10. Income Taxes

As of December 31, 2014 and 2013, we had approximately $68.0 million and $59.0 million, respectively, of net operating loss, or NOL, carry forwards available to offset future federal and state taxable income that will expire beginning in 2023. We also have federal research and development credit carryovers of approximately $2.6 million and state credit carryovers of approximately $0.4 million which expire beginning in 2019.

The State of Connecticut provides companies with the opportunity to exchange certain research and development credit carryforwards for cash in exchange for foregoing the carryforward. The program provides for such exchange of the research and development credits at a rate of 65% of the annual research and development credit, as defined. During 2014 and 2013, we recorded a net benefit, in thousands, of $2 and $28, respectively, primarily for the estimated proceeds from the exchange of the research and development credit.

The NOL carry forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL, and tax credit carry forwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, as well as similar state tax provisions. This could limit the amount of NOLs that we can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of our company immediately prior to an ownership change. Subsequent ownership changes may further affect the limitation in future years. Additionally, U.S. tax laws limit the time during which these carry forwards may be applied against future taxes, therefore, we may not be able to take full advantage of these carry forwards for federal income tax purposes. We are currently evaluating the ownership history of our company to determine if there were any ownership changes as defined under Section 382(g) of the Code and the effects any ownership change may have had.

The components of the net deferred tax asset are as follows (in thousands):

	December 31,
	2014			2013
Gross deferred tax assets:
Net operating loss carryovers	$	26,505		$	23,006
Accrued expenses	—			18
Contributions	5			1
Stock-based compensation	211			143
Research and development and other credits	3,075			2,693
Total gross deferred tax assets	29,796			25,861
Gross deferred tax liabilities:
Depreciation	(1		)	(2		)
Total gross deferred tax liabilities	(1		)	(2		)
Net deferred tax assets	29,795			25,859
Less: valuation allowance	(29,795		)	(25,859		)
Net deferred tax assets after valuation allowance	$	—		$	—

In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. After consideration of all the evidence, both positive and negative, we have recorded a full valuation allowance against our net deferred tax assets at December 31, 2014 and 2013, respectively, because our management has determined that is it more likely than not that these assets will not be fully realized. The valuation allowance increased by $3.9 million and $2.3 million during the years ended December 31, 2014 and 2013, respectively, due primarily to the generation of NOLs during those periods.

We did not have unrecognized tax benefits as of December 31, 2014 and 2013, and do not expect this to change significantly over the next twelve months. We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2014 and 2013, we have not accrued interest or penalties related to any uncertain tax positions. Our tax returns filed since inception are still subject to examination by major tax jurisdictions.

A reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows:

	Year Ended December 31,
	2014		2013
Federal income tax expense at statutory rate	34.0	%	34.0	%
Permanent items	(5.4	)	(0.3	)
State income tax, net of federal benefit	3.8		5.0
State refundable credit	0.0		0.7
R&D tax credits	4.2		(3.3	)
Change in valuation allowance	(36.6	)	(35.4	)
Effective income tax rate	0.0	%	0.7	%

For all years through December 31, 2014, we generated research credits but have not conducted a study to document the qualified activities. This study may result in an adjustment to our research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position for these years. A full valuation allowance has been provided against our research and development credits and, if an adjustment is required, this adjustment to the deferred tax asset established for the research and development credit carryforwards would be offset by an adjustment to the valuation allowance.

We file income tax returns in the United States, the State of Connecticut, and the Commonwealth of Pennsylvania. The federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2011 through December 31, 2013. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.