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Note 8 - Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Text Block]
NOTE 8 – INCOME TAXES

For the years ended December 31, 2012, 2011 and 2010, the Company has incurred net operating losses and, accordingly, no provision for income taxes has been recorded, except for minimum state and local taxes.

At December 31, 2012, the Company had approximately $148,478,000 of U.S. federal and state net operating losses available for the benefit of the Company.  The net operating loss carryforwards, if remained unutilized, will generally begin to expire from 2018 through 2032.  These net operating loss carryforwards are possibly further limited pursuant to Section 382 of the Internal Revenue Code (the “Code”), which limits the utilization of the benefits from net operating losses when ownership changes, as defined by that section, occur.  The Company has performed an analysis of its historical Section 382 ownership changes prior to 2001 and has determined that the utilization of certain of its net operating loss carryforwards may be limited in connection with pre-2001 net operating losses.

The use of the net operating loss carryforwards may have additional limitations resulting from certain additional ownership changes, including the sale of 3,666,665 shares of the Company’s common stock to certain related parties (as defined in Note 11 – Stockholders’ Equity) in 2011, which made the Company vulnerable to an ownership change for purposes of the Code.  Transfers of shares by shareholders who own 5% or more of the Company’s outstanding common stock could also have the effect of limiting the Company’s ability to utilize the net operating loss carryforwards.  The Company has not performed a recent analysis of its ownership changes under the Code.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011 are summarized as follows:

   
2012
 
2011
Deferred tax assets:
               
                 
Net operating losses
 
$
56,463,000
   
$
46,308,000
 
Deferred revenue
   
1,665,000
     
1,532,000
 
Accounts receivable and inventory reserves
   
1,449,000
     
3,019,000
 
Returns reserve
   
791,000
     
1,196,000
 
Accrued expenses
   
241,000
     
454,000
 
Interest expense     173,000       --  
Deferred rent liability
   
157,000
     
143,000
 
Stock option expenses
   
148,000
     
59,000
 
Other accruals
   
2,000
     
12,000
 
                 
Total deferred tax assets
   
61,089,000
     
52,723,000
 
                 
Deferred tax liabilities:
               
                 
Depreciation and amortization expense
   
(906,000
)
   
(880,000
)
                 
Total deferred tax liabilities
   
(906,000
)
   
(880,000
)
                 
Net deferred tax assets before valuation allowance
   
60,183,000
     
51,843,000
 
Valuation allowance
   
(60,183,000
)
   
(51,843,000
)
Net deferred tax assets
 
$
--
   
$
--
 

For financial and tax reporting purposes, the Company has incurred net operating losses in each period since its inception and, therefore, a significant portion of the net deferred tax assets recognized relate to such net operating losses.  In determining whether the Company may realize the benefits from these deferred tax assets, the Company considers all available objective and subjective evidence, both positive and negative.  Based on the weight of such evidence, a valuation allowance is necessary for some portion, or all, of the net deferred tax assets.  Although the realization of the benefits from utilizing the net deferred tax assets may not be assured, based on the available objective and subjective evidence, including the Company’s history of net operating losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable at December 31, 2012 and 2011.  Accordingly, the Company provided a valuation allowance on the entire net deferred tax assets balance to reflect the uncertainty regarding the realizability of these assets for the periods presented.

For the year ended December 31, 2012, the Company’s net valuation allowance has increased by $8,340,000 to $60,183,000, compared to December 31, 2011.

A reconciliation between the U.S. federal statutory income tax benefit rate to the effective tax rate, by applying such rates to pre-tax net loss, are as follows:

   
2012
   
2011
   
2010
 
                         
U.S. federal statutory income tax benefit rate
    (35.00 ) %     (35.00 ) %     (35.00 ) %
State income tax benefit rate, net of federal tax benefit
    (1.34 ) %     (4.58 ) %     (3.11 ) %
Adjustment for prior year taxes
    (0.23 ) %     (0.80 ) %     2.65 %
Other
    0.06 %     0.12 %     0.25 %
Equity compensation
    2.40 %     2.89 %     6.29 %
Change in valuation allowance on deferred tax assets
    34.27 %     37.67 %     28.92 %
Effective tax rate
    00.16 %     00.30 %     00.00 %