(9) Income Taxes

The Company has no income tax provision, current or deferred, relating to U.S. federal, state or local income taxes.

A reconciliation of income tax expense to the amount computed by applying the Federal income tax rate to loss before provision for income taxes as of December 31, 2011 and 2010 is as follows:


	2011			2010
Income tax credit at statutory rates	$	(1,143,603	)	$	(1,386,470	)
Nondeductible expenses		4,699			5,618

State income tax, net of federal benefits		(172,045	)		(196,471	)
Other		9,700			29,187
Increase in valuation allowance		1,301,249			1,548,136

	$	—		$	—

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 income taxes consist of the following:


	As of December 31,
	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	30,549,000		$	31,689,000
Capital loss carryforwards		109,000			109,000
Inventory and other allowances		36,000			39,000
Charitable contribution carryforwards		2,000			1,000
Excess (tax) book depreciation		218,000			49,000
Excess (tax) book amortization		58,000			55,000
Share-based compensation		1,045,000			920,000
Other accrued costs		290,000			318,000

Total deferred tax assets		32,307,000			33,180,000

Less: Valuation allowance		(32,307,000	)		(33,180,000	)

Deferred income taxes	$	—		$	—

The valuation allowance decreased approximately $0.9 million and increased approximately $1.5 million for the years ended December 31, 2011 and 2010, respectively (net of approximately $2.2 million and $0.7 million for 2011 and 2010, respectively, for expiring net operating loss carryforwards and credits) due principally to the increase in the net operating loss carryforward and uncertainty as to whether future taxable income will be generated prior to the expiration of the carryforward period. In 2011, the change in deferred tax assets also included a decrease of approximately $0.1 million to beginning of year net operating loss carryforward, and a corresponding decrease in beginning of year valuation allowance for changes in tax estimates recorded when the 2010 tax returns were filed. Under the Internal Revenue Code, certain ownership changes, including the prior issuance of preferred stock and the Company's public offering of common stock, may subject the Company to annual limitations on the utilization of its net operating loss carryforward. As of December 31, 2011, the amounts subject to limitations has not yet been determined.

The Company has net operating loss carryforwards for tax purposes of approximately $78 million on December 31, 2011, which expire between 2012 and 2031. The company has capital loss carryforwards for tax purposes of approximately $0.3 million on December 31, 2011 which expire in 2014.

The gross deferred tax assets and valuation allowance at December 31, 2010, each increased $0.9 million from amounts previously reported. Deferred tax assets related to share-based compensation are now presented gross of a valuation allowance as opposed to net of a valuation allowance.

During 2011, the state of Illinois suspended the use of net operating loss carryforwards for a four year period beginning 2011, extending the term of all net loss carryforwards by a corresponding four years.