XML 433 R28.htm IDEA: XBRL DOCUMENT v3.20.4
Income Taxes
 12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

21. Income Taxes

 

The components of the benefit for income taxes is as follows:

 

    Years Ended December 31,  
    2018     2017  
Current tax benefit                
Federal   $ -     $ -  
State and local     -       -  
Total current tax benefit     -       -  
Deferred tax benefit                
Federal     3,359,203       920,356  
State and local     1,498,009       -  
Change in valuation allowance     (4,765,579 )     (920,356 )
Total deferred tax benefit     91,633       -  
Total income tax benefit   $ 91,633     $ -  

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The TCJA reduces the U.S. federal corporate tax rate from 35% to 21%, imposes a one-time repatriation tax, and numerous other provisions transitioning to a territorial system.

 

Proposed amendments to the Income Tax Regulations under Section 163(j) of the U.S. Internal Revenue Code were issued on November 26, 2018 and are effective for the taxable year 2019 after publication in the Federal Register, at which time they will be adopted by the Company. Additional discussion of the impact of the TCJA on the consolidated financial statements is included below.

 

The components of deferred tax assets and liabilities were as follows:

 

    As of December 31,  
    2018     2017  
Deferred tax assets                
Net operating loss carryforwards   $ 10,474,525     $ 1,544,591  
Tax credit carryforwards     263,873       -  
Accrued expenses and other     64,849       38,328  
Allowance for doubtful accounts     16,017       -  
Deferred rent     21,233       -  
Contract liabilities     84,622       3,631  
Liquidating damages payable     646,146       -  
Stock based compensation     242,545       119,807  
Depreciation and amortization     981,850       -  
Current deferred tax assets     12,795,660       1,706,357  
Valuation allowance     (8,541,191 )     (1,353,207 )
Total deferred tax assets     4,254,469       353,150  
Deferred tax liabilities                
Depreciation and amortization     -       (353,150 )
Acquisition-related intangibles     (4,254,469 )     -  
Total deferred tax liabilities     (4,254,469 )     (353,150 )
Net deferred tax   $ -     $ -  

 

The Company must make judgements as to the realization of deferred tax assets that are dependent upon a variety of factors, including the generation of future taxable income, the reversal of deferred tax liabilities, and tax planning strategies. To the extent that the Company believes that recovery is not likely, it must establish a valuation allowance. A valuation allowance has been established for deferred tax assets which the Company does not believe meet the “more likely than not” criteria. The Company’s judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If the Company’s assumptions and consequently its estimates change in the future, the valuation allowances it has established may be increased or decreased, resulting in a respective increase or decrease in income tax expense. Based upon the Company’s historical operating losses and the uncertainty of future taxable income, the Company has provided a valuation allowance primarily against its deferred tax assets up to the deferred tax liabilities as of December 31, 2018 and 2017.

 

Based on provisions of the TCJA, the Company remeasured the deferred tax assets and liabilities during the year ended December 31, 2017 based on the rates at which they are expected to reverse in the future, which is generally 21%. Accordingly, the Company recorded a provisional tax expense of approximately $838,000 associated with the remeasurement of its deferred tax balances. However, as it recognize a valuation allowance on deferred tax assets if it is more likely than not that the assets will not be realized in future years, there was no impact to the effective tax rate, as any change to deferred taxes are offset by the valuation allowance.

 

As of December 31, 2018, the Company had federal, state, and local net operating loss carryforwards available of approximately $36.65 million, $33.93 million, and $8.15 million, respectively, to offset future taxable income. Net operating losses for U.S. federal tax purposes of $15.50 (limited to 80% of taxable in given year) do not expire and $21.15 will expire, if not utilized, through 2037 in various amounts. As of December 31, 2017, the Company had federal net operating loss carryforwards available of approximately $7.3 million to offset future taxable income.

 

Internal Revenue Code Section 382 and 383 imposes limitations on the utilization of net operating loss carryforwards in the event of a cumulative change in ownership of more than 50% within any three-year period since the last ownership change. The Company believes that it did have a change in control under these Sections in connection with its Recapitalization on November 4, 2016 and utilization of the carryforwards would be limited such that the majority of the carryforwards will never be available. Accordingly, the Company has not recorded those net operating loss carryforwards and credit carryforwards in its deferred tax assets.

 

Further, the Company may have experienced additional control changes under these Sections as a result of recent financing activities. However, the Company does not anticipate performing a complete analysis of the limitation on the annual use of the net operating loss carryforwards until the time that it anticipates it will be able to utilize these tax attributes. This could impose an annual limit on the Company’s ability to utilize net operating loss carryforwards and could cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect. The U.S. federal net operating loss carryforwards are stated before any such anticipated limitations as of December 31, 2018.

 

The benefit for income taxes on the statement of operations differs from the amount computed by applying the statutory federal income tax rate to loss before the benefit for income taxes, as follows:

 

    Years Ended December 31,  
    2018     2017  
    Amount     Percent     Amount     Percent  
Federal benefit expected at statutory rate   $ (5,493,498 )     21.0 %   $ (2,136,666 )     34.0 %
State and local taxes, net of federal benefit     (1,498,009 )     5.7 %     -       0.0 %
Impact of tax rate change     -       0.0 %     837,699       (13.3 )%
Stock based compensation     434,556       (1.7 )%     -       0.0 %
Other differences, net     246,614       (0.8 )%     -       0.0 %
Valuation allowance     4,765,579       (18.2 )%     920,356       (14.7 )%
Permanent differences     1,453,125       (5.6 )%     378,611       (6.0 )%
Tax benefit and effective income tax rate   $ (91,633 )     0.4 %   $ -       0.0 %

 

The Company recognizes the tax benefit from uncertain tax positions only if it is “more likely than not” that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company is also required to assess at each reporting date whether it is reasonably possible that any significant increases or decreases to its unrecognized tax benefits will occur during the next 12 months.

 

The Company did not recognize any uncertain tax positions or any accrued interest and penalties associated with uncertain tax positions for the years ended December 31, 2018 and 2017. The Company files tax returns in the U.S federal jurisdiction and New York, California, and other states. The Company is generally subject to examination by income tax authorities for three years from the filing of a tax return, therefore, the federal and certain state returns from 2015 forward and the California returns from 2014 forward are subject to examination. The Company currently is not under examination by any tax authority.