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14. INCOME TAXES
 12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
14. INCOME TAXES

There was no Federal income tax expense for the years ended December 31, 2014 and 2013 due to the Company’s net losses. Income tax expense represents minimum state taxes due.

 

The blended Federal and State tax rate of 39.83% 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, 
   2014   2013 
Computed “expected” tax expense (benefit)  $(1,069,743)  $(949,929)
State taxes, net of federal benefit   (206,901)   (173,132)
Goodwill impairment and other non-deductible items   (192,514)   76,599 
Change in deferred tax asset valuation allowance   1,470,758    1,048,062 
Income tax expense  $1,600   $1,600 

 

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:

 

   2014   2013 
Deferred tax assets:          
Charitable contributions  $4,128   $4,128 
Reserve for bad debt   20,684    30,006 
Stock options   4,593,382    4,411,279 
Inventory Adjustment   –    3,326 
Other   15,702    7,502 
Net operating loss carryforward   7,485,682    6,183,779 
Total gross deferred tax assets   12,119,578    10,640,020 
Less: Deferred tax asset valuation allowance   (11,999,461)   (10,528,703)
Total net deferred tax assets   120,117    111,317 
           
Deferred tax liabilities:          
Accrued salaries   (96,704)   (88,259)
Accrued vacation   (13,848)   (4,924)
Depreciation   (9,565)   (18,134)
Total deferred tax liabilities   (120,117)   (111,317)
Total net deferred taxes  $–   $– 

 

The valuation allowance at December 31, 2014 was $11,999,461. The increase in the valuation allowance during 2014 was $1,470,758.

 

At December 31, 2014, the Company has a net operating loss carry forward of $18,792,003 available to offset future net income through 2034. The NOL expires during the years 2014 to 2034. 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.