14. INCOME TAXES

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

14.  INCOME TAXES

There was no Federal income tax expense for the years ended December 31, 2011 and 2010 due to the Company’s net losses. Income tax expense represents minimum state taxes due. During 2011, in addition to the $1,600 minimum taxes disclosed below, the Company had to repay previous years' erroneous state refunds relating to fiscal years 2008 and 2009, along with some local taxes resulting in a total income tax expense of $13,160.

The blended Federal and State tax rate of 39.83% applies to loss before taxes.  The Company’s tax expense differs from the “expected” tax expense for Federal income tax purposes, (computed by applying the United States Federal tax rate of 34% to loss before taxes), as follows:

	Year ended December 31,
	2011			2010
Computed “expected” tax expense (benefit)	$	(866,148	)	$	(802,689	)
State taxes, net of federal benefit		(203,167	)		(161,972	)
Goodwill impairment and other non-deductible items		(219,135	)		(71,824	)
Change in deferred tax asset valuation allowance		1,290,050			1,037,819
Income tax expense	$	1,600		$	1,334

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.  The effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31 are as follows:

	2011			2010
Deferred tax assets:
Accrued vacation	$	54,360		$	39,132
Accrued salaries		143,030			143,030
Charitable contributions		2,333			2,333
Reserve for bad debt		29,288			72,553
Stock options		3,932,565			3,412,441
Net operating loss carryforward		4,162,918			3,372,990
Total gross deferred tax assets		8,324,494			7,042,479
Less: Deferred tax asset valuation allowance		(8,299,453	)		(7,009,403	)
Total net deferred tax assets		25,041			33,076
Deferred tax liabilities:
Depreciation		(25,041	)		(33,076	)
Total deferred tax liabilities		(25,041	)		(33,076	)
Total net deferred taxes	$	-		$	-

The valuation allowance at December 31, 2011 was $8,299,453.  The increase in the valuation allowance during 2011 was $1,290,050.

At December 31, 2011, the Company has a net operating loss carry forward of $10,450,562 available to offset future net income through 2031.  The NOL expires during the years 2014 to 2031.  The utilization of the net operating loss carryforwards is dependent upon the ability of the Company to generate sufficient taxable income during the carryforward period.  In the event that a significant change in ownership of the Company occurs as a result of the Company’s issuance of common stock, the utilization of the NOL carry forward will be subject to limitation under certain provisions of the Internal Revenue Code.  Management does not presently believe that such a change has occurred.