Note 4 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

Note 4 – Income Taxes

The income tax provision is comprised of the following for the years ended December 31:

	2012		2011
Current state tax expense	$	28,675	$	35,325
Deferred federal tax expense (benefit)		(2,000)		38,000
Income tax expense	$	26,675	$	73,325

The reconciliation between the statutory federal income tax rate and the Company’s effective tax rate is as follows:

	2012			2011
Federal statutory rate		34.0	%		34.0	%
State taxes		7.4			9.6
Permanent differences		7.0			7.2
Expiration and utilization of net operating loss carryforwards and reduction of valuation allowance net deferred tax asset		(37.9	)		(20.6	)
Effective tax rate		10.5	%		30.2	%

On January 2, 2013, the American Taxpayer Relief Act of 2012 (“Act”) was enacted.  The Act provides tax relief for businesses by reinstating certain tax benefits and credits retroactively to January 1, 2012.  There are several provisions of the Act that may impact the Company, most notably the extension of the Research and Development credit. Income tax accounting rules require tax law changes to be recognized in the period of enactment; as such, the associated tax benefits of the Act will be recognized in the Company’s provision for income taxes in the first quarter of 2013.

Total available net operating loss carry forwards at December 31, 2012 are reflected in the following schedule:

Year of Expiration	Available for Federal Tax Purposes
2019		306,757
2021		76,872
2022		40,330
2023		106,651
	$	530,610

During 2012, the Company utilized federal net operating loss carryforwards of $298,382 and $40,574 of net operating loss carry forwards expired for purposes of the Company’s tax provision. The Company’s valuation allowance associated with the related deferred tax assets was decreased by approximately $108,565 and $253,081 in 2012 and 2011, respectively, based on the Company’s new contracts and continued profitability on existing contracts.  

Deferred tax assets consist of the following as of December 31:

	2012			2011
Deferred tax asset:
Fixed assets & Other	$	122,148		$	113,467
Net operating loss carryforwards		180,407			295,653
Research and development credit		4,802			4,802
Valuation allowance		(284,357	)		(392,922	)
Net deferred tax asset	$	23,000		$	21,000

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers both positive and negative evidence in making this assessment, including the future reversal of existing temporary taxable differences, projected future taxable income, the recent expiration of unused net operating losses and tax planning strategies.  Due to the Company’s inability to project future taxable income over the periods in which the deferred tax assets may become deductible, management does not believe it is more likely than not that the Company will realize the benefits of these deductible differences. As a result, management believes the maintenance of a valuation allowance against a portion of the Company’s net deferred tax assets is required at December 31, 2012.

The Company is not currently under examination by the Internal Revenue Service. The United States federal statute of limitations remains open for the years 2009 onward. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company is not currently under examination in any state jurisdictions. The Company is no longer subject to federal or state income tax assessments for years prior to 2006.