Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

8. Income Taxes

The Company does not have any unrecognized tax benefits as it believes that all positions meet the more-likely-than-not recognition threshold, presuming that such tax position would be examined by a relevant taxing authority that has full knowledge of all relevant information. As such, a tabular presentation of those tax benefits is not presented.

From time to time, the Company may be assessed interest or penalties by its tax jurisdictions, although, historically, there have been no such assessments and the Company believes that any potential future assessments would be minimal and immaterial to the Company’s results of operations and financial position. In the event the Company receives an assessment for interest and/or penalties, it would be classified in the consolidated financial statements as general and administrative expense.

The Company and its subsidiaries file tax returns in the United States and a small number of state jurisdictions. The statute of limitations for examination of the Company’s returns has expired for years prior to 2010. There are no income tax examinations currently in process nor has the Company been subject to examination since inception. The material jurisdictions subject to potential examination by taxing authorities for open tax years primarily include the United States and the State of North Carolina.

The components of the deferred tax assets and the valuation allowance are shown below. The state carryforwards are shown net of federal tax.

	December 31,
	2013		2012(1)
Deferred tax assets:
Net operating loss carryforward - Federal	$	71,092,552	$	65,943,411
Net operating loss carryforward - State		9,618,404		8,921,756
Licensing costs, net of amortization		797,329		878,519
Compensation costs and deferred stock compensation		1,633,267		1,683,583
Inventory purchases prior to commercialization		2,671,034		2,671,034
Other temporary differences		248,677		202,462
		86,061,263		80,300,765
Less valuation allowance		(86,061,263)		(80,300,765)
	$	-	$	-

(1) Amounts have been revised to reflect certain deferred tax balances which were previously netted in order to conform to the 2013 presentation.

The reasons for the difference between actual income tax benefit and the amount computed by applying the statutory federal income tax rate to the losses before income tax benefit are as follows:

	December 31,
	2013		2012
Rate reconciliation:
Statutory federal rate	-34.00	%	-34.00	%
State income tax rate (net of federal benefit)	-4.60	%	-4.60	%
Certain non-deductible expenses	3.51	%	1.61	%
Effect of increase in valuation allowance	35.09	%	36.99	%
Effective tax rate	0.00	%	0.00	%

Given the Company’s history of incurring operating losses, the Company’s ability to realize its deferred tax assets is not considered more likely than not. As a result, a valuation allowance equal to the total deferred tax assets has been established. The valuation allowance as of December 31, 2013 and 2012 was approximately $86.1 million and $80.3 million, respectively. The increase in the valuation allowance during 2013 is primarily related to the increase in net operating losses.

At December 31, 2013, the Company had potentially utilizable federal and state net operating loss carryforwards of approximately $209.1 million. The net operating loss carryforwards expire in various amounts for federal and state tax purposes through 2033 and 2028, respectively.

Under limitations imposed by Internal Revenue Code Section 382, or IRC§382, certain potential changes in ownership of the Company, which may be outside the Company’s knowledge or control, may restrict future utilization of these NOL carryforwards. During 2011, the Company undertook, with the assistance of its tax advisors, a detailed study in order to determine any potential IRC§382 limitations on its ability to utilize, in future periods, its federal NOL carryforwards. This detailed study resulted in a determination that there had been two ownership changes previously, as defined by IRC§382, limiting the Company’s NOLs available for federal tax purposes to approximately $165.6 million at December 31, 2013. However, all NOLs would be available for use prior to their expiration, resulting in no adjustment to the tax provision and disclosure at December 31, 2013. In future years, after utilizing the $165.6 million of NOLs currently available and any unrestricted future tax losses generated, the use of the remainder of the Company's NOLs at December 31, 2013 would be limited to approximately $7.6 million for 2014, approximately $4.1 million annually for the years from 2015 to 2022 and the remainder in 2023. Any portion of an NOL limited by IRC§382 not used in a given year can be carried forward to subsequent years.  The Company has not performed an ownership change analysis since 2011. NOLs generated since the last study could be subject to limitation, which would have no financial statement impact due to the full valuation allowance. Management will perform a full analysis of ownership changes prior to utilizing any net operating losses.

Although the Company believes that it is qualified for research and development tax credits, a detailed study has not been completed as utilization of such credits is not available until the Company exhausts its available NOL carryforwards. However, similar limitations might be expected under Internal Revenue Code Section 383, or IRC§383, on the utilization of research and development tax credits that may be available to the Company. The Company is currently unable to fully estimate the impact of any such available research and development tax credits and any related IRC§383 limitations nor has it undertaken the steps necessary to fully estimate the potential benefits that may be available to it from the utilization of research and development tax credits in future periods.