Annual report pursuant to Section 13 and 15(d)

Note 5 - Income Taxes

Note 5 - Income Taxes

12 Months Ended

Dec. 31, 2013

Deferred Taxes

Deferred 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, and operating losses and tax credit carryforwards. The significant components of net deferred income tax assets for the Company are:

	December 31,
	2013			2012
Deferred tax assets:
Federal net operating loss carryforward	$	13,732,222		$	13,493,553
Other		696,043			538,936
Patent amortization		(7,007	)		(7,707	)
Deferred tax assets before valuation		14,421,258			14,024,782
Valuation allowance		(14,421,258	)		(14,024,782	)
Net deferred income tax assets	$	—		$	—

Generally accepted accounting principles requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's history of operating losses, management has provided a valuation allowance equal to its net deferred tax assets.

Tax Carryforward

At December 31, 2013, the Company had net operating loss carryforwards of approximately $31,935,000 to reduce United States federal taxable income in future years. These carryforwards expire through 2033. A reconciliation of the difference between the expected income tax rate using the statutory federal rate and the Company's effective rate is as follows:

	Year Ended December 31,
	2013			2012
U.S. Federal Income Tax statutory rate	34		%	34		%
State income taxes		5	%	$	5	%
Valuation allowance		(35)	%		(35)	%
Other		(4)	%		(4)	%
Effective tax rate		0	%	$	0	%

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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