| INCOME TAXES | The provision (benefit) for
income taxes from continued operations for the period ended September 30, 2016 and the year ended December 31, 2015 consist of
the following:
September 30, 2016 December 31, 2015
Current:
Federal AMT $ 32,110 $ —
State 132,000 —
164,110 —
Deferred:
Federal $ (659,000 ) $ 5,074
State (13,000 ) 5,510
(672,000 ) 10,584
Change in valuation allowance 672,000 (10,584 )
Provision (benefit) for income taxes, net $ 164,110 $ — Deferred income taxes result
from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes.
The components of deferred tax assets consist principally from the following:
September 30, 2016 December 31, 2015
Inventory $ 20,000 $ 41,401
Allowance for Doubtful Accounts 66,000 162,849
Foreign tax credits 30,000 30,086
Share Based Compensation 39,000 39,485
Other — 24,100
Property and equipment 45,000 16,712
Net operating loss carryforwards 7,134,000 7,666,946
Valuation allowance (6,645,000 ) (7,168,700 )
Deferred income tax asset 689,000 812,879
Deferred expenses — (71,482 )
Other — (52,397 )
Deferred income tax liability — (123,879 )
Net deferred tax asset $ 689,000 $ 689,000
The Company has net operating
loss carryforwards of approximately $21,000,000 for federal purposes available to offset future taxable income through 2035 and
2.298,000 for State of Colorado purposes which expire in various years through 2035, The Company has provided a valuation reserve
against the full amount of the net operating loss benefit, because in the opinion of management the benefits from net operating
losses carried forward may be impaired or limited on certain circumstances. Events which may cause limitations in the amount of
net operating losses that the Company may utilize in any one year include, but are not limited to, limitations imposed under Section
382 of the Internal Revenue Code, as amended, from change of more than 50% over a three-year period. The impact of any limitations
that may be imposed for future issuances of equity securities, including issuances with respect to acquisitions have not been determined. ASC 740 requires the consideration
of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Significant management judgment is required
in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax
assets, the Company considered available positive and negative evidence, giving greater weight to its recent cumulative losses
and its ability to carry-back losses against prior taxable income and lesser weight to its projected financial results due to the
challenges of forecasting future periods. The Company also considered, commensurate with its objective verifiability, the forecast
of future taxable income including the reversal of temporary differences. At that time the Company continued to have sufficient
positive evidence, including recent cumulative profits, a reduction in operating expenses, the ability to carry-back losses against
prior taxable income and an expectation of improving operating results, showing a valuation allowance was not required. At the
end of the year ended of quarter ended September 30, 2016 and year ended December 31, 2015, expectations of taxable income necessitated
a reduction in the valuation allowance and a restoration of $689,000 of deferred tax assets related to net operating losses expected
to be utilized in the next 12 months. At September 30, 2016, the Company continues to maintain the deferred tax asset
of $689,000. |
