INCOME TAXES

ASC Topic 740-10 created a new recognition threshold and a measurement approach for tax positions recognized in the financial statements. As of December 31, 2013, the Company has no material uncertain tax positions.

As a result of continuing losses for tax purposes, the Company has historically not paid income taxes and has recorded a full valuation allowance against the net deferred tax asset. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. There was no accrued interest related to unrecognized tax benefits at December 31, 2013. The tax years 2010-2013 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets for federal and state income taxes as of December 31, 2013 and 2012 are as follows:

	2013		2012
Deferred tax assets:
Net operating loss carryforwards	$	16,473,000	$	16,024,000
Reserves		-		1,000
Deferred rent		66,000		74,000
Research & development tax credits		139,000		78,000
Total deferred tax assets		16,678,000		16,177,000
Deferred tax liabilities:
Intangible assets		(1,355,000)		(1,718,000)
Other		(1,000)		-
Depreciation		(138,000)		(120,000)
Total deferred tax liabilities		(1,494,000)		(1,838,000)
Net deferred tax assets		15,184,000		14,339,000
Less: Valuation allowance		(15,184,000)		(14,339,000)
Deferred tax assets, net of allowance	$	-	$	-

Realization of deferred tax assets is dependent upon future earnings, if any. The Company has recorded a full valuation allowance against its deferred tax assets since management believes that it is more likely than not that these assets will not be realized.

As of December 31, 2013 the Company had net operating loss carryforwards (NOL’s) for federal and New York State income tax purposes of approximately $41.2 million. There can be no assurance that the Company will realize the benefit of the NOL’s. The federal and state NOL’s are available to offset future taxable income and expire from 2018 through 2030 if not utilized. Under Section 382 of the Internal Revenue Code, these NOL’s may be limited due to ownership changes.

The effective tax rate for the years ended December 31, 2013 and 2012 is different from the tax benefit that would result from applying the statutory tax rates primarily due to the recognition of valuation allowances.