INCOME TAXES

December 22, 2017,

the President of the United States signed into law the Tax Reform Act. The Tax Reform Act significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a

quasi-territorial tax system, providing a

one

-time transition toll charge on foreign earnings, creating a new limitation on the deductibility of interest expenses and modifying the limitation on officer compensation. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of

35%

to a flat

21%

rate, effective

January 1, 2018.

The Company

’s accounting for the Tax Reform Act is incomplete. However, the Securities and Exchange Commission has issued guidance that allows for a measurement period of up to

one

year after the enactment date of the Tax Reform Act to finalize the recording of the related tax impacts. The Company has made reasonable estimates of the effects on the consolidated statements of operations and consolidated balance sheets and has, therefore, recorded provisional amounts. Provisional amounts recorded as of

December 31, 2017

are subject to refinement due to various factors, including, but

not

limited to, changes in interpretations, analysis and assumptions made by the Company, additional guidance that

may

be issued by the U.S. Department of the Treasury and the Internal Revenue Service, and any updates or changes to estimates that the Company has utilized to calculate the transition impact. The Company currently anticipates finalizing and recording any resulting adjustments by

December 2018.

As a result of the Tax Reform Act, the Company was required to revalue deferred tax assets and liabilities at the newly enacted

21%

U.S. federal corporate income tax rate. This revaluation did

not

result in any additional income tax provision as all deferred tax assets and net operating loss carryforwards have been fully reserved.

A reconciliation of the Company

’s statutory tax rate to the effective rate for the years ended

December 31, 2017

and

2016

is as follows:

	20 17			20 16

Federal statutory rate		34	%		34.0	%
State taxes, net of federal tax benefit		6.6			5.5
Change in v aluation allowance and deferred rate change, net		(40.6	)		(39.5	)

Effective tax rate		–	%		–	%

The components of the Company

’s deferred tax asset as of

December 31, 2017

and

2016

are as follows:

	December 31,
	201 7			2016

Net operating loss carryforwards	$	62,216,000		$	81,335,000
Other Deferred tax assets, net		2,415,000			2,714,000
Subtotal		64,631,000			84,049,000
Valuation allowance		(64,631,000	)		(84,049,000	)
Total deferred tax asset	$	-		$	-

The evaluation of the realizability of such deferred tax assets in future periods is made based upon a variety of factors that affect the Company

’s ability to generate future taxable income, such as intent and ability to sell assets and historical and projected operating performance. At this time, the Company has established a valuation reserve for all of its deferred tax assets. Such tax assets are available to be recognized and benefit future periods.

Following is a schedule of net operating loss carryforwards and their year of expiration:

Approximate Amount of Unused Operating Loss Carry Forwards (in $000s)		Expiration During Year End ing
$	7,136		2023
	15,647		2024
	8,168		2025
	7,361		2026
	11,905		2028
	18,547		2029
	18,145		2030
	21,386		2031
	20,558		2032
	10,321		2033
	22,906		2034
	21,338		2035
	22,495		2036
	19,509		2037
$	225,422

During

201

2016

and in prior years, the Company performed analyses to determine if there were changes in ownership, as defined by Section

382

of the Internal Revenue Code that would limit its ability to utilize certain net operating loss and tax credit carry forwards. The Company determined that it experienced ownership changes, as defined by Section

382,

in connection with certain common stock offerings in

July 2011,

February 2013,

June 2013,

June 2015,

February 2017,

June 2017

and

October 2017.

As a result, the utilization of the Company's federal tax net operating loss carry forwards generated prior to the ownership changes are limited. As of

December 31, 2017,

the Company has net operating loss carry forwards for U.S. federal and state tax purposes of approximately

$89.0

million, before excluding net operating losses that have been limited as a result of Section

382

limitations. The annual limitation due to Section

382

for net operating loss carry forward utilization is approximately

$4.2

million per year for approximately

$90

million in net operating loss carry forwards existing at the ownership change occurring in

July 2011,

approximately

$1.4

million per year for approximately

$34

million of additional net operating losses occurring from

July 2011

to the ownership change that occurred in

February 2013,

approximately

$1.5

million per year for approximately

million of additional net operating losses occurring from

February 2013

to the ownership change that occurred in

June 2013,

approximately

$1.6

million per year for approximately

$40

million of additional net operating losses occurring from

June 2013

to the ownership change that occurred in

June 2015,

approximately

$0.3

million per year for approximately

$35

million of additional net operating losses occurring from

June 2015

to the ownership change that occurred in

February 2017,

approximately

$0.3

million per year for approximately

million of additional net operating losses occurring from

February 2017

to the ownership change that occurred in

June 2017

and approximately

$0.8

million per year for approximately

million of additional net operating losses occurring from

June 2017

to the ownership change that occurred in

October 2017.

The utilization of these net operating loss carry forwards

may

be further limited if the Company experiences future ownership changes as defined in Section

382

of the Internal Revenue Code.