9. INCOME TAXES AND TAX STATUS

Our net losses before income taxes for the years ended December 31, 2016, 2015, and 2014 are from domestic operations as well as losses from our wholly-owned German subsidiary in 2016. We elected to treat our German subsidiary as a disregarded entity for purposes of income taxes and accordingly, the 2016 loss from our German subsidiary has been included in our 2016 operating results.

We recorded $660,000 in current foreign income tax expense for the year ended December 31, 2016 as a result of foreign tax withholding on licensing revenues from a Korean entity. No current or deferred tax provision or benefit was recorded for 2016, 2015, or 2014 as a result of current losses and fully deferred tax valuation allowances for all periods. We have recorded a valuation allowance to state our deferred tax assets at their estimated net realizable value due to the uncertainty related to realization of these assets through future taxable income.

A reconciliation between the provision for income taxes and the expected tax benefit using the federal statutory rate of 34% for the years ended December 31, 2016, 2015, and 2014 is as follows:



	2016		2015		2014
Tax benefit at statutory rate	$	(7,313,152)	$	(5,805,502)	$	(8,013,445)
State tax benefit		(752,824)		(597,625)		(824,913)
Increase in valuation allowance		8,144,981		6,482,062		8,870,098
Research and development credit		(96,920)		(19,363)		(186,906)
Other		17,915		(59,572)		155,166
	$	-	$	-	$	-

Our deferred tax assets and liabilities relate to the following sources and differences between financial accounting and the tax bases of our assets and liabilities at December 31, 2016 and 2015:



	2016		2015
Gross deferred tax assets:
Net operating loss carry-forward	$	115,296,308	$	108,627,053
Research and development credit		7,922,010		7,825,090
Stock compensation		1,885,035		3,477,737
Patents and other		2,119,018		1,999,975
Contingent payment obligation		1,822,634		-
Fixed assets		77,686		104,895
Accrued liabilities		54,137		47,713
Deferred rent		19,574		19,574
Charitable contributions		11,250		11,250
Deferred revenue		7,304		7,868
Capital loss carry-forward		7,657		7,466
Bad debt expense		1,664		-
Inventory		956		23,282
		129,225,233		122,151,903
Less valuation allowance		(129,225,233)		(122,151,903)
Net deferred tax asset	$	-	$	-

At December 31, 2016, we had cumulative NOL, research and development (“R&D”) tax credit carry-forwards and capital loss carry-forwards for income tax purposes of $311,109,125, $7,922,009 and $20,419 respectively, which expire in varying amounts from 2018 through 2035.

Our ability to benefit from the our tax credit carry-forwards could be limited under certain provisions of the Internal Revenue Code if our ownership changes by more than 50%, as defined by Section 382 of the Internal Revenue Code of 1986 (“Section 382”). Under Section 382, an ownership change may limit the amount of NOL, capital loss and R&D credit carry-forwards that can be used annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. We conduct a study annually of our ownership changes. Based on the results of our studies, we have determined that we do not have any ownership changes on or prior to December 31, 2016 which would result in limitations of our NOL, capital loss or R&D credit carry-forwards under Section 382.

Uncertain Tax Positions

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We have identified our Federal and Florida tax returns as our only major jurisdictions, as defined. The periods subject to examination for those returns are the 1998 through 2016 tax years. At December 31, 2016, 2015 and 2014, we had an unrecognized tax benefit of approximately $1.4 million.

Future changes in the unrecognized tax benefit will have no impact on the effective tax rate so long as we maintain a full valuation allowance. Approximately $0.47 million, net of tax effect, of the unrecognized tax benefit is related to excess tax benefits related to share-based compensation which would be recorded as an adjustment to equity rather than a decrease in earnings, if reversed.

Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as a component of our income tax expense. We do not have any accrued interest or penalties associated with any unrecognized tax benefits. For the years ended December 31, 2016, 2015, and 2014, we did not incur any income tax-related interest income, expense or penalties.