Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 7 – Income Taxes

For the years ended December 31, 2018 and 2017, there was a provision for income taxes of $13,106 and $49, respectively. The Company’s income tax expense as of December 31, 2018 and 2017 include the expected state income taxes for the states in which our subsidiaries operate. There is no provision for federal income taxes because we have historically incurred net operating losses, and we maintain a full valuation allowance against our net deferred tax asset.

The provision for income taxes is as follows for the years ended December 31, 2018 and 2017:

	Year Ended December 31,
	2018		2017
Income tax expense at statutory federal rate
Current:
Federal	$	-	$	-
State		13,106		49
Total current		13,106		49
Deferred:
Federal		-		-
State		-		-
Change in valuation allowance		-		-
Total deferred		-		-
Provision for income taxes	$	13,106	$	49

The differences between our effective income tax rate and the U.S. federal income tax rate for the years ended December 31, 2018 and 2017 are:

	2018			2017
Expected income tax provision at the federal statutory rate		21.00	%		34.0	%
Loss on debt extinguishment		-			0.98	%
Change in contingent liability		4.20	%		1.62	%
Impact of the change in the federal corporate rate		-			(81.79	)%
Adjustment for forfeiture of non-qualified stock options		(0.16	)%		(5.69	)%
Other		(6.93	)%		(0.13	)%
Release of valuation allowance		(18.48	)%		51.02	%
Effective tax rate		(0.38	)%		0.00	%

As of December 31, 2018 and 2017, the Company had net operating loss (NOL) carryforwards of approximately $39,766,346 and $34,491,076, respectively. The federal tax loss carryforward of $4,517,054 does not expire and are subject to 80% limitation due to the tax law change of 2017. The remaining federal tax loss carryforwards of $35,249,292 and state tax loss carryforwards begin to expire in 2027 and 2032, respectively, unless previously utilized. Because management is unable to determine that it is more likely than not that the Company will realize the tax benefit related to the NOL carryforward, by having taxable income, a valuation allowance has been established as of December 31, 2018 and 2017 to reduce the tax benefit asset value to zero.

The deferred tax assets, including a valuation allowance, are as follows at December 31:

	Year Ended December 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	9,789,000		$	8,997,000
Stock compensation		253,000			243,000
Reserves and accruals		491,000			241,000
Deferred tax asset (DTA)		10,533,000			9,481,000
Basis difference in intangibles and fixed assets		(422,000	)		(603,000	)
Deferred tax liability (DTL)		(422,000	)		(603,000	)
Net operating loss		10,111,000			8,878,000
Valuation allowance		(10,111,000	)		(8,878,000	)
Net current deferred tax assets	$	-		$	-

The change in the valuation allowance for deferred tax assets for the years ended December 31, 2018 and 2017 was $(1,233,000) and $2,988,000, respectively. In assessing the recovery of the 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 in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 2018 and 2017, and recorded a full valuation allowance.

Pursuant to Section 382 of the Internal Revenue Code of 1986, the annual utilization of a company's net operating loss carryforwards could be limited if the Company experiences a change in ownership of more than 50 percentage points within a three-year period. An ownership change occurs with respect to a corporation if it is a loss corporation on a testing date and, immediately after the close of the testing date, the percentage of stock of the corporation owned by one or more five-percent shareholders has increased by more than 50 percentage points over the lowest percentage of stock of such corporation owned by such shareholders at any time during the testing period. The Company has not performed an analysis to determine if any ownership changes have occurred that may limit the use of the Company’s loss carryforwards.

The Company applies the provisions of ASC 740 related to accounting for uncertain tax positions and concluded there were no significant tax positions associated with the Company requiring accrual of a liability. As of December 31, 2018, the Company has not accrued for any such positions. The Company is currently not under audit for federal or state tax purposes. The Company does not expect a significant change to occur within the next 12 months.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act which, among a broad range of tax reform measures, reduced the U.S. corporate tax rate from 35% to a flat 21% effective January 1, 2018. The reduction in the U.S. corporate tax rate required the Company to remeasure the federal portion of deferred tax assets and liabilities at December 31, 2017 to the enacted tax rate expected to apply when the temporary differences are to be realized. The Company provisionally recorded $4.2 million of expense related, offset by a full valuation allowance, for the remeasurement of its deferred tax assets and liabilities. As of December 31, 2018, the Company completed its accounting for the tax effects of the enactment of the 2017 Act which resulted in immaterial adjustments to provisional estimates, offset by a full valuation allowance.