Annual report pursuant to Section 13 and 15(d)

7. Income Taxes

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7. Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes  
7. Income Taxes

The tax effects of significant temporary differences representing deferred tax assets at December 31, 2012 and 2011, are as follows:
 

    2012     2011  
Deferred tax assets:            
Net operating loss carryforward   $ 5,501,500     $ 5,559,500  
Accrued vacation and commissions     312,200       261,800  
Fixed assets     48,100       46,100  
Allowance for doubtful accounts     100       53,400  
AMT tax credit carryforward     6,600       9,500  
Other     9,700       8,200  
Subtotal     5,878,200       5,938,500  
Valuation allowance     (5,878,200 )     (5,938,500 )
Total   $ -     $ -  

 

The provision for income taxes is at an effective rate different from the federal statutory rate due principally to the following:

 

    December 31,  
    2012     2011  
                 
Income before taxes   $ 100,423     $ 156,201  
Income tax expense (benefit) on above amount at federal statutory rate     34,100       53,100  
State income tax expense (benefit), net of federal expense (benefit)     4,000       6,200  
Permanent differences     7,600       5,600  
Other     14,600       (800 )
Change in valuation allowance     (60,300 )     (61,300 )
Provision for income taxes   $ -     $ 2,800  

 

Income tax expense for the years ended December 31, 2012 and 2011 consists of the following:

 

    December 31,  
Current income taxes   2012     2011  
                 
Federal   $ 83,900     $ 179,000  
State     9,900       21,100  
Alternative minimum tax     -       2,800  
Benefit from utilization of net operating losses     (93,800 )     (200,100 )
      -       2,800  
Deferred taxes     -       -  
    $ -     $ 2,800  

 

The Company has recorded a valuation allowance to the full extent of its currently available net deferred tax assets which the Company determined to be not more-likely-than-not realizable. The Company has net operating loss carryforwards of approximately $14.5 million, which expire, if unused, between the years 2017 and 2028.

 

The Company may have been deemed to have experienced changes in ownership which may impose limitations on its ability to utilize net operating loss carryforwards under Section 382 of the Internal Revenue Code. However, as the deferred tax asset is fully offset by a valuation allowance, the Company has not yet conducted a Section 382 study to determine the extent of any such limitations.

 

The Company has analyzed its income tax positions using the criteria required by U.S. GAAP and concluded that as of December 31, 2012 and 2011, it has no material uncertain tax positions and no interest or penalties have been accrued. The Company has elected to recognize any estimated penalties and interest on its income tax liabilities as a component of its provision for income taxes.