Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2011
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 12 - INCOME TAXES
 
Income tax expense differs from the statutory amounts as follows:
 

             
   
2011
    
2010
  
             
Income taxes at U.S. statutory rate
   $ (1,464,000 )   $ (3,172,000 )
State taxes
Change in valuation allowance
    
17,000
(582,000
 )    
-
3,100,000
  
Benefit of foreign losses not recognized
     -       30,000  
Expenses not deductible
     607,000       109,000  
Expiration of net operating loss and general
                
    business credit carryforwards, net of revisions
     1,439,000       (67,000 )
                 
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,
  
   
2011
    
2010
  
Deferred tax assets
            
Net operating loss carryforwards
    $ 63,830,000      $ 62,760,000  
General business credit carryforwards
     2,439,000       2,315,000  
State credits
     3,097,000       3,101,000  
Property and equipment
     46,000          49,000  
Stock options
     1,480,000       1,118,000  
Derivatives
     2,018,000       3,715,000  
Deferred revenue
     1,221,000       1,622,000  
Intangible assets
     415,000       409,000  
Accrued interest
     253,000       253,000  
Other
     231,000       270,000  
Gross deferred tax assets
     75,030,000       75,612,000  
Valuation allowance
     (75,030,000 )     (75,612,000 )
Net deferred taxes
   $ -     $ -  

At December 31, 2011, we had approximately $187,735,000 of net operating loss carryforwards and approximately $2,439,000 of general business credit carryforwards. These carryforwards expire as follows:
 
    Net operating     General business  
    loss carryforwards     credit carryforwards  
 2012   $ 4,212,000     $ 77,000  
 2013     -       -  
 2014     -       -  
 2015     -       -  
 Thereafter     183,523,000       2,362,000  
    $ 187,735,000     $ 2,439,000  
                 
 
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, 2011 and 2010, we did not recognize any 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.