Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

11. Income Taxes

The components of income (loss) before income taxes are as follows:

	Year ended December 31
	2013		2012
United States	$	2,974,655	$	2,881,707
Foreign		(1,543,065)		(733,738)
	$	1,431,590	$	2,147,969

The components of the provision for income taxes are as follows:

		Year ended December 31
	2013		2012
Current:
Federal	$	652,000	$	551,000
State		117,000		92,000
Foreign		23,000		50,000
Total current		792,000		693,000
Deferred:
Federal		(126,000)		82,000
State		(23,000)		14,000
Foreign		12,000		-
Total deferred		(137,000)		96,000
	$	655,000	$	789,000

The provision for income taxes is different from the amounts computed by applying the United States federal statutory income tax rate of 34%. The reasons for these differences are as follows:

	Year ended December 31
	2013		2012
Income taxes at U.S. statutory rate	$	487,000	$	730,000
State income taxes, net of federal benefit		70,000		116,000
Higher/(lower) effective taxes on earnings in foreign countries		116,000		(30,000)
Foreign corporate income taxes		35,000		50,000
Nondeductible meals and entertainment expense		27,000		26,000
Qualified production activities income - AJCA		(52,000)		(54,000)
Reserve for uncertain tax positions		2,000		2,000
Other		(30,000)		(51,000)
	$	655,000	$	789,000

The Company has a deferred tax asset of $3,640,000 as of December 31, 2013, and $3,475,000 as of December 31, 2012, relating to foreign net operating loss carryforwards in various jurisdictions. The Company has recorded a full valuation allowance as it is more likely than not that this asset will not be realized before it expires beginning in 2014.

The components of the deferred tax assets and liabilities, and the related tax effects of each temporary difference at December 31, 2013 and 2012, are as follows:

	2013		2012
Deferred tax assets:
Product refund reserve	$	26,000	$	28,000
Inventory obsolescence reserve		28,000		74,000
Vacation accrual		28,000		29,000
Stock-based compensation		6,000		72,000
Organization costs		207,000		192,000
Deferred compensation		284,000		83,000
Miscellaneous accrued expenses		16,000		42,000
Foreign net operating loss carryforwards		3,640,000		3,475,000
Valuation allowance - NOL carryforwards		(3,640,000)		(3,475,000)
		595,000		520,000
Deferred tax liabilities:
Depreciation and amortization		272,000		312,000
Foreign currency exchange		141,000		126,000
		413,000		438,000
Net deferred tax assets (liabilities)	$	182,000	$	82,000
Reported as:
Current deferred tax assets	$	309,000	$	371,000
Non-current deferred tax liabilities		127,000		289,000
Net deferred tax assets	$	182,000	$	82,000

Through December 31, 2013, the cumulative amount of unremitted earnings on which the Company has not recognized United States income tax was $57,000.

The Company applied applicable accounting guidance relating to accounting for uncertainty in income taxes. Reserves for uncertainty in income taxes are adjusted quarterly in light of changing facts and circumstances, such as the progress of tax audits, case law, and emerging legislation. The primary difference between gross unrecognized tax benefits and net unrecognized tax benefits is the U.S. federal tax benefit from state tax deductions. It is the Company’s practice to recognize interest and / or penalties related to income tax matters in income tax expense.

At December 31, 2013 and 2012, the Company had $91,000 and $56,000, respectively, of cumulative unrecognized tax benefits, of which only the net amount of $91,000 would impact the effective income tax rate if recognized.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows:

Beginning balance as of January 1, 2012	$	51,000
Settlements and effective settlements with tax authorities		-
Lapse of statute of limitations		-
Increases in balances related to tax positions taken during prior periods		-
Decreases in balances related to tax positions taken during prior periods		(13,000)
Increases in balances related to tax positions taken during current period		18,000
Balance as of December 31, 2012	$	56,000
Settlements and effective settlements with tax authorities		-
Lapse of statute of limitations		(7,000)
Increases in balances related to tax positions taken during prior periods		40,000
Decreases in balances related to tax positions taken during prior periods		(11,000)
Increases in balances related to tax positions taken during current period		13,000
Balance as of December 31, 2013	$	91,000

The Company’s unrecognized tax benefits balance is included within other noncurrent liabilities on the consolidated balance sheets.

The Company, including its domestic and foreign subsidiaries, is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through 2009 and concluded years through 2010 with its primary state jurisdiction.

One of the Company’s foreign subsidiaries is presently under local country audit for alleged deficiencies (totaling approximately $800,000 plus interest at 20% per annum) in value-added tax (VAT) and withholding tax for the years 2004 through 2006. The Company, in consultation with its legal counsel, believes that there are strong legal grounds that it should not be liable to pay the majority of the alleged tax deficiencies. As of December 31, 2010, management estimated and reserved approximately $185,000 for resolution of this matter and recorded this amount within Selling, General, and Administrative expense in the 2010 Consolidated Statement of Income. In 2011, the Company made good faith deposits to the local tax authority under the tax agency’s administrative judicial resolution process. As of December 31, 2013, management’s estimated reserve (net of deposits) for this matter is approximately $95,000.