XML 34 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
11.Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Tax Disclosure [Text Block]
11.
Income Taxes

For each of the years 2011 and 2010, current tax provisions and current deferred tax provisions were recorded as follows:

   
2011
   
2010
 
Current Tax Provision
           
Federal
  $ -     $ -  
State
    76,000       15,000  
Foreign
    47,000       (11,000 )
      123,000       4,000  
Deferred Tax Provision
               
Federal
    -       -  
State
    -       -  
Foreign
    40,000       38,000  
      40,000       38,000  
Total Tax Provision
               
Federal
    -       -  
State
    76,000       15,000  
Foreign
    87,000       27,000  
    $ 163,000     $ 42,000  

The net deferred tax assets and liabilities have been reported in other assets in the consolidated balance sheets at December 31, 2011 and 2010 as follows:

   
2011
   
2010
 
   
Current
   
Noncurrent
   
Current
   
Noncurrent
 
                         
Deferred Tax Assets:
                       
NOL carryforwards
  $ -     $ 19,193,000     $ -     $ 21,204,000  
UK NOL carryforwards
    -       724,000       -       724,000  
Capital loss
    -       446,000       -       -  
Compensation and vacation accrual
    152,000       -       151,000       -  
Operating accruals
    568,000       -       277,000       -  
Research and experimentation, AMT and foreign tax credits
    -       156,000       -       142,000  
Fixed assets and intangibles
    -       868,000       -       980,000  
Foreign
    -       -       8,000       13,000  
Other
    127,000       123,000       134,000       344,000  
Total gross deferred tax assets
    847,000       21,510,000       570,000       23,407,000  
Valuation allowance
    (566,000 )     (21,222,000 )     (350,000 )     (23,095,000 )
Net deferred tax assets
    281,000       288,000       220,000       312,000  
                                 
Deferred Tax Liabilities:
                               
Capitalized software
    -       341,000       -       299,000  
Foreign
    -       19,000       -       -  
Deferred revenue
    228,000       -       212,000       -  
Total gross deferred liabilities
    228,000       360,000       212,000       299,000  
Net deferred taxes
  $ 53,000     $ (72,000 )   $ 8,000     $ 13,000  

The reconciliation of computed expected income taxes to effective income taxes by applying the federal statutory rate of 34% is as follows:

   
For the year ended
December 31,
 
   
2011
   
2010
 
Tax at federal income tax rate
  $ (1,107,000 )   $ (121,000 )
State (benefit)
    76,000       (15,000 )
Foreign tax differential
    (9,000 )     (2,000 )
Change in valuation allowance
    1,108,000       97,000  
Permanent items
    60,000       83,000  
Other
    35,000       -  
Total Provision
  $ 163,000     $ 42,000  

The net change in the total valuation allowance for the year ended December 31, 2011 was an increase of $1,108,000. The net change in the total valuation allowance for the year ended December 31, 2010 was an increase of $97,000.  In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and planning strategies in making this assessment.  Based on the level of historical operating results and projections for the taxable income for the future, management has determined that it is more likely than not that the portion of deferred taxes not utilized through the reversal of deferred tax liabilities will not be realized.  Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

At December 31, 2011, the Company has available net operating loss (“NOL”) carryforwards of approximately $53,094,000 for federal income tax purposes, which will continue expiring in 2012.  The NOL carryforwards for state purposes, which will continue expiring in 2012, are approximately $20,011,000.  There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards due to continued operating losses.  Further, Section 382 of the Internal Revenue Code (“IRC”) imposes limits on the ability to use NOL carryforwards that existed prior to a change in control to offset future taxable income. The Company completed a Section 382 analysis for the period from January 1, 1992 through September 30, 2011 and determined that the Company does not expect to be limited in regards to utilizing the total NOL carryforwards that existed as of September 30, 2011.  Based on the Company’s analysis of its stockholder activity for the three months ended December 31, 2011, there were no ownership changes that caused an annual limitation under the provisions of Section 382.  Accordingly, the Company is expected to be able to utilize the total NOL carryforwards that existed as of December 31, 2011, provided it generates sufficient future earnings prior to the expiration of the NOLs and that future changes in ownership do not trigger a Section 382 limitation.  The Company has established a full valuation allowance for substantially all deferred tax assets, including the NOL carryforwards, since the Company could not conclude that it was more likely than not able to generate future taxable income to realize these assets.

The deferred tax assets as of December 31, 2011 include a deferred tax asset of $1,294,000 representing NOLs arising from the exercise of stock options by Company employees.  To the extent the Company realizes any tax benefit for the NOLs attributable to the stock option exercises, such amount would be credited directly to stockholders' equity.

United States income taxes were not provided on unremitted earnings from non-United States subsidiaries. Such unremitted earnings are considered to be indefinitely reinvested and determination of the amount of taxes that might be paid on these undistributed earnings is not practicable.

The Company and its subsidiaries are subject to federal income tax as well as income tax of multiple state jurisdictions. With few exceptions, the Company is no longer subject to income tax examination by tax authorities in major jurisdictions for years prior to 2006. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where NOLs were generated and carried forward, and make adjustments up to the amount of the carryforwards. The Company is not currently under examination by the IRS or state taxing authorities.