Note 9 — Income Taxes

The income tax provision (benefit) consisted of the following:

 For the years ended December 31, 2017 and December 31, 2016, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows:

As of December 31, 2017 and December 31, 2016, the Company’s net deferred tax asset consisted of the effects of temporary differences attributable to the following:

The Company has federal tax net operating loss carryforwards of approximately $3,263,000 as of December 31, 2017 and state net operating loss carryforwards spread across various jurisdictions with a combined total of approximately $2,264,000 as of December 31, 2017. These net operating loss carryforwards, if not used to reduce taxable income in future periods, will begin to expire in 2029, for both federal and state tax purposes.  Additionally, the Company also has federal Research and Development tax credit carryforwards of approximately $156,000 as of December 31, 2017.  These credit carryforwards, if not used in future periods, will begin to expire in 2029.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.  The ultimate realization of deferred tax assets is dependent upon the future generation of taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxing strategies in making this assessment.  Based on this assessment, management has established a full valuation allowance against all of the net deferred tax assets for each period, since it is more likely than not that all of the deferred tax assets will not be realized.  The valuation allowance for the years ended December 31, 2017 and 2016 increased by approximately $881,000 and $149,000, respectively. 

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2017 and 2016. The Company does not expect any significant changes in its unrecognized tax benefits within 12 months of the reporting date. The Company has U.S. federal and certain state tax returns subject to examination by tax authorities beginning with those filed for the year ended December 31, 2014. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements of operations.

On December 22, 2017, the United States enacted tax reform legislation known as the H.R.1, commonly referred to as the “Tax Cuts and Jobs Act” (the “Act”), resulting in significant modifications to existing law. The Company has completed the accounting for the effects of the Act during this period. Our financial statements for the year ended December 31, 2017, reflect certain effects of the Act which includes a reduction in the corporate tax rate from 35% to 21%, as well as other changes. As a result of the changes to tax laws and tax rates under the Act, the Company incurred an incremental increase in income tax expense of approximately $562,000 during the year ended December 31, 2017, which consisted primarily of the remeasurement of deferred tax assets and liabilities from 35% to 21%. This incremental amount was offset by a change to the Company’s valuation allowance resulting in no net effect.