Note 15 - Income Taxes

The Company recorded a current income tax expense for foreign taxes of $0.4 million in 2011, and a deferred federal income tax benefit of $0.5 million in 2010. The components of the income tax provision (benefit) are as follows (in thousands):

	2012		2011		2010
Current U.S.	$	-	$	-	$	-
Current foreign		-		412		-
Deferred		-		―		(450	)
Net provision	$	-	$	412	$	(450	)

Deferred tax assets (liabilities) consist of the following at December 31 (in thousands):

	2012			2011
Net operating losses	$	122,731		$	116,492
Research tax credits		5,693			5,904
Other		7,326			3,974
Total deferred tax assets		135,750			126,370
Other		(335	)		(350	)
Total deferred tax liabilities		(335	)		(350	)
Net deferred tax assets		135,415			126,020
Less valuation allowance		(135,415	)		(126,020	)
Deferred tax assets, net	$	-		$	-

The differences between the U.S. federal statutory tax rate and the Company's effective tax rate are as follows:

	2012			2011			2010
Statutory federal tax rate		(34	)%		(34	)%		(34	)%
State income taxes, net of federal benefit		(8	)%		(9	)%		(4	)%
Research and development and other tax credits		0	%		(5	)%		(2	)%
Expiration of net operating losses		6	%		10	%		4	%
Other		3	%		(3	)%		(1	)%
Change in valuation allowance		33	%		43	%		36	%
		0	%		2	%		(1	)%

Realization of net deferred tax assets is dependent on the Company's ability to generate future taxable income, which is uncertain. Accordingly, a full valuation allowance was recorded against these assets as of December 31, 2012 and 2011 as management believes it is more likely than not that the assets will not be realizable.

During 2011, the Company incurred a $0.4 million foreign withholding tax related to a payment received in accordance with a license agreement. This withholding tax gives rise to an increase to the U.S. net operating loss for which a full valuation allowance has been recorded. During the year ended December 31, 2010, as a result of new legislation allowing for the partial refund of research and development credits, the Company requested and received a refund of approximately $0.1 million. In addition, during the year ended December 31, 2010, the Company received grants totaling $0.8 million for qualifying therapeutic discovery projects under Internal Revenue Code Section 48D. The combination of the refundable research and development credits and the Internal Revenue Code Section 48D grant resulted in the Company recording a deferred federal income tax benefit of $0.5 million during the year ended December 31, 2010.

As of December 31, 2012, the Company had tax return reported federal net operating losses and tax credits available as follows (in thousands):

	Amount
Federal net operating losses expiring through the year 2032	$	302,394
Research tax credits expiring through the year 2032		6,238
Alternative-minimum tax credit (no expiration)		94

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The Company has not performed a detailed analysis to determine whether an ownership change under Section 382 of the Internal Revenue Code occurred. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards and credits attributable to periods before the change and could result in a reduction in the total net operating losses and credits available.

Beginning in 2006, the windfall equity-based compensation deductions are tracked, but will not be recorded to the balance sheet until management determines more likely than not that such amounts will be utilized. During 2012 and 2011, the Company had less than $0.1 million and $0.1 million, respectively, of windfall stock compensation deductions. If and when realized, the tax benefit associated with these deductions will be credited to additional paid-in capital. These excess benefit deductions are included in the total federal net operating losses disclosed above.

Tabular Reconciliation of Unrecognized Tax Benefits (in thousands):

	Amount
Unrecognized tax benefits as of January 1, 2011	$	4,910
Gross increases - tax positions in prior period		―
Gross decreases - tax positions in prior period		(35	)
Gross increases - current-period tax positions		-
Increases (decreases) from settlements		-
Unrecognized tax benefits as of December 31, 2011	$	4,875
Gross increases - tax positions in prior period		-
Gross decreases - tax positions in prior period		(74	)
Gross increases - current-period tax positions		-
Increases (decreases) from settlements		-
Unrecognized tax benefits as of December 31, 2012	$	4,801

To the extent these unrecognized tax benefits are ultimately recognized, it would affect the annual effective income tax rate.

The Company files income tax returns in the U.S. federal jurisdiction and in various states. The Company had tax net operating losses and credit carryforwards that are subject to examination for a number of years beyond the year in which they are generated for tax purposes. Since a portion of these carryforwards may be utilized in the future, many of these attribute carryforwards remain subject to examination.

The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2012 and December 31, 2011, the Company had no accruals for interest or penalties related to income tax matters.