Note 5---Income Taxes

Losses before income taxes as follows (in thousands):


	Years Ended December 31,
	2013		2012
Domestic	$	(4,584)	$	(3,567)
Foreign		(716)		(1,351)
Loss before income taxes	$	(5,300)	$	(4,918)

The components of (expense)/benefit for income taxes are as follows (in thousands):


	Years Ended December 31,
	2013		2012
Current:
Federal	$	-	$	14
State		(7)		(9)
Foreign		(115)		(139)
Total current		(122)		(134)
Deferred:
Federal		-		-
State		-		-
Total deferred		-		-
Provision for income taxes	$	(122)	$	(134)
		.

The differences between the (expense)/benefit for income taxes computed at the federal statutory rate of 35% and our actual income tax (expense)/benefit for the periods presented are as follows (in thousands):


	Years Ended December 31,
	2013		2012
Expected income tax benefit	$	1,855	$	1,721
Expected state income taxes expense, net of federal tax benefit		(4)		(7)
Research and development credit		248		-
Foreign taxes and foreign loss not benefited		(339)		(593)
Change in valuation allowance		(1,590)		(720)
Stock-based compensation		(64)		(461)
True-ups		187		(588)
Unrealized tax benefits		(327)		318
Others		(88)		196
Provision for income taxes	$	(122)	$	(134)

The individual components of our deferred tax assets are as follows (in thousands):


	Years Ended December 31,
	2013		2012
Deferred tax assets:
Depreciation and amortization	$	747	$	809
Accrued, allowance and others		2,637		2,881
Capitalized research and development		-		28
Net operating losses		204,173		203,294
Tax credits		7,676		7,366
Unrealized losses on marketable securities		397		416
Total deferred tax assets		215,630		214,794
Less: valuation allowance		(215,630)		(214,794)
Net deferred tax assets	$	-	$	-

We have provided a valuation allowance for all of our deferred tax assets as of December 31, 2013 and 2012, due to the uncertainty regarding their future realization. The total valuation allowance increased $836,000 from December 31, 2012 to December 31, 2013.

As of December 31, 2013, we had federal and state net operating loss ("NOL") carryforwards of approximately $557,934,000 and $88,224,000, subject to Section 382 of the Internal Revenue Code ("IRC") limitations respectively, available to offset future regular and alternative minimum taxable income. The NOLs include deductions for stock based compensation for which a benefit would be recorded in additional paid-in capital when realized of $2,643,000 and $1,906,000 respectively. Our federal net operating loss carryforwards expire in various years from 2018 through 2033, if not used. The state net operating loss carryforwards expire in various years from 2014 to 2033, if not used.

The American Taxpayer Relief Act of 2012 was enacted on January 2, 2012. The Act reinstated the research and development credit retroactively to January 1, 2012. As the date of enactment was in 2013, we did not claim any federal tax benefit for the 2012 federal research and development credit until 2013. Due to the projected loss for the year with a full valuation allowance against its deferred tax assets, there is no tax impact for 2013. As of December 31, 2013, we had federal and state research and development credit carryforwards of approximately $6,078,000 and $5,323,000, respectively, available to offset future tax liabilities. The federal tax credit carryforwards expire in the tax years from 2018 through 2033, if not utilized. The state research and development credits can be carried forward indefinitely.

Federal and state tax laws impose substantial restrictions on the utilization of net operating loss (“NOL”) and credit carryforwards in the event of an "ownership change" for tax purposes, as defined in IRC Section 382. Based on a high-level ownership change analysis performed each year, management concluded that there were no ownership changes through December 2013.

We follow the provision of ASC 740-10-25, Income Taxes: Recognition ("ASC 740-10-25"). Our total amount of unrecognized tax benefits as of December 31, 2013 and 2012 were $2,777,000 and $2,273,000, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate were $160,000 and $163,000 as of December 31, 2013 and 2012, respectively.

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits for the year ended December 31, 2013 is as follows (in thousands):


Balance at January 1, 2013	$	2,273
Additions based on tax provisions related to the current year		133
Additions for tax provisions of prior year		377
Settlements		-
Lapse of the statute of limitation		(6)
Balance at December 31, 2013	$	2,777

We recognize interest and penalties accrued related to unrecognized tax benefits in our provision for income taxes. During the years ended December 31, 2013 and 2012, we recognized approximately none and $7,000, respectively, for interest and penalties.

We are subject to taxation in the United States and various foreign jurisdictions. Our tax years 1998 and forward remain open in several jurisdictions due to the NOL carryover from those tax years.

It is possible that the amount of our liability for unrecognized tax benefits may change within the next 12 months. However, an estimate of the range of possible changes cannot be made at this time.