Note 12 - Income Taxes

Due to our substantial operating losses and the valuation allowance applied against our deferred tax assets, we have not recorded any income tax expense or benefit.

	December 31,		December 31,
	2013		2012
Current:
Federal	$	-	$	-
State		-		-
		-		-
Deferred:
Federal		-		-
State		-		-
		-		-
Provision for income tax, net	$	-	$	-

Income taxes related to our loss from operations differ from the amount computed using the federal statutory income tax rate as follows:

	December 31,		December 31,
	2013		2012

Tax benefit computed at the federal statutory rate	$	(8,466,361)	$	(1,901,595)
State income tax (benefit), net of federal income tax effect		(1,209,480)		(271,656)
Nondeductible permanent differences		6,042,555		(468,568)
Change in valuation allowance		3,633,286		2,641,819
Provision for income taxes	$	-	$	-

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. At December 31, 2013 and 2012, we had available net operating loss carry forwards of $25.7 million and $17.9 million, respectively that expire through 2033.

Nondeductible permanent differences at December 31, 2013 and 2012 result from the recognition of the changes in fair value of derivative liabilities for financial reporting purposes, but will not be a deduction or income for tax purposes.

As of December 31, 2013 and 2012, our deferred tax assets (liabilities) are as follows:

	December 31,		December 31,
	2013		2012

Deferred Tax Assets:
Non-cash interest expense	$	1,677,305	$	1,403,000
Share-based compensation		3,833,855		3,622,057
Other		254,740		254,740
Net operating loss carry forward		10,098,134		6,950,951
Less: Valuation allowance		(15,561,640)		(11,928,354)
		302,394		302,394
Deferred Tax Liabilities:
Property and equipment		(302,394)		(302,394)

Net deferred asset (liability)	$	-	$	-

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are current with our filing of our federal and state tax returns. Our income tax returns are open to examination by federal and state authorities, based on statute of limitations, which is three years. We do not have any amount recorded for any unrecognized tax benefits as of December 31, 2013 and 2012, nor did we record any amount for the implementation of ASC 740. Our policy is to record estimated interest and penalty related to underpayment of income taxes or unrecognized tax benefits as a component of our income tax provision. During the years ended December 31, 2013 and 2012, we did not recognize any interest or penalties in our statement of operations and there are no accruals for interest or penalties at December 31, 2013 or 2012.