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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For the years ended December 31, 2018, 2017 and 2016, the loss before income taxes consisted of the following (in thousands):
| 2018 |  | 2017 |  | 2016
Domestic | $ | (19,925 | ) |  | $ | (4,153 | ) |  | $ | (16,271 | )
Foreign | 33 |  |  | 8 |  |  | 37 |
Total loss before income taxes | $ | (19,892 | ) |  | $ | (4,145 | ) |  | $ | (16,234 | )
For the years ended December 31, 2018, 2017 and 2016, the components of the income tax benefit (provision) were as follows (in thousands):
| 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | — |  |  | $ | — |  |  | $ | — |
State | (11 | ) |  | 1 |  |  | 2 |
Foreign | (4 | ) |  | 21 |  |  | (1 | )
Total current | $ | (15 | ) |  | $ | 22 |  |  | $ | 1 |
Deferred: |  |  |  |  |
Federal | $ | — |  |  | $ | — |  |  | $ | — |
State | — |  |  | — |  |  | — |
Foreign | — |  |  | — |  |  | — |
Total deferred | $ | — |  |  | $ | — |  |  | $ | — |
Total income tax benefit (provision) | $ | (15 | ) |  | $ | 22 |  |  | $ | 1 |
The Company had an effective tax rate of (0.07)%, 0.53% and 0.01% for the years ended December 31, 2018, 2017 and 2016, respectively. The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2018, 2017 and 2016 were as follows:
| 2018 |  | 2017 |  | 2016
Tax at federal statutory rate | 21.00 | % |  | 34.00 | % |  | 34.00 | %
State tax, net of federal benefit | 1.88 |  |  | 1.03 |  |  | 0.15 |
Stock-based compensation | (5.84 | ) |  | (38.63 | ) |  | (8.19 | )
Warrant expense | (6.98 | ) |  | (1.00 | ) |  | (0.03 | )
Other items | (1.46 | ) |  | (1.10 | ) |  | (0.66 | )
Research and development credits | 10.54 |  |  | 102.35 |  |  | — |
Net operating loss expiration | — |  |  | (9.29 | ) |  | — |
Change in valuation allowance | (19.21 | ) |  | 458.55 |  |  | (25.26 | )
Rate differential impact of Tax Cuts and Jobs Act of 2017 | — |  |  | (545.38 | ) |  | — |
Effective tax rate | (0.07) | % |  | 0.53 | % |  | 0.01 | %
Deferred income taxes reflect the 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. As of December 31, 2018 and 2017, the significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
| 2018 |  | 2017
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 38,895 |  |  | $ | 39,236 |
Stock-based compensation | 3,096 |  |  | 2,427 |
Depreciation and amortization | — |  |  | 245 |
Non-deductible accrued expenses and reserves | 2,916 |  |  | 683 |
Research and development credits | 6,724 |  |  | 4,629 |
Gross deferred tax assets | 51,631 |  |  | 47,220 |
Deferred tax liabilities: |  |  |
Acquired intangible assets | (1,298 | ) |  | (1,856 | )
Depreciation and amortization | (894 | ) |  | — |
Net deferred tax assets prior to valuation allowance | 49,439 |  |  | 45,364 |
Valuation allowance | (49,439 | ) |  | (45,364 | )
Net deferred tax assets | $ | — |  |  | $ | — |
The Company established a full valuation allowance of $49.4 million, $45.4 million and $64.3 million at December 31, 2018, 2017 and 2016, respectively, against its net deferred tax assets. The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. Due to the history of losses the Company has generated in the past, the Company believes that it is not more likely than not that all of the deferred tax assets can be realized as of December 31, 2018. Accordingly, the Company has recorded a full valuation allowance on its deferred tax assets. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among other changes is a permanent reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the reduction in the corporate income tax rate, the Company revalued its net deferred tax asset at December 31, 2017. This resulted in a reduction of $22.6 million in the value of the net deferred tax asset, which was entirely offset by the change in valuation allowance of $22.6 million due to the Company’s full valuation allowance position. Other than the remeasurement of the valuation allowance resulting from the Tax Act, there has been no release of the valuation allowance for all periods presented. The Tax Act expanded the scope of the $1 million deduction limitation and expended the definition of a “covered person” under Internal Revenue Code (“IRC”) §162(m) for tax years beginning after December 31, 2017. The Tax Act repealed the performance based exception; therefore, all compensation paid to a covered employee in excess of $1 million will be nondeductible, unless it is subject to the transition rule. The Tax Act expended the definition of a “covered employee” to include the Chief Financial Officer and to cover any individual who served as the Chief Executive Officer or Chief Financial Officer at any time during the tax year. The “covered employee” definition has been further expanded to provide that once an employee becomes a covered employee for any