Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2013

NOTE 16 - INCOME TAXES

As of December 31, 2013, we estimate we will have net operating loss carryforwards available to offset future federal income tax of approximately $6.6 million. These carryforwards will expire between the years 2028 through 2031. Under the Tax Reform Act of 1986, the amount of and the benefit from net operating losses that can be carried forward may be limited in certain circumstances. Events that may cause changes in the our tax carryovers include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Therefore, the amount available to offset future taxable income may be limited. We carry a deferred tax valuation allowance equal to 100% of total deferred assets. In recording this allowance, we have considered a number of factors, but chiefly, our operating losses from inception. We have concluded that a valuation allowance is required for 100% of the total deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.

Deferred tax assets, all of which were long-term, were comprised of the following as of December 31, 2013 and 2012:

	2013			2012

Allowance for doubtful accounts	$	29,000		$	35,900
Accrued expenses		21,000			66,300
Current deferred tax asset		50,000			102,200

Intangible and fixed assets		(218,000	)		(25,500	)
NOL carryforward		2,538,000			2,225,200
Long-term deferred tax asset		2,320,000			2,199,700

Total deferred tax asset		2,370,000			2,301,900
Less valuation allowance		(2,370,000	)		(2,301,900	)

Net deferred tax asset	$	—		$	—

The benefit for income taxes differed from the amount computed using the U.S. federal income tax rate of 34% for December 31, 2013 and 2012 as follows:

	2013			2012

Income tax benefit (federal and state)	$	210,0000		$	574,200
Non-deductible items		(18,000	)		(306,000	)
State and other benefits included in valuation		(123,900	)		66,700
Change in valuation allowance		(68,100	)		(334,900	)

Income tax benefit	$	—		$	—

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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