XML 37 R17.htm IDEA: XBRL DOCUMENT

11. INCOME TAXES

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Note 11. INCOME TAXES

The Company’s income tax expense consisted of:
		For the Year Ended
		December 31,				December 31,
		2017				2016
Current:
United States		$	-			$	-
Foreign			-				-
			-				-
Deferred:
United States			-				-
Foreign			-				-
Total		$	-			$	-

The Company’s net income (loss) before income tax consisted of:

		For the Year Ended
		December 31,				December 31,
		2017				2016
United States		$	(3,639,814	)		$	(3,157,259	)
Foreign			-				-
Total		$	(3,639,814	)		$	(3,157,259	)

Our income tax expense differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons:

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (“Tax Act”) was enacted into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We are required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. The Tax Act did not give rise to any material impact on the consolidated balance sheets and consolidated statements of operations due to our historical worldwide loss position and the full valuation allowance on our net U.S. deferred tax assets.

In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows us to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. Since the Tax Act was enacted late in the fourth quarter of 2017 (and ongoing guidance and accounting interpretations are expected over the next 12 months), we consider the accounting of deferred tax re-measurements and other items, such as state tax considerations, to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118. We do not expect any subsequent adjustments to have any material impact on the consolidated balance sheets or statements of operations due to our historical worldwide loss position and the full valuation allowance on our net U.S. deferred tax assets.

The reconciliation of taxes at the federal and state statutory rate to our provision for income taxes for the years ended December 31, 2017 and 2016 was as follows:

		For the Year Ended
		December 31, 2017				December 31, 2016
Loss before income tax		$	(3,639,814	)		$	(3,157,259	)
US statutory corporate income tax rate (federal and state)			39.45	%			39.45	%
Income tax expense computed at US statutory corporate income tax rate
Income tax expense computed at US statutory corporate income tax rate			(1,435,907	)			(1,245,539	)
Reconciling items:
Effect of U.S. tax law change (1)			1,793,212
Change in valuation allowance on deferred tax assets			(675,889	)			1,258,389
Provision to prior year tax return			69,767				(250,994	)
Incentive stock options and warrants			256,168				242,498
Amortized debt discount			2,477				-
Meals and Entertainment			5,825				8,595
Other			(15,653	)			(12,949	)
Income tax expense		$	-			$	-

(1)	Due to the Tax Act, our U.S. deferred tax assets and liabilities as of December 31, 2017 were re-measured from 35% to 21%. The change in tax rate resulted in a decrease to our gross U.S. deferred tax assets which is offset by a corresponding decrease to our valuation allowance.

Components of our deferred income tax assets (liabilities) are as follows:

		December 31, 2017				December 31, 2016
Deferred tax assets:
Reserve for Bad Debt		$	140,000			$	118,000
Inventory Capitalization			94,000				152,000
Accrued Vacation			31,000				8,700
Deferred Rent			-				3,400
Property and Equipment			21,000				-
Intangible Assets			208,000				237,000
Net operating losses			3,724,000				4,380,000
Valuation Allowance			(4,218,000	)			(4,893,700	)
Deferred Tax Assets			-				5,400

Deferred tax liabilities:
Property and Equipment		$	-			$	(5,400	)

Net Deferred Tax Assets and Liabilities		$	-			$	-

Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized; in accordance with ASC guidance for income taxes. As of December 31, 2017, we recorded a valuation allowance of $4,218,000 for the portion of the deferred tax assets that we do not expect to be realized. The valuation allowance on our net deferred taxes decreased by $676,000 during the year ended December 31, 2017, primarily due to the effect of the U.S. tax law changes offset by additional U.S. deferred tax assets incurred in the current year that cannot be realized. Management believes that based on the available information, it is more likely than not that the U.S. deferred tax assets will not be realized, such that a valuation allowance is required against U.S. deferred tax assets. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

For income tax purposes in the United States, we had available federal net operating loss carryforwards ("NOL") as of December 31, 2017 and 2016 of approximately $13,898,000 and $11,148,000 respectively to reduce future federal taxable income. For income tax purposes in the United States, we had available state NOL carryforwards as of December 31, 2017 and 2016 of approximately $11,506,000 and $8,756,000 respectively to reduce future state taxable income. If any of the NOL's are not utilized, they will expire at various dates through 2037. There may be certain limitations as to the future annual use of the NOLs due to certain changes in our ownership.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. As of December 31, 2017 and 2016, the management of the Company determined there were no reportable uncertain tax positions.