Annual report pursuant to Section 13 and 15(d)

Tax

Tax

12 Months Ended

Dec. 31, 2018

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

	2018		2017
Current:
Federal		-		-
State and local	$	22,153	$	40,422
Total Current		22,153		40,422
Deferred federal income tax benefit		-		500,000

Net Provision (Benefit)	$	22,153	$	540,422

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:

	2018			2017
Computed tax at the federal statutory rate	$	(1,007,000	)	$	(817,000	)
State taxes		22,000			14,000
Debt discounts		142,000			254,000
Other permanent and prior period adjustments		213,000			36,000
Valuation allowance		652,000			513,000
Income tax provisoin	$	22,000		$	-

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:

	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	4,328,000		$	3,840,000
Stock based compensation		888,000			903,000
Accrued Compensation		115,000			-
Total deferred tax assets		5,331,000			4,743,000
Deferred tax liabilities:
Property and equipment		(51,000	)		(137,000	)
Other		(33,000	)		(11,000	)
Total deferred tax liabilites		(84,000	)		(148,000	)

Valuation Allowance		(5,247,000	)		(4,595,000	)

Net deferred tax asset	$	-		$	-

The 2017 Tax Cut and Jobs Act (“The Act”) reduces the federal statutory corporate tax rate from 34.0% to 21.0% for the Company’s tax years beginning in 2018. This resulted in the re-measurement of the federal portion of its deferred tax assets and liabilities. In 2017, this resulted in a $2.8 million reduction of net deferred tax assets which was offset by an equivalent adjustment to the valuation allowance. The Company has completed its accounting for the Act, which did not have a material impact on the financial statements.

For the years ended December 31, 2018 and 2017, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, a valuation allowance was recorded and no benefit for income taxes was recorded due to the uncertainty of the realization of any tax assets. The valuation allowance increased by $652,000 from December 2017 to December 31, 2018. At December 31, 2018, the Company had approximately $20,608,000 of federal net operating losses after considering the effects of Section 382 and other limitations on the utilization of certain losses. The net operating loss carryforwards incurred in 2017 and before, if not utilized, will begin to expire in 2031. Federal net operating losses incurred in 2018 can be carried forward indefinitely.

The Company’s effective income tax rates for the years ended December 31, 2018 and 2017, 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.