Income Taxes

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



	December 31,
	2013			2012			2011
Loss before income taxes:
Domestic loss	$	(13,466,322	)	$	(15,356,162	)	$	(24,181,349	)
Foreign income	959,964			1,158,248			2,021,398
Total loss before income taxes:	(12,506,358		)	(14,197,914		)	(22,159,951		)
(Benefit)/provision for income taxes:
Current:
Federal	$	(1,823,192	)	$	105,198		$	94,974
State and local	(209,079		)	18,747			11,453
Foreign	348,300			745,812			1,262,339
	(1,683,971		)	869,757			1,368,766
Deferred:
Federal	$	14,875		$	14,876		$	14,876
State and local	981			981			981
Foreign	94,347			(99,207		)	(176,291		)
	110,203			(83,350		)	(160,434		)
Total (benefit)/provision for income taxes:	$	(1,573,768	)	$	786,407		$	1,208,332

During 2013, the Company recorded a tax benefit of $1,573,768 related to the reversal of unrecognized tax benefits of $2,332,270 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.

During 2012 and 2011, the Company recorded tax provisions of $786,407 and $1,208,332, respectively, 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.

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,
	2013			2012
Deferred Tax Assets:
Allowance for receivables	$	103,085		$	350,738
Deferred revenue	2,344,449			3,104,017
Share-based compensation	4,032,431			6,236,175
Accrued expenses and other liabilities	559,495			669,844
Domestic net operating loss carryforwards	22,553,301			16,526,224
Foreign net operating loss carryforwards	49,651			405,818
Tax credit carryforwards	581,046			654,966
AMT tax credit carryforwards	484,920			485,817
Capital loss carryforwards	79,140			80,055
Fixed assets	736,436			957,107
Intangibles	2,643,806			3,195,185
Sub-total	34,167,760			32,665,946
Valuation allowance	(33,870,014		)	(32,186,965		)
Total Deferred Tax Assets	$	297,746		$	478,981
Deferred Tax Liabilities:
Foreign withholding taxes	(101,713		)	(96,360		)
Total Deferred Tax Liabilities	$	(101,713	)	$	(96,360	)
Net Deferred Tax Assets	$	196,033		$	382,621

During the year ended December 31, 2013 and 2012, 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 2013 or 2012. The reversal of the valuation allowance on deferred tax assets at December 31, 2013, would reduce income tax expense. As of December 31, 2013, the Company had federal net operating loss carryforwards of approximately $61,609,001 which are set to expire beginning in 2030 through 2033, if not utilized.

As of December 31, 2013, the Company had approximately $1,065,966 of various tax credit carryforwards, of which, approximately $574,997 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, 2013.

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,
	2013			2012			2011
Tax at Federal statutory rate	$	(4,377,225	)	$	(4,969,270	)	$	(7,755,983	)
Increase (reduction) in income taxes resulting from:
State and local taxes	8,948			(3,130		)	(59		)
Non-deductible expenses	25,295			50,070			(25,071		)
Settlement costs	56,882			(553,700		)	2,625,000
Net effect of foreign operations	552,855			259,592			530,630
Uncertain tax positions	(2,173,905		)	140,625			118,351
Change in valuation allowance	4,333,382			5,862,220			5,715,464
	$	(1,573,768	)	$	786,407		$	1,208,332

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



	2013			2012
Balance at January 1,	$	2,085,484		$	2,081,912
Increases to tax positions taken in prior years	13,034			3,572
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,	$	217,237		$	2,085,484

At December 31, 2013, $284,112 including interest, if recognized, would reduce the Company’s annual effective tax rate. As of December 31, 2013, the Company had approximately $66,875 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 2010 through 2013 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.