8. Income Taxes

12 Months Ended

Dec. 31, 2012

Notes

8. Income Taxes

8. INCOME TAXES

                Income tax expense consisted of the following:

	2012	2011
	(in thousands)
Federal Income Tax:
Current	$ 4,020	$ 2,020
Deferred	(101)	87
State Income Tax:
Current	472	122
Deferred	(16)	4
Foreign Income Tax:
Current	--	--
Deferred	(329)	(126)
Income Tax Expense	$ 4,046	$ 2,107

                Pre-tax income included foreign losses of ($1,531,000) and ($505,000) in 2012 and 2011, respectively.

Total income tax expense differed from “statutory” income tax expense, computed by applying the U.S. federal income tax rate of 34% to earnings before income tax, as follows:

	2012	2011
	(in thousands)
Computed “Statutory” Income Tax Expense	$ 3,693	$ 2,292
State Income Tax, Net of Federal Tax Benefit	296	145
Foreign Tax Rate Differential	168	55
Manufacturing Deduction	(180)	(141)
Reduction in Tax Uncertainties	(16)	(149)
Other - Net	85	(95)
Income Tax Expense	$ 4,046	$ 2,107

                A deferred income tax (expense) benefit results from temporary timing differences in the recognition of income and expense for income tax and financial reporting purposes.  The components of and changes in the net deferred tax assets (liabilities) which give rise to this deferred income tax (expense) benefit for the years ended December 31, 2012 and 2011 are as follows:

	December 31,
	2012	2011
	(in thousands)
Deferred Tax Assets:
Compensation Assets	$ 109	$ 99
Inventory Valuation	491	530
Accounts Receivable Valuation	232	169
Deferred Litigation Costs	62	33
Foreign Net Operating Losses	509	204
Other	290	268
Compensation Liabilities	287	275
Total Deferred Assets	$ 1,980	$ 1,578
Deferred Tax Liabilities:
Prepaid Expenses	(399)	(351)
Depreciation and Amortization	(1,445)	(1,550)
Total Deferred Liabilities	($1,844)	($1,901)
Total Deferred Tax Asset (Liability)	$ 136	($323)

                Management believes it is more likely than not that the Company will have sufficient taxable income when these timing differences reverse and that the deferred tax assets will be realized and, accordingly, no valuation allowance is deemed necessary.

The Company is currently subject to audit by the Internal Revenue Service for the calendar years ended 2011 and 2010.  In 2010, the Company settled an audit by the Internal Revenue Service of its 2008 and 2009 returns.  The audit adjustments, all of which were temporary differences, resulted in net additional current federal and state tax of $108,000, plus interest of $10,000.  The Company and its Subsidiaries state income tax returns are subject to audit for the calendar years ended 2008 through 2011.

As of December 31, 2011, the Company had provided a liability of $135,000 for unrecognized tax benefits related to various federal and state income tax matters, which is included in Other Long Term Liabilities.  Of this amount, the amount that would impact the Company’s effective tax rate, if recognized, was $102,000.  The difference between the total amount of unrecognized tax benefits and the amount that would impact the effective tax rate consists of items that are offset by the federal tax benefit of state income tax items of $33,000.  The reserve at December 31, 2012 was $119,000, the most of which impacts the effective tax rate.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year:

	2012	2011
Beginning Unrecognized Tax Benefits –	$ 135	$ 276
Current Year – Increases	---	---
Current Year – Decreases	---	(105)
Current Year – Interest/Penalties	6	8
Expired Statutes	(22)	(44)
Ending Unrecognized Tax Benefits –	$ 119	$ 135