Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

INCOME TAXES

NOTE 10 – INCOME TAXES

The Company accounts for income taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

At December 31, 2012, we have approximately $15.0 million of federal net operating loss carryforwards to offset future taxable income and $10.0 million of certain operating expenses which have been deferred as start-up costs under Sec. 195 for federal income tax purposes, subject to limitations for alternative minimum tax. Start-up costs will continue to be capitalized until the month in which active business begins, at which time the costs may be amortized over 15 years. In addition, at December 31, 2012 we have approximately $590,000 of research and development tax credit carryforwards. The net operating loss and research and development credit carryforwards expire through 2032.

The difference between income taxes at the statutory federal income tax rate and income taxes reported in the statements of operations are attributable to the following:

	December 31, 2012			December 31, 2011
Income tax benefit at the federal statutory rate		34.00	%		34.00	%
State income taxes, net of effect on federal taxes		3.55	%		3.51	%
Research and development credit		1.67	%		2.84	%
Other		(0.21	%)		0.56	%
Increase in valuation allowance		(39.01	%)		(40.91	%)
Provision for income tax		0	%		0	%

The deferred tax asset at December 31, 2012 and 2011 consists of the following:

	2012			2011
Net operating loss carryforward	$	5,593,000		$	4,419,000
Deferred start-up costs		3,762,000			2,658,000
Research and development credit carryforward		590,000			477,000
Stock-based compensation		689,000			520,000
Other		51,000			(13,000	)
		10,685,000			8,061,000
Less: Valuation allowance		(10,685,000	)		(8,061,000	)
Net deferred tax asset	$	—		$	—

The change in the valuation allowance from December 31, 2011 to December 31, 2012 amounted to approximately $2,624,000. At December 31, 2006, Cellular had available for federal income tax purposes, net operating loss carryforwards of approximately $54.1 million which expire through 2026, and research and development tax credits of approximately $1.2 million that will expire through 2024. Upon consummation of the share exchange with SafeStitch LLC, these net deferred tax assets along with net operating losses for 2007 were forfeited in accordance with Section 382 of the Internal Revenue Code. The Company had provided a valuation allowance of 100% of the net deferred tax asset.

The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of December 31, 2012, the Company has no unrecognized tax position, including interest and penalties.

The tax years 2009-2011 remain open to examination by the major tax jurisdictions in which the Company operates.