11.

Income taxes:

The Company did not record income tax expense in 2016, 2015 or 2014 as it had incurred net operating losses. The Company has recognized valuation allowances for all deferred tax assets for years ending 2016, 2015 and 2014. Reconciliation of the Federal statutory income tax rate of 34% to the effective rate is as follows:


	2016			2015			2014
Federal statutory income tax rate		34.00	%		34.00	%		34.00	%
State taxes, net of federal benefit		2.88			3.45			3.45
Stock compensation		(0.61	)		—			—
Permanent differences-derivative loss		—			—			(9.10	)
Permanent differences-other		(1.00	)		(4.66	)		2.24
Research and development (“R&D”) credit		0.98			0.95			2.73
Other		(0.47	)		0.64			0.61
Increase in valuation allowance		(35.78	)		(34.38	)		(33.93	)

		0.00	%		0.00	%		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)	2016			2015
Deferred revenue	$	7,377		$	7,490
Basis difference in equipment		(1,084	)		(1,013	)
Basis difference in intangibles		1,201			1,122
Accrued liabilities and other		550			1,563
R&D credit		11,589			11,138
AMT credit		79			—
Stock options		5,697			1,151
Net operating loss carry-forward		83,621			63,509

		109,030			84,960

Less: valuation allowance		(109,030	)		(84,960	)

	$	—		$	—

In accordance with GAAP, the Company is required to reduce any deferred tax asset 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. As a result, the change in the valuation allowance for the year ended December 31, 2016 was $24,070.

The Company has a federal net operating loss carry forward (“NOLs”) of approximately $225 million as of December 31, 2016. 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 $258 million as of December 31, 2016. These loss carryforwards expire principally beginning in 2020 through 2035 for federal and 2030 for state purposes. Management has evaluated all other tax positions that could have a significant effect on the financial statements and determined that the Company has no uncertain income tax positions at December 31, 2016.