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11. Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes |
NOTE 11. Income Taxes | For each of the years 2012 and 2011, current tax (benefit) provisions and current deferred tax (benefit) provision were recorded as follows:
|  | 2012 |  |  | 2011 |
Current Tax (Benefit) Provision |  |  |  |  |  |  |  |
Federal |  | $ | – |  |  | $ | – |
State |  |  | (8,000 | ) |  |  | 76,000 |
Foreign |  |  | (27,000 | ) |  |  | 47,000 |
|  |  | (35,000 | ) |  |  | 123,000 |
Deferred Tax (Benefit) Provision |  |  |  |  |  |  |  |
Federal |  |  | – |  |  |  | – |
State |  |  | (77,000 | ) |  |  | – |
Foreign |  |  | 29,000 |  |  |  | 40,000 |
|  |  | (48,000 | ) |  |  | 40,000 |
Total Tax (Benefit) Provison |  |  |  |  |  |  |  |
Federal |  |  | – |  |  |  | – |
State |  |  | (85,000 | ) |  |  | 76,000 |
Foreign |  |  | 2,000 |  |  |  | 87,000 |
|  | $ | (83,000 | ) |  | $ | 163,000 |
The net deferred tax assets and liabilities have been reported in other assets in the consolidated balance sheets at December 31, 2012 and 2011 as follows:
|  | 2012 |  |  | 2011 |
|  | Current |  |  | Noncurrent |  |  | Current |  |  | Noncurrent |
Deferred Tax Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NOL carryforwards |  | $ | – |  |  | $ | 19,743,000 |  |  | $ | – |  |  | $ | 19,193,000 |
UK NOL carryforwards |  |  | – |  |  |  | 756,000 |  |  |  | – |  |  |  | 724,000 |
Capital loss |  |  | – |  |  |  | 450,000 |  |  |  | – |  |  |  | 446,000 |
Compensation and vacation accrual |  |  | 154,000 |  |  |  | – |  |  |  | 152,000 |  |  |  | – |
Operating accruals |  |  | 60,000 |  |  |  | 380,000 |  |  |  | 568,000 |  |  |  | – |
Research and experimentation, AMT and foreign tax credits |  |  | – |  |  |  | 156,000 |  |  |  | – |  |  |  | 156,000 |
State Margin Tax Credit |  |  | – |  |  |  | 140,000 |  |  |  |  |  |  |  |  |
Fixed assets and intangibles |  |  | – |  |  |  | 844,000 |  |  |  | – |  |  |  | 868,000 |
Foreign |  |  | 3,000 |  |  |  | – |  |  |  | – |  |  |  | – |
Other |  |  | 162,000 |  |  |  | 138,000 |  |  |  | 127,000 |  |  |  | 123,000 |
Total gross deferred tax assets |  |  | 379,000 |  |  |  | 22,607,000 |  |  |  | 847,000 |  |  |  | 21,510,000 |
Valuation allowance |  |  | (360,000 | ) |  |  | (21,715,000 | ) |  |  | (566,000 | ) |  |  | (21,222,000 | )
Net deferred tax assets |  |  | 19,000 |  |  |  | 892,000 |  |  |  | 281,000 |  |  |  | 288,000 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capitalized software |  |  | – |  |  |  | 730,000 |  |  |  | – |  |  |  | 341,000 |
Foreign |  |  | – |  |  |  | 55,000 |  |  |  | – |  |  |  | 19,000 |
Deferred revenue |  |  | 23,000 |  |  |  | – |  |  |  | 228,000 |  |  |  | – |
Other |  |  | 74,000 |  |  |  | – |  |  |  | – |  |  |  | – |
Total gross deferred liabilities |  |  | 97,000 |  |  |  | 785,000 |  |  |  | 228,000 |  |  |  | 360,000 |
Net deferred taxes |  | $ | (78,000 | ) |  | $ | 107,000 |  |  | $ | 53,000 |  |  | $ | (72,000 | )
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, |
|  | 2012 |  |  | 2011 |
Tax at federal income tax rate |  | $ | (367,000 | ) |  | $ | (1,107,000 | )
State (benefit) |  |  | (85,000 | ) |  |  | 76,000 |
Foreign tax differential |  |  | 1,000 |  |  |  | (9,000 | )
Change in valuation allowance |  |  | 139,000 |  |  |  | 1,108,000 |
Permanent items |  |  | 256,000 |  |  |  | 60,000 |
Other |  |  | (27,000 | ) |  |  | 35,000 |
Total (Benefit) Provision |  | $ | (83,000 | ) |  | $ | 163,000 |
The net change in the total valuation allowance for the year ended December 31, 2012 was a decrease of $139,000. The net change in the total valuation allowance for the year ended December 31, 2011 was an increase of $1,108,000. 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, 2012, the Company has available net operating loss (“NOL”) carryforwards of approximately $54,371,000 for federal income tax purposes, which will begin to expire in 2017. The NOL carryforwards for state purposes, which will continue expiring in 2012, are approximately $20,708,000. 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 has not yet performed an analysis through December 31, 2012 due to the complexity and cost associated with the study, and the fact that there may be additional ownership changes in the future. Such limitations would reduce, potentially significantly, the gross deferred tax assets disclosed in the table above related to the net operation loss carryforwards. The Company continues to disclose the net operating loss carryforwards at their original amount in the table above as no potential limitation has been quantified. The Company has also 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. In addition, the Company has approximately $207,000 of state tax credit tax carryforwards that expire in the years 2012 through 2026. The deferred tax assets as of December 31, 2012 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 2008. 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.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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