Annual report pursuant to Section 13 and 15(d)

Note 9 - Income Taxes

v3.3.1.900
Note 9 - Income Taxes
 12 Months Ended
Dec. 31, 2015
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
Note 9:      Income Taxes
 
Income tax (benefit) provision reported in the consolidated statements of operations is comprised of the following:
 
    December 31,
    2015   2014
Current benefit:                
Federal   $ (208,900 )   $ (388,900 )
State, net of state tax credits     (67,800 )     (28,800 )
Total current benefit     (276,700 )     (417,700 )
                 
Deferred provision:                
Federal     40,800       1,403,100  
State     -       355,000  
Total deferred provision     40,800       1,758,100  
                 
Total income tax (benefit) provision   $ (235,900 )   $ 1,340,400  
 
The following are the components of the Company’s net deferred taxes for federal and state income taxes:
 
    December 31,
    2015   2014
Deferred revenue   $ 1,988,200     $ 2,999,300  
Deferred franchise costs     (664,000 )     (932,900 )
Allowance for doubtful accounts     1,781,000       30,800  
Accrued expenses     74,900       197,300  
Goodwill     87,000       -  
Restricted stock compensation     (44,100 )     (231,300 )
Nonqualified stock options     109,600       -  
Deferred rent     209,700       207,000  
Net operating loss carryforwards     1,849,100       38,200  
Tax Credits     14,200       -  
Charitable contribution carryover     1,300       400  
Asset basis difference related to property and equipment     167,500       (45,400 )
Gross non-current deferred tax asset     5,574,400       2,263,400  
Less valuation allowance     (5,574,400 )     (2,054,600 )
Net non-current deferred tax asset   $ -     $ 208,800  
 
 
At December 31, 2015, the Company has federal and state net operating losses of approximately $4,533,000 and $6,016,000, respectively. These net operating losses are available to offset future taxable income and will begin to expire in 2035 for federal purposes and 2019 for state purposes.
 
The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net loss, compared to the income tax (benefit) provision in the consolidated statements of operations:
 
    For the Years Ended December 31,
    2015   2014
    Amount   Percent   Amount   Percent
Expected federal tax benefit   $ (3,071,300 )     -34.00 %   $ (574,900 )     -34.00 %
State tax provision, net of federal benefit     (387,500 )     -4.29 %     (72,500 )     -4.29 %
Effect of increase in valuation allowance     3,519,800       38.97 %     2,054,600       121.52 %
Permanent differences     (58,800 )     -0.65 %     23,900       1.41 %
Non-deductible expenses     (46,500 )     -0.51 %     (20,900 )     -1.24 %
Effect of reduced state rates for deferred     (80,100 )     -0.89 %     33,000       1.95 %
Other, net     (111,500 )     -1.23 %     (102,800 )     -6.08 %
Total income tax (benefit) provision   $ (235,900 )     -2.61 %   $ 1,340,400       79.28 %
 
The state tax expense (benefit), penalties and interest stem from uncertain tax positions related to unresolved state apportionment of taxable income.
 
Changes in the Company’s income tax (benefit) provision related primarily to changes in pretax loss during the year ended December 31, 2015, as compared to year ended December 31, 2014, and changes in the effective rate of -2.6% and 79.3%, respectively. The difference is due to a valuation allowance on the Company's deferred tax assets, uncertain tax positions that were recorded during the prior period, the increase in the state income tax rate, and the impact of certain permanent differences on taxable income.
 
For the year ended December 31, 2015 and, 2014, the Company recorded a liability for income taxes for operations and uncertain tax positions of $65,600 and $121,700, respectively, of which $33,000 and $30,000 respectively, represent penalties and interest and are recorded in the “other liabilities” section of the accompanying consolidated balance sheets. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. Management made a determination that the Company was not in compliance with several state and local tax jurisdictions in which the Company was doing business. Accordingly, management undertook to analyze its tax exposures, both income and otherwise, with respect to jurisdictions in which compliance was deemed to be inadequate and has entered into Voluntary Disclosure Agreements (VDAs) with the taxing authorities. The Company’s tax returns for tax years subject to examination by tax authorities include 2012 through the current period for state and federal reporting purposes.
 
The following table sets forth a reconciliation of the beginning and ending amount of uncertain tax benefits during the tax years ended December 31, 2015 and 2014:
 
    2015   2014
Unrecognized tax benefit - January 1   $ 91,700     $ 114,500  
Gross increases - tax positions in prior period     -       -  
Gross decreases - tax positions in prior period     (59,100 )     (22,800 )
Gross increases - tax positions in current period     -       -  
Settlements     -       -  
Lapse of statute of limitations     -       -  
Uncertain tax benefit - December 31   $ 32,600     $ 91,700