11.

Income taxes:

The Company had income tax expense in 2012 of $0.1 million but did not record income tax expense in 2014 or 2013 as it had incurred net operating losses. The Company has recognized valuation allowances for all deferred tax assets for years ending 2014, 2013 and 2012. Reconciliation of the Federal statutory income tax rate of 34% to the effective rate is as follows:


	2014			2013			2012
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)		(9.10	)		0.11			110.51
Permanent differences-other		2.24			(1.07	)		44.12
Research and development (“R&D”) credit		2.73			4.91			(129.12	)
Other		0.61			0.64			(30.89	)
Decrease in valuation allowance		(33.93	)		(42.04	)		(24.82	)

		0.00	%		0.00	%		7.25	%

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)	2014			2013
Deferred revenue	$	315		$	1,576
Basis difference in equipment		(975	)		(890	)
Basis difference in intangibles		1,102			(502	)
Accrued liabilities and other		360			418
R&D credit		11,316			10,366
Stock options		462			2,200
Net operating loss carry-forward		59,481			40,495

		72,061			53,663

Less: valuation allowance		(72,061	)		(53,663	)

	$	—		$	—

In accordance with GAAP, the Company is required that any 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 carry forward (“NOLs”) of approximately $159 million as of December 31, 2014. 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 $143 million as of December 31, 2014. These loss carryforwards expire principally beginning in 2020 through 2034 for federal and 2029 for state purposes.