Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Text Block]
8.
Income Taxes
 
The Company has adopted the provisions of FASB ASC Topic 740, Income Taxes (“ASC 740”), formerly FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in a company\'s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  Further, ASC 740 gives guidance regarding the recognition of a tax position based on a "more likely than not" recognition threshold; that is, evaluating whether the position is more likely than not of being sustained upon examination by the appropriate taxing authorities, based on the technical merits of the position.  
 
The Company’s federal filings prior to December 31, 2008 and the Company’s California filings prior to December 31, 2007 are no longer subject to examination.
 
The following table summarizes the activity related to the Company\'s unrecognized tax benefits.
 
Balance at December 31, 2010
None
Increases related to current year tax positions
None
Expiration of statute of limitation of the assessment of taxes
None
Other
None
Balance at December 31, 2011
None
 
For the years ended December 31, 2011 and 2010 the provisions for income taxes were as follows:
 
   
2011
   
2010
 
Federal - current
 
$
-
   
$
-
 
State - current
   
3,000
     
2,000
 
Total
 
$
3,000
   
$
2,000
 
 
Under ASC 740, deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
 
Significant components of our net deferred tax assets and liabilities as of December 30, 2011 and 2010 are as follows:
 
   
2011
   
2010
 
Deferred tax assets
           
Net operating loss carryforwards
 
$
3,814,000
   
$
2,859,000
 
Deferred revenue
   
16,000
     
48,000
 
Stock-based compensation
   
613,000
     
62,000
 
Accrued compensation
   
48,000
     
47,000
 
Derivative liability
   
600,000
     
30,000
 
Depreciation and amortization
   
4,691,000
     
3,000
 
Other
   
9,000
     
28,000
 
Total deferred tax assets
   
9,791,000
     
3,077,000
 
Valuation allowance for net deferred tax assets
   
(9,791,000
)
   
(3,077,000
)
Total deferred tax assets
 
$
-
   
$
-
 
 
The Company has provided a valuation allowance against deferred tax assets recorded as of December 31, 2011 and 2010 due to uncertainties regarding the realization of such assets.
 
The net change in the total valuation allowance for the year ended December 31, 2011 was an increase of approximately $6,714,000.  The net change in the total valuation allowance for the year ended December 31, 2010 was an increase of approximately $398,000.  In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.  The Company considers projected future taxable income and planning strategies in making this assessment.  Based on the level of historical operating results and projections for the taxable income for the future, the Company has determined that it is more likely than not that the deferred tax assets will not be realized.  Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to zero.  There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards, either due to ongoing operating losses or due to ownership changes, which limit the usefulness of the loss carryforwards.
 
As of December 31, 2011, the Company has available net operating loss carryforwards of approximately $9,600,000 for federal income tax purposes, which will start to expire in 2026.  The net operating loss carryforwards for state purposes are approximately $9,600,000 and will start to expire in 2016.  
 
The difference between the provision for income taxes and income taxes computed using the U.S. federal income tax rate for the years ended December 31, 2011 and 2010 was as follows:
 
   
2011
   
2010
 
Computed “expected” tax expense
 
$
(5,885,000
)
 
$
(418,000
)
Computed “expected” tax expense
   
(1,006,000
)
   
(57,000
)
Cancellation of shares in Merger
   
-
     
74,000
 
Other
   
180,000
     
5,000
)
Change in valuation allowance
   
6,714,000
     
398,000
 
Total
 
$
3,000
   
$
2,000
 
 
The Company has determined that during 2010 it experienced a “change of ownership” as defined by Section 382 of the Internal Revenue Code.  As such, utilization of net operating loss carryforwards and credits generated before the 2010 change in ownership will be limited to approximately $207,000 per year until such carryforwards are fully utilized.  The pre change net operating loss carryforward was approximately $7,000,000.