Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

9. 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, 2011 and 2010, 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, 2011 or December 31, 2010, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2011 and 2010.

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

	Amount
Unrecognized tax benefits balance at December 31, 2010	$	45
Increases related to current and prior year tax positions		—
Settlements and lapses in statutes of limitations		—
Unrecognized tax benefits balance at December 31, 2011	$	45

Included in the balance of unrecognized tax benefits at December 31, 2011 are $45,000 of tax benefits that, if recognized, would affect the effective tax rate.

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 its Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. The Company does not presently plan to complete its Section 382/383 analysis and unless 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 2011 from its deferred tax asset schedule and has recorded a corresponding decrease to its valuation allowance.

At December 31, 2011, the Company had federal and California income tax net operating loss carryforwards of approximately $359,657,000 and $301,915,000, 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 federal and California research and development tax credit carryforwards of $15,958,000 and $10,081,000, respectively. The federal net operating loss, research tax credit carryforwards and California net operating loss carryforwards will begin to expire in 2011 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized. In May 2010 and February 2009, the Company experienced ownership changes at a time when its enterprise value was minimal. As a result of these ownership changes and the low enterprise value, the Company’s federal and California net operating loss carryforwards and research and development credit carryforwards as of December 31, 2011 will be subject to limitation 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, 2011 and 2010 are listed below (in thousands):

	December 31,
	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	—		$	—
Research and development credits		—			—
Capitalized research and development and other		11,156			10,989
Total deferred tax assets		11,156			10,989
Net deferred tax assets		11,156			10,989
Valuation allowance for deferred tax assets		(11,156	)		(10,989	)
Net deferred taxes	$	—		$	—

A valuation allowance of $11,156,000 and $10,989,000 at December 31, 2011 and 2010, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain.

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,
	2011			2010
Income tax benefit at statutory federal rate	$	(4,042	)	$	(1,611	)
State tax benefit, net of federal		(664	)		(264	)
Generation of research and development credits		—			—
Expired tax attributes		3,709			3,521
Removal of net operating losses and research and development credits		2,644			1,156
Stock compensation expense		22			36
Change in valuation allowance		167			(1,892	)
Other		(1,836	)		(946	)
Provision for income taxes	$	—		$	—