Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
Income Taxes

NOTE 9 – 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, 2011, 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, 2011 and 2010:
 
   
December 31,
2011
   
December 31,
2010
 
Tax benefit computed at "expected" statutory rate 
   $ (2,965,573 )   $ (3,936,998 )
State income taxes, net of benefit 
     (54,330 )     (62,996 ) 
Permanent differences :
                
    Stock based compensation and consulting
     157,125       1,245,250  
    Derivative expense
     -       1,108,426  
    Loss from change in fair value of derivative liability
     2,090,541       846,686  
    Amortization of debt discount
     212,047       133,379  
    Impairment loss
     170,000       354,633  
    Other permanent differences
     -       123,286  
                 
Increase in valuation allowance 
     390,190       188,334  
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,
2011
   
December 31,
2010
  
Deferred tax assets:
    Net operating loss carryforward
   $ 8,202,324     $ 7,812,134  
    Other
     -       -  
Total deferred tax assets
   $ 8,202,324     $ 7,812,134  
                 
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
   $ 8,202,324     $ 7,812,134  
Less:  valuation allowance
     (8,202,324 )     (7,812,134 )
Net deferred tax asset
   $ -     $ -  
 
After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2011 and 2010, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance was increased by $390,190.