Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2015

Note 9. Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31:

	2015			2014

Deferred tax assets:
Net operating loss carryforwards	$	13,500,000		$	13,094,000
Depreciation		90,000			488,000
Non-cash compensation		370,000			285,000
Valuation Allowance		(12,339,000	)		(12,246,000	)
Deferred tax asset	$	1,621,000		$	1,621,000

Management has reviewed its net deferred asset position, and due to the history of operating losses has determined that the application of a valuation allowance at December 31, 2015 and December 31, 2014 is warranted. If applicable, the Company would recognize interest expense and penalties related to uncertain tax positions in interest expense. As of December 31, 2015, the Company had not accrued any interest or penalties related to uncertain tax provisions.

The Company has net operating loss carryforwards for tax purposes of approximately $39.7 million that begin to expire in the

year 2020. Approximately $0.1 million of the total net operating loss is subject to an IRS Section 382 limitation from 1999.

The tax provision for federal and state income tax is as follows for the year ended December 31:

	2015		2014
Current provision:
Federal	$	32,369	$	45,000
State		42,916		93,774
		75,285		138,774

Deferred provision:
Federal (benefit)		-		(1,621,000	)

(Benefit) expense for income taxes	$	75,285	$	(1,482,226	)

The reconciliation of federal income tax computed at the U.S. federal statutory tax rates to total income tax expense (benefit) is as follows for the year ended December 31:

	2015			2014
Income tax expense (benefit) at 34%	$	361,000		$	770,000
Change in valuation allowance		93,000			(2,610,000	)
Permanent and other differences		(454,000	)		220,000
Alternative minimum tax and Texas margin tax		75,285			137,774

Income tax expense (benefit)	$	75,285		$	(1,482,226	)