11.	Income Taxes

Prior to the merger on October 25, 2010, the Company’s results of operations were taxed as a limited liability company, whereby the Company elected to be taxed as a partnership and the income or loss was required to be reported by each respective member on their separate income tax returns. Therefore, no provision for income taxes has been provided in the accompanying consolidated financial statements for periods prior to October 25, 2010. As a result of the Acquisition, beginning on October 25, 2010, the Company’s results of operations are taxed as a C Corporation. The Company’s benefit for income taxes consists of the following for the year ended December 31, 2010:

Current:
Federal	$	(126,649	)
State		(32,391	)
Total current provision		(159,040	)
Deferred:
Federal		(34,529	)
State		(8,831	)
Total deferred		(43,360	)

Total benefit for income taxes		(202,400	)
Less: valuation reserve		202,400
Income Tax provision	$	-

The change in tax status to a taxable entity resulted in a net deferred tax benefit of $0 being recognized and included in the tax benefit for the year ended December 31, 2010. The tax benefit for the year ended December 31, 2010 also includes a tax benefit of $0 which was determined using an effective tax rate of 0.00% for the period from October 26, 2010 (the date on which the tax status changed to a C Corporation) to December 31, 2010.

A reconciliation of the federal statutory rate of 0% for 2010 to the effective rate for income from operations before income taxes is as follows:


Benefit for income taxes at federal statutory rate	34.06	%
State income taxes, net of federal benefit	5.28
Effect of change in tax status to C corporation	(23.11	)
Other	(0.01	)
Less valuation allowance	(16.22	)
Effective income tax rate	0.00	%

The temporary differences between recognition of expenses on the financial statements and tax return relate primarily to differences in depreciation methods and change in allowance for doubtful accounts.

The tax effects of these temporary differences along with the net operating losses, net of an allowance for credits, have been recognized as deferred tax assets at December 31, 2010 as follows:

Net operating loss carryforward	$	159,741
Bad debt reserve		11,141
Employee stock compensation		32,802
Depreciation		(1,284	)
Less valuation reserve		(202,400	)

Net deferred tax asset	$	-

The Company establishes a valuation allowance if based on the weight of available evidence, it is more likely than not that some portion or all of the deferred assets will be realized. The valuation allowance increased $202,400 during 2010, offsetting the increase in the deferred tax asset attributable to the net operating loss and reserves .

As of December 31, 2010, the Company has a net operating loss carry forward of approximately $403,000 for Federal tax purposes. The net operating loss expires through 2030.

The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expenses. As of December 31, 2010, the Company has no unrecognized tax positions, including interest and penalties. The tax years 2007-2010 are still open to examination by the major tax jurisdictions in which the Company operates. The Company files returns in the United States Federal tax jurisdiction and various other state jurisdictions.