Annual report pursuant to Section 13 and 15(d)

7. Income Taxes

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7. Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Taxes  
7. Income Taxes

The tax effects of significant temporary differences representing deferred tax assets at

December 31, 2013 and 2012, are as follows:

 

    2013     2012  
Deferred tax assets:            
     Net operating loss carryforward   $ 5,514,100     $ 5,501,500  
     Accrued vacation and commissions     334,200       312,200  
     Fixed assets     46,400       48,100  
     Allowance for doubtful accounts     -       100  
     AMT tax credit carryforward     3,600       6,600  
     Other     8,500       9,700  
Subtotal     5,906,800       5,878,200  
Valuation allowance     (5,906,800 )     (5,878,200 )
Total   $ -     $ -  

 

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

 

    December 31,  
    2013     2012  
(Loss) income before taxes   $ (60,239 )   $ 100,423  
Income tax (benefit) expense on above amount at federal statutory rate     (20,500 )     34,100  

State income tax (benefit) expense, net of

federal (benefit) expense

     (2,400 )     4,000  
Permanent differences     9,300       7,600  
Other     (15,000 )     14,600  
Change in valuation allowance     28,600       (60,300 )
Provision for income taxes   $ -     $ -  

 

 

 

Income tax expense for the years ended December 31, 2013 and 2012 consists of the following:

 

    December 31,  
Current income taxes   2013     2012  
Federal   $ 4,100     $ 83,900  
State     500       9,900  
Alternative minimum tax     -       -  
Benefit from utilization of net operating losses     (4,600 )     (93,800 )
      -       -  
Deferred taxes     -       -  
    $ -     $ -  

 

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, 2013 and 2012, 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.