INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 17 - INCOME TAXES

At December 31, 2013, the Company had an aggregate net operating loss carryforward of approximately $47,827,000 for U.S. federal income tax purposes, of which $7,879,000 relates to stock options for which there were no compensation charges for financial reporting. Accordingly, any future tax benefit upon utilization of that net operating loss would be credited to additional paid-in capital. The Company has not included this amount in deferred tax assets. At December 31, 2013, the Company had an aggregate net operating loss carryforward of approximately $16,815,000 for state income tax purposes and a foreign net operating loss carryforward of approximately $1,608,000. Substantially all of the net operating loss carryforwards expire from 2020 through 2033 for federal purposes and from 2016 through 2033 for state purposes. The net operating loss carryforwards may be limited to use in any particular year based on Internal Revenue Code (“IRC”) Section 382 related to change of ownership restrictions. Section 382 of the IRC imposes an annual limitation on the utilization of NOL carryforwards based on long-term bond rates and the value of the corporation at the time of a change in ownership as defined by Section 382 of the IRC. In addition, future stock issuances may subject the Company to further limitations on the utilization of its net operating loss carryforwards under the same Internal Revenue Code provision.

The Company has incurred research and development (“R&D”) expenses, a portion of which may qualify for R&D tax credits. The Company has not conducted an R&D credit study to quantify the amount of the credit and has not claimed any R&D tax credit on its Federal income tax returns. The Company may conduct such a study in future years and may establish the R&D credit carryforward for prior years. In such an event, the net operating loss carryforward for Federal income tax purposes would be correspondingly reduced by the amount of the credit.

We have New Jersey net operating loss carryforwards (“NJ NOLs”) in the approximate amount of $12,575,000 expiring through 2033, which are available to reduce future earnings which would otherwise be subject to state income tax. As of December 31, 2013, approximately $10,338,000 of these New Jersey loss carryforwards had been approved for sale under a program of the New Jersey Economic Development Authority, which we refer to as the NJEDA. In order to realize these benefits, we must apply to the NJEDA each year and must meet various requirements for continuing eligibility. In addition, the program must continue to be funded by the State of New Jersey, and there are limitations based on the level of participation by other companies. Since specific sales transactions are subject to approval by the NJEDA, we recognize the associated tax benefits in the financial statements as they are approved. As of December 31, 2013, the Company received approval for the sale of approximately $10.3 million of NJ NOLs, subject to a 7.4% seller’s allocation factor ($760,000, net) for approximately $63,000. As such, the Company reversed the valuation allowance related to these NJ NOLs in 2013. In January 2014, the Company received approximately $63,000  in cash proceeds. As of December 31, 2012, the Company received approval for the sale of approximately $9.5 million of NJ NOLs, subject to an 83.9% seller’s allocation factor ($8.0 million, net) for approximately $662,000. As such, the Company reversed the valuation allowance related to these NJ NOLs in 2012. In January 2013, the Company received approximately $662,000 in cash proceeds.

The Company has net deferred tax assets of approximately $19,192,000 and $21,536,000 at December 31, 2012 and 2013, respectively. The increase in the deferred tax asset is primarily attributable to the net operating losses, partially offset by the sale of the NJ net operating losses. The Company had other temporary differences between financial and tax reporting for stock-based compensation, fixed asset depreciation expense, deferred revenue, deferred expenses, inventory reserves and acquisition-related expenses.

The Company has elected to use the incremental approach for financial statement purposes. Under this approach, the Company will utilize net operating loss carryforwards before utilizing excess benefit from exercise of options during the current year. The Company has provided a valuation allowance against the full amount of its deferred tax asset, net of the benefit expected to be derived from the sale of the NJ NOLs discussed above. The valuation allowance was established because of the uncertainty of realization of the deferred tax assets due to lack of sufficient history of generating taxable income. Realization is dependent upon generating sufficient taxable income prior to the expiration of the net operating loss carryforwards in future periods. The valuation allowance increased (decreased) in 2011, 2012 and 2013 by $1,328,000, $(580,000) and $ 2,344,000, respectively.

Loss before income taxes consists of the following:

	Year Ended December 31,
	2011		2012		2013
U.S. operations	$	(4,198,000)	$	(2,736,000)	$	(7,140,000)
Foreign operations		(232,000)		(518,000)		(422,000)
	$	(4,430,000)	$	(3,254,000)	$	(7,562,000)

The difference between income taxes at the statutory federal income tax rate and income taxes reported in the Consolidated Statements of Operations is attributable to the following:

	Year Ended December 31,
	2011		2012		2013
Income tax benefit at the federal statutory rate	$	(1,499,000)	$	(1,106,000)	$	(2,550,000)
State and local income taxes, net of effect on federal taxes		(294,000)		(256,000)		(646,000)
Increase (decrease) in valuation allowance		1,328,000		(580,000)		2,440,000
ISO grants and restricted shares		276,000		224,000		223,000
Expiration and adjustment on sale of state net operating loss		-		428,000		452,000
Sale of NJ net operating loss carryforwards		(390,000)		-		-
Permanent differences and other		189,000		628,000		18,000
	$	(390,000)	$	(662,000)	$	(63,000)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2012 and 2013 are presented below:

	December 31,
	2012		2013
Deferred tax assets:
Net operating loss carryforwards	$	13,928,000	$	15,065,000
Stock-based compensation		1,357,000		1,386,000
Deferred revenue		4,058,000		4,048,000
Intangibles, amortization		642,000		1,058,000
Inventories		461,000		1,076,000
Acquisition related expenses		433,000		418,000
Other deductible temporary differences		670,000		814,000
Total gross deferred tax assets		21,549,000		23,865,000
Less: Valuation allowance		(18,530,000)		(21,473,000)
		3,019,000		2,392,000
Deferred tax liabilities:
Deferred expenses		(1,996,000)		(2,093,000)
Fixed assets, depreciation		(361,000)		(236,000)
		(2,357,000)		(2,329,000)
Net deferred tax assets	$	662,000	$	63,000