INCOME TAXES

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Note 10. INCOME TAXES

The Company is subject to taxation in the U.S. and the State of New Jersey. At December 31, 2012 and 2011, FPI had gross deferred tax assets calculated at an expected blended rate of 39.94% of approximately $5,843,000 and $5,136,000 respectively. As the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of approximately $5,843,000 and $5,136,000 has been established at December 31, 2012 and 2011, respectively.

The significant components of the Company’s net deferred tax assets (liabilities) at December 31, 2012 and 2011 are as follows:

	December 31, 2012		December 31, 2011
Gross deferred tax assets:
Net operating loss carry-forwards	$	4,605,967	$	3,503,965
Stock based expenses		994,016		1,396,526
Tax credit carry-forwards		243,441		222,134
All others		-		13,139
		5,843,425		5,135,764
Gross deferred tax liabilities:
Deferred tax asset valuation allowance		(5,843,425)		(5,135,764)
Net deferred tax asset (liability)	$	-	$	-

Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate primarily due to the following:

	December 31, 2012		December 31, 2011
Income taxes benefit (expense) at statutory rate	34.00%		34.00%
State income tax, net of federal benefit		(5.94)%		(5.94)%
Permanent differences
Meals & entertainment		(0.07)%		(0.11)%
Share-based compensation – Incentive Stock Options		(3.84)%		(3.59)%
Change in valuation allowance		(24.16)%		(24.36)%
		0%		0%

At December 31, 2012, the Company has gross net operating loss carry-forwards for federal income tax purposes of approximately $12,900,000, which expire in the years 2023 through 2032. The Company has gross state net operating loss carryforwards of approximately $3,600,000, which expire in the years 2031 and 2032.  The Company also has federal research and development carryforwards of approximately $243,000 which expire twenty years from the date of inception.  The net increase in the valuation allowance in the years ended December 31, 2012 and 2011 was approximately $708,000 and $1,306,000, respectively.

The Company is subject to the net operating loss utilization provisions of Section 382 of the Internal Revenue Code. Due to the reverse merger/recapitalization, the Company is restricted in the future use of net operating loss and tax credit carry-forwards generated by FPM before the effective date of the merger.   Other ownership changes may cause the net operating losses to further be limited.  Both of the separate loss years’ net operating losses will be subject to possible limitations concerning changes of control and other limitations under the Internal Revenue Code. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate.

Topic 740 in the Accounting Standards Codification (ASC 740) prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2012, the Company had taken no uncertain tax positions that would require disclosure under ASC 740.