14 Taxes

(Loss) income before taxes from continuing operations is comprised of the following components for the years ended December 31, 2010, 2011 and 2012:

	Year ended December 31, 2010		Year ended December 31, 2011		Year ended December 31, 2012
	$000		$000		$000
Domestic	(3,533	)	904		(2,009	)
Foreign	(12,014	)	(16,072	)	(13,098	)
(Loss) income from continuing operations before taxes	(15,547	)	(15,168	)	(15,107	)

The benefit for income taxes from continuing operations consists of the following:

	Year ended December 31, 2010		Year ended December 31, 2011	Year ended December 31, 2012
	$000		$000	$000
Current — domestic	(10	)	—	—
Current — foreign	667		565	1,014
Current — total	657		565	1,014
Deferred — domestic	—		—	337
Income tax benefit	657		565		1,351

The Company has incurred a taxable loss in each of the operating periods since incorporation. The income tax credits of $0.7 million, $0.6 million and $1.4 million for the years ended December 31, 2010, 2011 and 2012, 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 from continuing operations with the amount computed by applying the statutory federal tax rate to loss before income taxes is as follows:

	Year ended December 31, 2010		Year ended December 31, 2011		Year ended December 31, 2012
	$000		$000		$000
Loss before income taxes	(15,547	)	(15,168	)	(15,107	)

Income tax expense computed at statutory federal tax rate	(5,286	)	(5,157	)	(5,136	)
Disallowed expenses and non-taxable income	(490	)	(141	)	176
Loss surrendered to generate R&D credit	1,605		1,372		3,025
Additional research and development tax relief	(793	)	(2,260	)	(2,656	)
Change in valuation allowance	3,605		2,952		(579	)
Research and development tax credit rate difference	132		—		—
Foreign items, including change in tax rates	570		2,669		3,819
	(657	)	(565	)	(1,351	)

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

	December 31,
	2011		2012
	$000		$000
Net operating loss carryforwards	43,870		42,399
Depreciation, amortization and impairment of property and equipment	1,772		1,654
Stock Options	1,372		1,451
Accrued Expenses	3,435		3,389
Other	96		45
Translation adjustment	249		1,277
Deferred Tax Assets	50,794		50,215
Valuation allowance for deferred tax assets	(50,794	)	(50,215	)
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 million has been established at December 31, 2012. The valuation allowance increased by approximately $3 million in 2011 and decreased by approximately $579 thousand in 2012.

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. 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. As of December 31, 2011 and 2012, the Company had federal NOLs of $18.6 million and $19.2 million and foreign NOLs of $148.2 million and $153.4 million, respectively. The Company has federal NOLs that will start to expire in 2027, and state NOLs totaling $18.3 million will start expiring in 2023. The Company’s foreign NOL’s do not expire under U.K. tax law.

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, 2011 and 2012 and concluded 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 2010, 2011 and 2012 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.