4. Income Taxes

The Company had a provision (benefit) for income taxes for the nine months ended September 30, 2013 and 2012 that consisted of the following (in thousands):


	9/30/2013			9/30/2013
Current:
Foreign	$	—		$	—
Federal		—			—
State		5			4

Total		5			4
Deferred:
Foreign		—			—
Federal		(7	)		—
State		(1	)		—

Total		(8	)		—
Total:
Foreign		—			—
Federal		(7	)		—
State		4			4

Total	$	(3	)	$	4

The Company annually evaluates the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company, however, has considered results of current operations and concluded that it is more likely than not that the deferred tax assets will not be realizable. As a result, the Company has determined that a valuation allowance of $32.4 million and $31.4 million is required at September 30, 2013 and December 31, 2012, respectively. The valuation allowance increased primarily due to an increase in deferred tax assets arising from current year’s net operating losses. The tax effects of temporary differences that gave rise to deferred tax assets as of September 30, 2013, and December 31, 2012, were as follows (in thousands):


	September 30,			December 31,
	2013			2012
Deferred tax assets:
Net operating losses	$	29,740		$	28,824
Capital losses		4,153			3,907
Other asset reserves		93			268
Accrued expenses		23			19

Total deferred tax assets		34,009			33,018
Valuation allowance		(32,354	)		(31,432	)

		1,655			1,586
Deferred tax liabilities:
State deferreds		(1,655	)		(1,586	)

Total deferred tax liabilities		(1,655	)		(1,586	)

Net deferred taxes	$	—		$	—

As of December 31, 2012, the Company had federal NOLs of approximately $75.7 million that will expire from 2021 through 2032. The Company had post-apportionment state NOLs of approximately $44.6 million that will expire from 2013 through 2032. The Company also has pre-apportionment NOLs from New York State and New York City totaling $106.7 million at December 31, 2012. Since the Company has no revenue-generating operations, the apportionment factor is zero and thus no deferred tax asset is recognized. The NOLs from New York State and New York City carry forward for 20 years (expiring between 2020 and 2032). If the Company were to commence operations in New York State or New York City in future years, the apportionment factor would exceed zero resulting in deferred tax assets for which realization would be assessed.

The Company completed a review of any potential limitation on the use of its net operating losses under Section 382 of the Internal Revenue Code on August 9, 2008, and an update to this review on June 7, 2013. Based on such reviews, the Company does not believe Section 382 of the Internal Revenue Code will adversely impact its ability to use its current net operating losses to offset future taxable income, if any, including any income from Three Lions.

The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:


	September 30,
	2013			2012
Federal tax (benefit) rate		(34.0	)%		(34.0	)%
Increase (decrease) in taxes resulting from:
State income taxes		(5.8	)		(5.8	)
Change in valuation allowance		39.4			39.2
Permanent differences		0.4			0.6
Other		0.2			0.3

		0.2	%		0.3	%