Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

10.           Income Taxes

Income tax expense from continuing operations consists of the following for the years ended December 31:

	2011		2010
	(in thousands)
Current:
Federal	$	-	$	-
State		91		86
		91		86
Deferred:
Federal		218		81
State		40		15
		258		96
Total income tax expense	$	349	$	182

The reconciliations of the U.S. federal statutory rate to the effective income tax rate for the years ended December 31, 2011 and 2010 are as follows:

	2011			2010
Tax provision at U.S. federal statutory rates		35.0	%		35.0	%
State taxes		11.9			4.3
Non-deductible permanent items		2.0			10.8
Incentive stock options		0.4			(0.3	)
Return to provision items		9.2			(15.7	)
Change in federal valuation allowance		(12.9	)		(36.3	)
Effective income tax rate		45.6	%		(2.2	%)

Deferred income taxes reflect the net tax effect 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 taxes as of December 31, 2011 and 2010 are as follows:

	2011			2010
	(in thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	211		$	241
Accrued liabilities		269			238
Net operating loss carry-forwards		39,871			39,993
Fixed assets		134			167
Intangible assets		2,229			2,488
Share-based compensation expense		5,117			4,787
Deferred revenue		4			5
Other		69			84
Total gross deferred tax assets		47,904			48,003
Valuation allowance		(47,904	)		(48,003	)
Deferred tax liabilities:
Tax deductible goodwill		(354	)		(96	)
Total gross deferred tax liabilities		(354	)		(96	)
Net deferred income taxes	$	(354	)	$	(96	)

At December 31, 2011, the Company had recorded a valuation allowance of $47.9 million on its net deferred tax assets. Based on the weight of available evidence, the Company believes that it is more likely than not that these deferred tax assets will not be realized.

At December 31, 2011, the Company had federal and state net operating loss carry-forwards of approximately $107.9 million and $71.5 million, respectively ("NOLs"). The federal net operating loss carry-forwards expire through 2031 as follows (in millions):

2021	$25.4
2022	1.7
2023	-
2024	4.1
2025	7.7
2026	26.4
2027	15.5
2028	5.1
2029	8.6
2030	11.6
2031	1.8
	$107.9

The state net operating loss carry-forwards expire through 2031 as follows (in millions):

2011	$10.1
2012	3.4
2013	2.4
2014	3.9
2015	5.9
2016	21.3
2017	3.2
2028	2.7
2029	5.8
2030	11.0
2031	1.8
	$71.5

Utilization of the net operating loss and tax credit carry-forwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state provisions. These ownership changes may limit the amount of NOL carry-forwards that can be utilized annually to offset future taxable income and tax, respectively.  A Section 382 ownership change occurred in 2006; however, based on management's current estimate, this change does not limit the utilization of the NOLs presented above as of December 31, 2011.  As a result of an acquisition in 2001, approximately $9.9 million of the NOLs are subject to an annual limitation of approximately $0.5 million per year.

The federal and state net operating losses begin to expire in 2021 and 2011, respectively. Approximately $10.8 million and $5.0 million, respectively, of the federal and state net operating loss carry-forwards were incurred by subsidiaries prior to the date of the Company's acquisition of such subsidiaries. The Company established a valuation allowance of $4.1 million at the date of acquisitions related to these subsidiaries. The tax benefits associated with the realization of such net operating losses will be credited to the provision for income taxes. In addition, federal and state net operating losses of approximately $13.5 million and $8.5 million, respectively, relate to stock option deductions. Therefore, to the extent that the valuation allowance is reduced in the future and such options are realized, approximately $4.7 million and $0.5 million, respectively, will be credited to stockholders' equity rather than to income tax benefit.

At December 31, 2011, deferred tax assets exclude approximately $0.6 million and $0.1 million of tax-effected federal and state net operating losses pertaining to tax deductions from stock-based compensation. Upon future realization of these benefits, the Company expects to increase additional paid-in capital and reduce income taxes payable. The benefit of excess stock option deductions is not recorded until such time that the deductions reduce income taxes payable. For purposes of determining when the stock options reduce income taxes payable, the Company has adopted the "with and without" approach whereby the Company considers net operating losses arising from continuing operations prior to net operating losses attributable to excess stock option deductions.

At December 31, 2011, the Company has federal and state research and development tax credit carry-forwards of $0.3 million and $0.2 million, respectively.  The federal credits begin to expire in 2021.  The state credits do not expire.

As of December 31, 2011 and 2010, the Company had unrecognized tax benefits of approximately $0.5 million, all of which, if subsequently recognized, would have affected the Company's tax rate.  A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2011		2010
	(in thousands)
Balance at January 1,	$	500	$	500
Additions based on tax positions related to the current year		-		-
Reductions based on tax positions related to prior years and settlements		-		-
Reductions based on the lapse of the statutes of limitations		-		-
Balance at December 31,	$	500	$	500

The Company files income tax returns in the United States and various state jurisdictions. In general, the Company is no longer subject to U.S. federal and state income tax examinations for years prior to 2004 (except for the use of tax losses generated prior to 2004 that may be used to offset taxable income in subsequent years). The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

 The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits in the years ended December 31, 2011 and 2010.

The Company is also in an on-going income tax examination by the New York State Department of Taxation and Finance for the period January 1, 2006 through December 31, 2008.  The Company believes it has made adequate reserves for state tax items through December 31, 2011.