Annual report pursuant to Section 13 and 15(d)

Income taxes

Income taxes

12 Months Ended

Dec. 31, 2014

A reconciliation of the federal statutory income tax provision to the Company's actual provision for the years ended December 31, 2014 and 2013 is as follows:



	2014			2013
Benefit at federal statutory tax rate	$	1,319,500		$	1,280,000
Unbenefited operating losses	(1,319,500		)	(1,280,000		)
Income tax provision	$	—		$	—

The components of net deferred tax assets recognized in the accompanying consolidated balance sheets at December 31, 2014 and 2013 are as follows:



	2014			2013
Net operating loss carryforwards	$	6,356,000		$	4,850,000
Accrued expenses and other	1,051,000			598,000
Accounts receivable	19,000			40,000
Inventory	207,000			117,000
Property, plant and equipment	138,000			155,000
Deferred tax assets	7,771,000			5,760,000
Valuation allowance	(7,771,000		)	(5,760,000		)
Deferred tax assets, net	$	—		$	—

At December 31, 2014, the Company has approximately $15,990,000 of Federal Loss Carryforwards that expire beginning in the year 2021 through 2034. In addition, the Company has varying amounts of state net operating losses, expiring at various dates starting 2015 through 2034. The Federal net operating losses include approximately $3,300,000 attributable to the Company's majority owned subsidiary, which can only be used against income of that entity.

Utilization of the loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred previously or could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986, as well as, similar state provisions. Ownership changes may limit the amount of the carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups of stock of a corporation by more than 50 percentage points over a three-year period.

If the Company has experienced a change of control, utilization of its carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the loss carryforwards before utilization. Subsequent ownership changes could further impact the limitation in future years. Further, until a study is completed and any limitation known, no amounts are being presented as an uncertain tax provision.

A full valuation allowance has been provided against the company's loss carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required.

The Company did not record a benefit for income taxes related to its operating losses for the years ended December 31, 2014 and 2013.

- 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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