Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.7.0.1
Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
12. Income Taxes
 
No provision for federal income taxes has been recorded for the years ended December 31, 2016 and 2015 due to net losses and the valuation allowance established.
 
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryovers and the temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.  Significant components of the Company's deferred tax assets are as follows (in thousands):
 
 
   
December 31,
 
   
2016
   
2015
 
Deferred tax assets:
           
Net operating losses
 
$
57,903
   
$
49,145
 
Research & other credits
   
2,121
     
1,978
 
Stock based compensation
   
2,164
     
1,047
 
In-Process R&D
   
1,246
     
 
Accrued bankruptcy settlement
   
     
1,328
 
Other
   
761
     
222
 
Total deferred tax assets
   
64,195
     
53,720
 
Valuation allowance
   
(64,195
)
   
(53,720
)
Net deferred tax assets
 
$
   
$
 

A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 2016 and 2015 is as follows:
 
   
Year Ended December 31,
 
   
2016
   
2015
 
Statutory rate
   
34.0
%
   
34.0
%
Valuation allowance
   
(34.8
)
   
(31.1
)
Nondeductible stock compensation
   
(0.1
)
   
(2.9
)
Other
   
0.9
   
-
Effective tax rate
   
-
%
   
-
%

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $10.5 million during 2016 and increased by $12.3 million during 2015.
 
At December 31, 2016, the Company had federal net operating loss carryforwards of approximately $146.8 million, which expire in the years 2021 through 2036, and state net operating loss carryforwards of approximately $137.0 million, which expire in the years 2017 through 2036.
 
At December 31, 2016, the Company had federal research and development credit carryforwards of approximately $1.5 million, which expire in the years 2022 through 2036 and state research and development credit carryforwards of approximately $2.3 million. The state research and development credit carryforwards can be carried forward indefinitely.
 
During 2013, the Company completed a Section 382 study in accordance with the Internal Revenue Code of 1986, as amended, and similar state provisions. The study concluded that the Company has experienced several ownership changes since inception. This causes the Company's utilization of its net operating loss and tax credit carryforwards to be subject to substantial annual limitations. These results are reflected in the above carryforward amounts and deferred tax assets. The Company's ability to utilize its net operating loss and tax credit carryforwards may be further limited as a result of subsequent ownership changes.  All such limitations could result in the expiration of carryforwards before they are utilized.  An ownership change may have occurred during 2015 and 2016.   As a result, tax attributes such as net operating losses and research and development credits may be subject to further limitation.
 
The Company adopted FASB Interpretation ASC 740, Income Taxes (previously Accounting for Uncertainties in Income Taxes - an interpretation of FASB Statement No. 48 ("FIN 48") effective January 1, 2009.  FASB ASC 740 requires that the Company recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination.
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
 
Balance at December 31, 2014
 
$
856
 
Additions based on tax positions related to prior year
   
-
 
Additions based on tax positions related to current year
   
212
 
Balance at December 31, 2015
   
1,068
 
Reduction based on tax positions related to prior year
   
(9
)
Additions based on tax positions related to current year
   
68
 
Balance at December 31, 2016
 
$
1,127
 
 

There were no interest or penalties related to unrecognized tax benefits. Substantially all of the unrecognized tax benefit, if recognized to offset future taxable income would affect the Company’s tax rate. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. Because of net operating loss carryforwards, substantially all of the Company’s tax years remain open to federal tax and state tax examination.
 
The Company files income tax returns in the U.S. federal jurisdiction and California. Federal and California corporation income tax returns beginning with the 2001 tax year remain subject to examination by the Internal Revenue Service and the California Franchise Tax Board, respectively.