Note 8—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 2014.

The Company has U.S. federal and state net operating loss carryovers of $108.9 million and $106.2 million as of December 31, 2016 and 2015, respectively. The net operating losses begin to expire in 2023 for federal income purposes and in 2016 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, 2016 and 2015 the change in the valuation allowance was $305,665 and $1,459,897 respectively.

Our net deferred tax asset consisted of the following at December 31, 2016 and 2015:

	December 31,
	2016			2015
Deferred tax asset:
Net operating loss carryforwards	$	42,436,541		$	42,315,384
Deferred compensation		1,681,158			1,474,625
Depreciation and amortization		842,073			1,010,636
Research and development credits		3,788,955			3,788,752
Accrued expenses		391,365			314,633
Impairment loss		730,831			850,334
Other		438,039			248,933
Total deferred tax assets		50,308,962			50,003,297
Less: Valuation allowance		(50,308,962	)		(50,003,297	)
Net deferred tax asset	$	—		$	—

The income tax provision (benefit) from income taxes consists of the following at December 31, 2016 and 2015:

	Years Ended December 31,
	2016			2015
Federal
Current	$	—		$	—
Deferred		(1,069,610	)		(1,246,071	)
State
Current
Deferred		763,945			(213,826	)
Total		(305,665	)		(1,459,897	)
Change in valuation allowance		305,665			1,459,897
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 for the years ended December 31, 2016 or 2015. The provision for income taxes using the statutory federal tax rate as compared to our effective tax rate is summarized as follows:

	December 31,
	2016			2015
Federal income tax rate		(34.0	)%		(34.0	)%
State income tax rate, net of federal benefit		(5.8	)%		(4.8	)%
Deferred tax true-up		(1.7	)%	5.0		%
Other permanent differences		-	%	0.1		%
Net operating loss expiration		31.4	%	-		%
		(10.1	)%		(33.7	)%
Change in valuation allowance		10.1	%		33.7	%
		—	%		—	%