NOTE 9. - INCOME TAXES

The components of income tax expense (benefit) follows:

	December 31,
	2013		2012
Deferred:
Federal	$	(61,000)		1,259,000
State		4,000		(172,000)
		(57,000)		1,087,000
Change in valuation allowance		57,000		(1,087,000)
	$	0	$	0

At December 31, 2013, the Company had federal net operating loss carryforwards of approximately $6,500,000 and various state net operating loss carryforwards of approximately $3,900,000 which expire from 2018 through 2033. These carryforwards exclude federal net operating loss carryforwards from inactive subsidiaries of approximately $6,600,000, as well as net operating loss carryforwards from states that the Company does not presently operate in. Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenues Code and similar state provisions. The annual limitation may result in the expiration of the net operating loss carryforwards before utilization.

At December 31, 2013, a net deferred tax asset, representing the future benefit attributed primarily to the available net operating loss carryforwards and defined benefit pension plan expenses, in the amount of approximately $3,100,000 ($3,043,000 - 2012), had been fully offset by a valuation allowance because management believes that the regulatory limitations on utilization of the operating losses and concerns over achieving profitable operations diminish the Company’s ability to demonstrate that it is more likely than not that these future benefits will be realized before they expire.

The following is a summary of the Company's temporary differences and carryforwards which give rise to deferred tax assets and liabilities.

	December 31,
	2013		2012
Deferred tax assets:
Net operating loss carryforwards	$	2,447,000	$	2,427,000
Defined benefit pension liability		336,000		340,000
Reserves and accrued expenses payable		317,000		275,000
Property and equipment		0		1,000
Gross deferred tax asset		3,100,000		3,043,000
Deferred tax asset valuation allowance		(3,100,000)		(3,043,000)
Net deferred tax asset	$	0	$	0

The differences between the U.S. statutory federal income tax rate and the effective income tax rate in the accompanying consolidated statements of income are as follows.

	December 31,
	2013			2012
Statutory U.S. federal tax rate		34.0	%		34.0	%
State income taxes		4.3			(63.6)
Change in valuation allowance		51.2			(400.8)
Expired stock-based compensation and warrants		13.5			4.4
Other permanent non-deductible items		6.6			1.3
Deferred tax asset adjustment		(109.6)			.0
Expired net operating loss carryforward		.0			474.8
Defined benefit pension termination		.0			(50.1)
Effective income tax rate		0.0	%		0.0	%