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Income Taxes
9 Months Ended12 Months Ended
Sep. 30, 2011
Dec. 31, 2010
Income Taxes [Abstract]  
Income Taxes

Note 9 – Income Taxes

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2007 through 2010. Our 2004 income tax return was reviewed by the Internal Revenue Service. No material items were discovered and the review was finalized in 2006. Our state income tax returns are open to audit under the statute of limitations for the years ending December 31, 2007 through 2010.

Due to the recent history of tax losses, the economic conditions in which we operate, recent organizational changes, and near term projections, we concluded that it is more likely than not that any of our deferred income tax assets will be realized. As a result, we have recorded a full valuation allowance for the net deferred tax asset.

Note 10 – Income Taxes

Provision (Benefit) for Income Taxes

The provision for income taxes consists of the following:

 

$1,599,62555 $1,599,62555
     2010     2009  

Current tax provision

    $ —        $ —     

Deferred tax (benefit) provision

      —          —     
  

 

 

    

 

 

  

Total tax (benefit) provision

    $ —         $ —      
  

 

 

    

 

 

  

A reconciliation of the expected Federal statutory rate of 34% to the Company's actual rate as reported for each of the periods presented is as follows:

 

$1,599,6251 $1,599,6251
     2010     2009  

Expected statutory rate

      (34 )%      (34 )% 

State income tax rate, net of federal benefit

      (4 )%      (4 )% 

Permanent differences

      4 %      99 % 

Impairment differences

      —          —     

Valuation allowance

      34 %      (68 )% 

Other

      —   %      7 % 
  

 

 

    

 

 

  
     —          —     

Deferred Income Taxes

Deferred income taxes are the result of timing differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry-forwards.

The Company assesses temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in the consolidated balance sheets. The Company evaluates the realizability of its deferred tax assets and assesses the need for a valuation allowance on an ongoing basis. In evaluating its deferred tax assets, the Company considers whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes. In assessing the need for a valuation allowance the Company must project future levels of taxable income. This assessment requires significant judgment. The Company examined the evidence related to a recent history of tax losses, the economic conditions in which it operates, recent organizational changes and, its forecasts and projections. As a result, the Company was unable to support a conclusion that it is more likely than not that any of its deferred tax assets will be realized. The Company therefore has recorded a full valuation for the net deferred tax assets as of December 31, 2010 and 2009.

 

The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company's deferred income tax assets satisfies the realization standard, the valuation allowance will be reduced accordingly. The 2010 net increase of approximately $1.8 million in valuation allowance related to deferred tax assets from operating loss carryforwards.

The following is a schedule of the deferred tax assets and liabilities as of December 31, 2010 and 2009:

 

     2010     2009  

Deferred tax assets:

     

Net operating loss carry forward

    $ 5,871,000      $ 4,445,000   

Intangible assets

      4,984,000        5,225,000   

Deferred rent

      381,000        242,000   

Depreciation

      272,000        —     

Allowance for doubtful accounts

      406,000        689,000   

Stock based expenses

      324,000        325,000   

Other

      214,000        214,000   
  

 

 

    

 

 

  

Subtotal

      12,452,000        11,140,000   

Less valuation allowance

      (12,452,000 )      (10,641,000 ) 
  

 

 

    

 

 

  

Total

      —          499,000   

Less: current portion

      —          —     

Non-current portion

      —          499,000   

Deferred tax liabilities:

     

Depreciation

      —          499,000   

Intangibles

      —          —     
  

 

 

    

 

 

  

Total

      —          499,000   

Less: current portion

      —          —     
  

 

 

    

 

 

  

Non-current portion

      —          499,000   
  

 

 

    

 

 

  

Total deferred tax assets (liabilities)

      —          —     
  

 

 

    

 

 

  

The net operating losses amounted to approximately $15.4 million and expire beginning 2022 through 2030.

Under the Internal Revenue Code of 1986, as amended, these losses can be carried forward twenty years. The Company has approximately $2.8 million of carry forward deductions from 2006 relating to stock options exercised as of December 31, 2010.

The adoption of provisions, required by ASC 740, did not result in any adjustments.

The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2007 through 2010. The Company and its subsidiaries state income tax returns are open to audit under the statute of limitations for the years ending December 31, 2007 through 2010.

The Company recognizes interest and penalties related to income taxes in income tax expense. The Company had incurred no penalties and interest for the years ended December 31, 2010 and 2009.