Income Taxes

The FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits as of the date of adoption. As of December 31, 2013 and 2012, the total liability for unrecognized tax benefits was $45,000 and is included in current liabilities.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s consolidated balance sheets at December 31, 2013 or December 31, 2012, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2013 and 2012.

The Company is subject to taxation in the United States and various state jurisdictions. The Company’s tax years for 1996 and forward are subject to examination by the United States and California tax authorities due to the carry forward of unutilized net operating losses and research and development credits.

The Company has not completed a formal Section 382/383 analysis regarding the composition and limitation of net operating loss and research and development credit carryforwards. The Company does not presently plan to complete a formal Section 382/383 analysis, and until this analysis has been completed, the Company has removed the deferred tax assets for net operating losses and research and development credits generated through 2013 from its deferred tax asset schedule and has recorded a corresponding increase to its valuation allowance.

At December 31, 2013, the Company has estimated federal and California income tax net operating loss carryforwards of approximately $350,206,000 and $279,510,000, respectively. The difference between the federal and California tax loss carryforwards is primarily attributable to the capitalization of research and development expenses for California income tax purposes. In addition, the Company has estimated federal and California research and development tax credit carryforwards of approximately $16,000,000 and $10,000,000, respectively. The federal net operating loss, research tax credit carryforwards and California net operating loss carryforwards which began to expire in 2013. The California research and development credit carryforwards will carry forward indefinitely until utilized. The Company believes that, in May 2010 and February 2009, it experienced ownership changes at times when its enterprise value was minimal. As a result of these ownership changes and the low enterprise values at such times, the Company’s federal and California net operating loss carryforwards and federal research and development credit carryforwards as of December 31, 2013 will likely be subject to annual limitations under IRC Section 382/383 and, more likely than not, will expire unused.

Significant components of the Company’s deferred tax assets as of December 31, 2013 and 2012 are listed below (in thousands):



	December 31,
	2013			2012
Deferred tax assets:
Capitalized research and development and other	$	28,283		$	21,193
Valuation allowance for deferred tax assets	(28,283		)	(21,193		)
Net deferred taxes	$	—		$	—

Income taxes computed by applying the U.S. Federal Statutory rates to income from continuing operations before income taxes are reconciled to the provision for income taxes set forth in the statement of operations as follows (in thousands):



	December 31,
	2013			2012
Income tax benefit at statutory federal rate	$	(6,098	)	$	(2,708	)
State tax expense (benefit), net of federal	—			(445		)
Research and development credits	126			—
Fair Value of Derivative	—			(1,221		)
Expired tax attributes	—			3,008
Removal of net operating losses and research and development credits	—			(2,522		)
Change in valuation allowance	5,972			10,037
Other	—			(6,149		)
Provision for income taxes	$	—		$	—