Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

Note 9 Income Taxes

As discussed in Note 3, “Restatement of Prior Period Financial Statements,” at September 30, 2012, as a result of the Company's historical and ongoing operating losses, the Company determined that it would not, using the criteria set forth in ASC Topic 740, “Income Taxes”, be able to realize the value of its then recorded deferred tax asset and, therefore, recorded a valuation allowance against the carrying value of said asset and a charge to income tax expense.

On March 5, 2013, the Company's audit committee of its Board of Directors concluded that the Company erred by not reflecting this charge against its 2011 results of operations and restating its prior year financial statements.  At December 31, 2011, the Company had a carrying value of $3,949,819 with respect to its deferred tax asset. The following tabular information for 2011 has been restated to reflect the establishment of a full valuation allowance against the carrying value of the Company's deferred tax asset as of December 31, 2011.

The provision for income taxes consisted of the following:

			2012		2011
					Restated
Current expense
	Federal	$	-	$	-
	State		8,996		23,395
	Total current		8,996		23,395
Deferred expense
	Federal		-		2,689,480
	State		-		-
	Total deferred		-		2,689,480
Total income tax expense		$	8,996	$	2,712,875

Reconciliation between the provision for income taxes and income taxes computed by applying the statutory rate is as follows:

			2012		2011
					Restated
Tax provision at statutory rate of 34%		$	(1,079,718)	$	(1,252,935)
Add (deduct):
	State income taxes, net of federal taxes		14,244		15,439
	Refund of prior year state tax overpayment		(12,586)		-
	Other non-deductible		-		552
	Valuation allowance		1,087,056		3,949,819
Total income tax expense		$	8,996	$	2,712,875

The provision tax effects of temporary differences that give rise to the deferred tax assets and liabilities as of December 31 were as follows:

				2012		2011
						Restated
Current deferred tax asset
	Accrued bonus		$	2,856	$	17,085
	Valuation allowance			(2,856)		(17,085)
Total current deferred tax asset				-		-
Deferred tax assets
	Property and equipment			2,885,929		2,008,277
	Net operating loss carryforwards			1,975,820		1,761,195
	Stock options			94,399		87,680
	AMT tax credit			69,415		69,415
	State net operating loss carryforwards			41,009		41,009
	Stock grants			28,008		6,167
	Less:
		Valuation allowance		(5,094,580)		(3,973,743)
Total deferred tax asset			$	-	$	-

The Company follows FASB ASC Topic 740 “Income Taxes” for presentation of its income taxes.  The Company currently does not have any uncertain tax positions.  Effective January 1, 2009, the Company adopted the interpretation within the ASC on Income Taxes which relates to Accounting for Uncertainty in Income Taxes.  The interpretation clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements only if that position is more likely than not of being sustained upon examination by the taxing authority.  Interest and/or penalties related to income tax matters are to be recognized in income tax expense.  The adoption of this interpretation did not have a material effect on the Company's financial position or results of operations.  The Company's tax years 2002 and forward are subject to examination. 

As of December 31, 2012, the Company has a federal net operating loss carryforward of approximately $7,615,000 which may be applied against future taxable income and expires beginning in 2022 through 2032.  The Company currently has a full valuation allowance with respect the realizability of this asset.  Also, as of December 31, 2012, the Company has a valuation allowance of $41,009 for its Oklahoma net operating loss carryforward.  The Company currently does not have any operations in Oklahoma.

ASC Topic 740 requires the Company to periodically assess whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets.  In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions.  The Company considers, among other things, the deferred tax liabilities; the overall business environment; the historical earnings and losses; and the Company's outlook for future years.  The Company did not utilize any of its net operating loss for the years ended December 31, 2012 or 2011.

During 2012, the Company determined that it did not have sufficient positive evidence to conclude that it is more likely than not that its net deferred tax assets will be realized.  See Note 3, Restatement of Previously Issued Financial Statements.  The Company will assess the need for a deferred tax valuation allowance on an ongoing basis considering factors such as those mentioned above as well as other relevant criteria.

For the years ended December 31, 2012 and 2011, the Company paid state taxes of $28,000 and $36,307, respectively.