3. Income Taxes

12 Months Ended

Dec. 31, 2012

Notes

3. Income Taxes

3.         INCOME TAXES

In current and prior years, we generated significant federal and state income and alternative minimum tax losses, and these net operating losses ("NOLs") were carried forward for income tax purposes to be used against future taxable income. 

A reconciliation of our effective income tax rate compared to the U.S. federal statutory rate is as follows:

	Year ended December 31, 2012	Year ended December 31, 2011
Provision (benefit) at U.S. federal statutory rate	(35.0)%	(34.0)%
State provision (benefit), net of U.S. federal tax	(4.8)	(4.9)
Permanent differences	(0.2)	0.1
Expiration of capital loss carryforwards	-	-
Other items	5.2	(1.9)
Deferred tax valuation allowance	34.8	40.7
Effective income tax rate	0.0%	0.0%

Net deferred tax assets consist of the following:

	Year ended December 31, 2012	Year ended December 31, 2011
Net federal and state operating loss carryforwards	$  14,785,650	$  13,603,574
Impairment of investments	531,470	524,388
Other, net	680,637	523,473
Deferred tax assets	15,997,757	14,651,435
Valuation allowance	(15,997,757)	(14,651,435)
Net deferred tax assets	$  -	$  -

At December 31, 2012, we had aggregate federal net operating loss carryforwards of approximately $36,573,000, which expire at various times through 2032.  A majority of our federal NOLs can be used to reduce taxable income used in calculating our alternative minimum tax liability.  We also have state net operating loss carryforwards of approximately $35,014,000 that expire at various times through 2032.

Approximately $4,196,000 of our NOL carryforward remaining at December 31, 2012 was derived from income tax deductions related to the exercise of stock options.  The tax effect of these deductions will be credited against capital in excess of par value at the time they are utilized for book purposes, and not credited to income.  We will never receive a benefit for these NOLs in our statement of operations.

Changes in the valuation allowance were as follows:

	Year ended December 31, 2012	Year ended December 31, 2011
Balance, beginning of year	$  14,651,435	$  13,185,199
Change in temporary differences	157,164	68,680
Change in net operating and capital losses	1,189,158	1,397,556
Balance, end of year	$  15,997,757	$  14,651,435

Our ability to derive future tax benefits from the net deferred tax assets is uncertain and therefore we continue to provide a full valuation allowance against the assets, reducing the carrying value to zero.  We will reverse the valuation allowance if future financial results are sufficient to support a carrying value for the deferred tax assets.

At December 31, 2012 and December 31, 2011, we had no uncertain tax positions. 

We include interest and penalties on the underpayment of income taxes in income tax expense.  

We file income tax returns in the United States and Connecticut.  The Internal Revenue Service has completed audits for the periods through the fiscal year ended July 31, 2005.  Our open tax years for review are fiscal years ended July 31, 2009 through year ended December 31, 2012.  The Company's returns filed with Connecticut are subject to audit as determined by the statute of limitations.