XML 24 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
Income Taxes

 

NOTE 12 INCOME TAXES

We had an income tax benefit of $122,000 in 2009 from the carryback of the net operating loss under the Worker, Home ownership, and Business Assistance Act of 2009, which among other things suspended the 90% limitation on utilization of net operating loss for alternative minimum tax purposes. There is no provision for 2011 and 2010 because we have incurred operating losses.

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

December 31,  2011  2010
           
 Deferred Tax Assets:          
 Net operating loss carryforwards  $6,700   $22,800 
 Research credits   2,100    3,200 
 Stock compensation expense   600    900 
 Other   900    700 
 Total deferred tax assets   10,300    27,600 
 Valuation allowance   (10,300)   (27,600)
 Net deferred tax assets  $—     $—   

Realization of our deferred tax assets is dependent upon our future taxable income, if any, the timing and amount of which are uncertain. Accordingly, our deferred tax assets have been fully offset by a valuation allowance. The valuation allowance decreased by $17.3 million during 2011 and increased by $0.7 million and $5.8 million during 2010 and 2009, respectively.

 

As of December 31, 2011, we had federal and California net operating loss carryforwards of $17.1 million and $15.8 million, respectively, and federal and California research and development tax credit carryforwards of $0.1 million and $3.0 million, respectively. Of the carryforwards, federal and California net operating loss carryforwards of $12.4 million and $10.9 million, respectively, are subject to annual limitations and will be available from 2012 through 2031, as a result of federal ownership change limitations. The federal and state net operating losses and the federal research and development credit carryforwards expire at various dates beginning in the years 2012 through 2031, if not utilized. The state research credits have no expiration date.

 

Federal and state laws limit the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. We conducted an analysis of our stock ownership under Internal Revenue Code Section 382 and have reported our deferred tax assets related to net operating loss and research credit carryforwards after recognizing change of control limitations in 2007 and 2011. The limitation of our federal and state carryforwards associated with previous net operating loss and research credit carryforwards, and the associated reduction in our deferred tax assets, was offset by a reduction in our valuation allowance. Utilization of our remaining net operating loss and research and development credit carryforwards may still be subject to substantial annual limitations due to ownership change limitations after December 31, 2011. Such an annual limitation could result in the expiration of the net operating loss and research and development credit carryforwards available as of December 31, 2011 before utilization.

 

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2011, 2010 and 2009) to income taxes as follows (in thousands):

 

December 31,  2011  2010  2009
                
Tax benefit computed at 34%  $(4,017)  $(2,498)  $(3,450)
Stock compensation expense   148    173    79 
Other   70    84    1 
AMT credit   —      —      (122)
NOL not benefitted   3,799    2,241    3,370 
                
Tax Provision (Benefit)  $—     $—     $(122)

We follow the provisions of ASC 740-10-50, Accounting for Uncertainty in Income Tax Provisions. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

December 31,  2011  2010  2009
Unrecognized tax benefit:               
At the beginning of the period  $120   $120   $120 
Gross increases – tax positions in the current period   —      —      —   
Gross decreases – tax positions in the current period   —      —      —   
At the end of the period  $120   $120   $120 

The unrecognized tax benefit, if recognized in full, would result in adjustments to deferred taxes and the related valuation allowance. We do not currently anticipate any significant changes to the unrecognized tax benefits in 2012. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of tax expense. To date, we have not used the unrecognized tax benefits to reduce any of our past tax obligations. As a result, we had no accrual for the payment of interest and penalties related to the unrecognized tax benefits. As of December 31, 2011, our tax returns were subject to future examination in the U.S. federal and state tax jurisdictions for the tax years 1996 through 2011, due to net operating losses and research credits that are being carried forward.