INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

5. INCOME TAXES

The income tax provision is based on loss before income taxes of $(5,314,629) in the U.S. and $(423,732) in China. The Company has net operating loss carryforwards for income tax purposes of approximately $343,555,000 at December 31, 2013 ($339,553,000 at December 31, 2012) that expire in years 2018 through 2033. The Company also has research and development (R&D) tax credit carryforwards of approximately $9,037,000 as of December 31, 2013 that expire in years 2018 through 2033. These net operating loss carryforwards include approximately $20,000,000, related to exercises of stock options for which the income tax benefit, if realized, would increase additional paid-in capital. The utilization of the net operating loss and research and development carryforwards may be limited in future years due to changes in ownership of the Company pursuant to Internal Revenue Code Section 382. For financial reporting purposes, a valuation allowance has been recognized to reduce the net deferred tax assets to zero due to uncertainties with respect to the Company's ability to generate taxable income in the future sufficient to realize the benefit of deferred income tax assets.

Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred income tax assets and liabilities as of December 31, 2013 and 2012 are as follows:

	DECEMBER 31,
	2013		2012
Deferred income tax assets (liabilities):
Net operating loss carryforwards	$	134,395,000	$	132,994,000
Research and development credit carryforward		9,037,000		9,019,000
Equity investment		72,000		72,000
Other		4,361,000		3,665,000
Depreciation		4,000		64,000
Valuation allowance for deferred income tax assets		(147,869,000)		(145,814,000)
Net deferred income tax assets	$	-	$	-

A reconciliation of the provision for income taxes to the federal statutory rate is as follows:

	2013		2012
Tax benefit at statutory rate	$	(1,951,000)	$	(4,945,000)
State taxes		(217,000)		(701,000)
Net R&D credit adjustment		(122,000)		(97,000)
Attribute expiration and other		8,000		4,068,000
Disallowed expenses		2,000		1,000
Change in valuation allowance		2,055,000		2,015,000
Other		231,000		67,000
Change in tax rates		(6,000)		(408,000)
	$	-	$	-

The Company had $3,006,000 of unrecognized tax benefits as of January 1, 2013 related to net R&D tax credit carryforwards. The Company had a full valuation allowance on the net deferred tax asset recognized in the consolidated financial statements. For the year ended December 31, 2013, there were additional unrecognized tax benefits of $33,000 related to R&D tax credits, and a reduction in unrecognized tax benefits of $26,000 related to the remeasurement of certain prior year R&D credit carryforwards. The Company has a full valuation allowance at January 1, 2013 and at December 31, 2013 against the full amount of its net deferred tax assets and therefore, there was no impact on the Company’s financial position.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	2013		2012
Unrecognized tax benefits balance at January 1	$	3,006,000	$	3,103,000
Reductions for Tax Positions of Prior Periods		(26,000)		(97,000)
Additions for Tax Positions of Current Period		33,000		-
Unrecognized tax benefits balance at December 31	$	3,013,000	$	3,006,000

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2013 and 2012, the Company had no accrued interest or penalties related to uncertain tax positions, respectively.

The tax returns for all years in the Company’s major tax jurisdictions are not settled as of December 31, 2013. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these attributes.

The Company believes that the total unrecognized tax benefit, if recognized, would impact the effective rate, however, such reversal may be offset by a corresponding adjustment to the valuation allowance.