Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2011

Notes To Financial Statements

Income Tax Disclosure [Text Block]

(12)   INCOME TAXES

We are subject to Federal and certain state income taxes. In addition, we are taxed in certain foreign countries. As of December 31, 2011 and 2010, there were no cumulative undistributed earnings of our foreign subsidiaries for which U.S. income taxes have not been provided.

Earnings before income taxes was as follows:

	Years Ended December 31,
	2011		2010
Domestic	$	6,722	$	7,053
Foreign		937		347
	$	7,659	$	7,400

Income tax expense (benefit) was as follows:

	Years Ended December 31,
	2011			2010
Current
Domestic -- Federal	$	148		$	-
Domestic -- state		133			157
Foreign		(20	)		(9	)
		261			148
Deferred
Domestic -- Federal		(1,676	)		-
Domestic -- state		(193	)		-
Foreign		(596	)		-
		(2,465	)		-
Income tax expense (benefit)	$	(2,204	)	$	148

Deferred income taxes reflect the net tax effect of net operating loss and credit carryforwards as well as temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of our deferred tax assets and liabilities as of December 31, 2011 and 2010:

	December 31,
Deferred tax assets:	2011			2010
Net operating loss ("NOL") (Federal, state and foreign)	$	1,159		$	3,268
Tax credit carryforwards		963			834
Depreciation of property and equipment		815			993
Inventories		209			254
Accrued vacation pay		162			126
Allowance for doubtful accounts		56			55
Accrued warranty		25			64
Other		41			46
		3,430			5,640
Valuation allowance		(484	)		(5,153	)
Deferred tax assets		2,946			487
Deferred tax liabilities:
Net intangible assets		(358	)		(409	)
Unremitted earnings of foreign subsidiaries		(107	)		(78	)
Deferred tax liabilities		(465	)		(487	)
Net deferred tax asset	$	2,481		$	-

The valuation allowance for deferred tax assets as of the beginning of 2011 and 2010 was $5,153 and $8,599, respectively. The net change in the valuation allowance for the years ended December 31, 2011 and 2010 was a decrease of $4,669 and $3,446, respectively. In assessing the ability to realize the deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the total deferred tax assets, we will need to generate future taxable income prior to the expiration of net operating loss and credit carryforwards which expire in various years through 2031.

During the past several years, due to our history of operating losses in both our domestic and certain of our foreign operations, we had recorded a full valuation allowance against the deferred tax assets of these operations, including net operating loss carryforwards, where we believed it was more likely than not that we would not have sufficient taxable income to utilize these assets before they expire. During 2011, we reversed $3,110 of the valuation allowance which had been recorded against the deferred tax assets of these operations. The reversal of this amount of the valuation allowance was based on our current assessment that it is now more likely than not that we will be able to fully utilize these assets in the near future. Some of the key factors we considered in making our assessment included our profitability in both 2011 and 2010 and our level of certainty with regard to our forecasts of near term future profitability for the operations to which these assets relate.

An analysis of the effective tax rate for the years ended December 31, 2011 and 2010 and a reconciliation from the expected statutory rate of 34% is as follows:

	Years Ended December 31,
	2011			2010
Expected income tax (benefit) provision at U.S. statutory rate	$	2,604		$	2,516
Increase (decrease) in tax from:
Changes in valuation allowance		(3,110	)		(743	)
Effects of NOL and tax credit carryforwards		(1,803	)		(1,841	)
Current year tax credits		(349	)		-
Domestic tax expense, net of Federal benefit		260			104
Foreign income tax rate differences		94			22
Deemed dividend from foreign subsidiaries		90			-
Nondeductible expenses		48			90
Other		10			90
Income tax expense (benefit)	$	(2,204	)	$	148

In accounting for income taxes, we follow the guidance in ASC Topic 740 (Income Taxes) regarding the recognition and measurement of uncertain tax positions in our financial statements. Recognition involves a determination of whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information. Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of December 31, 2011 and 2010, we did not have an accrual for uncertain tax positions.

We file U.S. income tax returns and multiple state and foreign income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ending on December 31, 2008 and thereafter are subject to examination by the relevant taxing authorities.