Annual report pursuant to section 13 and 15(d)

15. Income Taxes

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15. Income Taxes
12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
15. Income Taxes

Due to the operating losses incurred, the Company has no current income tax provision for the years ended December 31, 2012 and 2011. The provision for income taxes consists of the following:

      2012   2011
Deferred          
  Federal   $ (1,148,000) $ (1,416,000)
  State      -    -
      (1,148,000)   (1,416,000)
Change in valuation allowance     1,148,000   1,416,000
    $                           - $                           -

  

The following reconciles the Federal statutory tax rate to the effective income tax rate:

 

      2012   2011
      %   %
Federal statutory rate     (34.0)   (34.0)
State net of federal tax     (3.9)   -
Other     15.9   2.2
Change in valuation allowance      22.0    31.8
Effective income tax rate                               -                             -

 

The components of the Company's deferred tax assets and liability consist of the following at December 31, 2012 and 2011 respectively:

      2012   2011
Deferred tax assets          
     Net operating losses   $ 44,144,000 $ 37,554,000
     Allowance for doubtful accounts     102,000   81,000
     Derivative liability     405,000   -
     Accrued liabilities and other     398,000   959,000
     Property and equipment     120,000   4,737,000
      45,169,000   43,331,000
Deferred tax liability          
     Debt discount     690,000   -
Deferred tax asset, net     44,479,000   43,331,000
     Less valuation allowance     (44,479,000)   (43,331,000)
    $ - $ -

At December 31, 2012 and 2011, the Company has net operating loss carry forwards of approximately $129.2 million and $123.8 million, respectively, that may be applied against future taxable income, and which expire in various years from 2014 to 2032. Under the Tax Reform act of 1986, the amounts of and benefits from net operating loss carry forwards and credits may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. The amount of such limitation, if any has not been determined. 

The Company maintains a full valuation allowance for its net deferred tax assets, as the Company’s management has determined that it is more likely than not that the Company will not generate sufficient future taxable income to be able to utilize these deferred tax assets.