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

(11) Income Taxes

Effective June 1, 2005, the Company changed from an S-Corporation to a C-Corporation. As an S-Corporation, the net operating loss carryforwards were distributed to the Company’s stockholders; such amounts were not significant. Since June 2005 through December 31, 2012, for federal income tax purposes, the Company has net operating loss carryforwards of approximately $98.1 million, and approximately $687,000 of research and development credits that may be used to offset future taxable income. The net operating loss carryforwards will expire beginning 2025 through 2032. Utilization of net operating losses and tax credits, including those acquired as a result of the Merger, will be subject to an annual limitation due to ownership change limitations provided by IRC Section 382. The annual limitation may result in the expiration of the net operating losses and credits before utilization. As such, a portion of the Company’s net operating loss carryforwards may be limited.

 

In assessing the realizability of deferred tax assets, management considers 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 period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Due primarily to the Company’s history of operating losses, management is unable to conclude that it is more likely than not that the Company will realize the benefits of these deductible differences, and accordingly has provided a valuation allowance against the entire net deferred tax asset of approximately $42.2 million at December 31, 2012, reflecting an increase of approximately $1.5 million from December 31, 2011. The deferred tax assets are primarily comprised of net operating loss carryforwards and research and experimentation credit carryforwards. As of December 31, 2012 the Company has not performed an Internal Revenue Code Section 382 limitation study. Depending on the outcome of such a study, the gross amount of net operating losses recognizable in future tax periods could be limited. A limitation in the carryforwards would decrease the carrying amount of the gross amount of the net operating loss carryforwards, with a corresponding decrease in the valuation allowance recorded against these gross deferred tax assets.

Income tax benefit attributable to our loss from operations before income taxes differs from the amounts computed by applying the U.S. federal statutory income tax rate of 35%, as a result of the following (in thousands):

 

                 
    Year ended December 31,  
    2012     2011  

U.S. federal income tax benefit at statutory rates

     (1,512 )    $ (1,877 ) 

State income tax benefit, net of federal benefit

     (130 )      (161 ) 

Research and experimentation credits

     —         (71 ) 

Settlement of liabilities assumed in the Merger

     —         —    

Adjustment in tax basis of tangible and intangible assets acquired in the Merger

     —         —    

Other

     196       154  

Change in valuation allowance

     1,446       1,955  
   

 

 

    

 

 

  
    $         —       $         —    
   

 

 

    

 

 

  

Without regard to the deferred tax liability on the impaired IPR&D, the Company has had no provision for income taxes since inception due to its S-corporation status and its subsequent net operating losses.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards. The income tax effects of temporary differences and carryforwards that give rise to significant portions of the Company’s net deferred tax assets are as follows (in thousands):

 

                 
    Year ended
December 31,		  
    2012     2011  

Deferred tax assets:

                

Current deferred tax assets:

                

Vacation accrual

   $ 26     $ 21  
   

 

 

    

 

 

  

Total current deferred tax assets

     26       21  

Valuation allowance

     (26 )      (21 ) 
   

 

 

    

 

 

  

Net current deferred tax assets

   $ —       $ —    

Noncurrent deferred tax assets:

                

Net operating loss carryforwards

   $ 37,295     $ 35,751  

Charitable contribution carryforwards

     368       406  

Research and experimentation credits

     687       687  

Capitalized intangibles

     3,413       3,432  

Stock based compensation

     416       399  

Depreciation and amortization

     11       23  

Other

     25       76  
   

 

 

    

 

 

  

Total noncurrent deferred tax assets

     42,215       40,774  

Valuation allowance

     (42,215 )      (40,774 ) 
   

 

 

    

 

 

  

Net noncurrent deferred tax assets

   $ —       $ —    

Deferred tax liabilities:

                

Current deferred tax liabilities

   $ —       $ —    

Noncurrent deferred tax liabilities

     —         —    
   

 

 

    

 

 

  

Net deferred tax liabilities

   $ —       $ —    
   

 

 

    

 

 

  

Net noncurrent deferred tax assets

   $ —       $ —    
   

 

 

    

 

 

  

Since the Company is in a loss carryforward position, the Company is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. Thus, the Company’s open tax years extend back to 2009. The Company believes that its tax filing positions and deductions related to tax periods subject to examination will be sustained upon audit and does not anticipate any adjustment will result in a material adverse effect on the Company’s financial condition, result of operations, or cash flow. For the years ended December 31, 2012 and 2011, the Company has no reserve for uncertain tax positions. The Company does not expect that the total amounts of unrecognized tax benefits will significantly increase or decrease within the subsequent twelve months. In the event the Company concludes it is subject to interest or penalties arising from uncertain tax positions, the Company will record interest and penalties as a component of other income and expense. No amounts of interest or penalties were recognized in the financial statements for the years ended December 31, 2012 and 2011.