Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

On December 22, 2017, the President of the United States signed the Tax Cuts and Jobs Act (“U.S. Tax Reform”), which enacts a wide range of changes to the U.S. corporate income tax system. The impact of U.S. Tax Reform primarily represents the Company’s estimates of revaluing the Company’s U.S. deferred tax assets and liabilities based on the rates at which they are expected to be recognized in the future. For U.S. federal purposes the corporate statutory income tax rate was reduced from 35% to 21%, effective for the 2018 tax year. Based on the Company’s historical financial performance, at December 31, 2017, the net deferred tax asset position was remeasured at the lower corporate rate of 21% and a tax expense was recognized to adjust net deferred tax assets to the reduced value.

Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31:



	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	8,665,000		$	13,676,000
Depreciation and amortization	322,000			313,000
Non-cash compensation	627,000			279,000
Other	23,000			23,000
Valuation Allowance	(8,243,000		)	(12,670,000		)
Deferred tax asset	$	1,394,000		$	1,621,000

Management has reviewed its net deferred asset position, and due to the history of operating losses has determined that the application of a valuation allowance at December 31, 2017 and December 31, 2016 is warranted. If applicable, the Company would recognize interest expense and penalties related to uncertain tax positions in interest expense. As of December 31, 2017, the Company had not accrued any interest or penalties related to uncertain tax provisions.

The Company has net operating loss carryforwards for tax purposes of approximately $41.3 million that begin to expire in the year 2021. Approximately $0.1 million of the total net operating loss is subject to an IRS Section 382 limitation from 1999.

The tax provision for federal and state income tax is as follows for the year ended December 31:



	2017		2016
Current provision:
Federal	$	—	$	—
State	47,316		32,668
	47,316		32,668

Deferred provision:
Federal expense	227,000		—

Expense for income taxes	$	274,316	$	32,668

The reconciliation of federal income tax computed at the U.S. federal statutory tax rates to total income tax expense (benefit) is as follows for the year ended December 31:



	2017			2016
Income tax expense (benefit) at 34%	$	(1,023,000	)	$	(407,000	)
Change in valuation allowance	4,427,000			331,000
Permanent and other differences	(2,557,000		)	76,000
Deferred tax impact of enacted tax rate and law changes	(620,000		)	—
Alternative minimum tax and Texas margin tax	47,316			32,668

Income tax expense (benefit)	$	274,316		$	32,668