13. INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

There was no Federal income tax expense for the years ended December 31, 2013 and 2012 due to the Company’s net losses. Income tax expense represents minimum state taxes due.

The blended Federal and State tax rate of 40.2% 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,
	2013			2012
Computed “expected” tax expense (benefit)	$	(949,929	)	$	(843,193	)
State taxes, net of federal benefit		(173,132	)		(180,827	)
Goodwill impairment and other non-deductible items		76,599			(155,420	)
Change in deferred tax asset valuation allowance		1,048,062			1,181,188
Income tax expense	$	1,600		$	1,748

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:

	2013			2012
Deferred tax assets:
Accrued vacation	$	–		$	12,430
Accrued salaries		–			27,386
Charitable contributions		4,128			2,731
Reserve for bad debt		30,006			18,684
Stock options		4,411,279			4,237,988
Inventory Adjustment		3,326			–
Other		7,502			3,751
Net operating loss carryforward		6,183,779			5,193,118
Total gross deferred tax assets		10,640,020			9,496,088
Less: Deferred tax asset valuation allowance		(10,528,703	)		(9,480,641	)
Total net deferred tax assets		111,317			15,447
Deferred tax liabilities:
Depreciation		(111,317	)		(15,447	)
Total deferred tax liabilities		(111,317	)		(15,447	)
Total net deferred taxes	$	–		$	–

The valuation allowance at December 31, 2013 was $10,528,703. The increase in the valuation allowance during 2013 was $1,048,062.

At December 31, 2013, the Company has a net operating loss carry forward of $15,523,716 available to offset future net income through 2033. The NOL expires during the years 2014 to 2033. 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.