Annual report pursuant to section 13 and 15(d)

Note 11: Provision for Income Taxes

v2.4.0.6
Note 11: Provision for Income Taxes
 12 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Abstract]  
Note 11: Provision for Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of September 30, 2012 and 2011 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its new business model.

 

Because of the impacts of the valuation allowance, there was no income tax expense or benefit for the year ended September 30, 2012.

 

A reconciliation of the differences between the effective and statutory income tax rates for years ended September 30, is as follows:

 

    2012     2011  
    Amount     Percent     Amount     Percent  
                                 
Federal statutory rates   $ (535,573 )     34%   $ (1,870,764 )     34%
State income taxes     (52,946 )     3%     (184,942 )     3%
Write off of deferred tax asset related to vested restricted stock     10,670       (1)%     184,050       (3)%
Permanent differences     3,411       (0)%     –       –  
Valuation allowance against net deferred tax assets     574,438       (36)%        1,920,862       (35)%   
Other             0%     (49,206 )     1%
Effective rate   $ –       0%   $ –       0%

  

At September 30, deferred income tax assets and liabilities were comprised of:

 

    2012     2011  
Deferred income tax asset, current:                
 Book to tax differences in accounts receivable   $ 582,549     $ 738,671  
 Book to tax differences in prepaid assets and accrued expenses     (7,774 )     (20,502 )
Total deferred income tax asset, current     574,775       718,169  
Less: valuation allowance     (574,775 )     (718,169 )
Deferred income tax asset, current, net     –       –  
                 
Deferred income tax asset, long-term:                
 Net operating loss carryforwards     10,012,906       9,060,073  
 Book to tax differences for stock based compensation     6,407       17,706  
 Book to tax differences in intangible assets     6,961,861       7,295,815  
 Book to tax differences in other     326       326  
 Book to tax differences in depreciation     (2,072,674 )     (1,798,370 )
Total deferred income tax asset, long-term     14,908,825       14,575,550  
Less: valuation allowance     (14,908,825 )     (14,575,550 )
Deferred income tax asset, net     –       –  
                 
Total deferred income tax asset   $ –     $ –  

 

The Company has recorded as of September 30, 2012 a valuation allowance of $14,908,825, as it believes that it is more likely than not that the deferred tax assets will not be realize in future years. Management has based its assessment on available historical and projected operating results.

 

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2012.

 

As part of its deferred tax assets, the Company has net operating loss carryforwards resulting from its acquisition of LiveDeal, Inc. in fiscal 2007. Such amounts are subject to IRS code section 382 limitations and expire in 2027. The 2007 to 2010 tax years are still subject to audit.