XML 62 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
Note 8 - Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Text Block]
Note 8 - Income Taxes

                The provision for income taxes expense (benefit) consists of:

   
December 31,
   
December 31,
 
   
2012
   
2011
 
             
Current – Continuing Operations:
           
Federal
  $ -     $ -  
State
    -       32  
Foreign
    539       -  
                 
      539       32  
                 
Current – Discontinued Operations:
               
Federal
  $ -     $ -  
State
    -       -  
                 
      -       -  
             
Deferred – Continuing Operations:
           
Federal
    220       229  
State
    -       -  
Foreign
    (205 )     219  
                 
      15       448  
                 
Deferred – Discontinued Operations:
               
Federal
    (174 )     48  
State
    -       -  
                 
      (174 )     48  
                 
Total
  $ 380     $ 528  

We reflected a tax expense of $380 for the year ended December 31, 2012. The 2012 tax provision is principally a result of the increase in the net deferred tax liability related to liabilities generated from goodwill and certain intangible assets that cannot be predicted to reverse for book purposes during our loss carryforward periods.  In addition, we incurred foreign income taxes in 2012.

We reflected a tax expense of $528 for the year ended December 31, 2011.  The 2011 tax provision is principally a result of the increase in the net deferred tax liability related to liabilities generated from goodwill and certain intangible assets that cannot be predicted to reverse for book purposes during our loss carryforward periods.  In addition, we incurred state and foreign income taxes in 2011.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.  Significant components of our deferred tax liabilities and assets are as follows:

   
December 31,
   
December 31,
 
   
2012
   
2011
 
Deferred tax liabilities:
           
   Property, plant and equipment
  $ 450     $ 763  
   Intangible assets and other
    4,272       4,437  
Total deferred tax liabilities
    4,722       5,200  
                 
Deferred tax assets:
               
Net operating loss carryforwards
    18,505       17,578  
Intangible assets
    4,664       5,079  
Accrued expenses, reserves and other
    3,764       4,531  
Investments
    -       342  
Total deferred tax assets
    26,933       27,530  
                 
Valuation allowance for deferred tax assets
    (26,251 )     (26,526 )
Net deferred tax assets
    682       1,004  
                 
Net deferred tax liability
  $ (4,040 )   $ (4,196 )

The $4,040 net deferred tax liability for the year ended December 31, 2012 is comprised of a long-term deferred tax liability of $4,160, offset partially by current deferred tax asset of $120. The $4,196 net deferred tax liability for the year ended December 31, 2011 is comprised of a current deferred tax liability of $187 and a long-term deferred tax liability of $4,170, offset in part by a current deferred tax asset of $161.

In 2012 and 2011, in the U.S. and the U.K., we continue to report a valuation allowance for our deferred tax assets that cannot be offset by reversing temporary differences.  This results from the conclusion that it is more likely than not that we would not utilize our U.S. and U.K. NOL’s that had accumulated over time.  The recognition of a valuation allowance on our deferred tax assets resulted from our evaluation of all available evidence, both positive and negative.  The assessment of the realizability of the NOL’s was based on a number of factors including, our history of net operating losses, the volatility of our earnings, our historical operating volatility, our historical inability to accurately forecast earnings for future periods and the continued uncertainty of the general business climate as of the end of 2012.   We concluded that these factors represent sufficient negative evidence and have concluded that we should record a full valuation allowance under FASB‘s guidance on the accounting for income taxes.  In  2011, we did not record a valuation allowance for the Chinese deferred tax assets as we determined that it was more likely than not that they would be realized.   We continually assess the carrying value of this asset based on relevant accounting standards.

As of December 31, 2012, we have foreign and domestic NOL’s totaling approximately $58,030 available to reduce future taxable income. Foreign loss carryforwards of approximately $12,390 can be carried forward indefinitely. The domestic NOL carryforward of $48,589 expires from 2019 through 2032.  The domestic NOL carryforward includes approximately $2,949 for which a benefit will be recorded in capital in excess of par value when realized.

