Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

14.   INCOME TAXES

Losses/profit before income taxes includes a loss on non-U.S. operations of $764,000 for the year ended December 31, 2012. There is a profit relating to non-U.S. operations of $413,000 for the period ending July 21, 2011, as of the change of control.

Because of the net operating losses and a valuation allowance on deferred tax assets, there was no provision for income taxes recorded in the accompanying consolidated financial statements for each of the three years ended December 31, 2012 and 2011.

A reconciliation of the federal statutory income tax rate of 35% and our effective income tax rates is as follows:

In thousands of dollars:

	Year Ended December 31,
	2012			2011
Federal statutory income tax benefit	$	(6,392	)	$	(6,977	)
Expiration of net operating loss carry forwards		3,156			-
Other, net		(33	)		329
Exercise of incentive stock options		197			(270	)
Impact of ownership change on net operating loss					47,535
Valuation allowance		3,072			(40,617	)
Total		-			-

The components of the deferred tax assets (liabilities) consisted of the following as of December 31, 2012 and 2011:

In thousands of dollars:

	2012			2011
Deferred tax assets:
Net operating loss carry forwards	$	14,166		$	11,336
Basis difference in intangible assets		287			424
Accruals		1,451			673
Tax credits		276			276
Basic difference in property, plant, and equipment		(652	)		(513	)
Other, net		174			434
Valuation allowance		(15,702	)		(12,630	)
Total deferred tax assets, net	$	-		$	-

As a result of certain realization requirements, the table of deferred tax assets shown above does not include certain deferred tax assets at December 31, 2012 and 2011 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by approximately $27,000 if and when such deferred tax assets are ultimately realized.  There was no windfall tax benefit in 2012 for stock compensation. We use tax law ordering for purposes of determining when excess tax benefits have been realized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

In thousands of dollars:

	2012		2011
Balance at January 1	$	27	$	27
Reductions based on tax positions related to the current year
Balance at December 31	$	27	$	27

Interest or penalties related to unrecognized tax benefits are not material.

The Company has no material uncertain tax positions.

Our operating loss carry-forwards include losses generated in the United States and in Canada. The net operating loss carry-forwards total approximately $41.8 million as of December 31, 2012 and will expire at various dates as follows:

2012	-	2015	-
2016	-	2020	$	6,153,000
2021	-	2025	$	6,526,000
2026	-	2032	$	29,157,000

Due to the significant increase in common stock issued and outstanding from 2005 through 2012, Section 382 of the Internal Revenue Code may provide significant limitations on the utilization of net operating loss carry-forwards. The company performed section 382 analysis and as a result of these limitations, it is estimated that as of December 31, 2012, approximately $152.0 million operating loss carry-forwards have or will expire without being utilized. Due to the consummation of the Canon deal on July 22, 2011, resulting in a change in control of the company, Section 382 of the Internal Revenue Code may require significant additional limitations on the utilization of net operating loss carry-forwards.

Based on the historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets become deductible, management believes it more likely than not that the Company will not realize benefits of these deductible differences as of December 31, 2012. Management has, therefore, established a full valuation allowance against its net deferred income tax assets as of December 31, 2012.

We are subject to taxation in the U.S., and China and various U.S. states. We record liabilities for income tax contingencies based on our best estimate of the underlying exposures. We have not been audited by any jurisdiction since our inception in 1998. We are open for audit by the U.S. Internal Revenue Service, the Canada Revenue Agency, the Chinese Ministry of Finance and U.S. state tax jurisdictions from 2008 to 2012.