INCOME TAXES

Effective January 1, 2007, the Company adopted the provisions of FASB ASC 740, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB No 109.” FASB ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of FASB ASC 740 and in subsequent periods. Upon the adoption of FASB ASC 740 and through December 31, 2012, the Company had no unrecognized tax benefits. The Company recognizes interest and penalties, if any, related to uncertain tax positions in general and administrative expenses. No interest and penalties related to uncertain tax positions were accrued at December 31, 2012.

The reconciliation of the effective income tax rate to the federal statutory rate is as follows:



	2012		2011		2010
Federal income tax rate	34.0	%	34.0	%	(34.0	)%

Foreign income tax benefit/loss	(22.1	)%	(8.6	)%	(9.8	)%
State tax net of federal benefit	0.2	%	1.4	%	(1.6	)%
Permanent Items:
Change in fair value of redeemable warrants			4.5	%	12.1	%
Change in fair market value of stock warrants	(24.0	)%	(0.9	)%	8.0	%
Incentive stock options	—	%	(2.6	)%	2.2	%
Other	0.4	%	(0.7	)%	(1.4	)%
Effect of permanent differences	(23.6	)%	0.3	%	20.9	%

Rate Change	(19.9	)%	—	%	—	%

Effective income tax rate	(31.4	)%	27.1	%	(24.5	)%

Change in valuation allowance	31.1	%	(26.9	)%	22.4	%
Effective income tax rate	(0.3	)%	0.2	%	(2.1	)%

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Management believes it is more likely than not that the results of future operations will not generate sufficient taxable income in the future to realize the benefits of its deferred tax assets.

As of December 31, 2012, the Company has U.S. tax net operating loss carryforwards of approximately $155 million which expire through 2032. The Company also has unused tax credits of approximately $2.0 million which expire at various dates through 2031. Utilization of net operating loss carryforwards may be limited in any year due to limitations in the Internal Revenue Code. U.S. net operating loss carryforwards include $0.0 million of excess tax benefits from the exercise of share based awards that will be recorded in Capital in Excess of Par Value when realized.



	Year Ended December 31,
	2012		2011		2010

Income (loss) before income taxes
US	$	3,462,225	$	15,356,922	$	(29,005,966	)
Foreign	6,457,755		5,209,552		6,699,869
Income (loss) before income taxes	$	9,919,980	$	20,566,474	$	(22,306,097	)



Deferred Tax Assets (Liabilities)	December 31,
	2012			2011
Share Based awards compensation	$	1,033,720		$	912,843
Allowance for doubtful accounts	29,970			28,319
Allowance for returns	215,143			539,796
Inventory reserve	27,218			22,131
Book accumulated depreciation net of tax	(10,471		)	(22,224		)
Deferred revenue - Actavis	—			—
Other deferred revenue	37,463			35,399
Accrued professional fees	96,530			142,411
Vacation & bonus accrual	5,623			14,275
Inventory capitalization	750			—
Patents	1,260,191			1,090,637
Federal net operating loss	52,679,076			51,429,375
State net operating loss	4,911,560			3,093,966
Unused R&D credit	1,957,337			1,872,998
Contributions	2,697			2,492
Other	14,354			14,354
Net Deferred Tax Assets	62,261,161			59,176,772
Less Valuation Allowance:
Federal	(62,261,161		)	(59,176,772		)
Deferred Tax Assets	$	—		$	—

The Company files federal income tax returns as well as multiple state, local and foreign jurisdiction tax returns. Tax years ended December 31, 2010 or later remain subject to examination by the IRS. State and local jurisdiction tax returns remain subject to examination for tax years ended December 31, 2008 or later.

As of December 31, 2012, the Company's open tax years subject to audit are 2010, 2011 and 2012.