Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

10. Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (formerly known as SFAS No. 109, “Accounting for Income Taxes”). Under ASC 740, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the realization of our recent historical profitability and our outlook for the continued positive prospects for these profits to continue in the future, management believes these net deferred tax assets will be utilized in future periods. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized.

As of December 31, 2012, the Company had gross net operating loss (NOL) carry forwards of approximately $19.8 million available to offset future taxable income for federal income tax purposes, net of the potential limitation discussed below. These federal NOL carry forwards expire between 2017 and 2032. The Company had gross state NOL carry forwards of approximately $12.1 million available to offset future taxable income for state income tax purposes. These state NOL carry forwards expire between 2020 and 2032.

Under the provision of the U.S. Tax Reform Act of 1986, a change in an entity’s ownership of 50 percent or greater may limit utilization of federal net operating loss carry forwards. The Company had a series of historical equity transactions that resulted in a change in control. The Company’s net operating losses will be subject to such limitations and may not be available to offset future income for tax purposes. Utilization of the NOL carryforwards will be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986 and similar state provisions due to ownership change limitations that have occurred. In general, an ownership change, as defined by Section 382, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. An analysis was performed which indicated that multiple ownership changes have occurred in previous years which created annual limitations on our ability to utilize NOL and tax credit carryovers. Such limitations will result in approximately $4.9 million reduction in gross NOL carry forwards available to offset future taxable income for federal income tax purposes.

No tax benefit has been associated with the exercise of stock options for the years ended December 31, 2012 or 2011, respectively, because of the existence of net operating loss carryforwards. There will be no credit to additional paid in capital for such until the associated benefit is realized through a reduction of income taxes payable. The tax benefit associated with the exercise of stock options included in NOL’s that will be credited to additional paid-in capital when the NOL’s are used to reduce taxes currently payable is approximately $923,000.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of December 31, 2012, the Company had no unrecognized tax benefits. While the Company does not have any material interest and penalties in the periods presented, the Company’s policy is to recognize such expenses as tax expense.

The Company files U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as well as income tax returns in various states. The Company may be subject to examination by the IRS for tax years 2003 through 2012. Additionally, the Company may be subject to examinations by various state taxing jurisdictions for tax years 2003 through 2012. As of December 31, 2012, the Company is currently not under examination by the IRS or any state tax jurisdiction. The Company was subject to an examination by the Illinois Department of Revenue for the tax periods 2007 and 2008 that resulted in a reduction of the sales apportionment factors reported on the returns which did not materially affect net operating loss deductions in Illinois. The examination was finalized during the second quarter of 2012.

Provision for income taxes is as follows for the years ended:

	DECEMBER 31
	2012			2011
Current provision (benefit)
Federal	$	-		$	(20,269	)
State		(17,863	)		30,272
Total		(17,863	)		10,003
Deferred provision (benefit)
Federal		(33,748	)		(167,327	)
State		(48,075	)		(41,722	)
Total		(81,823	)		(209,049	)
Income tax provision (benefit)	$	(99,686	)	$	(199,046	)

The provision (benefit) for income taxes results in effective rates, which differs from the federal and state statutory rate as follows for the years ended:

	DECEMBER 31
	2012			2011
Statutory federal income tax rate		34.0	%		34.0	%
State income tax rate (net of federal benefit)		3.1	%		75.6	%
Non-deductible expenses		3.1	%		-38.3	%
Change in valuation allowance		-3.9	%		-108.9	%
Expiration of net operating losses		0.0	%		122.0	%
Adjustments to state net operating losses		-7.8	%		-213.8	%
Adjustments to prior year deferred tax assets		3.5	%		-232.7	%
Change in fair value of contingent consideration		-44.5	%		0.0	%
Return to accrual difference true-ups		-0.1	%		-48.9	%
Other		0.0	%		-11.7	%
Combined effective tax rate		-12.6	%		-422.7	%

The deferred tax assets (liabilities) consisted of the following:

	DECEMBER 31
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	4,818,357		$	4,430,285
Alternative  minimum tax credit		45,650			73,241
Share-based compensation		509,043			579,352
Advanced payments		-			18,738
Intangibles		195,535			136,538
Depreciation		54,222			-
Other assets		156,617			143,176
Total deferred tax assets		5,779,424			5,381,330
Less: valuation allowance		(849,654	)		(880,384	)
Total deferred tax assets, net		4,929,770			4,500,946
Deferred tax liabilities:
Goodwill amortization		1,106,326			748,291
Capitalized software costs		3,066			14,100
Total deferred tax liabilities		1,109,392			762,391
Net deferred tax asset (liability)	$	3,820,378		$	3,738,555

Changes in the valuation allowance for the years ended were as follows:

	DECEMBER 31
	2012			2011
Beginning balance	$	(880,384	)	$	(931,666	)
Decreases (Increases)		30,730			51,282
Ending balance	$	(849,654	)	$	(880,384	)