INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES [Text Block]

14. INCOME TAXES

The components of the provision for income taxes as of December 31, 2011 and 2010 are as follows:

		2011		2010
Current:
Federal	$	–	$	–
State		–		–
Total current income tax expense		–		–
Deferred:
Federal		–		–
State		–		–
Total deferred income tax expense		–		–
Total	$	–	$	–

The provision for income taxes reconciles to the amount computed by applying the federal and state statutory rates to income before the provision for income taxes as follows:

	2011	2010
Federal statutory rate	35%	35%
State income taxes, net of federal benefits	5%	5%
Valuation allowance	(40)%	(40)%
Total	–%	–%

Significant components of deferred income taxes as of December 31, 2011 and 2010 are as follows :

		2011			2010
Net operating loss carry forwards	$	26,660,000		$	27,080,000
Capital loss carry forward		–			3,563,000
Other tax credits		1,040,000			1,310,000
Stock based compensation		807,000			716,000
Accrued payroll expense		51,000			40,000
Losses on derivatives		6,392,000			6,458,000
Inventory		118,000			261,000
Accrued reclamation expense		214,000			66,000
Other		10,000			15,000
Valuation allowance		(34,805,000	)		(38,957,000	)
Total deferred tax asset		487,000			552,000
Depreciation and amortization		(487,000	)		(552,000	)
Total deferred tax liability		(487,000	)		(552,000	)
Net deferred tax asset	$	–		$	–

The Company records a valuation allowance for certain temporary differences for which it is more likely than not that it will not receive future tax benefits. The Company assesses its past earnings history and trends, sales backlog and projections of future net income. The Company recorded a valuation allowance for the entire amount of the net deferred tax asset in 2011 and 2010 as the Company considered it to be unlikely to recognize sufficient operating income to realize the benefit of these assets over time until the Company has had a reasonable history of net income. Accordingly, the Company recorded a deferred tax valuation allowance in 2011 and prior years to offset the entire deferred tax asset arising from the tax loss carry forward and other temporary differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized, based upon criteria that include a recent history of demonstrated profits. The net change in the valuation allowance was a decrease of $4,152,000 and a decrease of $693,000 in 2011 and 2010, respectively. The Company will continue to review this valuation allowance and make adjustments as appropriate.

The tax benefits associated with employee exercises of non–qualified stock options and disqualifying dispositions of stock acquired with incentive stock options reduce income taxes currently payable. However, no benefits were recorded to additional paid–in–capital in 2011 or 2010 because their realization was not more likely than not to occur and consequently, a valuation allowance was recorded against the entire benefit.

At December 31, 2011, the Company had federal and state net operating loss (“NOL”) carry forwards of approximately $73,400,000 and $21,400,000, respectively. The Company also had a capital loss carry forward of approximately $9,000,000 which expired in 2011. The NOL carry forwards expire in the years 2012 through 2031, and 2012 through 2016, for federal and state purposes, respectively. The Company believes that a change of control in accordance with section 382 of the Internal Revenue Code occurred on or before November 5, 2009, therefore, the Company’s ability to fully utilize its net operating loss carry forward in computing its taxable income will be limited to an annual maximum of the value of the Company just prior to the change in control multiplied by the long term tax exempt rate. This potential limitation has not been accounted for within the deferred income tax asset for net operating loss carry forwards; however, as previously discussed, the Company has applied a 100% valuation allowance against its net deferred tax assets as of December 31, 2011 and 2010, respectively.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011 and 2010, the Company made no provisions for interest or penalties related to uncertain tax positions. The tax years 2008 – 2011 remain open to examination by the Internal Revenue Service of the United States.