11.

Income Taxes

No income tax expense or benefit has been recorded for the years ended December 31, 2014 or December 31, 2013. 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):


	2014			2013
Current deferred tax assets:
Inventory reserves	$	537		$	71
Accrued expenses		373			331
Deferred rent		17			14
Allowance for uncollectible accounts receivable		32			12
Valuation allowance		(959	)		(428	)


Net current deferred tax asset		—			—

Noncurrent deferred tax assets:
Stock-based compensation		1,154			1,170
Contribution carryforward		2			2
Research credit carryforward		3,200			2,307
Fixed assets		278			235
Capitalized start up costs		4,233			4,676
Net operating loss carryforwards		51,145			38,286

		60,012			46,676
Valuation allowance		(60,009	)		(46,672	)


Net noncurrent deferred tax asset		3			4

Noncurrent deferred tax liability
Purchase accounting intangibles		(3	)		(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, 2014 and 2013, 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 $13.9 million from the prior year. At December 31, 2014, the Company had federal and state net operating loss tax carryforwards of approximately $140.6 million and $98.1 million, respectively. These net operating loss carryforwards expire in various amounts starting in 2027 and 2018, respectively. The Company’s federal and state net operating loss carryforwards include approximately $0.4 million of excess tax benefits related to deductions from the exercise of stock options. The tax benefit of these deductions has not been recognized in deferred tax assets. If utilized, the benefits from these deductions will be recorded as adjustments to additional paid-in capital. At December 31, 2014, the Company had federal research credit carryforwards in the amount of $3.2 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.

The Company has evaluated its tax positions to consider whether it has any unrecognized tax benefits. As of December 31, 2014, the Company had gross unrecognized tax benefits of approximately $0.6 million. As of December 31, 2013, the Company had not recorded any amounts associated with unrecognized tax benefits. Of the total, none would reduce the Company’s effective tax rate if recognized. The Company does not anticipate a significant change in total unrecognized tax benefits or the Company’s effective tax rate due to the settlement of audits or the expiration of statutes of limitations within the next twelve months. Furthermore, the Company does not expect any cash settlement with the taxing authorities as a result of these unrecognized tax benefits as the Company has sufficient unutilized carryforward attributes to offset the tax impact of these adjustments.

The following is a tabular reconciliation of the Company’s change in gross unrecognized tax positions (in thousands):


Balance at December 31, 2013	$	—
Gross increases related to current period		606
Gross decreases related to current period		—

Balance at December 31, 2014	$	606

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2014, the Company had no accrued interest or penalties 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 2011, although carryforward attributes that were generated prior to 2011 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:


	2014						2013
	Amount			Percent of Pretax Earnings			Amount			Percent of Pretax Earnings
United States federal tax statutory rate	$	(12,801	)		34.0	%	$	(9,642	)		34.0	%
State taxes (net of deferred benefit)		(786	)		2.0	%		(662	)		2.3	%
Non-deductible expenses		253			(0.7	)%		1,556			(5.5	)%
Research & Development Credits		(1,532	)		4.1	%		—			0.0	%
Change in unrecognized tax benefits		606			(1.6	)%		—			0.0	%
Change in valuation allowance		13,868			(36.8	)%		20,733			(73.1	)%
Adjustment for valuation allowance recorded as part of purchase accounting		—			0.0	%		(11,785	)		41.6	%

Other, net		392			(1.0	)%		(200	)		0.7	%


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