Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

NOTE 9 – INCOME TAXES

 

The components of the provision (benefit) for income taxes, in the consolidated statement of operations are as follows (in thousands):

 

    Year Ended December 31,  
    2012     2011     2010  
Current                        
Federal   $ -     $ -     $ (40 )
State     -       -       -  
      -       -       (40 )
Deferred                        
Federal     (618 )     (877 )     (107 )
State     1,377       (21 )     160  
      759     (898 )     53  
Total   $ 759   $ (898 )   $ 13  
                         
Income taxes from continuing operations before valuation allowance   $ 759   $ (898 )   $ 13  
Change in valuation allowance     (759 )     898       (53 )
Income tax (benefit)     -       -       (40 )
Total   $ -     $ -     $ (40 )

  

A reconciliation of the statutory federal income tax expense (benefit) to the effective tax is as follows (in thousands):

 

    Year Ended December 31,  
    2012     2011     2010  
                   
Statutory rate - federal   $ (661 )   $ (925 )   $ (1,204 )
State taxes, net of federal benefit     1,377       (21 )     -  
Permanent differences and other     43       48       (143 )
Income tax from continuing operation before valuation allowance     759     (898 )     (1,347 )
                         
Change in valuation allowance     (759 )     898     1,307  
                         
Income tax (benefit)     -       -       (40 )
Total   $ -     $ -     $ (40 )

 

The components of permanent and other differences are as follows (in thousands):

 

    Year Ended December 31,  
    2012     2011     2010  
Permanent items:                        
Meals and Entertainment   $ 6     $ 2     $ 5  
Return to provision adjustment     (46 )     -       -  
Contribution of inventory(1)     4       -       (162 )
Share-based compensation expense for stock options granted  (2)     79       45       14  
    $ 43     $ 47     $ (143 )

 

(1) This item represents the additional tax deduction available as a consequence of the contribution of certain inventory to qualified charitable organization.
(2) This item relates to share-based compensation expense for financial reporting purposes not deducted for tax purposes until such options are exercised.

 

The tax effects of the primary “temporary differences” between values recorded for assets and liabilities for financial reporting purposes and values utilized for measurement in accordance with tax laws giving rise to our deferred tax assets are as follows (in thousands):

 

    Year Ended December 31,  
    2012     2011     2010  
                   
Net operating loss and capital loss carryforward   $ 14,158     $ 13,170     $ 12,135  
Consulting-royalty costs     121       1,431       1,431  
Depreciation     60       235       253  
Other     983       757       877  
Valuation allowance     (15,322 )     (15,593 )     (14,696 )
Total   $ -     $ -     $ -  

  

A valuation allowance for all of our net deferred tax assets has been provided as we are unable to determine, at this time, that the generation of future taxable income against which the net operating loss (“NOL”) carryforwards could be used can be predicted to be more likely than not. The net change in the valuation allowance for Fiscal 2012, 2011 and 2010 was $271,000, ($898,000) and ($424,000), respectively. Certain exercises of options and warrants, and restricted stock issued for services that became unrestricted resulted in reductions to taxes currently payable and a corresponding increase to additional-paid-in-capital for prior years. In addition, certain tax benefits for option and warrant exercises totaling $6.4 million are deferred and will be credited to additional-paid-in-capital when the NOL’s attributable to these exercises are utilized. As a result, these NOL’s will not be available to offset income tax expense. The net operating loss carry-forwards currently approximate $37.7 million for federal purposes will expire beginning in Fiscal 2020 through 2032. Additionally, there are net operating loss carry-forwards of $21.4 million for state purposes that will expire beginning in Fiscal 2018 through 2032.

 

For Fiscal 2010, we had a current tax benefit of $40,000 for an alternative minimum tax refund due us as a consequence of a carry back of an alternative minimum tax net operating loss to a prior period. Our income tax classifications for Fiscal 2011 and Fiscal 2010 have been reclassified to conform to our Fiscal 2012 presentation.