16. INCOME TAXES

The Company has incurred net operating losses for the years ended December 31, 2012, 2011 and 2010, and therefore has no provision for income taxes recorded for such years. The Company had federal and state net operating loss carryforwards of $128.0 million and $111.3 million as of December 31, 2012, respectively. Federal net operating loss carryforwards expire beginning in 2024 and state net operating loss carryforwards expire beginning in 2014, if not utilized. The Company had federal and state research and development tax credit carryforwards of $1.2 million and $1.3 million, respectively, as of December 31, 2012. The federal research and development tax credit carryforwards will expire starting in 2028 if not utilized. The state research and development tax credit carryforwards can be carried forward indefinitely.

Utilization of the net operating loss and research and development credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of the net operating losses and research and development credit carryforwards before utilization.

The components of loss before income taxes are as follows for the years ended December 31, 2012, 2011 and 2010 (in thousands):


	Years Ending December 31,
	2012			2011			2010
United States	$	(76,755	)	$	(50,655	)	$	(16,420	)
Foreign		(6,377	)		(3,306	)		—

Loss before income taxes	$	(83,132	)	$	(53,961	)	$	(16,420	)

The tax effects of temporary differences and carry forwards that give rise to significant portions of the deferred tax assets are as follows (in thousands):


	December 31,
	2012			2011
Net operating loss carry forwards	$	48,591		$	21,850
Capitalized start-up costs		9,931			9,189
Research and development credits		1,527			1,088
Stock compensation		5,522			3,314
Other		5,028			3,597

Total deferred tax assets		70,599			39,038
Valuation allowance		(69,571	)		(38,625	)
Deferred tax liability—fixed assets		(1,028	)		(413	)

Net deferred tax assets, after valuation allowance	$	—		$	—

The Company is tracking the portion of its deferred tax assets attributable to excess stock option benefits in accordance with FASB ASC 718-740-45, Other Presentation Matters, and therefore, these amounts are not included in the Company’s deferred tax assets. The deferred tax assets attributable to excess stock option benefits total $4.2 million at December 31, 2012, and the benefit related thereto will only be recognized when it reduces cash taxes payable.

The Company’s deferred tax assets represent an unrecognized future tax benefit. The Company has provided a full valuation allowance on its deferred tax assets as of December 31, 2012, as management believes it is more likely than not that the related deferred tax asset will not be realized. The net valuation allowance increased by $30.9 million and $18.5 million during the years ended December 31, 2012 and 2011, respectively. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced. The reported amount of income tax expense differs from the amount that would result from applying the domestic federal statutory tax rate to pretax losses primarily because of changes in the valuation allowance.

Reconciling items from income tax computed at the statutory federal rate for the years ended December 31, 2012, 2011 and 2010, were as follows:


	Years Ending December 31,
	2012			2011			2010
Federal income tax statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefits		4.5			6.0			5.8
Revalued preferred stock warrants		0.9			(2.3	)		(6.5	)
Incentive stock option compensation		(1.9	)		(2.4	)		(1.1	)
Research tax credits		—			0.4			3.4
Other		(0.1	)		(0.1	)		(0.2	)
Valuation allowance		(37.4	)		(35.6	)		(35.4	)

Effective income tax rate		0.0	%		0.0	%		0.0	%

Uncertain Tax Positions

The Company adopted the provisions of FASB ASC 740, Income Taxes (“ASC 740”) on January 1, 2007. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not have any gross unrecognized tax benefits upon adoption of this provision on January 1, 2007.

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


Balance as of January 1, 2010	$	265
Addition based on tax positions related to current year		218

Balance as of December 31, 2010		483
Addition based on tax positions related to current year		94
Subtractions based on tax positions related to prior year		(142	)

Balance as of December 31, 2011		435
Addition based on tax positions related to current year		89
Additions based on tax positions related to prior year		95

Balance as of December 31, 2012	$	619

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes. Management has determined that no accrual for interest and penalties was required as of December 31, 2012. The Company does not anticipate the total amounts of unrecognized tax benefits will significantly increase or decrease in the next twelve months.

The Company is subject to taxation in the U.S., various states and a foreign jurisdiction. As of December 31, 2012, the Company’s tax years 2004 and thereafter remain subject to examination by the tax authorities.