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INCOME TAXES
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
INCOME TAXES

 

NOTE 5 – INCOME TAXES

 

The Company follows FASB ASC 740-10-10 whereby an entity recognizes deferred tax assets and liabilities for future tax consequences or events that have been previously recognized in the Company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of enacted tax law. The effects of future changes in tax laws or rates are not anticipated.

 

At December 31, the Company has a net operating loss (“NOL”) that approximates $12.5 million. Consequently, the Company may have NOL carryforwards available for federal income tax purposes, which would begin to expire in 2019. Due to changes in ownership, a portion of the NOL carryforward may be subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income.

 

The income tax benefit (provision) consists of the following:

  

    Year Ended   Year Ended   Year Ended   Year Ended
    December 31,   December 31,   December 31,   December 31,
    2011   2010   2009   2008
                 
                 
Current   $       142,000   $      272,000   $      209,000   $      288,000
Deferred              97,000             23,000             75,000           456,000
Change in valuation allowance           (239,000)          (295,000)          (284,000)          (744,000)
                 
    $                  -   $                 -   $                 -   $                 -

 

The following is a reconciliation of the tax derived by applying the U.S. Federal Statutory Rate of 35% to the earnings before income taxes and comparing that to the recorded tax provisions:

 

 

 

      2011   2010   2009   2008
      Amount   %   Amount   %   Amount   %   Amount   %
U.S federal income tax benefit at                                
    Federal statutory rate      $     (226,000)    (34)    $     (253,000)    (36)    $(243,000)    (35)    $(326,000)    (35)
State tax, net of federal tax effect            (38,000)      (6)            (42,000)      (6)        (41,000)      (6)        (54,000)      (6)
Non deductible share based compensation           25,000       4                      -              -                 -              -      (364,000)    (39)
Change in valuation allowance           239,000     36           295,000     42       284,000     41       744,000     80
                                   
       $                -              -    $                -              -    $            -              -    $            -              -

 

 

The primary components of the Company’s December 31, 2011, 2010, 2009 and 2008 deferred tax assets, liabilities and related valuation allowances are as follows:

 

 

 

    December 31,   December 31,   December 31,   December 31,
    2011   2010   2009   2008
                 
Deferred tax asset for NOL carryforwards   $     3,279,000   $   3,137,000   $   2,865,000   $   2,655,000
Deferred tax liability for intangibles           (165,000)          (165,000)          (165,000)          (165,000)
Non deductible share based compensation              47,000             24,000             17,000             16,000
Non deductible accrued compensation            237,000           163,000           147,000             74,000
Valuation allowance        (3,398,000)       (3,159,000)       (2,864,000)       (2,580,000)
                 
    $                  -   $                 -   $                 -   $                 -
                 

 

 

 

Management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of such benefits.

 

The Company follows FASB ASC 740-10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information.

 

The Company has not filed its corporate income tax returns since 2007. Because net operating losses were incurred for all years in which income tax returns have yet to be filed, management does not believe that there is any tax liability associated with the unfiled income tax returns. The Company intends to become current with its tax filings by September 30, 21012.

 

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statement of operations. As of December 31, 2011, 2010, 2009 and 2008, the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2011, 2010, 2009 and 2008. The Company did not recognize any interest or penalties during 2011, 2010, 2009 and 2008 related to unrecognized tax benefits.