Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Tax Disclosure [Text Block]

Income (loss) before income taxes consisted of the following: 

	Year ended December 31,
	2011	2010
U.S.	$          10,318	$       1,381
Non U.S.	278	312
Total	$          10,596	$       1,693

The benefit (provision) for income taxes consisted of the following:

	Year ended December 31,
	2011	2010
Current:
U.S. Federal	$          (2,106)	$           695
U.S. State	(99)	(29)
Non-U.S.	(46)	(49)
Total current	$          (2,251)	$           617
Deferred:
U.S. Federal	$          (1,271)	$             83
U.S. State	(23)	45
Deferred Provision before change in valuation allowance	(1,294)	128
Change in valuation allowance	(122)	(64)
Total deferred	$          (1,416)	$             64
(Provision) benefit for income taxes	$          (3,667)	$           681

The following table presents the principal reasons for the difference between the actual effective income tax rate and the expected U.S. federal statutory income tax rate of 34.0 percent on income:

	Year ended December 31,
	2011	2010
U.S. federal statutory income tax rate at 34.0 percent	$          (3,603)	$         (576)
State income tax provision, net of federal income tax effect	(162)	(44)
ASC Topic 718 compensation expense	14	(42)
Research and development credit	316	331
Foreign earnings or losses taxed at different rates	48	57
Uncertain tax positions	(127)	811
Non-deductible items and other	(153)	124
Change in valuation allowance	-	20
Tax (provision) benefit	$          (3,667)	$           681

 Deferred income taxes are determined based on the differences between the financial reporting and income tax bases of assets and liabilities using enacted income tax rates expected to apply when the differences are expected to be settled or realized. Significant components of the net U.S. deferred income tax assets and (liabilities) were as follows:

	As of December 31, 2011		As of December 31, 2010
	Current	Long-term	Current	Long-term
Deferred revenue	$     860	$             -	$ 1,000	$          -
Basis difference in intangible assets	-	(580)	-	(649)
Inventory reserve	1,598	-	1,537	-
Net operating loss carryforwards	-	364	-	460
Accumulated research and development credits	-	1,033	-	1,317
Alternative minimum tax credits	-	-	-	409
Accrued liabilities	182		597	-
Non-deductible ASC 718 compensation expense	-	742	-	744
Allowance for sales returns and doubtful accounts	56	-	73	-
Difference in property and equipment basis	-	(646)	-	(450)
Other	291	52	182	26
Total net deferred income tax asset	2,987	965	3,389	1,857
Less: Valuation allowance	-	(1,066)	-	(944)
Net deferred income tax asset (liability)	$ 2,987	$      (101)	$ 3,389	$     913

The Company has not provided for U.S. deferred income taxes or foreign withholding taxes on undistributed earnings of its non-U.S. subsidiary located in Hong Kong since these earnings are intended to be reinvested indefinitely in operations in Hong Kong, in accordance with guidelines contained in ASC Topic 740, Accounting for Income Taxes.  It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings.  For other non-U.S. subsidiaries the Company provides for U.S. deferred income taxes or foreign withholding taxes on undistributed earnings.  As of December 31, 2011 there were no significant earnings on which to provide U.S. taxes.

In accordance with ASC Topic 740, the Company analyzed its valuation allowance at December 31, 2011 and determined that, based upon available evidence, it is more likely than not that certain of its deferred tax assets may not be realized and, as such, has established a valuation allowance against certain deferred tax assets.  These deferred tax assets include capital loss carryovers and state research and development credits.  

As of December 31, 2011, the Company had state research credit carryforwards of $1,033,which will begin to expire in 2016 if not utilized.  The Company has federal net operating loss (“NOL”) carryforwards of approximately $1,070.  The federal NOL carryforwards will begin to expire in 2028.  

The Company adopted the provisions of Topic 740 related to uncertain tax positions on July 1, 2007.  This interpretation clarifies the accounting for uncertain tax positions and requires companies to recognize the impact of a tax position in their financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

The total liability for unrecognized tax benefits at December 31, 2011 and 2010, including temporary tax differences, was $548 and $421, respectively, of which $548 and $421, respectively, would favorably impact our effective tax rate if recognized.  As of December 31, 2011 and 2010, we accrued $24 and $17, respectively, in interest and penalties related to unrecognized tax benefits.  We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision.  We do not anticipate that unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

During the twelve month period ended December 31, 2011, we increased our liability for unrecognized tax benefits by $127.  This increase in our unrecognized tax benefits is mainly a result of utilizing certain tax attributes for which we typically record an unrecognized tax benefit.  We recorded an unrecognized tax benefit related to the lapse of applicable statute of limitations of $22 which favorably impacted our effective tax rate.  We also added $229 which had an unfavorable impact on our effective tax rate. We recorded an unrecognized tax benefit of $88 related to changes in position regarding federal research and development credits.

During the twelve month period ended December 31, 2010, we decreased our liability for unrecognized tax benefits by $883.  This decrease in our unrecognized tax benefits is mainly a result of a settlement with taxing authorities on the utilization of certain tax attributes for which we typically record an unrecognized tax benefit.  We recorded a benefit related to the settlement of $937, of which $864 favorably impacted our effective tax rate.  We also recorded an unrecognized tax benefit related to the lapse of applicable statute of limitations of $99, of which $99 favorably impacted our effective tax rate.  We also added $220 to our liability for unrecognized tax benefits, of which $220 had an unfavorable impact on our effective tax rate.

Although we believe our estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our historical income tax provisions and accruals. Such difference could have a material impact on our income tax provision and operating results in the period in which we make such determination.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows:

	Year ended December 31,
	2011	2010
Unrecognized tax benefits, beginning balance	$               404	$       1,220
Tax positions taken in a prior period:
Gross increases	-	-
Gross decreases	(88)	-
Tax positions taken in the current period:
Gross increases	229	220
Gross decreases	-	-
Settlements with taxing authorities	-	(937)
Lapse of applicable statute of limitations	(22)	(99)
Unrecognized tax benefits, ending balance	523	404

The Company’s U.S. federal income tax returns for 2008 through 2011 are open tax years.  The Company also files in various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state, or non-U.S. income tax examinations by tax authorities for years prior to 2007.  The Company completed its audit by the Internal Revenue Service (“IRS”) for its 2007 tax return in 2010.  As a result of the audit by the IRS, there were no material adjustments made to the Company’s tax return.