Income Taxes

The benefit from income taxes for the year ended December 31, 2012 was $2.2 million. We had no tax provision for the year ended December 31, 2011. Our effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2012 and 2011 as shown in the following table (in thousands):



	2012			2011
U.S. federal income taxes at the statutory rate	$	(378	)	$	126
State taxes, net of federal effects	(57		)	18
Nondeductible expenses	23			13
State tax credits, net	(171		)	—
Acquisition costs	224			—
Stock-based compensation	18			59
Expired net operating loss carry-forwards	—			32,984
Other	(46		)	(96		)
Change in valuation allowance	(1,834		)	(33,104		)
	$	(2,221	)	$	—

The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2012 and 2011 is presented below (in thousands):



	2012			2011
Deferred tax assets:
Tax benefit of operating loss carry forward	$	16,304		$	16,469
Reserves and allowances	67			120
Accrued expenses	355			258
Goodwill	262			317
Equity based compensation	734			542
Fixed assets	230			16
Texas margin tax temporary credit	260			—
Total deferred tax assets	18,212			17,722
Valuation allowance	(15,888		)	(17,722		)
Net deferred tax assets	$	2,324		$	—

Deferred tax liabilities:
Intangible amortization	$	2,324		$	—
Total deferred tax liabilities	$	2,324		$	—

Net deferred tax assets	$	—		$	—

The ending balances of the deferred tax asset have been fully reserved, reflecting the uncertainties as to realizability evidenced by the Company’s historical results.

We and our subsidiary file federal and state tax returns on a consolidated basis. During 2011, we determined that an “ownership change” had occurred in 2008 (as defined under Section 382 of the Internal Revenue Code of 1986, as amended) which places an annual limitation on the utilization of the net operating loss (“NOL”) carryforwards accumulated before the ownership change. As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined that the ownership change resulted in the permanent loss of approximately $33 million of tax benefit associated with the NOL carryforwards. At December 31, 2012 we had accumulated NOL carryforwards of $39,622,000 available to offset future federal taxable income which expire in various amounts from 2017 through 2032. At December 31, 2011, we had accumulated NOL carryforwards of $39,927,000 available to offset future state taxable income which expire in various amounts from 2017 through 2030. If it is determined that there is a subsequent ownership change in the future, the utilization of the Company’s NOL carryforwards may be further limited. This would result in a reduction in equal amounts to the deferred tax assets and the related valuation reserves.

There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statement, that have been recorded on the Company’s consolidated financial statements for the years ended December 31, 2012 and 2011.

Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2012 and 2011.

The federal and state tax returns for the years ending December 31, 2011, 2010 and 2009 are currently open and the tax return for the year ended December 31, 2012 will be filed by September 2013.