Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income tax provision (benefit) is as follows for the years ended:

	DECEMBER 31,
	2019			2018
Current provision
State	$	10,000		$	10,000
Foreign		38,991			55,113
Total		48,991			65,113
Deferred provision (benefit)
Federal		177,049			633,073
State		189,632			514,220
Foreign		(23,022	)		(19,080	)
Total		343,659			1,128,213
Income tax provision	$	392,650		$	1,193,326

Income tax provision (benefit) effective rates, which differs from the federal and state statutory rate as follows for the years ended:

	DECEMBER 31,
	2019		2018
Statutory federal income tax rate		21.0%		21.0%
State, net of federal benefit		1.5%		-2.1%
Non-deductible expenses		16.5%		5.4%
Change in valuation allowance		-22.1%		-200.1%
Foreign rate differential		-1.1%		3.1%
Return to accrual difference true-ups		32.8%		0.6%
Other		14.7%		6.9%
Deferred tax adjustment and true-up		-2.8%		-84.1%
Combined effective tax rate		60.5%		-249.4%

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets (liabilities) consisted of the following:

	DECEMBER 31,
	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	10,203,094		$	10,513,224
Alternative minimum tax credit		45,650			45,650
Share-based compensation		653,679			536,223
Intangible amortization		481,192			565,013
Other assets		241,358			423,394
Total deferred tax assets		11,624,973			12,083,504
Less: valuation allowance		(10,364,787	)		(10,507,891	)
Total deferred tax assets, net		1,260,186			1,575,613
Deferred tax liabilities:
Goodwill amortization		2,532,649			2,293,533
Depreciation		135,470			345,136
Foreign intangible amortization		447,811			447,811
Other liabilities		12,818			12,643
Total deferred tax liabilities		3,128,748			3,099,123
Net deferred tax liability	$	(1,868,562	)	$	(1,523,510	)

As of December 31, 2019, the Company had approximately $37.5 million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes, net of the potential Section 382 limitations. These federal NOL carry forwards expire between 2020 and 2036. Included in the recorded deferred tax asset, the Company had a benefit of approximately $39.5 million available to offset future taxable income for state income tax purposes. These state NOL carry forwards expire between 2024 and 2036. Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of our domestic NOL may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.

Changes in the valuation allowance for the years ended were as follows:

	DECEMBER 31,
	2019			2018
Beginning balance	$	(10,507,891	)	$	(9,550,279	)
Decreases (increases)		143,104			(957,612	)
Ending balance	$	(10,364,787	)	$	(10,507,891	)

The Company’s valuation allowance predominantly consisted of domestic net operating loss carryforwards and certain state net operating loss carryforwards. A significant piece of objective negative evidence considered in management’s evaluation of the realizability of its deferred tax assets was the existence of cumulative losses over the latest three-year period. Management forecast future taxable income, but concluded that there may not be enough of a recovery before the end of the fiscal year to overcome the negative objective evidence of three years of cumulative losses. On the basis of this evaluation, management recorded a valuation allowance against all deferred tax assets. If management’s assumptions change and we determine we will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction of income tax expense.

The Company files U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as well as income tax returns in various states and certain foreign countries. The Company may be subject to examination by the IRS for tax years 2003 and forward. The Company may be subject to examinations by various state taxing jurisdictions for tax years 2003 and forward. The Company may be subject to examination by various foreign countries for tax years 2014 forward. As of December 31, 2019, the Company is currently not under examination by the IRS, any state or foreign tax jurisdiction. The Company did not have any unrecognized tax benefits at either December 31, 2019 or 2018. In the future, any interest and penalties related to uncertain tax positions will be recognized in income tax expense.