13.	Income Taxes

A reconciliation of the statutory U.S. federal tax rate and effective tax rates is as follows:

	2012			2011
Federal statutory taxes		34.0	%		34.0	%
State income taxes, net of federal tax benefit		4.0	%		4.1	%
Foreign taxes less than the domestic rate		(1.2	%)		(0.8	%)
Permanent differences		0.0	%		(0.3	%)
Change in valuation allowance		(34.8	%)		(48.0	%)
Other		(1.0	%)		2.3	%
		1.0	%		(8.7	%)

Deferred income taxes are recorded based upon differences between the financial reporting and income tax basis of assets and liabilities. The following deferred income taxes are recorded:

	2012			2011
Deferred tax assets:
Federal net operating loss carryforward	$	34,868		$	27,595
State loss carryforward		3,860			3,382
Goodwill		27,961			–
Other intangible assets		3,844			1,188
Allowance for bad debts		637			1,050
Stock-based compensation		1,214			874
Accrued expenses		140			111
Inventory		93			88
Fixed assets		77			-
Other		941			425
Total gross deferred tax assets		73,635			34,713
Deferred tax liabilities:
Fixed assets		-			(140	)
Goodwill		-			(961	)
Total gross deferred tax liabilities		-			(1,101	)
Valuation allowance		(73,635	)		(34,573	)
Total net deferred liability	$	-		$	(961	)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will be realized. 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. Management considers the scheduled reversal of deferred tax liabilities, available taxes in the carryback periods, projected future taxable income, and tax planning strategies in making this assessment. Accordingly, we have provided valuation allowances to fully offset the net deferred tax assets at December 31, 2012 and 2011. The $39,044 and $6,443 net increase in the valuation allowance for 2012 and 2011, respectively, primarily reflects the net increase in the federal and state loss carryfoward deferred tax assets.

We have approximately $102,552 in U.S. federal net operating loss carryforwards that expire between 2025 through 2032, approximately $6,853 in Canadian federal and provincial net operating loss carryforwards that expire between 2030 through 2032 and approximately $84,771 in state loss carryforwards that expire between 2013 through 2033. Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on the amount of net operating loss carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in stock ownership. We believe that an annual limit will be imposed by Section 382, however, should taxable income be generated in future years, we expect to be able to utilize our net operating loss carryforwards during their respective carryforward periods.

We have no unrecognized tax benefits and there are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next 12 months.