9.	Income Taxes

Due to our net losses for the years ended December 31, 2016 and 2015, and since we have recorded a full valuation allowance against deferred tax assets, there was no provision or benefit for income taxes recorded. We recorded an immaterial amount pertaining to current foreign income tax provision expense for the year ended December 31, 2016 and no components of current or deferred federal or state income tax provisions for the years ended December 31, 2015.

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, 2016 and 2015 is as follows:

	2016			2015
Income tax expense (benefit) at federal statutory rate		(34.00	)%		(34.00	)%
Income tax expense (benefit) at state statutory rate		(3.41	)%		(4.40	)%
Mark to market permanent adjustment		0.00	%		(13.91	)%
Change in valuation allowance		16.75	%		(7.45	)%
Change in state rate		(0.06	)%		(0.09	)%
Permanent interest adjustments		0.16	%		6.25	%
Stock compensation		12.67	%		20.43	%
Transfer pricing		0.00	%		18.49	%
Research credit		(1.44	)%		(2.37	)%
Foreign rate differential		0.79	%		0.69	%
NOLs expiring and adjustments to NOL		6.00	%		13.92	%
Other, net		2.54	%		2.44	%
		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, 2016 and 2015 are as follows (in thousands):

	2016			2015
Deferred tax assets:
Allowances and reserves	$	573		$	673
Accrued expenses		701			951
Deferred revenue and gain-on-sale		33			39
Stock based compensation		1,947			4,547
Net operating loss carryforwards		125,182			119,000
Income tax credit carryforwards		7,764			7,437
Property and equipment, principally due to differences in depreciation		675			683
Other, net		15			16
		136,890			133,346
Valuation allowance		(134,873	)		(131,187	)
Total deferred tax assets, net of allowance		2,017			2,159
Deferred tax liabilities:
Intangibles assets		(2,017	)		(2,159	)
Total deferred tax liability		(2,017	)		(2,159	)
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 $134.9 million as of December 31, 2016 as we do not believe it is more likely than not our net deferred tax assets will be realized. We increased our valuation allowance by approximately $3.7 million during the year ended December 31, 2016.

At December 31, 2016, we had federal, and state tax loss carry forwards of approximately $344.2 million, and $158.1 million. The federal and state net operating loss carry forwards begin to expire in 2019 and 2017, respectively, if unused. At December 31, 2016, we had federal and state tax credit carry forwards of approximately $4.9 million and $4.4 million, 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, 2016, deferred tax assets do not include $1.3 million of excess tax benefits from stock-based compensation.

The Company follows the provisions of income tax guidance which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. The guidance requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company has not recognized any liability for uncertain tax positions as of December 31, 2016 and 2015.

Following is a tabular reconciliation of the unrecognized tax benefits activity during the years ended December 31, 2016 and 2015 (in thousands):

	2016			2015
Unrecognized Tax Benefits – Beginning	$	1,987		$	1,852
Gross increases – tax positions in prior period		1			—
Gross decreases – tax positions in prior period		(13	)		—
Gross increase – current-period tax positions		87			135
Unrecognized Tax Benefits – Ending	$	2,062		$	1,987

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’s material tax jurisdictions are United States and California. 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.