Note 4—Income Taxes

We incurred a net loss in each year of operation since inception resulting in no current or deferred tax expense for 2015, 2014 or 2013.

The benefit for income taxes differs from the amount obtained by applying the federal statutory income tax rate to loss before benefit for income taxes for 2015, 2014 and 2013 as follows:


	2015			2014			2013
Tax benefit computed at federal statutory rate		34.0	%		34.0	%		34.0	%
Increase (decrease) in taxes due to:
Change in valuation allowance		(30.0	)		(39.8	)		(39.8	)
Permanent differences (stock options, warrant fair value, other)		(9.8	)		—			—
State taxes, net of federal benefit		5.8			5.8			5.8

		—	%		—	%		—	%

The significant components of deferred tax assets (liabilities) at December 31 are as follows:


	2015			2014
Loss carryforwards	$	15,208,000		$	11,490,000
Depreciation		1,084,000			1,490,000
Tax credits		574,000			388,000
Inventory		308,000			292,000
Other		101,000			280,000
Less: valuation allowance		(17,275,000	)		(13,940,000	)

	$	—		$	—

As of December 31, 2015, we had net operating loss carryforwards for federal and state income tax purposes of approximately $334.7 million and $150.5 million, respectively, which expire in the years 2018 through 2035. Of these amounts, $77.5 million and $5.1 million, respectively, resulted from the acquisition of Conductus. Under the Internal Revenue Code change of control limitations, a maximum of $38.3 million and $37.7 million, respectively, will be available for reduction of taxable income. In addition, we had research and development and other tax credits for federal and state income tax purposes of approximately $384,000 and $288,000, respectively, which expire in the years 2031 through 2035.

Due to the uncertainty surrounding their realization, we have recorded a full valuation allowance against our net deferred tax assets. Accordingly, no deferred tax asset has been recorded in the accompanying balance sheets. The valuation allowance increased by $3,335,000 and $4,391,500 in 2015 and 2014, respectively.

Section 382 of the Internal Revenue Code imposes an annual limitation on the utilization of net operating loss carryforwards based on a statutory rate of return (usually the “applicable federal funds rate,” as defined in the Internal Revenue Code) and the value of the corporation at the time of a “change of ownership” as defined by Section 382. We had changes in ownership in August 1999, December 2002, June 2009, and August 2013. In addition, we acquired the right to Conductus’ net operating losses, which are also subject to the limitations imposed by Section 382. Conductus underwent five ownership changes, which occurred in February 1999, February 2001, December 2002, June 2009, and August 2013. Therefore, the ability to utilize Conductus’ and our net operating loss carryforwards of $77.5 million and $232 million, respectively, which were incurred prior to the 2013 ownership changes, will be subject in future periods to annual limitations of $655,000. Net operating losses incurred by us subsequent to the ownership changes totaled $27.1 million and are not subject to this limitation. An additional $655,000 in losses was released from limitation during the year under Section 382.