11.

INCOME TAXES

Our income tax expense (benefit) aggregated $260,447 and $19,277 (amounting to 43% and 65% of our income (loss) before income taxes) for the three-month periods ended September 30, 2015 and 2014, respectively, and $709,394 and ($146,101) (amounting to 43% and 33% of our income (loss) before income taxes) for the nine-month periods ended September 30, 2015 and 2014, respectively. As of December 31, 2014, we have state net operating loss carryforwards of approximately $1,920,000 that expire in 2028 through 2031, if not utilized before then, and federal net operating loss carryforwards of approximately $1,750,000 that expire in 2029 through 2034, if not utilized before then. Additionally, we have general business tax credit carryforwards of approximately $220,000 that expire in 2027 through 2034, if not utilized before then, which effectively protects approximately $549,000 in taxable income (assuming a 40% tax rate) from taxes, which can be utilized only after all net operating loss carryforwards are utilized. The $965,000 licensing payment that we made during the fourth quarter of 2004 was treated as an intangible asset and is being amortized over 15 years, for tax return purposes only. Approximately $1,112,000 of our investment to produce the Drug Substance (our Active Pharmaceutical Ingredient, Nisin) for Mast Out^® was expensed as incurred for our books. Included in this amount is approximately $820,000 that was capitalized and is being depreciated over statutory periods for tax return purposes only.

Deferred tax assets are recognized only when it is probable that sufficient taxable income will be available in future periods against which deductible temporary differences and credits may be utilized. However, the amount of the deferred tax asset could be reduced if projected income is not achieved due to various factors, such as unfavorable business conditions. If projected income is not expected to be achieved, we would decrease the deferred tax asset to the amount that we believe can be realized.

Net operating loss carryforwards, credits, and other tax attributes are subject to review and possible adjustment by the Internal Revenue Service. Section 382 of the Internal Revenue Code contains provisions that could place annual limitations on the future utilization of net operating loss carryforwards and credits in the event of a change in ownership of the Company, as defined.

The Company files income tax returns in the U.S. federal jurisdiction and several state jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2011. We currently have no tax examinations in progress. We also have not paid additional taxes, interest or penalties as a result of tax examinations nor do we have any unrecognized tax benefits for any of the periods in the accompanying financial statements.