tax year beginning after December 31, 2016, the employee will remain a covered employee for all future tax years. The Tax Act does not appear to eliminate the regulatory exception to IRC §162(m) for newly public companies, that allows such companies to be exempt from the deduction limitation for a limited period, generally three years, following an initial public offering. The Company is applying the transition rule and has not limited its executive compensation tax deduction. On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118’s measurement period closed on December 22, 2018, one year from the Tax Act’s enactment. In accordance with SAB 118, the Company took a provisional amount of bonus tax depreciation following the provisions under IRC §168(k). Upon finalization, the provisional adjustment did not change, resulting in no adjustment to tax expense. The Tax Act’s impact to the Company’s state income tax rate was less than 1 percent. The Company has federal net operating loss (“NOL”) carryforwards of approximately $172.3 million and $172.9 million as of December 31, 2018 and 2017, respectively. The federal NOLs generated in the years ended December 31, 1999 through 2017 will begin to expire in 2019 for federal income tax purposes, including $0.9 million in 2019. NOLs originating before January 1, 2018, are eligible to offset taxable income, if not otherwise limited under IRC §382 limitations. NOLs generated after December 31, 2017, have an infinite carryforward period and subject to 80% deduction limitation based upon pre-NOL deduction taxable income. The Company has California NOL carryforwards of approximately $38.5 million and $38.5 million as of December 31, 2018 and 2017, respectively. California NOLs generated in the years ended December 31, 2008 through 2018 will begin to expire in 2028. California NOLs generated before 2008 have expired in accordance the California Revenue Taxation Code and related regulations. The Company has federal research and development credits (“Credits”) of approximately $8.8 million and $7.1 million as of December 31, 2018 and 2017, respectively. The federal Credit will begin to expire in 2019 through 2038. The Company has California Credits of approximately $9.7 million and $8.3 million as of December 31, 2018 and 2017, respectively. California Credits have an infinite carryforward period. Utilization of the NOL and Credit carryforwards that were generated prior to January 1, 2018, may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by IRC §382 and §383, as well as similar state and foreign provisions. The Company adopted ASU 2016-09 effective January 1, 2018, on a prospective basis. The Company’s previously unrecognized excess tax benefit of $1.6 million has been recognized as an increase to both the NOL deferred tax asset and the valuation allowance. The tax impact of the adoption was nil. Uncertain Tax Positions As of December 31, 2018, the Company’s total amount of unrecognized tax benefits was $11.0 million, none of which would impact the Company’s effective tax rate, if recognized. For the years ended December 31, 2018, 2017 and 2016, the activity related to the unrecognized tax benefits were as follows (in thousands):
| 2018 |  | 2017 |  | 2016
Gross unrecognized tax benefits—beginning balance | $ | 10,200 |  |  | $ | 17,370 |  |  | $ | 14,130 |
Increase related to tax positions taken during prior year | 108 |  |  | — |  |  | — |
Decrease related to tax positions taken during prior year | (2 | ) |  | (7,739 | ) |  | — |
Increase related to tax positions taken during current year | 667 |  |  | 569 |  |  | 3,240 |
Gross unrecognized tax benefits—ending balance | $ | 10,973 |  |  | $ | 10,200 |  |  | $ | 17,370 |
For the year ended December 31, 2017, the changes related to prior year uncertain tax positions reflected above is largely attributable to the completion of a study on the qualifying activities related to research and development costs giving rise to research and development tax credits. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the provision for income taxes in the period that such determination is made. As of December 31, 2018, the Company did not currently recognize any penalties or interest charges relating to uncertain tax positions. The Company does not anticipate the recorded reserves to change significantly in the next twelve months as the Company has a history of operating losses. Due to certain tax attribute carryforwards, the tax years 1999 to 2018 remain open to examination by the major taxing jurisdictions in which the Company is subject to tax. As of December 31, 2018, the Company was not under examination by the Internal Revenue Service or any state or foreign tax jurisdiction.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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