We have determined that a change in ownership, as defined under Internal Revenue Code Section 382, occurred during 2005 and 2006. As such, the domestic NOL carryforward will be subject to an annual limitation estimated to be in the range of approximately $12,000 to $14,500.  The unused portion of the annual limitation can be carried forward to subsequent periods. We believe such limitation will not impact our ability to realize the deferred tax asset.  In addition, certain of our NOL carryforwards are subject to U.S. alternative minimum tax such that carryforwards can offset only 90% of alternative minimum taxable income.  This limitation did not have an impact on income taxes determined for 2012 or 2011.  The use of our U.K. NOL carryforwards may be limited due to the change in the U.K. operation during 2008 from a manufacturing and assembly center to primarily a distribution and service center.

For financial reporting purposes, income (loss) from continuing operations before income taxes is as follows:

   
December 31,
   
December 31,
 
   
2012
   
2011
 
             
United States
  $ 829     $ 3,684  
Foreign
    (1,403 )     (1,655 )
                 
Total
  $ (574 )   $ 2,029  

There are no undistributed earnings of our foreign subsidiaries, at December 31, 2012 or 2011.

We were granted a tax holiday in China.  Our tax rate in China was phased in until ultimately reaching a rate of 25% in 2012.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income (loss) from continuing operations before income taxes as follows:

   
December 31,
   
December 31,
 
   
2012
   
2011
 
             
             
Provision/(benefit) computed using the statutory rate
    (34.0 %)     34.0 %
                 
Increase (reduction) in taxes resulting from:
               
State tax, net of federal benefit
    -       1.0  
Foreign
    127.6       27.6  
Valuation allowance/deferred impact
    (119.3 )     (49.1 )
    Compensation
    55.4       9.0  
Expiration of capital loss carryforward
    59.6       -  
    Other
    7.2       1.2  
Provision (benefit) for income taxes
    96.5 %     23.7 %

In 2012 and 2011, the provision for income taxes was higher than what would be expected if the statutory rate were applied to pretax income.  This is due to the continuation of reflecting a full valuation allowance for our U.S. and U.K. deferred tax assets, and as a result of the mix of earnings in foreign jurisdictions.

Accounting for Uncertainty in Income Taxes

Our unrecognized tax benefits related to uncertain tax positions at December 31, 2012 relate to Federal and various state jurisdictions.  The following table summarizes the activity related to our unrecognized tax benefits:

   
Years ended December 31,
 
   
2012
   
2011
 
             
Balance at beginning of the year
  $ 6,779     $ -  
Increases related to the current year tax positions
    729       6,779  
Increases related to prior year tax positions
    -       -  
Decreases related to prior year tax positions
    -       -  
Expiration of statute of limitations for assessment of taxes
    -       -  
Settlements
    -       -  
Balance at the end of the year
    -       -  
    $ 7,508     $ 6,779  

The total unrecognized tax benefit balances at December 31, 2012 and 2011 are comprised of tax benefits that, if recognized, would result in a deferred tax asset and a corresponding increase in our valuation allowance.  As a result, because the benefit would be offset by an increase in the valuation allowance, there would be no effect on our effective tax rate.

We are not required to accrue interest and penalties as the unrecognized tax benefits have been recorded as a decrease in our NOL.  Interest and penalties would begin to accrue in the period in which the NOL’s related to the uncertain tax positions are utilized.  We do not expect our unrecognized tax benefits to change significantly over the next twelve months.

As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. State and foreign jurisdictions.  We are routinely subject to examination by taxing authorities in these various jurisdictions.  Our U.S. tax matters for the years 2000 through 2012 remain subject to examination by the Internal Revenue Service (“IRS”) due to our NOL carryforwards.   Our U.S. tax matters for the years 2000 through 2012 remain subject to examination by various state and local tax jurisdictions due to our NOL carryforwards.  Our tax matters for the years 2006 through 2012 remain subject to examination by the respective foreign tax jurisdiction authorities.  The IRS has completed the examination of our 2009 US Federal income tax return, with no resulting material effect to our financial position or results of operations.