Entity information:

11. Income Taxes

 

The components of the provision (benefit) for income taxes for the years ended December 31, 2016 and 2015 consisted of the following:

 

    2016     2015  
Current                
Federal   $ —     $ —  
State     —       —  
Foreign     2,800       3,700  
    $ 2,800     $ 3,700  
Deferred                
Federal   $ —     $ —  
State     —       —  
Foreign     —       —  
      —       —  
Total   $ 2,800     $ 3,700  

 

The following table summarizes the differences between income tax expense and the amount computed applying the federal income tax rate of 34% for the years ended December 31, 2016 and 2015:

 

    2016     2015  
Federal income tax (benefit) at statutory rate   $ (629,000 )   $ (1,491,600 )
State income tax (benefit) at statutory rate     (3,700 )     (8,100 )
Foreign tax rate differential     (300 )     700  
Compensation from exercise of non-qualified stock options and restricted stock awards     2,100       3,400  
SBC – NQ cancellations     163,100       23,500  
Change in valuation allowance     434,000       1,470,000  
Warrant liability     (10,000 )     (65,100 )
Meals and entertainment (50%)     2,500       7,700  
Tax rate changes     (800 )     (2,500 )
Other items     44,900       65,700  
Provision (benefit) for income tax   $ 2,800     $ 3,700  

 

Deferred income taxes and benefits result from temporary timing differences in the recognition of certain expense and income items for tax and financial reporting purposes. The following table sets forth those differences as of December 31, 2016 and 2015:

 

    2016     2015  
Net operating loss carryforwards   $ 21,808,000     $ 21,033,000  
Tax credit carryforwards     1,047,000       1,047,000  
Compensation expense – non-qualified stock options     620,000       730,000  
Deferred revenue and maintenance service contracts     1,181,000       1,344,400  
Warrant liability     -       1,000  
Reserves and other     73,000       157,000  
Total deferred tax assets     24,729,000       24,312,000  
Deferred tax liability – depreciation, amortization and capitalized software     (7,000 )     (24,000 )
Net deferred tax asset     24,722,000       24,288,000  
Valuation allowance     (24,722,000 )     (24,288,000 )
Net deferred tax asset   $ —     $ —  

 

For financial reporting purposes, with the exception of the year ended December 31, 2007, the Company has incurred a loss in each year since inception. Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets at December 31, 2016 and 2015. The net change in the valuation allowance was $(434,000) and $(1,470,000) for the years ended December 31, 2016 and 2015, respectively.

 

At December 31, 2016, the Company had approximately $63.3 million of federal net operating loss carryforwards and approximately $6.9 million of California state net operating loss carryforwards available to reduce future taxable income. The federal loss carry forwards will begin to expire in 2018 and the California state loss carry forwards began to expire in 2015. During the years ended December 31, 2016 and 2015, the Company did not utilize any of its federal or California net operating losses. Under the Tax Reform Act of 1986, the amounts of benefits from net operating loss carryforwards may be impaired or limited if the Company incurs a cumulative ownership change of more than 50%, as defined, over a three-year period.

 

At December 31, 2016, the Company had approximately $1 million of federal research and development tax credits that will begin to expire in 2018.