Annual report pursuant to section 13 and 15(d)

NOTE 9. INCOME TAXES

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NOTE 9. INCOME TAXES
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Text Block]
NOTE 9. INCOME TAXES

The provision for income taxes consists of the following: 

   
Fiscal Year
   
Fiscal Year
 
   
Ended
   
Ended
 
   
December 31, 2012
   
December 31, 2011
 
             
Current
 
$
-
   
$
-
 
Deferred
   
-
     
-
 
                 
Total Federal
 
$
-
   
$
-
 

The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate (35%) on operations due primarily to permanent differences attributable to organizational expenses for the purchase of Art Design, Inc. (the shell company) in the amount of $148,014. 

   
Fiscal Year
   
Fiscal Year
 
   
Ended
   
Ended
 
   
December 31, 2012
   
December 31, 2011
 
             
Income tax expense computed at statutory rates
 
$
(504,000
)
 
$
(40,169
)
Non-deductible items
   
55,732
     
-
 
Change in valuation allowance
   
448,268
     
40,169
 
                 
Total
 
$
-
   
$
-
 

The components of the net deferred tax asset were as follows:

   
December 31, 2012
 
   
Gross Values
   
Tax Effect
 
Deferred tax assets
           
Book Impairment
 
$
-
   
$
-
 
Net operating loss carryforwards
   
       2,303,816
     
806,336
 
Asset retirement obligation
   
                      -
     
-
 
Other
   
               6,000
     
2100
 
Total deferred tax assets
   
       2,309,816
     
   808,436
 
                 
Deferred tax liabilities
               
O&G Properties
   
(1,029,050
)     
(360,168)
 
Other
   
                      -
     
-
 
Total deferred tax liabilities
   
(1,029,050
)    
(360,168)
 
Less: Valuation allowance
   
                  (1,280,766)
     
 (448,268)
 
Net deferred tax assets (liabilities)
 
$
-
   
$
   -
 

A valuation allowance has been established to offset deferred tax assets. The Company's accumulated net operating losses were approximately $2.3 million at December 31, 2012 and begin to expire if not utilized in the year 2032.

The Company has determined that as a result of the acquisition of substantially all of the outstanding stock of Art Design, Inc. (see Note 4), a change of control pursuant to Section 382 of the Internal Revenue Code of 1986 occurred. As a result, the Company’s ability to use any net operating losses attributable to Art Design, Inc. for federal income tax purposes has been forfeited.