Annual report pursuant to section 13 and 15(d)

PROVISION FOR INCOME TAXES

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PROVISION FOR INCOME TAXES
 12 Months Ended
Sep. 30, 2011
PROVISION FOR INCOME TAXES
12.
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, 2011 and 2010 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, 2011.  There was a current income tax benefit of $230,382 for the year ended September 30, 2010 reflecting an adjustment to income tax receivable for net operating loss carrybacks as a result of true-ups to our final 2009 tax return that was filed during fiscal 2010.

A reconciliation of the differences between the effective and statutory income tax rates for years ended September 30, is as follows:
 
   
2011
    
2010
  
   
Amount
    
Percent
    
Amount
    
Percent
  
                         
Federal statutory rates
   $ (1,870,764 )     34 %   $ (2,613,614 )     34 %
State income taxes
     (184,942 )     3 %     (258,378 )     3 %
Write off of deferred tax asset
                                
related to stock based compensation
     184,050       (3 )%     50,905       (1 )%
Valuation allowance against net
                                
deferred tax assets
     1,920,862       (35 )%     2,786,003       (36 )%
Other
     (49,206 )     1 %     (195,298 )     3 %
Effective rate
   $ -       0 %   $ (230,382 )     3 %

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

   
2011
    
2010
  
Deferred income tax asset, current:
            
Book to tax differences in accounts receivable
   $ 738,671     $ 643,209  
Book to tax differences in prepaid assets and accrued expenses
     (20,502 )     (43,011 )
Total deferred income tax asset, current
     718,169       600,198  
Less: valuation allowance
     (718,169 )     (600,198 )
Deferred income tax asset, current, net
     -       -  
                 
Deferred income tax asset, long-term:
                
Net operating loss carryforwards
     9,060,073       7,084,995  
Book to tax differences for stock based compensation
     17,706       187,614  
Book to tax differences in intangible assets
     7,295,815       7,234,473  
Book to tax differences in other assets
     326       326  
Book to tax differences in depreciation
     (1,798,370 )     (1,734,750 )
Total deferred income tax asset, long-term
     14,575,550       12,772,658  
Less: valuation allowance
     (14,575,550 )     (12,772,658 )
Deferred income tax asset, net
     -       -  
                 
Total deferred income tax asset
   $ -     $ -  


The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2011.

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.