Income Taxes

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



	December 31,
	2014			2013			2012
Loss before income taxes:
Domestic loss	$	(7,638,422	)	$	(13,466,322	)	$	(15,356,162	)
Foreign income	936,692			959,964			1,158,248
Total loss before income taxes:	(6,701,730		)	(12,506,358		)	(14,197,914		)
Provision (benefit) for income taxes:
Current:
Federal	$	(843	)	$	(1,823,192	)	$	105,198
State and local	26,145			(209,079		)	18,747
Foreign	400,407			348,300			745,812
	425,709			(1,683,971		)	869,757
Deferred:
Federal	$	14,878		$	14,875		$	14,876
State and local	(3,027		)	981			981
Foreign	72,531			94,347			(99,207		)
	84,382			110,203			(83,350		)
Total provision (benefit) for income taxes:	$	510,091		$	(1,573,768	)	$	786,407

During 2014 and 2012, the Company recorded tax provisions of $0.5 million and $0.8 million, respectively, related to state and local and foreign taxes. During 2013, the Company recorded a tax benefit of $1.6 million primarily related to the reversal of unrecognized tax benefits of $2.3 million due to the expiration of applicable statutes of limitations partly offset by state and local and foreign taxes, withholding taxes on the gain on the sale of our cost-method investment and interest related to federal uncertain tax positions. In computing the 2012 tax provision, expenses related to certain legal matters were determined to be non-deductible for US income tax purposes.

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 and liabilities are as follows:



	December 31,
	2014			2013
Deferred Tax Assets:
Allowance for receivables	$	42,861		$	103,085
Deferred revenue	4,198,465			2,344,449
Share-based compensation	3,099,636			4,032,431
Accrued expenses and other liabilities	362,721			559,495
Domestic net operating loss carryforwards	23,386,049			22,553,301
Foreign net operating loss carryforwards	7,503			49,651
Tax credit carryforwards	574,998			581,046
AMT tax credit carryforwards	484,077			484,920
Capital loss carryforwards	75,607			79,140
Fixed assets	527,881			736,436
Intangibles	2,051,230			2,643,806
Sub-total	34,811,028			34,167,760
Valuation allowance	(34,625,398		)	(33,870,014		)
Total Deferred Tax Assets	185,630			297,746
Deferred Tax Liabilities:
Foreign withholding taxes	(111,291		)	(101,713		)
Total Deferred Tax Liabilities	(111,291		)	(101,713		)
Net Deferred Tax Assets	$	74,339		$	196,033

During the years ended December 31, 2014 and 2013, 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 2014 or 2013. The reversal of the valuation allowance on deferred tax assets at December 31, 2014, would reduce income tax expense. As of December 31, 2014, the Company had federal net operating loss carryforwards of approximately $65.5 million which are set to expire beginning in 2030 through 2034, if not utilized.

As of December 31, 2014, the Company had approximately $1.1 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 2020 through 2029, if not utilized. The Company has recorded a full valuation allowance against all such carryforwards as of December 31, 2014.

The Company has not provided for the United States income or additional foreign withholding taxes on approximately $3.8 million of undistributed earnings of its subsidiaries operating outside of the United States, with the exception of China. It is the Company’s practice and intention to reinvest those earnings permanently. Generally, such amounts become subject to United States taxation upon remittance of dividends and under certain other circumstances. Determination of the amount of any unrecognized deferred tax liability related to investments in these foreign subsidiaries is not practicable.

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



	December 31,
	2014			2013			2012
Tax at Federal statutory rate	$	(2,345,606	)	$	(4,377,225	)	$	(4,969,270	)
Increase (reduction) in income taxes resulting from:
State and local taxes	10,182			8,948			(3,130		)
Non-deductible expenses	52,565			25,295			50,070
Settlement costs	(80,406		)	56,882			(553,700		)
Net effect of foreign operations	129,003			552,855			259,592
Uncertain tax positions	28,485			(2,173,905		)	140,625
Change in valuation allowance	2,715,868			4,333,382			5,862,220
	$	510,091		$	(1,573,768	)	$	786,407

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



	2014		2013
Balance at January 1,	$	217,237	$	2,085,484
Increases to tax positions taken in prior years	7,400		13,034
Decreases to tax positions taken in prior years	—		—
Increase for tax positions taken during the current year	—		66,139
Expiration of statutes of limitation	—		(1,947,420		)
Balance at December 31,	$	224,637	$	217,237

At December 31, 2014, $0.3 million including interest, if recognized, would reduce the Company’s annual effective tax rate. As of December 31, 2014, the Company had approximately $0.1 million of accrued interest. The Company does not expect any of its unrecognized tax benefits to reverse within the next 12 months.

The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2011 through 2014 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.