Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

Deferred taxes represent the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Temporary differences result primarily from the recording of tax benefits of net operating loss carry forwards and stock-based compensation.

As of September 30, 2012, the Company has an insufficient history to support the likelihood of ultimate realization of the benefit associated with the deferred tax asset. Accordingly, a valuation allowance has been established for the full amount of the net deferred tax asset.

The Company’s effective income tax rate differs from the amount computed by applying the federal statutory income tax rate to loss before income taxes as follows:

	September 30, 2012			September 30, 2011
Income tax benefit at the federal statutory rate		-34	%		-34	%
State income tax benefit, net of federal tax benefit		-6	%		-6	%
Change in fair value of warrant liability		14	%		-36	%
Change in valuation allowance for deferred tax assets		26	%		76	%
Total		0	%		0	%

	September 30, 2012			December 31, 2011
Net operating loss carryforwards	$	11,346,262		$	8,274,061
Stock-based compensation		2,924,889			2,730,729
Less valuation allowance		(14,271,151	)		(11,004,790	)
Net deferred tax asset	$	—		$	—

As of September 30, 2012, the Company had federal and California income tax net operating loss carryforwards of approximately $29,201,000 and $28,961,000, respectively. These net operating losses will begin to expire in 2022 and 2016, respectively, unless previously utilized.

Section 382 of the Internal Revenue Code can limit the amount of net operating losses which may be utilized if certain changes to a company’s ownership occur. The Company is in the process of evaluating whether such changes in ownership occurred, and its effect on the utilization of its loss carryforwards.