Note 9—Income Taxes

The Company files income tax returns in the United States (Federal) and California. The Company is no longer subject to Federal, state and local income tax examinations by tax authorities for years prior to 2011.

The Company had U.S. federal and state net operating loss carryovers of $104.2 million and $92.5 million as of December 31, 2014 and 2013, respectively. These net operating losses are subject to Internal Revenue Code Section 382, which could result in limitations on the amount of such losses that could be utilized during any taxable year. The net operating losses begin to expire in 2024 for federal income purposes and in 2015 for state income tax purposes.

The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those net operating losses are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. At present, the Company does not have a sufficient history of income to conclude that it is more-likely-than-not that it will be able to realize all of its tax benefits in the near future and therefore the Company has established a valuation allowance for the full value of the deferred tax asset.

A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation. For the years ended December 31, 2014 and 2013 the change in the valuation allowance was $9,072,799 and $1,530,946, respectively.

Our net deferred tax asset consisted of the following at December 31, 2014 and 2013:


	December 31,
	2014			2013
Deferred tax asset:
Net operating loss carryforwards	$	41,512,011		$	36,837,171
Deferred compensation		1,082,211			881,025
Depreciation and amortization		1,161,055			886,149
License impairment		—			437,187
Research and development credits		3,761,004			194,132
Accrued expenses		47,356			97,326
Impairment of investments		730,830			—
Other		248,933			137,611

Total deferred tax assets		48,543,400			39,470,601
Less: Valuation allowance		(48,543,400	)		(39,470,601	)

Net deferred tax asset	$	—		$	—

The income tax provision (benefit) from income taxes consists of the following at December 31, 2014 and 2013:


	Years Ended December 31,
	2014			2013
Federal
Current	$	—		$	—
Deferred		(6,333,053	)		(1,306,714	)
State
Current
Deferred		(2,739,746	)		(224,232	)

Total		(9,072,799	)		(1,530,946	)
Change in valuation allowance		9,072,799			1,530,946

Income tax provision (benefit)	$	—		$	—

As a result of the Company’s significant operating loss carry forwards and the corresponding valuation allowance, no income tax benefit was recorded at December 31, 2014 or 2013. The provision for income taxes using the statutory federal tax rate as compared to the Company’s effective tax rate is summarized as follows:


	December 31,
	2014			2013
Expected U.S. federal statutory rate		(34.0	)%		(34.0	)%
State income taxes, net of federal benefit		(14.6	)%		(5.8	)%
Deferred tax true-up		—	%		18.7	%
R&D credit		—	%		(1.4	)%
Other permanent differences		—	%		0.3	%

		(48.6	)%		(22.2	)%
Change in valuation allowance		48.6	%		22.2	%

Totals		0	%		0	%