Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  
Income Taxes

14. Income Taxes

As of December 31, 2012, we had net operating loss carryforwards for federal income tax purposes of approximately $215.7 million that expire at various dates through 2032, and federal research and development tax credits of approximately $7.6 million that expire at various dates through 2031. We also had net operating loss carryforwards for California income tax purposes of approximately $146.7 million that expire at various dates through 2032 and state research and development tax credits of approximately $7.8 million which do not expire. Approximately $12.4 million of federal and state net operating loss carryforwards represent stock option deductions arising from activity under the Company’s stock option plan, the benefit of which will increase additional paid in capital when realized.

Current federal and California tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change of a corporation. We have performed a change in ownership analysis through December 31, 2012 and, accordingly, all of our net operating loss and tax credit carryforwards are available to offset future taxable income, if any.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss and credit carryforwards. Significant components of our deferred tax assets are as follows (in thousands):

 

                 
    December 31,  
    2012     2011  

Deferred tax assets:

               

Net operating loss carryforwards

  $ 81,127     $ 84,328  

Research credit carryforwards

    12,750       12,484  

Other, net

    4,190       3,883  

Deferred revenue

    5,749        
   

 

 

   

 

 

 

Total deferred tax assets

    103,816       100,695  

Valuation allowance

    (103,816     (100,695
   

 

 

   

 

 

 

Net deferred tax assets

  $     $  
   

 

 

   

 

 

 

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $3.1 million during 2012, decreased by $1.3 million during 2011 and increased by $0.8 million during 2010.

Under ASC 718, the deferred tax asset for net operating losses as of December 31, 2012 excludes deductions for excess tax benefits related to stock based compensation.

 

The provision for income taxes consists of state minimum taxes due. The effective tax rate of our provision (benefit) for income taxes differs from the federal statutory rate as follows (in thousands):

 

                         
    Year Ending December 31,  
    2012     2011     2010  

Computed at 34%

  $ (5,134   $ (5,168   $ (2,265

State taxes

    (234     (228     (1,347

Book gains (losses) not currently benefited

    3,120       (1,264     844  

Other

    1,901       2,746       2,773  

Disallowed interest expense

    1,363       1,457        

Income from debt restructuring

    (1,615     2,462        

Revaluation of warrant liability

    600              
   

 

 

   

 

 

   

 

 

 

Total

  $ 1     $ 5     $ 5  
   

 

 

   

 

 

   

 

 

 

We had no unrecognized tax benefits or any amounts accrued for interest and penalties for the three year period ended December 31, 2012. Our policy will be to recognize interest and penalties related to income taxes as a component of income tax expense.

We file tax returns in the U.S. Federal jurisdiction and some state jurisdictions. We are subject to the U.S. federal and state income tax examination by tax authorities for such years 1995 through 2012, due to net operating losses that are being carried forward for tax purposes.

The Credit for Increasing Research Activities expired for amounts incurred after December 31, 2011. However, The American Taxpayer Relief Act of 2012, which was signed into law on January 2 2013, extended the credit for amounts incurred before January 1, 2014. The Act also retroactively restored the credit for amounts incurred in 2012. However, since the Act was not signed until January 2, 2013 the amount of credit generated in 2012 is not reflected in the deferred tax amounts as of December 31, 2012. The amount of this credit that was generated in 2012 was approximately $340,000. The deferred tax asset for this credit will be increased by this amount in 2013.