NOTE

INCOME TAXES

Income tax (expense) benefit for the years ended

December 31, 2019

and

2018

consisted of the following:

	Year Ended December 31, 2019			Year Ended December 31, 2018

Current:
Federal	$	-		$	-
State		-			-
Foreign		-			-
Deferred:
Federal		7,432,665			1,446,640
State		1,459,313			244,896
Foreign		-			-
Change in valuation allowance		(8,891,978	)		(1,691,536	)

Total Benefit for Income Taxes	$	-		$	-

Significant components of the Company's deferred tax assets and liabilities consisted of the following at

December 31, 2019

and

2018:

	December 31, 2019			December 31, 2018
Deferred tax assets:
Stock-based compensation	$	4,514,806		$	3,768,282
Tax credit carryforwards		1,966,817			1,790,387
Net operating loss carryforwards		19,381,496			11,745,648
Intangible assets		564,880			451,556
Other		637,687			373,314
Total deferred tax assets		27,065,686			18,129,187

Deferred tax liabilities:
Property and equipment		331,231			305,619
Total deferred tax liabilities		331,231			305,619

Net deferred tax assets		26,734,455			17,823,568
Less valuation allowance		(26,734,455	)		(17,823,568	)
Total deferred tax assets (liabilities)	$	-		$	-

In connection with the adoption of ASC

842

(see Note

), the Company recorded, outside of the tax provision, deferred tax assets and deferred tax liabilities of

$174,963

and

$193,872,

respectively, and reduced its valuation allowance by

$18,909.

The following table reconciles the U.S. federal statutory income tax rate in effect for

2019

and

2018

and the Company's effective tax rate:

	Year Ended December 31, 2019			Year Ended December 31, 2018
U.S. federal statutory income tax expense (benefit)		21.0	%		21.0	%
State and local income tax, net of benefits		6.8	%		3.6	%
Change in fair value of derivatives		(7.8	%)		(348.0	%)
Release of valuation allowance in connection with merger		-			-
Change in tax rates		-			-
True-up and other		23.3	%		134.7	%
Change in valuation allowance for deferred income tax assets		(43.3	%)		188.7	%

Effective income tax rate		0.0	%		0.0	%

The reduction in the federal tax rate to

21%

under the Tax Act, effective on

January 1, 2018,

resulted in a reduction in the value of the Company’s net deferred tax assets and related valuation allowance of

$5.9

million. The Company had net operating loss carry-forwards of

$84.7

million as of

December 31, 2019,

that

may

be offset against future taxable income. The carry-forwards will begin to expire in

2035.

Use of these carry-forwards

may

be subject to annual limitations based upon previous significant changes in stock ownership. The Company does

not

believe that it has any uncertain income tax positions.

Utilization of NOL and tax credit carryforwards

may

be subject to a substantial annual limitation due to ownership change limitations that

may

have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code” and “IRC”), as amended, as well as similar state provisions. In general, an ownership change as defined by the Code results from a transaction or series of transactions over a

three

-year period resulting in an ownership change of more than

percent of the outstanding common stock of a company by certain stockholders or public groups. The Company experienced an ownership change within the meaning of IRC Section

382

during the year ended

December 31, 2017.

As a result, certain limitations apply to the annual amount of net operating losses that can be used to offset post ownership change taxable income.

As of

December 31, 2019,

the tax returns for the years from

2015

through

2018

remain open to examination by the Internal Revenue Service and various state authorities. ASC

740,

“Income Taxes” requires that a valuation allowance is established when it is more likely than

not

that all, or a portion of, deferred tax assets will

not

be recognized. A review of all available positive and negative evidence needs to be considered, including the Section

382

limitation, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to the future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of

December 31, 2019,

and

2018.

For the year ended

December 31, 2019,

the change in valuation allowance was

$8.9

million.

As of

December 31, 2019,

and

2018,

the Company has evaluated and concluded that there were

material uncertain tax positions requiring recognition in the Company’s financial statements. The Company’s policy is to classify assessments, if any, for tax-related interest as income tax expenses.

interest or penalties were recorded during the years ended

December 31, 2019

and

2018.

The Company does

not

expect its unrecognized tax benefit position to change during the next

twelve

months.