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Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

NOTE 11 — Income Taxes

Deferred tax expense is related to the deferred tax liability on the portion of the Company's goodwill amortized for tax purposes. Due to the indefinite characteristic of this deferred tax liability, it cannot be offset against deferred tax assets. The provision for deferred tax for the periods ended December 31, 2015 and 2014, consists of the following components:

		Years Ended December 31,
		2015				2014
Current:
Federal		$	—			$	—
State			—				—
Total Current			—				—
Deferred:
Federal			31,940				31,940
State			—				—
Total Deferred			31,940				31,940
Total provision for deferred tax		$	31,940			$	31,940

Reconciliation of the statutory federal income tax rate to the Company's effective tax rate:

		Years Ended December 31,
		2015				2014
Federal tax at statutory rate			34.00	%			34.00	%
State income tax rate			5.83	%			5.83	%
Losses and credits not benefited			(41.56	%)			(32.95	%)
Goodwill impairment			—				—
Provision for taxes			(1.73	%)			6.88	%

As of December 31, 2015, the Company did not recognize deferred tax assets relating to an excess tax benefit for stock-based compensation deduction of $2,094,000. Unrecognized deferred tax benefits will be accounted for as a credit to additional-paid-in-capital when realized through a reduction in income taxes payable.

Deferred income tax reflects the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of net deferred tax assets are as follows:

		Years Ended December 31,
Deferred tax assets:		2015				2014
Net operating loss carryforwards		$	8,833,000			$	9,729,000
Credits			753,000				716,000
Capitalized research and development costs			18,000				122,000
Other acquired intangibles			91,000				134,000
Accruals not currently deductible			1,614,000				1,356,000
Total deferred tax assets			11,309,000				12,057,000
Valuation allowance for deferred tax assets			(11,279,000	)			(12,032,274	)
Net deferred tax assets			30,000				24,726
Deferred tax liability:
Acquired intangibles			(205,000	)			(168,000	)
Net deferred tax liabilities		$	(175,000	)		$	(143,274	)

The Company has not consistently generated taxable income in any jurisdiction for the prior 12 quarters. Currently, the Company has maintained a full valuation allowance for all deferred tax assets due to negative evidence outweighing the positive evidence. The primary negative evidence includes the Company’s recent history of losses (including Q1 of 2015), the phase out of the SoMo product line with diminishing revenue forecasted for 2016, and no contractual commitment assuring future revenue except for the remainder of SoMo related orders for OEM customers. However, the Company’s short term trend of net income for the last two years allows for the possible reversal of existing taxable temporary differences. If the Company continues to remain profitable and determines that the positive evidence outweighs the negative evidence, projected future taxable income could be included in the evaluation.

As of December 31, 2015, the Company had net operating loss carryforwards for federal income tax purposes of approximately $27,578,000 which will expire at various dates beginning in 2017 and through 2033, and federal research and development tax credits of approximately $460,000, which will expire at various dates beginning in 2018 and through 2033. As of December 31, 2015, the Company had net operating loss carryforwards for state income tax purposes of approximately $18,020,000, which will expire at various dates in 2015 and through 2033, and state research and development tax credits of approximately $294,000, which can be carried forward indefinitely.

Utilization of the net operating loss and tax credit carryforwards is subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code Section 382 and similar state provisions. The annual limitation will result in the expiration of the net operating loss and credit carryforwards before utilization. The deferred tax assets for the year ended December 31, 2015 reflect estimates of Section 382 limitations.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTBs”), excluding interest and penalties, is as follows:

		Amount
Beginning balance at January 1, 2015		$	730,000
Decreases in UTBs taken in prior years			4,000
Decreases in UTBs taken in current years			20,000
Ending balance at December 31, 2015		$	754,000

Future changes in the unrecognized tax benefit will have no impact on the effective tax rate due to the existence of the valuation allowance. It is the Company's policy to include interest and penalties related to tax positions as a component of income tax expense. No interest was accrued for the period ended December 31, 2015. The Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company is not currently under audit in any of its jurisdictions where income tax returns are filed. The tax years 1996 to 2014 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject, and for the years 2002 to 2009 for the international taxing jurisdictions to which the Company is subject.