Annual report pursuant to Section 13 and 15(d)

Note 16 - Income Taxes

v2.4.0.6
Note 16 - Income Taxes
12 Months Ended
Dec. 31, 2012
Notes  
Note 16 - Income Taxes

NOTE 16 - INCOME TAXES

 

The components of the income tax provisions for 2012 and 2011 are as follows:

 

 

 

2012

2011

Current provision:

 

 

  Federal

$                -

$                   -

  State

1,600

-

 

1,600

 

Deferred benefit:

 

 

  Federal

(290,248)

(139,049)

  State

(75,465)

(36,153)

 

(365,713)

(175,201)

 

 

 

Change in valuation allowance

365,713

175,201

 

 

 

Total Provision

$        1,600

$                  -

 

The difference between the income tax provision and income taxes computed using the U. S. federal income tax rate of 34% consisted of the following:

 

 

 

 

2012

2011

Provision at statutory rate

34.0%

34.0%

State taxes, net of federal benefit

5.8%

5.8%

Other

1.3%

1.3%

Change in valuation allowance

(41.4%)

(39.8%)

 

 

 

Total

(0.2%)

0.0%

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.  Significant components of the Company’s deferred taxes as of December 31, 2012 and 2011 are as follows:

 

 

 

 

 

 

2012

2011

Deferred tax assets:

 

 

  Net operating loss carry forwards

$     818,573

$        255,867

  Share-based compensation

62,039

-

  Other

11,298

42,740

 

 

 

Total deferred tax assets

891,910

298,607

Valuation allowance

(664,320)

 (298,607)

 

227,590

-

 

 

 

Deferred tax liabilities:

 

 

  Tax deductible licensing agreement

(132,300)

-

  Accrual to cash

 (94,516)

-

  Other

(774)

-

 

 

 

Total deferred tax assets (liabilities)

 (227,590)

-

 

 

 

Net deferred tax assets (liabilities)

$               -

$                -

 

 

A full valuation allowance has been provided against the Company’s deferred tax assets at December 31, 2012 as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences.

 

The Company has federal and California net operating losses (NOLs) of approximately $1,910,769 and $1,910,769, respectively which begin to expire in the years beginning in 2029 and 2029 for federal and state purposes, respectively.  Pursuant to Section 382 of the Internal Revenue Code, use of the Company’s NOLs and credit carry forwards may be limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three-year period.

 

The Company also has federal credits that begin to expire 2027 and state tax credits that may be carried forward indefinitely.

 

The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards as set forth in ASC Topic 740. Income Taxes, regarding accounting for uncertainty in income taxes.  Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled.  There are no unrecognized benefits related to uncertain tax positions as of December 31, 2012.  The Company does not anticipate that there will be material change in the liability for unrecognized tax benefits within the next 12 months.

 

Interest and penalties associated with the unrecognized tax benefits are recorded in nonoperating income and expenses and selling, general and administrative expenses, respectively.  As of December 31, 2012, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits.  As of December 31, 2012, the Company’s federal tax returns are open to audit under the statute of limitations for the years 2009 and later, and the Company’s state tax returns generally are upon to audit under statues of limitations for the years 2009 and later.  However, if NOLs that originated in earlier years are utilized in the future, the amount of such NOLs from those earlier years remain subject to review by tax authorities.