Convertible Debt We account for convertible debt at fair value, using valuation models that require us to make various key assumptions, which include the discount rate, derivative values, and certain probabilities of occurrence. We adjust the fair value of convertible debt quarterly, from the inception of issuance through the date of conversion. Income Taxes We account for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. We record a valuation allowance against deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. This involves using judgment in evaluating the realizability of deferred tax assets, and includes as part of this evaluation, estimating future taxable income which is inherently uncertain. If it is later determined that in the future that it is more likely than not that certain deferred tax assets may be fully utilized, based on certain assumptions, as well as facts and circumstances, the valuation allowance applicable to that particular deferred tax asset would be reversed and recognized through earnings in the period the determination wasmade. ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. 48
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