Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Taxes

13.     Income Taxes

The large accumulated losses from past operations have resulted in the Company determining that the deferred tax assets associated with net operating loss carryforwards may expire prior to utilization. Although the Company had net income in 2012 and 2011, it had net losses in previous years. Because of the uncertainty of realization of any tax assets, the Company provided a full valuation allowance against its net deferred tax assets at December 31, 2012 and 2011. Consequently, no benefit for deferred tax assets appears on the Company’s financial statements.

The Company’s income tax expense is summarized as follows:

	2012		2011
Provision for income taxes
US Federal	$	-	$	-
US States		2,700		7,100
Current provision		2,700		7,100
Change in deferred income taxes		-		-
Total provision for income taxes	$	2,700	$	7,100

 The difference between the actual income tax provision and the tax provision computed by applying the statutory US federal and United Kingdom income tax rates to earnings before taxes is attributable to the following:

	2012			2011
US Federal income tax expense (benefit) at 34%	$	(26,600	)	$	88,400
US State income tax expense (benefit)		21,800			1,900
United Kingdom income tax expense (benefit) at 20%		127,900			(42,100	)
Non deductible expenses		17,400			22,600
Change in tax assumptions and other tax items		1,800			1,334,300
Change in valuation allowance		(139,600	)		(1,398,000	)
Total	$	2,700		$	7,100

In order to clearly reflect its tax and economic position, the Company changed its assumptions in 2011 regarding the tax effects of utilizing net operating losses, its investment in its subsidiary in the United Kingdom, and the timing of repatriation of any future profits from that subsidiary. These changes in assumptions reduced the Company’s gross tax assets in 2011.

Temporary differences and carryforwards that give rise to deferred tax assets and liabilities are as follows:

	2012			2011
Benefit of net operating loss carryforwards	$	5,282,300		$	5,299,100
Depreciation and amortization		(1,827,900	)		(1,677,000	)
Other		103,600			75,500
Subtotal		3,558,000			3,697,600
Less valuation allowance		(3,558,000	)		(3,697,600	)
Total	$	-		$	-
Change in valuation allowance	$	(139,600	)	$	(1,398,000	)

The Company has net operating losses available for carry forward. The US Federal net operating losses total approximately $13,487,000 and expire beginning 2017 and ending in 2032. The US state operating losses total approximately $926,000 and expire beginning in 2014 and ending 2029. The Company’s UK operating losses total approximately $3,073,000 and they do not expire..

Tax years that remain open for examination by the Internal Revenue Service and the US states include 2009, 2010, and 2011; the Company expects to file its 2012 returns in the summer of 2013. California may still examine 2008 because of its longer statute of limitations. Additional years may be examined in the event of criminal tax fraud, and any year may be subject to examination to the extent that the Company utilizes the net operating losses from those years in its current or future tax returns.