Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 6 – INCOME TAXES

 

The Company accounts for income taxes under ASC Topic 740: Income Taxes which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has a net operating loss carry forward for tax purposes totaling approximately $20.8 million at December 31, 2012, expiring through the year 2031. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carry forwards after certain ownership shifts.

 

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for the year ended December 31, 2012 and 2011:

 

    December 31, 2012     December 31, 2011
Tax benefit computed at "expected" statutory rate    $ (1,623,524)     $ (2,965,573)
State income taxes, net of benefit      (178,110)       (54,330)
Permanent differences :              
    Stock based compensation and consulting     14,115       157,125
    Loss (gain) from change in fair value of derivative liability     (54,652)       2,090,541
    Amortization of debt discount     40,511       212,047
    Impairment loss                         -          170,000
               
Increase in valuation allowance      1,801,660       390,190
Net income tax benefit    $ -     $ -

 

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset is as follows:

 

    December 31, 2012     December 31, 2011
Deferred tax assets:   $ 10,003,984     $ 8,202,324
    Net operating loss carryforward
    Other     -       -
Total deferred tax assets   $ 10,003,984     $ 8,202,324
               
Deferred tax liabilities:              
Book basis of property and equipment in excess of tax basis   $ -     $ -
Total deferred tax liabilities   $ -     $ -
               
Net deferred tax asset before valuation allowance   $ 10,003,984     $ 8,202,324
Less:  valuation allowance     (10,003,984)       (8,202,324)
Net deferred tax asset   $ -     $ -

 

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2012 and 2011, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance was increased by $1,801,660.