10. Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

10. INCOME TAXES

Because the Company has incurred net losses, and has provided a full valuation allowance against deferred tax assets, its tax provision is zero for the years ended December 31, 2012 and 2011.

The differences between income taxes computed using the statutory U.S. federal income tax rate and the provision (benefit) for income taxes were as follows:

	2012			2011
Pre-tax net loss	$	(9,820,625	)	$	(9,053,764	)
Amount computed using the Statutory U.S. federal rate	$	(3,339,012	)	$	(3,078,280	)
Increase (reduction) in taxes resulting from valuation allowance		3,186,987			1,788,545
Loss on extinguishment of debt		—			934,842
Fair value adjustment of warrants		(202,283	)		(863,361	)
Interest on debt treated as equity		13,284			614,065
Stock-based compensation—ISO		131,221			180,025
Stock offering costs		—			316,478
Other		209,803			107,686
Provision (benefit) for income taxes	$	—		$	—

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:

	2012			2011
Current deferred tax asset:
Compensation Reserves	$	302,196			41,911
Deferred revenue		—		$	3,069
Prepaid fees		56,523			113,341
Warranty reserve		89,420			47,600
Other		55,613			10,770
		503,752			216,691
Valuation allowance		(503,752	)		(216,691	)
Net current deferred tax asset	$	—		$	—
Noncurrent deferred tax asset:
Stock based compensation		1,613,248			1,207,010
Net operating loss		8,580,265			6,086,051
Other		1,143			(2,309	)
		10,194,656			7,290,752
Valuation allowance		(10,194,656	)		(7,290,752	)
Net noncurrent deferred tax asset	$	—		$	—
Total	$	—		$	—

The Company has performed the required assessment of positive and negative evidence regarding the realization of deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred income tax assets and liabilities, estimates of projected future taxable income and tax planning strategies.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the Company’s historical net losses, management does not believe that it is more likely than not that the Company will realize the benefits of these deferred tax assets and, accordingly, a full valuation allowance has been recorded against the deferred tax assets as of December 31, 2012 and 2011.

As a result of certain realization requirements of Accounting Standards Codification (ASC) Topic 718, Compensation—Stock Compensation, the Company’s deferred tax assets at December 31, 2012 do not include approximately $531,000 of excess tax benefits from the exercise of nonqualified options that are a component of the Company’s NOL carryovers. Equity will be increased by approximately $181,000 if and when such deferred tax assets are ultimately realized for federal income tax purposes. The Company uses ordering pursuant to ASC Topic 740, Income Taxes, for purposes of determining when excess tax benefits have been realized.

The Company has federal and state net operating loss carryforwards of approximately $25.5 million to offset future taxable income which expire between 2012 and 2031. The Company has undergone several equity transactions which may have resulted in an ownership change or changes as defined by Internal Revenue Code Sec. 382. If an ownership change occurred, the use of the Company’s net operating losses (NOLs) may be limited. Because of the Company’s current tax loss position, the Company’s NOLs are not being utilized at this time. The Company will determine whether or not an ownership change has occurred under IRC Sec. 382 before utilizing its NOLs in the future. Also, any future equity raise by the Company may result in an ownership change which would also need to be analyzed under IRC Sec. 382.

The Company did not record interest and penalties related to unrecognized tax benefits in 2012 or 2011.

The following table sets forth a rollforward of the Company’s total uncertain tax positions:

	Years Ended December 31,
	2012		2011
Balance at January 1	$	406,545	$	406,545
Additions based on tax positions related to the current year		—		—
Additions for tax positions of prior years		—		—
	$	406,545	$	406,545

The Company does not anticipate significant increases or decreases in its uncertain tax positions within the next twelve months.

The Company files a U.S. federal income tax return for which the statute of limitations remains open for the 2009 tax year and beyond. U.S. state jurisdictions have statutes of limitations ranging from 3 to 6 years. Currently, we do not have any returns under examination.