11. Income Taxes

No income tax expense or benefit has been recorded for the years ended December 31, 2013 or December 31, 2012. This is due to the establishment of a valuation allowance against the deferred tax assets generated during those periods. The valuation allowance was recorded due to management’s assessment of the likelihood that said deferred tax assets will be realized in future periods.

Significant components of the Company’s deferred tax assets consist of the following at December 31 (in thousands):

	2013		2012
Current deferred tax assets:
Inventory reserves	$	71	$	41
Accrued expenses		331		77
Deferred Rent		14		30
Allowance for uncollectible accounts receivable		12		18
Valuation allowance		(428)		(166)

Net current deferred tax asset		—		—

Noncurrent deferred tax assets:
Stock-based compensation		1,170		186
Contribution carryforward		2		—
Research credit carryforward		2,307		874
Fixed assets		235		141
Capitalized start up costs		4,676		2,180
Net operating loss carryforwards		38,286		22,820
		46,676		26,201
Valuation allowance		(46,672)		(26,201)

Net noncurrent deferred tax asset		4		—

Noncurrent deferred tax liability
Purchase accounting intangibles		(4)		—

Net deferred tax asset (liability)	$	—	$	—

The Merger transaction described in Note 1 was in the form of a tax-free reorganization under Internal Revenue Code Sec. 368. The transaction qualifies as a Business Combination under ASC 740. The goodwill recorded under U.S. GAAP purchase accounting is not deductible for tax purposes.

At December 31, 2013 and 2012, the Company has provided a full valuation allowance against its net deferred assets, since realization of these benefits is not more likely than not. The valuation allowance increased approximately $20.7 million from the prior year. At December 31, 2013, the Company had federal and state net operating loss tax carryforwards of approximately $104.7 million and $75.6 million, respectively. These net operating loss carryforwards expire in various amounts starting in 2027 and 2022, respectively. At December 31, 2013, the Company had federal research credit carryforwards in the amount of $2.3 million. These carryforwards begin to expire in 2027. The utilization of the federal net operating loss carryforwards and credit carryforwards will depend on the Company’s ability to generate sufficient taxable income prior to the expiration of the carryforwards. In addition, the maximum annual use of net operating loss and research credit carryforwards is limited in certain situations where changes occur in stock ownership.

On July 23, 2013, North Carolina enacted House Bill 998, which reduced the corporate income tax rate from 6.9% in 2013 to 6% in 2014 and to 5% in 2015. As a result of the new enacted tax rate, the Company adjusted its deferred tax assets in 2013 by applying the lower rate, which resulted in a decrease to the deferred tax assets and a corresponding decrease to the valuation allowance of approximately $0.4 million.

The Company has evaluated its tax positions to consider whether it has any unrecognized tax benefits. As of December 31, 2013 and 2012, the Company has not recorded any amounts associated with unrecognized tax benefits.

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2013, the Company had no accrued interest related to uncertain tax positions.

The Company has analyzed its filing positions in all significant federal and state jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to United States Federal, state, and local tax examinations by tax authorities for years before 2010, although carryforward attributes that were generated prior to 2010 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period. No income tax returns are currently under examination by taxing authorities.

Taxes computed at the statutory federal income tax rate of 34% are reconciled to the provision for income taxes as follows for the years ended December 31:

	2013					2012
			Percent of					Percent of
			Pretax					Pretax
	Amount		Earnings			Amount		Earnings
United States federal tax statutory rate	$	(9,642)		34.0	%	$	(5,245)		34.0	%
State taxes (net of deferred benefit)		(662)		2.3	%		(469)		3.0	%
Non-deductible expenses		1,556		(5.5)	%		—		0.0	%
Change in valuation allowance		20,733		(73.1)	%		5,101		(33.1)	%
Adjustment for valuation allowance recorded as part of purchase accounting		(11,785)		41.6	%		—		0.0	%

Other, net		(200)		0.7	%		613		(3.9)	%

Provision for income taxes	$	—		0.0	%	$	—		0.0	%