Note 8 – 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,
	2017		2016			2017		2016
Federal – current	$	-	$	-		$	-	$	-
State – current		-		(220	)		6		(150	)
Total current		-		(220	)		6		(150	)

Federal – deferred		-		-			-		-
State - deferred		-		-			-		-
Total deferred		-		-			-		-

Income tax expense (benefit)	$	-	$	(220	)	$	6	$	(150	)

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,
	2017			2016			2017			2016
Tax at statutory federal rate		35.0	%		35.0	%		35.0	%		35.0	%
State income taxes		-			(23.6	)		-			(5.3	)
Permanent differences		-			-			-			-
Other		-			-			-			-
Change in valuation allowance		(35.0	)		(35.0	)		(35.0	)		(35.0	)
Effective income tax rate		-	%		(23.6	)%		-	%		(5.3	)%

The Company has not been notified of any 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 2013. Interest and/or penalties related to underpayments of income taxes, or on uncertain tax positions, if applicable, 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, 2017, and the three and nine months ended September 30, 2016, reflect a provision for a tax on capital imposed by the state jurisdictions.

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 December 31, 2016, 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
2015	2035		4,200,000
2016	2036		3,400,000
		$	40,200,000

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

		Amount
AMT Credits		$	21,000,000

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 December 31, 2016,are as follows:

Tax Year Originating	Tax Year Expiring	Amount

2011	2031	$	1,800,000
2013	2033		2,700,000
2014	2034		4,200,000
2015	2035		4,100,000
2016	2036		3,200,000
		$	16,000,000

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

	September 30, 2017			December 31, 2016
Deferred tax asset	$	63,300,000		$	36,400,000
Valuation allowance		(63,300,000	)		(36,400,000	)
Net deferred tax asset recognized	$	-		$	-

A valuation allowance has been established for the entire deferred tax asset, as management has no basis to conclude that realization is more likely than not.