Income Taxes

The Company provides for income taxes using an asset and liability approach, where deferred income taxes are provided based upon enacted tax laws and rates applicable to periods in which the taxes become payable.

Income (loss) from continuing operations before income taxes consists of the following components (in thousands):



	Year ended December 31,
	2011			2010			2009
United States	$	(1,370	)	$	(4,391	)	$	(13,881	)
Foreign	97			24			—
	$	(1,273	)	$	(4,367	)	$	(13,881	)

During the years ended December 31, 2011, December 31, 2010, December 31, 2009, the Company paid income taxes of $0 million, $0.1 million, $0.1 million respectively.

A summary of total tax expense, by classification, included in the accompanying consolidated statements of income is as follows (in thousands):



	Year ended December 31,
	2011			2010			2009
Current:
Federal	$	(105	)	$	(44	)	$	—
State	3			(128		)	140
Foreign	19			5			—
	$	(83	)	$	(167	)	$	140

Deferred tax assets (liabilities) consist of the following (in thousands):



	Year ended December 31,
	2011			2010
Deferred tax assets:
Accruals and reserves	$	3,288		$	3,309
Net operating loss carryforwards	96,351			96,090
Research and development credit carryforward	3,022			3,141
Gross deferred tax asset	$	102,661		$	102,540
Valuation allowance	(102,661		)	(102,540		)
Net deferred tax asset	$	—		$	—

At December 31, 2011, management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance was recorded.

Reconciliation of the statutory federal income tax to the Company’s effective tax is as follows:



	Year ended December 31,
	2011		2010		2009
Tax Benefit at Federal statutory rate	34.0	%	34.0	%	34.0	%
State, net of Federal benefit	(0.2	)%	2.9	%	(0.7	)%
Stock compensation	1.0	%	(2.9	)%	(2.1	)%
Research and development credit	10.3	%	5.6	%	1.1	%
Return to Provision and True-ups	—	%	3.1	%	—	%
Change in valuation allowance	(36.5	)%	(36.6	)%	(30.3	)%
Other	(2.1	)%	(2.5	)%	(2.9	)%
Benefit (Provision) for taxes	6.5	%	3.6	%	(0.9	)%

As of December 31, 2011, the Company has approximately $280.6 million of federal net operating losses available to offset future federal taxable income, which expire at various dates beginning in 2019. The Company also has California net operating loss carryforwards of approximately $75.9 million to offset future California taxable income, which expire at various dates beginning in 2017. We have not recognized any benefit from these net operating loss carry-forwards and a valuation allowance has been recorded for the total deferred tax assets as a result of uncertainties regarding realization of the assets based on limited history of the profitability and uncertainty of future profitability. The net operating loss carryforwards stated above are reflective of various federal and state tax limitations. As of December 31, 2011 and December 31, 2010, the Company has gross Federal and California state research and development credit carryforwards of $2.8 million and $1.9 million, respectively. Additionally, net operating losses could be limited due to a change in control.

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



	Year ended December 31,
	2011			2010		2009
Unrecognized tax benefits at beginning of period	$	1,234		$	810	$	718
Gross increases to current period tax positions	59			180		92
Gross increases to prior period tax positions	(101		)	244		—
Unrecognized tax benefits at end of period	$	1,192		$	1,234	$	810

The Company classifies interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of its income tax expense. During the years ended December 31, 2011, December 31, 2010 and December 31, 2009 no interest or penalties were recognized. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. There are no unrecognized tax benefits that would affect the actual tax rate at December 31, 2011, as the full valuation is recorded as deferred tax asset.