NOTE 13 - INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

NOTE 13 - INCOME TAXES

Components of income (loss) before taxes:

	Year Ended Dec. 31,
(in thousands)	2013	2012
U.S. operations	($2,270)	($6,484)
Foreign operations	(314)	(272)
Total income (loss) before taxes	($2,584)	($6,756)

Income tax expense (benefit) consists of:

	Year Ended Dec. 31,
Current tax expense (benefit)	2013	2012
U.S. federal	$0	($8)
State	8	(19)
Foreign	(16)	(300)
	(8)	(327)
Deferred tax expense (benefit) – U.S. federal	-	-
Total income tax expense (benefit)	($8)	($327)

A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:

	Year Ended Dec. 31,
	2013	2012
(in thousands)
Statutory tax	($879)	($1,937)
State and foreign income tax, net of
federal income tax benefit	(125)	(324)
Valuation allowance for deferred tax assets	996	1,934
Total income tax expense (benefit)	($8)	($327)

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:

	Year Ended December 31,
	2013	2012
(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts	$25	$25
Inventory and product return reserves	746	786
Compensation accruals	1,341	1,116
Accrued liabilities	28	(105)
Book-over-tax depreciation and amortization	1,021	1,064
Foreign net operating loss carryforwards	999	800
U.S. net operating loss carryforwards	6,739	6,054
U.S. credit carryforwards	1,142	951
	12,041	10,691
Valuation Allowance	(12,041)	(10,691)
Total Deferred Income Tax Assets	$ -	$ -

The valuation allowance for deferred tax assets increased $1,350,000 during the year ended December 31, 2013, and increased $1,785,000 during the year ended December 31, 2012.  The net deferred tax assets have a full valuation allowance provided due to uncertainty regarding our ability to utilize such assets in future years.  This full valuation allowance evaluation is based upon our volatile history of losses and the cyclical nature of our industry and capital spending.  Credit carryforwards consist primarily of research and experimental and alternative minimum tax credits with expiration years from 2020 to 2033.  U.S. net operating loss carryforwards are $19,821,000 at December 31, 2013 with expiration years from 2020 to 2033.  Utilization of net operating loss and credit carryforwards is subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended.

The gross changes in uncertain tax positions resulting in unrecognized tax benefits are presented below:

	Year Ended Dec. 31,
	2013	2012
(in thousands)
Unrecognized tax benefits, opening balance	$132	$113
Prior period tax position increases	23	19
Additions based on tax positions related to current year	25	-
Unrecognized tax benefits, ending balance	$180	$132

Historically, we have not incurred any interest or penalties associated with tax matters and no interest or penalties were recognized during 2013.  However, we have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense.   

Tax years that remain open for examination include 2010, 2011, 2012 and 2013 in the United States of America.  In addition, tax years from 2000 to 2009 may be subject to examination in the event that we utilize the net operating losses and credit carryforwards from those years in its current or future year tax returns.