Income Taxes

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 12. Income Taxes

Pursuant to ASC 740, income taxes are provided for based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.

We are subject to taxation in the U.S. and the state of Oregon. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2006.

At December 31, 2012 and 2011, the Company had gross deferred tax assets calculated at an expected blended rate of 38% of approximately $10,115,000 and $9,892,800, respectively, principally arising from net operating loss carryforwards for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of $10,115,000 and $9,892,800 has been established at December 31, 2012 and 2011, respectively.

Topic 740 in the Accounting Standards Codification (ASC 740) prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 30, 2011, the Company had taken no tax positions that would require disclosure under ASC 740.

The Company has analysed its filing positions in all jurisdictions where it is required to file income tax returns and found no positions that would require a liability for unrecognized income tax benefits to be recognized. We are subject to possible tax examinations for the years 2008 through 2011. We deduct interest and penalties as interest expense on the financial statements.

Additionally, the future utilization of our net operating loss and R&D credit carryforwards to offset future taxable income may be subject to an annual limitation, pursuant to IRC Sections 382 and 383, as a result of ownership changes that may have occurred previously or that could occur in the future.

There is no unrecognized tax benefit included in the balance sheet that would, if recognized, affect the effective tax rate.

The significant components of the Company’s net deferred tax assets (liabilities) at December 31, 2012 and 2011 are as follows:

	2012			2011
Gross deferred tax assets:
Net operating loss carryforwards	$	9,187,000		$	9,017,000
Difference between book and tax basis of former subsidiary stock held		-			-
Stock based expenses		154,000			101,800
Tax credit carryforwards		211,000			211,000
All others		563,000			563,000
		10,115,000			9,892,800
Deferred tax asset valuation allowance		(10,115,000	)		(9,892,800	)
Net deferred tax asset (liability)	$	-		$	-

At December 31, 2012, the Company has net operating loss carryforwards of approximately $9,187,000, which expire in the years 2011 through 2030. The net change in the allowance account was an increase of $222,000 for the year ended December 31, 2012.