Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Sep. 30, 2011
Notes to Financial Statements  
INCOME TAXES

NOTE 11 – INCOME TAXES

 

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is calculated by multiplying a 41% combined marginal tax rate by the cumulative NOL of $3,447,651. The total valuation allowance is equal to the total deferred tax asset which includes derivative liabilities and other stock based compensation.

 

The tax effects of significant items comprising the Company's net deferred taxes as of September 30, 2011 and 2010 were as follows:

 

      2011       2010  
Cumulative NOL   $ 3, 447,651     $ 2,504,244  
                 
Deferred Tax assets:                
(34% Federal, 7% New York)                
Net operating loss carry forwards     1, 413,537       1,026,740  
Derivative liability     1,023,547       (607,040 )
Warrants and options     74,239       —    
Valuation allowance     (2,511,323 )     (419,700 )
    $ —       $ —    

 

The income tax provision differs from the amount of income tax determined by applying the combined U.S. federal and state income tax rates of 41% to pretax income from continuing operations for the years ended September 30, 2011 and 2010 due to the following:

 

    2011   2010
Book income (loss) from operations at combined statutory rates   $ (2,091,623 )   $ 202,694  
Change in valuation allowance     2,091,623       (202,694 )
    $ —       $ —    

 

The Company’s net operating loss carry forwards of approximately $3, 447,651 expire in various years through 2030.

 

The Company has had numerous transactions in its common stock.  Such transactions may have resulted in a change in the Company's ownership, as defined in the Internal Revenue Code Section 382.  Such change may result in an annual limitation on the amount of the Company's taxable income that may be offset with its net operating loss carry forwards.  The Company has not evaluated the impact of Section 382, if any, on its ability to utilize its net operating loss carry forwards in future years.

 

In July, 2006, the FASB issued ASC 740, Accounting for Uncertainty in Income Taxes which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return. ASC 740 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. ASC 740 became effective as of January 1, 2007 and had no impact on the Company’s financial statements.