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INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

13.

INCOME TAXES

We account for income taxes in accordance with ASC 740 (Topic 740, Income Taxes). ASC 740 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected tax consequences or events that have been recognized in our consolidated financial statements or tax returns. ASC Topic 740 also clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial statements. The interpretation prescribes a recognition threshold and measurement attribute for the consolidated financial statements recognition and measurement of a tax position taken, or expected to be taken, in a tax return.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The 2014 tax return was under audit by the IRS and the Company has received notification that the returns will be accepted as filed. The Company generally is no longer subject to U.S. or state examinations by tax authorities for taxable years prior to 2016. However, net operating losses utilized from prior years in subsequent years’ tax returns are subject to examination until three years after the filing of subsequent years’ tax returns. The statute of limitations expiration in foreign jurisdictions for corporate tax returns generally ranges between two and five years depending on the jurisdiction.

The provision for income taxes consists of the following:

Year ended December 31,			2019				2018
Current:
Federal			$	—			$	(2,220	)
State				3,877				18,268
Deferred:
Federal				—				—
State				—				—
Total			$	3,877			$	16,048

The difference between the income tax provision computed at the federal statutory rate and the actual tax provision is accounted for as follows:

December 31,		2019				2018
Taxes computed at the federal statutory rate		$	(1,012,457	)		$	(1,511,080	)
State income tax, net			3,890				14,432
Prior year true-up			—				17,865
Research and development tax credit			(180,813	)			(163,903	)
Change in valuation allowance			1,127,573				1,617,139
Other			10,870				171
Permanent differences			54,814				41,424
Provision for income taxes		$	3,877			$	16,048

The components of deferred income tax assets and liabilities are as follows:

Deferred Tax Assets:		2019				2018
Allowance for doubtful accounts		$	50,100			$	60,467
Credit carryforwards			1,435,543				1,254,731
Inventory reserve			423,605				—
Deferred rent			—				116,784
Stock options			—				12,478
Restricted stock			87,976				88,410
Other			15,237				7,550
Acquisition costs			100,774				109,397
Lease liability			934,463				—
Disallowed interest expense			791,785				431,319
Net operating loss carryforward			21,058,838				20,902,163
Deferred tax assets			24,898,321				22,983,299

Valuation allowance			(21,213,040	)			(20,222,640	)

Deferred Tax Liabilities:
Prepaid expenses			114,738				158,777
Revenue recognition			2,133,348				2,197,535
Property and equipment			593,678				404,347
Right of use asset			843,517				—
Deferred tax liabilities		$	3,685,281			$	2,760,659
Net deferred tax assets (liabilities)		$	—			$	—

As of December 31, 2019, the Company had approximately $93,000,000 of gross net operating loss carryforwards (“NOLs”) for federal tax purposes and approximately $38,600,000 of post apportionment NOLs for state tax purposes. As a result of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief, and Economic Security Act of 2020, NOLs arising before January 1, 2018, and NOLs arising after January 1, 2018, are subject to different rules. Our pre-2018 NOLs totaled approximately $78.8 million; these NOLs will expire in varying amounts from 2030 through 2039, if not utilized, and can offset 100% of future taxable income for regular tax purposes. Our NOLs arising in 2018, 2019 and 2020 can generally be carried back five years, carried forward indefinitely and can offset 100% of future taxable income for tax years before January 1, 2021 and up to 80% of future taxable income for tax years after December 31, 2020. Any NOLs arising on or after January 1, 2021, cannot be carried back, can generally be carried forward indefinitely and can offset up to 80% of future taxable income. The federal NOLs begin to expire in 2034; losses generated in 2018 and forward have an indefinite life. The state NOLs begin to expire in 2034.

Our ability to fully recognize the benefits from our NOLs is dependent upon our ability to generate sufficient income prior to their expiration. In addition, our NOL carryforwards may be limited if we experience an ownership change as defined by Section 382 of the Internal Revenue Code (“Section 382”). In general, an ownership change under Section 382 occurs if 5% shareholders increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a relevant lookback period. The equity securities we sold in October 2018 may trigger an ownership change under Section 382 which could significantly limit our ability to utilize our tax benefits.

The Company will recognize a tax benefit in the consolidated financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50%) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.

The provision for income taxes for the year ended December 31, 2019 was $3,877, an effective tax rate of 0.08%. In February 2019, the Company received information that the net operating loss carryback that was utilized in 2014 was under examination and could possibly be partially disallowed by the Internal Revenue Service (“IRS”). In June 2020, the Company received a letter from the IRS stating that the returns will be accepted as filed. There are no uncertain tax positions recorded for this item. This adjustment was an issue of timing of the loss and had no income tax provision effect.