NOTE 8 — INCOME TAXES:

The (benefit from) provision for income taxes for the years ended December 31, 2014 and 2013, is comprised of the following:

	2014			2013
Current
Federal	$	(16,119	)	$	27,175
State		6,576			1,623
Total current (benefit) provision		(9,543	)		28,798

Deferred
Federal		(449,452	)		454,439
State		46,077			3,715
Total deferred (benefit) provision		(403,375	)		458,154

Total (benefit) provision	$	(412,918	)	$	486,952

The Company had an ownership change as described in Internal Revenue Code Sec. 382 during 2004 ("2004 change"). As a result, the Company's net operating losses prior to the 2004 change of $5,832,516 were subject to an annual limitation of $150,608 and for the first five (5) years are entitled to a BIG (Built-In-Gains) of $488,207 per year. These net operating losses expire in 2018 through 2024.

The Company had a second ownership change during 2006 ("2006 change"). The net operating losses incurred between the 2004 change and the 2006 change of $8,586,861 were subject to an annual limitation of $1,111,831 and for the first five (5) years are entitled to a BIG of $1,756,842 per year. These net operating losses expire in 2018 through 2028.

After applying the above limitations, at December 31, 2014, the Company has post-change net operating loss carry-forwards of approximately $11,696,561 which expire between 2020 and 2034. In addition the Company has research and development tax credit carryforwards of approximately $1,175,725 for the year ended December 31, 2014, which expire between 2025 and 2034.

	2014			2013
Current assets
Inventory reserves	$	311,931		$	307,080
Accrued expenses		286,616			329,187
Net current deferred asset	$	598,547		$	636,267

Noncurrent assets
Net operating loss carry-forwards	$	3,986,618		$	3,616,089
Research and development credit		1,175,725			1,052,166
Other credits		107,967			124,413
Other		149,923			107,808
Gross noncurrent deferred tax assets		5,420,233			4,900,476
Depreciation		(213,206	)		(258,103	)
Noncurrent deferred tax assets		5,207,027			4,642,373
Less valuation allowances		(1,175,725	)		(1,052,166	)
Net noncurrent deferred tax assets	$	4,031,302		$	3,590,207

A reconciliation of the Federal statutory rate to the effective rate applicable to income (loss) before income taxes is as follows:

	Year Ending December 31,
	2014	2013
Federal income tax at statutory rates	(34.00)%	34.00%
State income taxes, net of federal benefit	.28%	0.47%
Nondeductible expenses	4.54%	10.27%
Change in valuation allowance	9.47%	33.48%
Tax credits	(9.47)%	(33.48)%
Change in tax rates	1.96%	3.10%
Other	.58%	(0.01)%
Income tax (benefit)	(26.64)%	47.83%

Interest and penalties, if any, related to income tax liabilities are included in income tax expense. As of December 31, 2014, the Company does not have a liability for uncertain tax positions.

The Company files Federal and New York state income tax returns. Tax years for fiscal 2011 through 2013 are open and potentially subject to examination by the federal and New York state taxing authorities.