NOTE I - INCOME TAXES

The Company accounts for income taxes using the liability method, under which deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

As of December 31, 2016, the Company had federal net operating loss carry forwards of approximately $12,995,000, which expire in varying amounts between 2021 and 2032. Realization of this potential future tax benefit is dependent on generating sufficient taxable income prior to expiration of the loss carry forward.

At December 31, 2016 and 2015, the Company had a federal operating loss carry forward of $12,995,000 and $12,742,000.  Components of net deferred tax assets, including a valuation allowance, are as follows at December 31:

The valuation allowance for deferred tax assets as of December 31, 2016 and 2015 was $3,894,000 and $3,924,000, respectively. In assessing the recovery of the deferred tax assets, management 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 the generation of future taxable income in the periods in which those temporary differences become deductible.  Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment.  As a result, management determined it was more likely than not the deferred tax assets would be realized as of December 31, 2016 and 2015.

Reconciliation between the statutory rate and the effective tax rate is as follows at December 31: