NOTE 16. INCOME TAXES

The components of the pretax loss from operations for the years ended December 31, are as follows (in thousands):



	2017			2016			2015
U.S. Domestic	$	(46,849	)	$	(48,539	)	$	(44,415	)
Foreign	(16,686		)	(17,568		)	(1,083		)
Pretax loss from operations	$	(63,535	)	$	(66,107	)	$	(45,498	)

The components of the provision for income taxes for the years ended December 31, is presented in the following table:



	2017		2016		2015
Current:
Federal	$	—	$	—	$	—
State	—		—		—
Foreign	493		267		—
Total current provision	493		267		—
Deferred:
Federal	—		—		—
State	—		—		—
Foreign	—		—		—
Total deferred provision	—		—		—
Total provision	$	493	$	267	$	—

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the Tax Act”). The Tax Act reduced the corporate tax rate from the maximum federal statutory rate of 35% to 21%. The Tax Act states that the 21% corporate tax rate is effective for tax years beginning on or after January 1, 2018. However, existing tax law, which was not amended under the Tax Act, governs when a change in tax rate is effective. Existing tax law provides that if the taxable year includes the effective date of any rate change (unless the change is the first date of the taxable year), taxes should be calculated by applying a blended rate to the taxable income for the year. For the Company, the net deferred tax assets for US purposes have been revalued to 21% as of December 31, 2017 with a corresponding adjustment to the valuation allowance. Therefore, the reduction in the US corporate tax rate had no impact to the Company's earnings.

Due to uncertainties which currently exist in the interpretation of the provisions of the Tax Cuts and Jobs Act of 2017 regarding Internal Revenue Code Section 162(m), the Company has not evaluated the potential impacts of IRC Section 162(m) as amended by the Tax Cuts and Jobs Act of 2017 on its financial statements.

In conjunction with the Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes for the years ended December 31, are as follows (in thousands):



	2017			2016
Deferred tax assets:
Net operating loss carryforward	$	41,086		$	42,013
Property & equipment	524			690
Inventory	58			1,735
Stock options	8,195			7,208
Intangible assets, definite-lived	42			220
General business credit	6,651			3,984
Deferred revenue	253			370
Other	45			121
Valuation allowance	(56,854		)	(56,341		)
Deferred tax assets	$	—		$	—

As of December 31, 2017, the Company generated regular tax federal net operating losses of approximately $173.4 million. The Company's ability to realize tax benefit from the net operating loss is subject to annual limitation under Internal Revenue Code Section 382. The Company will never get the benefit of $4.2 million of the net operating losses generated prior to June 26, 2012. The deferred tax asset has been adjusted to reflect the Section 382 limitation. The net operating losses available for future use are approximately $169.2 million. As a result of The Act, for U.S. income tax purposes, net operating losses can be carried forward for up to 20 years. The Company’s federal net operating losses will begin to expire in 2023.

As of December 31, 2017, the Company has generated Arizona net operating losses of approximately $142.8 million. The Company's Arizona net operating losses will begin to expire in 2033.

The net deferred tax asset valuation allowance is $56.9 million as of December 31, 2017, compared to $56.3 million as of December 31, 2016. The valuation allowance is based on management’s assessment that it is more likely than not that the Company will not have taxable income in the foreseeable future. Due to the Company's consolidated loss position, the Company maintains a valuation allowance against its deferred tax assets.

The Company began commercialization of its products in Europe in 2016 and has subsidiaries in the Netherlands, France, Germany, Italy, Spain and the United Kingdom. The Company intends to treat earnings from its foreign subsidiaries as permanently reinvested.

The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate for years ending December 31, is as follows:



	2017		2016		2015
U.S. federal statutory income tax rate	(34.00	)%	(34.00	)%	(34.00	)%
State taxes, net of federal tax benefit	(2.62	)	(1.69	)	(2.93	)
Permanent and other differences	(2.31	)	(0.17	)	0.11
Change in tax rates	(1.02	)	0.67		—
Tax rate differential	8.99		8.62		0.42
Tax cuts and jobs act	38.46		—		—
Unrecognized tax benefits	1.20		1.09		0.40
Nondeductible equity and other compensation	(4.31	)	1.17		2.86
Limitation on net operating losses due to §382	—		—		—
Credit for increased research activities	(4.42	)	(3.31	)	(2.67	)
Change in Valuation allowance	0.81		28.02		35.81
	0.78	%	0.40	%	—	%

The Company's uncertain tax positions at December 31, as follows (in thousands):



	2017		2016		2015
Balance at beginning of year	$	1,101	$	343	$	161
Increases for prior positions	97		37		—
Increases for current year positions	943		721		182
Other increases	—		—		—
Decreases due to settlements	—		—		—
Expiration of the statute of limitations for the assessment of taxes	—		—		—
Other decreases	—		—		—
Balance at end of year	$	2,141	$	1,101	$	343

These uncertain positions are not expected to change within the next twelve months. Of the $2.1 million of uncertain tax positions, $65,000 would impact the effective tax rate, if reversed. The Company accounts for interest on uncertain tax positions within tax expense. The Company's foreign subsidiaries are subject to applicable jurisdiction examination for all years of operations. The Company did not accrue interest or penalties for these uncertain tax positions as of December 31, 2017.

The Company has incurred federal net operating losses dating to the tax year ended July 31, 2004. As such, all loss carryovers are subject to adjustment under IRS and state examination, depending on the jurisdiction in which they were incurred. In 2016, the IRS began an examination of the Company’s 2014 income tax return. The Company completed the IRS audit of the 2014 income tax return with no change.