Income Taxes (Tables)

6 Months Ended

Jun. 30, 2014

Components of income tax expense (benefit)

The components of income tax expense (benefit) are as follows:

(in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Federal – current	$	243		$	272		$	481		$	272
State – current		412			476			824			540
Total current		655			748			1,305			812

Federal – deferred		(505	) )		(222	) )		(962	) )		(451	) )
State - deferred		-			-			-			-
Change in valuation allowance		505			222			962			451
Total deferred		-			-			-			-

Income tax expense (benefit)	$	655		$	748		$	1,305		$	812

Income tax reconciliation

The components of pretax income (loss) and the difference between income taxes computed at the statutory federal rate and the provision for income taxes are as follows:

(in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Income (loss) before income taxes	$	(1,442	)	$	(635	)	$	(2,747	)	$	(1,288	)
Tax expense (benefit):
Tax at statutory federal rate	$	(505	)	$	(222	)	$	(962	)	$	(451	)
State income taxes		55			64			110			128
Federal interest		243			272			481			272
State interest		357			412			714			412
Permanent items		-			-			-			-
Other		-			-			-			-
Change in valuation allowance		505			222			962			451

Income tax expense (benefit)	$	655		$	748		$	1,305		$	812

A reconciliation of the United States federal statutory rate to the Company's effective income tax rate is as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014		2013
Tax at statutory federal rate	35.0%	35.0%	35.0%		35.0%
State income taxes	(3.8)%	(10.1)%	(4.0)%		(9.9)%
Federal interest	(16.8)%	(42.8)%	(17.5)%		(21.1)%
State interest	(24.8)%	(64.9)%	(26.0)%		(32.0)%
Permanent differences, tax credits and other adjustments	-	-	-		-
Other	-	-	-		-
Change in valuation allowance	(35.0)%	(35.0)%	(35.0)%	)	(35.0)%
Effective income tax rate	(45.4)%	(117.8)%	(47.5)%		(63.0)%

Net deferred tax asset

The Carteret Tax Basis and federal NOL carryforward deductions utilized as part of the Company's 2012 federal income tax return as filed were as follows:

(in thousands)
Carteret Tax Basis	$	152,000
Federal NOL carryforwards utilized	$	25,000

Calculation of net federal uncertain tax position reserve

A roll forward of the uncertain tax positions reserve, excluding accrued federal and state interest is as follows:

(in thousands)	June 30, 2014		December 31, 2013
Uncertain tax position reserve excluding accrued interest, at beginning of period	$	34,157	$	34,157
Federal uncertain tax position reserve excluding accrued interest		-		-
State uncertain tax position reserve excluding accrued interest		-		-
Uncertain tax position reserve excluding accrued interest, at end of period	$	34,157	$	34,157

The interest expense related to the uncertain tax positions is as follows:

(in thousands)	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Federal	$	243	$	272	$	481	$	272
State jurisdictions		357		412		714		412

Interest expense - taxes	$	600	$	684	$	1,195	$	684

Uncertain tax positions tax reserve

The Company's uncertain tax positions tax reserve, including accrued interest is as follows:

(in thousands)	June 30, 2014		December 31, 2013
Federal uncertain tax positions reserve, including accrued federal interest	$	19,660	$	19,179
State uncertain tax positions reserve, including accrued state interest		17,580		16,866
Total uncertain tax positions reserve, including accrued federal and state interest	$	37,240	$	36,045

Interest expense related to the uncertain tax positions

The interest expense related to the uncertain tax positions is as follows:

(in thousands)	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Federal	$	243	$	272	$	481	$	272
State jurisdictions		357		412		714		412

Interest expense - taxes	$	600	$	684	$	1,195	$	684

Federal net operating loss carryforwards

The federal NOL carryforwards as of June 30, 2014 are as follows:

Tax Year Originating	Tax Year Expiring	Amount

2013	2033	$	3,600,000
2014	2034		2,600,000
		$	6,200,000

State net operating loss carryforwards

The state NOL carryforwards as of June 30, 2014 are as follows:

Tax Year Originating	Tax Year Expiring	Amount

2011	2031	$	1,900,000
2013	2033		3,400,000
2014	2034		2,700,000
		$	8,000,000

Calculation of net deferred tax assets from NOL carryforwards

The Company has calculated a net deferred tax asset arising primarily from NOL carryforwards as follows:

	June 30, 2014			December 31, 2013
Net deferred tax asset	$	2,400,000		$	1,400,000
Valuation allowance		(2,400,000	)		(1,400,000	)
Net deferred tax asset recognized	$	-		$	-

Indemnification asset

The Company's indemnification asset which reflects the potential amounts reimbursable pursuant to the tax gross-up provision of the Settlement Agreement for the federal uncertain tax position reserve recognized, is as follows:

(in thousands)		June 30, 2014				December 31, 2013
Indemnification asset – federal tax gross-up		$	18,429			$	18,429