Note 9 - Income Taxes

The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company recognizes both the current and deferred tax consequences of all transactions that have been recognized in the condensed consolidated financial statements, calculated based on the provisions of enacted tax laws, including the tax rates in effect for current and future years. Net deferred tax assets are recognized immediately when a more likely than not criterion is met; that is, a greater than 50% probability exists that the tax benefits will actually be realized sometime in the future.

The components of income tax expense (benefit) are as follows:

(in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Federal – current	$	-		$	250		$	-		$	731
State – current		38			387			105			1,211
Total current		38			637			105			1,942

Federal – deferred		(518	)		(460	)		(1,226	)		(1,422	)
State - deferred		-			-			-			-
Change in valuation allowance		518			460			1,226			1,422
Total deferred		-			-			-			-

Income tax expense (benefit)	$	38		$	637		$	105		$	1,942

The components of pretax income (loss) and the difference between income taxes computed at the statutory federal rate and the provision for income taxes are as follows:

(in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Income (loss) before income taxes	$	(1,479	)	$	(1,315	)	$	(3,502	)	$	(4,062	)
Tax expense (benefit):
Tax at statutory federal rate	$	(518	)	$	(460	)	$	(1,226	)	$	(1,422	)
State income taxes		38			30			105			140
Federal interest		-			250			-			731
State interest		-			357			-			1,071
Permanent items		-			-			-			-
Other		-			-			-			-
Change in valuation allowance		518			460			1,226			1,422

Income tax expense (benefit)	$	38		$	637		$	105		$	1,942

A reconciliation of the United States federal statutory rate to the Company's effective income tax rate is as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015		2014
Tax at statutory federal rate	35.0%	35.0%	35.0%		35.0%
State income taxes	(2.8)%	(2.3)%	(3.0)%		(3.5)%
Federal interest	0.0%	(19.0)%	0.0%		(18.0)%
State interest	0.0%	(27.2)%	0.0%		(26.3)%
Permanent differences, tax credits and other adjustments	-	-	-		-
Other	-	-	-		-
Change in valuation allowance	(35.0)%	(35.0)%	(35.0)%	)	(35.0)%
Effective income tax rate	(2.8)%	(48.5)%	(3.0)%		(47.8)%

The Company has not been notified of any other potential tax audits by any federal, state or local tax authorities. As such, the Company believes the statutes of limitations for the assessment of additional federal and state tax liabilities are generally closed for tax years prior to 2011. Interest and/or penalties related to underpayments of income taxes, or if applicable on uncertain tax positions, would be included as a component of income tax expense (benefit). The accompanying financial statements do not include any amounts for penalties.

State income tax amounts for the three months and nine months ended September 30, 2015, reflects a provision for a minimum tax on capital imposed by the state jurisdictions. State income tax amounts for the three months and nine months ended September 30, 2014, included accrued state interest expense for uncertain tax positions and a provision for a minimum tax on capital imposed by the state jurisdictions.

Pursuant to the accounting principles with regard to recognition of uncertain tax positions, (ASC 740-10, Accounting for Income Taxes), the Company had been required to record an uncertain tax position liability to reflect the net tax effect plus accrued interest for potential tax audit adjustments with regard to the Company's 2012 federal income tax return as filed. . The Company had recorded an indemnification asset – federal tax gross-up to reflect the net amount (excluding accrued interest) of the federal uncertain tax position reserve recognized. A portion of the uncertain tax position reserve was attributable to certain state taxes on the Settlement Amount which were not reimbursable to the Company as part of the Settlement Agreement. In December 2014, the IRS completed their review of the examination of the Company's 2012 federal income tax return with no change to the tax return as filed. As a result, the Company, in December 2014, recorded a reversal of the indemnification asset – federal tax gross-up and the reversal of the uncertain tax position reserve, as noted in the table herein below. The Company believes that if any additional federal tax had been owed as a result of any adjustments, these potential amounts would be reimbursable to the Company pursuant to the tax gross-up provision of the Settlement Agreement

In connection with the uncertain tax position reserve in 2014, the Company accrued federal and state interest expense for the potential underpayment of 2012 taxes. The interest expense was included as a component of income tax expense (benefit) in the consolidated condensed statement of operations and as a component of the uncertain tax position reserve in the consolidated condensed balance sheets.

A roll forward of the uncertain tax positions reserve, excluding accrued federal and state interest is as follows:

(in thousands)	September 30, 2015		December 31, 2014
Uncertain tax position reserve excluding accrued interest, at beginning of period	$	-	$	34,157
Federal uncertain tax position reserve excluding accrued interest		-		(18,429	)
State uncertain tax position reserve excluding accrued interest		-		(15,728	)
Uncertain tax position reserve excluding accrued interest, at end of period	$	-	$	-

The interest expense related to the uncertain tax positions is as follows:

(in thousands)	Three Months Ended				Nine Months Ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Federal	$	-	$	250	$	-	$	731
State jurisdictions		-		357		-		1,071

Interest expense - taxes	$	-	$	607	$	-	$	1,802

The utilization of certain carryforwards and carrybacks is subject to limitations under U.S. federal income tax laws. Based on the Company's federal tax returns as filed, the Company estimates it has federal NOL carryforwards and federal alternative minimum tax credit carryforwards ("AMT Credits"), available to reduce future federal taxable income which would expire if unused, as indicated below.

The federal NOL carryforwards as of September 30, 2015 are as follows:

Tax Year Originating	Tax Year Expiring	Amount


2006	2026	$	500,000
2007	2027		12,700,000
2008	2028		4,600,000
2009	2029		2,400,000
2010	2030		1,900,000
2011	2031		1,900,000
2013	2033		3,700,000
2014	2034		4,900,000
		$	32,600,000

AMT Credits available which are not subject to expiration are as follows:

		Amount
AMT Credits		$	21,500,000

Based on the Company's state tax returns as filed, the Company estimates that it has state NOL carryforwards available to reduce future state taxable income, which would expire if unused, as indicated below.

The state NOL carryforwards as of September 30, 2015,are as follows:

Tax Year Originating	Tax Year Expiring	Amount

2011	2031	$	1,900,000
2013	2033		3,400,000
2014	2034		4,700,000
		$	10,000,000

The Company has calculated a net deferred tax asset arising primarily from NOL carryforwards and AMT Credits as follows:

	September 30, 2015			December 31, 2014
Net deferred tax asset	$	35,100,000		$	32,900,000
Valuation allowance		(35,100,000	)		(32,900,000	)
Net deferred tax asset recognized	$	-		$	-

A valuation allowance has been established for the entire net deferred tax asset, as management, at the current time, has no basis to conclude that realization is more likely than not. At the current time management does not believe that any significant changes in unrecognized income tax benefits are expected to occur over the next year.