Income Tax

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Tax

10.

Income Tax

The components of income tax expense (benefit) attributable to continuing operations are as follows:

	Years ended December 31,
	2016		2015
Current expense:
Federal	$	—	$	—
State		—		—
Deferred expense (benefit):
Federal	$	—	$	—
State		—		—
Total	$	—	$	—

The differences between the Company’s consolidated income tax expense attributable to continuing operations and the expense computed at the 34% United States statutory income tax rate were as follows:

	Years ended December 31,
	2016			2015
Federal income tax expense at statutory rate	$	(4,411,000	)	$	(7,182,000	)
Increase (reduction) in income tax resulting from:
State and local income taxes, net of federal benefit		69,000			(420,000	)
Foreign rate differential		(18,000	)		64,000
Non-deductible expenses		8,000			—
Prior-period true-up		547,000			(489,000	)
Research & development credit		(575,000	)		(171,000	)
Stock-based compensation		113,000			194,000
Other		(1,000	)		—
Increase in valuation allowance		4,268,000			8,004,000
	$	—		$	—

The tax effects of temporary differences and operating loss carryforwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

	December 31,
	2016		2015
Deferred tax assets:
Net operating loss carryforward	$	19,303,020	$	15,758,242
Research & development credit		1,557,475		982,429
Stock-based compensation		838,297		791,109
Other		203,661		100,126
Deferred tax assets		21,902,453		17,631,906
Deferred tax liabilities:
Property, plant and equipment, primarily due to differences in depreciation		(41,953)		(39,758	)
Deferred tax liabilities:		(41,953)		(39,758	)
Valuation allowance		(21,860,500)		(17,592,148	)
Net deferred income taxes	$	—	$	—

At December 31, 2016 and December 31, 2015, the Company evaluated all significant available positive and negative evidence, including the existence of losses in recent years and management’s forecast of future taxable income, and, as a result, determined it was more likely than not that federal and state deferred tax assets, including benefits related to net operating loss carryforwards, would not be realized. The valuation allowance was increased from $17,592,148 at December 31, 2015 to $21,860,500 at December 31, 2016. The increase in valuation allowance was due primarily to the increase in net operating loss carryforwards.

At December 31, 2016, the Company has federal net operating loss carryforwards of $53,306,736, which are available to offset future taxable income.  The federal net operating loss carryforwards begin to expire in 2029. The Company has various state net operating loss carryforwards totaling $48,370,787, which are available to offset future state taxable income. State net operating losses begin to expire in 2024. The Company has various foreign net operating loss carryforwards of $721,519. The foreign net operating loss carryforwards are carried forward indefinitely. Because the Company has incurred cumulative net operating losses since inception, all tax years remain open to examination by U.S. federal, state, and foreign income tax authorities.

In accordance with FASB ASC 740, Accounting for Income Taxes, the Company reflects in the consolidated financial statements the benefit of positions taken in a previously filed tax return or expected to be taken in a future tax return only when it is considered ‘more-likely-than-not’ that the position taken will be sustained by a taxing authority. As of December 31, 2016 and 2015, the Company had no unrecognized income tax benefits and correspondingly there is no impact on the Company’s effective income tax rate associated with these items. The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying statements of operations. As of December 31, 2016 and 2015, the Company had no such accruals.

The Company files income tax returns in the United States and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities for the tax years ended December 31, 2008 through 2015.

Potential 382 Limitation

The Company’s ability to utilize its net operating loss (NOL) and research and development (R&D) credit carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups.

The Company has not completed a study to assess whether one or more ownership changes have occurred since the Company became a loss corporation under the definition of Section 382. If the Company has experienced an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in the expiration of a portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit under ASC-740. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations of the Company.