Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

F.           Income Taxes

The Company files consolidated federal income tax returns, which includes all U.S. subsidiaries.

The Company has a total Federal net operating loss (“NOL”) carry-forward of $5,942,000 as of December 31, 2011.  This NOL carry-forward expires through 2031 if not utilized prior to that date. The Company has a total state NOL carry-forward of $13,088,000 as of December 31, 2011.  This NOL carry-forward expires through 2031 if not utilized prior to that date.  The Company has research and development credit carry-forwards of approximately $1,087,000 at December 31, 2011, that can be used to reduce future income tax liabilities and expire principally between 2020 and 2031.  In addition, the Company has foreign tax credit carry-forwards of approximately $359,000 at December 31, 2011, that are available to reduce future U.S. income tax liabilities subject to certain limitations.  These foreign tax credit carry-forwards expire at various times through 2020.

Deferred income taxes for 2011 and 2010, were provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.  Tax effects of temporary differences and carry-forwards at December 31, 2011 and 2010, are as follows:

	December 31, 2011					December 31, 2010
	Deferred Tax					Deferred Tax
	Asset			Liability		Asset			Liability
	(in thousands)
Inventory reserve	$	737		$	—	$	945		$	—
Fixed assets		—			528		—			151
Other reserves and accruals		224			—		350			—
Stock-based compensation		77			—		—			—
Undistributed foreign earnings		—			919		—			723
Other		—			57		—			81
Tax credit carry-forwards		1,557			—		1,516			—
Federal tax loss carry-forwards		2,020			—		1,335			—
State tax loss carry-forwards		497			—		422			—
Total deferred income taxes		5,112		$	1,504		4,568		$	955
Valuation allowance		(263	)				(263	)
Net deferred tax assets	$	4,849				$	4,305

At December 31, 2011, the net deferred tax assets of $3,345,000 presented in the Company’s balance sheet comprises deferred tax assets of $4,849,000, offset by deferred tax liabilities of $1,504,000.  At December 31, 2010, the net deferred tax assets of $3,350,000 presented in the Company’s balance sheet comprises deferred tax assets of $4,305,000, offset by deferred tax liabilities of $955,000.

The provision (benefit) for income taxes is summarized as follows:

	2011			2010
	(in thousands)
Current:
Federal	$	—		$	—
State and local		—			65
Foreign		180			266
Total Current		180			331
Deferred:
Federal		25			(2,960	)
State and local		(20	)		(316	)
Total Deferred		5			(3,276	)
	$	185		$	(2,945	)

A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes:

	2011			2010
	(in thousands)
Tax provision at expected statutory rate	$	193		$	2,203
State taxes, net of federal benefit		(29	)		112
Permanent differences		17			4
Credits		(217	)		(73	)
Foreign tax expense, and other		221			133
Change in valuation allowance		—			(5,324	)
Provision (benefit) for income taxes	$	185		$	(2,945	)

 (Loss) income before income taxes from domestic operations was ($473,000) and $5,046,000 in 2011 and 2010, respectively.  Profit before income taxes from foreign operations was $1,075,000 and $1,432,000 in 2011 and 2010, respectively.  At December 31, 2011, U.S. income taxes have been provided on approximately $4,281,000 of earnings of the Company’s foreign subsidiaries, because these earnings are not considered to be indefinitely reinvested.  As of December 31, 2011, earnings of non-U.S. subsidiaries considered to be indefinitely reinvested totaled $481,000.  No provision for U.S. income taxes has been provided thereon.  Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. taxes, reduced by any foreign tax credits available.  It is not practicable to estimate the amount of additional tax that might be payable on this undistributed foreign income.

As of December 31, 2011, the Company has a state NOL carry-forward of $497,000. Approximately $263,000 of the state NOL carry-forward relates to the State of Georgia and has been fully reserved based on the fact that the Company has no ability to generate taxable income in the State of Georgia that would allow the net operating loss carry-forward to be utilized in a future period.  The valuation allowance was $263,000 at December 31, 2011 and 2010.

The Company will recognize any interest and penalties related to unrecognized tax positions in income tax expense.  At the date of adoption of ASC 740, the Company did not have a liability for unrecognized tax positions.  In addition, the Company did not record any increases or decreases to its liability for unrecognized tax positions during the years ended December 31, 2011 or 2010.  Accordingly, the Company has not accrued for any interest and penalties as of December 31, 2011 or 2010.  The Company does not anticipate any change in its liability for unrecognized tax positions over the next fiscal year.

The Company files income tax returns in the U.S. Federal, various state, Hong Kong and India jurisdictions. The statute of limitations for assessment by the Internal Revenue Service (“IRS”) and state tax authorities is open

for tax years ended December 31, 2008, 2009 and 2010, although carry-forward attributes that were generated prior to tax year 2008, including net operating loss carry-forwards and tax credits, may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period.  The Company is generally subject to examinations by foreign tax authorities from 2004 to the present.