Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

12. Income Taxes— We follow ASC 740, Income Taxes, which requires use of the asset and liability method of accounting for deferred income taxes and providing deferred income taxes for all significant temporary differences and ASC 740-10-25, Income Taxes — Recognition, which prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return.

Income tax expense of $0.03 million for the six month period ended June 30, 2011 reflected an effective tax rate of 2%, compared to income tax expense of $1.6 million, or an effective tax rate of 59%, for the six month period ended June 30, 2010.

In the first quarter of 2010, our cumulative losses began to exceed our cumulative earnings. Additionally, we are not currently profitable and we determined that as of March 31, 2010 it was no longer probable that we will recover our deferred tax asset. Thus, we established a valuation allowance to completely offset the deferred tax asset. The combined tax effect was to cause a deferred income tax expense for the first quarter of 2010 of $1.6 million. If we are able to return to sustained profitability, and when we can comply with all the requirements of ASC 740-10-25, we should be able to recover all or part of our deferred tax asset.

We had approximately $25,000 in state taxes payable at June 30, 2011.

During the second quarter of 2011, we received notice from the Internal Revenue Service (“IRS”) that it will audit our corporate tax returns for the year ending December 31, 2009. In response to a request from the IRS, in conjunction with this audit of our 2009 tax returns, we agreed to extend the deadline for assessments related to our tax returns for the year ending December 31, 2007. We do not anticipate any material impact on our financial statements as a result of this audit process.