Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

10.           INCOME TAXES

The components of deferred income taxes are as follows (in thousands):

	December 31,
	2011		2010
Deferred tax assets:
Net operating loss carryforwards	$	16,728	$	17,027
Inventory		1,736		2,181
Other liabilities		2,229		1,539
Fixed assets		452		255
Other temporary differences		625		99
		21,770		21,101
Deferred tax valuation allowance		3,268		889
	$	18,502	$	20,212

In accordance with accounting standards, the Company has not recorded a deferred tax asset related to the net operating losses resulting from the exercise of disqualifying stock options in the accompanying financial statements. The cumulative amount of unrecognized tax benefits at December 31, 2011 was approximately $0.9 million, and if the Company is able to utilize this benefit in the future it would result in a credit to additional paid in capital.

Our income tax benefit (provision) for the years ended December 31, 2011 and 2010, consisted of the following (in thousands):

	2011			2010
Current:
State and foreign	$	(48	)	$	(28	)
Federal		-			22
		(48	)		(6	)
Deferred:
State		22			14
Federal		473			266
		495			280
Valuation allowance		(2,724	)		(136	)
Income tax (expense) benefit, net	$	(2,277	)	$	138

The effective income tax rate differed from the Federal statutory rate as follows (in thousands):

	2011						2010
	Amount			%			Amount			%
Federal income tax at statutory rate	$	669			34.0		$	862			34.0
Permanent differences		(197	)		(10.0	)		(605	)		(23.9	)
International taxes and rate differentials and other		(25	)		(1.2	)		17			0.7
Effect of increase in valuation allowance for deferred tax assets		(2,724	)		(138.4	)		(136	)		(5.4	)
	$	(2,277	)		(115.6	)	$	138			5.4

At December 31, 2011, we had U.S. Federal net operating loss carryforwards (“NOLs”) of approximately $49 million expiring between the years 2012 through 2030. Approximately $7.5 million of the NOLs are set to expire in 2012 if not utilized. The remaining amount of NOLs of $41.7 million are not scheduled to expire until 2018 and beyond. Based on management’s current estimate of book income and the uncertainty of the timing of future taxable income, it was determined that it is more likely than not that the Company will not be able to generate enough taxable income in the respective carry forward periods to realize all of its NOLs. Consequently, in the third quarter of 2011, we recorded a $2.7 million valuation allowance related to the portion of the NOLs that may not be realized. While we believe our estimates and assumptions are reasonable, if we do not generate enough taxable income to fully realize the balance of net operating loss carryforwards, additional valuation allowances or tax provisions may be required.

We file U.S. federal income tax returns as well as income tax returns in various states and one foreign jurisdiction. We may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2008 through 2011 under the normal statute of limitations. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. Generally, for state tax purposes, the Company’s 2007 through 2011 tax years remain open for examination by the tax authorities under a four year statute of limitations, however, certain states may keep their statute open for six to ten years.