8. INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

The Company follows the provisions of ASC Topic 740, “Income Taxes”, and 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 settlement with the relevant tax authority.  The Company applies ASC Topic 740 to all tax positions for which the statute of limitations remains open.

The Company has identified its federal tax return and its state tax return in North Carolina as “major” tax jurisdictions.  Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.  The evaluation was performed for the tax years 2010 through 2012, and may be subject to audits for amounts related to net operating loss carryforwards generated in periods prior to December 31, 2009.  The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. The tax returns for the prior three years are generally subject to review by federal and state taxing authorities.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.  There were no amounts accrued for penalties and interest as of or during the period for the tax years 2012 and 2013.  The Company does not expect its uncertain tax position to change during the next twelve months.  Management is currently unaware of any issues under review that could result in significant payment, accruals or material deviations from its position.

A reconciliation of expected income tax at the statutory federal rate with the actual income tax provision is as follows for the years ended December 31 (in thousands):

	2013			2012
Expected income tax benefit at statutory rate (34%)	$	(1,090	)	$	(64	)
State taxes, net of federal tax benefit		(192	)		(10	)
Effect of change in valuation allowance		(9,876	)		(9,848	)
Non-deductible expenses		4			6
Expiration of net operating loss deductions		11,154			9,916
Total	$	--		$	--

Significant components of the net deferred tax asset (liability) at December 31 were as follows:

	2013			2012
Current assets:
Accrued expenses, non-tax deductible	$	99		$	5
Deferred revenue		553			556
Contingent payments		(831	)		(831	)
Noncurrent assets:
Stock compensation expense		580			543
Loss carryforwards		61,942			71,122
Depreciation and amortization		1,105			1,929
		63,448			73,324
Less: valuation allowance		(63,448	)		(73,324	)
	$	--		$	--

At December 31, 2013, the Company had net operating loss carryforwards of approximately $154,858,000, which may be applied against future taxable income. These carryforwards will expire at various times between 2014 and 2033. Net operating loss carryforwards include tax deductions for the disqualifying dispositions of incentive stock options. When the Company utilizes the net operating losses related to these deductions, the tax benefit will be reflected in additional paid-in capital and not as a reduction of tax expense. The total amount of these deductions included in the net operating loss carryforwards is $21,177,000.

The Company provided a full valuation allowance on the total amount of its deferred tax assets at December 31, 2013 and 2012 since management does not believe that it is more likely than not that these assets will be realized.