5.	INCOME TAXES:

The Company recorded a tax provision of $140 thousand and $219 thousand for the three- and six-month periods ended June 30, 2013, respectively. The Company recorded a tax provision of $131 thousand and $219 thousand for the three- and six-month periods ended June 30, 2012, respectively. The reported tax expense for the three- and six-month periods ended June 30, 2013, is based upon an estimated annual effective tax rate of 9.0% and 29.4%, respectively, related to our combined federal and state income tax rates, foreign income tax provisions and the recognition of U.S. deferred tax liabilities for differences between the book and tax basis of goodwill. The reported estimated annual effective tax rate is lower than an anticipated statutory rate due to a full valuation allowance being provided against our deferred tax assets, which includes significant federal net operating loss carryforwards. The reported tax expense for the three- and six-month periods ended June 30, 2012 is based upon an estimated annual effective tax rate of 49.4% and 41.5%, respectively.

Our policy is to classify interest and penalties related to unrecognized tax benefits as income tax expense. This policy has been consistently applied in all periods. During the three- and six-month periods ended June 30, 2013, we recognized, as part of income tax expense, $22 thousand and $43 thousand, respectively, in interest and penalties related to our unrecognized tax benefits. During the three- and six-month periods ended June 30, 2012, we recognized, as part of income tax expense, $21 thousand and $43 thousand, respectively, in interest and penalties related to our unrecognized tax benefits. We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of June 30, 2013, the gross amount of unrecognized tax benefits exclusive of interest and penalties was $140 thousand. Other than certain unrecognized tax benefits for which the statute of limitations will expire during the third quarter of 2013, we have identified no other uncertain tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the twelve months ending June 30, 2014. We remain subject to examination until the statute of limitations expires for each respective tax jurisdiction.

We have deferred tax assets that have arisen primarily as a result of timing differences, net operating loss carryforwards and tax credits. Our ability to realize a deferred tax asset is based on our ability to generate sufficient future taxable income within the applicable carryforward period and subject to any applicable limitations. We assess, on a routine periodic basis, the estimated future realizability of the gross carrying value of our deferred tax assets on a more likely than not basis. Our periodic assessments take into consideration both positive evidence (future profitability projections for example) and negative evidence (recent and historical financial performance for example) as it relates to evaluating the future recoverability of our deferred tax assets.

We have a full valuation allowance against our deferred tax assets at June 30, 2013. The establishment of a full valuation allowance against the gross carrying value of our deferred tax assets does not prohibit or limit the Company’s ability to realize a tax benefit in future periods. All existing deferred tax assets, net operating loss carryforwards and credits will be available, subject to possible statutory limitations, to reduce certain future federal and state income tax obligations.