Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Taxes

Note 13. Income Taxes

The provision for income taxes consists of the following components:

	Year Ended December 31,
	2012		2011
Current expense	$	-	$	-
Deferred expense		569,582		-
	$	569,582	$	-

The current income tax benefit relates to a reduced level of uncertain tax positions identified in ASC 740 -10 Income Taxes. The components of deferred income tax assets and liabilities are as follows:

	December 31,
	2012			2011
Long-term deferred tax assets:
Stock compensation benefit	$	217,961		$	216,024
Net operating loss carryforward		2,874,832			1,584,490
Total long-term deferred tax assets		3,092,793			1,800,514
Valuation allowance		(2,431,924	)		(255,689	)
		660,869			1,544,825
Long-term deferred tax liabilities:
Intangible assets		0			(467,818	)
Property and equipment		(660,869	)		(507,425	)
Total long-term deferred tax liabilities		(660,869	)		(975,243	)
Net deferred tax assets	$	-		$	569,582

The Company’s federal net operating loss (“NOL”) carryforward balance as of December 31, 2012 was $8,317,418, expiring between 2018 and 2032.

A schedule of the NOLs is as follows:

Tax Year	Net operating loss		NOL Expiration Year
1998	$	184,360		2018
1999		187,920		2019
2000		25,095		2020
2001		104,154		2021
2002		15,076		2022
2003		96,977		2023
2004		78,293		2024
2005		70,824		2025
2006		48,526		2026
2007		180,521		2027
2008		534,087		2028
2009		1,444,831		2029
2010		842,251		2030
2011		1,078,900		2031
Current year taxable loss		3,425,603		2032
	$	8,317,418

The Company's net deferred tax assets before valuation allowance as of December 31, 2012 was approximately $2,431,924, most of which relates to net operating losses that expire from 2018 to 2032. The Company recorded an operating loss for the quarter and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets as we believe it more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the future. During the year ended December 31, 2012, the Company recorded an additional valuation allowance of $2,176,235.

The Company is subject to income taxes in the U.S. federal jurisdiction and a number of state jurisdictions. The tax regulations within each jurisdiction are subject to interpretation of related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for the years before 2009.

The income tax provision differs from the expense that would result from applying statutory rates to income before income taxes principally because of permanent differences and the release of the valuation allowance on net deferred tax assets for which realization is certain. The effective tax rates for 2012 and 2011 were computed by applying the federal and state statutory corporate tax rates as follows:

	Year ended December 31,
	2012			2011
Statutory Federal income tax rate		34	%		34	%
State income taxes		1	%		1	%
Rate Differential		0	%		1	%
Impairment of goodwill		-15	%		0	%
Less valuation allowance		-26	%		-31	%
Loss of expiring NOLs		-1	%		-5	%
		-7	%		0	%

The Company recognizes the financial statement impact of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than–not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Interest and penalties related to unrecognized tax benefits, if any, are classified as income tax expense. The Company has no accrued interest and penalties for the years ended December 31, 2012 and 2011.

A reconciliation of beginning and ending amount of unrecognized tax benefits is as follows:

Balance at January 1, 2011	$	11,400
Additions based on tax positions related to prior years		-
Reductions based on tax positions related to prior years		-
Balance at December 31, 2011	$	11,400
Additions based on tax positions related to the current year		-
Reductions based on tax positions related to the current year		-
Balance at December 31, 2012	$	11,400

As of December 31, 2012 and December 31, 2011, the balance in unrecognized tax benefits was $11,400, respectively. The increases or decreases in each year are the result of management’s assessment that certain positions taken meet or no longer meet the more likely than not criteria established in ASC 740-10.  If these unrecognized tax benefits were ultimately recognized, they would have reduced the Company’s annual effective tax rate.