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. The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, as of December 31, 2013, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2009.

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



	Year ended December 31,
	2013			2012		2011
United States	$	(167	)	$	1,811	$	(4,584	)

During the year ended December 31, 2012, the Company paid income taxes of $0.1 million. During the years ended December 31, 2013 and 2011, the Company did not pay income taxes.

The components of the income tax provision (benefit) from continuing operations, by classification, included in the accompanying consolidated statements of operations is as follows (in thousands):



	Year ended December 31,
	2013		2012		2011
Current:
Federal	$	—	$	6	$	(1,171	)
State	—		—		34
	$	—	$	6	$	(1,137	)

The income tax benefit recognized in 2011 is offset by a tax provision in discontinued operations as there was a loss in continuing operations and income in discontinued operations in that same year. There was not a similar benefit in 2013 and 2012 as there was loss or income in both continuing and discontinued operations in those years.

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



	Year ended December 31,
	2013			2012
Deferred tax assets:
Accruals and reserves	$	1,632		$	2,271
Net operating loss carryforwards	7,067			14,816
Research and development credit carryforward	1,260			858
Other	73			—
Gross deferred tax asset	$	10,032		$	17,945
Valuation allowance	(10,032		)	(17,945		)
Net deferred tax asset	$	—		$	—

The Company has performed a study addressing the recoverability of its net operating loss carryforwards. The results of the study indicated that there was a change of control as defined by Section 382 of the Internal Revenue Code (“IRC”) in 2008. As a result of the change of control, certain net operating losses previously included in the Company's deferred tax disclosures will not be available to offset future taxable income as the IRC limits the annual utilization of these carryforwards. Based upon receipt of the final report in the first quarter of 2013, the amount previously reported at December 31, 2012 as net operating loss carryforwards available to offset taxable income in 2013 and beyond of $35.5 million was reduced to $18.9 million, subject to annual limitations. Consistent with historical practices, the Company continues to fully reduce the net operating loss carryforwards and all other deferred tax assets by a valuation allowance. This is due to the conclusion that it is more-likely-than-not that the Company would not recover the deferred tax assets because of uncertainties about the Company's ability to generate taxable income in the future.

The amount of net operating losses available to offset taxable income in 2014 and beyond as of December 31, 2013 is $19.1 million. Approximately $1.1 million of the net operating loss carryforwards have not been recognized as they related to benefits associated with stock option exercises that have not reduced current taxes payable.

The net operating losses expire between 2014 and 2033. The net operating loss carryforwards stated above are reflective of various federal and state tax limitations. As of December 31, 2013 and December 31, 2012, the Company has gross federal research and development credit carryforwards of $1.1 million and $0.6 million, respectively, which expire between 2019 and 2033.

Reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate on (loss) income from continuing operations is as follows:



	Year ended December 31,
	2013		2012		2011
Federal statutory income tax rate	34.0	%	34.0	%	34.0	%
State, net of federal benefit	(61.8	)%	0.9	%	(0.1	)%
Stock compensation	1.7	%	—	%	0.3	%
Research and development credit	287.8	%	—	%	6.5	%
Return to provision and true-ups	(3.9	)%	—	%	(2.8	)%
Change in valuation allowance	(249.3	)%	(35.9	)%	(12.7	)%
Other	(8.5	)%	1.3	%	(0.4	)%
Effective income tax rate	—	%	0.3	%	24.8	%

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



	Year ended December 31,
	2013			2012			2011
Unrecognized tax benefits at beginning of period	$	344		$	1,192		$	1,234
Gross increases to current period tax positions	161			—			59
Gross increases (decreases) to prior period tax positions	(90		)	(848		)	(101		)
Unrecognized tax benefits at end of period	$	415		$	344		$	1,192

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, 2013, December 31, 2012 and December 31, 2011 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, 2013, as the full valuation is recorded as deferred tax asset.