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Taxes
 12 Months Ended
Dec. 31, 2011
Taxes  
Taxes

14             Taxes

 

In the accompanying Consolidated Statements of Operations, “Loss before taxes” includes the following components for the years ended December 31, 2009, 2010 and 2011:

 

 

 

Year ended
December 31,
2009

 

Year ended
December 31,
2010

 

Year ended
December 31,
2011

 

 

 

$000

 

$000

 

$000

 

Domestic

 

(3,013

)

(4,664

)

264

 

Foreign

 

(17,505

)

(12,014

)

(16,072

)

Total loss before taxes

 

(20,518

)

(16,678

)

(15,808

)

 

The benefit for income taxes consists of the following:

 

 

 

Year ended
December 31,
2009

 

Year ended
December 31,
2010

 

Year ended
December 31,
2011

 

 

 

$000

 

$000

 

$000

 

Current — domestic

 

(12

)

(10

)

—

 

Current — foreign

 

960

 

667

 

565

 

Current — total

 

948

 

657

 

565

 

 

The Company has made a taxable loss in each of the operating periods since incorporation. The income tax credits of $0.9 million, $0.7 million and $0.6 million for the years ended December 31, 2009, 2010 and 2011, respectively, represent U.K. research and development (“R&D”) tax credits receivable against such expenditures in the United Kingdom that are refundable.

 

A reconciliation of the (benefit) provision for income taxes with the amount computed by applying the statutory federal tax rate to loss before income taxes is as follows:

 

 

 

Year ended
December 31,
2009

 

Year ended
December 31,
2010

 

Year ended
December 31,
2011

 

 

 

$000

 

$000

 

$000

 

Loss before income taxes

 

(20,518

)

(16,678

)

(15,808

)

 

 

 

 

 

 

 

 

Income tax expense computed at statutory federal tax rate

 

(6,976

)

(5,672

)

(5,375

)

State income tax (net of federal benefit)

 

8

 

7

 

—

 

Disallowed expenses and non-taxable income

 

(773

)

(490

)

(141

)

Loss surrendered to generate R&D credit

 

2,322

 

1,605

 

1,372

 

Additional research and development tax relief

 

(1,185

)

(793

)

(2,260

)

Change in valuation allowance

 

4,605

 

3,984

 

3,170

 

Research and development tax credit rate difference

 

237

 

132

 

—

 

Foreign items, including change in tax rates

 

814

 

570

 

2,669

 

 

 

(948

)

(657

)

(565

)

 

Significant components of the Company’s deferred tax assets are shown below:

 

 

 

December 31,

 

 

 

2010

 

2011

 

 

 

$000

 

$000

 

Net operating loss carryforwards

 

43,056

 

43,870

 

Depreciation, amortization and impairment of property and equipment

 

1,925

 

1,772

 

Stock Options

 

1,228

 

1,372

 

Accrued Expenses

 

3,778

 

3,435

 

Other

 

89

 

96

 

Translation adjustment

 

(2,452

)

249

 

Deferred Tax Assets

 

47,624

 

50,794

 

Valuation allowance for deferred tax assets

 

(47,624

)

(50,794

)

Net deferred taxes

 

—

 

—

 

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. A valuation allowance has been established, as realization of such assets is uncertain.

 

The Company’s management evaluated the positive and negative evidence bearing upon the realizability of its deferred assets, and has determined that, at present, the Company may not be able to recognize the benefits of the deferred tax assets under the more likely than not criteria.

 

Accordingly, a valuation allowance of approximately $50.8 million has been established at December 31, 2011. The benefit of deductions from the exercise of stock options is included in the net operating loss (“NOL”) carryforwards. The benefit from these deductions will be recorded as a credit to additional paid-in capital if and when realized through a reduction of cash taxes.

 

In certain circumstances, as specified in the Tax Reform Act of 1986, due to ownership changes, the Company’s ability to utilize its NOL carryforwards may be limited. However, the Company’s overseas subsidiary has, subject to agreement with the United Kingdom’s H.M. Revenue & Customs, the following tax losses and accumulated tax losses available for carry forward against future operations, which under U.K. tax laws do not expire:

 

 

 

December 31,

 

 

 

2010

 

2011

 

 

 

$000

 

$000

 

Accumulated tax losses

 

132,521

 

148,274

 

 

As of December 31, 2010 and 2011, the Company had federal and foreign NOLs of $147.7 million and $166.9 million, respectively. The Company has federal NOLs that will start to expire in 2027 and state NOLs that will start expiring in 2023.

 

Utilization of the NOLs 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. The Company has not currently completed a study to assess whether an ownership change has occurred, or whether there have been multiple ownership changes since the Company’s formation, due to the significant complexity and related cost associated with such study. Management has evaluated all significant tax positions at December 31, 2010 and 2011 concluding that there are no material uncertain tax positions. The Company would recognize both interest and penalties related to unrecognized benefits in income tax expense. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception.

 

Tax years 2009, 2010 and 2011 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United Kingdom and the United States, as carryforward attributes generated in years past may still be adjusted upon examination by the United Kingdom’s H.M. Revenue & Customs, the Internal Revenue Service (“IRS”) or state tax authorities if they have or will be used in a future period.  The Company is currently not under examination by the IRS or any other jurisdictions for any tax years.