Annual report pursuant to Section 13 and 15(d)

Note 9 - Income Taxes

v3.19.1
Note 9 - Income Taxes
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
9.
Income Taxes
 
On
December 22, 2017,
the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, including, but
not
limited to, (
1
) reducing the U.S. federal corporate tax rate from
35
percent to
21
percent; (
2
) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (
3
) creating a new limitation on deductible interest expense; and (
4
) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after
December 31, 2017; (
5
) expanding the limitation for executive compensation deductions; and (
6
) implementing
100%
immediate expensing of qualified property. As a result of the reduced federal corporate tax rate under the Tax Act, the Company reduced the value of its net deferred tax assets
$3.4
million to reflect the enacted rate during the year ended
December 31, 2017.
This reduction was entirely offset with a corresponding reduction of our valuation allowance which resulted in
no
charge to the tax provision for that year.
 
The Company files U.S. federal and various U.S. state income tax returns.  Due to the Company’s losses, there was
no
income tax expense for the years ended
December 31, 2018
and
2017.
 
The income tax provision differs from the amount using the statutory federal income tax rate of
21%
for
2018
and
34%
for
2017
for the following reasons:
 
   
December 31,
2018
   
December 31,
2017
 
   
Amount
   
%
   
Amount
   
%
 
Tax benefit at the U.S. federal statutory rate
  $
(1,956,137
)
   
(21.00
%)
  $
(2,543,412
)
   
(34.00
%)
Tax rate change
   
     
     
3,391,624
     
45.34
%
Permanent differences
   
119,266
     
1.28
%
   
8,908
     
0.11
%
Return to provision
   
(94,219
)
   
(1.01
%)
   
(92,256
)
   
(1.23
%)
Valuation allowance
   
1,931,090
     
20.73
%
   
(764,864
)
   
(10.23
%)
Effective income tax rate
  $
     
%
  $
     
%
 
The effective income tax rate varied from the statutory rate in
2018
primarily due to the increase in the valuation allowance. The effective income tax rate varied from the statutory rate in
2017
as a result of the change in the federal tax rate under the new Tax Act offset by a change in the valuation allowance.
 
Deferred tax assets and liabilities consist of the following:
 
   
December 31,
2018
   
December 31,
2017
 
Assets related to:
               
Accounts payable and accrued liabilities
  $
1,224,599
    $
325,560
 
Net operating losses
   
6,240,595
     
5,192,813
 
Total deferred tax assets
   
7,465,194
     
5,518,373
 
Valuation allowance for deferred tax assets
   
(7,409,867
)
   
(5,478,777
)
Net deferred tax
   
55,327
     
39,596
 
Liabilities related to:
               
Accounts receivable and prepaid expenses
   
(27,976
)
   
(665
)
Depreciation and amortization of property and equipment and intangibles
   
(27,351
)
   
(38,931
)
Net deferred tax liabilities
   
(55,327
)
   
(39,596
)
                 
Net deferred tax assets
  $
    $
 
 
The Company has federal net operating loss (“NOL”) carryforwards of approximately
$24.7
million that expire beginning in
2036.
 Additionally, the Company generated an NOL carryforward of approximately
$5.0
million in
2018.
Under the new Tax Act, this carryforward does
not
expire, but can only offset
80%
of taxable income in the year the loss carryforward is used.
 
The Company has recorded a full valuation allowance against its net total deferred tax assets as of
December 31, 2018
and
2017
because management determined that it is
not
more-likely-than
not
that those assets will be realized. In assessing the realization of deferred tax assets, management considers whether it is more likely than
not
that some portion or all of deferred assets will
not
be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
 
During the year ended
December 31, 2018,
the valuation allowance increased by
$1.9
million due to additional net operating losses.