NCOME TAXES (Parent Company)

12 Months Ended

Dec. 31, 2011

Parent Company

NOTE E - INCOME TAXES

The Company files a consolidated federal income tax return with its subsidiaries.

Income tax expense (benefit) provision consists of the following:

	Year Ended December 31,
	2011		2010		2009
Federal income tax provision (benefit):
Current	$	—	$	286,000	$	(656,000	)
Deferred		—		731,000		85,000
		—		1,017,000		(571,000	)
State and local:
Current		23,000		—		(486,000	)
Deferred		—		592,000		(260,000	)
		23,000		592,000		(746,000	)
Total:
Current		23,000		286,000		(1,142,000	)
Deferred		—		1,323,000		(175,000	)
	$	23,000	$	1,609,000	$	(1,317,000	)

A reconciliation between the income tax expense (benefit) and income taxes computed by applying the statutory Federal income tax rate to loss before income taxes is as follows:

	Year Ended December 31,
	2011			2010			2009
Expected income tax benefit at statutory Federal tax rate (34%)	$	(1,812,000	)	$	(351,000	)	$	(850,000	)
State and local taxes, net of Federal tax effect		(406,000	)		(67,000	)		(163,000	)
Reversal of overaccrual of prior years’ taxes		—			—			(330,000	)
Increase in valuation allowance		2,177,000			1,980,000			—
Permanent difference		36,000			47,000			51,000
Other		28,000			—			(25,000	)
Income tax expense (benefit)	$	23,000		$	1,609,000		$	(1,317,000	)

Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and their tax basis. The principal items giving rise to deferred tax assets (liabilities) are as follows:

	December 31,
	2011			2010
Deferred tax asset:
Net operating loss carryforwards	$	3,060,000		$	1,592,000
Employee stock based compensation		231,000			234,000
Retail brokerage accounts		430,000			515,000
Contribution carryover		252,000			162,000
Furniture, equipment and leasehold improvements		68,000			—
Accrued expenses		400,000			—
Accrued compensation and other		59,000			47,000
		4,500,000			2,550,000
Valuation allowance		(4,260,000	)		(2,083,000	)
		240,000			467,000
Deferred tax liability:
Acquired intangible assets		(240,000	)		(243,000	)
Furniture, equipment and leasehold improvements		—			(224,000	)
	$	0		$	0

Due to cumulative losses incurred by the Company during the current and prior two years, the Company is unable to conclude that it is more likely than not that it will realize its net deferred tax asset and, accordingly, has recorded a valuation allowance to fully offset its deferred tax asset at December 31, 2011 and 2010.

At December 31, 2011, the Company has state net operating loss carryforwards aggregating $13.6 million, which expire through 2031 in various states. In addition, the Company has federal net operating loss carryforwards of $5.7 million at December 31, 2011, which expire through 2031. The Company also has additional federal net operating loss carryforwards of $775,000 at December 31, 2011 which is attributable to WFN and expires through 2020. Utilization of WFN’s federal net operating loss carryforwards is subject to annual limitations under Section 382 of the Internal Revenue Code.

The Company applied the “more-likely-than not” recognition threshold to all tax positions taken or expected to be taken in a tax return which resulted in no unrecognized tax benefits reflected in the financial statements as of December 31, 2011. The Company classifies interest and penalties that would accrue according to the provisions of relevant tax law as income taxes.

For federal and certain state and local jurisdictions, the 2008 through 2011 tax years remain open for examination by the taxing authorities. For other states the 2007 through 2011 tax years remain open for examination. The Company is currently under tax examinations by New York State for the years 2007 to 2009.