(17)	Income Taxes

The Company’s provision for income taxes for the years ended

December

31,

2016

and

2015

was

for both years.

The provision for income taxes differs from the amount which would result by applying the federal statutory income tax rate to pre-tax income/(loss) for the years ended

December

31,

2016

and

2015.

The reconciliation of the provision computed at the federal statutory rate to the Company’s provision (benefit) for income taxes is as follows (in thousands):

	2016			2015
Tax at federal statutory rate	$	(3,505	)	$	(2,277	)
State, net of federal benefit		(315	)		(335	)
Research and development credit		(89	)		(51	)
Stock-based compensation		136			89
Nondeductible interest		590			471
Warrant and derivative revaluation		328			(589	)
Merger cost		90			-
Other		4			5
Increase in valuation allowance		2,761			2,687
Total provision for income taxes	$	-		$	-

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss and tax credit carryforwards, net of any adjustment for unrecognized tax benefits. The components of the net deferred income tax assets as of

December

31,

2016

and

2015

are as follows (in thousands):

	2016			2015
Accrued compensation	$	154		$	69
Inventory adjustments		708			279
Deferred rent		22			12
Deferred revenue		23			15
Deferred financing costs		-			643
Depreciation and amortization - noncurrent		252			293
Share-based compensation		273			57
Net operating loss and tax credit carryforwards - noncurrent		20,196			17,529
Section 481A Adjustment		-			(32	)
Other		2			5
Gross deferred tax asset		21,630			18,870
Valuation allowance		(21,630	)		(18,870	)
Net deferred tax asset	$	-		$	-

The Company has approximately

$48.0

million and

$40.8

million of federal and state net operating loss carryforwards, respectively, as of

December

31,

2016.

For tax reporting purposes, operating loss carryforwards are available to offset future taxable income; such carryforwards expire in varying amounts beginning in

2022

and

2017

for federal and state purposes, respectively. Under current federal and California law, the amounts of and benefits from net operating losses carried forward

may

be impaired or limited in certain circumstances. Events which

may

cause limitations in the amount of net operating losses that the Company

may

utilize in any

one

year include, but are not limited to, a cumulative ownership change of more than

50%

over a

three

-year period. The Company’s deferred tax asset and related valuation allowance would be reduced as a result. An analysis to determine the limitation of the net operating loss carryforwards has not been performed.

December

31,

2016,

the Company has federal and state research and development credits of approximately

$1.3

million and

$1.1

million available to offset future federal and state income taxes, respectively. The federal tax credit carryforward expires beginning in

2028.

The state credit carryforward has no expiration.

The Company does not believe that these assets are realizable on a more-likely-than-not basis; therefore, the net deferred tax assets have been fully offset by a valuation allowance. The Company did

not

have any deferred tax liabilities as of

December

31,

2016

2015.

The net increase in the total valuation allowance for the years ending

December

31,

2016

and

2015

were approximately

$2.8

million and

2.7

million, respectively, primarily from the net operating losses generated.

liability related to uncertain tax positions is reported in the consolidated financial statements.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):

	2016		2015
Balance, beginning of year	$	531	$	486
Additions based on tax positions related to the current year		77		45
Additions for tax positions related to prior years		-		-
Reductions for tax positions related to prior years		-		-
Balance, end of year	$	608	$	531

Recognition of approximately

$398,000

and

$344,000

of unrecognized tax benefits would not impact the effective tax rate at

December

31,

2016

and

2015,

respectively, if recognized.

The Company is subject to U.S. federal, California, Colorado, Georgia, Michigan, and New Jersey income taxes. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company was incorporated in

2002

and is subject to U.S. federal, state and local tax examinations by tax authorities for all prior years.