Income Taxes

6 Months Ended

Jun. 30, 2013

Income Taxes

8. Income Taxes

Deferred taxes represent the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Temporary differences result primarily from the recording of tax benefits of net operating loss carry forwards and stock-based compensation.

As of June 30, 2013, the Company has an insufficient history to support the likelihood of ultimate realization of the benefit associated with its deferred tax assets. Accordingly, a valuation allowance has been established for the full amount of the net deferred tax asset.

The Company’s effective income tax rate differs from the amount computed by applying the federal statutory income tax rate to loss before income taxes as follows:

	June30, 2013			June30, 2012
Income tax benefit at the federal statutory rate		-34	%		-34	%
State income tax benefit, net of federal tax benefit		-6	%		-6	%
Change in fair value of warrant liability		5	%		23	%
Change in valuation allowance for deferred tax assets		35	%		17	%
Total		0	%		0	%

	June30, 2013				December31, 2012
Net operating loss carryforwards	$	14,492,100		$		12,821,749
Stock-based compensation		1,868,932				1,796,954
Less valuation allowance		(16,361,032	)			(14,618,703	)
Net deferred tax asset	$	0		$		—

As of June 30, 2013 and December31, 2012, the Company had federal and California income tax net operating loss carryforwards of approximately $36.2 million. These net operating losses will begin to expire in 2022 and 2016, respectively, unless previously utilized.

Section382 of the Internal Revenue Code can limit the amount of net operating losses which may be utilized if certain changes to a company’s ownership occur. While the Company underwent an ownership change in 2012 as defined by Section382 of the Internal Revenue Code, management estimated that the Company had not incurred any limitations on its ability to utilize its net operating losses under Section382 of the Internal Revenue Code during 2012. The Company may incur limitations in the future if there is a change in ownership.