Annual report pursuant to section 13 and 15(d)

NOTE 4 - INCOME TAXES

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NOTE 4 - INCOME TAXES
 12 Months Ended
Dec. 31, 2011
Income Tax Disclosure [Text Block]
NOTE 4 - INCOME TAXES

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilitieis for financial accounting purposes and the amounts used for income tax reporting.  Significant components of the Company’s deferred tax assets and liabilities are as follows:

Significant components of the Company's deferred tax assets and liabilities are summarized as follows:

   
December 31,
   
December 31,
 
   
2011
   
2010
 
Deferred tax assets:
           
   Net operating loss carryforwards
    2,823,000       3,328,000  
   Deferred wages and expenses
    -       517,000  
   Intangibles
    358,000       401,000  
   Derivative liability
    -       470,000  
Share based payments
    32,000       -  
   Other
    16,000       21,000  
   Deferred tax asset
    3,229,000       4,737,000  
   Less: Valuation allowance
    (3,229,000 )     (4,737,000 )
   Net deferred tax asset
    -0-       -0-  

As of December 31, 2011, the Company has net operating loss carry forwards of approximately $7,498,000 that can be utilized to offset future taxable income for Federal income tax purposes. Net operating loss carry forwards expire starting in 2025 through 2030.   Utilization of these net loss carry forwards is subject to the limitations of Internal Revenue Code Section 382.  Because of the current uncertainty of realizing the benefit of the tax carry forward, a valuation allowance equal to the tax benefit for deferred taxes has been established.

During 2011, the Company’s Chief Executive Officer, Mr. Meller waived his rights with respect to the deferred wages and expenses owed to him as of December 31, 2010 and through the period of waiver.  The Company recorded the waiver as a capital contribution and recorded the gain through additional paid in capital.

The full realization of the tax benefit associated with the carry forward depends predominantly upon the Company's ability to generate taxable income during the carry forward period.

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.

 
A reconciliation of the statutory income tax rate to the effective rate is as follows for the period December 31, 2011 and 2010:

   
December 31,
   
December 31,
 
   
2011
   
2010
 
   Federal income tax rate
    34 %     (34 %)
   State income tax, net of federal benefit
    6 %     (6 %)
   Permanent differences
    -       (10 %)
   Effective income tax rate
    40 %     (50 %)
   Effect on valuation allowance
    (40 %)     50 %
   Effective income tax rate
    0.0 %     0.0 %

Accounting for Uncertainty in Income Taxes. prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires that the Company determine whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority.

There were no significant uncertain tax positions taken, or expected to be taken, in a tax return that would be determined to be an unrecognized tax benefit taken or expected to be taken in a tax return that should have been recorded on the Company’s consolidated financial statements for the year ended December 31, 2011 and 2010.  

The federal and state tax returns for the years ending December 31, 2008, 2009 and 2010 are currently open and the tax returns for the year ended December 31, 2011 will be filed by October 15, 2012.

Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, one or more positions may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation.

Interest and penalties related to income tax matters, if applicable, will be recognized as income tax expense. During the years ended December 31, 2011 and 2010 the Company did not incur any expense related to interest or penalties for income tax matters, and no such amounts were accrued as of December 31, 2011 and 2010.