Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

Note 11. Income Taxes

        Deferred income taxes result from differences in the recognition of expenses for tax and financial reporting purposes, as well as operating loss and tax credit carryforwards. Significant components of the Company's deferred income tax assets as of December 31, 2011 and 2010 are as follows (in thousands):

	2011			2010
Deferred tax assets:
Net operating loss carry forwards	$	107,241		$	85,518
Research and development credit carry forwards		14,468			14,120
Accruals and other		13,197			10,073
Depreciation		790			3,393
		135,696			113,104
Valuation allowance		(135,696	)		(113,104	)
Total	$	—		$	—

        The net increase in the valuation allowance for the years ended December 31, 2011, 2010 and 2009 was $22.6 million, $22.1 million and $23.7 million, respectively. As of December 31, 2011, the Company had no significant deferred tax liabilities.

        For federal and state income tax reporting purposes, respective net operating loss, or NOL, carryforwards of approximately $285.8 million and $132.9 million are available to reduce future taxable income, if any. ASC 718 prohibits recognition of a deferred income tax asset for excess tax benefits due to stock option exercises that have not yet been realized through a reduction in income taxes payable. Post-adoption of ASC 718, the unrecognized deferred tax benefits totaled $2.9 million, of which $81,000 have been accounted for as a credit to additional paid-in capital, as they have been realized through a reduction in income taxes payable. For federal and state income tax reporting purposes, respective credit carryforwards of approximately $13.1 million and $2 million are available to reduce future taxable income, if any. These net operating loss and tax credit carryforwards, except for the California research and development credit, expire on various dates through 2030. The California research and development credits do not expire. The Internal Revenue Code of 1986, as amended, contains provisions that may limit the net operating loss and credit carryforwards available for use in any given period upon the occurrence of certain events, including a significant change in ownership interest. Utilization of our net operating loss and tax credit carryforwards may be subject to substantial annual limitations provided by the Internal Revenue Code and similar state provisions to the extent certain ownership changes are deemed to occur. Such an annual limitation could result in the expiration of the net operating losses and credit carryforwards before utilization. The net operating loss and credit carryforwards reflected above have not been reduced by any limitations. To the extent it is determined upon completion of the analysis that such limitations do apply, the Company will adjust the net operating loss and credit carryforwards accordingly.

        The (benefit)/provision for income taxes is based upon (loss)/income from continuing operations before (benefit)/provision for income taxes as follows, for the years ended December 31, 2011, 2010 and 2009 (in thousands):

	2011			2010			2009
Loss before income taxes:
Domestic	$	(46,836	)	$	(75,425	)	$	(55,764	)
International		—			—			—
Loss before taxes	$	(46,836	)	$	(75,425	)	$	(55,764	)

        The (benefit)/provision for income taxes consists of the following components for the years ended December 31, 2011, 2010 and 2009 (in thousands):

        Continuing Operations:

	2011		2010		2009
Current
Federal	$	—	$	—	$	(2,380	)
State		190		9		1
Foreign		—		—		—
Total current (benefit)/provision for income taxes	$	190	$	9	$	(2,379	)
Deferred
Federal	$	—	$	—	$	—
State		—		—		—
Foreign		—		—		—
Total deferred benefit for income taxes	$	—	$	—	$	—
Total (benefit)/provision for income taxes from continuing operations	$	190	$	9	$	(2,379	)

        Discontinued Operations:

	2011		2010		2009
Total (benefit)/provision for income taxes from discontinued operations	$	—	$	29	$	(61	)

        A reconciliation between the U.S. federal statutory tax rate and the Company's effective tax rate from continuing operations is as follows, for the years ended December 31, 2011, 2010 and 2009:

	2011			2010			2009
Tax at U.S. federal statutory rate		(35	)%		(35	)%		(35	)%
Change in valuation allowance		38			35			39
Permanent items		1			1			1
Extinguishment of debt		—			3			—
Tax credits		(4	)		(4	)		(5	)
Refund of prior taxes		—			—			(4	)
Effective tax rate		0	%		0	%		(4	)%

        The total gross unrecognized tax benefits as of December 31, 2011 is $1.2 million and relates to state tax exposures, of which $160,000 would affect the effective tax rate if recognized.

        A reconciliation of the beginning and ending amount of unrecognized tax benefits in 2011 and 2010 is as follows (in thousands):

	2011		2010		2009
Unrecognized tax benefits as of January 1	$	1,171	$	—	$	—
Gross increase for tax positions of prior years		44		1,171		—
Gross decrease for tax positions of prior years		—		—		—
Gross increase for tax positions of current year		—		—		—
Gross decrease for tax positions of current year		—		—		—
Settlements		—		—		—
Lapse of statute of limitations		—		—		—
Unrecognized tax benefits balance at December 31	$	1,215	$	1,171	$	—

        The total unrecognized tax benefits as of December 31, 2011 of $1.2 million includes approximately $1.1 million of unrecognized tax benefits that have been netted against the related deferred tax assets. The remaining balance recorded on the Company's consolidated balance sheets as of December 31, 2011 and 2010 is as follows (in thousands):

	2011			2010
Total unrecognized tax benefits	$	1,215		$	1,171
Amounts netted against deferred tax assets		(1,055	)		(1,164	)
Unrecognized tax benefits recorded on consolidated balance sheets	$	160		$	7

        As of January 1, 2011, the Company had accrued $1,000 for payment of interest and penalties related to unrecognized tax benefits. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. During 2011, $32,000 of interest was recognized.

        Although the Company files U.S. federal, various state, and foreign tax returns, the Company's only major tax jurisdictions are the U.S., California and New Jersey. The Company's income tax return for the year ended December 31, 2007 is currently under examination by the California Franchise Tax Board. Based on the progress of the audit to date, the Company believes adjustments may be made in early years that will reduce tax attributes available to offset tax due in 2007. Therefore, the Company has increased their unrecognized tax benefits to $160,000 for the year ended December 31, 2011.

        The Company's income tax return for the years ended December 31, 2007 and 2008 are currently under examination by the Internal Revenue Service. The Company is awaiting the final report from the IRS and does not expect adverse results. The Company is currently under examination by the State of New Jersey for the years ended December 31, 2007 through 2009. Because the Company used net operating loss carryforwards and other tax attributes to offset its taxable income in on its 2007 income tax returns for U.S. Federal and California, such attributes can be adjusted by these taxing authorities until the statute closes on the year in which such attributes were utilized. Tax years 1991 to 2010 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years.

        The Company is in various stages of the examination process in connection with all of its tax audits and it is difficult to determine when these examinations will be settled. It is reasonably possible that over the next twelve-month period the Company may experience an increase or decrease in its unrecognized tax benefits. It is not possible to determine either the magnitude or range of any increase or decrease at this time.