INCOME TAXES

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

INCOME TAXES

11. INCOME TAXES

There was no current or deferred tax expense for the years ended December 31, 2012 and 2011. The Company recorded a $550 federal income tax benefit in 2010 attributable to an election it made in the second quarter of 2010 under legislation that allowed net operating losses to offset 100% of alternative minimum tax (“AMT”). Prior to this legislation, only 90% of AMT could be offset by net operating losses and accordingly in 2009 the Company recorded a $550 federal income tax expense for AMT. The Company received a refund in 2010 of the $550 AMT paid in 2009.

The American Taxpayer Relief Act of 2012 (“ATR Act”) was enacted on January 2, 2013 which, among other things, provides a retroactive two-year extension of the U.S. research and development tax credits that had previously expired on December 31, 2011. We have not recorded the benefit of these credits for the 2012 year. We will record the benefit from these credits in the first quarter of calendar year 2013 as a result of the enactment of the ATR Act. We expect to record a benefit related to 2012 Research Credit of approximately $1,231, and a full valuation allowance, resulting in a net benefit of $0.

The following is reconciliation between the U.S. federal statutory rate and the effective tax rate for the years ended December 31, 2012, 2011 and 2010:

	2012			2011			2010
Income tax (benefit) expense at statutory rate	$	(3,696	)	$	(3,659	)	$	(10,430	)
State tax (benefit) expense, net of Federal tax (benefit) expense		(449	)		357			(559	)
Permanent items		648			617			116
Effect of change in valuation allowance and State NOL expiration		3,190			3,737			11,586
Tax credits		320			(2,006	)		(1,466	)
Other		(13	)		954			203
Tax expense (benefit)	$	—		$	—		$	(550	)

The income tax effect of temporary differences comprising the deferred tax assets and deferred tax liabilities on the accompanying balance sheets is a result of the following at December 31, 2012 and 2011:

	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	91,118		$	86,848
Tax credit carryforwards		22,172			22,492
Equity based compensation		6,774			5,881
Book depreciation in excess of tax		2,263			2,321
Reserves and accruals		(132	)		(101	)
Deferred revenue		15,672			21,439
Loss on investment		194			194
Other		140			180
		138,201			139,254
Valuation allowance		(138,201	)		(139,254	)
Deferred tax liabilities		—			—
Net deferred tax assets	$	—		$	—

Total valuation allowance decreased by $1,053 for the year ended December 31, 2012. We have evaluated positive and negative evidence bearing upon the realizability of our deferred tax assets, which are comprised principally of federal net operating loss (“NOL”), net capital loss, and research and development credit carryforwards. We have determined that it is more likely than not that we will not recognize the benefits of our federal and state deferred tax assets and, as a result, we have established a full valuation allowance against our net deferred tax assets as of December 31, 2012.

As of December 31, 2012, we had federal NOL, state NOL, and research and development credit carryforwards of approximately $265,004, $113,262 and $24,885 respectively, expiring from 2013 to 2032, which can be used to offset future income tax liabilities. Federal capital loss carryforwards of approximately $571, expiring in 2015, can be used to offset future federal capital gain income. Approximately $15,003 of our federal NOL and $907 of our state NOL were generated from excess tax deductions from share-based awards, the tax benefit of which will be credited to additional paid-in-capital when the deductions reduce current taxes payable.

At December 31, 2011, and 2012 we had no unrecognized tax benefits. We do not expect that the total amount of unrecognized tax benefits will significantly increase in the next twelve months. Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011 and 2012, we had no accrued interest or penalties related to uncertain tax positions. Our U.S. federal tax returns for the tax years 2010 through 2012 and our state tax returns for the tax years 2009 through 2012 remain open to examination. Prior tax years remain open to the extent of net operating loss and tax credit carryforwards.

Utilization of NOL and research and development credit carryforwards may be subject to a substantial annual limitation in the event of an ownership change that has occurred previously or could occur in the future pursuant to Section 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions. An ownership change may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income, and may, in turn, result in the expiration of a portion of those carryforwards before utilization. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three year period. We undertook a detailed study of our NOL and research and development credit carryforwards through January 31,2013, to determine whether such amounts are likely to be limited by Section 382. As a result of this analysis, we currently do not believe any Sections 382 or 383 limitations will significantly impact our ability to offset income with available NOL and research and development credit carryforwards. However, future ownership changes under Section 382 may limit our ability to fully utilize these tax benefits.