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Income Taxes
12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Text Block]

14.    Income Taxes


        (Loss) income from continuing operations before income taxes include the following components (in thousands):


 

Years Ended

December 31,

 

2012

 

2011

U.S.-based operations

$ (7,872)

 

$ (7,614)

Non U.S.-based operations

(2,189)

 

685

(Loss) income from continuing operations before income taxes

$ (10,061)

 

$ (6,929)


        Income tax expense (benefit) attributable to loss from continuing operations is summarized as follows (in thousands):


 

Current

 

Deferred

 

Total

Year ended December 31, 2012:

 

 

 

 

 

U.S. Federal

$ ─

 

$ ─

 

$ ─

State and local

16

 

 

16

Foreign

(212)

 

(171)

 

(383)

Total

$ (196)

 

$ (171)

 

$ (367)

 

 

 

 

 

 

Year ended December 31, 2011:

 

 

 

 

 

U.S. Federal

$ 25

 

$ ─

 

$ 25

State and local

15

 

 

15

Foreign

385

 

(134)

 

251

Total

$ 425

 

$ (134)

 

$ 291


        Income taxes attributable to loss from continuing operations differ from the amounts computed by applying the U.S. federal statutory rate of 34% to loss from continuing operations before income taxes as shown below (in thousands):


 

Years Ended

December 31,

 

2012

 

2011

Expected tax benefit

$ (3,421)

 

$ (2,356)

Net tax effects of:

 

 

 

Foreign tax rate differential

408 

 

89 

State taxes, net of federal benefit

(529)

 

(864)

Return to provision adjustment

832 

 

30 

Research and other credits

(2)

 

(191)

Permanent difference on convertible notes and warrants

(31)

 

(374)

Permanent difference on deemed dividend

 

78 

Other

73 

 

(456)

Change in deferred tax asset valuation allowance

2,303 

 

4,335 

Income taxes attributable to loss from continuing operations

$ (367)

 

$ 291


Deferred tax assets and liabilities consist of the following (in thousands):


 

December 31,

 

2012

 

2011

Deferred tax assets:

 

 

 

Research and development credits

$ 1,707

 

$ 1,658

Other credits

347

 

985

Operating loss carry forwards

10,562

 

8,428

Inventories

469

 

370

Allowance for doubtful accounts

563

 

107

Depreciation

246

 

107

Deferred research and development expenses for income tax

327

 

331

Non-cash compensation

706

 

546

Other

536

 

617

Total gross deferred tax assets

15,463

 

13,149

Valuation allowance

(14,906)

 

(12,603)

Net deferred tax assets

557

 

546

 

 

 

 

Deferred tax liabilities

 

 

 

Other identifiable intangible assets

(1,354)

 

(1,488)

Total gross deferred tax liabilities

(1,354)

 

(1,488)

Net deferred tax liabilities

$ (797)

 

$ (942)


        The Company had approximately $19.0 million and $60.7 million of federal and state income tax net operating loss carryforwards at December 31, 2012, respectively. Future utilization of the net operating losses and credit carryforwards is subject to a substantial annual limitation due to ownership change limitations as required by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state limitations.


        The Company performed a study to evaluate the status of net operating loss carryforwards as a result of the ownership change from the Merger. The results of the study provided that the merger caused an “ownership change” of the Company as defined for U.S. federal income tax purposes as of the date of the merger. The “ownership change” will significantly limit the use of the Company’s net operating losses and credits in future tax years. Of the $19.0 million federal loss carryforwards approximately $5.4 million of the loss will be subject to an annual limitation of $0.4 million within the next 5 years and $0.2 million for the following 15 years. The federal net operating loss carryforwards will expire in fiscal year 2032. As a result of the “ownership change” the federal research and development credits have been limited and based on the limitation the Company does not anticipate being able to use any of these credits that existed as of the date of the Merger in future tax years. Of the $60.7 million of state net operating loss carryforwards approximately $1.2 million of the loss will be subject to an annual limitation of $0.1 for the next 20 years. The state net operating loss carryforwards will expire in fiscal year 2032. The Company has state research and development credits of $2.4 million. Since the state credits have an indefinite life, the Company did not write them off even though it is also limited under Section 383. The Company has a full valuation allowance against the related deferred tax assets as it is more likely than not that they will not be realized by the Company.


        In assessing the potential realization of deferred tax assets, consideration is given to whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. In addition, the utilization of net operating loss carryforwards may be limited due to restrictions imposed under applicable federal and state tax laws due to a change in ownership. Based upon the level of historical operating losses and future projections, management believes it is more likely than not that the Company will not realize the deferred tax assets.


        The following changes occurred in the amount of unrecognized tax benefits including related interest and penalties (in thousands):


 

Years Ended

December 31,

 

2012

 

2011

Balance at beginning of year

$ 529

 

$ 473

Additions for current year tax provisions

41

 

56

Reduction for prior year tax provisions

(118)

 

Balance at end of year

$ 452

 

$ 529


        If recognized, the entire amount of the unrecognized tax benefits would affect the effective tax rate.


        As of December 31, 2012 and 2011, the Company had $0.2 million and $0.1 million, respectively, accrued for payment of interest and penalties related to unrecognized tax benefits.


        The Company operates in multiple tax jurisdictions, both within and outside of the United States. Although the timing of the resolution and/or closure of audits is not certain, the Company does not believe it is reasonably possible that its unrecognized tax benefits would materially change in the next twelve months. The following tax years remain open to examination by the major domestic taxing jurisdictions to which it is subject:


 

Open Tax Years

United States – Federal

2009 – 2012

United States – State

2008 – 2012

Canada

2007 – 2012

Sweden

2010 – 2012

United Kingdom

2008 – 2012