AKAO 2017 Annual Report

133 12. Income Taxes A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2017, 2016 and 2015 is as follows: Year Ended December 31, 2017 2016 2015 Statutory tax rate ............................................................................... 34.00% 34.00% 34.00% State taxes, net of federal benefits..................................................... 1.38% 0.96% -3.62% Stock-based compensation ................................................................ -0.16% -0.62% -1.20% Credits ............................................................................................... 1.99% 1.46% 3.30% Other.................................................................................................. -0.64% -0.10% -0.54% Valuation allowance.......................................................................... -4.03% -26.22% -31.94% Warrant valuation.............................................................................. 0.00% -9.48% 0.00% Tax rate change ................................................................................. -32.54% 0.00% 0.00% Effective tax rate ............................................................................... 0.00% 0.00% 0.00% The tax effects of temporary differences and carryforwards that give rise to the Company’s deferred tax assets are as follows (in thousands): December 31, 2017 2016 Deferred tax assets: Net operating loss carry forwards .................................................................. $ 68,807 $ 71,858 Research and development credit .................................................................. 17,365 10,969 Intangible assets ............................................................................................. 824 1,653 Depreciation ................................................................................................... — 191 Temporary differences ................................................................................... 8,017 4,682 Gross Deferred tax assets .................................................................................... 95,013 89,353 Less: valuation allowance.................................................................................... (95,013) (89,353) Net deferred tax assets......................................................................................... $ — $ — Realization of the deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by $5.7 million and $18.7 million during the years ended December 31, 2017 and 2016, respectively. The Company had federal and state net operating loss carryforwards of approximately $297.5 million and $85.0 million, respectively, at December 31, 2017. The federal and state net operating loss carryforwards are available to reduce future taxable income, if any. If not utilized, the federal and state operating loss carryforwards will begin to expire in various amounts beginning 2023 and 2018, respectively. The Company also had federal and state research and development credit carryforwards of approximately $13.8 million and $7.2 million, respectively, at December 31, 2017. The federal research and development credits will begin to expire in 2025. The state research and development credits can be carried forward indefinitely. Utilization of the net operating loss and research and development credits carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss and research and development credits before utilization. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to U.S. federal and state income tax examinations by tax authorities for tax years from 2003 due to net operating losses and tax credits that are being carried forward for tax purposes.