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v2.4.0.6
INCOME TAXES
12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
NOTE 8 - INCOME TAXES

The Company uses the liability method in accounting for income taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

The potential benefit of net operating loss carry forwards has not been recognized in the accompanying consolidated financial statements since the Company cannot be assured that it is more likely than not that such benefit will be utilized in future years.

 

The Company is subject to United States federal and state income taxes at an approximate rate of 34%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported for the years ended December 31, 2011 and 2010 is as follows:

 

    2011     2010  
             
Net Loss   $ 3,127,742     $ 1,529,459  
Income Tax Rate     34 %     34 %
                 
Income Tax Recovery     1,063,432       520,016  
Permanent Difference     (365,319 )     (280,683 )
Valuation Allowance Change     (698,113 )     (239,333 )
                 
Deferred Income Tax (Recovery)   $ 0     $ 0  

 

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.

 

Future income taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The significant components of future income tax assets and liabilities at December 31, 2011 and 2010 are as follows:

 

    2011     2010  
             
Net Operating Loss Carryforwards   $ 2,025,658     $ 1,317,971  
Depletion and Depreciation     (209,432 )     (199,858 )
Net Deferred Tax Assets     1,816,226       1,118,113  
Valuation Allowance     (1,816,226 )     (1,118,113 )
Deferred Tax Asset   $ 0     $ 0  

 

The Company has recognized a valuation allowance for the deferred tax assets for which it is more likely than not that the realization will not occur. The valuation allowance is reviewed periodically. When circumstance change and this causes a change in management's judgment about the realizeability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income.

 

The net operating loss carryforwards for income tax purposes are approximately $5,958,000 and will begin to expire in 2025.  Neither the Company nor any of its subsidiaries have ever been the subject of an examination by the Internal Revenue Service.

 

Pursuant to Section 382 of the Internal Revenue Code, use of the Company’s net operating loss carryforwards may be limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three year period. Ownership changes could impact the Company’s ability to utilize net operating losses and credit carryforwards remaining at the ownership change date. The limitation would be determined by the fair market value of common stock outstanding prior to the ownership change, multiplied by the applicable federal rate.