Deferred Tax Assets and Income Tax Provision

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Deferred Tax Assets and Income Tax Provision

Note 10 - Deferred Tax Assets and Income Tax Provision

The Company had no income tax expense due to operating loss incurred for the years ended December 31, 2018 and 2017.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which makes broad and complex changes to the U.S. tax code. Certain of these changes may be applicable to the Company, including but not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, creating a new limitation on deductible interest expense, eliminating the corporate alternative minimum tax (“AMT”), modifying the rules related to uses and limitations of net operating loss carryforwards generated in tax years ending after December 31, 2017, and changing the rules pertaining to the taxation of profits earned abroad. Changes in tax rates and tax laws are accounted for in the period of enactment. The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. Consequently, the Company recorded a decrease related to deferred tax assets of $1.4 million exclusive of the corresponding change in the valuation allowance, for the years ended December 31, 2017. Due to the full valuation allowance on the deferred tax assets, there is no net adjustment to deferred tax expense or benefit due to the reduction of the corporate tax rate.

The tax effects of temporary differences and tax losses and credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at December 31, 2018 and 2017 are comprised of the following (dollars in thousands):

	As of December 31,
	2018			2017
Deferred tax assets:
Net-operating loss carryforward	$	2,811		$	1,523
Stock based compensation		2,773			1,752
Other		38			-
Total Deferred Tax Assets		5,622			3,275
Valuation allowance		(5,622	)		(3,275	)
Deferred Tax Asset, Net of Allowance	$	-		$	-

The Company has approximately $5.5 million of federal and $3.1 million of state tax Net Operating Losses (“NOLs”) as of December 31, 2017 that will begin to expire in 2037. The 2018 federal NOL carryforwards of $3.0 million are subject to an 80% limitation on future taxable income and will not expire. The state net operating loss carryforwards of $2.0 million, if not utilized, will expire in 2037.

Furthermore, as a result of changes in the ownership of our common stock and changes in our business operations, our ability to use our federal NOLs may be limited under Internal Revenue Code Section 382 and 383. State NOLs are subject to similar limitations in many cases. As a result, our substantial NOLs may not have any value to us.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. In case the deferred tax assets will not be realized in future periods, the Company has provided a valuation allowance for the full amount of the deferred tax assets at December 31, 2018. The valuation allowance increased by approximately $2.3 million and $1.0 million for the years ended as of December 31, 2018 and 2017, respectively.

The expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:

	For the years ended December 31,
	2018			2017
Statutory Federal Income Tax Rate		(21.0	)%		(34.0	)%
State and local taxes, net of Federal tax benefit		(11.7	)%		(5.8	)%
Federal tax rate change		0.0	%		11.9	%
Stock based compensation		0.3	%		3.0	%
Warrant issued for services		0.2	%		1.4	%
Loss on extinguishment of accounts payable		0.0	%		0.5	%
Deferred tax rate change		(10.2	)%		0.0	%
Change in Valuation Allowance		42.4	%		23.0	%
Income Taxes Provision		0.0	%		0.0	%

The Company has not identified any uncertain tax positions requiring a reserve as of December 31, 2018.

The Company is in the process of preparing historical federal and state tax returns. Therefore, the Company’s net operating loss carryovers will not be available to offset future taxable income, if any, until the tax returns are filed.