As of December 31, 2012 and 2011, the Company has approximately $1,789,000 and $836,600, respectively, of federal net operating loss carry forwards available to offset future taxable income. These net operating losses which, if not utilized, begin expiring between the years 2026 through 2032. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s net operating loss carry forward may be subject to an annual limitation in the event of a change of control. The Company performed a preliminary evaluation as to whether a change of control, as defined under the regulations has taken place, and concluded that no change of control has occurred to date.

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. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. ASC 740 - “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates the length of carryback and carry forward periods, and expectations of future profits, etc. The Company believes that the significant uncertainty exists with full respect to future realization of the deferred tax assets and has therefore established a full valuation allowance for the full amount as of December 31, 2012 and December 31, 2011. For the year ended December 31, 2012 and 2011 the deferred tax asset valuation allowance increased by $380,654 and $198,394, respectively.

The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

The Company files tax returns in U.S. Federal and various state jurisdictions and are subject to audit by tax authorities beginning with the year ended December 31, 2009. The Company is subject to certain state and local taxes based on capital. The state and local taxes based on capital were immaterial for each of the years ended December 31, 2012 and December 31, 2011.

Interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as "Interest expense, net" in the statements of operation. Penalties would be recognized as a component of “General and administrative expenses."

No interest or penalties were recorded during the years ended December 31, 2012 and December31, 2011 respectively. As of December 31, 2012 and December 31, 2011 no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.

	December 31, 2012	December 31, 2011

Federal	$ -	$ -
Current	-	-
Deferred	$ (323,944)	(168,888)
State and local		-
Current	-	-
Deferred	$ (56,710)	(29,506)
Change in valuation allowance	$ 380,654	198,394
Income tax provision (benefit)	$ -	$ -

The reconciliation between the statutory federal income tax rate (34%) and the Company’s effective rate for the year ended December 31, 2012 and 2011 is as follows:

	December 31, 2012		December 31, 2011

Federal statutory rate	(34.0)	%	(34.0)	%
State tax benefit, net of federal tax	(5.9)		(5.9)
Non-deductible Stock based compensation	42.6		-
Change in fair value of derivative liability	(6.5)		14.3
Other permanent differences	(0.2)		1.7
Debt discount on convertible debt	0.3		13
Change in valuation allowance	3.7		11
Change in valuation allowance	-	%	-	%