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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes

Note 18. Income Taxes

Loss before income taxes is attributed to the following geographic locations for the years ended December 31,

 

                 
    2011     2010  

United States

   $ 19,677,292     $ 23,445,403  

Foreign

     1,651,244       1,798,148  
   

 

 

    

 

 

  

Total loss before taxes

   $ 21,328,536     $ 25,243,551  
   

 

 

    

 

 

  

We follow authoritative guidance regarding accounting for uncertainty in income taxes, which prescribes a recognition threshold a tax position is required to meet before being recognized in the financial statements. As of December 31, 2011 and 2010, we have not recorded any unrecognized tax benefits. Deferred income taxes reflect the 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. Significant components of our deferred tax assets and liabilities at December 31 are as follows:

 

                 
    2011     2010  

Deferred tax assets:

                

Capitalized research and development costs

   $ 53,565,000     $ 48,048,000  

Net operating losses

     53,065,000       51,051,000  

Research and development credits

     8,038,000       7,816,000  

Accrued wind down cost

     630,000       994,000  

Stock-based compensation

     512,000       688,000  

Impaired asset

     —         312,000  

Capital loss carryover

     596,000       318,000  

Fixed assets

     458,000       370,000  

Other

     731,000       397,000  
   

 

 

    

 

 

  
      117,595,000       109,994,000  

Valuation allowance

     (117,181,000 )      (109,310,000 ) 
   

 

 

    

 

 

  

Total deferred tax assets

   $ 414,000     $ 684,000  
   

 

 

    

 

 

  

Deferred tax liability:

                

Intangible assets

     (414,000 )      (684,000 ) 
   

 

 

    

 

 

  

Total deferred tax liability

   $ (414,000 )    $ (684,000 ) 
   

 

 

    

 

 

  

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 approximately $7,871,000 in 2011, $7,030,000 in 2010, and $11,156,000 in 2009.

 

As of December 31, 2011, we had the following:

 

  •  

Net operating loss carry forwards for federal income tax purposes of approximately $141,496,000 which expire in the years 2012 through 2031.

 

  •  

Federal research and development tax credits of approximately $6,687,000 which expire in the years 2012 through 2031.

 

  •  

Net operating loss carry forwards for state income tax purposes of approximately $45,951,000 which expire in the years 2012 through 2031.

 

  •  

State research and development tax credits of approximately $5,091,000 ($3,360,000 net of federal tax effect) which do not expire.

 

  •  

Net operating loss carry forwards in foreign jurisdictions of approximately $12,202,000 which do not expire.

 

  •  

Capital loss carry forwards for federal and state income tax purposes of $1,592,000 which expire in the years 2014 through 2016.

Utilization of the federal and state net operating loss and federal and state research and development tax credit carry forwards may be subject to annual limitations due to the ownership percentage change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the inability to fully offset future annual taxable income and could result in the expiration of the net operating loss carry forwards before utilization. Utilization of foreign net operating loss carry forwards may be limited or disallowed under similar foreign income tax provisions.

The effective tax rate as a percentage of income before income taxes differs from the statutory federal income tax rate (when applied to income before income taxes) for the years ended December 31 as follows:

 

                         
    2011     2010     2009  

Statutory federal income tax (benefit) rate

     (34 )%      (34 )%      (34 )% 

State income tax (benefit) rate

     (3.4 )      (3.6 )      (6 ) 

Increase resulting from:

                        

Expenses not deductible for taxes

     (6.7 )      (0.4 )      4.9  

Increase in valuation allowance

     44.1       38.0       35.1  
   

 

 

    

 

 

    

 

 

  

Effective tax (benefit) rate

     0 %      0 %      0 % 
   

 

 

    

 

 

    

 

 

  

We did not have any unrecognized tax benefits at December 31, 2011. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. Because we have no tax liabilities, no tax-related interest and penalties have been expensed in our consolidated statements of operations during 2011 or accrued as a liability in our consolidated balance sheets at December 31, 2011. We do not anticipate any significant changes to total unrecognized tax benefits as a result of settlement of audits or the expiration of statute of limitations within the next twelve months.

We file U.S. federal income tax returns, as well as tax returns with the State of California and the State of Rhode Island. Due to the carry forward of unutilized net operating losses and research and development credits, our federal tax returns from 1997 forward remain subject to examination by the Internal Revenue Service, and our State of California tax returns from 2001 forward and our State of Rhode Island tax returns from 2007 forward remain subject to examination by the respective state tax authorities. We file income tax returns in various foreign jurisdictions. Tax years from 2007 forward remain subject to examination by the appropriate foreign governmental agencies.