INCOME TAXES

12 Months Ended

Dec. 31, 2013

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 10 – INCOME TAXES

The reconciliation of the difference between income taxes at the statutory rate and the income tax provision for the years ended:

	December 31,
	2013			2012
Computed tax at statutory rate	$	(481,923	)	$	(1,188,632	)
State taxes		(98,365	)		269,447
Change in valuation allowance		574,520			918,139
Other		5,768			1,046
Provision (benefit) for taxes	$	-		$	-

Deferred tax assets (liabilities) consist of the following:

	December 31 ,
	2013			2012
Deferred Tax Assets:
Accruals and reserves	$	11,003		$	58,080
Depreciation and amortization		139,045			256,353
Tax credit carryforwards		579,497			579,497
Net operating loss		20,910,696			20,871,772
Goodwill amortization		233,485			274,111
ASC 718 stock compensation		44,370			425,532
Valuation allowance		(21,918,096	)		(22,465,345	)
Total deferred tax assets	$	-		$	-

We believe that sufficient uncertainty exists regarding the future realization of our deferred tax assets and thus a full valuation allowance is required. The valuation allowance for the year ended December 31, 2013 increased by approximately $72,000 due to changes in deferred tax assets.

As of December 31, 2013, we have cumulative federal and Arizona net operating loss carryforwards of approximately $57 million and $23 million, respectively, which can be used to offset future income subject to taxes. Federal net operating loss carryforwards begin to expire in 2020. Arizona net operating loss carryforwards begin to expire in 2013. Included in federal net operating loss carryforwards is approximately $27.1 million from USHG related to pre-merger losses. In addition, approximately $7 million of the federal net operating loss carryforwards are related to stock based compensation that will be credited to additional paid in capital when realized. We also have pre-merger federal capital loss carryforwards of approximately $520,000.

As of December 31, 2013, we had cumulative unused research and development tax credits of approximately $239,000 and $340,000, which can be used to reduce future federal and Arizona income taxes, respectively. As of December 31, 2012, we have cumulative unused federal minimum tax credit carryforwards from USHG of approximately $244,000. The federal minimum tax credit carryforwards are not subject to expiration under current federal tax law.

Utilization of our USHG pre-merger net operating loss carryforwards and tax credits is subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards and tax credit carryforwards before utilization.

We have unrecognized tax benefits attributable to losses and minimum tax credit carryforwards that were incurred by USHG prior to the merger in March 2004 as follows:

Balance at December 31, 2011		9,635,824
Additions related to prior year tax positions		-
Additions related to current year tax positions		-
Reductions related to prior year tax positions and settlements		-
Balance at December 31, 2012	$	9,635,824
Additions related to prior year tax positions		-
Additions related to current year tax positions		-
Reductions related to prior year tax positions and settlements		-
Balance at December 31, 2013	$	9,635,824

These benefits are not recognized as a result of uncertainty regarding the utilization of the loss carryforwards and minimum tax credits. If in the future we utilize the attributes and resolve the uncertainty in our favor, the full amount will favorably impact our effective income tax rate.

The company considers the U.S. and Arizona to be major tax jurisdictions. As of December 31, 2013, for federal tax purposes the tax years 2012 and 2013 and for Arizona the tax years 2005 through 2013 remain open to examination. The company currently does not expect any material changes to unrecognized tax positions within the next twelve months.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2013 and 2012, we had no accrued interest or penalties related to our unrecognized tax benefits.