Income Taxes

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Income Taxes

4. Income Taxes

Income tax expense totaling approximately $25 has been recorded for the three and nine months ended September 30, 2011.

As of September 30, 2011 and December 31, 2010, the Company’s net deferred tax assets totaled approximately $7,802, and are primarily composed of net operating loss carry forwards (NOLs).  These NOLs total $13,621 for federal and $19,374 for state purposes, with expirations starting in 2017 through 2028.

In order to fully utilize the net deferred tax assets, the Company will need to generate sufficient taxable income in future years to utilize its NOLs prior to their expiration. ASC Topic 740, “Income Taxes”, requires the Company to analyze all positive and negative evidence to determine if, based on the weight of available evidence, the Company is more likely than not to realize the benefit of the net deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon the Company’s conclusions regarding, among other considerations, estimates of future earnings based on information currently available, current and anticipated customers, contracts and product introductions, as well as historical operating results and certain tax planning strategies.

The Company has evaluated the available evidence and the likelihood of realizing the benefit of its net deferred tax assets. From its evaluation the Company has concluded that based on the weight of available evidence, it is more likely than not to not realize a portion of the benefit of its net deferred tax assets recorded at September 30, 2011. Accordingly, for the nine months ended September 30, 2011, the Company has established a valuation allowance totaling approximately $1,047 for the portion of benefit of its federal and state deferred tax assets that more likely than not will not be realized. This represents a $727 increase to the valuation allowance of $320 the Company established at December 31, 2010 for the portion of benefit of its state deferred tax assets that more likely than not will not be realized. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of September 30, 2011.