Note 9—Income Taxes

The Company files U. S. federal and state of California income tax returns. We are no longer subject to Federal and state income tax examinations by tax authorities for years prior to 2012.

The Company has U.S. federal and state net operating loss carryovers of $106.2 million and $104.2 million as of December 31, 2015 and 2014, respectively. These net operating losses are subject to Internal Revenue Code Section 382, which could result in limitations on the amount of such losses that could be utilized during any taxable year. The net operating losses begin to expire in 2024 for federal income purposes and in 2015 for state income tax purposes.

The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those net operating losses are available. We consider projected future taxable income and tax planning strategies in making our assessment. At present, we do not have a sufficient history of income to conclude that it is more-likely-than-not that we will be able to realize all of our tax benefits in the near future and therefore we have established a valuation allowance for the full value of the deferred tax asset.

A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation. For the years ended December 31, 2015 and 2014 the change in the valuation allowance was $1,459,897 and $9,072,799 respectively.

Our net deferred tax asset consisted of the following at December 31, 2015 and 2014:

	December 31,
	2015			2014
Deferred tax asset:
Net operating loss carryforwards	$	42,315,384		$	41,512,011
Deferred compensation		1,474,625			1,082,211
Depreciation and amortization		1,010,636			1,161,055
Research and development credits		3,788,752			3,761,004
Accrued expenses		314,633			47,356
Impairment loss		850,334			730,830
Other		248,933			248,933
Total deferred tax assets		50,003,297			48,543,400
Less: Valuation allowance		(50,003,297	)		(48,543,400	)
Net deferred tax asset	$	—		$	—

The income tax provision (benefit) from income taxes consists of the following at December 31, 2015 and 2014:

	Years Ended December 31,
	2015			2014
Federal
Current	$	—		$	—
Deferred		(1,246,071	)		(6,333,053	)
State
Current
Deferred		(213,826	)		(2,739,746	)
Total		(1,459,897	)		(9,072,799	)
Change in valuation allowance		1,459,897			9,072,799
Income tax provision (benefit)	$	—		$	—

As a result of our significant operating loss carry forwards and the corresponding valuation allowance, no income tax benefit was recorded at December 31, 2015 or 2014. The provision for income taxes using the statutory federal tax rate as compared to our effective tax rate is summarized as follows:

	December 31,
	2015			2014
Federal income tax rate		(34.0	)%		(34.0	)%
State income tax rate, net of federal benefit		(4.8	)%		(14.6	)%
Deferred tax true-up		5.0		—
Other permanent differences		0.1	%	—		%
		(33.7	)%		(48.6	)%
Change in valuation allowance		33.7	%		48.6	%
		—	%		—	%