(8) INCOME TAXES

The provision for income taxes differs from the amount estimated by applying the statutory federal income tax rate to income (loss) before taxes as follows:

	August 31,
	2012					2011					2010
Federal tax (benefit) at statutory rate	$	(13,111	)	-34.00	%	$	(12,679	)	-34.00	%	$	(6,391	)	-34.00	%
State tax (benefit) at statutory rate, net of federal tax benefit		(1,069	)	-2.77	%		(2,248	)	-6.03	%		(953	)	-5.07	%
Change in valuation allowance		4,775		12.38	%		19,279		51.70	%		6,068		32.28	%
Research and development credits		(1,033	)	-2.68	%		(1,831	)	-4.91	%		(708	)	-3.77	%
Fair market value of warrants		1,079		2.80	%		5,542		14.86	%		2,004		10.66	%
Qualified Therapeutic Discovery Project Grant income		(0	)	0.00	%		(297	)	-0.80	%		0		0.00	%
Intangible asset basis allocation		2,951		7.66	%		(8,632	)	-23.15	%		(20	)	-0.11	%
Stock based compensation – ISO		1,525		3.96	%		493		1.32	%		2		0.01	%
Foreign losses not benefited		3,848		9.98	%		0		0.00	%		0		0.00	%
Other		1,035		2.67	%		373		1.01	%		(2	)	0.00	%
Provision for income taxes	$	0		0.00	%	$	0		0.00	%	$	0		0.00	%

Deferred tax assets (liabilities) consist of the following:
	August 31,
	2012			2011
Deferred Tax Assets
Net operating loss carryforwards	$	18,075		$	14,940
Capitalized start-up costs		8,946			6,636
Stock option expense		462			462
Research credit		7,873			6,275
Basis difference for fixed assets and intangibles		5,766			7,560
Accruals		105			138
Other		(441	)		0
Valuation allowance		(40,786	)		(36,011	)
Gross deferred tax asset	$	0		$	0

As of August 31, 2012, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $43.2 million and $54.6 million, respectively, which expire beginning after the year 2022 and 2016, respectively. As of August 31, 2012 the Company had federal and state research and development credits of $7.5 million and $0.6 million respectively. The federal credits expire beginning after the year 2026 and the state credits have no expiration.

The valuation allowance increased approximately $4.8 million during the period ending August 31, 2012, primarily as a result of current year losses and tax credits.

Utilization of the Company's net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss before utilization.

On September 1, 2009, the Company adopted the provisions of ASC No. 740-10, Accounting for Uncertainty in Income Taxes ("ASC 740-10"). In connection with the adoption, the Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.

On September 1, 2009 the FASB issued ASU No. 2009-06, Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities. Under this new codification, FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 ("FIN 48") has been incorporated into ASC 740-10. As with FIN 48, ASC 740-10 requires entities following GAAP to identify uncertain tax positions and disclose any potential tax liability on their financial statements using a two-step process, which includes recognition and measurement. As of August 31, 2012, the Company had no unrecognized tax benefits and has recorded no liability related to uncertain tax positions.

Due to net operating loss and research credit carryforwards, substantially all of the Company's tax years, from 2001 through 2012, remain open to U.S. federal and state tax examinations. The Company did not record a change in its unrecorded tax benefits during the year ended August 31, 2012, and expects no change in its unrecorded tax benefits in the next 12 months.

The Company is not aware of any pending income tax audits. Significant components of the Company's deferred tax assets for income tax purposes are net operating loss carryforwards, capitalized start-up costs, and stock-based compensation and research credits. Due to the Company's lack of earning history, any deferred assets recorded have been fully offset by a valuation reserve.

Our continuing practice is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of August 31, 2012, there was no accrued interest and penalties related to uncertain tax positions.