12. Income Taxes

We account for income taxes using the liability method in accordance with ASC 740 Income Taxes. Deferred income taxes reflect the net 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.

There is no provision or benefit for federal or state income taxes for 2012, 2011 or 2010 other than a federal tax refund of $95 we received in 2010 from new legislation permitting the carryback of net operating losses (NOLs) to 2005 as well as permitting the suspension of limitations on alternative minimum tax NOL utilization. We have completed a calculation through March 31, 2011, under Internal Revenue Code Section 382, the results of which indicate that past ownership changes will limit utilization of NOLs in the future. Ownership changes subsequent to March 31, 2011, may further limit the future utilization of net operating loss and tax credit carry-forwards as defined by the federal and state tax codes.

Deferred tax assets and liabilities as of December 31, 2012 and 2011, consisted of the following:

	2012			2011
Deferred tax assets:
Depreciation and amortization	$	6,497		$	6,865
R&E tax credit carry-forwards		11,843			11,966
NYS investment tax credit carry-forwards		1,084			1,088
AMT credit carry-forwards		211			211
Net operating loss carry-forwards		112,966			85,110
Capitalized research and development expenditures		30,884			43,113
Stock compensation		14,436			13,789
Other items		2,193			3,600
Total gross deferred tax assets		180,114			165,742
Less: Valuation allowance		(178,045	)		(165,742	)
Deferred tax assets		2,069			-
Deferred tax liability - current		(2,069	)		-
Net deferred tax asset (liability)	$	-		$	-

We do not recognize deferred tax assets considering our history of taxable losses and the uncertainty regarding our ability to generate sufficient taxable income in the future to utilize these deferred tax assets. For 2012, we incurred net losses for tax purposes. For 2011, we had income for tax purposes and such amount was offset completely by our available net operating loss carry-forwards. We recognized a full tax valuation against deferred taxes at December 31, 2012 and 2011. In 2012, we recognized deferred income tax assets, net of a valuation allowance, of $2,069 ($17 in current assets and $2,052 in non-current assets) and deferred income tax liabilities of $2,069 to reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The recognition of these deferred income tax assets and liabilities had no effect on our net loss for 2012.

The following is a reconciliation of income taxes computed at the Federal statutory income tax rate to the actual effective income tax provision during 2012, 2011 and 2010:

	2012	2011	2010

U.S. Federal statutory rate	(35.0)%	35.0%	(34.0)%
State income taxes, net of Federal benefit	(5.4)	8.0	(5.1)
Research and experimental tax credit	-	(4.1)	(1.7)
Change in valuation allowance	34.7	(22.6)	38.2
Effect of federal tax rate bracket change on valuation allowance	-	(34.8)	-
Equity compensation	4.2	17.0	2.3
Investment tax credit	-	(0.1)	0.1
Other	1.5	1.6	0.1
Income tax provision (benefit)	0.0%	0.0%	(0.1)%

As of December 31, 2012, we had available, for tax return purposes, unused NOLs of approximately $298.0 million, which will expire in various years from 2021 to 2032, $18.2 million of which were generated from deductions post January 1, 2006 that, when realized, will reduce taxes payable and will increase paid-in-capital and are not reflected in our deferred tax assets above. Additionally, $11.4 million of the valuation allowance relates to NOLs attributable to excess tax deductions for equity compensation pre January 1, 2006. When realized this will also be reflected as an increase to paid-in-capital.

We have reviewed our nexus in various tax jurisdictions and our tax positions related to all open tax years for events that could change the status of our ASC 740 Income Taxes liability, if any, or require an additional liability to be recorded. During 2012, 2011 and 2010, we had no unrecognized tax benefits resulting from tax positions during a prior or current period, settlements with taxing authorities or the expiration of the applicable statute of limitations. We have not, as of yet, conducted a study of our research and development credit carry-forwards. Such a study might result in an adjustment to our research and development credit carry-forwards, but until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position under ASC 740-10. A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the statements of operations and comprehensive loss if an adjustment was required.

As of December 31, 2012, we are subject to federal and state income tax in the U.S. Open tax years relate to years in which unused net operating losses were generated or, if used, for which the statute of limitation for examination by taxing authorities has not expired. Our open tax years extend back to 1995, with the exception of 1997 and 2011, during which we reported net income. No amounts of interest or penalties were recognized in our Consolidated Statements of Operations or Consolidated Balance Sheets as of and for 2012, 2011 and 2010.

Our research and experimental (R&E) tax credit carry-forwards of approximately $11.8 million at December 31, 2012 expire in various years from 2018 to 2032. During 2012, research and experimental tax credit carry-forwards of approximately $125 expired. The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, retroactively reinstated the federal research and development credit for 2012 and extended these credits through 2013.