Annual report pursuant to section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2012
INCOME TAXES
14. INCOME TAXES:

As of December 31, 2012, the Company had net operating loss carry forwards for federal and state income tax purposes of approximately $48,751,000 and $32,402,000, respectively, which expire between 2012 and 2031. As of December 31, 2011, the Company had net operating loss carry forwards for federal and state income tax purposes of approximately $33,902,000 and $17,663,000, respectively, which expire between 2011 and 2031. Utilization of net operating loss carryforwards is dependent on generating future taxable income of the appropriate type and in the appropriate jurisdiction. In addition, as a result of transactions consummated during 2012, including the issuance of common and preferred stock by the Company and the acquisition of Seesmart, substantially all of the Company’s net operating loss carryforwards are subject to limitations imposed by Section 382 of the Internal Revenue Code. The determination of such limitations is complex and requires a significant amount of analysis and review of past transactions, including those related transactions involving acquired companies and their predecessors. The Company has not fully analyzed the limitations and their impact on the recorded gross deferred tax assets. We expect that the limitations may prevent the Company from utilizing a significant portion of net operating losses before their expiration. The Company expects to undertake reviews of the limitations in the near future and will make appropriate adjustments to its deferred tax assets. However, as the Company has recognized a full valuation allowance related to its net deferred tax assets, any adjustment to the deferred tax assets related to the net operating loss carryforwards would be offset by a corresponding adjustment to the valuation allowance.

Components of deferred tax assets (liabilities) are as follows:

 

     December 31,  
     2012     2011  

Accounts receivable

    $ 194,000      $ 44,000   

Inventories

      809,000        305,000   

Accrued expenses

      281,000        58,000   

Depreciation

      (44,000 )      (74,000 ) 

Intangible assets

      (3,817,000 )      44,000   

Stock options

      755,000        687,000   

Deferred revenue

      (144,000 )      —     

Other

      2,000        —     

Net operating loss carry forwards

      18,151,000        12,044,000   
  

 

 

    

 

 

  
     16,187,000        13,108,000   

Valuation allowance

      (16,187,000 )      (13,108,000 ) 
  

 

 

    

 

 

  
   $ —        $ —     
  

 

 

    

 

 

  

 

In accordance with FASB ASC 740 “Income Taxes”, valuation allowances are provided against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has evaluated its ability to realize the deferred tax assets on its balance sheet and has established a valuation allowance in the amount of $16,187,000 at December 31, 2012.

The Company has not recorded a provision for income taxes in 2012 and 2011 as the deferred tax benefits of the net losses were offset by a corresponding increase in the deferred tax valuation allowance. The following is a reconciliation of tax computed at the statutory federal rate to the income tax expense in the statements of operations for the years ended December 31, 2012, and 2011:

 

     December 31,  
     2012     2011  
     Amount     %     Amount     %  

Tax benefit at statutory federal rate

    $ (2,916,000 )      (34.0 )    $ (1,859,000 )      (34.0 ) 

Deferred state tax benefit

      (618,000 )      (7.2 )      (21,000 )      (0.4 ) 

Change in valuation allowance

      2,810,000        32.8        1,682,000        30.8   

Goodwill impairment

      676,000        7.9        135,000        2.4   

Adjustment to net operating loss carryforwards

      41,000        0.5        53,000        1.0   

Non-deductible expenses

      7,000        0.0        10,000        0.2   
  

 

 

    

 

 

    

 

 

    

 

 

  

Income tax expense

    $ —          —        $ —          —