Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes

N) Income Taxes

The Company accounts for income taxes using the asset and liability method described in FASB ASC 740-10, Income Taxes, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. At September 30, 2011 and December 31, 2010, the Company had a deferred tax asset which was fully reserved by a valuation allowance to reduce the deferred tax asset to the amount that is expected to be realized.

As a result of the Merger, the Company’s tax losses will be limited pursuant to Section 382. Subsequent to the Merger, the Company will be limited by a formula as to annual use of losses and other tax benefits. In general, the formula would be the Adjusted Long-Term tax – exempt rate for ownership changes, which is now 4.55%, but which is subject to change every month, times the value of the equity of the Company at the date of the Merger. Any unused limitations can carry forward.

The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of September 30, 2011, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

By statute, tax years 2007 through 2010 remain open to examination by the major taxing jurisdictions to which the Company is subject.