NOTE 12 - INCOME TAXES

Income tax expense differs from the statutory amounts as follows:

	2015			2014

Income taxes at U.S. statutory rate	$	(4,939,000	)	$	(9,105,000	)
Current year reserve		6,257,000			1,254,000
Other		(1,318,000	)		7,851,000

Total tax expense	$	-		$	-

Deferred taxes are provided for the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities. The temporary differences that give rise to deferred tax assets were as follows:

	December 31,
	2015			2014
Deferred tax assets
Net operating loss carryforwards	$	68,636,000		$	68,263,000
General business credit carryforwards		2,497,000			2,486,000
State credits		2,055,000			2,061,000
Property, equipment and goodwill		(25,000	)		-
Stock options		3,678,000			542,000
Derivatives		(92,000	)		(92,000	)
Deferred revenue		1,669,000			92,000
Intangible assets		595,000			464,000
Accrued interest		253,000			253,000
Other		231,000			231,000
Gross deferred tax assets		79,497,000			74,300,000
Valuation allowance		(79,497,000	)		(74,300,000	)
Net deferred taxes	$	-		$	-

At December 31, 2015, we had approximately $209,666,000 of net operating loss carryforwards and approximately $2,497,000 of general business credit carryforwards. These carryforwards expire as follows:

	Net operating		General business
	loss carryforwards		credit carryforwards
2016	$	-	$	-
2017		-		-
2018		3,324,000		112,000
Thereafter		206,342,000		2,385,000
	$	209,666,000	$	2,497,000

As a result of a merger on January 25, 1996, a change in control occurred for federal income tax purposes, which limits the utilization of pre-merger net operating loss carryforwards of approximately $3,100,000 to approximately $530,000 per year.

Additionally, we acquired MacroChem Corporation on February 25, 2009 and Somanta Pharmaceuticals, Inc. on January 4, 2008. Both corporations were loss companies at the time of the acquisition. Therefore, the net operating losses related to those acquisitions may be subject to annual limitations as provided by IRC Sec. 382.