Income Taxes

12 Months Ended

Dec. 31, 2011

14. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 2011 and 2010 are as follows:

	As of December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	227		$	268
Inventories		512			467
Net operating and capital loss carryforwards		27,214			19,851
Deferred revenue		3			3
Federal tax credit		5			5
Vesting stock options		1,380			1,354
Other, net		37			38
Total deferred tax assets		29,378			21,986
Valuation allowance for deferred tax assets		(29,665	)		(22,234	)
Deferred tax liability after valuation allowance		(287	)		(248	)
Deferred tax liabilities:
Property, equipment and intangibles		287			248
Net deferred tax assets	$	-		$	-

At December 31, 2011, the Company had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $51.3 million. The U.S. federal net operating loss carryforwards expire as follows:

Year of
Expiration		Amount
		(In thousands)
	2012	$	1,530
	2018		1,393
	2019		4,507
	2020		3,241
	2021		1,584
	2022		2,797
	2023		4,114
	2024		5
	2025		934
	2026		6,823
	2027		15
	2028		2,489
	2029		6,078
	2030		11,488
	2031		4,346
		$	51,344

Realization of the future tax benefits related to the deferred tax assets is dependent upon many factors, including the Company’s ability to generate taxable income in future years. The Company performed a detailed review of the considerations influencing our ability to realize the future benefit of the NOLs, including the extent of recently used NOLs, the turnaround of future deductible temporary differences, the duration of the NOL carryforward period, and the Company’s future projection of taxable income. Utilization of our net operating loss and tax credit carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss or tax credits before utilization. The Company increased its valuation allowance against deferred tax assets by $7.4 million in 2011 and $3.8 million in 2010 with a total valuation allowance of $29.7 million at December 31, 2011 representing the amount of its deferred income tax assets in excess of the Company’s deferred income tax liabilities. The valuation allowance was recorded because management was unable to conclude that realization of the net deferred income tax asset was more likely than not. This determination was a result of the Company’s continued losses in its fiscal year ended December 31, 2011, and the uncertainty of and the ultimate extent of growth in the Company’s Security Segment.

The Company follows the appropriate accounting pronouncements which prescribe a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on recognition, classification, interest and penalties, disclosure and transition. At December 31, 2011, the Company did not have any significant unrecognized tax benefits. The total amount of interest and penalties recognized in the statements of operations for the years ended December 31, 2011 and 2010 was insignificant and when incurred is reported as interest expense.

The components of income tax expense (benefit) are:

	Year Ended December 31,
	2011			2010
	(In thousands)
Current (principally state taxes)	$	(80	)	$	30
Deferred		-			-
Total income tax (benefit) expense	$	(80	)	$	30

The significant components of deferred income tax (benefit) expense attributed to the loss for the years ended December 31, 2011 and 2010, are as follows:

	Year Ended December 31,
	2011			2010
	(In thousands)
Deferred tax (benefit) expense	$	(67	)	$	1,789
Loss carryforward		(7,364	)		(5,602	)
Valuation allowance for deferred tax assets		7,431			3,813
	$	-		$	-

A reconciliation of income tax benefit computed at the U.S. federal statutory tax rates to total income tax expense is as follows:

	Year Ended December 31,
	2011			2010
	(In thousands)
Tax at U.S. federal statutory rate	$	(1,712	)	$	(6,073	)
State taxes, net of federal benefit		(49	)		26
Nondeductible costs and other acquisition accounting adjustments		21			2,312
Reconcilement of net operating loss and capital loss carryforwards		(5,771	)		-
Realization of federal tax credit		-			(48	)
Valuation allowance for deferred tax assets		7,431			3,813
Total income tax (benefit) expense	$	(80	)	$	30

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 740

-SubTopic 10

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 109

-Paragraph 136, 172

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 109

-Paragraph 43, 44, 45, 46, 47, 48, 49

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 08

-Paragraph h

-Article 4

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 740

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 740

-SubTopic 10

-Section 50

-Paragraph 9

-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 740

-SubTopic 10

-Section 50

-Paragraph 15

-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 235

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.4-08.(h))

-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

+ Details

MACE SECURITY INTERNATIONAL INC 10-K