Note 8 – Income Taxes

The Company has adopted accounting standards which prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally, these accounting standards specify that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. The Company has made no reclassifications between current taxes payable and long term taxes payable under this guidance. Also, the Company had no amounts of unrecognized tax benefits that, if recognized, would affect its effective income tax rate for the years ended December 31, 2013, 2012 and 2011.

The Company’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as taxes. As of December 31, 2013, the Company had no amount accrued for the payment of interest and penalties related to unrecognized tax benefits.

The tax return years 2009 through 2013 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. Net operating losses generated on a tax return basis by the Company for calendar years 1999 through 2004, 2009, 2010 and 2012 remain open to examination by the major domestic taxing jurisdictions.

Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2013 and 2012 are as follows:

	DECEMBER 31,
	2013		2012
Deferred tax liabilities:
Fixed assets	$	(7,201,000)	$	(7,218,000)
Total deferred tax liabilities		(7,201,000)		(7,218,000)

Deferred tax assets:
Net operating loss carryforwards		3,607,000		3,767,000
Accruals and allowances		240,000		233,000
Tax credits		318,000		334,000
Other – net		101,000		77,000

Total deferred tax assets		4,266,000		4,411,000

Valuation allowance		(95,000)		(163,000)

Deferred tax assets net of valuation allowance		4,171,000		4,248,000

Net deferred tax liabilities	$	(3,030,000)	$	(2,970,000)

These amounts are presented in the financial statements as follows:

	DECEMBER 31,
	2013		2012

Current deferred tax assets	$	342,000	$	310,000
Deferred income taxes (non-current)		(3,372,000)		(3,280,000)

	$	(3,030,000)	$	(2,970,000)

The components of the provision for income taxes consist of the following:

	DECEMBER 31,
	2013		2012

Current deferred tax assets	$	342,000	$	310,000
Deferred income taxes (non-current)		(3,372,000)		(3,280,000)

	$	(3,030,000)	$	(2,970,000)

	YEARS ENDED DECEMBER 31,
	2013		2012		2011
Current:
Federal	$	-	$	18,000	$	-
State	$	23,000	$	65,000	$	128,000
Foreign		-		-		4,000
Total current		23,000		83,000		132,000

Deferred:
Federal		184,000		95,000		305,000
State		12,000		(41,000)		(229,000)
Foreign		(135,000)		(30,000)		-
Total deferred		61,000		24,000		76,000

	$	84,000	$	107,000	$	208,000

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2013, 2012 and 2011) to income before taxes as follows:

	YEARS ENDED DECEMBER 31,
	2013		2012		2011

Computed expected federal income tax	$	(92,000)	$	49,000	$	243,000
State income taxes, net of federal benefit		119,000		38,000		(144,000)
Non-deductible expenses		28,000		24,000		41,000
Other		29,000		(4,000)		68,000

	$	84,000	$	107,000	$	208,000

At December 31, 2013, the Company had net operating loss carryforwards for federal income tax return purposes of approximately $9,609,000 which expire between 2019 and 2032. The Company has net operating loss carryforwards for state income tax purposes of approximately $1,752,000 that begin to expire in 2014. A substantial part of this carryforward is subject to separate return limitations.

The Company’s ability to utilize its net operating loss carryforwards and other deferred tax assets may be limited in the event of a 50% or more ownership change within any three-year period. Future federal net operating losses generated by the Company can be carried forward for 20 years.

It is the intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. The company does not provide for U.S. income taxes on the earnings of foreign subsidiaries as such earnings are to be reinvested indefinitely. As of December 31, 2013, there is a minimal cumulative amount of earnings upon which U.S. income taxes have not been provided.