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INCOME TAXES
 12 Months Ended
Dec. 31, 2013
Notes to Financial Statements  
13. INCOME TAXES

A reconciliation of the provision (benefit) for income taxes with amounts determined by applying statutory U.S. income tax rate of 34% to income taxes is as follows:

 

    December 31,  
    2013     2012  
             
U.S. Federal Statutory tax at 34%   $ (1,221,531 )   $ (1,361,872 )
                 
State Taxes, net of federal benefit     299,640       (119,482 )
                 
Permanent differences     124,993       (82,877 )
                 
Valuation Allowance     796,898       1,564,231  
                 
Provision for income taxes   $ -     $ -  

 

Due to losses incurred for the years ended December 31, 2013 and 2012, there is no current provision for income taxes.  The Company's discontinued operations incurred a tax benefit of $328,080 and $9,121 for the years ended December 31, 2013 and 2012, respectively.

 

Deferred tax assets consist as follows:

 

    December 31,  
    2013     2012  
                 
Net operating loss carried forward   $ 15,048,936     $ 14,271,799  
Depreciable assets     22,993       (1,040 )
Intangibles     -       (29,301 )
Allowance for doubtful accounts     220,214       283,252  
Other     37,454       7,988  
                 
      15,329,187       14,532,698  
Valuation Allowance     (15,329,187 )     (14,532,698 )
    $ -     $ -  

 

Based upon the net operating losses incurred since inception, management has determined that it is more likely than not that the deferred tax assets as of December 31, 2013 and 2012 will not be recognized. Consequently, the Company has established a valuation allowance against the entire deferred tax assets.

 

As of December 31, 2013, the Company has federal net operating losses of approximately $39.9 million that expire from 2022 to 2032, and state net operating losses of approximately of $26.4 million.  The state net operating losses relate to the states of California and Oregon.  Since the Company discontinued operations in those states in 2013, the expected recoverability of those net operating losses as of December 31, 2013 are $0.

 

The utilization of some or all of the Company’s net operating losses may be restricted in the future by a significant change in ownership as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended. In addition, by California law, only a percentage of the Company’s pre-2008 net operating losses may be carried forward.  Furthermore, California net operating losses for the years prior to 2008 may only be carried forward ten (10) years under State law. The Company’s estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time, pursuant to ASC 740 Accounting for Income Tax. ASC 740 requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. At January 1, 2007, (adoption date), and at December 31, 2013, there were no unrecognized tax benefits.

 

The federal statute of limitations remains open for tax years 2010 through 2013. State jurisdictions generally have statutes of limitations ranging from three to five years. The Company is no longer subject to state income tax examinations by tax authorities for years before 2009.

 

Any interest and penalties associated with tax positions taken by the Company would be recorded as a component of other expenses in the consolidated statement of operations.  For the years ended December 31, 2013, and 2012, there were no amounts recorded for interest and penalties.