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NOTE 13 - INCOME TAXES | 12 Months Ended
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Dec. 31, 2012
Notes to Financial Statements |
NOTE 13 - INCOME TAXES | Components of income (loss) before taxes:
|  | Year Ended Dec. 31, |
(in thousands) |  | 2012 |  |  | 2011 |
U.S. operations |  | $ | (6,484 | ) |  | $ | (207 | )
Foreign operations |  |  | (272 | ) |  |  | 1,503 |
Total income (loss) before taxes |  | $ | (6,756 | ) |  | $ | 1,296 |
Income tax expense (benefit) consists of: |  |  |  |  |  |  |  |
U.S. federal |  | $ | (8 | ) |  | $ | 20 |
State |  |  | (19 | ) |  |  | 22 |
Foreign |  |  | (300 | ) |  |  | 191 |
|  |  | (327 | ) |  |  | 233 |
Deferred tax expense (benefit) – U.S. federal |  |  | - |  |  |  | - |
Total income tax expense (benefit) |  | $ | (327 | ) |  | $ | 233 |
A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:
|  | Year Ended Dec. 31, |
|  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |
Statutory tax |  | $ | (1,937 | ) |  | $ | 441 |
State and foreign income tax, net of |  |  |  |  |  |  |  |
federal income tax benefit |  |  | (324 | ) |  |  | (323 | )
Valuation allowance for deferred tax assets |  |  | 1,934 |  |  |  | 115 |
Total income tax expense (benefit) |  | $ | (327 | ) |  | $ | 233 |
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |
Deferred income tax assets: |  |  |  |  |  |
Allowance for doubtful accounts |  | $ | 25 |  |  | $ | 28 |
Inventory and product return reserves |  |  | 786 |  |  |  | 699 |
Compensation accruals |  |  | 1,116 |  |  |  | 963 |
Accrued liabilities |  |  | 697 |  |  |  | 29 |
Book-over-tax depreciation and amortization |  |  | 262 |  |  |  | 274 |
Foreign net operating loss carryforwards |  |  | 800 |  |  |  | 704 |
U.S. net operating loss carryforwards |  |  | 6,054 |  |  |  | 5,156 |
U.S. credit carryforwards |  |  | 951 |  |  |  | 1,053 |
|  |  | 10,691 |  |  |  | 8,906 |
Valuation Allowance |  |  | (10,691 | ) |  |  | (8,906 | )
Total Deferred Income Tax Assets |  | $ | - |  |  | $ | - |
The valuation allowance for deferred tax assets increased $1,785,000 during the year ended December 31, 2012, and decreased $57,000 during the year ended December 31, 2011. The net deferred tax assets have a full valuation allowance provided due to uncertainty regarding our ability to utilize such assets in future years. This full valuation allowance evaluation is based upon our volatile history of losses and the cyclical nature of our industry and capital spending. Credit carryforwards consist primarily of research and experimental and alternative minimum tax credits with expiration years from 2020 to 2032. U.S. net operating loss carryforwards are $17,804,000 at December 31, 2012 with expiration years from 2020 to 2032. Utilization of net operating loss and credit carryforwards is subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended. The gross changes in uncertain tax positions resulting in unrecognized tax benefits are presented below:
|  | Year Ended Dec. 31, |
|  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |
Unrecognized tax benefits, opening balance |  | $ | 113 |  |  | $ | 98 |
Prior period tax position increases |  |  | 19 |  |  |  | 5 |
Additions based on tax positions related to current year |  |  | - |  |  |  | 10 |
Unrecognized tax benefits, ending balance |  | $ | 132 |  |  | $ | 113 |
Historically, we have not incurred any interest or penalties associated with tax matters and no interest or penalties were recognized during 2012. However, we have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense. Tax years that remain open for examination include 2009, 2010, 2011 and 2012 in the United States of America. In addition, tax years from 2000 to 2008 may be subject to examination in the event that we utilize the net operating losses and credit carryforwards from those years in its current or future year tax returns.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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