Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

Note 8. Income Taxes

The Company recorded income tax expense of $109,000 and $243,000 for the three and nine months ended September 30, 2012, respectively, which was computed using the “discrete” (or “cut-off”) method and was principally comprised of federal alternative minimum tax, state income taxes and foreign taxes. The Company recorded income tax expense of $138,000 and $266,000 for the three and nine months ended September 30, 2011, respectively, which was computed using the same method and was principally comprised of California alternative minimum tax, other state income taxes and foreign taxes. The difference in income tax expense between the provision and the statutory rate of the Company’s income before income taxes and provision actually recorded was primarily due to the impact of nondeductible stock-based compensation expenses offset by the utilization of net operating loss carryforwards.

Based on all available objective evidence, the Company believes that it is more likely than not that the net deferred tax assets will not be fully realized. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets for the three and nine months ended September 30, 2012 and 2011, respectively. The Company will continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this valuation allowance.

The Company had $839,000 of unrecognized tax benefits as of September 30, 2012 and December 31, 2011, respectively. The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

Accrued interest and penalties related to unrecognized tax benefits are recognized as part of the Company’s income tax provision in its condensed consolidated statements of income. All tax years from 2000 forward remain subject to future examination by federal, state and foreign tax authorities.