Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 10 – Income Taxes

In 2011 the Company recognized a net income tax recovery of $26,317 primarily comprised of a current income tax expense of $238 and a net deferred income tax recovery of $26,555. The net deferred income tax recovery of $26,555 comprises a reversal of a deferred income tax asset of $2,228 at the end of 2010 offset by an additional deferred income tax recovery of $28,783 with respect to the tax effect of available tax loss carry forwards. In 2010 the Company recognized a net income tax recovery of $1,318 as a result of a reversal of a deferred income tax asset of $729 recorded at the end of 2009 offset by an additional deferred income tax recovery of $2,228 with respect to the tax effect of available tax loss carry forwards expected to be utilized in 2011 and a current income tax expense of $181.

The reported tax benefit varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the income (loss) from continuing operations before taxes for the following reasons:

	2011			2010
Expected federal statutory tax expense	$	1,485		$	1,202
Increase (reduction) in taxes resulting from:
State income taxes		175			161
Non-deductible items		36			86
Change in valuation allowance attributable to continuing operations, net		(27,789	)		(14,277	)
Capital loss expiry		125			11,542
Other		(349	)		(32	)
Income tax expense (recovery)	$	(26,317	)	$	(1,318	)

The net change in the valuation allowance (after adjusting for changes in estimates to uncertain tax positions), including discontinued operations, was a decrease of $27,789 and $14,307 for the years ended 2011 and 2010, respectively.

At December 31, 2011, after derecognizing uncertain tax positions as described below, the Company had total net operating loss carryforwards for federal income tax purposes of approximately $83,000. The net operating loss carryforwards expire between 2024 and 2029. A net capital loss of approximately $400 expired in 2011, resulting in a nil carryforward balance. At the end of 2011, following almost three years of consistent profitability from the Company’s asset liquidation business coupled with the acquisition of HGP, the Company believes that it is now more likely than not that it will utilize all of its tax losses against estimated future income for tax purposes. Accordingly, the Company has reversed in full its valuation allowance against its net deferred tax asset balance.

The Company’s utilization of approximately $28,700 of its available net operating loss carryforwards against future income for tax purposes is restricted pursuant to the “change in ownership” rules in Section 382 of the Internal Revenue Code. These rules, in general, provide that an ownership change occurs when the percentage shareholdings of 5% direct or indirect stockholders of a loss corporation have, in aggregate, increased by more than 50 percentage points during the immediately preceding three years.

Restrictions in net operating loss carryforwards occurred in 2001 as a result of the acquisition of the Company by Counsel. Further restrictions may have occurred as a result of subsequent changes in the share ownership and capital structure of the Company and Counsel and disposition of business interests by the Company. Pursuant to Section 382 of the Internal Revenue Code, the annual usage of the Company’s net operating loss carryforwards was limited to approximately $2,500 per annum until 2008 and $1,700 per annum thereafter. There is no certainty that the application of these “change in ownership” rules may not recur, resulting in further restrictions on the Company’s income tax loss carry forwards existing at a particular time. In addition, further restrictions, reductions in, or expiry of net operating loss and net capital loss carryforwards may occur through future merger, acquisition and/or disposition transactions or failure to continue a significant level of business activities. Any such additional limitations could require the Company to pay income taxes on its future earnings and record an income tax expense to the extent of such liability, despite the existence of such tax loss carryforwards. Furthermore, any such additional limitations may result in the Company having to reverse all or a portion of its deferred tax balance or set up a valuation allowance at such time.

The Company is subject to state income tax in multiple jurisdictions. In most states, the Company does not have tax loss carryforwards available to shield income which is attributable to a particular state from being subject to tax in that particular state.

The components of the deferred tax asset and liability as of December 31 (after derecognizing uncertain tax positions) are as follows:

	2011		2010
Net operating loss carry forwards	$	28,293	$	29,222
Net capital loss carry forwards		2		125
Acquired in-process research and development and intangible assets		62		275
Stock-based compensation		241		127
Start-up costs		35		33
Accrued liabilities		—		7
Reserve for accounts receivable		—		2
Other		150		226
Valuation allowance		—		(27,789	)
Total deferred tax assets		28,783		2,228
Deferred tax liabilities		—		—
Net deferred tax assets	$	28,783	$	2,228

Uncertain Tax Positions

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Upon adoption of this principle, effective January 1, 2007, the Company derecognized certain tax positions that, upon examination, more likely than not would not have been sustained as a recognized tax benefit. As a result of derecognizing uncertain tax positions, the Company has recorded a cumulative reduction in its deferred tax assets of approximately $12,000 associated with prior years’ tax benefits, which are not expected to be available primarily due to change of control usage restrictions, and a reduction in the rate of the tax benefit associated with all of its tax attributes.

Due to the Company’s historic policy of applying a valuation allowance against its deferred tax assets, the effect of the above was an offsetting reduction in the Company’s valuation allowance. Accordingly, the above reduction had no net impact on the Company’s financial position, operations or cash flow. As of December 31, 2011, the unrecognized tax benefit has been determined to be $12,059, which is unchanged from the balance as of December 31, 2010:

Beginning unrecognized tax benefit	$	12,059
Increase (decrease) related to prior year positions		—
Increase (decrease) related to current year positions		—
Ending unrecognized tax benefit	$	12,059

In the unlikely event that these tax benefits are recognized in the future, there should be no impact on the Company’s effective tax rate, unless recognition occurs at a time when all of the Company’s other historic tax loss carryforwards have been utilized. In such circumstances, the amount recognized at that time should result in a reduction in the Company’s effective tax rate.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Because the Company has tax loss carryforwards in excess of the unrecognized tax benefits, the Company did not accrue for interest and penalties related to unrecognized tax benefits either upon the initial derecognition of uncertain tax positions or in the current period.

It is possible that the total amount of the Company’s unrecognized tax benefits will significantly increase or decrease within the next 12 months. These changes may be the result of future audits, the application of “change in ownership” rules leading to further restrictions in tax losses arising from changes in the capital structure of the Company and/or that of its parent company Counsel, reductions in available tax loss carryforwards through future merger, acquisition and/or disposition transactions, failure to continue a significant level of business activities, or other circumstances not known to management at this time. At this time, an estimate of the range of reasonably possible outcomes cannot be made.

The Company, until recently, has had a history of incurring annual tax losses, beginning in 1991. All loss taxation years remain open for audit pending the application of the respective tax losses against income in a subsequent taxation year. In general, the statute of limitations expires three years from the date that a company files a tax return applying prior year tax loss carryforwards against income for tax purposes in the later year. The Company applied historic tax loss carryforwards to offset income for tax purposes in 2008, 2010 and 2011, respectively. The 2008 through 2011 taxation years remain open for audit.