12.	Income Taxes

Due to our net losses for the years ended December 31, 2015, 2014 and 2013, and since we have recorded a full valuation allowance against deferred tax assets, there was no provision or benefit for income taxes recorded. There were no components of current or deferred federal or state income tax provisions for the years ended December 31, 2015, 2014 and 2013.

A reconciliation of the total income tax provision tax rate to the statutory federal income tax rate of 34% for the years ended December 31, 2015, 2014 and 2013 is as follows:

	2015			2014			2013
Income tax expense (benefit) at federal statutory rate		(34.00	)%		(34.00	)%		(34.00	)%
Income tax expense (benefit) at state statutory rate		(4.40	)%		(3.52	)%		(3.54	)%
Gain on previously held equity interest in joint venture		0.00	%		0.00	%		(7.02	)%
Mark to market permanent adjustment		(13.91	)%		(0.37	)%		(2.15	)%
Change in valuation allowance		(7.45	)%		27.12	%		80.13	%
Change in state rate		(0.09	)%		0.02	%		(1.01	)%
Permanent interest adjustments		6.25	%		4.17	%		0.00	%
Stock compensation		20.43	%		0.00	%		0.00	%
Transfer pricing		18.49	%		0.00	%		0.00	%
Debt refinance permanent adjustment		0.00	%		3.92	%		0.00	%
Acquired NOL’s/Intangibles from joint venture		0.00	%		0.00	%		(33.40	)%
Research credit		(2.37	)%		(0.74	)%		(3.75	)%
Foreign rate differential		0.69	%		0.00	%		2.48	%
NOLs expiring and adjustments to NOL		13.92	%		0.00	%		0.00	%
Other, net		2.44	%		3.40	%		2.26	%
		0.00	%		0.00	%		0.00	%

The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and deferred tax liabilities as of December 31, 2015 and 2014 are as follows:

	2015			2014
Deferred tax assets:
Allowances and reserves	$	673,000		$	825,000
Accrued expenses		951,000			502,000
Deferred revenue and gain-on-sale		39,000			32,000
Stock based compensation		4,547,000			7,786,000
Net operating loss carryforwards		119,000,000			117,258,000
Income tax credit carryforwards		7,437,000			6,993,000
Property and equipment, principally due to differences in depreciation		683,000			926,000
Other,net		16,000			77,000
		133,346,000			134,399,000
Valuation allowance		(131,187,000	)		(132,583,000	)

Total deferred tax assets, net of allowance		2,159,000			1,816,000

Deferred tax liabilities:
Intangibles		(2,159,000	)		(1,816,000	)

Total deferred tax liability		(2,159,000	)		(1,816,000	)

Net deferred tax assets (liability	$	—		$	—

We have established a valuation allowance against our net deferred tax assets due to the uncertainty surrounding the realization of such assets. We periodically evaluate the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced. We have recorded a full valuation allowance of $131,187,000 as of December 31, 2015 as we do not believe it is more likely than not our net deferred tax assets will be realized. We decreased our valuation allowance by approximately $1,396,000 during the year ended December 31, 2015.

At December 31, 2015, we had federal, and California tax loss carry forwards of approximately $323,938,000, and $166,612,000, respectively, prior to reduction for windfall tax benefits. The federal and state net operating loss carry forwards begin to expire in 2019 and 2016 respectively, if unused. At December 31, 2015, we had federal and state tax credit carry forwards of approximately $4,618,000 and $4,271,000, respectively, after reduction for uncertain tax positions. The Company has not performed a formal research and development credit study with respect to these credits. The federal credits will begin to expire in 2018, if unused, and the state credits carry forward indefinitely.

Pursuant to the Internal Revenue Code (“IRC”) of 1986, as amended, specifically IRC §382 and IRC §383, our ability to use net operating loss and R&D tax credit carry forwards (“tax attribute carry forwards”) to offset future taxable income is limited if we experience a cumulative change in ownership of more than 50% within a three-year testing period. We have not completed an ownership change analysis pursuant to IRC Section 382 for taxable years ended after December 31, 2007. If ownership changes within the meaning of IRC Section 382 are identified as having occurred subsequent to 2007, the amount of remaining tax attribute carry forwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Further, our deferred tax assets associated with such tax attributes could be significantly reduced upon realization of an ownership change within the meaning of IRC §382.

We recognize tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carry forwards resulting from windfall tax benefits. At December 31, 2015, deferred tax assets do not include $1,265,000 of excess tax benefits from stock-based compensation.

We changed our accounting method of accounting for uncertain tax positions on January 1, 2007. We had no unrecognized tax benefits as of the date of adoption.

Following is a tabular reconciliation of the unrecognized tax benefits activity during the years ended December 31, 2015, 2014 and 2013:

	2015		2014		2013
Unrecognized Tax Benefits – Beginning	$	1,852,000	$	1,723,000	$	1,394,000
Gross increases – tax positions in prior period		—		—		69,000
Gross decreases – tax positions in prior period		—		—		—
Gross increase – current-period tax positions		135,000		129,000		260,000
Settlements		—		—		—
Lapse of statute of limitations		—		—		—
Unrecognized Tax Benefits – Ending	$	1,987,000	$	1,852,000	$	1,723,000

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, none of these amounts would affect the Company’s effective tax rate, since it would be offset by an equal reduction in the deferred tax asset valuation allowance. The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months.

The Company did not recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses as of December 31, 2015.

The Company’s material tax jurisdictions are United States and California. To our knowledge, the Company is currently not under examination by the Internal Revenue Service or any other taxing authority.

The Company’s tax years for 1998 (federal) and 1997 (CA) and forward can be subject to examination by the United States and California tax authorities due to the carry forward of net operating losses and research development credits.