14. Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Note 14 – Income Taxes

We account for income taxes under the provisions of ASC Topic 740, Income taxes, which provides for an asset and liability approach for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.

Our provision for income taxes for the years ended December 31, 2019 and 2018 consisted of the following:

	December 31,
	2019		2018
Current taxes	$	–	$	–
Deferred taxes		–		–
Net income tax provision (benefit)	$	–	$	–

The effective income tax rate for the years ended December 31, 2019 and 2018 consisted of the following:

	December 31,
	2019			2018
Federal statutory income tax rate		21.0%			21.0%
State income taxes		7.7%			7.7%
Permanent differences		0.1%			0.1%
Change in valuation allowance		(28.8%	)		(28.8%	)
Net effective income tax rate		0.0%			0.0%

The components of the deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:

	December 31,
	2019			2018
Deferred tax assets:
Federal and state net operating loss carryovers	$	7,692,561		$	7,402,252
Stock compensation		2,327,142			2,294,552
Property and equipment		34			459
Deferred compensation		401,371			–
Reorganization costs		38,508			38,508
Total deferred tax assets	$	10,459,616		$	9,735,771
Deferred tax liabilities:
Unrealized gain on investment in Allied Esports Entertainment, Inc.		(4,449,409	)		–
Total deferred liabilities		(4,449,409	)		–
Net deferred tax assets (liabilities)		6,010,207			9,735,771
Less: valuation allowance		(6,010,207	)		(9,735,771	)
Deferred tax assets (liabilities)	$	–		$	–

As of December 31, 2019, the Company has net operating loss carryover of approximately $26,764,183. Under existing Federal law, a portion of the net operating loss may be utilized to offset taxable income through the year ended December 31, 2037. A portion of the net operating loss carryover begins to expire in 2030. For tax years beginning after December 31, 2017, pursuant to the enactment of the Tax Cuts and Jobs Act (“TCJA”) net operating losses now carry forward indefinitely but are limited to offsetting 80% of taxable income in a tax year. Of the total net operating loss as of December 31, 2019, approximately $1,010,052 of the Company’s NOL is subject to the TCJA net operating loss provisions.

ASC Topic 740 provides that a valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. In 2019, BROG increased its valuation allowance from $9,735,771 to $6,010,207 to adjust for the decrease in net deferred tax assets primarily due to an unrealized gain recorded for book purposes related to the investment in Allied Esports Entertainment, Inc. The Company believes it is more likely than not that the benefit of these remaining assets will not be realized. The Company did not place a valuation allowance on deferred tax asset for BRAC related to the capitalized merger and acquisition costs.

The Company files annual US Federal income tax returns and annual income tax returns for the state of Minnesota. We are not subject to income tax examinations by tax authorities for years before 2014 for all returns. Income taxing authorities have conducted no formal examinations of our past federal or state income tax returns and supporting records.

The Company adopted the provisions of ASC Topic 740 regarding uncertainty in income taxes. The Company has found no significant uncertain tax positions as of any date on or before December 31, 2019.