Income Taxes

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Income Taxes

(6) Income Taxes

Information pertaining to the Company’s loss before income taxes and the applicable provision (benefit) for income taxes is as follows:

		December 31,
		2011	2010	2009
Loss before income taxes:
	Domestic loss	$          (24,181,349)	$          (19,944,695)	$           (8,349,257)
	Foreign income	2,021,398	2,143,049	1,873,491
	Total loss before income taxes:	(22,159,951)	(17,801,646)	(6,475,766)
Provision (benefit) for income taxes:
Current:
	Federal	$                          -	$                          -	$                111,000
	State and local	118,292	159,769	(13,988)
	Foreign	1,250,474	1,339,076	778,129
		1,368,766	1,498,845	875,141
Deferred:
	Federal	$                   14,876	$            15,310,413	$           (4,039,825)
	State and local	981	980,137	(189,116)
	Foreign	(176,291)	(215,420)	(29,261)
		(160,434)	16,075,130	(4,258,202)
Total provision (benefit) for income taxes:		$              1,208,332	$            17,573,975	$           (3,383,061)

During 2011, the Company recorded a tax provision of $1,208,332 related to state and local and foreign taxes. In computing the tax provision, expenses related to certain legal matters were determined to be non-deductible for US income tax purposes.

During 2010, the Company recorded a tax provision of $17,573,975 related to state and local and foreign taxes and a deferred provision related to an increase in valuation allowance as the Company concluded during the third quarter of 2010 that its domestic deferred tax assets were no longer realizable on a more-likely-than-not basis.

During 2009, the Company recorded a tax benefit of $3,383,061 related to federal, state and local and foreign taxes. In addition, the Company recorded a deferred provision of $14,302 as a component of other comprehensive income relating to unrealized gains on available-for-sale securities.

    Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

		December 31,
		2011	2010
Deferred Tax Assets:
	Allowance for receivables	$           643,080	$        1,209,716
	Deferred revenue	2,826,497	2,251,437
	Share-based compensation	9,449,070	7,525,267
	Accrued expenses and other liabilities	153,732	489,798
	Domestic net operating loss carryforwards	11,559,661	6,746,206
	Foreign net operating loss carryforwards	486,687	503,186
	Tax credit carryforwards	728,902	1,319,487
	AMT tax credit carryforwards	485,817	485,817
	Capital loss carryforwards	77,240	670,092
	Fixed assets	1,018,976	933,586
	Intangibles	3,698,607	3,798,046
	Sub-total	31,128,269	25,932,638
	Valuation allowance	(30,732,700)	(25,697,441)
	Net Deferred Tax Asset	$           395,569	$           235,197

During the year ended December 31, 2011, the Company’s conclusion did not change with respect to its domestic deferred tax assets and, therefore, the Company has not recorded any benefit for its net domestic deferred tax assets for the full year 2011. The reversal of the valuation allowance on deferred tax assets at December 31, 2011, would reduce income tax expense. As of December 31, 2011, the Company had federal net operating loss carryforwards of approximately $33.0 million which are set to expire in  2030 and 2031, if not utilized. 

During the year ended December 31, 2010, the Company recorded a valuation allowance against all of its domestic deferred tax assets as the Company could no longer conclude that its domestic deferred tax assets were realizable on a more-likely-than-not basis.

As of December 31, 2011, the Company had approximately $1.2 million of various tax credit carryforwards, of which, approximately $0.6 million related to research and development tax credit carryforwards. The research and development tax credits may be carried forward 20 years for federal tax purposes and are set to expire at various dates beginning in 2021 through 2030, if not utilized. The Company has recorded a full valuation allowance against all such carryforwards as of December 31, 2011. 

The Company has not provided for the United States income or the foreign withholding taxes on the undistributed earnings of its subsidiaries operating outside of the United States, with the exception of China.  It is the Company’s intention to reinvest those earnings permanently, and accordingly, it is not practicable to estimate the amount of tax that might be payable.  

The effective tax rate before income taxes varies from the current statutory federal income tax rate as follows:

			December 31,
			2011	2010	2009
Tax at Federal statutory rate			$       (7,755,983)	$       (6,230,576)	$     (2,266,518)
	Increase (reduction) in income taxes resulting from:
		State and local taxes	118,292	159,769	(226,341)
		Non-deductible expenses	(25,071)	(36,423)	92,856
		Settlement costs	2,625,000	-	-
		Shared-based payment compensation	-	38,042	336,882
		Net effect of foreign operations	530,630	619,953	145,310
		Research and development credit	-	(515,324)	(1,413,087)
		Change in valuation allowance	5,715,464	23,538,534	(52,163)
			$         1,208,332	17,573,975	(3,383,061)

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

	2011			2010
Balance at January 1,	$	5,169,348		$	4,667,404
Increases in tax positions for prior years		—			365,753
Decreases in tax positions for prior years		(128,831	)		—
Increase in tax positions for current year		21,607			136,191
Balance at December 31,	$	5,062,124		$	5,169,348

Of the amounts reflected in the table above at December 31, 2011, the entire amount if recognized would reduce the Company’s annual effective tax rate. As of December 31, 2011, the Company had approximately $232,000 of accrued interest and penalties. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2008 through 2011 tax years generally remain subject to examination by federal and most state tax authorities. In addition to the U.S., the Company’s major taxing jurisdictions include China, Taiwan, Japan, South Korea, France and Germany.