Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

(10)  Income Taxes

Income tax expense (benefit) for the years ended December 31, 2011 and 2010 consisted of the following:

	2011			2010
Federal-current	$	241		$	105
State-current		49			69
Deferred		(2,979	)		-
	$	(2,689	)	$	174

Actual income tax expense (benefit) differs from the "expected" income tax expense (computed by applying the U.S. federal corporate tax rate of 34% to income before income taxes) for the years ended December 31, 2011 and 2010 as follows:

	2011			2010
Computed "expected" tax expense	$	4,003		$	1,775
Change in valuation allowance for deferred tax assets		(6,878	)		(2,649	)
Effects of change in tax rate		-			556
Other		186			492
	$	(2,689	)	$	174

The tax effects of temporary differences that give rise to the deferred tax assets at December 31, 2011 and 2010 are presented below:

	2011			2010
Deferred tax assets:
Allowance for doubtful accounts receivable	$	739		$	556
Product warranty and sales returns		816			873
Other reserves, net		33			81
Deferred compensation		320			35
Accrued bonus		393			170
Research and development tax credit carryforwards		306			306
Net operating loss carryforwards		10,819			15,085
		13,426			17,106
Deferred tax liabilities
Deprecation		(219	)		-
Total deferred tax assets, net		13,207			17,106
Valuation allowance		-			(6,878	)
Net deferred tax assets	$	13,207		$	10,228

Net deferred tax assets recorded in consolidated balance sheets at December 31, 2011 and 2010:

	2011		2010
Current	$	1,962	$	--
Non-current		11,245		10,228
	$	13,207	$	10,228

Deferred tax assets and liabilities result from temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are anticipated to be in effect at the time the differences are expected to reverse.  The realization of the deferred tax assets, including net operating loss carryforwards, is subject to our ability to generate sufficient taxable income during the periods in which the temporary differences become realizable.  In evaluating whether a valuation allowance is required, we consider all available positive and negative evidence, including prior operating results, the nature and reason of any losses, our forecast of future table income, and the dates on which any deferred tax assets are expected to expire.  These assumptions require a significant amount of judgment, including estimates of future taxable income.  The estimates are based on our best judgment at the time made based on current and projected circumstances and conditions.

As a result of the evaluation of the realizability of our deferred tax assets as of December 31, 2011, we concluded that it was more likely than not that all of our deferred tax assets would be realized.  Accordingly, we relieved the entire $6,878,000 valuation allowance on the net deferred tax asset.

At December 31, 2010, we were unable to conclude, on a more likely than not basis that all of our deferred tax assets would be realized.  Therefore, we recognized a valuation allowance equal to the portion of the deferred income tax asset for which realization was uncertain.

Our estimate of the realizability of the net deferred tax asset is a significant estimate that is subject to change in the near term.

At December 31, 2011, we had a federal net operating loss carryforwards of approximately $31,820,000 and tax credit carryforwards of $306,000, which are available to offset future taxable income and begin to expire in 2019 at various amounts through 2029.   Our ability to utilize the losses to offset future taxable income may be limited significantly if we were to experience an “ownership change” as defined in section 382 of the Internal Revenue Code of 1986, as amended.