Note 8.

INCOME TAXES

The income tax benefit is based on the following pre-tax (loss) income for the years ended December 31, (amounts in thousands):

	2015				2014

Domestic		$	(7,808	)		$	294
Foreign			(242	)			(88	)
Total		$	(8,050	)		$	206

The income tax benefit consists of the following for the years ended December 31, (amounts in thousands):

	2015			2014
Current tax provision
Federal	$	-		$	-
State		20			38
Current provision		20			38
Deferred tax benefit		(110	)		(2,317	)
Total benefit	$	(90	)	$	(2,279	)

Actual income taxes reported from continuing operations are different than what would have been computed by applying the federal statutory tax rate to income from continuing operations before income taxes. The reasons for this difference are as follows for the years ended December 31, (amounts in thousands):

	2015			2014

(Benefit) provision from income taxes at statutory rate	$	(2,818	)	$	72
State income taxes, net of federal benefit		13			25
Net operating losses adjustments		254			283
Valuation allowance adjustments		1,295			(2,931	)
Permanent items		10			10
Reduction of foreign tax credits		1,266			318
Reduction of tax reserves		(110	)		-
Other, net		-			(56	)
Net benefit for income taxes	$	(90	)	$	(2,279	)

The significant components of the Company’s deferred income tax liabilities and assets as of December 31, are as follows (amounts in thousands):

	2015			2014
Deferred tax liabilities
Inventory costs	$	(1,086	)	$	(694	)

Deferred tax assets
Allowance for doubtful receivables	$	10		$	72
Accrued expenses and other items		5,661			4,816
Difference between book and tax bases of property		(2,489	)		(2,443	)
Operating loss carry-forwards - domestic		64,416			62,054
Operating loss carry-forwards - foreign		2,243			2,389
Tax credit carry-forwards		11,367			12,633
		81,208			79,521
Less valuation allowance		(80,244	)		(78,949	)
		964			572
Net deferred income tax asset	$	(122	)	$	(122	)

At December 31, 2015, the Company had approximately $172.1 million of Federal net operating loss carry-forwards (“Federal NOLs”), which will expire in years 2020 through 2034 if not utilized prior to that time. The remainder of the Company’s domestic and foreign net operating loss carry-forwards relate to certain U.S. operating subsidiaries, and the Company’s Canadian operations, respectively, and can only be used to offset income from these operations. At December 31, 2015, the Company’s Canadian subsidiary has Canadian net operating loss carry-forwards of approximately $6.6 million that will expire in 2028 through 2034. The tax credit carry-forwards relate to United States federal minimum tax credits of $1.3 million that have no expiration date and foreign tax credit carryovers of $10.1 million that expire in years 2015 through 2017.

Valuation allowances are recorded when it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. A history of operating losses incurred by domestic and foreign subsidiaries provides significant negative evidence with respect to the Company’s ability to generate future taxable income, a requirement in order to recognize deferred tax assets. For this reason, the Company was unable to conclude that it is more likely than not that certain deferred tax assets would be utilized in the future. The valuation allowance relates to federal, state, and foreign net operating loss carry-forwards, foreign and domestic tax credits, and certain other deferred tax assets to the extent they exceed deferred tax liabilities.

As a result of the acquisition of FTW (as defined in Note 13), the Company recorded deferred tax liabilities of $2.4 million which reduced its net deferred tax assets. The reduction in deferred tax assets caused a release of a valuation allowance of $2.3 million in the year ended December 31, 2014.

Examination of Tax Returns

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company and its subsidiaries are generally no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2011.

Accounting for Uncertainty in Income Taxes

A reconciliation of the beginning and ending balance for liabilities associated with unrecognized tax benefits is as follows (amounts in thousands):

Balances at January 1, 2014	$	109
Tax positions related to prior years		-
Reductions for tax positions related to prior years		-
Lapse of applicable statute of limitations		-
Balances at December 31, 2014		109
Tax positions related to prior years		-
Reductions for tax positions related to prior years		-
Lapse of applicable statute of limitations		(109	)
Balances at December 31, 2015	$	-

The Company recognizes interest and penalties accrued related to the unrecognized tax benefits in the provision for income taxes.