Annual report pursuant to section 13 and 15(d)

INCOME TAXES

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

NOTE 7 - INCOME TAXES

 

There is no provision for federal or state income taxes for the years ended December 31, 2011 and 2010 since the Company has established a valuation allowance equal to the total deferred tax asset related to losses incurred during such periods.

 

Deferred tax assets and liabilities and related valuation allowance as of December 31, 2011 and 2010 are as follows:

 

    December 31,  
    2011     2010  
Deferred tax assets:                
Organization costs   $ 733     $ 2,494  
Research and development credit carryforward     6,188       6,188  
Net operating loss carryforwards     2,329,829       1,107,688  
Other     132,482       121,091  
                 
Total deferred tax assets     2,469,232       1,237,461  
                 
Deferred tax liabilities:                
Restricted stock compensation(1)     -       (148,871 )
                 
Net deferred tax assets     2,469,232       1,088,590  
Valuation allowance     (2,469,232 )     (1,088,590 )
                 
Net deferred tax assets   $ 0     $ 0  

 

(1)   Relates to restricted stock grants for which Internal Revenue Code ("IRC") Section 83(b) elections were filed in 2010, resulting in tax deductions in excess of related compensation expense for financial reporting purposes in 2010.

 

Based on the Company's historical losses and its expectation of continuation of losses for the foreseeable future, the Company has determined that it is not more likely than not that the deferred tax assets will be realized and, accordingly, has provided a valuation allowance. The increase in the valuation allowance for the years ended December 31, 2011 and 2010 was $1,380,642 and $783,696, respectively.

 

At December 31, 2011, the Company has available unused net operating loss carryforwards of approximately $5.8 million that expire from 2027 to 2031 for federal tax purposes and the same amount for New Jersey state tax purposes, which expire from 2014 to 2018. The Company also has approximately $3 million of net operating loss carryforwards for New York state purposes expiring in 2031. These net operating loss carryforwards may be subject to annual limitations in their use in accordance with IRC Section 382. Accordingly, the extent to which the net operating loss carryforwards can be used to offset future taxable income may be limited. At December 31, 2011, the Company has a research and development credit carryforward of $6,188 for federal tax purposes that expires in 2027.

 

The Company's federal and state tax returns remain open and subject to examination by the tax authorities for the tax years 2008 and 2007, respectively through 2011.

 

A reconciliation of the effect of applying the federal statutory rate and the effective income tax rate used to calculate the Company's income tax provision is as follows:

 

    Year Ended
December 31,		  
    2011     2010  
Statutory federal income tax     (34.0 )%     (34.0 )%
State income tax, net of federal tax effect     (5.9 )%     (5.9 )%
Permanent difference     0.0 %     5.0 %
Increase in valuation allowance     39.9 %     34.9 %
                 
Income tax provision     0 %     0 %