11.

Income taxes:

The Company had income tax expense in 2012 of $0.1 million. The Company did not record income tax expense in 2013 or 2011 as the Company had incurred net operating losses. The Company has recognized valuation allowances for all deferred tax assets for years ending 2013, 2012 and 2011. Reconciliation of the Federal statutory income tax rate of 34% to the effective rate is as follows:


	Year Ended December 31,
	2013			2012			2011
Federal statutory income tax rate		34.00	%		34.00	%		34.00	%
State taxes, net of federal benefit		3.45			3.45			3.45
Permanent differences-derivative loss (gain)		0.11			110.51			7.02
Permanent differences-other		(1.07	)		44.12			(2.76	)
Research and development (“R&D”) credit		4.91			(129.12	)		2.92
Other		0.64			(30.89	)		(6.63	)
Valuation allowance		(42.04	)		(24.82	)		(38.00	)

		0.00	%		7.25	%		0.00	%

The tax effects of temporary differences and net operating losses that give rise to significant components of deferred tax assets and liabilities consist of the following:


	December 31,
Deferred tax assets (liabilities)	2013			2012
Deferred revenue	$	1,576,186		$	4,010,493
Basis difference in equipment		(890,387	)		(926,735	)
Basis difference in intangibles		(501,709	)		(618,403	)
Accrued liabilities and other		418,300			263,364
R&D credit		10,366,432			8,720,314
Stock options		2,199,794			1,557,756
Net operating loss carry-forward (NOL)		40,494,523			16,575,544

		53,663,139			29,582,333

Less: valuation allowance		(53,663,139	)		(29,582,333	)

	$	—		$	—

In accordance with GAAP, it is required that a deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount which is more likely than not to be realized. As a result, the Company recorded a valuation allowance with respect to all of the Company’s deferred tax assets.

The Company has a federal net operating loss (“NOLs”) of approximately $109 million as of December 31, 2013. Under Section 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a “loss corporation”, as defined, there are annual limitations on the amount of the NOLs and other deductions which are available to the Company. The portion of the NOLs incurred prior to May 16, 2006 is subject to this limitation. As such, the use of these NOLs to offset taxable income is limited to approximately $1.5 million per year. The Company’s State NOLS are approximately $100 million as of December 31, 2013. These loss carryforwards expire principally beginning in 2020 through 2026 for federal and 2028 for state purposes.