Note 8 – Income Taxes

As of December 31, 2015, 2014 and 2013 the Company recorded income tax provision expense of $434,000, $129,000 and $84,000, respectively. The increase in 2015 is due to income from operations of the Company’s subsidiaries. The loss incurred on the write-down of the Company’s investment in equity securities is a capital loss which is treated as non-deducible expense for income tax provision purposes and as such, a full valuation allowance was recorded against this loss and the net impact to the provision was $0. The increase in 2014 compared to 2013 is due to income from operations of the Company’s subsidiaries.

The components of the provision for income taxes as of December 31, 2015, 2014 and 2013 consist of the following:

	YEARS ENDED DECEMBER 31,
	2015		2014		2013
Current:
Federal	$	35,000	$	-	$	-
State		103,000		54,000		23,000
Foreign		-		-		-
Total current		138,000		54,000		23,000

Deferred:
Federal		353,000		(131,000)		184,000
State		(57,000)		40,000		12,000
Foreign		-		166,000		(135,000)
Total deferred		296,000		75,000		61,000

	$	434,000	$	129,000	$	84,000

Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2015 and 2014 are as follows:

	DECEMBER 31,
	2015		2014
Deferred tax liabilities:
Property and equipment	$	(6,831,000)	$	(7,145,000)

Total deferred tax liabilities		(6,831,000)		(7,145,000)

Deferred tax assets:
Net operating loss carryforwards		2,859,000		3,424,000
Accruals and allowances		172,000		173,000
Tax credits		356,000		319,000
Other – net		163,000		235,000
Capital loss carryover		1,217,000		437,000

Total deferred tax assets		4,767,000		4,588,000

Valuation allowance		(1,340,000)		(549,000)

Deferred tax assets net of valuation allowance		3,427,000		4,039,000

Net deferred tax liabilities	$	(3,404,000)	$	(3,106,000)

These amounts are presented in the financial statements as follows:

	DECEMBER 31,
	2015		2014

Current deferred tax assets	$	-	$	367,000
Deferred income taxes (non-current)		(3,404,000)		(3,473,000)

	$	(3,404,000)	$	(3,106,000)

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2015, 2014 and 2013) to income before taxes as follows:

	YEARS ENDED DECEMBER 31,
	2015		2014		2013

Computed expected federal income tax	$	(360,000)	$	(280,000)	$	(92,000)
State income taxes, net of federal benefit		(55,000)		66,000		120,000
Non-deductible expenses		40,000		21,000		28,000
Change in valuation allowance		792,000		416,000		(68,000)
Other		17,000		(94,000)		96,000

	$	434,000	$	129,000	$	84,000

At December 31, 2015, the Company has a net operating loss carryforward for federal income tax return purposes of approximately $7,872,000 which expire between 2021 and 2034. The Company has net operating loss carryforwards for state income tax purposes of approximately $1,057,000 that begin to expire in 2017. The Company has net operating loss carryforwards for Peru and UK income tax purposes of approximately $453,000 that begin to expire in 2017.

At December 31, 2015, the Company has a capital loss carryforward for federal income tax return purposes of approximately $1,176,000 which starts to expire in 2018. The Company has capital loss carryforwards for state income tax purposes of approximately $150,000 which expires in 2018.

The Company’s ability to utilize its net operating loss carryforwards and other deferred tax assets may be limited in the event of a 50% or more ownership change within any three-year period.

The tax return years 2011 through 2015 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. Net operating losses generated on a tax return basis by the Company for calendar years 1999 through 2004, 2009, 2010, 2012, 2014, and 2015 remain open to examination by the major domestic taxing jurisdictions.

Due to uncertainty surrounding the realization of impairment losses, capital losses and foreign operating losses in future years, the Company has placed a valuation allowance against a portion of its net domestic and foreign deferred tax assets. The net valuation allowance increased by $792,000, increased by $416,000, and decreased by $68,000 for the tax years ended December 31, 2015, 2014, and 2013, respectively.

The Company has adopted accounting standards which prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally, these accounting standards specify that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. The Company has made no reclassifications between current taxes payable and long term taxes payable under this guidance. Also, the Company had no amounts of unrecognized tax benefits that, if recognized, would affect its effective income tax rate for the years ended December 31, 2015, 2014 and 2013.

The Company’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as taxes. As of December 31, 2015, the Company had no amount accrued for the payment of interest and penalties related to unrecognized tax benefits.