Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.19.1
INCOME TAXES
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
Note 11. Income Taxes
 
The components of loss before benefit from income taxes for the years ended December 31, 2018 and 2017 are as follows:
 
 
 
Years ended December 31,
 
 
 
2018
 
 
2017
 
Domestic
 
$
(3,787,499 )
 
$ (6,499,840 )
Foreign
 
 
-  
 
 
-
 
Loss before income taxes
 
$
(3,787,499 )
 
$ (6,499,840 )
 
 
The Company incurred income tax expense of $0 and income tax benefit of $0 for the years ended December 31, 2018 and 2017, respectively. The income tax expense (benefit) for the year ended December 31, 2018 and 2017 includes the following:
 
 
 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
Current income tax expense:
 
 
 
 
 
 
 
 
U.S. Federal
 
$
-
 
 
$ -
 
U.S. State
 
 
-
 
 
 
-
 
Total current
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
 
 
U.S. Federal
 
 
-
 
 
 
-
 
U.S. State
 
 
-
 
 
 
-
 
 Total deferred
 
 
-
 
 
 
-
 
 
 
 
-
 
 
 
-
 
Total expense (benefit) from income taxes
 
$
-
 
 
$ -
 
 
 
The income tax expense (benefit) differs from those computed using the statutory federal tax rate of
21
% and
34
%, respectively, due to the following:
 
 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
Expected provision at statutory federal rate
 
$
(795,375 )
 
$ (2,209,946 )
State tax-net of federal benefit
 
 
-  
 
 
-
 
Change in valuation allowance
 
 
795,375  
 
 
775,867
 
IPO related costs
 
 
-  
 
 
-
 
Rate change
 
 
-  
 
 
1,434,079
 
Goodwill impairment
 
 
-  
 
 
-
 
Other
 
 
-  
 
 
-
 
 
 
$
-  
 
$ -
 
 
 
The effect of temporary differences that gave rise to significant portions of deferred tax assets as of December 31, 2018 and 2017, are as follows:
  
 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
Deferred tax assets:
 
 
 
 
 
 
 
 
Net operating loss carryforwards
 
$
5,524,492  
 
$ 2,145,809
 
Accruals
 
 
-  
 
 
-
 
Share based compensation
 
 
447,322  
 
 
272,645
 
Start-up costs
 
 
-  
 
 
248,348
 
Fixed assets
 
 
-  
 
 
8,206
 
Intangibles
 
 
-  
 
 
370,681
 
Other
 
 
848,781  
 
 
32
 
Gross deferred tax assets
 
 
6,820,595  
 
 
3,045,721
 
Valuation allowance
 
 
(6,820,595 )
 
 
(3,045,721 )
Net deferred tax assets
 
 
-  
 
 
-
 
Fixed assets
 
 
-  
 
 
-
 
Intangibles
 
 
-  
 
 
-
 
Other
 
 
-  
 
 
(23,942 )
Deferred tax liability
 
 
-  
 
 
(23,942 )
Net deferred tax liability
 
$
-  
 
$ (23,942 )
 
 
As of December 31, 2018, the Company has a federal net operating loss carry-forward of $21.6 million available to offset future taxable income. The Company has state loss carry-forwards of $13.3 million. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These net operating loss carry-forwards have expiration dates starting in
2031 through 2037
.
 
The valuation allowance as of December 31, 2018 was $6.8 million. The net change in valuation allowance for the year ended December 31, 2018 was an increase of $3.8 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2018.
 
As of December 31, 2017, the Company has a federal net operating loss carry-forward of $7.8 million available to offset future taxable income. The Company has state loss carry-forwards of $4.8 million. Future utilization of net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These net operating loss carry-forwards have expiration dates starting in 2031 through 2037.
 
The valuation allowance as of December 31, 2017 was $3.0 million. The net change in valuation allowance for the year ended December 31, 2017 was an increase of $1.8 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2018.
 
The Company has no unrecognized tax benefits during the periods presented within. By statute, all tax years are open to examination by the major taxing jurisdictions to which the Company is subject.
 
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective J
anuary 1, 2018. For the year ended December 31, 2017, the Company remeasured its federal deferred tax balances to reflect the lower statutory rate, offset by a change in its federal valuation allowance. As of December 31, 2018, the Company has completed its accounting for the tax effects of the Act and no adjustments have been made to its provisional estimate recorded during the year ended December 31, 2017.