Entity information:
18.
Income Taxes
 
The Company recorded a benefit for income taxes of
$0.7
million during the year ended
December 31, 2017,
and a benefit for income taxes of
$34.0
thousand during the year ended
December
 
31,
2016.
The Company recorded a provision for income taxes of
$0.8
million during the year ended
December 
31,
2015.
 
The provision (benefit) for income taxes consisted of the following (in thousands):
 
   
December
31,
201
7
    
December
31,
201
6
  
Current:
                
Federal
   $
(702
 )   $
(39
 )
State
    
1
      
6
  
Total Current
    
(701
 )    
(33
 )
Deferred:
                
Federal
    
—
      
(1
 )
State
    
—
      
—
  
Total D
eferred
    
—
      
(1
 )
Provision (benefit) for income taxes
   $
(701
 )   $
(34
 )
 
Net deferred tax assets as of D
ecember 
31,
2017
and
2016
consist of the following (in thousands):
 
   
December
31,
201
7
    
December
31,
201
6
  
Deferred tax assets:
                
Accruals and other
   $
2,717
     $
3,746
  
Research credits
    
6,530
      
5,670
  
Net operating loss carryforward
    
31,064
      
36,224
  
Section
59(e) R&D expenditures
    
12,156
      
16,782
  
Deferred revenue
    
18,384
      
24,836
  
AMT credit
    
—
      
703
  
Total deferred tax assets
    
70,851
      
87,961
  
Valuation allowance
    
(70,851
 )    
(87,961
 )
Net deferred tax assets
   $
—
     $
—
  
 
 
Reconciliations of the statutory federal income tax to the Company
’s effective tax during the years ended
December 
31,
2017,
2016
and
2015
are as follows (in thousands):
 
   
Year Ended December
31,
  
   
201
7
    
2016
    
2015
  
Tax at statutory federal rate
   $
(17,751
 )   $
(14,685
 )   $
(8,037
 )
State tax
—net of federal benefit
    
350
      
(73
 )    
2,853
  
PIPE Warrant liability
    
(70
 )    
(260
 )    
(726
 )
General Business credits
    
(316
 )    
(360
 )    
(455
 )
Stock Options
    
42
      
1,115
      
1,559
  
Other
    
51
      
33
      
73
  
Change in valuation allowance
    
(17,110
 )    
14,196
      
5,493
  
Tax Reform
– Tax Rate Change
    
34,103
      
—
      
—
  
Provision for income taxes
   $
(701
 )   $
(34
 )   $
760
  
 
ASC
740
requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than
not.”
Realization of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance
decreased by
$17.1
million during year ended
December 
31,
2017
and increased by
$14.2
million and
$5.5
million during the years ended
2016
and
2015,
respectively.
 
As of
December
 
31,
2017,
the Company had federal net operating loss carryforwards of
$115.6
million, which begin to expire in
2029.
As of
December 
31,
2017,
the Company had state net operating loss carryforwards of
$97.2
million, which begin to expire in
2028.
 
As of
December 31, 2017,
the Company had a federal alternative minimum tax credit carryover of
$0.7
million
which is now refundable under the tax reform enacted on
December 22, 2017
and classified as a non-current receivable on the Company’s balance sheet.
 
As of
December
 
31,
2017,
the Company had federal research credit carryovers of
$5.9
million, which begin to expire in
2026.
As of
December 
31,
2017,
the Company had state research credit carryovers of
$3.6
million, which will carryforward indefinitely.
 
The Company has adopted ASU
2016
-
09
in calendar year end
December 31, 2017.
As a result of this adoption, the Company is reflecting the excess tax benefit related to share based compensation in the current year. The impact of this adoption results in a gross increase of
$2.9
million and
$2.0
million to federal and state NOLs respectively. The Company has recorded a full valuation allowance against its deferred tax assets.
 
Under Section
 
382
of the Internal Revenue Code of
1986,
as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than
50%
change (by value) in its equity ownership over a
three
year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research credits, to offset its post-change income
may
be limited. Based on an analysis performed by the Company as of
December 
31,
2013,
it was determined that
two
ownership changes have occurred since inception of the Company. The
first
ownership change occurred in
2006
at the time of the Series A financing and, as a result of the change,
$1.4
million in federal and state net operating loss carryforwards will expire unutilized. In addition,
$26,000
in federal and state research and development credits will expire unutilized. The
second
ownership change occurred in
July 2013
at the time of the underwritten public offering; however, the Company believes the resulting annual imposed limitation on use of pre-change tax attributes is sufficiently high that the limit itself will
not
result in unutilized pre-change tax attributes. If it is determined that an ownership change occurred post
2013,
the Company’s tax attributes
may
be subject to limitation.
 
On
December 22, 2017,
the Tax Cuts and Jobs Act of
2017
(the “Act”) was signed into law resulting in significant changes to the Internal Revenue Code. The Act reduces the federal corporate income tax rate decrease from
35%
to
21%
effective for tax
periods beginning after
December 31, 2017,
changes U.S international taxation from a worldwide tax system to a territorial system, and a
one
-time transition tax on the untaxed cumulative foreign earnings and profits as of
December 31, 2017.
The Act also includes provisions for the elimination of the Alternative Minimum Tax, among other changes. The Company has calculated its best estimate of the impact of the Act in its year end income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result has recorded
$0.7
million as an additional income tax benefit in the
fourth
quarter of
2017,
the period in which the legislation was enacted. The provisional amount of
$0.7
million related to the reversal of AMT credits which are now refundable credits under the provisions of the Act. The Company has remeasured the deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future.
No
provision or benefit has been recorded as the Company has recorded a full valuation allowance against its deferred tax assets. The effects of other provisions of the Act are
not
expected to have a material impact on the Company’s financial statements.
 
 
Uncertain Tax Positions
 
A reconciliation of the beginning and ending balances of the unrecognized tax benefits during t
he years ended
December 
31,
2017,
2016
and
2015
is as follows (in thousands):
 
   
Year Ended December
31,
  
   
2017
    
2016
    
2015
  
Unrecognized benefit
—beginning of period
   $
2,162
     $
1,939
     $
1,667
  
Gross decreases
—prior period tax positions
    
—
      
—
      
—
  
Gross increases
—current period tax positions
    
203
      
223
      
272
  
Unrecognized benefit
—end of period
   $
2,365
     $
2,162
     $
1,939
  
 
The entire amount of the unrecognized tax benefits would
not
impact the Company
’s effective tax rate if recognized.
 
Accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense and were immaterial. The Company files income tax returns in the United States and in California.
The tax years
2005
through
2017
remain open in both jurisdictions. The Company is
not
currently under examination by income tax authorities in federal, state or other foreign jurisdictions. The Company does
not
anticipate any significant changes within
12
months of this reporting date of its uncertain tax positions.