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TAXES AND NET OPERATING LOSS CARRYFORWARDS
 12 Months Ended
Dec. 31, 2013
Notes to Financial Statements  
NOTE 10. TAXES AND NET OPERATING LOSS CARRYFORWARDS

During 2010, our 2008 and 2009 federal tax returns were selected for examination by the United States Internal Revenue Service (“the IRS”). The exam was concluded in March, 2011. As a result of the IRS exam, our federal net operating loss carry-forwards were reduced by approximately $350,000 and R&D credits were reduced by approximately $55,000.

 

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. The tax effects of these temporary differences representing the components of deferred tax assets (liabilities) at December 31 were approximately as follows (in thousands):

 

    2013     2012  
Deferred tax assets, current:            
U.S. net operating loss carry-forwards   $ 2,026     $ 1,097  
Settlements     204       --  
State net operating loss carry-forwards     363       197  
Research and development credits     876       774  
AMT credits     75       73  
Accounts receivable     15       12  
Reserves     --       1  
Inventory     --       --  
Charitable     12       9  
Accrued expenses     281       132  
Accrued Settlement     --       --  
Non-current estimate of loss and credit carry-forwards     (3,852 )     (2,295 )
Total deferred tax assets, current     --       --  
                 
Deferred tax assets, non-current:                
Investment in subsidiary     128       128  
Loss and credit carry-forwards     3,852       2,295  
Stock based compensation     158       95  
Total deferred tax assets, non- current     4,138       2,518  
                 
Deferred tax liabilities, non-current:                
Inventory     1       (1 )
State taxes (capital)     (3 )     (4 )
Property and equipment     (346 )     (361 )
Intangibles     (365 )     (304 )
Unrecognized tax benefit liability for non-current temporary differences     (13 )     (49 )
Total deferred tax liabilities, non-current     (726 )     (719 )
                 
Net non-current deferred income tax asset   $ 3,412     $ 1,799  

 

We consider all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income. U.S. net operating losses will begin to expire in years beginning in 2019.

 

We assess the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. All of our positions arise from taxable temporary differences and, as such, the liability has been recognized in the net deferred tax asset, current and non-current items to which they relate.  The calculated amount of penalties and interest related to these timing differences were immaterial at December 31, 2013 and 2012.  

 

Below is a reconciliation of the statutory federal income tax rate to our effective tax rate for the fiscal years ended December 31, 2013, 2012 and 2011:

 

    2013     2012     2011  
Federal tax provision     34.0 %     34.0 %     34.0 %
State taxes (net of federal benefit)     2.6 %     4.1 %     (32.0 ) %
Stock based compensation*     -       --       (27.8 ) %
Research and development credits*     -       --       (78.0 ) %
Warrant gains     -       --       (175.9 ) %
Meals and entertainment     -       --       39.1 %
Other     (9.3 )%     (12.2 )%     --  
      27.3 %     25.9 %     (240.6 ) %

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* Net of IRS Exam adjustments for 2010