NOTE 6 — INCOME TAXES

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

There is no income tax provision in the accompanying statements of operations due to the cumulative operating losses that indicate a 100% valuation allowance for the deferred tax assets and state income taxes is appropriate.

During September 2013, the Company experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code which could potentially limit the ability to utilize the Company’s net operating losses (NOLs). The general limitation rules allow the Company to utilize its NOLs subject to an annual limitation that is determined by multiplying the federal long-term tax-exempt rate by the Company’s value immediately before the ownership change.

At September 30, 2014, the Company had approximately $16.0 million of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2015, subject to the Section 382 limitation described above. The federal NOLs will expire beginning in 2022 if unused. The Company also had approximately $17.1 million of gross NOLs to reduce future state taxable income at September 30, 2014, which will expire in years 2022 through 2034 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At September 30, 2014, the federal and state valuation allowances were $7.1 million and $1.5 million, respectively.

The components of deferred income taxes at September 30, 2014 and December 31, 2013 are as follows:


	September 30, 2014		December 31, 2013
Deferred Tax Asset:
Net Operating Loss	$	7,920,000	$	3,259,000
Other		631,000		59,000
Total Deferred Tax Asset		8,551,000		3,318,000
Less Valuation Allowance		8,551,000		3,318,000
Net Deferred Income Taxes	$	—	$	—

NOTE 5 — INCOME TAXES

Federal and state income tax return operating loss carryovers as of December 31, 2013 were approximately $13,969,000 and will begin to expire in 2017.

The valuation allowance has been recorded due to the uncertainty of realization of the benefits associated with the net operating losses. Future events and changes in circumstances could cause this valuation allowance to change.

The components of deferred income taxes at December 31, 2013 and December 31, 2012 are as follows:


	December 31, 2013		December 31, 2012
Deferred Tax Asset:
Net Operating Loss	$	3,259,000	$	2,209,000
Other		59,000		73,000
Total Deferred Tax Asset		3,318,000		2,282,000
Less Valuation Allowance		3,318,000		2,282,000
Net Deferred Income Taxes	$	—	$	—

- 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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