INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

6. INCOME TAXES

As of December 31, 2013, the Company had a domestic net operating loss carryforward ("NOL"), of approximately $109.0 million, a domestic alternative minimum tax credit of approximately $297 thousand and a domestic research and development tax credit carryforward of approximately $598 thousand for federal tax purposes. The Company's federal NOL is expected to expire as follows if unused: $103.1 million in 2018 through 2022, $5.5 million in 2024 and 2025 and $385 thousand in 2027. The NOL and tax credit carryforwards are subject to alternative minimum tax limitations and to examination by the tax authorities. In addition, the Company had a "change of ownership" as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended (an "Ownership Change"). The Company does not believe this Ownership Change will place a significant restriction on its ability to utilize its NOL in the future. The Company has established a valuation allowance against those NOL's for which it is more likely than not that they will expire unutilized. There can be no assurance that valuation allowance adjustments will not occur if projected financial results are not met, or otherwise. On September 13, 2013, the IRS released the final tangible property regulations under section 162 and 263, which generally apply to taxable years beginning on or after January 1, 2014. The company has reviewed the final regulations, and does not anticipate any material financial statement impact resulting from these final regulations.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various foreign, state and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In the United States, the tax years 2010 – 2012 remain open to examination by the federal Internal Revenue Service and the tax years 2009 – 2012 remain open for various state taxing authorities.

The components of income (loss) before income taxes were as follows (in thousands):

	Year Ended December 31,
	2011		2012			2013
Domestic	$	3,189		$	1,869		$	(1,508	)
Foreign		177			154			115
	$	3,366		$	2,023		$	(1,393	)

Temporary differences that give rise to the components of deferred tax assets are as follows (in thousands):

			December 31,
			2012			2013
Current deferred tax assets:
	Inventory		$	323		$	692
	Accrued compensation			251		2	131
	Net operating loss carryforwards – domestic			45			1,589
	Stock Options			463			443
	Other			789			695
				1,871			3,550
	Valuation allowance			(741	)		(1,394	)
		Total current deferred tax assets	$	1,130		$	2,156
Noncurrent deferred tax assets:
	Research and development tax credit		$	526		$	598
	Alternative minimum tax credit			233			297
	Deferred revenue			1,884			3,978
	Property and equipment			2,059			2,006
	Net operating loss carryforwards – domestic			39,541			36,445
	Other			—			60
				44,243			43,384
	Valuation allowance			(17,497	)		(17,026	)
		Total noncurrent deferred tax assets	$	26,746		$	26,358

The components of the income tax expense (benefit) are as follows (in thousands):

				Year Ended December 31,
				2011			2012		2013
Current income tax expense (benefit):
	Federal			$	37	$		41	$	95
	State				90			140		62
	Foreign				38			33		26
		Total current expense (benefit)			165			214		183
Deferred income tax expense (benefit):
	Federal				977			560		(583	)
	State				79			46		(54	)
	Foreign				—			—		—
		Total deferred expense (benefit)			1,056			606		(637	)
			Total income tax expense (benefit)	$	1,221	$		820	$	(454	)

The Company's income tax expense (benefit) relating to income (loss) for the periods presented differs from the amounts that would result from applying the federal statutory rate to that income (loss) as follows:

	Year Ended December 31,
	2011			2012			2013
Statutory federal tax rate		34	%		34	%		34	%
State income taxes, net of federal benefit		3	%		4	%		3	%
Non-controlling interest in Heska Imaging US, LLC		—			—			6	%
Other permanent differences		3	%		6	%		(10	) %
Change in tax rate		(4	) %		(1	) %		—	%
Foreign rate difference		(1	) %		(1	) %		(1	) %
Change in valuation allowance		(137	) %		(638	) %		(13	) %
Other		138	%		637	%		13	%
Effective income tax rate		36	%		41	%		33	%

ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold before a benefit is recognized in the financial statements. As of December 31, 2013, the Company has not recorded a liability for uncertain tax positions. The Company would recognize interest and penalties related to uncertain tax positions in income tax (benefit)/expense. No interest and penalties related to uncertain tax positions were accrued at December 31, 2013.