Note 7 — Income Taxes

The Company has incurred net losses since inception and, consequently, has not recorded any U.S. federal and state income tax expense or benefit. The differences between the Company’s effective tax rate and the statutory tax rate in 2013, 2012, and 2011 are as follows:


	2013			2012			2011
Income tax benefit at federal statutory rate (35%)	$	(10,538	)	$	(13,678	)	$	(19,932	)
State and local income taxes net of federal tax benefit		(839	)		(1,470	)		(2,503	)
Permanent items		738			754			890
Rate change		1,892			1,147			(2,500	)
Expiration of attribute carryforwards		242			5,135			2,884
Research and development tax credits		(1,206	)		829			(2,108	)
Other		1,144			281			731
Change in valuation allowance		8,567			7,002			22,538

Income tax expense	$	—		$	—		$	—

The Company recognizes the impact of a tax position in its financial statements if it is more likely than not that the position will be sustained on audit based on the technical merits of the position. The Company has concluded that it has an uncertain tax position pertaining to its research and development credit carryforwards. The Company has established these credits based on information and calculations it believes are appropriate and the best estimate of the underlying credit. Any changes to the Company’s unrecognized tax benefits are offset by an adjustment to the valuation allowance and there would be no impact on the Company’s financial statements. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	2013		2012
Balance at January 1	$	—	$	—
Additions to current year tax positions		43		—
Additions to tax positions of prior years		241		—
Reductions for tax provisions of prior years		—		—

Balance at December 31	$	284	$	—

Additionally, utilization of the Company’s net operating loss carryforwards could be subject to a substantial annual limitation due to ownership change limitations as described in Section 382 of the Internal Revenue Code and similar state provisions. The Company has performed an analysis as of December 31, 2013, and has determined that it has incurred changes in control as defined under Section 382. These ownership changes may limit the amount of net operating losses that can be utilized annually to offset future taxable income and tax.

Significant components of the Company’s deferred tax assets and liabilities are as follows:


	2013			2012
Deferred tax assets:
Net federal and state operating losses	$	119,940		$	108,498
Research and development credits		37,348			36,142
Fixed assets		1,119			1,185
Reserve for inventories		1,612			1,654
Deferred revenue		2,151			2,645
Stock-based compensation		5,282			6,475
Foreign currency derivative		(207	)		1,851
Other		311			539

Total deferred tax assets		167,556			158,989
Valuation allowance		(167,556	)		(158,989	)

Total deferred tax liabilities		—			—

Net deferred tax assets	$	—		$	—

The majority of the Company’s deferred tax assets relate to net operating loss and research and development carryforwards that can only be realized if the Company is profitable in future periods. It is uncertain whether the Company will realize any tax benefit related to these carryforwards. Accordingly, the Company has provided a full valuation allowance against the net deferred tax assets due to uncertainties as to their ultimate realization. The valuation allowance will remain at the full amount of the deferred tax assets until it is more likely than not that the related tax benefits will be realized. The Company’s valuation allowance increased by $8,567 in 2013, $7,002 in 2012, and $22,538 in 2011.

As of December 31, 2013, the Company had federal operating loss carryforwards of $310,259, state operating loss carryforwards of $332,818, and research and development credit carryforwards of $37,348, which will expire at various dates from 2014 through 2033.

The Company’s federal and state operating loss carryforwards include $4,474 of excess tax benefits related to a deduction from the exercise of stock options. The tax benefit of these deductions has not been recognized in deferred tax assets. If utilized, the benefits from these deductions will be recorded as adjustments to additional paid-in capital.

Tax years 2010-2012 remain open to examination by the major taxing jurisdictions to which the Company is subject. Additionally, years prior to 2010 are also open to examination to the extent of loss and credit carryforwards from those years. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as components of its income tax provision. However, there were no provisions or accruals for interest and penalties in 2013, 2012, and 2011.

The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. The Act retroactively restored several expired business tax provisions, including the research and development credit. Because a change in tax law is accounted for in the period of enactment, the retroactive effect of the Act on the Company’s research and development business credit carryforward has been recorded in 2013 for 2012 activities. The deferred tax asset related to general business credits has also been adjusted in 2013 due to this retroactive treatment.