(5) Income Taxes

Since inception, the Company has incurred losses from operations and as a result has not recorded income tax expense. Benefits related to net operating loss carry-forwards and deferred items have been fully reserved since it is not more likely than not that the Company will achieve profitable operations. The difference between the total income taxes at the federal statutory rate for each of the years ended December 31, 2015, 2014 and 2013 and the fact that no income tax benefit was recorded in each of these three years is attributable to the change in the valuation allowance recorded in each year.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 2015 and 2014 are presented below.

	2015			2014
Deferred tax assets:
Depreciation	$	113,000		$	113,000
Allowance for bad debts		211,000			108,000
Net operating loss carry-forwards		23,628,000			25,469,000
Stock option expense		1,358,000			1,439,000
Research and other credits		1,154,000			1,031,000
Other temporary differences		15,000			15,000
Total gross deferred tax assets		26,479,000			28,175,000
Less valuation allowance		(26,479,000	)		(28,175,000	)
	$	-		$	-

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future taxable income during the period in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon its historical operating losses, utilization of deferred tax assets cannot currently be determined. Accordingly, the Company has recorded a full valuation allowance against the deferred tax assets, as they will not be realized until the Company achieves profitable operations in the future.

At December 31, 2015, the Company had a net operating loss carry-forward for federal income tax purposes of approximately $67,000,000, varying amounts of which will expire in each year from 2016 through 2035. Research and other credit carry-forwards of approximately $1,154,000 are available to the Company to reduce income taxes payable in future years principally through 2035. The Company's ability to utilize its net operating loss carryforwards and its current year tax credits in future periods are subject to the 382 limitation. The $1,696,000 decrease in the valuation allowance between the period ending December 31, 2015 and 2014 respectively is primarily due to the change in the applicable tax rate that is expected to be applied towards taxable income in periods in which the deferred tax asset or liability is expected to be settled or realized.