
9.	INCOME TAXES

The components of income (loss) before income taxes were as follows (in thousands):


	Years Ended December 31,

	2011			2010		2009

Income (loss) before income taxes:
Domestic	$	(6,761	)	$	2,789	$	3,925
Foreign		(6,278	)		1,126		1,294

Total	$	(13,039	)	$	3,915	$	5,219

The components of income tax expense (benefit) are as follows (in thousands):


	Years Ended December 31,

	2011			2010			2009

Current:
Federal	$	279		$	983		$	1,222
State		4			(65	)		23
Foreign		315			25			(29	)

		598			943			1,216

Deferred:
Federal		(2,358	)		(32	)		82
State		(35	)		(1	)		5
Foreign		(1,227	)		—			51

		(3,620	)		(33	)		138

Total income tax expense (benefit)	$	(3,022	)	$	910		$	1,354

A reconciliation from the federal statutory income tax provision to our effective tax expense (benefit) is as follows (in thousands):


	Years Ended December 31,

	2011			2010			2009


United States federal tax statutory rate	$	(4,433	)	$	1,331		$	1,774
State taxes, net of federal benefit		(36	)		(47	)		18
Goodwill impairment		1,299			—			—
Research and development tax credits		(412	)		(454	)		(231	)
Non-deductible acquisition expenses and earn-out		(155	)		238			—
Domestic production activities deduction		(38	)		(111	)		(62	)
Foreign provision (less than) greater than U.S. tax rate		641			(43	)		(58	)
Valuation allowances against deferred tax assets		121			(55	)		—
Stock option expense		82			75			74
Adjustment of prior year tax credits and refunds		50			(64	)		(77	)
Uncertain tax positions		(138	)		(33	)		(38	)
Other		(3	)		73			(46	)

	$	(3,022	)	$	910		$	1,354

A summary of the deferred tax assets and liabilities is as follows (in thousands):


	December 31,

	2011			2010

Current deferred tax assets (liabilities):
Accrued compensation and benefits	$	59		$	55
Prepaid expenses and other		(22	)		(43	)
Inventory reserves		169			—
Allowance for doubtful accounts		119			75
Warranty reserves		104			143

Total current deferred tax asset		429			230

Non-current deferred tax assets (liabilities):
Intangible and other assets		2,089			(471	)
Foreign net operating loss carryforwards		991			—
Non-qualified stock option expense		192			164
Property, equipment and other		35			17

Non-current deferred tax asset (liability):		3,307			(290	)

Less: valuation allowance		(176	)		—

Non-current deferred tax asset (liability), net		3,131			(290	)


Total net deferred tax asset (liability)	$	3,560		$	(60	)

As of December 31, 2011, our subsidiaries in the United Kingdom and Hong Kong had net operating loss carryovers of $3,382,000 and $1,067,000, respectively. These net operating loss carryovers will not expire under local tax law. We determined that the benefit of our Hong Kong subsidiary's net operating loss carryover of $1,067,000 is uncertain. Accordingly, as of December 31, 2011, we had a full valuation allowance against the Hong Kong subsidiary's deferred tax asset in the amount of $176,000.

In accordance with ASC 740-30, we have not recognized a deferred tax liability for the undistributed earnings of certain of its foreign operations because those subsidiaries have invested or will invest the undistributed earnings indefinitely. At December 31, 2011, undistributed earnings were approximately $1.6 million. It is impractical for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings. Deferred taxes are recorded for earnings of foreign operations when we determine that such earnings are no longer indefinitely reinvested.

We realize an income tax benefit from the exercise or early disposition of certain stock options. This benefit results in a decrease in current income taxes payable and an increase in additional paid-in capital.

A reconciliation of the beginning and ending amount of the tax liability for uncertain tax positions is as follows (in thousands):


Balance at January 1, 2010	$	208
Additions for current year tax positions		—
Reductions as a result of lapses in statute of limitations		(33	)

Balance at December 31, 2010		175

Additions for current year tax positions		—
Reductions as a result of lapses in statute of limitations		(139	)

Balance at December 31, 2011	$	36

Included in the balance of uncertain tax positions at December 31, 2011 are potential benefits of $1,000 that, if recognized, would affect the effective tax rate. The amount of unrecognized tax benefits are not expected to change materially within the next 12 months. At December 31, 2011 and December 31, 2010, we had no accrued interest related to uncertain income tax positions. At December 31, 2011 and December 31, 2010, no accrual for penalties related to uncertain tax positions existed. Interest and penalties related to uncertain tax positions are included in interest expense and general and administrative expense, respectively, on the Consolidated Statements of Operations.

We are subject to income taxes in the U.S. federal jurisdiction and various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and require significant judgment to apply. Generally, we are subject to U.S. federal, state, local and foreign tax examinations by taxing authorities for years after the fiscal year ended December 31, 2007.

At December 31, 2011 and December 31, 2010, certain of our foreign subsidiaries were expected to receive income tax refunds within the next fiscal year. As a result, at December 31, 2011 and December 31, 2010, we recognized a current income tax receivable of $488,000 and $314,000, respectively.