Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2012
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 12 - INCOME TAXES

Income tax expense differs from the statutory amounts as follows:

   
2012
    
2011
  
             
Income taxes at U.S. statutory rate
   $ (4,260,000 )   $ (861,000 )
State taxes
     -       17,000  
Current year reserve
     3,578,000       857,000  
Expenses not deductible
     682,000       4,000  
                 
Total tax expense
   $ -     $ 17,000  
 
Deferred taxes are provided for the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities. The temporary differences that give rise to deferred tax assets were as follows:
 
   
December 31,
  
   
2012
    
2011
  
Deferred tax assets
            
Net operating loss carryforwards
   $ 64,147,000     $ 63,830,000  
General business credit carryforwards
     2,450,000       2,439,000  
State credits
     3,072,000       3,097,000  
Property and equipment
     57,000       46,000  
Stock options
     1,531,000       1,480,000  
Derivatives
     4,007,000       2,018,000  
Deferred revenue
     899,000       1,221,000  
Intangible assets
     517,000       415,000  
Accrued interest
     253,000       253,000  
Other
     230,000       231,000  
Gross deferred tax assets
     77,163,000       75,030,000  
Valuation allowance
     (77,163,000 )     (75,030,000 )
Net deferred taxes
   $ -     $ -  
 
At December 31, 2012, we had approximately $188,666,000 of net operating loss carryforwards and approximately $2,450,000 of general business credit carryforwards. These carryforwards expire as follows:
 
   
Net operating
    
General business
  
   
loss carryforwards
    
credit carryforwards
  
2012
   $ -     $ -  
2013
     -       -  
2014
     -       -  
2015
     -       -  
Thereafter
     188,666,000       2,450,000  
    $ 188,666,000     $ 2,450,000  
 
As a result of a merger on January 25, 1996, a change in control occurred for federal income tax purposes, which limits the utilization of pre-merger net operating loss carryforwards of approximately $3,100,000 to approximately $530,000 per year.
 
Additionally, we acquired MacroChem Corporation on February 25, 2009 and Somanta Pharmaceuticals, Inc. on January 4, 2008. Both corporations were loss companies at the time of the acquisition. Therefore, the net operating losses related to those acquisitions may be subject to annual limitations as provided by IRC Sec. 382.
 
We account for uncertain income tax positions in accordance with FASB ASC 740, Income Taxes. Interest costs and penalties related to income taxes are classified as interest expense and general and administrative costs, respectively, in our consolidated financial statements. For the years ended December 31, 2012 and 2011, we did not recognize any uncertain income tax positions or interest or penalty expense related to income taxes. It is determined not to be reasonably likely for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months. We are currently subject to a three year statute of limitations by major tax jurisdictions. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction.