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Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  
Income Tax Disclosure [Text Block]

Note 10 – Income Taxes

 

In 2012 the Company recognized a net income tax recovery of $978 comprised of a current income tax recovery of $5 and a net deferred income tax recovery of $973. 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 deferred income tax recovery for the year is primarily due to the recognition of the tax benefit of available tax loss carry forwards generated during the year that are more likely than not expected to be utilized against future income.

 

The $27,578 net deferred income tax asset balance as at December 31, 2012 reflects the tax benefit of available tax loss carry forwards that are more likely than not expected to be utilized against future income and is net of approximately $2,065 of deferred tax liability recorded in 2012 related to the intangible assets acquired through the Heritage Global Partners acquisition for which the Company received only nominal tax basis.

 

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:

  

    2012     2011  
Expected federal statutory tax expenses (benefit)   $ (944 )   $ 1,485  
Increase (reduction) in taxes resulting from:                
State income taxes recoverable     (5 )     175  
Non-deductible expenses (permanent differences)     36       36  
Change in valuation allowance attributable to continuing operations     —       (27,789 )
Capital loss expiry     —       125  
Adjustment to effective tax rate     (12 )     —  
Other     (53 )     (349 )
Income tax recovery   $ (978 )   $ (26,317 )

  

At December 31, 2012, the Company had available federal tax loss carry-forwards of approximately $55,592 of unrestricted net operating tax losses and approximately $28,800 of restricted net operating tax losses. The net operating loss carry forwards expire between 2024 and 2032.

 

The Company’s utilization of restricted net operating tax loss carry forwards 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 carry forwards 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 carry forwards 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 carry forwards 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 carry forwards. 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, until recently, has had a history of incurring annual tax losses, beginning in1991. 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 carry forwards against income for tax purposes in the later year. The Company applied historic tax loss carry forwards to offset income for tax purposes in 2008, 2010 and 2011, respectively. The 2009 through 2011 taxation years remain open for audit.

 

The Company is subject to state income tax in multiple jurisdictions. In most states, the Company does not have tax loss carry forwards available to shield income 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:

 

    2012     2011  
Net operating loss carry-forwards   $ 28,736     $ 28,293  
Capital loss carry forwards     —       2  
Intangibles     (7 )     62  
Stock based compensation     469       242  
Start-up costs     32       35  
Depreciation and amortization     15       (1 )
Other     398       150  
Heritage Global Partners – Trade Name     (459 )     —  
Heritage Global Partners – Customer List/Business Network     (1,606 )     —  
Net deferred tax assets   $ 27,578       28,783  

  

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, 2012, the unrecognized tax benefit has been determined to be $12,059, which is unchanged from the balance as of December 31, 2011.

 

In the unlikely event that these tax benefits are recognized in the future, 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 carry forwards 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 carry forwards 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.