Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.1.9
Income Taxes
12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes

12. Income Taxes

No provision for U.S. income taxes exists due to tax losses incurred in all periods presented. Deferred income taxes reflect the tax effects of net operating loss and tax credit carryforwards and the net 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  
     2014      2013  

Deferred tax assets:

     

Federal and state net operating loss carryforwards

   $ 71,153       $ 60,569   

Capitalized research and development

     22,314         22,349   

Federal and state tax credit carryforwards

     7,083         6,600   

Other

     1,470         1,313   
  

 

 

    

 

 

 

Total deferred tax assets

  102,020      90,831   

Valuation allowance

  (102,020   (90,831
  

 

 

    

 

 

 

Net deferred tax assets

$ —      $ —     
  

 

 

    

 

 

 

Realization of the net deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which is uncertain. Based on the weight of available positive and negative objective evidence, management believes it more likely than not that the Company’s deferred tax assets are not realizable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by $11.2 million during the year ended December 31, 2014 and decreased $1.8 million during the year ended December 31, 2013.

The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax provision (in thousands):

 

     December 31  
     2014      2013  

Expected income tax benefit at federal statutory tax rate

   $ (10,851    $ (3,424

Net operating loss adjustments

     (1,703      4,441   

Change in valuation allowance

     11,189         (1,757

State income taxes, net of federal benefit

     (783      583   

Permanent items

     2,595         555   

Research credits

     (446      (396

Other, net

     (1      (2
  

 

 

    

 

 

 

Income tax (benefit) expense

$ —      $ —     
  

 

 

    

 

 

 

Pursuant to Internal Revenue Code (“IRC”), Section 382 and 383, use of the Company’s U.S. federal and state net operating loss and research and development income tax credit carryforwards may be limited in the event of a cumulative change in ownership of more than 50.0% within a three-year period. The Company completed an analysis under IRC Sections 382 and 383 through December 21, 2007 and determined that the Company’s net operating losses and research and development credits were subject to limitations due to changes in ownership through December 31, 2007. The net operating loss carryforwards reflected in the deferred tax assets at December 31, 2014 have been adjusted to reflect Section 382 limitations resulting from the ownership change. As the Company was in a net operating loss position for the years 2008-2014, the Company has not performed any additional analysis for IRC Sections 382 and 383 and there is a risk that additional changes in ownership could have occurred since December 31, 2007. If a change in ownership were to have occurred, additional net operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.

As of December 31, 2014, we had federal net operating loss carryforwards of $181.0 million and state net operating loss carryforwards of $164.6 million to offset future taxable income, if any. In addition, we had federal research and development tax credit carry forwards of $6.7 million and state research and development tax credit carryforwards of $3.2 million. If not utilized, the federal net operating loss and tax credit carryforwards will expire beginning in 2024 through 2034 and the state net operating loss carryforwards will expire beginning in 2015 through 2034. The state tax credit will carry forward indefinitely.

The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):

 

     Total  

Balance as of December 31, 2012

   $ 1,747   

Increases related to prior year tax positions

     65   

Increases related to 2013 tax positions

     53   
  

 

 

 

Balances as of December 31, 2013

$ 1,865   

Increases related to prior year tax positions

  —     

Increases related to 2014 tax positions

  126   
  

 

 

 

Balances as of December 31, 2014

$ 1,991   
  

 

 

 

The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate. The Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.

The Company files income tax returns in the U.S. federal and California jurisdiction and is not currently under examination by federal, state, or local taxing authorities for any open tax years. The tax years 1998 through 2014 remain open to examination by the major taxing authorities.