Income Taxes

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 16 - Income Taxes

We had no tax provision for the years ended December 31, 2011 and 2010.  Our effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2011 and 2010 as shown in the following table (in thousands):

	2011			2010
U.S. federal income taxes at the statutory rate	$	126		$	(905	)
State taxes, net of federal effects		18			(133	)
Nondeductible expenses		13			12
Stock-based compensation		59			600
Expired net operating loss carry-forwards		32,984			536
Other		(96	)		31
Change in valuation allowance		(33,104	)		(141	)
	$	—		$	—

The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2011 and 2010 is presented below (in thousands):

Deferred tax assets:	2011			2010
Tax benefit of operating loss carry forward	$	16,469		$	49,072
Reserves and allowances		120			156
Accrued expenses		258			217
Goodwill		317			373
Warrants issued for services		—			445
Equity based compensation		542			469
Fixed assets		16			94
Total deferred tax assets		17,722			50,826
Deferred tax liability		—			—
Deferred tax assets and liability, net		17,722			50,826
Valuation allowance		(17,722	)		(50,826	)
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, 2011 we had accumulated NOL carryforwards of $39,927,000 available to offset future federal taxable income which expire in various amounts from 2017 through 2030.  At December 31, 2011, we had accumulated NOL carryforwards of $57,878,000 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, 2011 and 2010.

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, 2011 and 2010.

The federal and state tax returns for the years ending December 31, 2010, 2009 and 2008 are currently open and the tax return for the year ended December 31, 2011 will be filed by September 2012.