INCOME TAXES

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

25. INCOME TAXES

On December 22, 2017, the United States enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”). Introduced initially as the Tax Cuts and Jobs Act, the Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the “Act”) was enacted on December 22, 2017. The Act applies to corporations generally beginning with taxable years starting after December 31, 2017 and reduces the corporate tax rate from a graduated set of rates with a maximum 35% tax rate to a flat 21% tax rate. Additionally, the Act introduces other changes that impact corporations, including a net operating loss (“NOL”) deduction annual limitation, an interest expense deduction annual limitation, elimination of the alternative minimum tax, and immediate expensing of the full cost of qualified property. The Act also introduces an international tax reform that moves the U.S. toward a territorial system, in which income earned in other countries will generally not be subject to U.S. taxation. However, the accumulated foreign earnings of certain foreign corporations will be subject to a one-time transition tax, which can be elected to be paid over an eight-year tax transition period, using specified percentages, or in one lump sum. NOL and foreign tax credit (“FTC”) carryforwards can be used to offset the transition tax liability. The Company does not expect that this change will have an impact on the Company as it has not earned taxable income in the past and it has significant NOL carryforwards. The application of this rate reduction to the ending deferred tax assets and deferred tax liabilities impacted our expense for income taxes in 2017 by $1,138,845 which was fully offset by a corresponding change to our valuation allowance.  We applied the guidance in SAB 118 when accounting for the enactment-date effects of the Act in 2017 and throughout 2018. At December 31, 2017, we had not completed our accounting for all of the enactment-date income tax effects of the Act under ASC 740, Income Taxes. At December 31, 2018, we have now completed our accounting for all of the enactment-date income tax effects of the Act. During 2018 we did not need to adjust to the provisional amounts recorded at December 31, 2017. The 2017 and 2018 impacts of the enactment of the Tax Act are reflected in the tables below.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company's deferred tax assets are as follows: 

	2018			2017
Deferred tax asset:
Net operating loss	$	6,924,325		$	3,543,284
Reserves and allowances		1,724,446			568,866
Equity Compensation		425,603			155,565
Tax credit carryforward		142,484			162,794
Property and equipment		300,240			231,148
Total deferred tax asset		9,517,098			4,661,657
Deferred tax liability:
Intangible assets, net		(567,923	)		(653,139	)
Total deferred tax liability		(567,923	)		(653,139	)
Valuation allowance		(9,054,147	)		(4,166,999	)
Deferred tax asset (liability), net	$	(104,972	)	$	(158,481	)

The Company had Federal and state net operating loss carryforwards of approximately $43,051,999 and $7,960,184 at December 31, 2018 and December 31, 2017 respectively, available to offset future taxable income, expiring at various times starting in 2022 through 2039. The net operating loss generated in 2018 will carryforward indefinitely. In accordance with Section 382 of the Internal Revenue Code, the future utilization of the Company’s net operating loss to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. Management believes that such an ownership change may have occurred during 2017. The Company has estimated the Section 382 annual limitation due to this ownership change to be approximately $157,433. This has been used to reduce the amount of the net operating losses that have limited carryforward periods. 

In assessing the realization of deferred tax assets, management 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 temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available and due to the last five years significant losses there is substantial doubt related to the Company’s ability to utilize its deferred tax assets, the Company recorded a full valuation allowance of the deferred tax asset. For the year ended December 31, 2018, the valuation allowance has increased by $4,887,148.

The 2015 tax year remains open to examination by the Internal Revenue Service (“IRS”) and the 2014 through 2015 tax years remain open to examination by the California Franchise Tax Board (“FTB”) and the Connecticut Department of Revenue (“CDR”). The IRS, FTB and CDR have the authority to examine those tax years until the applicable statute of limitations expires and the years with net operating loss carryovers when such carryovers are used. Returns for tax years 2016, 2017 and 2018 have not been filed.

As of December 31, 2018, the Company’s foreign subsidiaries had accumulated losses for income tax purposes in the amount of approximately $1,808,466. All of the Company’s international accumulated losses were generated in the United Kingdom and Israel which have statutory tax rates of 20% and 7.5% respectively. These net operating losses may be carried forward and offset against taxable income in the future for an indefinite period. 

The net income tax benefit consists of the following: 

	2018			2017
Current
Foreign	$	134,017		$	—
Federal		—			—
State		—			—
Total Current	$	134,017
Deferred
Foreign		(52,134	)	$	—
Federal		(158,482	)		(78,393	)
State		—			—
Total Deferred	$	(210,616	)	$	(78,393	)
Income tax (benefit)	$	(76,599	)	$	(78,393	)

The Company’s effective tax rates were (0.3%) and (0.8%) for the years ended December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance and the effect of changes in tax rates in future periods. The reconciliation of income tax attributable to operations computed at the 2018 and 2017 U.S. Federal statutory income tax rates of 21% and 34% respectively to income tax expense is as follows: 

	2018			2017
Tax benefit at U.S. Federal statutory tax rate		(21.0	%)		(34.0	%)
Increase (decrease) in tax rate resulting from:
Effect of change in tax rates		1.8	%		12.0	%
Effect of Section 382 limitation		4.9	%		0.0	%
Increase in valuation allowance		15.1	%		17.0	%
Nondeductible meals & entertainment expense and other		0.9	%		6.1	%
State taxes, net of federal benefit		(2.4	%)		(4.5	%)
Foreign rate differential		0.3	%		0.7	%
Stock compensation expense		(0.1	%)		1.9	%
Effective tax rate		(0.3	%)		(0.8	%)

The Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25. ASC No. 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No. 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of December 31, 2018 and 2017, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.