Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

Note 9.  Income Taxes

The income tax expense is comprised of the following:

	Year Ended December 31, 2012			Year Ended December 31, 2011
Current:
Federal	$	(110	)	$	70
State		529			705
Total		419			775
Deferred:
Federal		(20	)		25
State		20			(25	)
Total		-			-
Total	$	419		$	775

The income tax expense differs from the amount computed by applying the statutory federal and state income tax rates to the net income (loss) before income tax benefit.  The reasons for these differences were as follows (in thousands):

	Year Ended December 31, 2012			Year Ended December 31, 2011
Computed income tax expense at statutory rate	$	518		$	820
Increase in taxes resulting from:
Permanent and other deductions, net		108			115
State income taxes, net of federal benefit		342			456
NOL carryback claim		(169	)		-
Valuation allowance		(380	)		(616	)
Total income tax expense	$	419		$	775

The tax effect of significant temporary differences, which comprise the deferred tax liability, is as follows (in thousands):

	2012			2011
Deferred tax asset:
Net operating loss carryforward	$	1,975		$	2,467
AMT credits		151			124
Accrued expenses		534			771
Allowance for doubtful accounts		329			329
Asset impairment		281			281
Less: Valuation allowance		(2,497	)		(2,877	)
Net deferred income tax asset		773			1,095
Deferred tax liability:
Property and equipment		(28	)		(51	)
Intangible assets-brand name		(1,800	)		(1,800	)
Goodwill		(362	)		(269	)
Other Intangible assets		(383	)		(775	)
Net deferred income tax liability		(2,573	)		(2,895	)
Net deferred tax asset/(liability)	$	(1,800	)	$	(1,800	)

During the year ended December 31, 2012, the Company’s combined federal and state effective tax rate was approximately 28%. Generally, the Company’s combined effective tax rate is high relative to reported net income as a result of certain amounts of amortization expense and corporate overhead not being deductible or attributable to states in which it operates. The Company operates in three states which have relatively high tax rates, California, New York and Florida. The Company’s effective tax rate would be higher if it were not for federal net operating loss carryforwards available to offset current federal taxable income. As of December 31, 2012, the Company had federal income tax loss carryforwards of approximately $5,000,000, which begin expiring in 2019.  Realization of the Company’s carryforwards is dependent on future taxable income. A portion of the Company’s net operating loss carryforwards were utilized to offset taxable income generated during the year ended December 31, 2012. A valuation allowance has been recorded to reflect the tax effect of the net loss carryforwards not used to offset a portion of the deferred tax liability resulting from the Wilhelmina Acquisition.  Ownership changes, as defined in the Internal Revenue Code, may have limited the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income.  Subsequent ownership changes could further affect the limitation in future years.