9. INCOME TAXES
Income taxes have been provided using the liability
method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases
of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse or the carryforwards are utilized. Valuation allowances are established
when it is determined that it is more likely than not that such assets will not be realized.
During fiscal 2009, a full valuation allowance
was established against all deferred tax assets as management determined that it is more likely than not that certain deferred
tax assets will not be realized.
The Company accounts for uncertain tax positions
consistent with authoritative guidance. The guidance prescribes a more likely than not recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. The Company does not expect any material change in its unrecognized tax benefits over the next twelve months. The
Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes.
Although the Company files U.S. federal, various
state, and foreign tax returns, the Companys only major tax jurisdictions are the United States, California, Germany and
Japan. Tax years 1996 - 2011 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers
from those years.