9. Income Taxes

At December 31, 2013, the Company had both federal and state net operating loss (“NOL”) carryforwards of approximately $360.9 million and $332.5 million, respectively. Utilization of the NOL and research and development (“R&D”) credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred or that could occur in the future, as required by Section 382 of the Code, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.

The Company completed a study to assess whether an ownership change, as defined by Section 382 of the Code, had occurred from the Company’s formation through December 31, 2013. Based upon this study, the Company determined that several ownership changes had occurred. Accordingly, the Company has reduced its deferred tax assets related to the federal and state NOL carryforwards and the federal R&D credit carryforwards that are anticipated to expire unused as a result of these ownership changes. These tax attributes have been excluded from deferred tax assets with a corresponding reduction of the valuation allowance with no net effect on income tax expense or the effective tax rate. Future ownership changes may further limit the Company’s ability to utilize its remaining tax attributes.

Federal and state NOL carryforwards of $3.6 million and $7.5 million will expire in 2018 and 2014, respectively, unless utilized. The remaining federal and state NOL carryforwards will begin to expire in 2019 and 2015, respectively. At December 31, 2013, the Company had $8.0 million of federal R&D credit carryforwards of which $119,000 will expire in 2018 unless utilized, and the remaining federal R&D credit carryforwards will begin to expire in 2019. At December 31, 2013, the Company had $4.9 million of state R&D credit carryforwards that have no expiration date. At December 31, 2013, the Company also had foreign NOL carryforwards of approximately $4.1 million that have no expiration date. The Company continues to record the deferred tax assets related to these attributes, subject to valuation allowance, until expiration occurs.

Approximately $16.4 million of the NOL carryforwards relate to excess tax deductions for stock compensation, the income tax benefit of which will be recorded as additional paid-in capital if and when realized.

The components of the deferred tax assets are as follows:


	2013			2012
	(in thousands)
NOL carryforwards	$	136,583		$	127,894
R&D credit carryforwards		11,227			11,056
Capitalized R&D		8,003			4,075
Stock-based compensation		3,221			2,906
Other		1,207			775

		160,241			146,706
Valuation allowance		(160,241	)		(146,706	)

	$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $13.5 million in 2013 primarily due to an increase in deferred tax assets generated from net operating losses and R&D credits, partially offset by the expiration of NOL carryforwards in 2013.

A reconciliation of income taxes to the amount computed by applying the statutory federal income tax rate to the net loss is summarized as follows:


	2013			2012			2011
	(in thousands)
Amounts computed at statutory federal rate	$	(12,902	)	$	(7,088	)	$	(7,734	)
Stock-based compensation and other permanent differences		244			209			306
Reduction of deferred tax assets under Section 382 of the Code		2,781			—			—
R&D credits		(1,269	)		(937	)		(514	)
Change in valuation allowance		13,509			8,375			8,820
State taxes		(2,140	)		(1,171	)		(1,288	)
Foreign taxes		—			(4	)		59
Other		(223	)		616			368

	$	0		$	0		$	17

The net income tax expense for each of the years ended December 31, 2013, 2012 and 2011 is recorded in the Company’s statement of operations in general and administrative expenses.

The tax years 1998-2013 remain open to examination by the major taxing jurisdictions to which the Company is subject. During 2012, the Internal Revenue Service concluded an exam for tax years 2008 and 2009 that resulted in favorable adjustments to the Company’s R&D credits. As of December 31, 2013 and 2012, the Company did not have any liabilities recorded for uncertain tax positions.