The Company accounts for income taxes using the liability method.

 

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.

 

Deferred tax assets and (liabilities) consist of the following:

Internal Revenue Code Section places a limitation on the utilization of federal net operating loss and other credit carry-forwards when an ownership change, as defined by the tax law, occurs. Generally, this occurs when a greater than percentage point change in ownership occurs. On HMIT acquired a greater than percent ownership of the Company. Accordingly, the actual utilization of the net operating loss carry-forwards for tax purposes are limited annually under Code Section to a percentage (currently about and a half percent) of the fair market value of the Company at the date of this ownership change.

At the Company has federal net operating loss carry-forwards of approximately million, which will begin to expire in The New Jersey net operating loss carry-forwards of approximately million will begin to expire in The full utilization of the deferred tax assets in the future is dependent upon the Company’s ability to generate taxable income; accordingly, a valuation allowance of an equal amount has been established. During the years ended and the valuation allowance increased by approximately and respectively.

 

Significant components of the provision for income taxes are as follows:

 

A reconciliation between the federal statutory rate and the effective income tax rate for the years ended and is as follows: