Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
INCOME TAXES
7. INCOME TAXES

 

For the years ended December 31, 2018 and 2017, the Company has taxable losses primarily due to operations and thus has no current tax expense recorded. The Company has recorded a full valuation allowance on its deferred tax assets and thus, for the years ended December 31, 2018 and 2017 there is no deferred tax expense recorded.

 

The U.S. components of loss before income taxes and a reconciliation of the statutory federal income tax with the provision for income taxes follow:

 

      2018       2017  
                 
Current Federal     -       -  
Current State & Local     -       -  
    Total Current     -       -  
                 
Deferred Federal     -       -  
Deferred State & Local     -       -  
    Total Deferred     -       -  
                 
Total     -       -  

 

    12/31/2018   12/31/2017
         
Federal tax benefit at statutory rates   21.0%   35.0%
State and local tax at statutory rate   0.8%   0.6%
Mark-to-Market Adjustment on Stock Warrants   1.5%   0.0%
Other permanent differences and credits   0.0%   (0.1)%
Change in valuation allowance   (23.3)%   (35.5)%
         
Total tax expense   0.0%   0.0%

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. Valuation allowances are provided against deferred tax assets when, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. The Company cannot be certain that future taxable income will be sufficient to realize its deferred tax assets, and accordingly a full valuation allowance has been provided on its deferred tax assets. The Company continues to maintain the underlying tax benefits to offset future taxable income and to monitor the need for a valuation allowance based on the profitability of its future operations. The valuation allowance increased by approximately $8.5 million and $8.6 million, during the years ended December 31, 2018 and 2017, respectively. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

    2018     2017  
Deferred Tax Assets:            
Accrued Expenses & Reserves   $ 850,857     $ 308,116  
Warranty Allowance     1,539,765       31,097  
Non-Qualified Stock Options     1,034,261       796,999  
Fixed Assets     183,917       170,072  
Disallowed Interest Expense     1,118,212       -  
Net Operating Losses     24,818,785       19,729,451  
Total Deferred Tax Assets     29,545,797       21,035,735  
Valuation Allowance     (29,545,797 )     (21,035,735 )
Total Deferred Tax Assets, net of valuation allowance   $ -     $ -  

 

At December 31, 2018 and 2017, the Company has approximately $90.6 million, of federal net operating loss (“NOL”) carry-forwards which expire through 2037. Additionally, at December 31, 2018 the Company has approximately $23.5 million of federal NOLs that carry-forward indefinitely. Additionally, at December 31, 2018 and 2017, the Company has approximately $0.9 million and $0.7 million, respectively, of state and local NOLs carry-forwards which expire through 2038. The NOL carry-forwards may be limited in certain circumstances, including ownership changes.

 

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not yet analyzed whether it has experienced an ownership change for this purpose to determine if any of the net operating losses to date have a limitation on future deductibility.

 

Tabular Reconciliation of unrecognized tax benefits

 

    2018     2017  
             
Unrecognized tax benefits - January 1   1,163,282     $ 1,163,182  
Gross increases - tax positions in prior period     -       -  
Gross decreases - tax positions in prior period     -       -  
Gross increases - tax positions in current period     -       100  
Settlement     -       -  
Lapse of statute of limitations     -       -  
Unrecognized tax benefits - December 31   $ 1,163,282     $ 1,163,282  

 

The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2018, and 2017, due to the Company’s continued losses, no amounts of interest and penalties have been recognized in the Company’s consolidated statements of operations. If the unrecognized tax benefits were reversed, a deferred tax asset and corresponding valuation allowance would be recorded, and thus the reversal would have no impact on the effective rate.

 

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and local jurisdictions. Generally, the Company’s 2015 through 2017 tax years remain open and subject to examination by federal, state and local taxing authorities. However, federal, state, and local net operating losses from 2009 through 2017 are subject to review by taxing authorities in the year utilized.

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act. This legislation makes significant change in U.S. tax law including a reduction in the corporate tax rates to 21% starting in 2018. The legislation reduced the U.S. corporate tax rate from the current rate of 35% to 21% for tax years beginning after December 31, 2017. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities existing as of December 31, 2017 from the 35% federal rate in effect through the end of 2017, to the new 21% rate. As a result of the change in law, the company recorded a $13.5 million reduction in the deferred tax asset and corresponding valuation allowance.