Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts unused for income tax purposes. Significant components of the Company’s net deferred tax assets are as follows (in thousands):

 

Realization of the deferred tax assets is dependent upon future income, if any, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by approximately million, million and million during fiscal years ended and respectively.

 

As of the Company has net operating loss carry-forwards for federal income tax purposes of approximately million, which begin to expire in fiscal year The Company also has state net operating loss carry-forwards of approximately million, which begin to expire in fiscal year The Company has federal research and development tax credits million, which begin to expire in fiscal year The Company also has state research and development tax credits of million, of which California tax credits have an unlimited carry-forward period and Arizona tax credits begin to expire in fiscal year

 

 

Included in the valuation allowance balance as of is million related to the exercise of stock options which are reflected as an expense for financial reporting purposes. Accordingly, any future reduction in the valuation allowance relating to this amount will be credited directly to equity and reflected as an income tax benefit in the Statement of Operations.

 

The reconciliation of income tax benefits attributable to the net loss computed at the U.S. federal statutory rates to the income tax benefit recorded (in thousands):

 

Utilization of the net operating loss carry-forwards and credit carry-forwards be subject to a substantial annual limitation due to the limitations set forth in Sections and of the Internal Revenue Code of as amended (“Internal Revenue Code”), and similar state provisions. In the fiscal year ended the Company completed a detailed analysis to determine whether an ownership change under Section of the Internal Revenue Code had occurred. The effect of an ownership change would be the imposition of an annual limitation on the use of the net operating loss carry-forwards and credit carry-forwards attributable to periods before the change. Any subsequent ownership changes could further limit the use of net operating losses and credits. The Company concluded that approximately million of federal net operating loss carry-forwards, million of federal credit carry-forwards and approximately million of California state net operating loss carry-forwards are significantly limited to offset future income, if any. However, the Company issued additional shares in fiscal years through that have triggered another ownership change. A Section study to determine the impact of these issuances has been performed. If a change in ownership was triggered, the net operating loss carry-forwards and credit carry-forwards included in the Deferred Tax Assets could be further limited. The reductions are reflected in the carry-forward amounts included above.

  

At the Company had unrecognized tax benefits of million, all of which would currently affect the Company’s effective tax rate if recognized due to the Company’s deferred tax assets being fully offset by a valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

 

 

The Company would classify interest and penalties related to uncertain tax positions in income tax expense, if applicable. There was interest expense or penalties related to unrecognized tax benefits recorded through The tax years through remain open to examination by or more major taxing jurisdictions to which the Company is subject.