Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31,
	2018			2017
Deferred:
Federal	$	(236,779	)	$	13,308,196
State and local		(238,946	)		(263,860	)
		(475,725	)		13,044,336
Valuation allowance		475,725			(13,044,336	)
	$	—		$	—

The provision for income taxes varies from the amount determined by applying the U.S. federal statutory rate to income before income taxes as a result of the following:

	Year Ended December 31,
	2018			2017
U.S. statutory income tax rate		21.0	%		34.0	%
State and local taxes, net of federal tax benefit		(42.8	)%		1.8	%
Permanent differences between book and tax		(390.5	)%		(1.5	)%
Deferred tax adjustments		293.5	%		(6.1	)%
Tax cuts & jobs act		0.0	%		(244.9	)%
State rate adjustments		(292.9	)%		(4.0	)%
Prior year return-to-provision adjustment		4.3	%		0.0	%
Valuation allowance		407.4	%		220.7	%
Effective income tax rate		—	%		—	%

Included in permanent differences between book and tax in the above table are the impacts of the non-deductible mark-to-market activity associated with convertible debt and warrants as well as permanent differences such as nondeductible meals and entertainment and stock compensation shortfalls. The deferred state rate adjustments are a result of changes in apportionment and various state rate law changes. The deferred tax adjustments are primarily attributable to the write-off of deferred tax assets associated with the unexercised stock compensation awards that expired during the current year.

The components of the deferred tax asset are as follows:

	December 31,
	2018			2017
Current accruals	$	1,746,094		$	1,718,808
Deferred revenue		605			30,648
Depreciation and amortization		1,279,973			1,311,718
Deferred compensation		471,143			633,303
Net operating loss carryovers		22,933,668			22,359,693
Deferred tax assets		26,431,483			26,054,170
Valuation allowance		(26,359,083	)		(25,955,759	)
Capitalized compensation costs		(72,400	)		—
Net deferred tax assets before deferred tax liabilities		—			98,411
Accounting method changes		—			(98,411	)
Net deferred tax assets	$	—		$	—

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted, which made significant changes to the Internal Revenue Code (“IRC” or “Code”). The TCJA lowered the U.S. federal income tax rate to 21%, beginning on January 1, 2018. Additionally, among other changes, the TCJA imposes a one-time transition tax on the mandatory repatriation of unremitted foreign earnings, as well as a minimum tax on global intangible low-taxed income (“GILTI”) of foreign subsidiaries. As required by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we finalized our accounting analysis with the filing of our 2017 tax returns. We have recorded the impacts of the TCJA in our effective tax rate and have elected to treat taxes due on future U.S. inclusions in taxable income related to GILTI using the period cost method. The Company will continue to monitor the forthcoming regulations and additional guidance of the GILTI, FDII, and BEAT provisions under the TCJA, which are complex and subject to continuing regulatory interpretation by the IRS.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Following significant ownership changes during 2013, the Company initiated a review of the availability of its U.S. net operating loss carryforwards. As a result of this review, it was determined that a large portion of the Company’s net operating loss carryovers would expire unused due to the limitation under IRC Section 382. The Company reduced the net operating loss carryover and corresponding valuation allowance as a result of these limitations as reflected in the net operating loss carryovers in the table above. The remaining net operating loss carryforwards following the ownership change have been assigned a full valuation allowance against all deferred tax assets.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable losses, and projections for future periods over which the deferred tax assets are deductible, the Company determined that a 100% valuation allowance of deferred tax assets was appropriate.

As of December 31, 2018, we had gross federal net operating loss carryforwards of approximately $100.3 million. The federal net operating loss carryforwards reflect accumulated book losses reduced for the 2013 IRC Section 382 ownership change limitation of $284.7 million and approximately $92.0 million of book/tax differences and expiration of unused carryforwards. The federal net operating loss carryforwards generated prior to the 2018 tax year will expire between 2030 and 2037. The federal net operating loss generated during 2018 will be carried forward indefinitely as a result to changes in the law following TCJA. As of December 31, 2018, we had state net operating loss deferred tax assets of approximately $1.9 million which will expire at various dates between 2018 and 2037 if not utilized.

As a result of stock issuances which occurred during the year, the Company believes that an ownership change may have occurred under Section 382 of the Code. Any change could significantly limit the value of the existing net operating loss carryforward. The Company is currently evaluating the impact of the warrant exercise on the availability of its U.S. net operating loss carryforward. Refer to Note 10 for a full discussion of the Company’s equity transactions.

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. As the Company has a federal net operating loss carryforward from the year ended December 31, 1998 forward, all tax years from 1998 forward are subject to examination. As states have varying carryforward periods, and the Company has recently entered into additional states, the states are generally subject to examination for the previous 10 years or less.

At December 31, 2018 and 2017, the Company had less than $0.1 million in reserves for uncertain tax positions. The Company recognizes interest accrued, if any, net of tax and penalties, related to unrecognized tax benefits as components of income tax provision as applicable. As of December 31, 2018, accrued interest and penalties were less than $0.1 million.