5. Income Taxes

The Company had a provision (benefit) for income taxes for the nine months ended September 30, 2014 and 2013 that consisted of the following (in thousands):


	Nine Months Ended
	September 30,
	2014		2013
Current:
Federal	$	—	$	—
State		9		5

Total		9		5
Deferred:
Federal		—		(7	)
State		—		(1	)

Total		—		(8	)
Total:
Federal		—		(7	)
State		9		4

Total	$	9	$	(3	)

The Company annually evaluates the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company, however, has considered results of current operations and concluded that it is more likely than not that the deferred tax assets will not be realizable. As a result, the Company has determined that a valuation allowance of $36.1 million and $31.9 million is required at September 30, 2014, and December 31, 2013, respectively. The valuation allowance increased primarily due to an increase in deferred tax assets arising from current year’s net operating losses. The tax effects of temporary differences that gave rise to deferred tax assets at September 30, 2014, and December 31, 2013, were as follows (in thousands):


	September 30,			December 31,
	2014			2013
Deferred tax assets:
Net operating losses	$	34,515		$	28,973
Capital losses		4,153			4,153
Other asset reserves		—			1
Accrued expenses		106			23

Total deferred tax assets		38,774			33,150
Valuation allowance		(36,053	)		(31,931	)

		2,721			1,219

Deferred tax liabilities:
State deferreds		(1,530	)		(1,219	)
Other investment		(1,191	)		—

Total deferred tax liabilities		(2,721	)		(1,219	)

Net deferred taxes	$	—		$	—

As of September 30, 2014, the Company has federal net operating losses (“NOLs”) of approximately $90.1 million and post-apportionment state NOLs of approximately $43.3 million, respectively. The federal NOLs carry forward for 20 years and being to expire in 2021 through 2035. The state post-apportioned NOLs are from various states and begin to expire in 2014 through 2035.

The Company also has pre-apportionment NOLs from the two jurisdictions of New York State and New York City totaling $116.2 million at September 30, 2014. Since the Company has no revenue-generating operations in New York State and New York City, management has determined that none of the NOLs should be recognized. If the Company were to commence operations in New York State or New York City in future years, the realizability of the NOLs and related deferred tax assets will be assessed at such time. The NOLs from New York State and New York City carry forward for 20 years and begin to expire in 2021 through 2035.

The federal and state NOLs may be subject to certain limitations under Section 382 of the Internal Revenue Code, which could significantly restrict the Company’s ability to use the NOLs to offset taxable income in subsequent years. The Company completed a review of any potential limitation on the use of its net operating losses under Section 382 on August 9, 2008, and an update to this review on June 7, 2013. Based on such reviews, the Company does not believe Section 382 of the Internal Revenue Code will adversely impact its ability to use its current net operating losses to offset future taxable income, if any, including any income from Three Lions.

The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:


	September 30,
	2014			2013
Federal tax (benefit) rate		(34.0	)%		(34.0	)%

Increase (decrease) in taxes resulting from:
State income taxes		(5.8	)		(5.8	)
Change in valuation allowance		39.6			39.4
Permanent differences		0.2			0.4
Minimum tax		0.1			0.2

		0.1	%		0.2	%