Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

12.  Income Taxes

Income tax provisions from continuing operations consisted of the following:

	Years Ended December 31,
	2012			2011			2010
	(In thousands)
Income (loss) from continuing operations before provision for income taxes	$	(4,925	)	$	151		$	(4,556	)
Provision for income taxes		(792	)		(1,816	)		(1,501	)
Effective tax rate		(16.1	)%		1202.6	%		(33.0	)%

The 2012, 2011, and 2010 provision for income tax resulted primarily from foreign withholding tax expense.

The Company reported pre-tax book income (loss) from continuing operations of:

	Years Ended December 31,
	2012			2011			2010
	(In thousands)
Domestic	$	(542	)	$	(208	)	$	(4,960)
Foreign		(4,383	)		359			404
Total	$	(4,925	)	$	151		$	(4,556)

The provision for income taxes from continuing operations consisted of the following:

	Years Ended December 31,
	2012			2011			2010
	(In thousands)
Current:
United States federal	$	91		$	115		$	73
Foreign		(902	)		(1,923	)		(1,550	)
State and local		19			(8	)		(24	)
Total current	$	(792	)	$	(1,816	)		(1,501	)
Deferred:
United States federal		0			0			0
Foreign		0			0			0
State and local		0			0			0
Total deferred		0			0			0
	$	(792	)	$	(1,816	)	$	(1,501	)

In 2012, 2011, and 2010 the Company’s income tax payable was not decreased by the tax benefit related to stock options. The Company includes only the direct tax effects of employee stock incentive plans in calculating this benefit, which is recorded to additional paid-in capital.

Deferred tax assets and liabilities are recognized for the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax losses, and credit carryforwards. Significant components of the net deferred tax assets and liabilities consisted of:

	December 31,
	2012			2011
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	24,211		$	20,146
State income taxes		(7	)		4
Deferred revenue		4,978			6,615
Research and development and other credits		9,263			8,167
Reserves and accruals recognized in different periods		4,636			4,616
Basis difference in investment		1,032			1,108
Capitalized R&D expenses		1,566			1,407
Other		159			0
Total deferred tax assets		45,838			42,063
Deferred tax liabilities:
Depreciation and amortization		(4,282	)		(4,086	)
Valuation allowance		(41,556	)		(37,977	)
Net deferred tax assets	$	0		$	0

As of December 31, 2012, the net operating loss carryforwards for federal and state income tax purposes were approximately $64.4 million and $53.0 million, respectively. The federal net operating losses expire between 2020 and 2032 and the state net operating losses begin to expire in 2028. $3.1 million of the Company’s net operating losses are associated with excess benefits related to stock compensation, when realized the amount will be an increase to additional paid in capital. As of December 31, 2012, the Company had federal and state tax credit carryforwards of approximately $8.0 million and $865,000, respectively, available to offset future taxable income. The federal credit carryforwards will expire between 2015 and 2032 and the California tax credits will carryforward indefinitely. In addition, as of December 31, 2012, the Company has Canadian research and development credit carryforwards of $1.6 million, which will expire at various dates through 2032. These operating losses and credit carryforwards have not been reviewed by the relevant tax authorities and could be subject to adjustment upon examinations.

The Company recorded a valuation allowance for the net deferred tax asset as a result of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and near term projected results. In the event that the Company determines that the deferred tax assets are realizable, an adjustment to the valuation allowance may increase income in the period such determination is made. The valuation allowance does not impact the Company’s ability to utilize the underlying net operating loss carryforwards.

Utilization of a portion of the Company’s federal net operating loss carryforward was limited in accordance with IRC Section 382, due to an ownership change that occurred during 1999. This limitation has fully lapsed as of December 31, 2010. During 2008, the Company evaluated ownership changes from 1999 to the middle of 2008 and determined that there were no further limitations on the Company’s net operating loss carryforwards.

For purposes of the reconciliation between the benefit (provision) for income taxes at the statutory rate and the effective tax rate, a national U.S. 35% rate is applied as follows:

	2012			2011			2010
Federal statutory tax rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		2.3	%		7.3	%		3.6	%
Foreign withholding		(17.3	)%		1248.3	%		(33.7	)%
Stock compensation expense		(3.4	)%		103.6	%		(22.9	)%
Meals & entertainment		(0.2	)%		10.0	%		0.0	%
Foreign rate differential		(3.7	)%		58.9	%		0.0	%
Prior year true-up items		0.1	%		41.6	%		0.0	%
Tax reserves		(0.2	)%		7.2	%		0.0	%
Benefit of discontinued operations		2.0	%		(25.8	)%		0.0	%
Other		0.4	%		6.5	%		(0.1	)%
Valuation allowance		(31.1	)%		(290.0	)%		(14.9	)%
Effective tax rate		(16.1	)%		1202.6	%		(33.0	)%

Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no provision for federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.

The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	2012 Unrecognized Tax Benefits		2011 Unrecognized Tax Benefits		2010 Unrecognized Tax Benefits
	(In thousands)
Balance at beginning of year	$	628	$	628	$	628
Gross increases for tax positions of prior years		0		0		0
Gross decreases for tax positions of prior years		0		0		0
Settlements		0		0		0
Lapse of statute of limitations		0		0		0
Balance at end of year	$	628	$	628	$	628

The unrecognized tax benefits relate primarily to federal and state research and development credits. The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2012, the Company accrued interest or penalties related to uncertain tax positions in the amount of $56,000. The Company expects to release reserves and record a tax benefit due to the expiration of statute of limitation during the next 12 months. As of December 31, 2012, the total amount of unrecognized tax benefits that would affect the Company’s effective tax rate, if recognized, is $255,000.

Because the Company has net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine the Company’s tax returns for all years from 1998 through the current period.