Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

10.           INCOME TAXES

The components of deferred income taxes are as follows (in thousands):

	December 31,
	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	12,074		$	14,491
Inventory		1,856			1,769
Other liabilities		3,051			3,055
Fixed assets		2,069			440
Other temporary differences		751			589
		19,801			20,344
Less: valuation allowance		(19,745	)		(20,344	)
Total deferred tax assets		56			-
Deferred tax liability:
Intangibles		(1,453	)		-
Other temporary differences		(13	)		-
Net deferred tax liability	$	(1,410	)	$	-
As reported:
Non-current deferred tax assets	$	56		$	-
Current deferred tax liability	$	(271	)	$	-
Non-current deferred tax liabilities	$	(1,195	)	$	-

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 2013, the gross deferred tax asset balance was $19.8 million and includes the $12.1 million tax effect of $34 million in U.S. Federal net operating loss carryforwards ("NOLs") expiring between 2018 and 2032. The Company has not recorded a deferred tax asset of approximately $1.3 million related to the NOLs resulting from the exercise of outstanding nonqualified stock options and restricted stock units which will be accounted for as a credit to additional paid in capital when realized as a reduction to income taxes payable.

Sections 382 and 383 of the Internal Revenue Code, and similar state regulations, contain provisions that may limit the net operating loss carryforwards available to be used to offset income in any given year upon the occurrence of certain events, including changes in the ownership interests of significant stockholders. In the event of a cumulative change in ownership in excess of 50% over a three-year period, the amount of the net operating loss carryforwards that the Company may utilize in any one year may be limited. As of December 31, 2013, the Company's net operating loss carryforwards are not limited by any such Section 382 limitations.

Accounting standards require that the Company continually assess the likelihood that its deferred taxes will be realizable. In making such assessment all available evidence, both positive and negative, must be considered in determining whether it is more likely than not that the deferred tax assets will be realized. Significant weight is given to evidence that can be objectively verified. In fiscal 2012 we considered the fact that we had incurred a net loss during that fiscal year, in addition to the consecutive losses in recent preceding fiscal years. Also in 2012, approximately $5.6 million of federal net operating losses, which had been fully reserved in 2011 as they were not deemed to be realizable based on management's expectation at such time, expired unutilized. These negative factors, combined with uncertain near-term market and economic conditions, reduced the Company's ability to rely on its projections of future taxable income in determining whether a valuation allowance was required. Accordingly, the Company concluded that a full valuation allowance was required. The Company will continue to assess the likelihood that its deferred tax assets will be realizable, and its valuation will be adjusted accordingly, which could materially impact its financial position and results of operations in future periods.

The components of loss before taxes for the years ended December 31, 2013 and 2012 consisted of the following (in thousands):

	2013			2012
Domestic	$	(1,162	)	$	(3,762	)
Foreign		(6,772	)		-
	$	(7,934	)	$	(3,762	)

The Company's income tax benefit (expense) for the years ended December 31, 2013 and 2012 consisted of the following (in thousands):

	2013			2012
Current:
State and foreign	$	87		$	(38	)
Deferred:
State		(21	)		53
Federal		(2	)		921
Foreign		93			-
		70			974
Valuation allowance		(23	)		(19,475	)
Income tax benefit (expense)	$	134		$	(18,539	)

The effective income tax rate differed from the Federal statutory rate as follows (dollars in thousands):

	2013						2012
	Amount			%			Amount			%
Federal income tax benefit at statutory rate	$	2,698			34.0		$	1,279			34.0
Permanent items:
Nondeductible mark-to-market adjustment for contingent liability		(1,047	)		(13.2	)		-			-
Nondeductible share based payments		(464	)		(5.8	)		-			-
Nondeductible merger transaction costs		(353	)		(4.4	)		-			-
Other nondeductible items		(43	)		(0.6	)		(150	)		(4.1	)
Research and development credits		(133	)		(1.7	)		-			-
International tax rate differentials		(813	)		(10.3	)		(18	)		(0.4	)
Other		(310	)		(3.7	)		(175	)		(4.6	)
Effect of increase in valuation allowance for deferred tax assets		599			7.4			(19,475	)		(517.7	)
	$	134			1.7		$	(18,539	)		(492.8	)

The difference between our effective income tax rate and the federal statutory rate is primarily due to transaction costs associated with our Business Combination with Hego and the mark to market adjustment for our contingent liability that will not be deductible for tax purposes and the amount of expense associated with our share-based payment arrangements which are not deductible and the portion thereof that will give rise to tax deductions.

The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. It may be subject to examination by the Internal Revenue Service ("IRS") for calendar years 2010 through 2013 under the normal statute of limitations. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. Generally, for state tax purposes, the Company's 2009 through 2013 tax years remain open for examination by the tax authorities under a four year statute of limitations, however, certain states may keep their review period open for six to ten years. The Company has evaluated its income tax positions and determined that no material uncertain tax positions existed at December 31, 2013. The Company does not expect a significant change in its unrecognized tax benefits within the next twelve months.

Deferred taxes have not been provided for approximately $0.9 million of undistributed earnings of foreign subsidiaries. Any undistributed earnings are expected to be permanently reinvested in our foreign operations. A deferred tax liability is recognized when we expect that we will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. The Company intends to permanently reinvest any undistributed earnings as the Company has cash in the U.S. and the ability to borrow funds in the U.S. if necessary. Furthermore, the Company has no plan for further repatriation. Determination of the amount of the unrecognized U.S. income tax liability on undistributed earnings is not practical because of the complexities of the hypothetical calculation. In addition, unrecognized foreign tax credit carryforwards would be available to reduce a portion of such U.S. tax liability.