Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 14 - INCOME TAXES

The Company files a consolidated U.S. federal income tax return. State tax returns are filed on a consolidated, combined or separate basis depending on the applicable laws relating to the Company and its domestic subsidiaries. Additionally, the Company files tax returns in England and France.

The Company’s income before provision for income taxes was generated from the U.S. and foreign operations for the years ended December 31, as follows (in thousands):

	2014			2013
Earnings (loss) before income taxes:
U.S.	$	(2,298	)	$	(2,040	)
Foreign		3,559			1,760
Earnings (loss) before income taxes	$	1,261		$	(280	)

The Company’s provision for income taxes consisted of the following for the years ended December 31 (in thousands):

	2014			2013
Current:
Federal	$	-		$	-
State		(10	)		-
Foreign		371			172
Total current		361			172
Deferred:
Federal		-			-
State		-			-
Foreign		23			(60	)
Total deferred		23			(60	)
Total provision for income taxes	$	384		$	112

Income tax expense differed from the amount obtained by applying the statutory federal income tax rate of 34% to income before income taxes as follows for the years ended December 31 (in thousands):

	2014			2013
Federal income tax at statutory rates	$	429		$	(121	)
State income taxes, net of federal benefit		(10	)		-
Foreign income taxes		(836	)		(461	)
Changes in valuation allowances		666			521
Foreign income inclusion - IRC 956		134			165
Permanent differences		1			8
	$	384		$	112

As a result of the Company’s extensive net operating loss carry-forwards in the United States and France and certain tax credits for research and development expense in the United Kingdom and France the Company paid no United States federal income tax in 2014 or 2013 and no foreign income tax in France in 2014 or 2013. The Company paid foreign income taxes in the United Kingdom for 2014 and 2013.

The Company’s business is subject to regulations under a wide variety of U.S. federal, state and foreign tax laws, regulations and policies. The majority of the earnings and profits of the Company’s foreign subsidiaries are deemed to have been distributed to the United States, with the exception of undistributed earnings of approximately $0.3 million which have not been taxed in the U.S. and which are deemed to have been reinvested indefinitely outside the United States. These earnings will continue to be indefinitely reinvested but could become subject to an additional tax charge if they were remitted as dividends or were loaned to the Company. No deferred taxes have been provided on these earnings.

Under the terms of the promissory notes described in Note 10 above, the Company’s foreign subsidiaries had issued guarantees on U.S. credit facilities and, as a result, under Section 956 of the Code, had been deemed to have distributed some of their earnings to fund U.S. operations.  Subsequent to December 31, 2013, the promissory notes have been redeemed and these guarantees no longer apply. Further, certain of the Company’s foreign subsidiaries have advanced cash funds to the U.S. entities to meet cash needs. This has resulted in U.S. federal taxable income and an increase in U.S. tax liability, which has been reduced through the utilization of available net operating loss carry-forwards and foreign tax credits.

The Company had U.S. federal net operating loss carry-forwards of approximately $17.4 million as of December 31, 2014 which will expire at various dates beginning in 2018 through 2033. The use of the net operating carry-forwards for state tax purposes is governed by rules specific to each state. As of December 31, 2014 and 2013, the Company recorded a valuation allowance on the deferred tax asset. Management believes sufficient uncertainty exists regarding the realizability of the deferred tax asset items and that a valuation allowance is required. Management considers projected future taxable income and tax planning strategies in making this assessment. The amount of the deferred tax assets considered realizable, however, could materially change in the near future if estimates of future taxable income during the carry-forward period are changed.

In addition, the Company has approximately €1.3 million in net operating loss carry forwards at CXRAJ, its French operating unit, which can be used to offset tax arising on future profits at this subsidiary.

As a result of the Company’s extensive net operating loss carry-forwards and certain tax credits for research and development expense both in the United States and abroad apart from Delaware taxes the Company paid no United States federal income tax in 2014 and no foreign income tax in France in 2014, 2013 or 2012. The Company paid foreign income taxes in the United Kingdom for 2014 and 2013. 

Utilization of the Company’s net operating loss and tax credit carry-forwards may be subject to substantial annual limitation should the Company experience an ownership change triggering limitations provided by the Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit carry-forwards before utilization.

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. Significant components of the Company’s deferred tax assets and liabilities were as follows as of December 31 (in thousands):

	2014			2013
Current deferred tax assets:
Allowance for doubtful accounts	$	1		$	5
Inventory reserves and uniform capitalization		321			982
Other accrued liabilities		62			91
		384			1,078
Valuation allowance-current deferred tax assets		(354	)		(1,032	)
Total current deferred tax assets		30			46
Long-term deferred tax assets:
Depreciation on property, plant & equipment		25			26
Non-qualified stock option expense		13			13
Deferred compensation		-			240
Deferred income		3			3
Tax credits		55			55
Net operating loss carry-forwards		6,715			6,900
Other, net		-			448
		6,811			7,685
Valuation allowance-long-term deferred tax assets		(6,786	)		(7,632	)
Total long-term deferred tax assets		25			53
Deferred tax liabilities:
Intangible assets other than goodwill		-			(17	)
Total deferred tax assets (long-term)		25			36
Net deferred tax assets	$	55		$	82

The adoption of ASC 740-10 Income Taxes-Tax Positions did not result in a material adjustment to the Company’s liability for unrecognized income tax benefits. The Company has not recognized benefits for any uncertain tax positions that it believes would be more-likely-than-not upheld in an examination by any tax authorities. The Company currently has no open matters with tax authorities nor is it engaged in an examination by any tax authority. The Company’s policy on classification of any interest and penalties relating to unrecognized income tax positions, is to classify interest as interest expense and penalties as other expenses. No interest or penalties were recognized during 2014 or 2013.

The Company files income tax returns in the United States federal jurisdiction, the United Kingdom and France, and in the state jurisdictions of California, Texas, Pennsylvania and New Jersey. The Company is no longer subject to United States federal and state tax examinations for years before 2009 and 2008, respectively, and is no longer subject to tax examinations for the United Kingdom for years prior to 2012, and for France for years prior to 2009.