018

Contract with Customer, Liability, Current, Change

Income taxes - Note 13

13. INCOME TAXES

A provision for income taxes has not been recorded for 2018 and 2017 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, 2018, we have net operating loss carryforwards of approximately $398.1 million for federal income tax reporting purposes. In addition, we have research and development tax credits of $8.6 million. During 2018, $7.1 million federal net operating losses expired unused. A majority of the net operating loss carryforwards and research and development credits available to offset future taxable income, if any, will expire in varying amounts from 2019 to 2038, if not previously used.

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.

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.

We applied the guidance in Staff Accounting Bulletin No. 118 ("SAB 118") when accounting for the enactment date effects of the Tax Act in 2017 and throughout 2018. At December 31, 2017, we completed our accounting for all the enactment date income tax effects of the Tax Act under Accounting Standards Codification 740, Income Taxes. At December 31, 2017 and 2018, we did not have any foreign subsidiaries and the international aspects of the Tax Act are not applicable. Our accounting for these items is now complete.

We implemented ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as of January 1, 2018 using the full retrospective approach. The application of the full retrospective approach had no impact to 2018 and prior income tax expense due to a full valuation allowance. The effect of adoption reduced our 2017 deferred tax assets by $1.1 million, which was offset by a change in valuation allowance.

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

		December 31,
		2018		2017
Deferred tax assets
Reserves	$	1,152	$	1,561
Net operating loss carryforwards		83,608		82,210
R&D credit carryforwards		8,593		7,435
Depreciation/amortization deferred		15,884		13,005
Other		6,076		5,944
Net deferred taxes before valuation allowance		115,313		110,155
Less: Valuation allowance		(115,313)		(110,155)
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 an income tax benefit.

We did not have any unrecognized tax benefits at December 31, 2018 or 2017.

We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2018 and 2017 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.