The income tax provision (benefit) for the year ended December 31, 2017, transition period ended December 31, 2016 and fiscal year ended September 30, 2016 is summarized in the following table.

 

					Transition Period
		Fiscal			For the period			Fiscal
		Year ended			From October 1, 2016			Year ended
		December 31,			to			September 30,
		2017			December 31, 2016			2016
Current:
Federal		$	104,781		$	-
State			548,082			800
Total current			652,863			800			-
Deferred
Federal			(37,338)			(145,397)			(3,894)
State			(38,625)			(23,759)			55,288
Total deferred			(75,963)			(169,156)			51,394
Less increase (decrease) in allowance			(212,828)			169,156			(51,394)
Net deferred			(288,791)			-			-
Total income tax provision		$	364,072		$	800		$	-

 

The significant components of the deferred tax assets and liabilities are summarized below.

 

		December 31,			December 31,
		2017			2016
Deferred tax assets (liabilities) :
Net operating loss carryforwards		$	281,796		$	452,780
Investment in subsidiary			303,801			189,030
Total			585,597			641,810
Less valuation allowance			(281,796)			(623,047)
Total deferred tax assets			303,801			18,763
Deferred tax liabilities
Prepaid expenses			(15,010)			(18,763)
Total deferred tax liabilities			(15,010)			(18,763)
Net deferred tax assets		$	288,791		$	-

 

 

Internal Revenue Code Section 382 ("Section 382") imposes limitations on the availability of a company's net operating losses and other corporate tax attributes as certain significant ownership changes occur.  As a result of the historical equity instrument issuances by the Company, a Section 382 ownership change may have occurred and a study will be required to determine the date of the ownership change, if any.  The amount of the Company's net operating losses and other tax attributes incurred prior to any ownership change may be limited based on the Company's value. With recent consistency in earnings, a strong earnings history of B.R. Johnson, Inc., a recent acquisition, and favorable projections, the Company has reversed its valuation allowance, during the quarter ended September 30, 2017, on deferred tax assets associated with activity beginning with the acquisition of B.R. Johnson, Inc., but exclusive of pre-acquisition losses that are subject to limitations under Section 382. 

  

During the fiscal year ended December 31, 2017, transition period ended December 31, 2016 and fiscal year ended September 30, 2016 the Company had no unrecognized tax benefits.  The Company’s policy is to recognize interest accrued and penalties related to unrecognized tax benefits in tax expense.

 

The Company files income tax returns in the U.S. federal jurisdiction and in the states of California and Florida. The tax years 2014-2016 generally remain open to examination by these taxing authorities.

 

A reconciliation of the income tax provision using the statutory U.S. income tax rate compared with the actual income tax provision reported on the consolidated statements of operations is summarized in the following table.

 

					Transition Period
		Fiscal			For the period			Fiscal
		Year ended			From October 1, 2016			Year ended
		December 31,			to			September 30,
		2017			December 31, 2016			2016
Statutory United States Federal rate			34.0	%		34.0	%		34.0	%
State income taxes net of federal benefit			3.2	%		4.4	%		3.6	%
Permanent differences and other adjustments			(1.0)	%		(6.0)	%		(8.9)	%
Correct NOL Asset			—			—			(96.0)	%
Changes in valuation reserves			(16.7)	%		(32.4)	%		67.3	%
Change in tax rate			10.3	%		—			—
Effective tax rate			29.8	%		0.0	%		0.0	%