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Note 14 - Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 14 — Income Taxes

 

Deferred tax expense is related to the deferred tax liability on the portion of the Company's goodwill amortized for tax purposes. Due to the indefinite characteristic of this deferred tax liability, it cannot be offset against deferred tax assets. The provision for deferred tax for the periods ended December 31, 2012 and 2011, and 2010, consists of the following components:

 

   Years Ended December 31,
   2012  2011  2010
Current:               
 Federal  $—     $—     $—   
 State   —      —      —   
      Total Current   —      —      —   
Deferred:               
 Federal   31,940    31,940    15,515 
 State   —      —      —   
      Total Deferred   31,940    31,940    15,515 
Total provision for deferred tax  $31,940  $31,940  $15,515

 

 

Reconciliation of the statutory federal income tax rate to the Company's effective tax rate:

 

   Years Ended December 31,
   2012  2011  2010
 Federal tax at statutory rate   34.00%   34.00%   34.00%
 State income tax rate   5.83%   5.83%   5.83%
 Losses and credits not benefited   (38.85%)   (38.49%)   (39.44%)
 Goodwill impairment   —      —      —   
 Provision for taxes   0.98%   1.34%   0.39%

 

 

As of December 31, 2012, we did not recognize deferred tax assets relating to an excess tax benefit for stock-based compensation deduction of $2,022,000. Unrecognized deferred tax benefits will be accounted for as a credit to additional-paid-in-capital when realized through a reduction in income taxes payable.

 

Deferred income tax reflects the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of net deferred tax assets are as follows:

 

   Years Ended December 31,
Deferred tax assets:  2012  2011
 Net operating loss carryforwards  $10,902,000   $10,956,000 
 Credits   634,000    635,000 
 Capitalized research and development costs   446,000    562,000 
 Other acquired intangibles   184,000    203,000 
 Accruals not currently deductible   1,265,000    1,535,000 
    Total deferred tax assets   13,431,000    13,891,000 
 Valuation allowance for deferred tax assets   (13,417,395)   (13,882,515)
    Net deferred tax assets   13,605    8,485 
Deferred tax liability:          
 Acquired intangibles   (93,000)   (56,000)
Net deferred tax liabilities  $(79,395)  $(47,515)

 

 

The Company has not generated taxable income in any periods in any jurisdiction, foreign or domestic. The Company has maintained a full valuation allowance for all deferred tax assets.

 

As of December 31, 2012, the Company had net operating loss carryforwards for federal income tax purposes of approximately $30,428,000 which will expire at various dates beginning in 2012 and through 2032, and federal research and development tax credits of approximately $379,000, which will expire at various dates beginning in 2012 and through 2031. As of December 31, 2012, the Company had net operating loss carryforwards for state income tax purposes of approximately $21,336,000, which will expire at various dates in 2012 and through 2031, and state research and development tax credits of approximately $254,000, which can be carried forward indefinitely. During 2012, approximately $2,904,000 of federal net operating loss carryforwards expired unutilized.

 

Utilization of the net operating loss and tax credit carryforwards is subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code Section 382 and similar state provisions. The annual limitation will result in the expiration of the net operating loss and credit carryforwards before utilization. The deferred tax assets for the year ended December 31, 2012 reflect estimates of Section 382 limitations.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTBs”), excluding interest and penalties, is as follows:

   Amount
Beginning balance at January 1, 2012  $635,000 
Decreases in UTBs taken in prior years   (1,000)
Decreases in UTBs taken in current year   (1,000)
Amount related to settlements   —   
Amount related to lapsing of statute of limitations   —   
Ending balance at December 31, 2011  $633,000

 

 

Future changes in the unrecognized tax benefit will have no impact on the effective tax rate due to the existence of the valuation allowance. It is the Company's policy to include interest and penalties related to tax positions as a component of income tax expense. No interest was accrued for the period ended December 31, 2012. The Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months.

 

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company is not currently under audit in any of its jurisdictions where income tax returns are filed. The tax years 1996 to 2011 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject, and for the years 2002 to 2009 for the international taxing jurisdictions to which the Company is subject.

 

On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012 (“ATRA”). Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts incurred through December 31, 2011. The ATRA extends the research credit for two years for qualified research expenditures incurred through the end of 2013. The extension of the research credit is retroactive and includes amounts incurred after 2011. The Company estimates the benefit that it will receive as a result of the credit extension will be approximately $46,312. The benefit, which will be subjected to a full valuation allowance, will be recognized in the period of enactment, which is the first quarter of 2013.