NOTE

8–

INCOME TAXES

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Tax Reform Act was enacted

December 22, 2017.

Effective

January 1, 2018

the Tax Reform Act reduced corporate income tax rates from

34%

21%.

Other changes effect operating loss carry-forwards and carrybacks, as well as a repeal of the corporate alternative minimum tax. As a result of the Tax Reform Act, deferred tax assets and liabilities were re-measured to account for the lower tax rates. There was

income tax impact from the re-measurement due to the

100%

valuation allowance on the Company’s deferred tax assets.

There is

federal or state income tax provision in the accompanying statements of comprehensive loss due to the cumulative operating losses incurred and

100%

valuation allowance for the deferred tax assets.

Actual income tax benefit (expense) differs from statutory federal income tax benefit (expense) as follows for the years ended

December 31:

	2018			2017
Statutory federal income tax benefit	$	2,118,160		$	2,633,841
State tax benefit, net of federal taxes		66,117			76,922
Foreign tax benefit		132,931			-
Foreign operations tax rate differential		(94,373	)		-
State rate adjustment		15,355			(77,556	)
R&D tax credit		22,532			-
Nondeductible/nontaxable items		(118,905	)		(757,149	)
State NOL adjustment		746,479			-
OID and derivatives		(159,037	)		-
NQSO adjustment		-			537,884
New federal rate adjustment		-			(4,974,121	)
Other		47,868			(8,336	)
Valuation allowance decrease (increase)		(2,777,127	)		2,568,515
Total income tax benefit (expense)	$	-		$	-

Deferred taxes consist of the following as of

December 31:

	2018			2017
Deferred tax assets:
Noncurrent:
Depreciation	$	4,488		$	3,251
Inventory		6,991			6,950
Compensation accruals		60,905			50,436
Accruals and reserves		77,777			64,732
Charitable contribution carryover		3,972			4,068
Derivatives		57,276			-
Related party investments		481,652			-
Intangibles		2,020			-
NQSO compensation		1,019,139			766,648
NOL and credits		9,655,388			7,479,505
Total deferred tax assets		11,369,608			8,375,590

Deferred tax liabilities:
Noncurrent:
Original issue discount		(216,891	)		-
Total deferred tax liabilities		(216,891	)		-

Net deferred tax assets		11,152,717			8,375,590
Less: valuation allowance		(11,152,717	)		(8,375,590	)
Total	$	-		$	-

The Company has determined, based upon its history, that it is probable that future taxable income

may

be insufficient to fully realize the benefits of the net operating loss carryforwards and other deferred tax assets. As such, the Company has determined that a full valuation allowance is warranted. Future events and changes in circumstances could cause this valuation allowance to change.

During

December 2013,

the Company experienced an "ownership change" as defined in Section

382

of the Internal Revenue Code which could potentially limit the ability to utilize the Company’s net operating losses (NOLs). The Company

may

have experienced additional “ownership change(s)” since

December 2013,

but a formal study has

not

yet been performed. The general limitation rules allow the Company to utilize its NOLs subject to an annual limitation that is determined by multiplying the federal long-term tax-exempt rate by the Company’s value immediately before the ownership change.

December 31, 2017,

the Company had approximately

$34,529,255

of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in

2018,

subject to the Section

382

limitation described above. The federal NOLs will expire beginning in

2022

if unused. The Company also had approximately

$12,261,799

of gross NOLs to reduce future state taxable income at

December 31, 2017.

The state NOL’s will expire beginning in

2022

if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At

December 31, 2017,

the federal and state valuation allowances were

$8,129,778

and

$245,812,

respectively.

December 31, 2018,

the Company had approximately

$40,094,472

of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in

2019,

subject to the Section

382

limitation described above. The federal NOLs will expire beginning in

2022

if unused. The Company also had approximately

$12,940,458

of gross NOLs to reduce future state taxable income at

December 31, 2018.

The state NOL’s will expire beginning in

2022

if unused. The Company also had approximately

$421,782

in gross foreign NOLs to reduce future Belgian taxable income at

December 31, 2018.

The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At

December 31, 2018,

the federal, state and foreign valuation allowances were

$9,603,237,

$1,416,758

and

$132,722,

respectively.

Tax years subsequent to

2014

remain open to examination by federal and state tax authorities. The Company reviews income tax positions expected to be taken in income tax returns to determine if there are any income tax uncertainties. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than

not

that the tax positions will be sustained on examination by taxing authorities, based on technical merits of the positions. The Company has identified

income tax uncertainties.

The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. At

December 31, 2018

and

2017,

the Company recorded

accrued interest or penalties related to uncertain tax positions.