Annual report pursuant to Section 13 and 15(d)

Tax

v3.8.0.1
Tax
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Note 13 - Tax

Below is breakdown of the tax provisions for the years ended December 31:

 

    2017     2016  
Current:            
Federal     -       -  
State and local   $ 40,422     $ 27,331  
Total Current     40,422       27,331  
Deferred federal income tax benefit     500,000       (500,000 )
            .  
Net Provision (Benefit)   $ 540,422     $ (472,669 )

 

A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows for the years ended December 31:

 

    2017     2016  
Computed tax at the federal statutory rate   $ (803,000 )   $ (5,901,000 )
Return to provision adjustment     -       2,019,000  
Debt discounts     254,000       6,279,000  
Other     36,000       16,000  
Valuation allowance     513,000       (2,913,000 )
Federal income tax benefit   $ -     $ (500,000 )

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31:

 

    2017     2016  
Deferred tax assets:            
Net operating loss carryforwards   $ 3,840,000     $ 5,927,000  
Stock based compensation     903,000       1,211,000  
Total deferred tax assets     4,743,000       7,138,000  
Deferred tax liabilities:                
Property and equipment     (137,000 )     (228,000 )
Other     (11,000 )     (33,000 )
Total deferred tax liabilites     (148,000 )     (261,000 )
                 
Valuation Allowance     (4,595,000 )     (6,377,000 )
                 
Net deferred tax asset   $ -     $ 500,000  

 

The Tax Act reduces the federal statutory corporate tax rate from 34.0% to 21.0% for the Company’s tax years beginning in 2018, which resulted in the re-measurement of the federal portion of its deferred tax assets and liabilities, and its related valuation allowance against net deferred tax assets, at December 31, 2017, from 34.0% to the new 21.0% tax rate. Refer to Note 13 for further discussion related to the impact of the Tax Act on the Company’s accounting for income taxes at December 31, 2017. On a gross basis, the Tax Act resulted in a reduction to the Company’s deferred tax assets, deferred tax liabilities and valuation allowance of approximately $2,936,000, $92,000 and $2,844,000, respectively.

 

For the year ended December 31, 2016, the Company had net operating income, however, the use of net operating loss carryforwards eliminate the provision for income tax. The Company recorded a valuation allowance against all of our deferred tax assets as of December 31, 2015. As of December 31, 2016, we determined there is sufficient evidence to support the reversal of some portion of these allowances and recorded a deferred tax asset of $500,000.

 

However, for the year ended December 31, 2017, the Company incurred net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, it was determined that sufficient evidence did not exist to support the reversal of some portions of the valuation allowance against our deferred tax assets, we no longer recorded any deferred tax asset, and no benefit for income taxes was recorded due to the uncertainty of the realization of any tax assets.

 

At December 31, 2017, the Company had approximately $18,284,000 of net operating losses. The net operating loss carryforwards, if not utilized, will begin to expire in 2031.

 

The Company’s effective income tax rates for the years ended December 31, 2017 and 2016, respectively are different than what would be expected if the statutory rate were applied to net income before income tax expense primarily because of expense charges in connection with various non-cash financing transactions, the use of net operating loss carryforwards, and the change in the valuation allowance.