NOTE 13. INCOME TAXES

The components of the pretax loss from operations for the years ended December 31, 2015, 2014, and 2013 are as follows (in thousands):



Components of the Pretax Loss From Operations (in thousands)
	12/31/2015			12/31/2014			12/31/2013
U.S. Domestic	$	(44,415	)	$	(30,933	)	$	(15,282	)
Foreign	(1,083		)	—			—
Pretax loss from operations	$	(45,498	)	$	(30,933	)	$	(15,282	)

The Company does not reflect income tax expense or benefit for the years ended December 31, 2015, 2014, and 2013, as the Company has a full valuation allowance. The Company records the Arizona R&D Refundable Tax Credit Program it has monetized as an offset to research and development expenses on the consolidated statement of operations and comprehensive loss as discussed in Note 6, License Agreements and Grants.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes for the years ending December 31, 2015 and 2014, are as are as follows:



Deferred Income Tax Components
(in thousands)
	12/31/2015			12/31/2014
Deferred tax assets:
Net operating loss carryforward	$	28,584		$	15,492
Property & equipment	339			77
Inventory	864			620
Stock options	5,208			3,644
Intangible assets, definite-lived	333			421
General business credit	1,915			885
Deferred revenue	372			380
Other	187			—
Charitable contribution	18			13
Valuation allowance	(37,820		)	(21,532		)
Deferred tax assets	$	—		$	—

As of December 31, 2015, the Company has generated regular tax federal net operating losses of approximately $85.0 million. The Company's ability to realize tax benefit from the net operating loss is subject to annual limitation under Internal Revenue Code Section 382. Due to the change in control which occurred as a result of Abeja Ventures, LLC’s investment in the Company on June 26, 2012, the Company estimates that the annual Section 382 limitation on utilization of net operating losses will be $420,000. As such, the Company will never get the benefit of $4.2 million of the net operating losses generated prior to June 26, 2012. The deferred tax asset has been adjusted to reflect the Section 382 limitation. Section 382 also applies to built-in losses at the time of the transaction. The amounts of any unrealized built-in losses or gains were not calculated at the date of the transaction. The gross net operating losses available for future use are approximately $80.8 million. For federal purposes, net operating losses can be carried forward for up to 20 years. The Company’s net operating losses will begin to expire in 2023.

The Company relocated its headquarters to Arizona in January 2013. As of December 31, 2015, the Company has generated Arizona net operating losses of approximately $69.6 million. The Company's Arizona net operating losses will begin to expire in 2033.

The Company created a Spanish subsidiary in January of 2015 which generated a tax net operating loss of approximately $403,000. The Spanish net operating losses carry over indefinitely.

The net deferred tax asset valuation allowance is $37.8 million as of December 31, 2015 compared to $21.5 million as of December 31, 2014. The valuation allowance is based on management’s assessment that it is more likely than not that the Company will not have taxable income in the foreseeable future.

The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate for years ending December 31, 2015, 2014, and 2013 is as follows:



Effective Tax Rate
	12/31/2015		12/31/2014		12/31/2013
U.S. federal statutory income tax rate	(34.00	)%	(34.00	)%	(34.00	)%
State taxes, net of federal tax benefit	(2.93	)	(3.20	)	(3.80	)
Permanent differences	0.11		—		—
Rate differential	0.42		—		—
Unrecognized tax benefits	0.40		—		—
Nondeductible equity and other compensation	2.86		3.70		1.20
Limitation on net operating losses due to §382	—		0.50		1.00
Credit for increased research activities	(2.67	)	(0.80	)	(3.20	)
Change in Valuation allowance	35.81		33.80		38.80
	—	%	—	%	—	%

At December 31, 2015, the Company had uncertain tax positions of $343,000, determined as follows:



Uncertain Tax Positions
(in thousands)
	12/31/2015		12/31/2014		12/31/2013
Balance at beginning of year	$	161	$	—	$	—
Increases for prior positions	—		78		—
Increases for current year positions	182		83		—
Other Increases	—		—		—
Decreases due to settlements	—		—		—
Expiration of the statute of limitations for the assessment of taxes	—		—		—
Other Decreases	—		—		—
Balance at end of year	$	343	$	161	$	—

These uncertain positions are not expected to change within the next twelve months. Of the $343,000 of uncertain tax positions, none would impact the effective tax rate, if reversed. The Company accounts for interest on uncertain tax positions within tax expense.

The Company has incurred federal net operating losses (NOLs) dating to the tax year ended July 31, 2004. As such, all loss carryovers are subject to adjustment under IRS and state examination, depending on the jurisdiction in which they were incurred.