12.

Income Taxes

The components of the net deferred tax assets are as follows at December 31:


	2011			2010
	(in thousands)
Operating loss carryforwards	$	19,119		$	17,242
Tax credit carryforwards		330			230
Other temporary differences		2,070			473

		21,519			17,945
Less valuation allowance		(21,519	)		(17,945	)

Net deferred tax asset	$	—		$	—

The primary factors affecting the Company’s income tax rates were as follows:


	2011			2010
Tax benefit at U.S. statutory rates		(34.0	%)		(34.0	%)
State tax benefit		(5.3	%)		(5.3	%)
Credit		(1	%)		0	%
Permanent differences		3.5	%		13.5	%
Expiring state NOL’s		3.4	%		0	%
Research and development credits		(0	%)		(0.9	%)
Changes in valuation allowance		33.4	%		26.7	%

		0	%		0	%

As of December 31, 2011, the Company has federal and state net operating loss carryforwards totaling $53,371,000 and $23,616,000 respectively, which expire through 2031. In addition, the Company has federal and state research and development credits of $223,000 and $108,000, respectively, which expire through 2031. Ownership changes, as defined by Section 382 of the Internal Revenue Code, may have limited the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income. Subsequent ownership changes could further affect the limitation in future years. Because of the Company’s limited operating history and its recorded losses, management has provided, in each of the last two years, a 100% valuation allowance against the Company’s net deferred tax assets.

At December 31, 2011 the Company has $1,082,000 of unrecognized tax benefits, $923,000 of which would affect the effective tax rate. The Company has not recognized an adjustment to the deficit accumulated during the development stage for unrecognized tax benefits because a full valuation allowance has been recorded against net operating loss carry forwards. Since the Company’s net deferred tax assets and the unrecognized tax benefits would not result in a cash payment, the Company has not accrued for any interest and penalties relating to these unrecognized tax benefits. Should the Company incur interest and penalties related to income taxes, those amounts would be included in income tax expense. Total amounts of unrecognized tax benefits are not expected to significantly increase or decrease within 12 months of the reporting date.

The Company is subject to taxation in the U.S. and various states. Based on the history of net operating losses all jurisdictions and tax years are open for examination until the operating losses are utilized or the statute of limitations expires.