Note 10. Income Taxes

 

 

		Years ended December 31,
		2017			2016
Domestic		$	(11,290,457)		$	(4,915,041)
Foreign			—			—
Loss before benefit from income taxes		$	(11,290,457)		$	(4,915,041)

 

 

		Year Ended December 31,
		2017			2016
Current income tax expense:
U.S. Federal		$	—		$	—
U.S. State			7,696			—
Total current			7,696			—
Deferred:
U.S. Federal			617,310			(647,889)
U.S. State			63,100			(107,758)
Total deferred			680,410			(755,647)
Total expense (benefit) from income taxes		$	688,106		$	(755,647)

 

 

		Year Ended December 31,
		2017			2016
Expected provision at statutory federal rate		$	(3,838,755)		$	(1,671,113)
State tax-net of federal benefit			70,763			(71,120)
Change in valuation allowance			2,161,264			915,172
IPO related costs			—			54,313
Rate change			1,434,079			—
Goodwill impairment			751,433			—
Other			109,290			17,101
		$	688,074		$	(755,647)

The effect of temporary differences that gave rise to significant portions of deferred tax assets as of December 31, 2017 and 2016, are as follows:

		Year Ended December 31,
		2017			2016
Deferred tax assets:
Net operating loss carryforwards		$	2,145,809		$	456,551
Accruals			—			16,587
Share based compensation			272,645			19,913
Start-up costs			248,348			382,648
Fixed assets			8,206			—
Intangibles			370,681			—
Other			32			51
Gross deferred tax assets			3,045,721			875,750
Valuation allowance			(3,045,721)			(175,644)
Net deferred tax assets			—			700,106
Fixed assets			—			(9,352)
Intangibles			—			(690,754)
Other			(23,942)			—
Deferred tax liability			(23,942)			(700,106)
Net deferred tax liability		$	(23,942)		$	—

 

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 $6.9 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, 2017.

 

As of December 31, 2016, the Company has a federal net operating loss carry-forward of $1.2 million available to offset future taxable income. The Company has state loss carry-forwards of $1.2 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 2036.

 

The valuation allowance as of December 31, 2016 was $175,644. The net change in valuation allowance for the year ended December 31, 2016 was an increase of $40,384. 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, 2016.

 

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 January 1, 2018. For the year ended December 31, 2017, the Company recognized a provision for income tax of $0.7 million, of which $1.4 million was considered a provisional estimate under the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118. The Company’s provisional estimate of $1.4 million relates to the impact of remeasuring the Company’s deferred tax balances to reflect the new tax rate.