Income Taxes

3 Months Ended

Jun. 30, 2011

Income Taxes

Income Tax Disclosure [Text Block]

NOTE 12 – INCOME TAXES

The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns.  Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

The Company incurred no income taxes for the periods ended June 30, 2011 and June 30, 2010 except for $800 each year for state franchise taxes.  For the three and six months ended June 30, 2011 the Company had incurred a loss and had a state income tax payable of $800 at June 30, 2011.  No income tax benefit was recognized as of June 30, 2011 and June 30, 2010 as a result of the valuation allowance applied to deferred tax assets, due to the uncertainty of recognizing any future tax benefits from the net operating loss (“NOL”).

The Company’s net loss of $522,377 for the nine months ended June 30, 2011 will be carried forward to offset future taxable income.  As of June 30, 2011, the Company’s federal NOL is approximately $636,000 expiring in 2025, and its California NOL is approximately $545,000 expiring 2015. The Company has book/tax differences of approximately $401,000 comprised of accrued officer’s compensation of $110,000, accrued consulting of $180,000 and accrued interest of $111,000. These differences result in a deferred tax asset of approximately $136,000.  The federal and California NOLs result in a deferred tax asset of approximately $178,000.  Due to the uncertainty of recognizing any future benefit, the Company has recorded a valuation allowance of $314,000 to offset the deferred tax asset.  The valuation allowance increased $168,000 from September 30, 2010, as a result of the uncertainty of utilizing the deferred tax assets. 

The deferred tax asset comprised the following at June 30, 2011:

Deferred tax asset:
	Federal benefit of NOL carryover	$              136,000
	California benefit of NOL carryover	42,000
	Accrued officer's compensation	37,000
	Accrued consulting	61,000
	Accrued interest	38,000
	Total	314,000
	Valuation allowance	(314,000)
	Net deferred tax asset	$                      -

The Company recognized approximately no increase in the liability for unrecognized tax benefits.  The Company has no tax position as of June 30, 2011 for which the ultimate deductibility is highly certain but for which there is uncertainty about such timing of such deductibility.  The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.  No such interest or penalties were recognized during the periods presented.  The Company had no accruals for interest and penalties at June 30, 2011.  The Company’s utilization of any net operating loss carry forward may be unlikely as a result of its continued losses.