INCOME TAXES

9 Months Ended

Sep. 30, 2012

INCOME TAXES

INCOME TAXES

8.     INCOME TAXES

A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized.  The Corporation, as of September 30, 2012 had a net operating loss and tax credit carryforwards for tax purposes of approximately $23.8 million, and $2.1 million, respectively.  The net operating loss carryforwards expire twenty years from the date they originated.  These carryforwards, if not utilized, will begin to expire in the year 2023.  A portion of the NOL, approximately $15.0 million, and all of the credit carryforwards are subject to the limitations for utilization as set forth in Section 382 of the Internal Revenue Code.  The annual limitation is $1.400 million for the NOL and the equivalent value of tax credits, which is approximately $.476 million.  These limitations for use were established in conjunction with the recapitalization of the Corporation in December 2004.

The Corporation recognized a deferred tax benefit of approximately $1.458 million for the September 30, 2012 nine month period and a deferred tax liability of $1.071 million for the nine months ended September 30, 2011.  The valuation allowance at September 30, 2012 was approximately $3.3 million.  Management evaluated the deferred tax valuation allowance as of September 30, 2012 and determined that an adjustment to the valuation was not warranted.  The Corporation reduced the valuation allowance by $3.0 million since it was determined that it was “more likely than not” that these benefits would be realized.  The Corporation made this determination after a thorough review of projected earnings and the composition and sustainability of those earnings over the projected tax carryover period.  This analysis substantiated the ability to utilize these deferred tax assets.  The Corporation will continue to evaluate the future benefits from these carryforwards and at such time as it becomes “more likely than not” that they would be utilized prior to expiration will recognize the additional benefits as an adjustment to the valuation allowance.