Since our inception, we have never recorded a provision or benefit for Federal and state income taxes.
The reconciliation of the income tax benefit computed at the Federal statutory rates to our recorded tax benefit for the years ended
December
31,
2016
and
2015
is as follows:
| | | | | |
| | | | | | | |
| | | | | | | | | | |
| Income tax benefit, statutory rates | | $ | 13,426 | | | $ | 18,758 | |
| State taxes on income, net of Federal benefit | | | 2,599 | | | | 3,760 | |
| Research and development tax credit | | | 1,305 | | | | 1,047 | |
| Employee related | | | (1,215 | ) | | | (340 | ) |
| Interest related | | | 890 | | | | - | |
| Warrant valuation related | | | 76 | | | | 289 | |
| Income tax benefit, statutory rates | | | 17,081 | | | | 23,514 | |
| Valuation allowance | | | (17,081 | ) | | | (23,514 | ) |
| Income tax benefit, net | | $ | - | | | $ | - | |
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities, at
December
31,
2016
and
2015,
are as follows:
| | | | |
| | | | | | | |
| | | | | | | | | |
| Long-term deferred assets: | | | | | | | | |
| Net operating loss carryforwards (Federal and state) | | $ | 234,825 | | | $ | 218,203 | |
| Research and development tax credit | | | 15,700 | | | | 13,917 | |
| Compensation expense on stock | | | 2,157 | | | | 2,776 | |
| Charitable contribution carryforward | | | 6 | | | | 6 | |
| Other accrued | | | 342 | | | | 469 | |
| Depreciation | | | 460 | | | | 482 | |
| Total long-term deferred tax assets | | | 253,490 | | | | 235,853 | |
| Valuation allowance | | | (253,490 | ) | | | (235,853 | ) |
| Deferred tax assets, net | | $ | - | | | $ | - | |
We are in a net deferred tax asset position at
December
31,
2016
and
2015
before the consideration of a valuation allowance. Because we have never realized a profit, management has fully reserved the net deferred tax asset since realization is not assured. It is our policy to classify interest and penalties recognized on uncertain tax positions as a component of income tax expense. There was neither interest nor penalties accrued as of
December
31,
2016
or
2015,
nor were any incurred in
2016
or
2015.
At
December
31,
2016
and
2015,
we had available carryforward net operating losses for Federal tax purposes of
$581.4
million and
$540.2
million, respectively, and a research and development tax credit carryforward of
$15.7
million and
$13.9
million, respectively. The Federal net operating loss and research and development tax credit carryforwards will continue to expire through
2036.
At
December
31,
2016,
we had available carryforward Federal and State net operating losses of
$5.2
million and
$0.4
million, respectively, related to stock-based compensation, the tax effect of which will result in a credit to equity as opposed to income tax expense, to the extent these losses are utilized in the future.
At
December
31,
2016
and
2015,
we had available carryforward losses of approximately
$570.3
million and
$527.1
million, respectively, for state tax purposes. Of the
$570.3
million state tax carryforward losses,
$544.8
million is associated with the state of Pennsylvania, with the remainder associated with the other
6
states within which we have established tax nexus.
Utilization of net operating loss (NOL) and research and development (R&D) credit carryforwards
may
be subject to a substantial annual limitation under Section
382
of the Internal Revenue Code of
1986
due to ownership change limitations that have occurred previously or that could occur in the future.
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. There also could be additional ownership changes in the future, which
may
result in additional limitations in the utilization of the carryforward NOLs and credits.
A full valuation allowance has been provided against our deferred tax assets and, if a future assessment requires an adjustment, an adjustment would be offset by an adjustment to the valuation allowance.
Thus, there would be no impact to the consolidated balance sheet or statement of operations if an adjustment were required.